2013 AnnuAl RepoRt
Fulton Financial Corporation
Banking SuBSidiarieS:
Fulton Bank, N.A.
Fulton Bank of New Jersey
Swineford National Bank
Lafayette Ambassador Bank
FNB Bank, N.A.
The Columbia Bank
Residential mortgage lending offered through:
Fulton Mortgage Company
Investment management and
planning services offered through:
Fulton Financial Advisors &
Clermont Wealth Strategies
263922_FFC_Cover_r1.indd 1
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The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
OUR MISSION:
By caring, listening, understanding and delivering a consistently superior customer experience, we will increase
shareholder value and enrich the communities we serve while creating opportunities for financial success for
our customers and for career success for our employees.
We will conduct all of our business with honesty and integrity, effectively manage risk and be in full compliance
with all legal and regulatory requirements.
OUR VISION:
We will be a high-performing, Mid-Atlantic regional financial services company whose team members deliver
compliant products and services through relationship-based banking more effectively than our competitors,
enabling us to sustain a long-term competitive advantage.
OUR VALUES:
• Integrity
• Respect for the individual
• Focus on employee and customer relationships
• Passion for creating value through successful execution
• Inclusion
• Corporate citizenship
• Teamwork/collaboration
• Caring and compassionate
• Open communication
• Dedication to career success
• Individual and team accountability with a competitive spirit
STRATEGIC SERVICE DIFFERENTIATION:
Fulfilling our Customer Promise to: Care, Listen, Understand and Deliver
we will care, listen,
understand and deliver.
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the ColumBia Bank
DiviSional BoarDS
hagerStown truSt DiviSion
Paul N. Crampton, Jr.
Louis J. Giustini
Donald R. Harsh, Jr.
Doris E. Lehman
Paul C. Mellott, Jr.
John A. Scaldara, Jr.
Gregory Snook
Michael S. Zampelli
PeoPleS Bank oF
elkton DiviSion
Harry C. Brown
Donald S. Hicks
John A. Scaldara, Jr.
Nancy R. Simpers
David K. Williams, Jr.
State College DiviSion
weSt
Fulton Bank oF new JerSey
Dennis N. DeSimone
Lawrence M. DiVietro, Jr.
James R. Johnson, Jr.
Warner A. Knobe
Joel A. Kobert
Stephen R. Miller
Antoinette Pergolin
Anthony J. Santye, Jr.
Leslie E. Smith, Jr.
Angela M. Snyder
Mark F. Strauss, Esq.
Norman Worth
Fulton Bank oF new JerSey
DiviSional BoarD
Central region
James R. Johnson, Jr.
Timothy J. Losch
Priscilla Luppke
Leonard Smith
Allen Weiss
the ColumBia Bank
Joe N. Ballard, LTG, US Army (Ret.)
John M. Bond, Jr.
Robert R. Bowie, Jr.
Garnett Y. Clark, Jr.
Donald R. Harsh
James R. Moxley III
Mark A. Mullican
John A. Scaldara, Jr.
Gregory Snook
David K. Williams, Jr.
Elizabeth M. Wright
John A. Rodgers, Chairman
Elizabeth A. Dupuis
Thomas J. Kearney
Jeffrey M. Krauss
Thomas F. Songer
Fulton Bank, n.a.
aDviSory BoarDS
Central
Ronald L. Miller, C.P.A.
Wilbur G. Rohrer
Paul W. Stauffer
eaSt
Galen Eby
R. Douglas Good, Esq.
Richard M. Hurst
Aldus R. King
John D. Yoder
lanCaSter City
Clarence (Ted) E. Darcus
Ron Ford
Jessica H. May
north
Dean A. Hoover
Louis G. Hurst
Kent M. Martin
northweSt
P. Larry Groff, Sr.
Peter J. Hondru
Kenneth L. Kreider
Robert W. Obetz, Jr.
David W. Sweigart III
J. David Young, Jr., Esq.
Dennis M. Zubler
South
Frank M. Abel, V.M.D.
John E. Chase
James W. Hostetter, Sr., C.P.A.
Dwight E. Wagner
Tony Legenstein
Lynette Trout
agriCultural aDviSory BoarD
Harry H. Bachman
Robert Barley
Phoebe R. Bitler
Dennis L. Grumbine
William Hostetter
Amos M. Hursh
Aldus R. King
Jay H. Kopp
Rodney L. Metzler
William D. Robinson
Scott I. Sechler
Kyle Wagner
SwineForD national Bank
Arthur F. Bowen
Thomas C. Clark, Esq.
Michael N. O’Keefe
William D. Robinson
Gene D. Zartman
laFayette amBaSSaDor Bank
Gary A. Clewell
John Crampsie
Craig A. Dally
Thomas Daub
Rocco A. Del Vecchio
Robert E. Gadomski
Sara (Sally) Jane Gammon
Dolores Laputka
Jamie P. Musselman
Gerald A. Nau
John J. Simon
FnB Bank, n.a.
Robert O. Booth
Kenneth A. Holdren
Bryan L. Holmes
James D. Hawkins
Gerald A. Nau
Wendy S. Tripoli
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FULTON FINANCIAL CORPORATION’S SENIOR MANAGEMENT TEAM:
Front row, l. to r.: Craig Hill, Meg Mueller, Pat Barrett, and Phil Wenger
Back row, l. to r.: Jim Shreiner, Curt Myers, Phil Rohrbaugh, Angie Sargent and Craig Roda
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
263922_FFC_Nar.indd 1
3/11/14 6:33 PM
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
Dear Shareholder,
In 2013, we improved the performance of Fulton Financial
Corporation and took important steps to better position
your company to meet the challenges of the rapidly changing
financial services environment. We made progress on many of
our corporate priorities, but there is much unfinished business
that we look forward to tackling in 2014 as we strive to grow
and develop your organization.
Average loans grew $610.0 million in 2013, a 5.1% increase over
2012. In the fourth quarter of 2013, we were pleased to see our
fifth consecutive quarter of average loan growth, despite the
highly competitive environment. To help stimulate additional
loan growth in 2014, we are launching several new marketing
initiatives to actively promote our loan products to retail and
commercial customers.
Corporate Priorities
Senior management and the Corporation’s Board of Directors
are focused on the following priorities:
• Enhancing our compliance/risk management infrastructure
• Providing an appropriate return to shareholders
• Growing quality loans
• Improving asset quality
• Growing core deposits/households
• Managing our Net Interest Margin
• Increasing the Return on Average Assets
• Increasing the Return on Average Equity
• Managing expenses
• Providing a positive, challenging and rewarding
work experience for our 3,800+ employees
A steady focus on these priorities enabled us to improve our
performance in 2013, and I am pleased to report that our net
income was $161.8 million, or 83 cents per diluted share, for
the year ended December 31, 2013, a 3.8% increase when
compared to the 80 cents per diluted share earned for the same
period in 2012. Please note that as I discuss our financial
performance throughout this letter, all of my comparisons
are as of or for the year ended December 31, 2013 in
comparison to the same period in 2012.
Asset Quality and Loan Growth
There were a number of positive developments in the credit
area that contributed to our success. We saw reductions in
non-performing loans and overall loan delinquency as well as a
decrease in the provision for credit losses. As a result, we began
2014 with the strongest overall asset quality we have seen since
late 2007.
In 2013, non-performing loans decreased $56.8 million, or
26.9%, compared to 2012. The provision for credit losses
decreased $53.5 million, or 56.9%, compared to 2012.
Income and Expenses
In 2013, we carefully managed the net interest margin in this
protracted low-interest rate environment. The net interest
margin was 3.50% for 2013, compared to 3.76% for 2012.
Although we saw loan growth in 2013, yields on those earning
assets were lower due to the current rate environment, and
our net interest income decreased $17.1 million, or 3.1% from
2012. Non-interest income, excluding investment securities
gains, decreased $33.7 million, or 15.8%, over the same time
period, mainly due to declines in mortgage sale gains.
Non-interest expense increased $12.1 million, or 2.7% in
2013. Much of the increase in expenses was due to two
main activities. First, we expanded our risk management and
compliance infrastructure, an effort that is both critically
important to us as a company as well as necessary to address
heightened regulatory expectations that are prevalent in the
banking industry. Second, we have made, and are planning
to make, a number of significant investments in technology
that will help us improve our operations and compliance
infrastructure while also enabling us to serve our customers
more effectively and efficiently.
Using Our Capital Wisely
Fulton Financial Corporation’s subsidiary banks continue to
exceed all regulatory definitions of “well capitalized” for tier
1 risk-based, total risk-based, and leverage capital ratios. In
addition, the Corporation’s capital ratios compare favorably
to those of our peers. We have continued to prudently
deploy capital by re-investing it in profitable business lines;
paying a quarterly cash dividend, which is currently yielding
approximately 2.5%; and repurchasing shares of our stock.
On October 22, 2013, we announced our intention to
repurchase up to four million, or 2.1%, of our outstanding
shares through March 31, 2014. I am pleased to report that
we completed this program in February 2014, repurchasing
all four million shares. Since 2012, through a variety of stock
repurchase programs authorized by the Corporation’s Board
of Directors, we have repurchased 14.1 million shares.
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Cost Savings Initiatives
At our strategic planning sessions in the third quarter
of 2013, we developed a number of initiatives designed
to help reduce our expenses. These initiatives were
announced in January 2014 and, in total, are expected to
result in approximately $8 million of cost savings annually.
We made the decision to consolidate 14 of our banking
branches into other nearby branches. One of these
consolidations occurred in December of 2013; the others
are expected to take place by the end of the second quarter
of 2014. Of these 14 branches, six are in Pennsylvania,
three are in New Jersey, and five are in Maryland.
Customers’ accounts at these branches will be relocated to
our next most convenient existing branch location, and we
have implemented extensive communication programs for
customers impacted by these changes.
To enhance our operating efficiency, we also announced
changes to our regional leadership structure to create
larger roles for fewer people. While we have not changed
our overall organizational structure, we have decreased
the number of regional presidents by six positions and
increased the scope of responsibility for the ten regional
presidents who remain.
We evaluate our benefits programs regularly and, as a
result of our most recent evaluation, we decided to reduce
or eliminate certain employee benefits that had been
“grandfathered” over the years and that affect a relatively
small number of employees. Prudently managing our
employee benefits programs will enable us to retain those
benefits that are most highly valued by the greatest number
of employees while managing our expenses in this area.
Over the past five years, we nearly doubled our workforce
in our Fulton Mortgage Company to enable us to keep
up with the increasing volume of refinance business
that resulted from the low interest rate environment. As
we grew, we chose to add a large number of temporary
workers to our team rather than dramatically increase
the number of permanent employees, knowing that the
mortgage volume was unlikely to continue once interest
rates began to rise and that at some point, we would need
to reduce the size of the team.
As we anticipated, our mortgage volume has declined from
the all-time highs we experienced over the past few years
as interest rates have continued to rise. We have adjusted
our staffing levels accordingly, and this will help us achieve
additional savings beyond the $8 million referenced above.
Average loans grew $610.0 million in 2013, a 5.1% increase over
2012. In the fourth quarter of 2013, we were pleased to see our
fifth consecutive quarter of average loan growth, despite the
highly competitive environment. To help stimulate additional
loan growth in 2014, we are launching several new marketing
initiatives to actively promote our loan products to retail and
commercial customers.
Income and Expenses
In 2013, we carefully managed the net interest margin in this
protracted low-interest rate environment. The net interest
margin was 3.50% for 2013, compared to 3.76% for 2012.
Although we saw loan growth in 2013, yields on those earning
assets were lower due to the current rate environment, and
our net interest income decreased $17.1 million, or 3.1% from
2012. Non-interest income, excluding investment securities
gains, decreased $33.7 million, or 15.8%, over the same time
period, mainly due to declines in mortgage sale gains.
Non-interest expense increased $12.1 million, or 2.7% in
2013. Much of the increase in expenses was due to two
main activities. First, we expanded our risk management and
compliance infrastructure, an effort that is both critically
important to us as a company as well as necessary to address
heightened regulatory expectations that are prevalent in the
banking industry. Second, we have made, and are planning
to make, a number of significant investments in technology
that will help us improve our operations and compliance
infrastructure while also enabling us to serve our customers
more effectively and efficiently.
Using Our Capital Wisely
Fulton Financial Corporation’s subsidiary banks continue to
exceed all regulatory definitions of “well capitalized” for tier
1 risk-based, total risk-based, and leverage capital ratios. In
addition, the Corporation’s capital ratios compare favorably
to those of our peers. We have continued to prudently
deploy capital by re-investing it in profitable business lines;
paying a quarterly cash dividend, which is currently yielding
approximately 2.5%; and repurchasing shares of our stock.
On October 22, 2013, we announced our intention to
repurchase up to four million, or 2.1%, of our outstanding
shares through March 31, 2014. I am pleased to report that
we completed this program in February 2014, repurchasing
all four million shares. Since 2012, through a variety of stock
repurchase programs authorized by the Corporation’s Board
of Directors, we have repurchased 14.1 million shares.
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Cost Savings Initiatives
At our strategic planning sessions in the third quarter
of 2013, we developed a number of initiatives designed
to help reduce our expenses. These initiatives were
announced in January 2014 and, in total, are expected to
result in approximately $8 million of cost savings annually.
We made the decision to consolidate 14 of our banking
branches into other nearby branches. One of these
consolidations occurred in December of 2013; the others
are expected to take place by the end of the second quarter
of 2014. Of these 14 branches, six are in Pennsylvania,
three are in New Jersey, and five are in Maryland.
Customers’ accounts at these branches will be relocated to
our next most convenient existing branch location, and we
have implemented extensive communication programs for
customers impacted by these changes.
To enhance our operating efficiency, we also announced
changes to our regional leadership structure to create
larger roles for fewer people. While we have not changed
our overall organizational structure, we have decreased
the number of regional presidents by six positions and
increased the scope of responsibility for the ten regional
presidents who remain.
We evaluate our benefits programs regularly and, as a
result of our most recent evaluation, we decided to reduce
or eliminate certain employee benefits that had been
“grandfathered” over the years and that affect a relatively
small number of employees. Prudently managing our
employee benefits programs will enable us to retain those
benefits that are most highly valued by the greatest number
of employees while managing our expenses in this area.
Over the past five years, we nearly doubled our workforce
in our Fulton Mortgage Company to enable us to keep
up with the increasing volume of refinance business
that resulted from the low interest rate environment. As
we grew, we chose to add a large number of temporary
workers to our team rather than dramatically increase
the number of permanent employees, knowing that the
mortgage volume was unlikely to continue once interest
rates began to rise and that at some point, we would need
to reduce the size of the team.
As we anticipated, our mortgage volume has declined from
the all-time highs we experienced over the past few years
as interest rates have continued to rise. We have adjusted
our staffing levels accordingly, and this will help us achieve
additional savings beyond the $8 million referenced above.
Risk Management and Compliance
A portion of the cost savings we will realize from the
initiatives outlined above is being redeployed in our
ongoing efforts to enhance our regulatory and compliance
infrastructure. We view this as a critical expenditure as
the regulations governing the banking industry continue
to increase and as banks, including our organization,
face heightened expectations from regulators. While the
regulatory environment is the impetus for many of these
and other changes, I want to emphasize, however, that it
has also forced us to look more critically at ourselves – a
good thing, in my view – and in doing so, we are
self-identifying many areas where we believe enhancements
are in order. These activities reinforce a continuous
improvement process that I have been leading in
conjunction with our senior management team.
As I noted earlier in this letter, the Corporation has made
good progress in enhancing its earnings performance, and
also in strengthening our risk management and compliance
management infrastructures. In doing so, we will continue
to incur additional expenses for salaries and benefits for
compliance, internal audit and legal staff and also for the
contracting of outside professional services and expertise
to help us acquire and develop systems to strengthen and
support our internal risk management and compliance
capabilities.
Investments in Technology
In 2013, the Corporation successfully completed the
conversion to our new core processing system. This
project was very important as it helped us strengthen
our technology infrastructure, increasing our capacity
to integrate the new core system with various
business-specific applications throughout our company.
In today’s world, data is key – for everything from serving
our customers to meeting our regulatory obligations.
The upgrade of our core processor provides us with an
enhanced foundation upon which we will build stronger
data integration of various business systems, enabling
more robust applications, greater automated controls and
more efficient processes.
As part of this conversion, we also enhanced our digital
online and mobile banking capabilities to support the
growing number of customers who choose to conduct
their banking business from their smartphone or tablet.
By delivering personalized, responsive, high quality service
through a variety of delivery channels, we can more
effectively meet our customers’ individual banking needs in
a way that is most convenient for them.
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3/11/14 6:34 PM
In 2013, we made significant strides in enhancing our
technology infrastructure. Over the next several years,
we will focus on using existing and new technology to
further automate and enable our processes and service
delivery across the Corporation. We view this as critically
important as we continue to work to improve the
efficiency and cost effectiveness of our operations,
enable regulatory compliance, and meet changing
customer needs.
On December 31, 2013, Charlie Nugent, our chief
financial officer, retired after 21 years of service to our
company. During Charlie’s tenure at Fulton, he provided
sound advice, guidance and support to the Board of
Directors and senior management on countless financial
and business matters. His extensive financial knowledge
and understanding of the banking industry have been
invaluable during the economic peaks and valleys of the
last decade. We wish Charlie well in his retirement.
Deepening the Expertise of
our Senior Management Team
We have also been conducting robust management
succession planning activities which help us identify
talented individuals and ensure that we are providing
them with training and experience to enable them to
increase their contributions to our company.
As a result of these efforts, in 2013 we expanded our
senior management team to incorporate additional
expertise and perspective into the Corporation’s senior
leadership. On July 1, three employees were promoted to
the position of senior executive vice president: Meg R.
Mueller, chief credit officer; Curtis J. Myers, president and
chief operating officer of Fulton Bank, N.A.; and Angela
M. Sargent, chief information officer. Each retained
his/her existing areas of responsibility while assuming a
new role as a member of senior management.
On January 1, 2014, Patrick S. Barrett succeeded Charlie
as senior executive vice president and chief financial
officer. Pat joined our senior management team in
November of 2013. He came to us from SunTrust
Banks, Inc., where he served most recently as the chief
financial officer of that company’s Wholesale Bank. Prior
to joining SunTrust, Pat worked with JPMorgan Chase
& Co. as deputy head/managing director of Investor
Relations in New York. Before JPMorgan, he spent ten
years at Deloitte & Touche as a financial services audit
and advisory specialist.
Corporate Governance
I hope you will join us for our 2014 Annual Shareholders’
Meeting at the Lancaster Marriott at Penn Square in
Lancaster, Pennsylvania on Thursday, May 8th at 10:00
a.m. At that meeting, Lt. General Joe Ballard, US Army
(Ret.) will retire from our board of directors. General
Ballard joined the Fulton Financial Corporation board in
2010. He has also served on the board of our subsidiary
bank, The Columbia Bank, since 2006. General Ballard,
who is a decorated war veteran, has brought vast expertise
in management and business practices to our company
and we thank him for his leadership and dedication.
A New Way of Reaching Shareholders
Some of our shareholders are receiving their proxy
materials in a different format this year. Taking our cue
from a number of other companies our size, we have
begun to implement “Notice & Access,” a program
approved by the Securities and Exchange Commission
several years ago to reduce companies’ costs to mail
annual meeting materials to their shareholders. Instead
of receiving a full packet in the mail, shareholders will
receive a printed notice, which directs them to a website
where they can view their materials and vote their shares.
If the shareholder would still like to receive a full printed
packet of materials through the mail, a toll-free phone
number is provided on the notice to call to request
the documents.
We have begun the program this year with a portion of
our shareholders and we hope to expand the program in
future years to help manage the very significant costs and
negative environmental impact associated with traditional
paper mailings.
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• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
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$
2011
2012
2013
Return on Average Common Equity
(tangible)*
2011
2012
2013
2011
2012
2013
Cash Dividends Per Common Share
Net Income Per Common Share (diluted)
* Net income available to common shareholders, adjusted for intangible amortization (net of tax), divided by average common shareholders' equity, net of goodwill and intangible assets.
FINANCIAL HIGHLIGHTS
AS OF OR FOR THE YEAR ENDED DECEMBER 31
(Dollars in thousands, except per-share data)
Percent Change
BALANCE SHEET DATA
2013
2012
2011
2013/2012
2012/2011
Total assets
Loans, net of unearned income
Deposits
Shareholders' equity
$16,935,000
$16,533,000
$16,375,000
12,782,000
12,491,000
2,063,000
12,147,000
12,484,000
2,082,000
11,971,000
12,535,000
1,993,000
PER COMMON SHARE DATA
Net income (diluted)
Common stock cash dividends
Shareholders' equity (tangible)*
$0.83
0.32
7.94
$0.80
0.30
7.76
$0.73
0.20
7.24
*Common shareholders' equity, net of goodwill and intangible assets, divided by common shares outstanding.
2.4%
5.2%
0.1%
(0.9%)
3.7%
6.7%
2.3%
1.0%
1.5%
(0.4%)
4.5%
9.6%
50.0%
7.2%
263922_FFC_Nar.indd 4
3/11/14 6:34 PM
On December 31, 2013, Charlie Nugent, our chief
financial officer, retired after 21 years of service to our
company. During Charlie’s tenure at Fulton, he provided
sound advice, guidance and support to the Board of
Directors and senior management on countless financial
and business matters. His extensive financial knowledge
and understanding of the banking industry have been
invaluable during the economic peaks and valleys of the
last decade. We wish Charlie well in his retirement.
On January 1, 2014, Patrick S. Barrett succeeded Charlie
as senior executive vice president and chief financial
officer. Pat joined our senior management team in
November of 2013. He came to us from SunTrust
Banks, Inc., where he served most recently as the chief
financial officer of that company’s Wholesale Bank. Prior
to joining SunTrust, Pat worked with JPMorgan Chase
& Co. as deputy head/managing director of Investor
Relations in New York. Before JPMorgan, he spent ten
years at Deloitte & Touche as a financial services audit
and advisory specialist.
Corporate Governance
I hope you will join us for our 2014 Annual Shareholders’
Meeting at the Lancaster Marriott at Penn Square in
Lancaster, Pennsylvania on Thursday, May 8th at 10:00
a.m. At that meeting, Lt. General Joe Ballard, US Army
(Ret.) will retire from our board of directors. General
Ballard joined the Fulton Financial Corporation board in
2010. He has also served on the board of our subsidiary
bank, The Columbia Bank, since 2006. General Ballard,
who is a decorated war veteran, has brought vast expertise
in management and business practices to our company
and we thank him for his leadership and dedication.
A New Way of Reaching Shareholders
Some of our shareholders are receiving their proxy
materials in a different format this year. Taking our cue
from a number of other companies our size, we have
begun to implement “Notice & Access,” a program
approved by the Securities and Exchange Commission
several years ago to reduce companies’ costs to mail
annual meeting materials to their shareholders. Instead
of receiving a full packet in the mail, shareholders will
receive a printed notice, which directs them to a website
where they can view their materials and vote their shares.
If the shareholder would still like to receive a full printed
packet of materials through the mail, a toll-free phone
number is provided on the notice to call to request
the documents.
We have begun the program this year with a portion of
our shareholders and we hope to expand the program in
future years to help manage the very significant costs and
negative environmental impact associated with traditional
paper mailings.
F
u
l
t
o
n
F
i
n
a
n
c
i
a
l
C
o
r
p
o
r
a
t
i
o
n
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
3
In closing, I want to recognize the many accomplishments
of our outstanding team of employees. The past few
years have been challenging times in the banking industry.
A still sluggish economy makes it more difficult to
increase business, and the dramatic changes and increased
regulation present in the financial services industry have
affected virtually all of our staff members. They have
worked hard to remain focused, increase their skills, learn
new ways of doing things, and balance the importance
of complying with the many regulations that govern our
industry with the need to bring creativity and energy to
how we deliver on our customer promise to Care, Listen,
Understand and Deliver.
Our employees are the ones who work to meet the
highest of standards and expectations with the goal of
providing you, our shareholder, with an appropriate
return on your investment. Thank you for your continued
support of Fulton Financial Corporation!
Sincerely,
E. Philip Wenger
Chairman, President and
Chief Executive Officer
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
* Net income available to common shareholders, adjusted for intangible amortization (net of tax), divided by average common shareholders' equity, net of goodwill and intangible assets.
3
8
.
0
$
1.5
1.0
0.5
0.0
2011
2012
2013
Net Income Per Common Share (diluted)
FINANCIAL HIGHLIGHTS
AS OF OR FOR THE YEAR ENDED DECEMBER 31
(Dollars in thousands, except per-share data)
Percent Change
BALANCE SHEET DATA
2013
2012
2011
2013/2012
2012/2011
Total assets
Loans, net of unearned income
Deposits
Shareholders' equity
$16,935,000
$16,533,000
$16,375,000
12,782,000
12,491,000
2,063,000
12,147,000
12,484,000
2,082,000
11,971,000
12,535,000
1,993,000
PER COMMON SHARE DATA
Net income (diluted)
Common stock cash dividends
Shareholders' equity (tangible)*
$0.83
0.32
7.94
$0.80
0.30
7.76
$0.73
0.20
7.24
*Common shareholders' equity, net of goodwill and intangible assets, divided by common shares outstanding.
2.4%
5.2%
0.1%
(0.9%)
3.7%
6.7%
2.3%
1.0%
1.5%
(0.4%)
4.5%
9.6%
50.0%
7.2%
263922_FFC_Nar.indd 5
3/11/14 6:34 PM
10 YEARS IN REVIEW
(2004-2013)
20
18
16
14
12
10
8
6
4
2
0
6
.
6
1
3
.
6
1
4
.
6
1
5
.
6
1
9
.
6
1
2
.
6
1
9
.
5
1
9
.
4
1
4
.
2
2 1
.
1
1
04 05 06 07 08 09 10 11 12 13
Net Income
(loss)
(in millions
of dollars)
5
.
3
0
1
6
.
4
0
1
9
.
0
0
1
100
80
3
.
7
7
5
.
8
8
0
.
0
6
9
.
1
6
0
.
0
4
2
.
3
2
1
.
1
2
04 05 06 07 08 09 10 11 12 13
2
8
0
2
,
3
6
0
2
,
3
9
9
,
1
0
8
8
,
1
5
7
5
,
1
1
9
4
,
1
6
1
5
,
1
6
6
5
,
1
3
8
2
,
1
4
4
2
,
1
60
40
20
0
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
0
Deposits
(in billions
of dollars)
Loans
(in billions
of dollars)
200
180
160
140
120
100
80
60
40
20
0
-20
15
12
9
6
3
0
13
12
11
10
9
8
7
6
5
4
3
2
1
0
Total Assets
(in billions
of dollars)
Common
Stock Cash
Dividends
(in millions
of dollars)
3
1
0
2
t
r
o
p
e
R
l
a
u
n
n
A
n
o
i
t
a
r
o
p
r
o
C
l
a
i
c
n
a
n
i
F
n
o
t
l
u
F
Common
Shareholders’
Equity
(in millions
of dollars)
5
.
5
8
1
7
.
2
5
1
1
.
6
6
1
6
.
9
4
1
8
.
1
6
1
8
.
9
5
1
6
.
5
4
1
3
.
8
2
1
9
.
3
7
6
.
5
-
04 05 06 07 08 09 10 11 12 13
1
.
2
1
4
.
2
1
5
.
2
1
5
.
2
1
5
.
2
1
2
.
0
1
6
.
0
1 1
.
0
1
8
.
9 8
.
7
04 05 06 07 08 09 10 11 12 13
0
.
2
1
1
.
2
1
9
.
1
1
0
.
2
1
8
.
2
1 1
.
2
1
2
.
1
1
4
.
0
1
4
.
8
5
.
7
04 05 06 07 08 09 10 11 12 13
04 05 06 07 08 09 10 11 12 13
263922_FFC_Nar.indd 6
3/11/14 6:34 PM
JOB TITLE Fulton Financial Combo
REVISION 10
JOB NUMBER 263922
TYPE
SERIAL
PAGE NO.
i
DATE Thursday, March 20, 2014
OPERATOR RaMelP
P.O. Box 4887
One Penn Square
Lancaster, Pennsylvania 17604
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
THURSDAY, MAY 8, 2014 AT 10:00 A.M.
TO THE SHAREHOLDERS OF FULTON FINANCIAL CORPORATION:
NOTICE IS HEREBY GIVEN that, pursuant to the call of its directors, the Annual Meeting of the shareholders
of FULTON FINANCIAL CORPORATION (“Fulton”) will be held on Thursday, May 8, 2014, at 10:00 a.m., at the
Lancaster Marriott at Penn Square, 25 South Queen Street, Lancaster, Pennsylvania, for the purpose of considering and
voting upon the following matters:
1. ELECTION OF DIRECTORS. The election of ten (10) director nominees to serve for one-year terms;
2. EXECUTIVE COMPENSATION PROPOSAL. A non-binding say on pay (“Say-on-Pay”) resolution to
approve the compensation of the named executive officers;
3. APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN. A
proposal to approve Fulton’s Amended and Restated Employee Stock Purchase Plan;
4. RATIFICATION OF INDEPENDENT AUDITOR. The ratification of the appointment of KPMG LLP as
Fulton’s independent auditor for the fiscal year ending December 31, 2014; and
5. OTHER BUSINESS. Such other business as may properly be brought before the meeting and any
adjournments thereof.
Only those shareholders of record at the close of business on February 28, 2014, shall be entitled to be given
notice of, to attend and to vote at, the meeting. Please take a moment now to cast your vote over the Internet or by
telephone in accordance with the instructions set forth on the enclosed proxy card, or, alternatively, to complete, sign
and date the enclosed proxy card and return it in the postage-paid envelope provided. Shareholders attending the Annual
Meeting in person may vote in person, even if they have previously voted by proxy.
Voting via the Internet or by telephone is fast and convenient, and your vote is immediately tabulated and
confirmed. Your Proxy is revocable and may be withdrawn at any time before it is voted at the meeting. You are
cordially invited to attend the meeting. If you plan on attending, please RSVP that you will attend using the
enclosed postcard.
A copy of Fulton’s Annual Report on Form 10-K is also enclosed.
Sincerely,
Daniel R. Stolzer
Corporate Secretary
Enclosures
March 26, 2014
<12345678>
JOB TITLE Fulton Financial Combo
REVISION 10
JOB NUMBER 263922
TYPE
SERIAL
PAGE NO.
ii
DATE Thursday, March 20, 2014
OPERATOR RaMelP
[This Page Intentionally Left Blank]<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
JOB NUMBER 263922
TYPE
SERIAL
PAGE NO.
iii
DATE Thursday, March 20, 2014
OPERATOR RaMelP
PROXY STATEMENT
Dated and To Be Mailed on or about: March 26, 2014
P.O. Box 4887, One Penn Square
Lancaster, Pennsylvania 17604
(717) 291-2411
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 8, 2014 AT 10:00 A.M.
ANNUAL MEETING SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PAGE
1
TABLE OF CONTENTS
1
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
RSVP, Date, Time and Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Shareholders Entitled to Vote and Attend Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Purpose of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revocability and Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Voting Your Shares Held in Street Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3
Voting of Shares and Principal Holders Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Contacting the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Corporate Governance Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Majority Vote Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Procedure for Shareholder Nominations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Qualifications and Board Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
5
6
6
6
7
ELECTION OF DIRECTORS – Proposal One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Information about Nominees, Directors and Independence Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Security Ownership of Directors, Nominees, Management and Certain Beneficial Owners . . . . . . . . . . . . . . 12
INFORMATION CONCERNING DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Meetings and Committees of the Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Human Resources Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Board’s Role in Risk Oversight. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Lead Director and Fulton’s Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Executive Sessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Annual Meeting Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Director Education and Board Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
JOB NUMBER 263922
TYPE
SERIAL
PAGE NO.
iv
DATE Thursday, March 20, 2014
OPERATOR RaMelP
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Board and Committee Evaluations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Director Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INFORMATION CONCERNING COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Human Resources Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Grants of Plan-Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Outstanding Equity Awards at Fiscal Year-End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Option Exercises and Stock Vested Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Pension Benefits Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Nonqualified Deferred Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Potential Payments Upon Termination and Golden Parachute Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
NON-BINDING SAY-ON-PAY RESOLUTION TO APPROVE THE COMPENSATION OF
THE NAMED EXECUTIVE OFFICERS – Proposal Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE
STOCK PURCHASE PLAN - Proposal Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Summary of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
RATIFICATION OF INDEPENDENT AUDITOR – Proposal Four . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
EXHIBITS
Amended and Restated Fulton Financial Corporation Employee Stock Purchase Plan . . . . . . . . . . . . .Exhibit A
Report of Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
iv
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
JOB NUMBER 263922
TYPE
SERIAL
PAGE NO. 1
DATE Thursday, March 20, 2014
OPERATOR RaMelP
ANNUAL MEETING SUMMARY
The annual meeting of the shareholders of Fulton (the “Annual Meeting”) for 2014 will be held on Thursday,
May 8, 2014, at 10:00 a.m., at the Lancaster Marriott at Penn Square, 25 South Queen Street, Lancaster, Pennsylvania.
There are four items on the agenda this year as described in more detail herein, and shareholders are encouraged to
complete their ballots to vote online at www.proxyvote.com or by telephone in accordance with the instructions set forth
on the enclosed proxy card in advance of the Annual Meeting. If you would like to reduce the costs incurred by Fulton
in mailing proxy material, you can consent to receiving all future proxy statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign up for electronic delivery, please go to www.proxyvote.com and have
your proxy card in hand when you access the website, then follow the instructions at www.proxyvote.com to obtain your
records and to create an electronic voting instruction form. Follow the instructions for voting by Internet and, when
prompted, indicate that you agree to receive or access shareholder communications electronically in future years.
The Board of Directors recommends that shareholders vote FOR the election of the ten (10) director
nominees identified in this proxy statement, FOR the approval of the non-binding Say-on-Pay resolution to approve
the compensation of the named executive officers, FOR the approval of the Amended and Restated Employee
Stock Purchase Plan, and FOR the ratification of the appointment of KPMG LLP as Fulton’s independent auditor
for the fiscal year ending December 31, 2014. Fulton encourages you to vote your shares in advance of the Annual
Meeting either by voting via the Internet, voting by telephone or returning your proxy by mail so that your shares will
be represented and voted at the Annual Meeting if you cannot attend in person and are eligible to vote in person at the
Annual Meeting on May 8, 2014.
Voting via the Internet or by telephone is fast and convenient, and your vote is immediately tabulated and
confirmed. Please see the Internet and telephone voting instructions on the proxy card for more details.
Introduction
GENERAL
Fulton Financial Corporation, a Pennsylvania business corporation and registered financial holding company,
was organized pursuant to a plan of reorganization adopted by Fulton Bank and implemented on June 30, 1982. On that
date, Fulton Bank became a wholly owned subsidiary of Fulton, and the shareholders of Fulton Bank became shareholders
of Fulton. Since that time, Fulton has acquired other banks, Fulton Bank adopted a national charter, and today Fulton
owns the following community banks: FNB Bank, N.A., Fulton Bank, N.A., Fulton Bank of New Jersey, Lafayette
Ambassador Bank, Swineford National Bank and The Columbia Bank.
In addition, Fulton has several other direct subsidiaries, including: Fulton Insurance Services Group, Inc. (which
operates an insurance agency selling life insurance and related insurance products); Fulton Financial Realty Company
(which owns or leases certain properties on which branch and operational facilities are located); Fulton Reinsurance
Company, Ltd. (which reinsures credit life, health and accident insurance that is directly related to extensions of credit
by subsidiary banks of Fulton); Central Pennsylvania Financial Corp. (which owns, directly or indirectly, certain limited
partnership interests, principally in low- to moderate-income and elderly housing projects); and FFC Management, Inc.
(which holds certain investment securities and corporate-owned life insurance policies).
RSVP, Date, Time and Place of Meeting
The Annual Meeting will be held on Thursday, May 8, 2014, at 10:00 a.m., at the Lancaster Marriott at
Penn Square, 25 South Queen Street, Lancaster, Pennsylvania.
You are cordially invited to attend the Annual Meeting. In order for Fulton to plan and prepare for the proper
number of shareholders, if you plan on attending, please RSVP and confirm that you will attend by completing
and returning the postcard enclosed. Light refreshments will be available starting at 9:00 a.m., and the business
meeting will start promptly at 10:00 a.m. Shareholders are encouraged to arrive early. Public parking is available
in downtown Lancaster. For a list of parking locations, please consult the Lancaster Parking Authority web site at
www.lancasterparkingauthority.com, or consult the information in the Annual Meeting Invitation and Reservation Form.
Each shareholder may be asked to present valid picture identification, such as a driver’s license, and proof of share
ownership, such as a copy of a brokerage statement or copy of your ballot. Large bags, cameras, cell phones, recording
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devices and other electronic devices will not be permitted at the Annual Meeting, and individuals not complying with this
request are subject to dismissal from the Annual Meeting. In the event of an adjournment, postponement or emergency
that may change the Annual Meeting’s time, date or location, Fulton will make an announcement, issue a press release or
post information at www.fult.com to notify shareholders as appropriate.
This proxy statement relates to the Annual Meeting of shareholders to be held on May 8, 2014. Attendance at
the Annual Meeting will be limited to shareholders of record at the close of business on February 28, 2014 (the “Record
Date”), their authorized representatives and guests of Fulton.
Shareholders Entitled to Vote and Attend Meeting
Only those shareholders of record as of the Record Date shall be entitled to receive notice of, attend, and vote at,
the Annual Meeting.
Purpose of Meeting
Fulton shareholders will be asked to consider and vote upon the following matters at the Annual Meeting: (i) the
election of ten (10) director nominees to serve for one-year terms; (ii) the non-binding Say-on-Pay resolution to approve
the compensation of the named executive officers; (iii) the approval of the Amended and Restated Employee Stock
Purchase Plan; (iv) the ratification of the appointment of KPMG LLP as Fulton’s independent auditor for the fiscal year
ending December 31, 2014; and (v) such other business as may be properly brought before the Annual Meeting and any
adjournments thereof.
Solicitation of Proxies
This proxy statement is furnished in connection with the solicitation of proxies, in the accompanying form, by
the Board of Directors of Fulton for use at the Annual Meeting to be held at 10:00 a.m. on Thursday, May 8, 2014, and
any adjournments or postponements thereof. Fulton is making this solicitation and will pay the entire cost of preparing,
assembling, printing, mailing and distributing the notices and these proxy materials and soliciting votes. In addition
to the mailing of the notices and these proxy materials, the solicitation of proxies or votes may be made in person, by
mail, telephone or by electronic communication by Fulton’s directors, officers and employees, who will not receive
any additional compensation for such solicitation activities. Fulton has engaged AST Phoenix Advisors, a division of
American Stock Transfer & Trust Company, LLC, to aid in the solicitation of proxies in order to assure a sufficient return
of votes on the proposals to be presented at the Annual Meeting. The fee for such services is estimated at $7,000, plus
reimbursement for reasonable research, distribution and mailing costs.
Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and Fulton will
reimburse them for reasonable out-of-pocket expenses incurred by them in connection therewith.
Revocability and Voting of Proxies
The execution and return of the enclosed proxy card, or voting by another method, will not affect a shareholder’s
right to attend the Annual Meeting and to vote in person. A shareholder may revoke any proxy given pursuant to this
solicitation by delivering written notice of revocation to the Corporate Secretary or Assistant Corporate Secretary of
Fulton, sending a new proxy card at any time before the proxy is voted at the Annual Meeting or by voting by another
method at any time before the applicable deadline for voting set forth on the proxy card. Unless revoked, any proxy given
pursuant to this solicitation will be voted at the Annual Meeting, including any adjournment or postponement thereof, in
accordance with the written instructions of the shareholder giving the proxy. In the absence of instructions, all proxies
will be voted FOR the election of the ten (10) director nominees identified in this proxy statement, FOR the approval of
the non-binding Say-on-Pay resolution to approve the compensation of the named executive officers, FOR the approval of
the Amended and Restated Employee Stock Purchase Plan and FOR the ratification of the appointment of KPMG LLP as
Fulton’s independent auditor for the fiscal year ending December 31, 2014. Although the Board of Directors knows of no
other business to be presented, in the event that any other matters are properly brought before the Annual Meeting, any
proxy given pursuant to this solicitation will be voted in accordance with the recommendations of the Board of Directors
of Fulton as permitted by Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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Shares held for the account of shareholders who participate in the Dividend Reinvestment and Stock Purchase
Plan and for the account of employees who participate in the Employee Stock Purchase Plan (the “ESPP”) will be voted
in accordance with the instructions of each shareholder as set forth in his or her proxy. If a shareholder who participates
in these plans does not return a proxy, the shares held for the shareholder’s account will not be voted.
Shares held for the account of employees of Fulton and its subsidiaries who participate in the Fulton Financial
Common Stock Fund of the Fulton Financial Corporation 401(k) Retirement Plan (the “401(k) Plan”), will be voted by
Fulton Financial Advisors, a division of Fulton Bank, N.A., as plan trustee (“Plan Trustee”) in accordance with the
instructions of each participant as set forth in the separate voting instruction card sent to the participant with respect to
such shares. To allow sufficient time for the Plan Trustee to vote, participants’ voting instructions must be received by
May 6, 2014.
Voting Your Shares Held in Street Name
If you hold your shares in street name with a bank or broker, it is important that you instruct your bank or broker
how to vote your shares if you want your shares to be voted on the election of directors (Proposal 1 of this proxy statement),
on the non-binding Say-on-Pay resolution to approve the compensation of the named executive officers (Proposal 2 of
this proxy statement) and on the approval of the Amended and Restated Employee Stock Purchase Plan (Proposal 3 of
this proxy statement). If you hold your shares in street name and you do not instruct your bank or broker how to vote your
shares in the election of directors or any non-routine matters, such as Proposals 2 and 3 of this proxy statement, no votes
will be cast on your behalf for the election of directors or Proposals 2 and 3. Your bank or broker will, however, continue
to have discretion to vote any uninstructed shares on the ratification of the appointment of Fulton’s independent auditor
(Proposal 4 of this proxy statement) and other matters that your bank or broker considers routine. If you are a registered
shareholder of record who holds stock in certificates or book entry with Fulton’s transfer agent and you do not cast your
vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting.
Voting of Shares and Principal Holders Thereof
At the close of business on the Record Date, Fulton had 188,818,566 shares of common stock outstanding and
entitled to vote. There is no other class of capital stock outstanding. As of the Record Date, 2,835,253 shares of Fulton
common stock were held by Fulton Financial Advisors, a division of Fulton Bank, N.A., as the Plan Trustee, or in a
fiduciary capacity for fiduciary accounts. The shares held in this manner, in the aggregate, represent approximately
1.50 percent of the total shares outstanding. Shares that are held in the 401(k) Plan will be voted by the Participants.
Shares for which Fulton Financial Advisors serves as a co-fiduciary will be voted by the co-fiduciary, unless the co-
fiduciary declines to accept voting responsibility, in which case, Fulton Financial Advisors will vote to abstain on all
proposals. Shares for which Fulton Financial Advisors serves as sole trustee of a revocable trust, shares for which Fulton
Financial Advisors acts as agent for an investment management account and shares for which Fulton Financial Advisors
acts as custodian for a custodial account will be voted by the settlor of the revocable trust and the principal of the agency
or custodial account, unless the governing document provides for Fulton Financial Advisors to vote the shares, in which
case Fulton Financial Advisors will vote to abstain on all proposals. Shares for which Fulton Financial Advisors is acting
as sole trustee of an irrevocable trust or as guardian of the estate of a minor or an incompetent will be voted by Fulton
Financial Advisors and in such cases, Fulton Financial Advisors will vote to abstain on all proposals.
A majority of the outstanding common stock present in person or by proxy at the Annual Meeting constitutes
a quorum for the conduct of business. The judge of election will treat shares of Fulton common stock represented by a
properly signed and returned proxy as present at the Annual Meeting for purposes of determining a quorum, without
regard to whether the proxy is marked as casting a vote or abstaining. Likewise, the judge of election will treat shares of
common stock represented by broker non-votes 1 as present for purposes of determining a quorum.
Each share is entitled to one vote on all matters submitted to a vote of the shareholders. A majority of the votes
cast at a meeting at which a quorum is present is required in order to approve any matter submitted to a vote of the
shareholders, except for the election of directors, or in cases where the vote of a greater number of shares is required by
law or under Fulton’s Articles of Incorporation or Bylaws.
1 Broker non-votes are shares of common stock held in record name by brokers or nominees as to which (i) instructions
have not been received from the beneficial owners or persons entitled to vote; and (ii) the broker or nominee does not have
discretionary voting power to vote such shares on a particular proposal.
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In the case of the election of directors, the ten (10) candidates receiving the highest number of votes cast at the
Annual Meeting shall be elected to the Board of Directors for terms of one year. The affirmative vote of a majority of the
common shares present or represented by proxy and voting at the Annual Meeting is required for approval of the non-
binding Say-on-Pay resolution to approve the compensation of the named executive officers, the Amended and Restated
Employee Stock Purchase Plan and the ratification of Fulton’s independent auditor.
Abstentions and broker non-votes will be counted as shares that are present at the Annual Meeting for determining
the presence of a quorum, but will not be counted as votes cast on the election of directors, the non-binding Say-on-Pay
resolution to approve the compensation of the named executive officers, the Amended and Restated Employee Stock
Purchase Plan, or the ratification of Fulton’s independent auditor. Abstentions and broker non-votes will have no effect
on the director election, the non-binding Say-on-Pay resolution concerning executive compensation, the Amended and
Restated Employee Stock Purchase Plan, or the ratification of Fulton’s independent auditor, since only votes cast will
be counted.
To the knowledge of Fulton, on the Record Date, no person or entity owned of record, or beneficially, more than
five percent of the outstanding common stock of Fulton, except those listed on page 12 under “Security Ownership of
Directors, Nominees, Management and Certain Beneficial Owners.”
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the election of the ten (10) director
nominees identified in this proxy statement, FOR the approval of the non-binding Say-on-Pay resolution to approve
the compensation of the named executive officers, FOR the approval of the Amended and Restated Employee Stock
Purchase Plan and FOR the ratification of the appointment of KPMG LLP as Fulton’s independent auditor for the
fiscal year ending December 31, 2014.
Shareholder Proposals
Shareholder proposals intended to be considered for inclusion in Fulton’s proxy statement and proxy for the
2015 Annual Meeting must be received at the principal executive offices of Fulton at One Penn Square, Lancaster,
Pennsylvania no later than November 26, 2014. Any shareholder proposal not received at Fulton’s principal executive
offices by February 9, 2015, which is 45 calendar days before the one year anniversary of the date Fulton released the
previous year’s annual meeting proxy statement to shareholders, will be considered untimely and, if presented at the 2015
Annual Meeting, the proxy holders will be able to exercise discretionary authority regarding whether to vote on any such
proposal to the extent authorized by Rule 14a-4(c) under the Exchange Act. All shareholder proposals must comply with
Rule 14a-8 under the Exchange Act, as well as Fulton’s Bylaws.
Generally, under Fulton’s Bylaws, a shareholder may not submit more than one proposal, and the proposal,
including any accompanying supporting statement, may not exceed 500 words in accordance with applicable Securities
and Exchange Commission (the “SEC”) rules. In order to be eligible to submit a proposal, a shareholder must have
continuously held at least $2,000 in market value of Fulton common stock for at least one year before the date the proposal
is submitted. Any shareholder submitting a shareholder proposal to Fulton must also provide Fulton with a written
statement verifying ownership of stock and confirming the shareholder’s intention to continue to hold the stock through
the date of the 2015 Annual Meeting. The shareholder, or a qualified representative, must attend the 2015 Annual Meeting
in person to present the proposal. The shareholder must also continue to hold the applicable amount of Fulton common
stock through the date of the 2015 Annual Meeting.
Contacting the Board of Directors
Any shareholder of Fulton who desires to contact the Board of Directors may do so by writing to: Board
of Directors, Fulton Financial Corporation, P.O. Box 4887, One Penn Square, Lancaster, PA 17604. These written
communications will be provided to the Chair of the Executive Committee of the Board of Directors who will determine
further distribution based on the nature of the information in the communication. For example, communications concerning
accounting, internal accounting controls or auditing matters will be shared with the Chair of the Audit Committee of the
Board of Directors.
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Code of Conduct
Fulton’s code of conduct (the “Code of Conduct”) governs the conduct of its directors, officers and employees.
Fulton provides the Code of Conduct to each director, officer and employee when starting their position, and they are
required to annually acknowledge their review of the Code of Conduct. In 2013, minor updates were made to the Code
of Conduct that included adding a section on antitrust laws and fair dealing with others. In addition, a section outlining
the prohibition on providing others with unauthorized advice was included, and directors were added to the social media
requirements listed.
A current copy of the Code of Conduct can be obtained, without cost, by writing to the Corporate Secretary at:
Fulton Financial Corporation, P.O. Box 4887, One Penn Square, Lancaster, PA 17604. The current Code of Conduct is also
posted and available on Fulton’s website at www.fult.com.
Corporate Governance Guidelines
Fulton has adopted Corporate Governance Guidelines (the “Governance Guidelines”) that include guidelines
and Fulton’s policy regarding the following topics: (1) board size; (2) director qualifications; (3) majority vote standard;
(4) service on other boards and director change in status; (5) meeting attendance and review of meeting materials;
(6) director access to management and independent advisors; (7) designation of a lead director; (8) executive sessions;
(9) Chief Executive Officer (“CEO”) evaluation and succession planning; (10) board and committee evaluations;
(11) stock ownership guidelines; (12) communications by interested parties; (13) board and committee minutes; (14) codes
of conduct; and (15) disclosure and update of the Governance Guidelines. The Governance Guidelines were last updated
on January 21, 2014, principally to add a majority vote standard for an uncontested election of directors. In 2013, the
Governance Guidelines were also amended to update Fulton’s stock ownership requirements, which included increasing
the director stock ownership requirement from $100,000 to $175,000 in fair market value of Fulton common stock. A copy
of the Governance Guidelines can be obtained, without cost, by writing to the Corporate Secretary at: Fulton Financial
Corporation, P.O. Box 4887, One Penn Square, Lancaster, PA 17604. The Governance Guidelines are also posted and
available on Fulton’s website at www.fult.com.
General Information
SELECTION OF DIRECTORS
The Bylaws of Fulton provide that the Board of Directors shall consist of not less than five (5) nor more than
thirty-five (35) persons, and that the Board of Directors shall determine the number of directors. Pursuant to Fulton’s
Bylaws, as amended, all nominees elected to the Board of Directors are elected for one-year terms.
A majority of the Board of Directors may increase or decrease the number of directors between meetings of the
shareholders. Any vacancy occurring in the Board of Directors, whether due to an increase in the number of directors,
resignation, retirement, death or any other reason, may be filled by appointment by the remaining directors. Any director
who is appointed to fill a vacancy shall hold office until the next Annual Meeting of the shareholders and until a successor
is elected and shall have qualified.
Fulton’s Bylaws limit the age of director nominees, and no person may be nominated for election as a director
who will attain the age of seventy-two (72) years on or before the date of the Annual Meeting at which he or she is to be
elected. In addition, Fulton has adopted a Voluntary Resignation Policy for Directors that generally requires a director to
tender his or her resignation when the director’s effectiveness as a member of the Board of Directors may be substantially
impaired. Circumstances that trigger this provision include, but are not limited to: a director failing to attend at least
62.5% of meetings without a valid reason and, unless such an event is promptly cured to the satisfaction of Fulton, any
extension of credit by any of Fulton’s affiliate banks for which the director or a related interest of the director is an obligor
or guarantor is: a) classified by Fulton as nonaccrual, sixty or more days past due, or restructured; b) assigned a risk
rating of substandard or less; or c) not in material compliance with Board of Governors of the Federal Reserve System’s
Regulation O (12 C.F.R. Part 215) (“Regulation O”). In addition, in January 2014, Fulton added a majority vote standard
to the Voluntary Resignation Policy for Directors that requires a director to tender his or her resignation if a director does
not receive a majority of the votes cast in an uncontested election for the Board of Directors. While the policy sets forth
events which might cause a director to tender his or her resignation, it also directs Fulton’s Board of Directors to consider
carefully, on a case-by-case basis, whether or not Fulton should accept such a resignation.
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Majority Vote Standard
In January 2014, Fulton’s Nominating and Corporate Governance Committee recommended, and the Board of
Directors adopted, a majority vote standard for uncontested director elections by revising its Governance Guidelines
and Voluntary Resignation Policy for Directors. In an uncontested election at a Fulton annual meeting of shareholders
occurring after January 2014, any nominee for director who does not receive a majority of the votes cast in an uncontested
election for the Board of Directors is required to promptly tender his or her resignation following certification of the
shareholder vote. As further described in the Governance Guidelines, the Nominating and Corporate Governance
Committee shall consider the resignation tendered and recommend to the Board of Directors whether to accept it.
Procedure for Shareholder Nominations
Section 3 of Article II of Fulton’s Bylaws requires shareholder nominations of director candidates to be made in
writing and delivered or mailed to the Chairman of the Board or the Corporate Secretary not less than the earlier of (a) one
hundred twenty (120) days prior to any meeting of shareholders called for the election of directors or (b) the deadline for
submitting shareholder proposals for inclusion in a proxy statement and form of proxy as calculated under Rule 14a-8(e)
promulgated by the SEC under the Exchange Act. For the 2015 Annual Meeting this deadline date is November 26, 2014.
Further, the notice to the Chairman of the Board or the Corporate Secretary of a shareholder nomination shall set forth:
(i) the name and address of the shareholder who intends to make the nomination and a representation that the shareholder
is a holder of record of stock of Fulton entitled to vote at such meeting and intends to be present in person or by proxy
at such meeting to nominate the person or persons to be nominated; (ii) the name, age, business address and residence
address of each nominee proposed in such notice; (iii) the principal occupation or employment of each such nominee;
(iv) the number of shares of capital stock of Fulton that are beneficially owned by each such nominee; (v) a statement
of qualifications of the proposed nominee and a letter from the nominee affirming that he or she will agree to serve as
a director of Fulton if elected by the shareholders; (vi) a description of all arrangements or understandings between the
shareholder submitting the notice and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the shareholder; and (vii) such other information
regarding each nominee proposed by the shareholder as would have been required to be included in the proxy statement
filed pursuant to the proxy rules of the SEC had each nominee been nominated by or at the direction of the Board of
Directors. The chairman of the meeting shall determine whether nominations have been made in accordance with the
requirements of the Bylaws and, if the chairman determines that a nomination is defective, the nomination and any votes
cast for the nominee shall be disregarded. Shareholder nominees are subject to the same standard of review as nominees
of Fulton’s Board of Directors or its Nominating and Corporate Governance Committee.
Director Qualifications and Board Diversity
In considering any individual nominated for board membership, including those nominated by a shareholder,
Fulton considers a variety of factors, including whether the candidate is recommended by executive management,
the individual’s professional and personal qualifications, including business experience, education, community and
charitable activities, and the individual’s familiarity with a market or markets in which Fulton is located or is seeking
to locate, or with a market that is similar to those in which Fulton is located or is seeking to locate. Fulton does not have
a separate written policy regarding how diversity is to be considered in the director nominating process. Generally,
however, Fulton takes into account diversity in business experience, community service, skills, professional background
and other qualifications, as well as diversity in race, national origin and gender, in considering individual candidates.
Fulton’s Governance Guidelines provide that Fulton’s Board of Directors should be sufficient in size to achieve diversity
in business experience, community service and other qualifications among non-employee directors while still facilitating
substantive discussions in which each director can participate meaningfully. In 2004, the Board of Directors formed the
Nominating and Corporate Governance Committee of the Board, whose members are independent in accordance with
the NASDAQ listing standards. The charter for the Nominating and Corporate Governance Committee is posted and
available on Fulton’s website at www.fult.com. The Nominating and Corporate Governance Committee is responsible
for recommending director nominees to the Board of Directors and for the Governance Guidelines. Information on
the experience, qualifications, attributes or skills of Fulton’s directors and nominees is described under “Director and
Nominee Biographical Information” below.
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General Information
ELECTION OF DIRECTORS – PROPOSAL ONE
For the 2014 Annual Meeting, the Board of Directors has fixed the number of directors at ten (10). Pursuant to
Fulton’s Bylaws, as amended, nominees to the Board of Directors are elected for one-year terms. The Board of Directors
has nominated the following ten (10) people for election to the Board of Directors for a term of one year:
John M. Bond, Jr.
Patrick J. Freer
R. Scott Smith, Jr.
E. Philip Wenger
2014 Director Nominees
Craig A. Dally
George W. Hodges
Gary A. Stewart
Denise L. Devine
Albert Morrison III
Ernest J. Waters
Each of the above nominees is presently a director of Fulton. Following the recommendation of the Nominating
and Corporate Governance Committee, the Board of Directors approved the nomination of the above individuals.
However, in the event that any of the foregoing 2014 director nominees are unable to accept nomination or election,
any proxy given pursuant to this solicitation will be voted in favor of such other persons as the Board of Directors may
recommend. The Board of Directors has no reason to believe that any of its director nominees will be unable to accept
nomination or to serve as a director, if elected by a majority of the shares voted at the Annual Meeting.
Vote Required
The ten (10) candidates receiving the highest number of votes cast at the Annual Meeting shall be elected to the
Board of Directors. Abstentions and broker non-votes will be counted as shares that are present at the Annual Meeting,
but will not be counted as votes cast in the election of directors.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote FOR the election of the ten (10) director
nominees identified in this proxy statement to serve for one-year terms.
Information about Nominees, Directors and Independence Standards
Information concerning the experience, qualifications, attributes or skills of the ten (10) persons nominated by
Fulton for election to the Board of Directors of Fulton at the 2014 Annual Meeting is set forth below, including whether
they were determined by the Board of Directors to be independent for purposes of the NASDAQ listing standards.
Fulton is a NASDAQ listed company and follows the NASDAQ listing standards for board of directors and
committee independence. At a meeting in December 2013, the Board of Directors determined that eight (8) of Fulton’s ten
(10) director nominees are independent, and nine (9) of Fulton’s current eleven (11) directors are independent, as defined in
the applicable NASDAQ listing standards. Specifically, the Board of Directors found that Directors Bond, Dally, Devine,
Freer, Hodges, Morrison, Stewart and Waters met the definition of independent director in the NASDAQ listing standards
and that each of these directors is free of any relationships that would interfere with his or her individual exercise of
independent judgment. Director Ballard, who is also an independent director, will be retiring at the 2014 Annual Meeting.
In addition, members of the Audit Committee and the Human Resources Committee (the “HR Committee”) of the Board
of Directors meet the more stringent requirements for independence under the NASDAQ listing standards, and the rules
and regulations of the SEC for service on the Audit Committee, or the HR Committee, as applicable. In reviewing director
independence, the Board of Directors considered the relationships and other arrangements, if any, of each director. The
other types of relationships and transactions that were reviewed and considered are more fully described in “Related
Person Transactions” on page 18.
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Director and Nominee Biographical Information
The following information regarding each director nominee’s background, experience, qualifications, attributes
or skills represents the information that led Fulton to conclude that these persons should serve as a director of Fulton.
JOHN M. BOND, JR. (Independent Director), age 70.
Director of Fulton since 2006 and The Columbia Bank since 1988. Mr. Bond serves as a Director of the
Federal Home Loan Bank of Atlanta, 2005 to present. He was a Director of Columbia Bancorp from
1987 to 2006 when Columbia Bancorp merged with Fulton and retired as CEO of The Columbia Bank in
2006. He was the former Chairman of the Maryland Bankers Association, 2001 to 2002, and serves as a
Trustee of Goucher College, 1997 to present, and was Chairman of the Board, 2004 to 2009. Mr. Bond
was admitted to practice law in New York.
Mr. Bond offers Fulton’s Board of Directors years of bank executive management and financial
expertise, strong knowledge of the financial services industry and knowledge of the suburban markets
near Baltimore and Washington DC as well as northern Virginia. Mr. Bond also brings a focused
historical perspective to the Fulton Board with his prior corporate governance experience and having
held leadership positions at an entity acquired by Fulton. Mr. Bond serves as Chair of Fulton’s Audit
Committee and as a “financial expert,” as defined by SEC regulations. He is also a member of Fulton’s
Executive Committee and Risk Committee.
CRAIG A. DALLY (Independent Director), age 57.
Director of Fulton since 2000 and Lafayette Ambassador Bank since 1990. Mr. Dally is a Judge for the
Third Judicial District of Pennsylvania, 2010 to present. He is admitted and licensed to practice law in
Pennsylvania and a former partner of Pierce & Dally, LLP (law firm). He previously served as a member
of the Pennsylvania House of Representatives, District 138, from 1996 to 2010 and is a former Director
of the Pennsylvania Higher Education Assistance Agency, 2007 to 2010. He serves as a Director of
Nazareth Area YMCA, 1993 to present; Courtney Anne Diacont Memorial Foundation, 2010 to present;
and Two Rivers Health and Wellness Foundation, 2003 to present.
Mr. Dally brings unique knowledge and expertise to Fulton’s Board of Directors that he gained as a
director of Lafayette Ambassador Bank, a member of the Pennsylvania House of Representatives, a
Director of the Pennsylvania Higher Education Assistance Agency, a judge, a law firm partner and his
leadership role in various philanthropic endeavors in the Lehigh Valley. Mr. Dally serves as Chair of
Fulton’s Human Resources Committee and is a member of Fulton’s Executive Committee and Vice Chair
of Fulton’s Nominating and Corporate Governance Committee.
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DENISE L. DEVINE (Independent Director), age 58.
Director of Fulton since 2012. Ms. Devine is the founder and has been the Chief Executive Officer of
Nutripharm, Inc. since 1997, a company that has generated a portfolio of composition and process patents
to create innovative natural food, beverage, pharmaceutical and nutraceutical products that facilitate
nutrition and lifelong health. She has also been dedicated to developing and marketing convenient and
natural beverage and snack solutions for the healthy growth and development of children. Ms. Devine,
a certified public accountant, also previously served as Chief Financial Officer for Energy Solutions
International and in financial management positions for Campbell Soup Company. Ms. Devine has
served as Chair of the Pennsylvania State Board of Accountancy and on the Board of the American
Institute of CPAs. Since 2006, Ms. Devine has served on the Board of Trustees of Villanova University
and is currently the Chair of the Villanova University Audit and Risk Committees. She has also served
as a member of the Board of Lourdes Health System since 2010.
Ms. Devine has substantial management, business and finance experience which adds valuable outside
experience to Fulton’s Board of Directors and its committees. Ms. Devine serves as Vice Chair of Fulton’s
Audit Committee and is a member of Fulton’s Human Resources Committee.
PATRICK J. FREER (Independent Director), age 64.
Director of Fulton since 1996. Mr. Freer was a Director of Lebanon Valley Farmers Bank, formerly
known as Farmers Trust Bank, from 1980 until it was combined with Fulton Bank in 2007. He is the
President of Strickler Insurance Agency, Inc. (insurance broker) and a Certified Insurance Counselor.
Mr. Freer brings to the Fulton Board of Directors an extensive knowledge of insurance, investments,
finance and risk management as well as valuable knowledge of Fulton through his tenure of more than
fifteen (15) years on its Board of Directors and as a bank director from 1980 to 2007. Mr. Freer has long
been an active member in his community, helping with numerous capital campaigns and community
projects. Mr. Freer has been a board member of the American Cancer Society, Lebanon County
Economic Development Authority, Center of Lebanon Association and the Lebanon County Mental
Health Association and has served as past president of the Lebanon Valley Sertoma Club and Lebanon
County Christian Ministries. Mr. Freer serves as Vice Chair of Fulton’s Human Resources Committee
and is a member of Fulton’s Nominating and Corporate Governance Committee.
GEORGE W. HODGES (Independent Director), age 63.
Director of Fulton since 2001 and currently serves as Lead Director of Fulton. Mr. Hodges was a Director
of Drovers & Mechanics Bank, until it was merged into Fulton Bank in 2001, and has served on the
Board of Directors of Fulton Bank since 2012. He has been a Director of York Water Company from 2000
to present (NASDAQ:YORW), Director of The Wolf Organization, Inc. from 2008 to present (regional
distributor and sourcing company of kitchen and bath products and specialty building products), a
Director of Burnham Holdings, Inc. from 2006 to present, the parent company of fourteen subsidiaries
that are leading domestic manufacturers of boilers and related HVAC products and accessories (including
furnaces, radiators and air conditioning systems), for residential, commercial and industrial applications,
and has served on the boards of various for profit, non-profit and community organizations. Mr. Hodges
served as non-executive Chairman of the Board of The Wolf Organization from 2008 to 2009. Prior to
being Chairman, Mr. Hodges was a member of the Office of the President of The Wolf Organization
from 1986 to 2008.
Mr. Hodges brings considerable financial expertise and business knowledge to the Fulton Board of
Directors, both through his business experience and his service on other boards. His extensive business
experience, financial expertise, and background are also invaluable for Fulton’s Audit Committee where
he serves as a member and as a “financial expert,” as defined by SEC regulations. Mr. Hodges also serves
as Chair of Fulton’s Executive Committee and is a member of Fulton’s Human Resources Committee.
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ALBERT MORRISON III (Independent Director), age 67.
Director of Fulton since 2012. Mr. Morrison is the Chairman of the Board of Burnham Holdings, Inc.,
the parent company of fourteen subsidiaries that are leading domestic manufacturers of boilers and
related HVAC products and accessories (including furnaces, radiators and air conditioning systems), for
residential, commercial and industrial applications. Mr. Morrison was elected as a director of Burnham
in 1986, became President and Chief Executive Officer of Burnham in 1988 and has served as Chairman
since 2002. Mr. Morrison retired as Chief Executive Officer, effective in April 2012, after thirty-eight
years of service with Burnham Holdings, Inc.
As a long-time CEO and director of a manufacturing company, Mr. Morrison brings extensive business,
financial, acquisition and human resources skills to Fulton’s Board of Directors and its Audit Committee,
where he serves as a member. Mr. Morrison also serves as Chair of Fulton’s Risk Committee and is a
member of Fulton’s Executive Committee.
R. SCOTT SMITH, JR., age 67.
Director of Fulton since 2001. Mr. Smith is the retired Chairman of the Board and CEO of Fulton.
He served as Chairman of the Board and CEO from January 2006 to December 2012 and also served
as a Director of Fulton Bank from 1993 to 2002. He was a Director of The Federal Reserve Bank of
Philadelphia from 2010 to 2013 and a member of the Federal Advisory Council to the Federal Reserve
Board, Washington, DC from 2008 to 2010. Mr. Smith was a Director of the American Bankers
Association from 2006 to 2009, was employed by Fulton from 1978 to 2012 in various positions and
worked in financial services since 1969. In 2014, Mr. Smith became a director of Herr Foods, Inc. (snack
food manufacturer) and continues to be active in the Lancaster community.
Mr. Smith’s various management roles during his over thirty years of service in banking give him a broad
understanding of the financial services industry, Fulton’s operations, corporate governance matters and
the leadership experience qualifying him to serve on the Fulton Board of Directors. Mr. Smith serves as
a member of Fulton’s Risk Committee.
GARY A. STEWART (Independent Director), age 66.
Director of Fulton since 2001. Mr. Stewart is a Director of The Stewart Companies (manufacturing
holding company), Vice President of Apple Automotive Group, Inc., a Partner of Stewart Properties
(real estate developer), President of Aspen Equity Group LLC (real estate) and has served on the boards
of various for profit, non-profit and community organizations. He was a Director of York Bank & Trust
Company from 1981 to 1998, and was a Director of Drovers & Mechanics Bank until it was merged into
Fulton Bank in 2001.
Mr. Stewart has relevant business experience and bank board service qualifying him for service as
a member of the Board of Directors that includes extensive experience in real estate acquisition,
development, finance and management. Mr. Stewart serves as Vice Chair of Fulton’s Executive
Committee and Chair of Fulton’s Nominating and Corporate Governance Committee, and is a member
of Fulton’s Risk Committee.
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ERNEST J. WATERS (Independent Director), age 64.
Director of Fulton since 2012 and Director of Fulton Bank, N.A. since 2011. Mr. Waters retired from
Metropolitan Edison, a FirstEnergy company, in 2009, where he served as the Area Vice President
and Area Manager. Mr. Waters joined the FirstEnergy companies (an investor-owned utility) in 1976
and held various positions in Auditing and Marketing during his tenure. He also served as an expert
accounting witness in setting rates before the Pennsylvania Public Utility Commission. Prior to joining
the FirstEnergy companies, Mr. Waters was a public accountant and business consultant in Philadelphia.
He is a former certified public accountant and holds an MBA from the University of Pittsburgh.
Since 2007, Mr. Waters has served on the Board of Directors of the York Water Company (NASDAQ:
YORW) where he chairs their Compensation Committee and is a member of the Audit Committee. In
addition, Mr. Waters has served at leadership and committee levels with numerous community and non-
profit organizations. He is the past Chairman of the Board of York Hospital and is currently a member of
the Board, a member of the Executive Committee and chairs the Audit Committee for Wellspan Health,
York Hospital’s parent company.
Mr. Waters has business, regulatory, leadership, board service and accounting expertise that brings
valuable perspectives to Fulton’s Board of Directors, and Fulton’s Audit Committee and Fulton’s Risk
Committee where he serves as a member.
E. PHILIP WENGER, age 56.
Director of Fulton since 2009. Mr. Wenger became Chairman of the Board, President and Chief Executive
Officer of Fulton effective on January 1, 2013. He previously served as President and Chief Operating
Officer of Fulton from 2008 to 2012, a Director of Fulton Bank from 2003 to 2009, Chairman of Fulton
Bank from 2006 to 2009 and has been employed by Fulton in a number of positions since 1979.
Mr. Wenger possesses an extensive knowledge of the many aspects of banking operations through more
than thirty years of experience in the financial services industry. He has gained valuable insight through
his experience in different banking areas, including retail banking, commercial banking, bank operations
and systems. Mr. Wenger serves as a member of Fulton’s Executive Committee.
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Security Ownership of Directors, Nominees, Management and Certain Beneficial Owners
The following table sets forth the number of shares of common stock beneficially owned 1 as of the Record Date by
each director and nominee, and the named executive officers discussed in this proxy statement, Messrs. Wenger, Nugent,
Shreiner, Roda and Rohrbaugh (the “Named Executive Officers” or “Executives” and individually an “Executive”).
Except as to the beneficial owners and other principal holders listed below, to the knowledge of Fulton, no person or
entity owned of record or beneficially on the Record Date more than five percent of the outstanding common stock of
Fulton. Unless otherwise indicated in a footnote, shares shown as beneficially owned by each nominee and director or
the Executives are held individually by the person. The directors, nominees and the Executives of Fulton, as a group,
owned of record and beneficially 2,949,206 shares of Fulton common stock, representing 1.55 percent of such shares then
outstanding. Shares representing less than one percent of the outstanding shares are shown with a “*” below.
Name of
Beneficial Owner
John M. Bond, Jr.
Joe N. Ballard
Craig A. Dally
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morrison III
Charles J. Nugent 12
Craig A. Roda
Philmer H. Rohrbaugh
James E. Shreiner
R. Scott Smith, Jr.
Gary A. Stewart
Ernest J. Waters
E. Philip Wenger
Total Ownership
Title
Director and Nominee
Director
Director and Nominee
Director and Nominee
Director and Nominee
Director and Nominee
Director and Nominee
Senior Executive Vice President and
Chief Financial Officer
Senior Executive Vice President
Senior Executive Vice President and
Chief Risk Officer
Senior Executive Vice President
Director and Nominee
Director and Nominee
Director and Nominee
Director, Nominee, Chairman of the Board,
President and Chief Executive Officer
Number of
Common Shares
Beneficially
Owned 2 3 4
Percent of
Class
452,333 5
19,315 6
158,344 7
4,103 8
96,683 9
36,969 10
23,048 11
434,549 13
194,243 14
20,708 15
351,964 16
592,526 17
191,738 18
3,220 19
369,464 20
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Directors, Nominees and Executives as a Group
(15 Persons)
2,949,206
1.55%
Other Principal Holders
BlackRock, Inc.
40 East 52nd Street
New York, NY 10022
State Street Corporation
One Lincoln Street
Boston, MA 02111
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
Janus Capital
Management LLC
151 Detroit Street
Denver, Colorado 80206
N/A
N/A
N/A
N/A
12
13,021,171 21
6.80%
12,320,269 22
6.40%
10,871,134 23
5.64%
10,723,375 24
5.60%
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1 Beneficial ownership is determined in accordance with SEC Rule 13d-3, which provides that a person is deemed to own
any stock for which that person has or shares: (i) voting power, which includes the power to vote or to direct the voting of
the stock; or (ii) investment power, which includes the power to dispose or direct the disposition of the stock; or (iii) the
right to acquire beneficial ownership within 60 days after the Record Date.
2 Includes 907,709 shares issuable upon the exercise of vested stock options and 243,733 shares of unvested restricted
stock, which have been treated as outstanding shares for purposes of calculating the percentage of outstanding shares
owned by directors and Executives as a group.
3 As of the Record Date, none of the listed individuals had pledged Fulton stock except for Mr. Stewart, who has pledged
74,755 shares in connection with a collateral account with his broker related to a line of credit with the same broker.
4 Fulton has established stock ownership guidelines for Fulton directors and certain officers. Achievement of the levels of
ownership required by the stock ownership guidelines is reviewed and determined annually based on the closing price of
Fulton stock on December 31. In 2013, the targeted ownership for directors was increased to $175,000 in fair market value
of Fulton common stock and directors that did not own shares at this level were given were given five years to achieve
this amount. For Executive Officers, the targeted stock ownership differs by position. The Chief Executive Officer is
required to acquire shares with a fair market value of 2 times his annual base salary, the President and the Chief Financial
Officer are required to acquire shares with a fair market value of 1.5 times their respective annual base salary, and certain
other officers are required to acquire shares with a fair market value of 1 times their annual base salary. In the case of
newly-appointed or elected directors and officers, the required level of stock ownership may be achieved over a period
of five (5) years and compliance is determined at the calendar year end of the year in which the five year anniversary of
appointment or election occurs. As of December 31, 2013, all of Fulton’s directors and Executives had satisfied the stock
ownership guidelines, except Directors Devine and Waters and Mr. Rohrbaugh. Under the revised ownership guidelines,
each of the Directors Devine and Waters and Mr. Rohrbaugh are required to achieve the targeted stock ownership level
by December 31, 2018.
5 Mr. Bond’s ownership includes 1,865 shares of unvested restricted stock, 59,198 shares which may be acquired pursuant
to the exercise of vested stock options and 136,723 shares held solely by his spouse.
6 Mr. Ballard’s ownership includes 1,865 shares of unvested restricted stock and 3,442 shares held jointly with his spouse.
Also includes 10,825 shares held solely by his spouse.
7 Mr. Dally’s ownership includes 1,865 shares of unvested restricted stock, 12,243 shares held in an IRA, 2,065 shares
held jointly with his spouse and 9,632 shares held solely by his daughter.
8 Ms. Devine’s ownership includes 1,865 shares of unvested restricted stock and 1,000 shares are held jointly with
her spouse.
9 Mr. Freer’s ownership includes 1,865 shares of unvested restricted stock, 90,375 shares held jointly with his spouse and
318 shares held solely by his spouse.
10 Mr. Hodges’ ownership includes 1,865 shares of unvested restricted stock and 15,800 shares held in a 401(k) Plan.
11 Mr. Morrison’s ownership includes 1,865 shares of unvested restricted stock.
12 Mr. Nugent retired as Fulton’s Senior Executive Vice President and Chief Financial Officer on December 31, 2013. As
of January 1, 2014, Patrick S. Barrett became Fulton’s Chief Financial Officer.
13 Mr. Nugent’s ownership includes 31,911 shares held in Fulton’s 401(k) Plan, 11,394 shares held in an IRA and 206,882
shares which may be acquired pursuant to the exercise of vested stock options. Mr. Nugent’s ownership includes 54,028
shares held solely by his spouse.
14 Mr. Roda’s ownership includes 45,898 shares of unvested restricted stock, 102,237 shares which may be acquired
pursuant to the exercise of vested stock options, 17,366 shares in Fulton’s ESPP and 9,191 shares held jointly with
his spouse.
15 Mr. Rohrbaugh’s ownership includes 20,708 shares of unvested restricted stock.
16 Mr. Shreiner’s ownership includes 94,986 shares in Fulton’s ESPP and held jointly with his spouse, 78,432 shares of
unvested restricted stock and 144,922 shares which may be acquired pursuant to the exercise of vested stock options.
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17 Mr. Smith’s ownership includes 1,865 shares of unvested restricted stock and 323,344 shares held jointly with spouse,
16,539 shares held in an IRA, and 249,548 shares which may be acquired pursuant to the exercise of vested stock options.
18 Mr. Stewart’s ownership includes 1,865 shares of unvested restricted stock, 89,635 shares held in a grantor retained
annuity trust and 89,283 shares held by The Stewart Foundation. Mr. Stewart disclaims beneficial ownership of any of
The Stewart Foundation shares beyond his pro rata interest.
19 Mr. Water’s ownership includes 1,865 shares of unvested restricted stock.
20 Mr. Wenger’s ownership includes 37,625 shares held jointly with his spouse, 80,046 shares of unvested restricted stock,
63,557 shares held in Fulton’s 401(k) Plan and 144,922 shares which may be acquired pursuant to the exercise of vested
stock options. Also includes 2,742 shares held in Fulton’s 401(k) Plan by his spouse and 512 shares held by Mr. Wenger
as custodian for his children.
21 This information is based solely on a Schedule 13G filed with the SEC on January 29, 2014 by BlackRock, Inc., which
reported sole voting power and sole dispositive power as to 12,213,263 shares, as of December 31, 2013.
22 This information is based solely on a Schedule 13G filed with the SEC on February 3, 2014 by State Street Corporation,
which reported shared voting power and shared dispositive power as to 12,320,269 shares, as of December 31, 2013.
23 This information is based solely on a Schedule 13G filed with the SEC on February 11, 2014 by The Vanguard Group,
which reported sole voting power and sole dispositive power as to 10,762,246 shares, and shared voting power and shared
dispositive power as to 108,888 shares, as of December 31, 2013.
24 This information is based solely on a Schedule 13G filed with the SEC on February 14, 2014 by Janus Capital Management
LLC, which reported shared voting power and shared dispositive power as to 10,723,375 shares, as of December 31, 2013.
The Schedule 13G filed with the SEC also noted that Janus Capital has a direct 96.74% ownership stake in INTECH
Investment Management (“INTECH”) and a direct 99.61% ownership stake in Perkins Investment Management LLC
(“Perkins”). Due to the above ownership structure, holdings for Janus Capital, Perkins and INTECH were aggregated for
purposes of this filing.
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Meetings and Committees of the Board of Directors
INFORMATION CONCERNING DIRECTORS
There were ten (10) regular and special meetings of the Board of Directors of Fulton and forty-eight (48) meetings
of the standing committees of the Board of Directors of Fulton during 2013. No director attended fewer than 75% of
all meetings of the Board of Directors, all of the meetings of the board committees on which a director served, or the
aggregate number of meetings of the Board of Directors and of the board committees on which he or she served in 2013.
The Board of Directors of Fulton has the following regular standing committees: Audit, Executive, Human
Resources, Nominating and Corporate Governance and Risk. The following table represents the membership on each
Fulton committee as of the date of this proxy statement:
Joe N. Ballard 1
John M. Bond, Jr. 1 2
Craig A. Dally 1
Denise L. Devine 1
Patrick J. Freer 1
George W. Hodges 1 2 3
Albert Morrison III 1
R. Scott Smith, Jr.
Gary A. Stewart 1
Ernest J. Waters 1
E. Philip Wenger
Human
Resources
Member
Chair
Member
Vice Chair
Member
Audit
Executive
Chair
Vice Chair
Member
Member
Member
Member
Chair
Member
Member
Vice Chair
Member
Nominating and
Corporate
Governance
Member
Risk
Member
Vice Chair
Member
Chair
Chair
Member
Member
Vice Chair
Ex-officio Member 4
1-Independent Director
2-Audit Committee Financial Expert
3-Lead Director
4-Ex-officio member per bylaws
Human Resources Committee Interlocks and Insider Participation
Fulton maintains an HR Committee, and its membership consists only of independent directors. All members of
the HR Committee meet the independence requirements of the NASDAQ listing standards. More information regarding
the HR Committee can be found in the “Compensation Discussion and Analysis” on page 23. There are no interlocking
relationships, as defined in applicable SEC regulations, involving members of the HR Committee. Certain directors may
have indirect relationships described in “Related Person Transactions” on page 18. The HR Committee is responsible for,
among other things, recommending the compensation and equity awards for the Executives to the Board of Directors,
administration of Fulton’s ESPP and the 401(k) Plan, approving employment agreements for non-executive officers of
Fulton and fulfilling other broad-based human resources duties. The HR Committee met a total of twelve (12) times in
2013. The HR Committee is governed by a formal charter, which was last amended in September 2013, and which is
available on Fulton’s website at www.fult.com.
Other Board Committees
All members of the Audit Committee meet the independence requirements of the NASDAQ listing standards,
and the rules and regulations of the SEC. Each of Directors Bond and Hodges have been determined to qualify, been
designated by the Board of Directors, and agreed to serve, as an Audit Committee “financial expert” as defined by
the SEC regulations. Director Hodges has served as a “financial expert” of Fulton since 2008, and Director Bond was
designated as an additional “financial expert” by Fulton’s Board of Directors in 2013. The Audit Committee met thirteen
(13) times during 2013. The Audit Committee is governed by a formal charter, which was last amended in June 2013, and
which is available on Fulton’s website at www.fult.com. The Audit Committee’s pre-approval policy and procedure for
audit and non-audit services is set forth in its charter. The functions of the Audit Committee include, among other things:
sole authority to appoint, evaluate, retain, or terminate the independent auditor; direct responsibility for the compensation
and oversight of the work of the independent auditor; oversight of the overall relationship with the independent auditor;
meeting with the independent auditor to review the scope of audit services; reviewing and discussing with management
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and the independent auditor annual and quarterly financial statements and related disclosures; overseeing the internal
audit function, including hiring and replacing the chief audit executive; reviewing periodic reports from the loan review
function; reviewing and approving related person transactions; establishing procedures and handling complaints
concerning accounting, internal accounting controls, or auditing matters, and certain risk management matters as outlined
in the Audit Committee Charter. In addition, with respect to any bank subsidiary of Fulton that has not established its own
independent audit committee, it is intended that Fulton’s Audit Committee, in carrying out its responsibilities, will also
satisfy the obligations imposed on such bank subsidiary of Fulton relating to the establishment and duties of an independent
audit committee as set forth in Section 36 of the Federal Deposit Insurance Act and its implementing regulations.
All the members of the Nominating and Corporate Governance Committee meet the independence
requirements of the NASDAQ listing standards. The Nominating and Corporate Governance Committee met eight (8)
times during 2013. The Nominating and Corporate Governance Committee is responsible for, among other things,
recommending to the Board of Directors the nominees for election to the Board of Directors and assisting the Board
of Directors with corporate governance matters including, but not limited to, the review and approval of all additions,
deletions or changes to the Code of Conduct, Governance Guidelines and the responsibility for guidelines and procedures
to be used by directors in completing board evaluations used in monitoring and evaluating the performance of the Board
of Directors and committees. The Nominating and Corporate Governance Committee also has the primary responsibility
for determining annually the compliance of Fulton’s directors and Executives with Fulton’s stock ownership guidelines.
The Nominating and Corporate Governance Committee operates pursuant to its charter, which was last amended in July
2013, and is available on Fulton’s website at www.fult.com.
The Executive Committee met one (1) time during 2013. Except for the powers expressly excluded in Section 5 of
Article III of the Bylaws, the Executive Committee exercises the powers of the Board of Directors between board meetings.
The Risk Committee, which was previously known as the Risk Management Committee, met eight (8) times
during 2013. The Risk Committee is responsible for providing oversight of the risk management function of Fulton,
including assisting the Board of Directors with its oversight of Fulton’s policies, procedures and practices relating to
assessment and management of Fulton’s enterprise-wide risks, including those risks identified in Fulton’s Enterprise
Risk Management Policy, currently, credit risk, market risk, liquidity risk, operational risk, legal risk, compliance and
regulatory risk, reputation risk and strategic risk. The Risk Committee operates pursuant to its charter, which was last
amended in March 2014, and is available on Fulton’s website at www.fult.com.
Board’s Role in Risk Oversight
Although Fulton’s Risk Committee is primarily responsible for overseeing the management of Fulton’s risks,
the Board of Directors continues to regularly review information regarding Fulton’s exposure to credit risk, market
risk, liquidity risk, operational risk, compliance and regulatory risk, legal risk, reputation risk, and strategic risk, as
well as Fulton’s strategies and tactics to monitor, control and mitigate its exposure to these risks. In addition, the HR
Committee is responsible for overseeing the management of risks relating to all of Fulton’s compensation plans. The
Audit Committee shares with the Risk Committee a general oversight role in Fulton’s risk management process in the
context of the Audit Committee’s responsibility for financial reporting and its evaluation and assessment of the adequacy
of Fulton’s internal control structure. The Nominating and Corporate Governance Committee manages risks associated
with the independence of the Board of Directors, potential conflicts of interest and governance matters. While each of
Fulton’s committees are responsible for evaluating certain risks, Fulton’s Risk Committee is primarily responsible for
overseeing the management of such risks for Fulton, and the entire Board of Directors is regularly informed through
committee reports and review of committee meeting minutes about such risks.
The Board of Directors also utilizes Fulton’s Chief Risk Officer and other members of Fulton’s Enterprise Risk
Management Committee, which is Fulton’s officer-level risk management committee, to oversee and manage existing
and emerging risks and report to the Board of Directors and the Risk Committee on those risks. This officer-level risk
management committee provides additional oversight for Fulton’s risk management and compliance programs. In addition,
in December 2013, Fulton’s Board of Directors adopted revised formal Risk Vision and Risk Appetite Statements which
set forth both the qualitative and quantitative parameters within which Fulton will pursue its growth strategies. These
documents also outline the general framework within which Fulton manages risk in the context of Fulton’s core values
and its management philosophy, which seeks to balance the interests of Fulton’s shareholders, customers, employees and
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the communities that it serves. These core values are embedded in Fulton’s corporate strategic plan and its management
philosophy and guide the actions of the Board of Directors and Fulton’s management and employees. Fulton’s framework
for risk management consists of three pillars: 1) Business units, bank operations, shared services and corporate staff
office functions have primary responsibility for risk management and compliance, and they each drive deployment,
process management, controls, policies and procedures, training and communication; 2) Corporate Risk Management
(consisting of compliance, loan review, contract and vendor management, and other risk management activities) has
oversight responsibility for risk management and compliance, and Corporate Risk Management educates, advises and
monitors business unit risk and compliance activities; and 3) Fulton’s Internal Audit periodically independently validates
the effectiveness of risk management activities and operational controls, and reports results to management and the Board
of Directors.
Fulton’s risk appetite is centered on Fulton’s objective to maintain a strong financial condition throughout all
economic cycles. Fulton’s Board of Directors and the committees that monitor risk continue to assess and manage risk,
including the establishment, tracking and reporting of key risk indicators within the primary risk categories of credit,
market, liquidity, operational, legal, compliance and regulatory, reputation and strategic risk, and report to management
and the Board of Directors. Fulton’s key risk indicator targets reflect Fulton’s commitment to strong asset quality and
liquidity with ready access to external funding at competitive rates. Finally, Fulton engages in ongoing risk assessment,
capital management and stress testing to ensure that Fulton has adequate capital to absorb potential losses under various
stress scenarios.
Lead Director and Fulton’s Leadership Structure
Director Hodges currently serves as Fulton’s Lead Director and is the independent chair of the Executive
Committee. The Board of Directors has made a determination that a structure that includes a Lead Director and a
combined Chairman/CEO is appropriate for Fulton. Pursuant to the Governance Guidelines, the Board of Directors
designates for a term of at least a year, and publicly discloses in the Fulton proxy statement, the independent non-
employee director who will lead the non-employee directors’ executive sessions and preside at all meetings of the Board
of Directors at which the Chairman is not present. The Governance Guidelines also require that the Lead Director shall,
as appropriate: serve as a liaison between the Chairman and the independent directors; approve information sent to the
Board of Directors; approve meeting schedules to assure that there is sufficient time for discussion of all agenda items;
and have the authority to call meetings of the independent directors.
Similar to many public companies, the leadership structure of Fulton combines the positions of Chairman and
CEO. This structure permits the CEO to manage Fulton’s daily operations and provides a single voice for Fulton when
needed. Fulton believes that separation of these roles is not necessary because the Lead Director acts to counterbalance the
combined Chairman and CEO positions. In addition, as of the date of this proxy statement, approximately 82% of Fulton’s
directors (9 out of 11) are independent under applicable NASDAQ standards, and approximately 80% of the Nominees for
election at the 2014 Annual Meeting (8 out of 10), are independent under applicable NASDAQ standards, which provides
an appropriate level of independent oversight at Board of Directors meetings and executive sessions. Finally, Fulton’s HR
Committee, Nominating and Corporate Governance Committee and Audit Committee are all currently, and will continue
to be, comprised solely of independent directors.
Executive Sessions
The independent directors of the Fulton Board of Directors met five (5) times in executive session at which only
independent directors were present in 2013. The Chair of the Executive Committee, George W. Hodges, who also served
as the Lead Director, conducted these executive sessions of the independent directors of the board.
Annual Meeting Attendance
Pursuant to Fulton’s Governance Guidelines, attendance by directors in person is expected at the Annual Meeting
unless a member of the Board of Directors is excused. All members of the Board of Directors, except for one (1) member
whose absence was excused by the Chairman, attended the 2013 Annual Meeting.
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Director Education and Board Development
Fulton encourages the directors to attend director education programs as part of its corporate governance and
general board education process. These director education programs are in addition to the education and development
opportunities that are provided during Fulton Board of Directors meetings and seminars. For example, third parties are
periodically asked to provide the Board of Directors with presentations on governance, the economy and other topics of
interest. In addition, Directors Dally and Hodges completed the requirements for the NACD Board Leadership Fellow
Program in 2013. In order to become NACD Fellows, individuals must demonstrate their knowledge of the leading trends
and practices that define exemplary corporate governance, and commit to developing professional insights through a
sophisticated course of ongoing study.
Legal Proceedings
There are no material legal proceedings to which any director, officer, nominee, affiliate or principal shareholder,
or any associate thereof, is a party adverse to Fulton or in which any such person has a material interest adverse to Fulton.
Related Person Transactions
Financial Products and Services Some of the current directors and Executives of Fulton, their family members
and the companies with which they are associated were customers of, and/or had banking transactions with, Fulton’s
subsidiaries during 2013. These transactions included deposit accounts, trust relationships, loans and other financial
products and services provided in the ordinary course of business by different Fulton subsidiaries. All loans and
commitments to lend made to such persons and to the companies with which they are associated were made in the
ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable loans with persons not related to the lender, and did not involve more than a normal risk of
collectability or present other unfavorable features. It is anticipated that similar transactions will be entered into in the
future. By using Fulton’s products and services, directors and officers have the opportunity to become familiar with the
wide array of products and services offered by Fulton’s subsidiaries to customers.
Other Transactions Applicable SEC regulations require Fulton to disclose transactions with certain related
persons where the amount involved exceeds $120,000. However, a person who has a position or relationship with a
firm, corporation, or other entity that engages in a transaction with Fulton is not deemed to have a material interest in a
transaction where the interest arises only from such person’s position as a director of the other entity and/or arises only
from the ownership by such person in the other entity if that ownership is under ten percent, excluding partnerships.
Amounts paid to entities in which a related person does not have a material interest or were obtained by a low bid pursuant
to a formal request for proposal to provide services are not required to be disclosed.
During 2013, Fulton had one director who was associated with a law firm which provided various legal services
to Fulton or its affiliate bank subsidiaries. The Albertson Law Office, West Deptford, New Jersey, has provided legal
services to subsidiaries of Fulton for a number of years, and Fulton expects that this firm may continue to provide services
to Fulton or its subsidiaries in the future. Director Albertson, who retired from Fulton’s Board of Directors in 2013, is a
partner with more than a ten percent interest in the law firm. During 2013, Fulton paid the Albertson Law Office a total of
$162,410 in legal fees and expenses related to loan transactions and other matters. Some of these fees and expenses were
paid by parties other than Fulton in certain transactions.
Fulton considered the above related person transactions with Director Albertson and other related person
transactions of other members of the Board of Directors and senior officers that do not require specific disclosure, when
it made the determinations that eight (8) of Fulton’s ten (10) director nominees, or approximately 80% of its directors who
are standing for election at the 2014 Annual Meeting, are independent in accordance with the NASDAQ listing standards.
See “Information about Nominees, Directors and Independence Standards” on page 7 for more information.
Family Relationships SEC regulations generally require disclosure of any employment relationship or transaction
with a related person where the amount involved exceeds $120,000. In fiscal year 2013, there were no family relationships
among any of the members of the Board of Directors and senior management of Fulton, except for Messrs. Wenger and
Roda, who are related by marriage and are brothers-in-law. Further, Mr. Brad Roda, the brother-in-law of Mr. Wenger and
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brother of Mr. Roda, was also employed by Fulton. In 2013, Mr. Brad Roda received annual compensation consisting of
base salary, equity awards and cash bonus totaling approximately $123,650, plus other benefits on the same basis as other
similarly situated employees. Mr. Brad Roda became SVP/Division Sales Manager-Merchant Services of Fulton Bank in
2010, and has been employed by Fulton in various positions since 1981. In addition, as of December 31, 2013, other family
relationships existed among senior management and some of the approximately 3,620 full-time equivalent employees of
Fulton and its subsidiaries. These Fulton employees participate in compensation, benefit and incentive plans on the same
basis as other similarly situated employees.
Related Person Transaction Policy and Procedures Fulton does not have a separate policy specific to related
person transactions. Under the Code of Conduct, however, employees and directors are expected to recognize and
avoid those situations where personal or financial interests or relationships might influence, or appear to influence,
the judgment of the employee or director on matters affecting Fulton. The Code of Conduct also requires thoughtful
attention to the problem of conflicts and the exercise of the highest degree of good judgment. Under the Code of Conduct,
directors must provide reasonable notice to Fulton of all new or changed business activities, related person relationships
and board directorships.
In addition, Fulton and its affiliate banks are subject to Regulation O, which governs loans by federally regulated
banks to certain insiders, including an executive officer, director or 10% controlling shareholder of the applicable bank or
bank holding company, or an entity controlled by such executive officer, director or controlling shareholder (an “Insider”).
Each Fulton affiliate bank is required to follow a Regulation O policy that prohibits the affiliate bank from making loans
to an Insider unless the loan (i) is made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable loans with persons not related to the lender; and (ii) does not involve more than the
normal risk of repayment or present other unfavorable features. Fulton and its affiliate banks are examined periodically
by bank regulators and Fulton’s Internal Audit Department for compliance with Regulation O to ensure that internal
controls exist within Fulton and its affiliate banks to monitor Fulton’s compliance with Regulation O.
In accordance with Fulton’s Audit Committee Charter and NASDAQ listing standards, the Audit Committee
is charged with the responsibility to review the terms of, and approve, related person transactions. This responsibility
includes reviewing an annual report regarding the related person transactions, if any, with each member of Fulton’s Board
of Directors and senior management during the prior year. At a meeting in February 2014, the Audit Committee reviewed
all existing related person transactions involving Fulton’s directors and Executives. The Audit Committee concluded
that the loans and other banking services provided to the directors and Executives of Fulton and their related interests
were provided in the ordinary course of business and on substantially the same terms as those prevailing at the time for
comparable transactions with others. The Audit Committee also reviewed all other related person transactions for any
potential conflict of interest situations with the directors of Fulton and the Executives, and concluded that there were no
conflicts present, and ratified and approved all the transactions reviewed.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires Fulton’s Executives, the principal accounting officer, directors, and
any persons owning 10% or more of Fulton’s common stock, to file with the SEC, in their personal capacities, initial
statements of beneficial ownership on Form 3, statements of changes in beneficial ownership on Form 4 and annual
statements of beneficial ownership on Form 5. Persons filing such beneficial ownership statements are required by SEC
regulation to furnish Fulton with copies of all such statements filed with the SEC. The rules of the SEC regarding the filing
of such statements require that “late filings” of such statements be disclosed in Fulton’s proxy statement. Based solely
on Fulton’s review of Forms 3 and 4 and amendments thereto furnished to Fulton during the 2013 fiscal year, including
Forms 5 and amendments thereto furnished to Fulton, and on written representations from Fulton’s directors, Executives
and other officers, Fulton believes that all such statements were timely filed in 2013, except for a Form 4 for Patrick S.
Barrett filed late on December 6, 2013 to report a restricted stock award of 30,000 shares granted December 2, 2013 due
to an administrative oversight, and a Form 5A filed by Craig A. Roda on February 12, 2014 to report approximately 201
shares received in 2012 as dividends and not included on Mr. Roda’s Form 5 filed in 2013.
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Board and Committee Evaluations
Pursuant to its charter, the Nominating and Corporate Governance Committee is to review and recommend to
the Board of Directors guidelines and procedures to be used by directors in monitoring and evaluating the performance
of the Board of Directors and committees. The Board of Directors and committees, except the Executive Committee,
conduct an annual self-evaluation of the performance of the Board of Directors and committees. Anonymous board and
committee evaluation questionnaires were last completed in the fourth quarter of 2013. The results were compiled by
Fulton’s Legal Department and presented to the Nominating and Corporate Governance Committee in December 2013,
and the members of each committee also received a summary report of the results of their committee’s questionnaire. The
Nominating and Corporate Governance Committee reported the results to the Board of Directors at its December 2013
regular meeting.
Compensation of Directors
In 2013, the Board of Directors reviewed the overall cash and equity compensation paid to the Fulton Board of
Directors. A survey of peer compensation was also prepared by Fulton’s compensation consultant. Each member of the
Board of Directors of Fulton is paid a retainer fee and meeting fees for his or her services as a director, except that no
fee is paid to any director who is also a salaried officer of Fulton. Thus, Mr. Wenger did not receive any director fees
or additional compensation in 2013 for serving as a member of the Board of Directors. Non-employee directors receive
a quarterly retainer of $8,750 in cash. Non-employee directors are also paid a cash fee of $2,000 for each Board of
Directors meeting attended and $1,000 in cash for each committee meeting attended on a non-board meeting day, except
the $1,000 meeting fee is not paid where the committee meeting for a standing committee is held on the day before or
the day of a monthly Board of Directors meeting attended by the director. The Board of Directors has also approved, in
certain circumstances, the payment of a $500 per meeting cash fee for attending certain committee meetings. Directors
are paid a cash fee of $2,000 for any special Board of Directors meeting attended. Prior to the third quarter of 2013, the
chairperson of the Audit Committee was paid a quarterly cash fee of $2,500, and the chairpersons of all other committees
of the Board of Directors, and the Lead Director, were each paid a quarterly cash fee of $1,875. Effective with the
third quarter of 2013, the Board of Directors increased the quarterly fees paid to the Lead Director to $7,500 and each
committee chairperson receives $3,125. In addition, Directors are also paid $1,000 in cash for attendance at Fulton
sponsored educational seminars and other meetings attended, but these seminars and meetings are not included for
purposes of calculating director attendance rates since they are a voluntary activity.
Pursuant to the 2011 Directors’ Equity Participation Plan (the “2011 Director Plan”), each non-employee director
received $20,000 in shares of restricted stock, rounded up to the next whole share, as a retainer in 2013. This director
equity award was granted on May 1, 2013, and the restricted stock will vest one year from the grant date in accordance
with the terms of the 2011 Director Plan. In addition, Fulton’s Board of Directors regularly reviews the annual retainer
amounts paid in cash and equity from time to time. During a review in 2013, the Board of Directors also approved a stock
award, without restriction or vesting requirements, with a market value, at the time of grant on November 1, 2013, equal
to $15,000, rounded up to the next whole share. A stock award is expected to be made shortly after Fulton’s 2014 Annual
Meeting to all non-employee directors that are elected at the Annual Meeting and an additional award is anticipated to be
made on November 1, 2014.
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Fulton also reimburses directors for certain business and other director-related expenses incurred in the
performance of their service as directors of Fulton and provides non-employee directors with a $50,000 term life insurance
policy while they are directors. Certain directors have elected to participate in the Fulton Deferred Compensation Plan,
under which a director may elect not to receive his or her cash director’s fees when earned, but instead, to receive them,
together with interest, in a lump sum or in installments over a period of up to twenty (20) years following retirement. The
only current non-employee Fulton directors who have previously established accounts to defer fees or had balances from
prior years are Directors Bond, Devine and Smith. Certain Fulton directors also serve on the boards of various Fulton
subsidiary banks, and these directors are compensated with a retainer, meeting fees or both for their service on each of
those individual boards. The following table summarizes all of the compensation paid to and received by each Fulton
non-employee director who served during 2013.
DIRECTOR COMPENSATION TABLE
Name 1
Stock
Awards 2
Option
Awards
Fees
Earned
or Paid in
Cash
Non-Equity
Incentive
Plan
Compensation
Jeffrey G. Albertson
Joe N. Ballard
John M. Bond, Jr.
Craig A. Dally
Denise L. Devine
Patrick J. Freer
Rufus A. Fulton, Jr.
George W. Hodges
Donald W. Lesher, Jr.
Albert Morison III
R. Scott Smith, Jr.
Gary A. Stewart
Ernest J. Waters
($)
($)
19,667
58,000
69,750
68,000
63,000
57,000
19,667
90,425
22,667
68,500
53,000
63,000
57,500
0
35,000
35,000
35,000
35,000
35,000
0
35,000
0
35,000
35,000
35,000
35,000
($)
0
0
0 5
0
0
0
0
0
0
0
0 6
0
0
($)
0
0
0
0
0
0
0
0
0
0
0
0
0
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
0
0
0
0
0
0
0
0
0
0
0
0
0
All Other
Compensation 3 4
Total
($)
0
0
0
0
0
0
0
0
0
0
16,558 7
0
0
($)
19,667
93,000
104,750
103,000
98,000
92,000
19,667
125,425
22,667
103,500
104,558
98,000
92,500
1 Directors listed represent all the non-employee directors of Fulton during 2013. Director Ballard is retiring from Fulton
effective with the 2014 Annual Meeting. Directors Albertson, Fulton and Lesher retired from Fulton effective with the
2013 Annual Meeting.
2 Fulton’s non-employee directors were granted stock and restricted stock as part of their 2013 compensation pursuant to
the 2011 Director Plan. A $20,000.00 equity award in 1,819 shares of restricted stock with a one year vesting period was
granted on May 1, 2013. A $15,000.00 equity award in 1,230 shares of stock without any vesting restrictions was granted
on November 1, 2013. The awards were rounded up to the next whole share of Fulton stock, and the amount shown does
not reflect the value of any dividends accrued in vested or unvested restricted stock. Directors Albertson, Fulton and
Lesher retired from Fulton and were not eligible to receive the equity awards in 2013.
3 Unless otherwise noted, the amount excludes perquisites and other personal benefits with an aggregate value of less than
$10,000. Fulton’s methodology to calculate the aggregate incremental cost of perquisites and other personal benefits was
to use the amount disbursed for the item. Where a benefit involved assets owned by Fulton, an estimate of the incremental
cost was used.
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4 In addition to the fees listed in the table, Fulton also paid $48 per year for an individual $50,000 term life insurance
policy for each of the directors during 2013. Some of Fulton’s directors also serve on boards of Fulton’s affiliate banks
and received director fees for bank board service. During 2013, Director Albertson received $4,450 in fees from Fulton
Bank of New Jersey, Director Ballard received $16,500 in fees from The Columbia Bank, Director Bond received $15,850
in fees from The Columbia Bank, Director Dally received $17,800 in fees from Lafayette Ambassador Bank, Director
Hodges received $27,750 in fees from Fulton Bank, N.A., and Director Waters received $27,750 in fees from Fulton
Bank, N.A.
5 Fulton directors did not receive options as part of their 2013 compensation; however, as of December 31, 2013, Mr. Bond
held 78,728 exercisable options that previously were awarded to him by Columbia Bancorp, which was acquired by Fulton
in February 2006.
6 Fulton directors did not receive options as part of their 2013 compensation; however, as of December 31, 2013, Mr. Smith
held 249,548 exercisable options that previously were awarded to him by Fulton.
7 Includes $13,348 for club fees and other perquisites received by Director Smith during 2013.
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INFORMATION CONCERNING COMPENSATION
Compensation Discussion and Analysis
Executive Summary
As discussed in detail below, Fulton believes that the compensation of its Executives should reflect Fulton’s
overall performance and the contribution of its Executives to that performance. Cash awards under Fulton’s Variable
Compensation Plan (“Variable Plan” or the “VCP”) and the Amended and Restated Equity and Cash Incentive
Compensation Plan (the “2013 Plan”) are determined based on performance goals and the HR Committee’s subjective
assessment of Fulton’s and the Executives’ performance in the preceding year. In 2014, the Executives each received
cash incentive awards for their performance in 2013. Those cash incentive awards were based on an assessment of
2013 scorecard performance, which fell below the target level for each Executive, and other factors. 2012 performance
qualified the Executives for equity awards in 2013 and the grant date value of actual awards the Executives received on
April 1, 2013 ranged from $252,952 to $371,586.
As outlined in Fulton’s January 2014 earnings release, for the year ended December 31, 2013, filed as an
exhibit to Fulton’s Current Report on Form 8-K filed with the SEC on January 21, 2014, Fulton reported net income of
$161.8 million, or 83 cents per diluted share, a 3.8 percent increase in comparison to the 80 cents per diluted share earned
for the same period in 2012. This was the first year with Mr. Wenger serving as Fulton’s CEO, and 2013 was a year of
good progress and positioning Fulton for the future. Fulton increased its loan portfolio, accomplishing one of Fulton’s key
strategic priorities, and overall asset quality improved significantly, as seen in Fulton’s lower provision for credit losses
and lower non-performing loan levels year over year. Fulton also continued to deploy capital prudently to support organic
growth and through share repurchases and cash dividends.
2013 Compensation Program Changes
Fulton believes that it needs to offer competitive compensation in order to recruit, motivate and retain qualified
Executives. To that end, the HR Committee undertook the following compensation program initiatives in 2013:
Shareholder Approval of 2013 Plan
• In 2013, the HR Committee designed amendments to the 2004 Stock Option and Compensation Plan (the “2004
Stock Plan”) with its compensation consultant and submitted the amendments to shareholders as the 2013 Plan at the 2013
Annual Meeting. Shareholders approved the 2013 Plan at the 2013 Annual meeting. The 2013 Plan added performance
features and other updated equity plan design features to seek to ensure that future awards continue to effectively link
pay with performance and qualify as fully deductible compensation expense to Fulton for federal income tax purposes.
The 2013 Plan also provides authority to the HR Committee to make cash-based performance compensation awards to
eligible participants, including the Executives. In addition to incentivizing Executives with a new pay for performance
methodology, the HR Committee intends to make awards that qualify as “performance-based” compensation for purposes
of Section 162(m) of the Tax Code under the 2013 Plan, allowing Fulton to treat such awards as deductible expense for
income tax purposes.
Changes to CEO Cash Bonus Award Level Determination
• The HR Committee increased the target for the CEO’s cash bonus for 2013. After a review with its compensation
consultant, the HR Committee increased the target from 75% to 85% of salary.
Changes to Equity Award Level Determination for CEO
• For 2013, the long term incentive (“LTI”) award target performance level recommended by the HR Committee’s
compensation consultant was 125% of salary for CEO and 75% of salary for the other Executives. In 2012, these targets
were 75% and 50%, respectively. For grants made in 2013, Fulton increased its formal target award levels from 100%
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of salary for the CEO to 125% of salary, in order to increase the proportion of pay contingent on long-term company
performance and to position total compensation for the CEO near the 50th percentile of the market at the target level
of performance. In 2013, other Executives had a formal LTI target award level of 75% of salary, the same level as 2012.
The change in the long-term incentive target percentage for the CEO was supported by a review of peer compensation
practices and consultation with the compensation consultant.
• Similar to 2012, the equity awards granted in 2013 by Fulton used the same annual award date of April 1 so
that the LTI award could be considered by the HR Committee at the same time as the cash incentive awards based on each
Executive’s performance in the preceding year.
2013 Executive Compensation Decisions
During 2013, the HR Committee made the following awards and decisions impacting compensation for
the Executives:
Peer Group The peer group Fulton used for 2013 was updated at the recommendation of Fulton’s compensation
consultant. After a review, to better align the median of the peer group metrics with those of Fulton, Fulton deleted three
peers and added six new peers.
Salaries In 2013, the Executives received the following salary adjustments:
Executive
2012 Base Salary
2013 Base Salary
Wenger
Nugent
Shreiner
Roda
Rohrbaugh
$625,000
$530,000
$400,000
$370,000
$450,000
$900,000
$544,575
$411,000
$380,175
$456,188
Mr. Wenger received a base salary increase in connection with his promotion to CEO effective January 1, 2013.
As a result, his new salary was within 2% of the market median of Fulton’s peer group as determined by the compensation
consultant. Messrs. Nugent, Shreiner, Roda and Rohrbaugh each received base salary increases ranging from 1.375% to
2.75%, based on an assessment of performance and to bring such Executives more in line with salaries of comparable
executives employed by institutions within Fulton’s peer group. These non-CEO 2013 salary increases were effective
April 1, 2013.
Cash Bonus Awards As in previous years, actual payout levels and cash awards to the CEO and the other
Executives were determined based on HR Committee discretion, plus a scorecard which evaluated performance in four
categories: Corporate Financial Objectives compared to Peers; Risk/Control/Liquidity; Superior Customer Experience;
and Employee Engagement Objectives. Mr. Wenger’s 2013 cash bonus award was approved subject to terms of the
2013 Plan.
% of Target - Determined under
2013 Cash Incentive scorecard
Wenger
Other Executives
94%
94%-95%
2013 Cash
Incentive Award
$503,370
$124,048 to $177,861
Equity Awards Under the terms of the 2004 Stock Plan, Fulton’s five-year total shareholder return (“TSR”)
through December 31, 2012, as measured relative to its peer group, ranked Fulton in the second quartile among its peer
group, permitting the HR Committee to grant equity awards in 2013 to the CEO and Executives. Actual awards in 2013
were determined at the discretion of the HR Committee and were approved in a range of 57.73% to 70.11% of base salary,
on the grant date of April 1, 2013. On the date of grant, these awards were valued from $252,952 to $371,586.
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Compensation Philosophy
Objectives Fulton’s executive compensation philosophy and programs are intended to achieve three objectives:
• Align interests of the Executives with shareholder interests - Fulton believes that the interests of the Executives
should be closely aligned with those of its shareholders. Fulton attempts to align these interests by evaluating the Executives’
performance in relation to key financial measures 1 which it believes correlate to consistent long-term shareholder value
and increasing profitability, without compromising Fulton’s culture and overall risk profile.
• Link pay to performance - Fulton believes in a close link between pay to the Executives and the overall
performance of Fulton on both a short-term and long-term basis. It seeks to reward the Executives for their contributions
to Fulton’s financial and non-financial achievements and to differentiate rewards to Executives based on their
individual contributions.
• Attract, motivate and retain talent - Fulton believes its long-term success is closely tied to the attraction,
motivation and retention of highly talented employees and a strong management team. While a competitive compensation
package is essential in competing for and retaining talented employees in a competitive market, Fulton also believes that
non-monetary factors, such as a desirable work environment and successful working relationships between employees
and managers, are critical to providing a rewarding employee experience.
To achieve these three objectives, Fulton provides the following elements of Executive compensation:
• Base Salary - Fulton generally sets Executive base salaries near the market median at comparable peer
companies and to reflect individual job responsibilities, experience and tenure.
• Annual Performance Awards - Annual cash incentives are designed to focus the attention of the Executives
on the achievement of annual business goals. Under Fulton’s annual cash incentive plans, awards at the target level of
performance are designed to position total cash compensation near the market median. Fulton’s cash incentive plans
provide the Executives with the opportunity to earn cash compensation above the median for superior performance.
• Equity Awards - Fulton believes in providing LTI awards in the form of equity in order to focus the Executives
on delivering long-term performance and shareholder value. The LTI program is also designed to provide the Executives
with a long-term wealth-building opportunity that balances short-term incentives, ensures a focus on the long-term
stability of the organization and incorporates vesting terms that encourage executive retention. Fulton believes in equity
award levels that are fair and market competitive, both in isolation and in the context of total compensation.
• Benefits - Fulton believes in providing benefits that are competitive in the marketplace and that encourage the
Executives to remain with Fulton. Retirement benefits are designed to provide reasonable long-term financial security.
• Perquisites - Fulton believes in providing the Executives and other officers with basic perquisites that are
necessary for conducting Fulton’s business.
HR Committee Membership and Role
The HR Committee is currently comprised of five independent directors, all of whom are appointed annually by
Fulton’s Board of Directors. Each member of the HR Committee qualifies as an independent director under the NASDAQ
listing standards and meets NASDAQ additional independence requirements specific to compensation committee
members, and no member of the HR Committee is a party to a related person transaction in excess of $120,000 as more
fully described in “Related Person Transactions” on page 18. There are no interlocking relationships, as defined in the
regulations of the SEC, involving members of the HR Committee. For a further discussion on director independence,
see the “Information about Nominees, Directors and Independence Standards” section on page 7 of this proxy statement.
1 See discussion of scorecards in the Variable Plan section beginning on page 29.
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Pursuant to its charter, which is available on Fulton’s website at www.fult.com, and consistent with NASDAQ
rules, the role of the HR Committee is to assist the Board of Directors in evaluating and setting salaries, bonuses and
other compensation of the Executives, to administer Fulton’s equity and other compensation plans and to take such
other actions, within the scope of its charter, as the HR Committee deems necessary or appropriate. The HR Committee
relies upon such performance data, statistical information and other data regarding executive compensation programs,
including information provided by Fulton’s Human Resources Department, Fulton’s officers and outside advisors, as it
deems appropriate. The HR Committee has unrestricted access to individual members of management and employees
and may ask them to attend any HR Committee meeting or to meet with any member of the HR Committee. The HR
Committee also has the power and discretion to retain, at Fulton’s expense, such independent counsel and other advisors
or experts as it deems necessary or appropriate to carry out its duties.
Fulton’s executive compensation process consists of establishing targeted overall compensation for each
Executive and then allocating that targeted total compensation among base salary, incentive compensation and equity
awards. Fulton does not have a policy or an exact formula with regard to the allocation of compensation between cash
and non-cash elements, except that the HR Committee has established a methodology and an award matrix for cash
bonus payments under the Variable Plan and 2013 Plan and LTI non-cash elements, as described in more detail below.
Consistent with Fulton’s compensation philosophy, however, the HR Committee determines the amount of each type of
compensation for the Executives by: reviewing publicly available executive compensation information of twenty peer
group companies (as defined and listed below); consulting with outside advisors and experts; considering the complexity,
scope and responsibilities of the individual’s position; consulting with the CEO with respect to the other Executives;
assessing possible demand for the Executives by competitors and other companies; and evaluating the compensation
appropriate to attract executives to Fulton’s headquarters in Lancaster, Pennsylvania.
Role of Management
Management assists the HR Committee in recommending agenda items for its meetings and by gathering and
producing information for these meetings. As requested by the HR Committee, the CEO and other Executives participate
in HR Committee meetings to provide background information, compensation recommendations for other officers,
performance evaluations and other items requested by the HR Committee. As part of the performance evaluation process,
all the Executives are asked to complete an annual self-assessment of their overall performance. The HR Committee,
without management present, reviews the CEO’s self-assessment. The CEO reviews the self-assessment forms prepared
by the other Executives and shares his comments and recommendations with respect to the performance of the other
Executives. The Executives are not present for the HR Committee’s discussions, deliberations and decisions with respect
to their individual compensation. The HR Committee Charter, last amended in 2013, provides that the CEO may not be
present during HR Committee voting or HR Committee deliberations regarding the CEO’s compensation. The Board of
Directors, in executive session, with only the independent directors present, makes all final determinations regarding the
compensation of the Executives, after considering recommendations made by the HR Committee.
Compensation Plan Risk Review
The HR Committee, at its February 25, 2014 meeting, conducted its annual compensation plan risk review of
all compensation plans in effect as of December 31, 2013. At this meeting, Fulton’s Chief Risk Officer discussed his
review of Fulton’s compensation plans with a focus on three compensation risk management components: 1) governance
and policies; 2) inherent risk in plan design and mitigating factors; and 3) internal controls and monitoring. The HR
Committee has reviewed and considered all of such plans and practices and does not believe that Fulton’s compensation
policies and practices create risks that are reasonably likely to have a material adverse effect on Fulton.
The HR Committee considered various factors that have the effect of mitigating risk and, with the assistance of
Fulton’s Chief Risk Officer, and Legal and Human Resources staff members, reviewed Fulton’s compensation policies and
practices for all employees, including the elements of Fulton’s executive compensation programs, to determine whether
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any portion of such compensation encourages excessive risk taking. The HR Committee concluded that risks associated
with Fulton’s compensation plans are mitigated by a variety of factors, including:
1) the multiple elements of Fulton’s compensation packages, including base salary, annual cash incentive
programs and equity awards; the fact that equity awards vest over a number of years and that equity awards are generally
intended to motivate employees to take a long-term view of Fulton’s business; and the use of clawbacks, caps and balanced
metrics in certain plans;
2) the structure of Fulton’s annual cash incentive program, which is based on (a) a number of different performance
measures and scorecards to avoid employees placing undue emphasis on any particular performance metric at the expense
of other aspects of Fulton’s business, and (b) performance targets that do not require undue risk-taking to achieve a stated
metric or performance factor;
3) effective management processes for developing strategic and annual operating plans, and strong internal
financial controls;
4) the review by Fulton’s Internal Audit Department of the controls related to incentive compensation and certain
metrics used to determine executive compensation, such as the Executive scorecards; and
5) proper governance and oversight of Fulton’s programs by the Board of Directors, the HR Committee, Fulton’s
Enterprise Risk Management Committee, Fulton’s Chief Risk Officer and Fulton’s Human Resources staff.
Shareholder Say-on-Pay Proposal and Frequency of Future Proposals
As required by SEC rules, Fulton submitted a non-binding Say-on-Pay proposal to its shareholders at Fulton’s
2013 Annual Meeting, and the shareholders approved Fulton’s recommendation in favor of Fulton’s 2013 Say-on-Pay
proposal. This year’s non-binding 2014 Say-on-Pay proposal is described on page 52.
Fulton viewed the results of the 2013 Say-on-Pay proposal as supporting its compensation policies and decisions
for the Executives, and the Board will consider this year’s non-binding proposal as a barometer of shareholder support
for the current compensation programs for the Executives. Not counting broker non-votes, approximately 91% of the
shareholders who returned a ballot in 2013 voted in favor of, and approved, Fulton’s 2013 Say-on-Pay proposal. In
particular, the HR Committee viewed the number of votes cast in favor of Fulton’s 2013 Say-on-Pay proposal to be a
positive endorsement of the current pay programs and practices. Fulton will continue to monitor the level of support for
each annual Say-on-Pay proposal. However, the outcome of any annual non-binding shareholder Say-on-Pay vote will
not be the only factor that the HR Committee and Board of Directors will consider in making future decisions related to
executive compensation.
In 2011, Fulton submitted to shareholders a non-binding proposal, asking shareholders whether Fulton should
submit its Say-on-Pay proposal to shareholders every one, two or three years. This proposal is commonly known as a
“Say-When-on-Pay” proposal. The shareholders approved Fulton’s recommendation that the Say-on-Pay proposal should
be submitted to shareholders on an annual basis. Although Fulton believes that having an annual Say-on-Pay vote is
appropriate for 2014, Fulton’s HR Committee and Board of Directors will continue to evaluate the frequency of the non-
binding Say-on-Pay proposal and might recommend that shareholders approve a different frequency in the future. Under
current SEC rules, publicly traded companies are required, no less frequently than once every six years, to provide for
a separate shareholder Say-When-on-Pay advisory vote in proxy statements for annual meetings to determine whether
the Say-on-Pay vote will occur every one, two or three years. Fulton anticipates submitting a new “Say-When-on-Pay”
proposal to shareholders on or before Fulton’s annual meeting of shareholders in 2017.
Use of Consultants
The HR Committee retained McLagan, an Aon Hewitt company, as its sole independent compensation consultant
for 2013. McLagan has served as the sole independent compensation consultant for the HR Committee since June 2010.
McLagan previously was retained in 2009 for a compensation plan risk review project. McLagan has performed a variety
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of engagements during 2013, including conducting a compensation market analysis related to Fulton’s Executives, a
scorecard review and an overall compensation policy review, extensive work related to updating Fulton’s 2004 Stock Plan
in the form of the 2013 Plan and providing general compensation advice regarding Fulton’s Executives.
At its February 25, 2014 meeting, the HR Committee considered the independence of McLagan in light of the
SEC rules and NASDAQ listing standards related to compensation committee consultants. The HR Committee requested
and received a report from McLagan addressing the independence of McLagan and its consultants, including the following
factors: (1) other services provided to Fulton by McLagan; (2) fees paid by Fulton as a percentage of Aon’s total revenue;
(3) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (4) any business or
personal relationships between the consultants and a member of the HR Committee; (5) any company stock owned by the
consultants; and (6) any business or personal relationships between Fulton’s executive officers and the consultants. The
HR Committee discussed these considerations and concluded that the work performed by McLagan and its consultants
involved in the engagements did not raise any conflict of interest, and further concluded that McLagan continues to be an
independent HR Committee consultant.
During 2013, McLagan was instructed by the HR Committee to compare Fulton’s current compensation practices
and executive compensation payments with those of its peers, evolving industry best practices and regulatory guidance.
Based on that comparison, McLagan was asked to recommend changes in Fulton’s executive compensation practices that
were consistent with Fulton’s executive compensation philosophy and objectives as described above.
McLagan completed a number of assignments at the direction of the HR Committee during 2013, including
a benchmarking analysis of total compensation, base salary, short-term incentive payments and LTI awards against
Fulton’s twenty (20) member peer group listed below. In doing its review, McLagan used the peer data as a point of
reference for measurement of different compensation elements, but this was not the only determinative factor in its
final recommendations to the HR Committee. The HR Committee considered the benchmarking data of Fulton’s peer
companies along with other information from the compensation consultant, in making its determinations in 2013. McLagan
also undertook other projects during 2013, including assisting Fulton with updates to the 2013 Plan and developing a new
performance-based cash and equity award methodology for new performance awards in 2014.
The specific instructions given to the consultant and fees to be paid were generally outlined in engagement letters
that described the scope and performance of duties under each project. Fulton does not have a policy that limits the other
services that an executive compensation consultant can perform. McLagan and its affiliates did not provide additional
services in 2013 with associated fees in excess of the $120,000 SEC disclosure threshold for a compensation consultant.
Use of Peer Groups
The HR Committee last reviewed and updated Fulton’s peer group in 2012. At that time, the HR Committee
asked McLagan to review Fulton’s then current peer group members, consider new peers and recommend a new
peer group to be used by Fulton starting in 2013. To establish an appropriate peer group, McLagan initially defined
a broad list of all financial institutions with $10 to $40 billion in assets nationwide and, from these companies, made
recommendations based on a variety of factors, including geographic focus, business model, asset size, loan portfolio, and
revenue composition to determine the most relevant comparators. Six new peers were added to the peer group and three
existing peers were deleted, primarily due to differences in revenue mix and asset size. The deleted peer members were:
First Horizon National Corporation, First Niagara Financial Group, Inc. and Synovus Financial Corp. The peers added for
2013 were: F.N.B. Corporation, Hancock Holding Company, IBERIABANK Corporation, Prosperity Bancshares, Inc.,
Umpqua Holdings Corporation and Wintrust Financial Corporation. During 2013, this peer group was utilized for both
compensation decisions and to gauge Fulton’s overall financial performance. When a peer group member announces that
it is being acquired, Fulton has historically deleted the company from the peer group. The HR Committee will continue
to evaluate the peer group to confirm that continues to be appropriate for Fulton.
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The peer group is also used by Fulton for financial performance purposes (the “Performance Peer Group”).
During 2013, this Performance Peer Group was used to determine the annual equity award grants, and for certain
scorecard performance factors under the VCP and 2013 Plan, as discussed below. As of December 31, 2013, the twenty
(20) members of the Performance Peer Group used for 2013, and their stock trading symbols were:
Associated Banc-Corp (ASBC)
BOK Financial Corporation (BOKF)
Commerce Bancshares, Inc. (CBSH)
F.N.B. Corporation (FNB)
Hancock Holding Company (HBHC)
International Bancshares Corporation (IBOC)
Prosperity Bancshares, Inc. (PB)
TCF Financial Corporation (TCB)
Umpqua Holdings Corporation (UMPQ)
Webster Financial Corporation (WBS)
BancorpSouth, Inc. (BXS)
City National Corporation (CYN)
Cullen/Frost Bankers, Inc. (CFR)
FirstMerit Corporation (FMER)
IBERIABANK Corporation (IBKC)
People’s United Financial, Inc. (PBCT)
Susquehanna Bancshares, Inc. (SUSQ)
UMB Financial Corporation (UMBF)
Valley National Bancorp (VLY)
Wintrust Financial Corporation (WTFC)
Elements of Executive Compensation
Fulton’s executive compensation program currently provides a mix of base salary, cash incentive and equity-
based plans, as well as retirement benefits, health plans and other benefits as follows:
Base Salary Base salary is an important element of executive compensation because it provides the Executives
with a consistent level of monthly income. Consistent with its compensation philosophy, Fulton generally seeks to set
base salary for the Executives in line with the market median overall. Fulton sets salaries on an individual-by-individual
basis and seeks to provide base salary appropriate for the person’s position, experience, responsibilities and performance.
In making recommendations to the Board of Directors regarding the appropriate base salaries for 2013, the HR
Committee received a recommendation from McLagan, its compensation consultant, which considered base salaries paid
by members of the Performance Peer Group to peer officers who held similar roles and who were positioned similarly to
the Executives in their respective organizations.
With regard to the compensation paid to Mr. Wenger, the HR Committee also considered his performance based
on a scorecard that included the attainment of certain performance goals, results of his management decisions, the earnings
of Fulton during the previous year and other factors, such as the HR Committee’s perspective of his overall performance.
With regard to the compensation paid to the other Executives, the HR Committee also considered information provided
by Mr. Wenger for Messrs. Nugent, Shreiner, Roda and Rohrbaugh, which included an assessment of each Executive’s
level of individual performance, attainment of performance goals set forth in individual scorecards, overall contributions
to the organization and salary history. The HR Committee also considered its own perceptions of the performance of
each Executive.
On March 19, 2013, after a review of the Executives’ competitive positioning to market using Performance
Peer Group data and internal equity comparisons presented by McLagan, the HR Committee recommended, and the
Board of Directors approved, base salary adjustments effective April 1, 2013, and Fulton set the annual base salaries for
Messrs. Wenger, Nugent, Shreiner, Roda and Rohrbaugh at that time. The 2014 base salary for each Executive is listed in
footnote 2 of the “Summary Compensation Table” on page 41.
Variable Plan The HR Committee believes that annual performance-based incentive bonuses are valuable in
recognizing and rewarding individual achievement and, by focusing more on performance pay opportunities for the
Executives, it can more closely align Fulton’s compensation program with shareholder interests. Fulton’s Variable Plan
and 2013 Plan are designed so that no incentive bonus is paid unless Fulton achieves a predetermined performance
threshold metric. Prior to 2011, the HR Committee used an earnings per share (“EPS”) threshold performance target.
However, starting with performance in 2011, based on a recommendation by McLagan, the HR Committee changed the
threshold performance target to one based on return on equity (“ROE”). McLagan indicated that there were two reasons
for its recommendation. First, using relative EPS growth could lead to abnormal results in certain circumstances, such
as when earnings in a prior year are negative. Second, because Fulton’s Executive scorecards already rely heavily on
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relative performance to peers in several categories, an absolute performance hurdle, such as a predetermined ROE target,
would better balance the overall approach to determining incentives. When it set the new ROE target, the HR Committee
viewed this performance target as a reachable goal, but not a target which guarantees payment of an incentive bonus, to
insure that the Executives are paid for performance. Although Fulton used a ROE performance hurdle as a plan threshold
for the 2011, 2012 and 2013 Variable Plan awards the 2013 awards under the 2013 Plan, and has decided to do so again in
2014, a different threshold performance target other than ROE may be used in future years.
The HR Committee, at its January 2014 meeting, determined that the 2013 ROE target set for 2013 performance
of 6.06% was met by Fulton, and for 2013 was in excess of 80% of Fulton’s budgeted ROE of 7.57%. Therefore, because
the threshold performance target was achieved for the 2013 Variable Plan, each Executive was eligible to receive a VCP
award, or in the case of the CEO, a 2013 Plan award, equal to a percentage of base salary paid to the individual Executive
during the year the award was earned. Actual awards may be greater than or less than targets set by the HR Committee,
up to a predetermined maximum, with the variability attributable to individual and company performance. These award
payouts are substantially based on scorecard results with the HR Committee exercising negative discretion in its sole
judgment, as appropriate. Generally, performance factors that are more directly aligned with the interests of shareholders,
such as financial performance, are given greater weight. Based upon the recommendation and the market review
conducted by Fulton’s compensation consultant at the time the Variable Plan was approved originally, the HR Committee
determined that the award amounts payable to each Executive should be a percentage of the Executive’s base salary. For
his cash incentive 2013 Plan award, Mr. Wenger, as CEO, had threshold, target and maximum award percentages that
were different from the other Executives. His 2013 annual cash performance-based incentive bonus award was made
pursuant to the terms and provisions of the 2013 Plan, and the HR Committee approved it as a Performance Compensation
Award under Article 10 of the 2013 Plan. For 2013, all Executives utilized a similar scorecard, except category rating and
individual cash award payouts were determined under the annual cash incentive award matrix below and approved by the
HR Committee.
Scorecard
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
2013 Annual Cash Incentive Award Matrix
% of Target CEO Payout % SEVP Payout %
0.0%
0.0%
0.0%
0.0%
25.0%
37.5%
50.0%
58.3%
66.7%
75.0%
83.3%
91.7%
100.0%
0.0%
0.0%
0.0%
0.0%
42.50%
63.75%
85.00%
99.17%
113.33%
127.50%
141.67%
155.83%
170.00%
0.0%
0.0%
0.0%
0.0%
50.0%
75.0%
100.0%
116.7%
133.3%
150.0%
166.7%
183.3%
200.0%
2013 Award Level
Threshold
Target
Maximum
For 2013, McLagan recommended, and the HR Committee approved, increasing the CEO target to 85%, up
from 75%, and maintaining the target for other officers at 50%. This change for the CEO was recommended by Fulton’s
compensation consultant because the increase in opportunity levels better aligned the annual cash incentives paid to the
CEO with the Performance Peer Group median.
In early 2013, the HR Committee reviewed and approved the scorecards to be used in 2013 and determined
that the Executives should all be reviewed based on a uniform scorecard with similar category weightings, except for
Mr. Rohrbaugh who, due to his position as Chief Risk Officer, should have a scorecard with a greater focus on risk-
related categories as a result of his job responsibilities. As a result, all the non-CEO Executives, except Mr. Rohrbaugh,
had category ratings of 50%, 30%, 10% and 10% for Corporate Financial Objectives, Risk/Control/Liquidity, Superior
Customer Experience and Employee Engagement Objectives, respectively. For Mr. Rohrbaugh, each of these categories
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was weighted differently at 40%, 40%, 10% and 10% for Corporate Financial Objectives, Risk/Control/Liquidity,
Superior Customer Experience and Employee Engagement Objectives, respectively. Mr. Wenger, as the CEO, had
category ratings of 62.5 and 37.5% for the performance-based categories of Corporate Financial Objectives and Risk/
Control/Liquidity, while the HR Committee reserved negative discretion related to Superior Customer Experience and
Employee Engagement Objectives to lower Mr. Wenger’s score. For 2013, the four scorecard performance factors and the
sub-categories under each factor were:
2013 Performance Factors
Sub-categories
● Corporate Financial Objectives
● Risk/Control/Liquidity
Earnings Per Share Growth; Return on Assets; Return on Equity;
Average Core Deposit Growth; Average Loan Growth; Non-Interest
Income Growth; and Efficiency Ratio measured relative to the
Performance Peer Group.
Capital Rating; Non-Performing Assets/Total Assets relative
to the Performance Peer Group; Liquidity and Funding; and
Regulatory Compliance.
● Superior Customer Experience
Customer Satisfaction Index and Household Growth.
● Employee Engagement Objectives
Management Succession; Corporate Diversity; Corporate Employee
Retention; Employee Engagement Survey Results; and Salaries and
Benefits Efficiency Ratio.
For each of the Executives, performance measurement criteria were established for each critical performance
factor sub-category. While, for the most part, specific, objective, measureable criteria were used, some scorecard
sub-categories require a subjective determination to be made by the HR Committee. For certain objectively measured
performance categories, scorecard results depended upon Fulton’s quartile ranking among the Performance Peer Group,
and all factors were rated with a numerical scale of 4 to 1. The top of the scale range was a 4 for 1st quartile performance,
or excellent results, down to a score of 1 for 4th quartile performance, or results below expectations. The following is
a tabular summary of the critical performance factors with the weights and the total score for each Executive on their
2013 scorecards.
2013 Scorecard
Critical Performance Factors
● Corporate Financial Objectives Score
● Risk/Control/Liquidity Score
● Superior Customer Experience Score
● Employee Engagement Objectives Score
● Total Score for each Executive
Wenger
Nugent
Shreiner
Roda
Rohrbaugh
62.5%
37.5%
NA 1
NA 1
2.44
50%
30%
10%
10%
2.44
50%
30%
10%
10%
2.44
50%
30%
10%
10%
2.44
40%
40%
10%
10%
2.45
The HR Committee reviewed the overall 2013 performance and scorecard results for each Executive, and
determined that each of the Executives achieved a level of performance in 2013 that qualified the Executive for an
annual cash incentive award slightly below each Executive’s target payout established under the Variable Plan, or in
the case of the CEO, under the 2013 Plan. In addition to the scorecard results and information provided on individual
critical performance factors for each Executive, in determining the annual cash incentive award percentages for each
Executive, the HR Committee also considered the efforts and contributions to Fulton’s financial performance of each of
the Executives. The HR Committee also considered the overall progress Fulton has made in continuing to enhance its risk
and regulatory compliance infrastructures and strengthen its regulatory compliance and risk management functions to
address identified deficiencies in these areas, the heightened level of regulatory expectations and substantially increased
new requirements.
1 The HR Committee for the CEO cash award has discretion to reduce or eliminate the amount of the annual cash
incentive award under the 2013 Plan as the HR Committee may determine.
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In particular, the HR Committee weighed the pace of progress in building-out Fulton’s risk and regulatory
compliance infrastructures relative to current regulatory expectations in that regard. In weighing these factors, the
HR Committee determined to exercise its discretion under the Variable Plan and the 2013 Plan to recommend that the
Board of Directors reduce by 30% the amount of the annual cash incentive award paid to each of the Executives for
performance during 2013, determined based on the scorecard performance factors and formulas described above. The
HR Committee took this action to emphasize the need to continue to strengthen Fulton’s risk management framework and
regulatory compliance programs and to encourage the Executives to accelerate their efforts in these areas. In addition,
the reduction was intended to provide tangible evidence of the importance the Board of Directors attaches to the need to
strengthen Fulton’s risk and regulatory compliance management infrastructures and to reinforce the “tone from the top”
regarding the critical importance of accelerating completion of that work to build stronger and sustainable regulatory
compliance and risk management processes that will support Fulton as it continues to grow. In addition, and for these
same reasons, the Board of Directors reduced the cash incentive awards paid to Fulton’s other officers by 15%.
Options and Restricted Shares The Executives, except Mr. Rohrbaugh, received restricted stock awards in
2013 under the terms of the 2004 Stock Plan prior to the approval of the 2013 Plan by shareholders in April 2013.
The HR Committee did not award any restricted stock to Mr. Rohrbaugh in 2013 because he received an award in
November 2012 in connection with the acceptance of his employment with Fulton. The 2004 Stock Plan defines the total
number of shares available for awards each year based on Fulton’s five-year TSR performance relative to its peer group.
Fulton believes equity-based compensation aligns the interests of the Executives and other eligible officers with those of
Fulton’s shareholders, and encourages them to “think like owners.” Therefore, Fulton believes that equity awards are an
appropriate means of motivating, rewarding and compensating the Executives and other key officers based on the future
performance of Fulton. Historically, “pay for performance” included the discretionary award of options and restricted
shares to the Executives. Pursuant to the 2004 Stock Plan approved by shareholders at the 2004 Annual Meeting, Fulton
was authorized to award incentive stock options, non-qualified stock options and restricted stock for a period of ten years
to key employees of Fulton, its affiliate banks and its other subsidiaries. Stock options were previously awarded to the
Executives, but more recently, restricted stock, has been the traditional award type for Fulton to the Executives, pursuant
to a formula applied by the HR Committee. Under the 2013 Plan, the HR Committee will determine the number of shares
granted in any calendar year. However, for awards made in 2013 and before, the 2004 Stock Plan provided that the total
number of shares available for grant to all participants, including the Executives, in any calendar year in the form of stock
options or restricted stock was to be determined based on the performance of Fulton, measured in terms of TSR for the
immediately preceding five-year period relative to the Performance Peer Group. This process for determining the number
of shares available for grant in a particular year was stated in Section 5.04 of the 2004 Stock Plan, as follows:
The number of Shares available for Awards in any calendar year shall be determined depending
upon the performance of Fulton measured in terms of TSR relative to a Peer Group, determined at
the sole discretion of the HR Committee, for the five-year period immediately preceding the grant of
the Award. The number of Shares available for Awards shall be determined in accordance with the
following schedule:
Fulton’s TSR Ranking among the Peer Group
for Prior Five-Year Period
Top Quartile
Second Quartile
Third Quartile
Fourth Quartile
Percent of Total Outstanding Shares
Available for Awards
for Plan Year
1.00%
0.75%
0.50%
At the Discretion of the HR Committee
but limited to no more than 0.50%
Under the 2004 Stock Plan, an option recipient who retired at age fifty-five or older with five or more years of
consecutive employment as defined in the 2004 Stock Plan, may exercise his or her currently exercisable stock options
for up to two years from the retirement date (but not beyond the date when the option would otherwise expire). For option
or restricted stock recipients who retire at age sixty or older with ten or more years of consecutive employment as defined
in the 2004 Stock Plan, unvested stock options become exercisable and unvested restricted stock grants become vested
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JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 33
OPERATOR RaMelP
on the retirement date. Upon a change in control, as defined in the 2004 Stock Plan, 1 options not previously exercisable
become exercisable, and unvested restricted stock vests. Generally under the 2004 Stock Plan, unvested stock options
become exercisable and unvested restricted stock vests upon the death or disability of the Executive, and his or her
authorized representative shall have a period of one year following such termination of employment to exercise any vested
option granted, but such period of time shall not exceed the option’s original expiration date.
2013 Long-term Incentive Awards During 2012 and 2013, the HR Committee worked in conjunction with
McLagan to develop a new performance-based long-term incentive award methodology for 2014 that incorporates
performance-vested equity earned based on Fulton’s future performance. The HR Committee expects to grant these
performance-based awards to the Executives in first quarter of 2014 with a variety of performance features pursuant to
the 2013 Plan.
For 2013, individual awards of restricted shares were made to the Executives on April 1, 2013, for performance
in 2012. Awards to other eligible participants were granted on April 1, 2013. Awards were in the form of restricted stock,
stock options, or a combination of stock options and restricted stock, and were determined by the Board of Directors
based on recommendations of the HR Committee and management.
Prior to 2011, the HR Committee did not establish specific equity award target levels for individual performance
or overall corporate profitability. The number of options and restricted shares awarded to each Executive was primarily at
the discretion of the HR Committee. In 2011, as a guide in making individual awards to the Executives, the HR Committee
established a long-term incentive award matrix based on Fulton’s five-year TSR ranking among its Performance Peer
Group for the prior year. Equity awards in 2013 were made to each Executive as a percent of the Executive’s base salary
in accordance with the following matrix, with the actual award being subject to the discretion of HR Committee, but
generally not to exceed the maximum of the equity award guidelines below:
2013 LTI Award Matrix
CEO 2013 LTI Award
SEVP 2013 LTI Award
TSR Performance
Percent of Target Payout
Percent of Salary
Percent of Salary
Top Quartile
Second Quartile
Third Quartile
Bottom Quartile
125%-150%
100%-125%
75%-100%
50%-75%
156.3%-187.5%
125.0%-156.3%
93.8%-125.0%
62.5%-93.8%
93.8%-112.5%
75.0%-93.8%
56.3%-75.0%
37.5%-56.3%
For 2013 the LTI target award levels recommended by McLagan was 125% for the CEO and 75% for other
Executives. In the prior year, the LTI target award levels were 75% and 50% for the CEO and other Executives, respectively.
As a result of Fulton’s 2012 TSR performance being in the second quartile, the 2013 award to the Executives, including
Mr. Wenger who, for these 2013 LTI awards, the HR Committee decided should be awarded at the same level as the other
1 “Change in Control” of Fulton shall mean:
(a) a change in the Board during any twenty-four (24) month period ending on or after the effective date of the Plan, if the
individuals who were directors of Fulton at the beginning of the period cease during such period to constitute at least a
majority of the Board;
(b) the acceptance and completion of a tender offer or exchange offer by any entity, person or group (including any
affiliates of such entity, person or group, other than an Affiliate of Fulton) for twenty-five percent (25%) or more of the
outstanding voting power of all capital stock of Fulton;
(c) the acquisition by any entity, person or group (including any affiliates of such entity, person or group) of beneficial
ownership, as that term is defined in Rule 13d-3 under the Exchange Act, of Fulton’s capital stock entitled to twenty-five
percent (25%) or more of the outstanding voting power of all capital stock of Fulton;
(d) a merger, consolidation, division, share exchange, or any other transaction or a series of transactions outside the ordinary
course of business involving Fulton (a “Business Combination”), as a result of which the holders of the outstanding voting
capital stock of Fulton immediately prior to such Business Combination, excluding any shareholder who is a party to
the Business Combination (other than Fulton) or is such party’s affiliate as defined in the Exchange Act, hold less than
seventy-five percent (75%) of the voting capital stock of the surviving or resulting corporation; or
(e) the transfer of substantially all of the assets of Fulton other than to a wholly owned subsidiary of Fulton.
33
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 34
OPERATOR RaMelP
Executives because the TSR period occurred prior to him becoming CEO, was in the range of approximately 58% to
70%. While the LTI awards made in 2013 were approximately 30% higher than 2012 LTI awards, Fulton’s second quartile
TSR performance would have permitted higher awards to be made in the second quartile range, up to 93.8% of salary
for the Executives as provided in the table above. The reduction was in part based on management’s recommendation
to temper the amount of awards for budget and other considerations such as the current economic and regulatory
environment. Other factors that the HR Committee considered in determining the number of restricted shares to be
awarded to each Executive included the recommendation of the compensation consultant, the CEO’s recommendations
for the other Executives, previous stock option and restricted stock awards to each Executive, Fulton’s performance and
each Executive’s achievement of scorecard goals.
In 2013, Fulton granted a total of 617,869 stock options and 378,206 restricted shares to all participants in the 2004
Stock Plan, with no stock options and 107,748 restricted shares granted to the Executives and the remaining 617,869 stock
options and 270,458 restricted shares granted to other Fulton employees.1 In accordance with the terms of the 2004 Stock
Plan, restricted shares accrue dividends, which are reinvested in similarly restricted shares. During 2013, Fulton made
equity awards to the Executives for 2012 performance in the form of restricted stock which vests after three years as follows:
Executive 2
Wenger
Nugent
Shreiner
Roda
Number of
Restricted Shares
31,161
32,089
22,654
21,844
Grant Date
4/1/2013
4/1/2013
4/1/2013
4/1/2013
Grant-date Fair Value
@ $11.58 per Share
$360,834
$371,586
$262,332
$252,952
Employee Stock Purchase Plan The ESPP was designed to advance the interests of Fulton and its shareholders
by encouraging Fulton’s employees and the employees of its affiliate banks and other subsidiaries to acquire a stake in
the future of Fulton by purchasing shares of the common stock of Fulton. Currently, Fulton limits payroll deduction and
annual employee participation in the ESPP to $7,500. During 2013, Mr. Roda participated in ESPP payroll deduction and
has shares in the ESPP. Mr. Shreiner has shares in the ESPP, but is not currently purchasing shares by payroll deduction.
Mr. Rohrbaugh is a new participant enrolled in the ESPP, but has not yet purchased any shares by payroll deduction. No
other Executives participate in the ESPP.
Defined Contribution Plan – 401(k) Plan Fulton provides a qualified defined contribution plan, in the form of
a 401(k) Plan, to the Executives and other employees and provides for employer matching contributions that satisfy a
non-discrimination “safe-harbor” available to 401(k) retirement plans. This safe-harbor employer matching contribution
is equal to 100% of each dollar a participant elects to contribute to the 401(k) Plan, but the amount of contributions that
are matched by Fulton is limited to 5% of eligible compensation. In addition, the Executives, except for Mr. Rohrbaugh,
and certain employees are eligible for an additional employer profit sharing contribution under the 401(k) Plan, which for
2013 was equal to 5% of a participant’s eligible compensation.
Deferred Compensation Agreements Fulton’s nonqualified deferred compensation plans include (1) the Fulton
Deferred Compensation Plan, under which officers, directors and advisory board members can elect to defer receipt of
fees and certain management employees can elect to defer receipt of cash compensation, and (2) a series of essentially
identical Supplemental Executive Retirement Plan Agreements entered into with a certain group of senior managers,
including the Executives, for the purpose of crediting them with full contributions each year equal to the contributions
they would have otherwise been eligible to receive under the 401(k) Plan, if not for the limits imposed by the Internal
Revenue Code, as amended (the “Tax Code”) on the amount of compensation that can be taken into account under a tax-
qualified retirement plan. Fulton’s deferred compensation contributions for the Executives in 2013 are stated in footnote
8 of the “Summary Compensation Table” on page 41. The deferred compensation plan accounts of each participant are
1 Restricted shares listed are as of December 31, 2013 and exclude any accrued reinvested dividends.
2 Mr. Rohrbaugh did not receive a restricted share award in 2013 because he received a restricted share award when he
was hired in 2012.
34
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 35
OPERATOR RaMelP
held and invested under the Fulton Nonqualified Deferred Compensation Benefits Trust, with Fulton Financial Advisors,
a division of Fulton Bank, N.A., serving as trustee. The participants are permitted to individually direct the investment
of the deferred amounts into various investment options under the Nonqualified Deferred Compensation Benefits Trust.
Defined Benefit Pension Plans Fulton has not had an historical practice of using defined benefit pension plans
to provide employees or the Executives with retirement benefits, but some defined benefit plans have been acquired
in different merger transactions over time, and any such acquired plans were continued only for the then current plan
participants. However, none of the Executives participate in such pension plans.
Survivors’ Benefit Life Insurance and Other Death Benefits Employees of Fulton and certain of its bank
subsidiaries, who had been employed by Fulton for at least five years as of April 1, 1992, were eligible to participate in a
survivors’ benefit program, which was discontinued on February 1, 2014. This program provided the employee’s spouse,
in the event of the employee’s death prior to retirement, with an annual income equal to the lesser of $25,000 or twenty-
five percent of the employee’s final annual salary. This benefit is paid from the date of death until the employee’s sixty-
fifth birthday, subject to a minimum of ten annual payments having been made. During 2013, Messrs. Wenger, Shreiner
and Roda participated in this program because each was hired before April 1, 1992. Messrs. Nugent and Rohrbaugh were
hired after April 1, 1992 and were not eligible for this benefit. The estates of each of the Executives are also eligible for a
payment equal to two times base salary (plus an amount equal to applicable individual income taxes due on such amounts)
from Fulton pursuant to individual Death Benefit Agreements between Fulton and each Executive, should the Executive
die while actively employed by Fulton. Upon the Executive’s retirement, the post retirement benefit payable upon the
individual’s death is reduced to $5,000.
Health, Dental and Vision Benefits Fulton offers a comprehensive benefits package for health, dental and vision
insurance coverage to all full-time employees, including the Executives, and their eligible spouses and children. Fulton
pays a portion of the premiums for the coverage selected, and the amount paid varies with each health, dental and vision
plan. All of the Executives have elected one of the standard employee coverage plans available.
Retiree Benefit Payments Generally, employees who were hired or joined Fulton as a result of a merger prior
to January 1, 1998, and who retired prior to February 1, 2014 having attained age sixty-five with at least ten years of
full-time service, were eligible for post-retirement benefits. Post-retirement benefits included health coverage plus death
benefits. The level of coverage and the cost to the retiree depends on the retiree’s date of retirement and completed years
of full-time service after attainment of age forty. As a result of their length of service with Fulton, the Executives, except
Mr. Rohrbaugh, were eligible to receive these post-retirement benefits at an annual cost to the Executive similar to other
employees with similar years of service. Since Mr. Nugent retired on December 31, 2013, he is eligible to receive these
post-retirement benefits. Fulton does not provide post-retirement medical, dental and vision benefits to any current full-
time employees of Fulton and its affiliates.
Other Executive Benefits Fulton provides the Executives with a variety of perquisites and other personal benefits
that the HR Committee believes are necessary to facilitate the conduct of Fulton’s business by the Executives and are
reasonable and consistent with the overall compensation program for the CEO and the other Executives. In addition, these
benefits enable Fulton to attract and retain talented senior officers for key positions, as well as provide the Executives
and other senior officers with opportunities to be involved in their communities and directly interact with current and
prospective customers of Fulton. The 2013 amounts are included in the “All Other Income” column of the “Summary
Compensation Table” on page 41 of this proxy statement. The Executives are provided with company-owned automobiles,
club memberships and other executive benefits consistent with their positions. Fulton does not have a direct or indirect
interest in any corporate aircraft. Generally, the Executives travel on commercial aircraft, by train or in vehicles provided
by Fulton. In addition, if spouses accompany an Executive when traveling on business or attending a corporate event,
Fulton pays the travel and other expenses associated with certain spousal travel for the Executive. Fulton also includes
spousal travel and personal vehicle use as part of the Executive’s reported W-2 income.
35
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 36
OPERATOR RaMelP
Pay for Performance
Fulton operates in a highly complex business environment and competes with many well-established financial
services businesses. The annual cash incentive component of Fulton’s Executive compensation program involves awards
that are payable if pre-established corporate and individual performance objectives are achieved. Fulton’s prior equity
compensation plan, the 2004 Stock Plan, also had an award trigger based on Fulton’s performance relative to its peers that
is discussed in the “Options and Restricted Shares” section above. The HR Committee believes that the Variable Plan, the
2013 Plan and the 2004 Stock Plan further Fulton’s business plan and seeks to ensure that the interests of the Executives,
both short-term and long-term, are aligned with the interests of Fulton’s shareholders. The Variable Plan and the 2013 Plan
align these interests by offering each Executive the opportunity to earn an annual cash incentive award upon achieving
both an established corporate performance goal and certain specific individual performance goals, and the 2004 Stock
Plan aligned these interests by offering the Executive the opportunity to earn longer-term compensation through stock
options and restricted stock.
Fulton seeks to continue its pay for performance philosophy with the 2013 Plan, which replaces the Variable
Plan, with future performance based awards that are designed to better align Executive pay and Fulton’s performance.
The core of Fulton’s compensation philosophy is to link pay to performance on both a short-term and long-term basis.
Annual cash incentive awards are “at-risk” performance-based awards because if the ROE threshold target is not met,
or scorecard performance factors are not achieved, then the amount of the annual cash incentive award bonuses may be
reduced, or the Executive may not receive the award. The 2004 Stock Plan awards are “at-risk” because, in addition to
the total annual awards being linked to Fulton’s TSR performance relative to the Performance Peer Group, restricted
shares are subject to vesting and possible forfeiture, maintaining alignment with shareholders regardless of stock price
movement, and options only increase in value if Fulton’s share price increases over the term of the option awards. With
these compensation elements, Fulton seeks to reward the Executives for their contributions to Fulton’s financial and
non-financial achievements. Comparing (i) salary paid in 2013, to (ii) the annual cash incentive awards paid for 2013
performance and LTI awarded in 2013, as outlined below, 49% of the Mr. Wenger’s total compensation was “at-risk”,
as described herein. The 2013 percent of compensation “at-risk” for Messrs. Nugent, Shreiner, Roda and Rohrbaugh
was 50%, 49%, 50% and 43%, respectively. The following table and pie charts show the mix of salary and annual cash
incentive and LTI awards the Executives received in 2013, as reported in the Summary Compensation Table on page 41.
Executive
Salary Paid in 2013
Annual Cash Incentive
Paid for 2013
LTI Awarded in 2013 1
Wenger
Nugent
Shreiner
Roda
Rohrbaugh
$900,000
$540,091
$407,616
$377,044
$454,287
$503,370
$177,861
$134,235
$124,048
$151,124
$360,844
$371,591
$262,333
$252,954
$196,100
2013 Compensation Mix Chart
Salary, Annual Cash Incentive and LTI Award Amounts as a Percentage of Total
Wenger
Nugent
Shreiner
Roda
Rohrbaugh
20%
29%
51%
34%
16%
50%
32%
51%
34%
50%
17%
16%
24%
19%
57%
Cash Incentive
LTI
Salary
1 Mr. Rohrbaugh’s LTI award is the restricted stock award he received in late 2012 when he commenced employment
with Fulton.
36
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 37
OPERATOR RaMelP
Employment Agreements
Fulton believes that a company should provide reasonable severance benefits to employees. For most employees,
Fulton has a policy that, in general, provides for severance benefits to be paid upon a reduction in force or position
elimination. These severance arrangements are intended to provide the employees with a sense of security in making the
commitment to dedicate their professional careers to the success of Fulton. With respect to the Executives and certain
other employees, the severance benefits provided reflect the fact that it may be difficult for them to find comparable
employment within a reasonable period of time. The levels of these benefits for the Executives in the event of change in
control are discussed in footnote 6 in the “Potential Payments Upon Termination and Golden Parachute Table” on page 48
under “Termination Without Cause or for Good Reason - Upon or After a Change in Control.”
On May 30, 2006, Fulton’s Board of Directors approved, with the recommendation of Fulton’s compensation
committee and the compensation consultant at the time, a form of employment agreement to be used for Fulton’s
senior executive officers, including its CEO, Chief Financial Officer and Senior Executive Vice Presidents (the
“Employment Agreements”). The Employment Agreements for Messrs. Wenger, Nugent and Shreiner were amended as
of November 12, 2008, and each continues until terminated. Messrs. Roda’s and Rohrbaugh’s Employment Agreements
became effective as of August 1, 2011 and November 1, 2012, respectively, and each continues until terminated. The
Employment Agreements all provide that the Executive is to receive a base salary, which is set annually, and is entitled
to participate in Fulton’s incentive bonus programs as in effect from time to time. The Executive also is entitled to
participate in Fulton’s retirement plans, welfare benefit plans and other benefit programs.
In Mr. Nugent’s Employment Agreement, he agreed to restrictions on the sharing of confidential information
as well as non-competition and non-solicitation covenants for two years following termination of employment. The
Employment Agreements with Messrs. Wenger, Shreiner, Roda and Rohrbaugh contain restrictions on the sharing of
confidential information as well as non-competition and non-solicitation covenants for one year following termination
of employment. The non-competition and non-solicitation covenants will not apply if the Executive leaves for good
reason or if the Executive’s employment is terminated without cause, as defined in the Employment Agreements. 1 These
provisions of the Employment Agreements are further outlined in the “Potential Payments Upon Termination and Golden
Parachute Table” section on page 48. Messrs. Roda’s and Rohrbaugh’s Employment Agreements are similar to the
Employment Agreements Fulton executed with the other Executives effective as of November 12, 2008, except that the
prior Employment Agreements provide for an excise tax gross-up for taxes applicable to termination payments as a result
of the Executive’s termination. The Employment Agreements executed after 2011 provide that, in the event a payment
to Mr. Roda, Mr. Rohrbaugh, or another newly hired Executive, in connection with their termination of employment,
would result in the imposition of an excise tax under Section 4999 of the Tax Code, such payment would be retroactively
reduced, if necessary, to the extent required to avoid such excise tax imposition and, if any portion of the amount payable
the Executive is determined to be non-deductible pursuant to the regulations promulgated under Section 280G of the Tax
Code, Fulton would be required to pay to the Executive only the amount determined to be deductible under Section 280G.
1 “Cause” shall mean the following:
(a) Executive shall have committed an act of dishonesty constituting a felony and resulting or intending to result directly
or indirectly in gain or personal enrichment at the expense of Fulton;
(b) Executive’s use of alcohol or other drugs which interferes with the performance by the Executive of Executive’s duties;
(c) Executive shall have deliberately and intentionally refused or otherwise failed (for reasons other than incapacity due to
accident or physical or mental illness) to perform Executive’s duties to Fulton, with such refusal or failure continuing for
a period of at least 30 consecutive days following the receipt by Executive of written notice from Fulton setting forth in
detail the facts upon which Fulton relies in concluding that Executive has deliberately and intentionally refused or failed
to perform such duties; or
(d) Executive’s conduct that brings public discredit on or injures the reputation of Fulton, in Fulton’s reasonable opinion.
37
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 38
OPERATOR RaMelP
Other Compensation Elements
162(m) and Tax Consequences Although Fulton takes into account deductibility of compensation, tax deductibility
is not a primary objective of its compensation programs. Section 162(m) of the Tax Code disallows the deductibility by
Fulton of any compensation over $1 million per year paid to certain employees and the Executives unless certain criteria
are satisfied.
409A Changes Section 409A of the Tax Code, effective January 1, 2005, defines what constitutes a “nonqualified
deferred compensation plan,” conditions income tax deferrals under such plans on their compliance with certain distribution,
acceleration, election and funding restrictions, and also imposes excise tax and interest penalties for noncompliance. In
order to preserve intended tax deferrals and to avoid the imposition of excise taxes and interest penalties, Fulton has
identified all such nonqualified deferred compensation plans it maintains and to the extent necessary, timely amended
each, to meet the Section 409A requirements, and to alter the administration of each, where necessary, to comply with
Section 409A. With respect to the Executives, in particular, the deferred compensation agreements and the Employment
Agreements and other agreements summarized above have been amended and restated as of November 12, 2008 for
Section 409A compliance, except in the case of Messrs. Roda and Rohrbaugh who have Employment Agreements
originally prepared to comply with Section 409A.
Discussion of Option and Restricted Stock Grant Timing Fulton does not have a formal written policy as to when
options and restricted shares are granted during the year, but in March 2013, Fulton awarded options and restricted stock
to eligible participants in the 2004 Stock Plan with a grant date of April 1, 2013, so that the LTI award could be considered
by the HR Committee at the same time as the VCP awards. In years prior to 2012, the HR Committee and Board of
Directors historically met in June of each year to consider the award of options and restricted stock to the Executives
and other officers with a July 1 grant date. Fulton does not back date options or grant options retroactively, and does not
coordinate option grants with the release of positive or negative corporate news. The 2004 Stock Plan, and the 2013 Plan
which replaces the 2004 Stock Plan, do not permit the award of discounted options, the reload of stock options or the re-
pricing of stock options. Pursuant to the terms of the 2004 Stock Plan, option prices are determined based on the average
of the high and low trading price on the grant date. Under the 2013 Plan, an option exercise price shall not be less than
100% of the fair market value of Fulton’s stock on the date of grant. The 2013 Plan defines fair market value to be the
closing price on the date of grant, or if no sales of shares were reported on any stock exchange or quoted on any interdealer
quotation system on that day, the price on the next preceding trading day on which such price was quoted.
Stock Hedging Policy and Stock Trading Procedures Fulton has adopted an Insider Trading Policy and
Compliance Procedures to facilitate securities law compliance in a number of areas. Pursuant to this policy, Fulton
requires that all directors, officers, and employees of Fulton and its affiliates adhere to certain procedures when trading
in Fulton common stock or any other security issued by Fulton or its subsidiaries. Among other requirements, directors,
officers and employees of Fulton and its subsidiaries that know of material, non-public information about Fulton may not
(i) buy or sell Fulton stock while the information remains non-public or (ii) disclose the information to relatives, friends or
any other person. In addition, the Executives and directors of Fulton, and senior officers of Fulton’s banking subsidiaries,
are prohibited from engaging in speculative transactions involving Fulton’s securities. This prohibition encompasses
“short sales” and “puts” along with other trading that anticipates a decline in price. These instruments can involve “a bet
against Fulton,” raise issues about the insider knowledge of the person involved or create a conflict of interest and are
therefore prohibited by Fulton’s policy.
Stock Ownership Guidelines Fulton believes that broad-based stock ownership by directors, officers and
employees is an effective method to align the interests of its directors, officers and employees with the interests of its
shareholders. In 2009, Fulton first adopted Governance Guidelines that included a formal share ownership guideline
for directors and the Executives. The director ownership guidelines were updated in September 2013, and each director
is presently encouraged to own at least $175,000 of Fulton common stock, which is five times the annual director cash
retainer, within the later of five full calendar years of first becoming a director, or five full calendar years after the
guideline was changed. A similar guideline exists for the Executives. The guideline for Executives was last updated
and approved in 2013, with a recommended amount of share ownership calculated as a multiple of the Executive’s base
salary, depending upon position. Currently the CEO, President, Chief Financial Officer and the other two Executives
are encouraged to own Fulton stock with a value of at least 2.0, 1.5, 1.5 and 1.0, times their base salary, respectively.
Compliance with the stock ownership guidelines is determined annually based on stock ownership and the closing stock
38
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 39
OPERATOR RaMelP
price as of December 31 of the prior year. Ownership excludes stock options and unvested restricted stock, but includes all
other shares beneficially owned and reported on an individual’s Form 3, Form 4 or Form 5 filed with the SEC, including
shares held in retirement accounts, indirect ownership and jointly held shares. Once an Executive or director has achieved
the ownership guideline, he or she remains in compliance with the ownership guideline regardless of changes in base
salary or stock price, as long as he or she retains the same number of shares or a higher amount. However, if an Executive
is promoted to CEO, President or CFO with a base salary increase, he or she would be allowed a period of five full
calendar years during which the Executive could satisfy the new stock ownership requirement for the new position
and base salary. As described in more detail in footnote 4 on page 13, except for Mr. Rohrbaugh, all of the Executives
have satisfied the stock ownership guidelines for 2013. Mr. Rohrbaugh has until December 31, 2018, to satisfy the stock
ownership guidelines for his position.
Management Succession The topic of management succession is discussed and reviewed at least annually
at Fulton. At the December 2013 meeting of the Executive Committee, senior officers in Fulton’s Human Resources
Department discussed and reviewed the succession planning processes used by management to identify successors for
each Executive at Fulton.
Clawback Policies Compensation recovery policies, or “clawbacks,” began to be used with the enactment of the
Sarbanes-Oxley Act in 2002, which required that, in the event of any restatement based on executive misconduct, public
companies must recoup incentives paid to the company’s CEO and CFO within 12 months preceding the restatement.
Fulton’s CEO and CFO are currently subject to the Sarbanes-Oxley clawback provision which is set forth in Section
304 of the Sarbanes-Oxley Act, and provides that, if an issuer “is required to prepare an accounting restatement due
to material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the
securities laws,” the CEO and CFO shall reimburse the issuer for any bonus or other incentive-based or equity-based
compensation received, and any profits realized from the sale of the securities of the issuer, during the year following
issuance of the original financial report.
In addition, the HR Committee has discussed and is in the process of implementing clawback policies
and procedures in various compensation plans and agreements. This included inserting a clawback provision in
Mr. Rohrbaugh’s Employment Agreement and new senior officer employment agreements. In December 2012, the HR
Committee approved a Compensation Recovery Clawback Provision and a Severance and Golden Parachute Policy for
officers, including the Executives. The HR Committee also has approved a broad general clawback provision in the 2013
Plan approved by shareholders at the 2013 Annual Meeting. Under the 2013 Plan, all cash and equity awards under the
2013 Plan are subject to such deductions and clawback as may be required to be made pursuant to any law, government
regulation or stock exchange listing requirement, or any policy adopted by Fulton whether or not pursuant to any such
law, government regulation or stock exchange listing requirement.
Finally, the Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the SEC adopt rules
that require publicly traded companies to adopt a formal clawback policy. Pending final clawback rules from the SEC,
the HR Committee will continue to monitor and consider the use of clawbacks in any new or amended compensation
agreements and plans with the Executives.
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<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 40
OPERATOR RaMelP
Human Resources Committee Report
The HR Committee reviewed and discussed the foregoing Compensation Discussion and Analysis with
management at their February 25, 2014 and March 17, 2014 meetings and, based on the review and discussions, the HR
Committee recommended to the Board of Directors that the Compensation Discussion and Analysis above be incorporated
in Fulton’s Annual Report on Form 10-K for the year ended December 31, 2013, and the 2014 annual proxy statement,
as applicable.
As described above in the Compensation Discussion and Analysis section, in performing its compensation risk
evaluation, the HR Committee met with the Chief Risk Officer regarding the material risks facing Fulton, and consulted
with human resources personnel about Fulton’s various compensation plans. Based on the foregoing review, the HR
Committee concluded that Fulton’s compensation policies and practices in 2013 did not create risks that are reasonably
likely to have a material adverse effect on Fulton.
Human Resources Committee
Craig A. Dally, Chair
Patrick J. Freer, Vice Chair
Joe N. Ballard
Denise L. Devine
George W. Hodges
40
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 41
OPERATOR RaMelP
SUMMARY COMPENSATION TABLE
Name and Principal
Position 1
Year
Salary 2
Bonus 3
Stock
Awards 4 5
Option
Awards 6
Non-Equity
Incentive
Plan
Compensation
($)
($)
($)
($)
($)
E. Philip Wenger 9
2013
900,000
Chairman and Chief
Executive Officer of Fulton
2012
598,077
2011
501,282
Charles J. Nugent 10
2013
540,091
Senior Executive Vice
President and Chief
Financial Officer of
Fulton
2012
527,308
2011
516,214
James E. Shreiner
2013
407,616
Senior Executive Vice
President of Fulton
2012
393,269
2011
364,431
Craig A. Roda
2013
377,044
Senior Executive Vice
President of Fulton
2012
368,116
2011
351,395
0
0
0
0
0
0
0
0
0
0
0
0
360,844
250,646
230,003
371,591
258,114
423,007
262,333
182,223
398,005
252,954
175,708
0
0
0
0
0
0
0
0
0
0
0
503,370
360,640
322,324
177,861
317,967
331,926
134,235
232,029
228,498
124,048
221,974
57,882
33,512
225,947
Philmer H. Rohrbaugh 11
2013
454,286
150,000
0
Chief Risk Officer and
Senior Executive Vice
President of Fulton
2012
64,040
2011
-
0
-
196,100
-
0
0
-
151,124
0
-
Change in
Pension
Value and
Non-
qualified
Deferred
Compensation
Earnings 7
($)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-
All Other
Compensation 8
Total
($)
($)
147,198
1,911,412
118,380
1,327,743
94,456
1,148,065
128,060
1,217,603
106,403
1,209,792
88,280
1,359,427
77,938
882,122
78,483
886,004
63,722
1,054,656
76,856
830,902
77,782
843,580
67,550
736,286
47,303
802,713
2,790
262,930
-
-
1 Titles and positions listed are as of Fulton’s fiscal year-end of 12/31/2013.
2 Represents the 2011, 2012 and 2013 base salary amounts paid to and earned by each of the Executives named in this
table. On March 17, 2014, upon the recommendation of the HR Committee, the Board approved 2014 annual base salaries
for Messrs. Wenger, Shreiner, Roda and Rohrbaugh of $924,750, $422,303, $390,630, and $468,733, respectively. These
changes to annual base salary are effective April 1, 2014.
3 The HR Committee did not award any bonus payments in 2011, 2012 or 2013 to the Executives, except for the bonus paid
to Mr. Rohrbaugh paid in January 2013 in connection with his acceptance of employment with Fulton.
4 Amounts represent the grant date fair values of restricted stock awards. There were no forfeitures of restricted stock
during 2011, 2012 and 2013 by any of the Executives. The per-share fair values of restricted stock awards are equal to the
average of the high and low trading prices of Fulton stock on the date the shares are awarded. The per-share fair values of
shares awarded on July 1, 2011, was $10.88. The per-share fair value of shares awarded on August 8, 2011, March 30, 2012,
since April 1, 2012 was not a trading day, and April 1, 2013, were $8.92, $10.475 and $11.58, respectively.
The number of restricted stock shares awarded to Messrs. Wenger, Nugent, Shreiner and Roda on July 1, 2011 was
21,140, 18,383, 16,085, and 5,320, respectively. On August 8, 2011, 25,000 restricted stock shares were awarded to each of
Mr. Nugent and to Mr. Shreiner. The number of restricted stock shares awarded to Messrs. Wenger, Nugent, Shreiner and
Roda on April 1, 2012 was 23,928, 24,641, 17,396 and 16,774, respectively. The number of restricted stock shares awarded
to Messrs. Wenger, Nugent, Shreiner and Roda on April 1, 2013 was 31,161, 32,089, 22,654 and 21,844, respectively.
41
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 42
OPERATOR RaMelP
5 The HR Committee did not award Mr. Rohrbaugh an equity award in 2013 because he received a restricted stock award
of 20,000 restricted shares and the per-share fair values of shares awarded on November 1, 2012, was $9.805 per share.
6 Amounts represent the grant date fair values of the options. Except for Mr. Roda, Fulton did not award options
in 2011, 2012 and 2013 to the Executives and there were no forfeitures of options during 2011, 2012 or 2013 by any of
the Executives. The 2001 grant expired in 2011, including the following number of options by Executive: Wenger – 0;
Nugent – 35,815; Shreiner – 20,260; and Roda – 14,109. The 2002 grant expired in 2012, including the following number
of options by Executive: Wenger – 19,898; Nugent – 35,742; Shreiner – 21,706; and Roda – 14,471. The 2003 grant expired
in 2013, including the following number of options by Executive: Wenger – 20,673; Nugent – 35,832; Shreiner – 20,673;
and Roda – 16,538.
The per-option fair value of options granted in 2011 was $2.10. Discussion of the significant assumptions used to determine
these fair values can be found in Note M “Shareholders’ Equity and Stock-Based Compensation Plans,” which starts on
page 95 in the Notes to Consolidated Financial Statements, located in the Fulton Financial Corporation Annual Report on
Form 10-K for the year ended December 31, 2011. In 2011, Mr. Roda was the only Executive to receive options, and the
number of shares under the 2011 options granted to Mr. Roda was 15,958.
7 Fulton has determined that the Executives did not receive above-market earnings on their nonqualified deferred
compensation accounts, and therefore, such earnings are not required to be reported in this table column for 2011, 2012 or
2013. All participants in the nonqualified deferred compensation plan, which also includes senior managers other than
the Executives, are permitted to select various investment options listed in footnote 2 of the “Nonqualified Deferred
Compensation Table” on page 47. The rate of return for an individual participant’s account is based on the performance
of the various investment options selected by each participant.
42
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 43
OPERATOR RaMelP
8 All Other Compensation includes Fulton’s payments for qualified profit sharing plan contributions, qualified employer
matching contributions, nonqualified profit sharing plan contributions, nonqualified employer matching contributions,
club membership fees, use of company provided automobiles, certain travel expenses where spouses traveled with the
Executives and attended Fulton events, plus other personal benefits received by the Executive. The methodology used
to calculate the aggregate incremental cost of perquisites and other personal benefits was to use the amount disbursed
for the items. Where a benefit involved assets owned by Fulton, an estimate of the incremental cost was used. For 2011,
amounts for vehicles include the cost of related items attributed to the company provided vehicle including depreciation,
gasoline, and other expenses. For 2012 and 2013, the amounts are the personal use or other financial benefit the Executive
received for an automobile as reported on their W-2. The “Other Perquisites” column includes personal travel, employee
service awards paid to all employees for achieving certain years of service and other small benefits that individually are
less than ten percent of all perquisites received by the Executive. The breakdown and total of all other compensation for
each Executive for 2011, 2012 and 2013 is shown in the following table:
Name
Year
Qualified
Retirement
Plan Company
Contribution
Nonqualified
Retirement
Plan Company
Contribution
Club
Memberships
Automobile
Perquisites
Other
Perquisites
Total All Other
Compensation
E. Philip Wenger
Charles J. Nugent
James E. Shreiner
Craig A. Roda
Philmer H. Rohrbaugh
($)
25,500
25,000
24,500
25,500
25,000
24,500
25,500
25,000
24,500
25,500
25,000
24,500
0
0
-
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
($)
100,564
67,040
33,908
60,358
60,923
36,733
38,504
37,177
17,787
34,438
34,406
15,125
0
0
-
($)
16,978
16,759
16,001
12,061
12,588
12,993
12,894
12,498
11,959
12,958
14,259
14,201
45,055
0
-
($)
2,921
2,945
17,730
28,502
3,456
12,858
1,038
2,836
8,021
3,113
3,357
7,246
0
0
-
($)
1,235
6,636
2,317
1,639
4,436
1,196
2.033
972
1,455
847
760
6,478
2,248
2,790
-
($)
147,198
118,380
94,456
128,060
106,403
88,280
77,938
78,483
63,722
76,856
77,782
67,550
47,303
2,790
-
9 Effective January 1, 2013, Mr. Wenger was promoted and became Fulton’s Chairman, President and Chief Executive
Officer following the retirement of R. Scott Smith, Jr.
10 Effective December 31, 2013, Mr. Nugent retired as Fulton’s Chief Financial Officer. Effective January 1, 2014, Patrick
S. Barrett became Fulton’s Chief Financial Officer following Mr. Nugent’s retirement.
11 Mr. Rohrbaugh first became an Executive officer effective November 1, 2012, and pursuant to SEC rules, compensation
for 2011 is not included.
43
<12345678>
JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 44
OPERATOR RaMelP
GRANTS OF PLAN-BASED AWARDS TABLE
Name
Grant
Date
Approval
Date 1
Estimated Future or Possible
Payouts Under Non-Equity
Incentive Plan Awards 2
Estimated Future or
Possible Payouts Under
Equity Incentive Plan Awards
Threshold Target Maximum Threshold Target Maximum
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units 3
All Other
Option
Awards:
Number of
Securities
Underlying
Options
Exercise
or Base
Price of
Option
Awards
Closing
Price on
Grant
Date 4
Grant
Date Fair
Value of
Stock and
Option
Awards 5
($)
($)
($)
(#)
(#)
(#)
(#)
(#)
($/Sh)
($/Sh)
($)
E. Philip Wenger
4/1/2013 3/18/2013
-
-
-
E. Philip Wenger
- 3/18/2013
382,500 765,000 1,530,000
Charles J. Nugent
4/1/2013 3/18/2013
-
-
-
Charles J. Nugent
- 3/18/2013
135,153 270,306
540,611
James E. Shreiner
4/1/2013 3/18/2013
-
-
-
James E. Shreiner
- 3/18/2013
102,002 204,004
408,008
Craig A. Roda
4/1/2013 3/18/2013
-
-
-
Craig A. Roda
- 3/18/2013
94,261 188,522
377,044
Philmer H. Rohrbaugh 6 4/1/2013 3/18/2013
-
-
-
Philmer H. Rohrbaugh
- 3/18/2013
113,627 227,254
454,507
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11.56
360,844
-
-
11.56
371,591
-
-
11.56
262,333
-
-
11.56
252,954
-
11.56
-
-
0
-
1 Fulton approved the restricted stock awards at the March 2013 HR Committee and Board meetings, with a grant date of
April 1, 2013. The low trading, high trading, closing, and average of high/low trading prices of Fulton stock on April 1,
2013, were $11.46, $11.70, $11.56 and $11.58, respectively. Fulton also approved a non-equity incentive plan award under
the Variable Plan on March 18, 2013.
2 The Executives were eligible to receive an annual cash incentive award for 2013 pursuant to the Variable Plan, or in the
case of the CEO, the 2013 Plan, that is discussed on page 29.
3 The restricted shares awarded pursuant to the 2004 Stock Plan on April 1, 2013 will cliff vest (100%) three years after
the date of the grant.
4 The grant date closing price of $11.56 is the closing price on April 1, 2013. Closing price of Fulton stock was $11.59 on
the March 18, 2013 Board of Director approval date of all the 2013 equity awards.
5 Grant date fair value of restricted shares awarded on April 1, 2013 was $11.58 per share, which is the average high and
low trading price on April 1, 2013.
6 The HR Committee did not award Mr. Rohrbaugh restricted shares on April 1, 2013, with the other Executives, because
he received an award of restricted stock when he was hired in late 2012.
44
<12345678>
JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 45
OPERATOR RaMelP
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option Awards 1
Stock Awards 2
Name
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of Shares
or Units of
Stock That
Have Not
Vested
(#) 3
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) 4
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)
E. Philip Wenger
E. Philip Wenger
E. Philip Wenger
E. Philip Wenger
E. Philip Wenger
E. Philip Wenger
Charles J. Nugent
Charles J. Nugent
Charles J. Nugent
Charles J. Nugent
Charles J. Nugent
Charles J. Nugent
James E. Shreiner
James E. Shreiner
James E. Shreiner
James E. Shreiner
James E. Shreiner
James E. Shreiner
Craig A. Roda
Craig A. Roda
Craig A. Roda
Craig A. Roda
Craig A. Roda
Craig A. Roda
Craig A. Roda
Philmer H. Rohrbaugh
45,939
40,687
24,000
24,000
10,296
-
63,001
56,437
36,000
36,000
15,444
-
45,939
40,687
24,000
24,000
10,296
-
28,876
21,000
16,000
18,000
7,722
10,636
-
-
0
0
0
0
0
-
0
0
0
0
0
-
0
0
0
0
0
-
0
0
0
0
0
5,319
-
-
0
0
0
0
0
-
0
0
0
0
0
-
0
0
0
0
0
-
0
0
0
0
0
0
-
-
15.38
6/30/2014
17.12
6/30/2015
15.89
6/30/2016
14.415
6/30/2017
9.965
6/30/2018
-
-
-
-
-
-
-
-
-
-
-
-
79,555
1,041,375
15.38
6/30/2014
17.12
6/30/2015
15.89
6/30/2016
14.415
6/30/2017
9.965
6/30/2018
-
-
-
-
-
-
-
-
-
-
-
-
94,631
1,238,720
15.38
6/30/2014
17.12
6/30/2015
15.89
6/30/2016
14.415
6/30/2017
9.965
6/30/2018
-
-
-
-
-
-
-
-
-
-
-
-
77,951
1,020,379
15.38
6/30/2014
17.12
6/30/2015
15.89
6/30/2016
14.415
6/30/2017
9.965
6/30/2018
10.88
6/30/2021
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45,617
597,127
20,581
269,405
-
-
-
-
-
0
-
-
-
-
-
0
-
-
-
-
-
0
-
-
-
-
-
-
0
0
-
-
-
-
-
0
-
-
-
-
-
0
-
-
-
-
-
0
-
-
-
-
-
-
0
0
45
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 46
OPERATOR RaMelP
1 The number of securities underlying the options and the option exercise price has been adjusted for stock dividends and
stock splits, if any, that have occurred since the option grant date.
2 Restricted stock awards listed were granted July 1, 2011, August 8, 2011, April 1, 2012 and April 1, 2013. Pursuant
to the 2004 Stock Plan, dividends paid by Fulton on restricted stock awards are reinvested and subject to the same
restrictions as the original award. Therefore, the number of securities underlying the restricted stock awards has been
adjusted as of December 31, 2013 for dividends that have occurred since the grant date. As of December 31, 2013, the
dividends reflected in the awards to Messrs. Wenger, Nugent, Shreiner, Roda and Rohrbaugh were: 3,326, 4,577, 3,912,
1,679, and 581, respectively.
3 The restricted stock awards cliff vest (100%) three years from the date of the original grant. Shares listed are as of
December 31, 2013. Mr. Nugent’s unvested restricted stock awards vested upon his retirement on December 31, 2013.
4 Market value of restricted shares is based on the December 31, 2013 closing price of $13.09.
OPTION EXERCISES AND STOCK VESTED TABLE 1
Option Awards
Stock Awards
Number of
Shares
Acquired
on Exercise
(#)
0
0
0
0
0
Value Realized
on Exercise
($)
0
0
0
0
0
Number of
Shares
Acquired
on Vesting
(#)
25,248
125,730
26,031
11,800
0
Value Realized
on Vesting 2
($)
293,760
1,600,003
302,481
137,293
0
Name
E. Philip Wenger
Charles J. Nugent
James E. Shreiner
Craig A. Roda
Philmer H. Rohrbaugh
1 Except for Mr. Rohrbaugh, all of the Executives had restricted stock that vested during 2013.
2 Shares that vested on April 1, 2013 for Messrs. Nugent and Shreiner were valued at $11.56 per share, the average of the
high and low trading price on April 1, 2013. Shares that vested on July 1, 2013 for Messrs. Wenger, Nugent, Shreiner and
Roda were valued at $11.635 per share, the average of the high and low trading price on July 1, 2013. Mr. Nugent retired
on December 31, 2013, and 94,631 of his share vested upon retirement and were valued at $13.13 per share, the average of
the high and low trading price on December 31, 2013.
46
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 47
OPERATOR RaMelP
PENSION BENEFITS TABLE 1
Name
Plan Name
Number of Years
Credited Service
Present
Value of Accumulated
Benefit
Payments During
Last Fiscal Year
(#)
($)
($)
E. Philip Wenger
Charles J. Nugent
James E. Shreiner
Craig A. Roda
Philmer H. Rohrbaugh
NA
NA
NA
NA
NA
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 In 2013, none of the Executives participated in or had an account balance in any qualified or nonqualified defined benefit
plans sponsored by Fulton or any Fulton affiliate bank.
NONQUALIFIED DEFERRED COMPENSATION TABLE
Name
Executive
Contributions in Last
FY
Registrant
Contributions in Last
FY 1
Aggregate Earnings
in Last FY 2
Aggregate
Withdrawals/
Distributions
Aggregate Balance
at Last FYE 3
E. Philip Wenger
Charles J. Nugent
James E. Shreiner
Craig A. Roda
Philmer H. Rohrbaugh
($)
50,282
30,179
13,436
15,026
0
($)
100,564
60,358
38,504
34,438
0
($)
88,220
227,891
64,377
23,786
0
($)
0
0
0
0
0
($)
565,184
1,007,678
328,008
199,826
0
1 Fulton’s contributions toward nonqualified deferred compensation for each of the Executives are listed in this column.
See the table contained in footnote 8 of the “Summary Compensation Table” on page 41. Amounts listed as registrant
contributions in this Nonqualified Deferred Compensation Table are also included as part of the Executives’ “Total All
Other Compensation” in the Summary Compensation Table. 2013 contributions were credited to each of the Executive’s
accounts in early 2014.
2 The Executives direct the investment of their nonqualified deferred compensation contributions into various standard
investment options offered from a set menu of investment funds. In 2013, the available investment funds included
Goldman Sachs Fin’l Institutional Money Market Fund #474 (FSMXX), Goldman Sachs Fin’l Square Government
Fund #465 (FGTXX), Goldman Sachs Core Fixed Income Institutional (GSFIX), Federated Total Return Bond Fund
(FTRBX), Vanguard Windsor II - Admiral Shares (VWNAX), T. Rowe Price Growth Stock (PRGFX), Vanguard 500
Index Fund (VFINX), Goldman Sachs Growth Opportunities I (GGOIX), Vanguard Small Cap Index Blend (NAESX),
Vanguard Small Cap Growth Index Fund (VSGAX) and Fidelity Adv Diversified International I (FDVIX). The Executives
may change their individual elections by completing a new election form. A discussion of the Deferred Compensation
Agreements and Defined Benefit Pension Plans is included on page 35.
3 Balances include the 2013 contributions made by Fulton and credited to the Executives’ accounts in early 2014.
47
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 48
OPERATOR RaMelP
POTENTIAL PAYMENTS UPON TERMINATION
AND GOLDEN PARACHUTE COMPENSATION TABLE
Name
Cash ($)
Equity ($)
Pension/NQDC ($)
Perquisites/
Benefits ($)
Tax
Reimbursement ($)
Other ($)
Total ($)
Voluntary Termination 1 or Termination for Cause as of December 31, 2013 2 3
E. Philip Wenger
James E. Shreiner
Craig A. Roda
Philmer H. Rohrbaugh
0
0
0
0
32,175
32,175
47,637
0
0
0
0
0
0
0
0
0
0
0
0
0
Termination Without Cause or for Good Reason – Before a Change in Control as of December 31, 2013 4 5
E. Philip Wenger
James E. Shreiner
Craig A. Roda
900,000
411,000
380,175
Philmer H. Rohrbaugh
456,188
32,175
32,175
47,637
0
0
0
0
0
12,000
12,000
12,000
12,000
0
0
0
0
Termination Without Cause or for Good Reason - Upon or After a Change in Control as of December 31, 2013 6 7 8 9
E. Philip Wenger
2,806,740
1,073,550
James E. Shreiner
1,286,058
1,052,554
Craig A. Roda
982,961
644,764
Philmer H. Rohrbaugh
1,087,039
269,405
$280,674
$128,606
$98,296
$108,704
Termination Due to Retirement as of December 31, 2013 10 11
E. Philip Wenger
Charles J. Nugent 12
James E. Shreiner
Craig A. Roda
Philmer H. Rohrbaugh
0
0
0
0
0
1,073,550
1,270,895
1,052,554
644,764
269,405
Termination Due to Disability as of December 31, 2013 13 14
E. Philip Wenger
990,000
1,073,550
James E. Shreiner
452,100
1,052,554
Craig A. Roda
418,193
644,764
Philmer H. Rohrbaugh
501,807
269,405
Termination Due to Death as of December 31, 2013 15 16 17
E. Philip Wenger
1,800,000
1,073,550
James E. Shreiner
822,000
1,052,554
Craig A. Roda
760,350
644,764
Philmer H. Rohrbaugh
912,376
269,405
0
0
0
0
0
0
0
0
0
0
0
0
0
74,000
74,000
74,000
74,000
2,575
2,025
2,475
2,650
1,625
18,000
18,000
18,000
18,000
0
0
0
0
544,875
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
32,175
32,175
47,637
0
944,175
455,175
439,812
468,188
4,779,839
2,541,217
1,800,021
1,539,148
1,076,125
1,272,920
1,055,029
647,414
271,030
2,081,550
1,522,654
1,080,956
789,212
1,154,209
250,000
4,277,759
527,150
487,557
585,041
250,000
2,651,704
250,000
2,142,671
0
1,766,822
1 Voluntary Termination. In the event an Executive’s employment is voluntarily terminated by the Executive other
than for “Good Reason,” which is defined in the Employment Agreements and described in footnote 4 below, Fulton’s
obligations are limited to the payment of the Executive’s base salary through the effective date of the Executive’s
termination date, together with any applicable expense reimbursements and all accrued and unpaid benefits and vested
benefits in accordance with the applicable employee benefit plans. No other payments are required, and under the 2004
Stock Plan, unexercised stock options and unvested restricted stock grants are forfeited by the Executive as a result of
voluntary termination.
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JOB NUMBER 263922
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OPERATOR RaMelP
2 Termination for Cause. If an Executive’s employment is terminated for “Cause,” Fulton is not obligated to make any
further payments to the Executive under the Employment Agreement, other than amounts (including salary, expense
reimbursement, etc.) accrued under the Employment Agreement as of the date of such termination. Under the 2004 Stock
Plan, unexercised stock options and unvested restricted stock grants are forfeited by an Executive terminated for Cause,
which is defined in the Employment Agreement to include an act of dishonesty constituting a felony, use of alcohol or
other drugs which interferes with the performance by the Executive of the Executive’s duties, intentional refusal by the
Executive to perform duties, or conduct that brings public discredit on, or injures the reputation of, Fulton.
3 The value listed under Equity is the value of the Executive’s vested and in the money stock options as of December 31, 2013
based on Fulton’s closing price of $13.09.
4 Termination Without Cause or for Good Reason - Before a Change in Control. If an Executive terminates the
Executive’s employment for Good Reason or his employment is terminated by Fulton “Without Cause,” the Executive is
entitled to receive his base salary for a specified period of time and, in the sole discretion of Fulton, the Executive also
may receive an additional cash bonus. For the Executives in this section, that period is one year. The Executive also would
continue to participate in employee health and other benefit plans for which the Executive is eligible during the specified
time period. If the Executive is not eligible to continue to participate in any employee benefit plan, the Executive will be
compensated on an annual basis for such plan at Fulton’s cost plus any permitted gross up for any taxes applicable thereto.
Under the 2004 Stock Plan, unexercised stock options and unvested restricted stock grants are forfeited by an Executive
terminated Without Cause or for Good Reason. Good Reason is defined in the Employment Agreement to include a
breach by Fulton of its material obligations without remedy, a significant change in the Executive’s authority, duties,
compensation or benefits, or a relocation of the Executive outside a certain distance from where he previously was based.
Without Cause is defined in the Employment Agreement to include any reason other than for Cause.
5 Cash amount listed for each Executive includes a severance payment based on the Executive’s 2013 base salary times the
applicable multiple. The amounts listed under Cash assume no discretionary bonus was paid to the Executives by Fulton.
Equity amounts listed are the value of vested stock options as of December 31, 2013. Perquisites/Benefits include a
monthly estimate of $1,000 for the value of health and benefit expenses paid by Fulton for the severance period attributed
to each Executive.
6 Termination Without Cause or for Good Reason - Upon or After a Change in Control. The Executives and other
employees have contributed to the building of Fulton into the successful enterprise it is today, and Fulton believes that it is
important to protect them in the event of a “Change in Control.” Further, Fulton believes that the interests of shareholders
will be best served if the interests of the Executives are aligned with them, and providing Change in Control benefits
should eliminate or mitigate any reluctance of the Executives to pursue potential Change in Control transactions that may
be in the best interests of shareholders. Based on a review in 2006 by the Hay Group, Fulton’s Compensation Consultant
at that time, of typical Change in Control provisions offered by Fulton’s peers and the recommendation of the Hay Group,
Fulton determined that the potential Change in Control benefits it offers the Executives are typical for the financial
services industry and reasonable relative to the overall value of Fulton.
A Change in Control is defined in the Employment Agreements to include the acquisition of the beneficial ownership
of more than fifty percent of the total fair market value or voting power of the stock of Fulton by any one person or group
of persons acting in concert, a change in the composition of the Board of Fulton during any period of twelve consecutive
months such that a majority of the Board is replaced by directors whose appointment was not endorsed by a majority of
the Board before such appointment or election, the acquisition by any person or group of persons acting in concert during
any twelve month period of thirty percent or more of the total voting power of the stock of Fulton or of forty percent
or more of the total assets (on a gross fair value basis) of Fulton. If, during the period beginning ninety days before a
Change in Control and ending two years after such Change in Control, an Executive is terminated by Fulton Without
Cause or an Executive resigns for Good Reason, Fulton is required to pay the Executive a multiple of the sum of the
Executive’s: (i) annual base salary immediately before the Change in Control; and (ii) the highest annual cash bonus or
other incentive compensation awarded to the Executive over the prior three years. The Executive also is entitled to receive:
(i) an amount equal to that portion of Fulton’s retirement plan, 401(k) plan or deferred compensation plan contributions for
the Executive which were not vested, plus the amount of any federal, state or local income taxes due on such amount; (ii)
payment of up to $10,000 for outplacement services; and (iii) continuation of other employee benefits to the same extent
provided to employees generally for the multiple period. The HR Committee set the Change in Control payment multiple
at three years in the Employment Agreements for Mr. Nugent because this was the multiple used in his prior severance
agreement. For the other Executives, the HR Committee used a multiple of two years based on the recommendation of the
compensation consultant at the time each agreement was approved.
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JOB NUMBER 263922
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Except for Mr. Roda’s and Mr. Rohbaugh’s Employment Agreements, the other Employment Agreements provide
that, in the event any payment or distribution by Fulton to or for the benefit of an Executive would be subject to excise
tax as a Golden Parachute, the Executive will be entitled to receive an additional payment equal to the total excise tax
imposed. The determination that a “gross up” payment is required and its amount is to be made by a tax adviser, and
Fulton is responsible for the adviser’s fees and expenses. Fulton’s Compensation Consultant advised the HR Committee
in 2006 that this “gross up provision” was a typical provision in such agreements. In keeping with Fulton’s objective to
offer a competitive contract when they were offered, this provision was included in the Employment Agreements in 2006,
but more recent agreements, such as Mr. Roda’s and Rohrbaugh’s, do not contain a “gross up provision.”
Generally, the 2004 Stock Plan provides for vesting of unvested stock options and restricted shares upon a Change
in Control, disability, retirement or death of an Executive.
7 Cash amounts listed are 2013 base salary and highest annual cash incentive awards paid for the last three years times
the applicable multiple for each Executive. The Cash amount for Mr. Roda and Mr. Rohrbaugh has been reduced by
$229,283 and $127,585 pursuant to the terms of their Employment Agreements to the extent required to avoid a federal
excise tax imposition pursuant to the regulations promulgated under Section 280G of the Tax Code. Equity amount is the
value of all “in the money” options and restricted stock as of December 31, 2013. Perquisites/Benefits include $10,000
for outplacement services, $1,000 per month during the severance period for the value of health and benefit expenses paid
by Fulton, $20,000 per year for club memberships, vehicle and other expenses paid by Fulton for the severance period
attributed to each Executive.
8 Amount listed under Pension/NQDC represents the aggregate dollar value of Fulton’s contributions to 401(k) and other
retirement benefits as a result of this termination event.
9 Except for Mr. Roda and Mr. Rohrbaugh, the Executives are eligible to receive Tax Reimbursement for any excise tax
imposed for this termination event pursuant to their Employment Agreements. Mr. Shreiner’s payment for this event did
not require a tax reimbursement. The amounts under Tax Reimbursements for all the Executives were calculated as of
December 31, 2013.
10 Termination Due to Retirement. In the event an Executive terminates his employment due to retirement upon
attaining age sixty-five, Fulton is obligated to pay the Executive’s base salary through the effective date of the Executive’s
retirement, together with any applicable expense reimbursements and all accrued and unpaid benefits and vested benefits
in accordance with the applicable employee benefit plans. Fulton would have no further obligation under the Employment
Agreement; however, assuming that each Executive attained the age of sixty-five and retired as of December 31, 2013,
each would have received a lump sum payment of $25 for each year of service as of December 31, 2013, a payment
made to all retiring employees, plus each would have received retiree health benefits, as a supplement to the Executives’
Medicare benefits at sixty-five, at an annual estimated cost to Fulton of approximately $1,500.
In the event an Executive terminates employment due to retirement upon attaining age sixty, and the Executive has
ten or more years of consecutive service with Fulton, unvested options and restricted shares awarded under Fulton’s option
plans would automatically vest. Assuming that all the Executives attained the age of sixty and retired as of December 31,
2013, their options were valued at the $13.09 closing price of Fulton common stock on December 31, 2013. The Executives
would have two years from the date of retirement to exercise their options in accordance with the terms of the awards.
11 Equity amount is the value of all “in the money” options and restricted stock as of December 31, 2013. Perquisites/
Benefits include a lump sum service award and $1,500 which is an estimate of Fulton’s annual cost of Medicare supplement
benefits for the Executive.
12 Mr. Nugent retired as Fulton’s Chief Financial Officer effective on December 31, 2013, and other termination events are
not provided as a result.
13 Termination Due to Disability. Following an Executive’s “Disability,” defined in the Employment Agreements to
be a medically determinable physical or medical impairment that is expected to result in death or to last for at least
twelve months, and that either renders the Executive unable to engage in any substantial gainful activity or qualifies the
Executive for benefits under a Fulton disability plan, the employment of the Executive would terminate automatically,
in which event Fulton is not thereafter obligated to make any further payments under the Employment Agreement, other
than amounts (including salary, expense reimbursement, etc.) accrued as of the date of such termination, plus an amount
equal to at least six months’ base salary in effect immediately prior to the date of the Disability. After this six month
salary continuation period, for as long as the Executive continues to be disabled, the Executive will continue to receive
at least 60% of the Executive’s base salary until the earlier of the Executive’s death or December 31 of the calendar year
50
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in which the Executive attains age sixty-five. To the extent it does not duplicate benefits already being provided, an
Executive will also receive those benefits customarily provided by Fulton to disabled former employees, which benefits
shall include, but are not limited to, life, medical, health, accident insurance and a survivor’s income benefit.
14 Cash amount for all the Executives is six months at full salary and then 60% of salary for next 12 months. Equity
amount is the value of all restricted stock as of December 31, 2013. Perquisites/Benefits include a monthly estimate of
$1,000 for the value of health and benefit expenses paid by Fulton for 18 months.
15 Termination Due to Death. In the event of a termination of employment as a result of an Executive’s death, the
Executive’s dependents, beneficiaries or estate, as the case may be, would receive such survivor’s income and other
benefits as they may be entitled to under the terms of Fulton’s benefit programs, which includes the Survivors Benefit
Life Insurance and twice base salary amount plus taxes due as a result of the payment under the Death Benefit Agreement
described on page 35.
16 The Cash amount for all Executives is twice the Executive’s 2013 base salary under the Death Benefit Agreement.
Mr. Rohrbaugh is not eligible to receive the Survivors Benefit Life Insurance Payment because he was hired after the plan
eligibility date, the amounts listed under “Other” are a $250,000 payment for the Survivors Benefit Life Insurance which
the other Executives are eligible to receive, but this benefit was discontinued in 2014 by Fulton.
17 Equity amount is the value of all “in the money” options and restricted stock as of December 31, 2013.
51
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
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DATE Thursday, March 20, 2014
JOB NUMBER 263922
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OPERATOR RaMelP
NON-BINDING SAY-ON-PAY RESOLUTION TO APPROVE THE COMPENSATION
OF THE NAMED EXECUTIVE OFFICERS – PROPOSAL TWO
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd- Frank Act, Fulton is
providing its shareholders with the opportunity to vote on an advisory (non-binding) resolution at the 2014 Annual Meeting
to approve Fulton’s executive compensation as described in the Compensation Discussion and Analysis, the tabular
disclosures of the Named Executive Officers’ compensation (“Compensation Tables”), and other related information in
this proxy statement. This proposal, commonly known as a “Say-on-Pay” proposal, gives shareholders the opportunity
to endorse or not endorse Fulton’s Executive pay program. At Fulton’s 2013 Annual Meeting, Fulton presented a similar
proposal to its shareholders and, not counting broker non-votes, approximately 91% of the shareholders who returned a
ballot voted in favor of, and approved, Fulton’s 2013 Say-on-Pay proposal. The HR Committee considered the number of
votes cast in favor of Fulton’s 2013 Say-on-Pay proposal to be a positive endorsement of Fulton’s current pay programs
and practices. Fulton will continue to monitor the level of support for each Say-on-Pay proposal. However, because the
shareholder vote is not binding, the outcome of the 2014 vote or any future vote may not be construed as overruling any
decision by Fulton’s Board of Directors or HR Committee regarding executive compensation.
In 2011, Fulton submitted to shareholders a non-binding proposal, asking shareholders whether Fulton should
submit its Say-on-Pay proposal to shareholders every one, two or three years. This type of proposal is commonly known
as a “Say-When-on-Pay” proposal. The shareholders approved Fulton’s recommendation that the Say-on-Pay proposal
should be submitted to shareholders on an annual basis. Although Fulton believes that having an annual Say-on-Pay vote
is appropriate for 2014, Fulton’s HR Committee and Board of Directors will continue to evaluate the frequency of the non-
binding Say-on-Pay proposal and might recommend that shareholders approve a different frequency in the future. Under
current SEC rules, publicly traded companies are required, no less frequently than once every six years, to provide for a
separate shareholder Say-When-on-Pay advisory vote in proxy statements for annual meetings to determine whether the
Say-on-Pay vote will occur every one, two or three years, and Fulton anticipates submitting a new “Say-When-on-Pay”
proposal to shareholders on or before Fulton’s annual meeting of shareholders in 2017.
As further described in the “Compensation Discussion and Analysis” section of this proxy statement starting on
page 23, Fulton’s executive compensation philosophy and program are intended to achieve three objectives: align interests
of the Executives with shareholder interests; link the Executives’ pay to performance; and attract, motivate and retain
executive talent. Fulton’s Executive compensation program currently includes a mix of base salary, incentive bonus,
equity-based plans, retirement plans, health plans and other benefits. Fulton believes that its compensation program,
policies and procedures are reasonable and appropriate and compare favorably with the compensation programs, policies
and procedures of its peers.
The Board recommends that shareholders, in a non-binding proposal, vote “FOR” the following resolution:
“RESOLVED, that the compensation paid to Fulton’s Named Executive Officers, as disclosed in
this proxy statement pursuant to Item 402 of SEC Regulation S-K, including the Compensation Discussion
and Analysis, the Compensation Tables and any related material contained in the proxy statement, is
hereby APPROVED.”
Approval of the non-binding resolution regarding the compensation of the Named Executive Officers would
require that the number of votes cast in favor of the proposal exceed the number of votes cast against it. Abstentions
and broker non-votes will not be counted as votes cast and, therefore, will not affect the determination as to whether the
proposal is approved.
Because your vote is advisory, it will not be binding upon Fulton. However, Fulton’s HR Committee and Board of
Directors will take into account the outcome of the vote when considering future Executive compensation arrangements,
but no determination has been made as to what action, if any, the HR Committee or Board of Directors might take if
shareholders do not approve this advisory proposal.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the non-binding resolution to approve
the compensation of the Named Executive Officers.
52
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
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DATE Thursday, March 20, 2014
JOB NUMBER 263922
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PAGE NO. 53
OPERATOR RaMelP
APPROVAL OF THE AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN – PROPOSAL THREE
General Information
On January 21, 2014, Fulton’s Board of Directors approved amendments to the Amended and Restated Employee
Stock Purchase Plan (the “Plan”) to increase the number of shares for which options are authorized to be granted under the
Plan and to make other changes to update the Plan document. The Plan is broad based, and its purpose is to advance the
interests of Fulton and its shareholders by encouraging employees to acquire a stake in the future of Fulton by purchasing
shares of its common stock. Under the Plan, the Board of Directors is authorized to grant options to employees of Fulton
and its affiliates to purchase shares of the common stock of Fulton with up to a 15% price discount. As of December 31,
2013, approximately 3,620 Fulton employees were eligible to participate in the Plan.
The Plan originally was adopted and approved by the Board of Directors on February 18, 1986, and subsequently
approved by the shareholders at the Annual Meeting of shareholders held on April 15, 1986. The Plan has been amended
three times since then, to provide that the Plan would continue in existence until terminated by the Board of Directors,
rather than terminating after ten years, and to increase the number of shares for which options may be granted.
The Plan permits the Board of Directors to amend, modify, suspend or terminate the Plan at any time, although
the Board may not, without the consent of the shareholders of Fulton, make any amendment which increases the number
of shares for which options may be granted, changes the class of eligible employees, or materially increases the benefits
accruing to an employee under the Plan.
The Board of Directors originally was authorized to grant options to purchase up to 100,000 shares of the
common stock of Fulton. The Plan was amended in 1999 to increase by 550,000 the number of shares for which options
may be granted. In 2007, the Plan was amended for an additional increase of 1,500,000 shares. The number of shares for
which options may be granted is subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations
and other changes in the capital structure of Fulton. Nevertheless, it is anticipated that the number of shares of Fulton
common stock for which options may be granted under the Plan will soon be exhausted. The Board of Directors believes
that it is in the best interests of Fulton and its shareholders for the Plan to continue.
In January 2014, the Board of Directors therefore approved an amendment to the Plan, subject to shareholder
approval at the Annual Meeting, to increase by 2,000,000 shares the number of shares of common stock for which
options are authorized to be granted, so that the Plan can continue its existence once the shares previously authorized
are exhausted.
Summary of the Plan
A copy of the Plan is attached to this Proxy Statement as Exhibit A. The following is a summary of the more
significant terms of the Plan:
The Plan authorizes the Board of Directors to grant options to purchase shares of Fulton common stock to
employees of Fulton and its affiliates. The number of shares for which options may be granted is subject to adjustment for
stock splits, stock dividends, reorganizations, recapitalizations, and other changes in the corporate structure of Fulton.
Since the shareholders originally approved the Plan, the adjustments for stock splits and stock dividends have increased
the authorized shares to 4.066 million shares, of which of 333,919 shares were available as of December 31, 2013. When
an option is exercised, Fulton delivers authorized but unissued shares or treasury shares.
The Plan is administered by the Human Resources Committee of the Board of Directors or those persons to
whom responsibility for administration of the Plan has been delegated by the Board of Directors (the “Committee”),
provided that the Committee shall at all times consist of at least three directors who are not eligible to receive options
under the Plan. The Committee has complete discretion to determine whether or not options will be granted under the
Plan in any year and, if so, the total number of shares that will be optioned in such year. Each option expires on the date
specified by the Committee at the time it is granted, except that all options granted under the Plan must expire no later
than five years from the date of grant.
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When options are granted under the Plan, options must be granted proportionately to all employees of Fulton and
its affiliates who were employed by Fulton or any affiliate on December 31 of the year immediately preceding the year
in which options are granted, except that the Committee may elect to exclude those employees who customarily work
twenty hours or less per week. Only those members of the Board of Directors who are also employees of Fulton or one of
its affiliates are eligible to participate in the Plan.
When options are granted, each eligible employee is granted an option to purchase the number of whole shares
that can be purchased, at the applicable option price established by the Committee, with a percentage of his or her total
compensation for the immediately preceding calendar year. The Committee may limit the number of shares that can be
purchased pursuant to each option, and no employee may be granted an option to purchase stock with an aggregate fair
market value of more than $25,000 during any calendar year. Currently the Committee limits purchases to $7,500 per
calendar year. The Committee may also place other limitations on options granted under the Plan, such as restricting
transfer of the stock purchased under the Plan.
The option price per share is determined by the Committee, but may not be less than the lesser of: (i) 85% of
the fair market value of the stock on the day of the grant, or (ii) 85% of the fair market value of the stock on the date of
exercise. An option which is exercised more than 27 months after the date of grant, however, must be exercised at a price
equal to 85% of the fair market value of the shares on the date of exercise. As of March 13, 2014, the closing and the fair
market value of a share of Fulton common stock was $12.58.
The Plan is designed to be a qualified employee stock purchase plan within the meaning of Section 423 of the
Tax Code. Employees will not recognize income when they enroll in the Plan or when they purchase shares. All tax
consequences are deferred until the employee disposes of the shares. Employees who purchase shares under the Plan
may qualify for favorable tax treatment if they hold the shares for the longer of: (i) two years after an option to purchase
is granted, or (ii) one year after the shares are purchased. If this holding period is complied with, the employee will
not recognize any taxable income in connection with the shares in the year in which the shares are purchased, even if
purchased at a discount. If the employee sells or otherwise disposes of the shares following the expiration of the holding
period, the employee will have to include as compensation in his or her gross income for the taxable year in which the
shares are sold or otherwise disposed of an amount equal to the lesser of: (i) the excess of the fair market value of the
shares at the time the option was granted over the exercise price, or (ii) the excess of the fair market value of the shares
at the time of disposition over the exercise price. If an employee recognizes ordinary income by selling or otherwise
disposing of shares before the end of the holding period, Fulton will generally be entitled to a tax deduction equal to the
participant’s ordinary income. Otherwise, Fulton will not be entitled to any income tax deduction with respect to shares
purchased under the Plan.
During the lifetime of an optionee, an option may be exercised only by the optionee and only if the optionee is
an employee of Fulton or one of its affiliates at the time of exercise. If an optionee’s employment terminates by reason of
retirement, the option may be exercised by the optionee or the heirs or personal representatives of the optionee for a period
of three months following retirement.
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The benefits that will be received by eligible employees, including the named executive officers, under the Plan
will depend on each individual’s elections to participate and the fair market value of Fulton’s common stock at various
future dates. Therefore, it is not possible to determine the benefits that will be received by named executive officers or
other employees if the amendment to increase the number of reserved Plan shares is approved. However, the table below
as of December 31, 2013 sets forth certain information regarding the number of shares of Fulton common stock purchased
during fiscal year 2013 pursuant to the Plan by each of (i) the named executive officers, (ii) all current executive officers
as a group, and (iii) all employees, other than executive officers, as a group. Non-executive members of the Board of
Directors are not eligible to participate in the Plan.
Name and Principal 2013 Position
E. Philip Wenger, Chairman and Chief Executive Officer
Charles J. Nugent, Senior Executive Vice President and Chief Financial Officer
James E. Shreiner, Senior Executive Vice President
Craig A. Roda, Senior Executive Vice President
Philmer H. Rohrbaugh, Senior Executive Vice President and Chief Risk Officer
Executive Officers as a Group (5 persons)
Shares Purchased during
Fiscal Year 2013 (#)
0
0
0
753
0
753
Employees as a Group, excluding executive officers (1,273 persons)
140,855
Vote Required
A majority of the votes cast is necessary to approve the amendment of the Employee Stock Purchase Plan.
Abstentions and broker non-votes will be counted as shares that are present at the meeting, but will not be counted as
votes cast on the proposal to amend the Employee Stock Purchase Plan.
Recommendation of the Board of Directors
The Board of Directors believes that the proposal to amend the Plan for the purpose of increasing by
2,000,000 shares the number of shares of common stock for which options are authorized to be granted under
the Plan is in the best interests of Fulton Financial Corporation and its shareholders, and recommends that the
shareholders vote FOR the amendment of the Employee Stock Purchase Plan.
55
<12345678> JOB TITLE Fulton Financial Combo
REVISION 10
SERIAL
DATE Thursday, March 20, 2014
JOB NUMBER 263922
TYPE
PAGE NO. 56
OPERATOR RaMelP
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
For the years ended December 31, 2013 and December 31, 2012, Fulton engaged KPMG LLP (“KPMG”),
independent registered public accountants, to audit Fulton’s financial statements. The fees incurred for services rendered
by KPMG for the years ended December 31, 2013 and 2012 are summarized in the following table.
Audit Fees – Annual Audit and Quarterly Reviews (1)
Audit Fees – Issuance of Comfort Letters and Consents
Audit Fees – Statutory Audit
Audit Fees Subtotal
Audit Related Fees (2)
Tax Fees (3)
All Other Fees (4)
TOTAL
2013
2012
$ 1,609,500
26,000
41,000
$ 1,494,280
0
42,640
1,676,500
1,536,920
17,000
75,860
82,150
17,160
57,570
161,030
$ 1,851,510
$ 1,772,680
(1) Amounts presented for 2013 are based upon the audit engagement letter and additional fees paid. Final billings for 2013
may differ.
(2) Fees paid for a required agreed-upon procedures report related to student lending.
(3) Includes fees rendered in connection with tax services relating to Federal and state tax matters.
(4) Fees paid related to a review of our merger and acquisition and risk assessment processes.
The appointment of KPMG for the fiscal year ended December 31, 2014 was approved by the Audit Committee
of the Board of Directors of Fulton at a meeting on February 26, 2014. Representatives of KPMG are expected to
be present at the 2014 Annual Meeting with the opportunity to make a statement and will be available to respond to
appropriate questions.
The Audit Committee has carefully considered whether the provision of the non-audit services described
above which were performed by KPMG in 2013 and 2012 would be incompatible with maintaining the independence
of KPMG in performing its audit services and has determined that, in its judgment, the independence of KPMG has not
been compromised.
All fees paid to KPMG in 2013 and 2012 were pre-approved by the Audit Committee. The Audit Committee
pre-approves all auditing and permitted non-auditing services, including the fees and terms thereof, to be performed
by its independent auditor, subject to the de minimus exceptions for non-auditing services permitted by the Exchange
Act. However, these types of services are approved prior to completion of the services. The Audit Committee may form
and delegate authority to, subcommittees consisting of one or more members, when appropriate, including the authority
to grant pre-approvals of audit and permitted non-audit services. Any decisions of such subcommittees to grant pre-
approvals are presented to the full Audit Committee for ratification at its next scheduled meeting.
Based on its review and discussion of the audited 2013 financial statements of Fulton with management and
KPMG, the Audit Committee recommended to the Board of Directors that the financial statements be included in the
Annual Report on Form 10-K for filing with the SEC. A copy of the report of the Audit Committee of its findings that
resulted from its financial reporting oversight responsibilities is attached as Exhibit B.
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RATIFICATION OF INDEPENDENT AUDITOR – PROPOSAL FOUR
Fulton’s Audit Committee has selected the firm of KPMG to continue as Fulton’s independent auditor for the
fiscal year ending December 31, 2014. Although shareholder approval of the selection of KPMG is not required by law,
the Board of Directors believes that it is advisable to give shareholders an opportunity to ratify this selection as is a
common practice with other publicly traded companies. Assuming the presence of a quorum at the Annual Meeting, the
affirmative vote of the majority of the votes cast is required to ratify the appointment of KPMG as Fulton’s independent
auditor for the fiscal year ending December 31, 2014. If Fulton’s shareholders do not approve this proposal at the 2014
Annual Meeting, the Audit Committee will consider the results of the shareholder vote on this proposal when selecting an
independent auditor for 2014, but no determination has been made as to what action, if any, the Audit Committee would
take if shareholders do not ratify the appointment of KPMG.
KPMG has conducted the audit of the financial statements of Fulton and its subsidiaries for the years ended
December 31, 2002 through 2013. Representatives of KPMG are expected to be present at the meeting, will be given
an opportunity to make a statement if they desire to do so, and will be available to answer appropriate questions
from shareholders.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote FOR ratification of the appointment of KPMG
LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2014.
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ADDITIONAL INFORMATION
A copy of Fulton’s Annual Report on Form 10-K as filed with the SEC, including financial statements,
is available without charge to shareholders upon written request addressed to the Corporate Secretary, Fulton
Financial Corporation, P.O. Box 4887, Lancaster, Pennsylvania 17604.
The Fulton Annual Report on Form 10-K for year ended December 31, 2013 and this proxy statement are
posted and available on Fulton’s website at www.fult.com. Copies of the current governance documents and future
updates, including but not limited to the Fulton Code of Conduct, Audit Committee Charter, HR Committee
Charter, Nominating and Corporate Governance Committee Charter, Risk Committee Charter and Fulton’s
Corporate Governance Guidelines, are also posted and available on Fulton’s website at www.fult.com.
Only one proxy statement is being delivered to multiple security holders sharing an address unless Fulton has
received contrary instructions from one or more of the security holders. Fulton will promptly deliver, upon written or
oral request, a separate copy of the proxy statement to a security holder at a shared address to which a single copy of
the document was delivered. Such a request should be made to the Corporate Secretary, Fulton Financial Corporation,
P.O. Box 4887, Lancaster, Pennsylvania 17604, (717) 291-2411. Requests to receive a separate mailing for future proxy
statements or to limit multiple copies to the same address should be made orally or in writing to the Corporate Secretary
at the foregoing address or phone number.
If you would like to reduce the costs incurred by Fulton in mailing proxy material, you can consent to receiving
future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic
delivery, please go to www.proxyvote.com and have your proxy card in hand when you access the website, then follow
the instructions at www.proxyvote.com to obtain your records and to create an electronic voting instruction form. Follow
the instructions for voting by Internet and, when prompted, indicate that you agree to receive or access shareholder
communications electronically in future years.
OTHER MATTERS
The Board of Directors of Fulton knows of no matters other than those discussed in this proxy statement which
will be presented at the 2014 Annual Meeting. However, if any other matters are properly brought before the meeting, any
proxy given pursuant to this solicitation will be voted in accordance with the recommendations of the Board of Directors
of Fulton.
BY ORDER OF THE BOARD OF DIRECTORS
Lancaster, Pennsylvania
March 26, 2014
E. PHILIP WENGER
Chairman of the Board, President
and Chief Executive Officer
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Exhibit A
AMENDED AND RESTATED
FULTON FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1.
PURPOSE OF THE PLAN
The Employee Stock Purchase Plan was initially approved at the Annual Meeting of Shareholders held on
April 15, 1986 to advance the interests of Fulton Financial Corporation (“Company”) and its shareholders by encouraging
its employees and the employees of its affiliates to acquire a stake in the future of the Company by purchasing shares of
the common stock of the Company. Under the Employee Stock Purchase Plan, the Board of Directors were authorized to
grant options to purchase up to a total of one hundred thousand (100,000) shares of the common stock of the Company.
The Employee Stock Purchase Plan was most recently amended in 1999 to increase by five hundred fifty thousand
(550,000) the number of shares permitted to be purchased, and in 2007 to provide for the purchase of up to an additional
one million five hundred thousand (1,500,000) shares. The Employee Stock Purchase Plan in 2014 is now being amended
and restated to provide for the purchase of up to an additional two million (2,000,000) shares. It is intended that this
Amended and Restated Employee Stock Purchase Plan (“Plan”) shall be an employee stock purchase plan within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended.
2.
DEFINITIONS
For purposes of the Plan, the following words or phrases have the meanings assigned to them below:
(a)
“Affiliate” shall mean a parent or subsidiary corporation as defined in Section 425 of the Code
(substituting “Company” for “employer corporation”), including a parent or a subsidiary which becomes such after the
adoption of the Plan.
(b)
“Board” shall mean the Board of Directors of the Company.
(c)
“Code” shall mean the Internal Revenue Code of 1986, as amended.
(d)
“Committee” shall mean the Human Resources Committee of the Board or such other Committee of
the Board or persons to which responsibility for administration of the Plan has been delegated by the Board; provided,
however, that the Committee shall at all times consist of at least three Disinterested directors.
(e)
(f)
“Company” shall mean Fulton Financial Corporation.
“Date of Grant” in respect of any option granted under the Plan shall mean the date on which that option
is granted by the Board.
(g)
“Date of Exercise” in respect of any option granted under the Plan shall be the date or dates specified by
the Committee.
(h)
“Disinterested” in respect of a director shall mean a director of the Company who is not eligible to
receive options under the Plan.
(i)
(j)
“NASDAQ” shall mean The NASDAQ Stock Market LLC.
“Optionee” shall mean an employee to whom an option has been granted pursuant to the Plan.
(k)
“Plan” shall mean this Amended and Restated Employee Stock Purchase Plan.
(l)
“Stock” shall mean the $2.50 par value common stock of the Company.
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(m)
“Total compensation” shall mean the total remuneration paid to an employee by the Company and
its affiliates during any calendar year, as reported on the employee’s Federal Income Tax Withholding Statement(s)
(Form W-2).
3.
ADMINISTRATION OF THE PLAN
(a)
The Plan shall be administered by the Human Resources Committee (the “Committee”) of the Board or
such other Committee of the Board or persons to which responsibility for administration of the Plan has been delegated
by the Board; provided, however, that the Committee shall at all times consist of at least three Disinterested directors.
No Committee member shall be eligible (or shall have been eligible within one year prior to his appointment) to receive
options under the Plan or to be selected as a participant under any discretionary plan of the Company or any of its
affiliates, entitling him to acquire stock, stock options or stock appreciation rights of the Company or any of its affiliates.
(b)
The Committee shall be vested with full authority to adopt, amend and rescind such rules, regulations
and procedures as it deems necessary or desirable to administer the Plan and to interpret the provisions of the Plan,
unless otherwise determined by the Board. Any determination, decision or action of the Committee in connection with
the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all
Optionees and any person claiming under or through an Optionee, unless otherwise determined by the Board.
(c)
Any determination, decision or action of the Committee provided for in the Plan may be made or taken
by action of a majority of the Disinterested members of the Board if it so determines, with the same force and effect as if
such determination, decision or action had been made or taken by the Committee. No member of the Committee or of the
Board shall be liable for any determination, decision or action made in good faith with respect to the Plan or any option
granted under the Plan.
4.
STOCK SUBJECT TO THE PLAN
Subject to shareholder approval at the Annual Meeting of Shareholders on May 8, 2014, the Board shall have the
authority from time to time to grant options under the Plan to purchase an additional 2,000,000 shares of Stock, subject
to adjustment as provided in Section 10 below. As the Board may determine from time to time, the Stock optioned may
consist either in whole or in part of authorized but unissued shares or shares held in treasury.
5.
ELIGIBILITY
When options are granted under the Plan, options shall be granted to all employees of the Company or any
affiliate who were employed by the Company or any affiliate on December 31 of the year immediately preceding the year
in which options are granted, except that the Committee may elect to exclude those employees who customarily work
20 hours or less per week.
6.
ALLOCATION OF OPTIONED STOCK
(a)
When options are granted under the Plan, each eligible employee shall be granted an option to purchase
the number of whole shares that can be purchased, at the applicable option price established by the Committee, with a
percentage (which shall be uniform for all eligible employees) of his total compensation for the immediately preceding
calendar year; provided, however, that the Committee may limit the maximum number of shares that may be purchased
pursuant to each option provided that such limitation is uniform for all eligible employees.
(b)
All options granted under the Plan shall be subject to the following additional limitations:
(i)
No option shall be granted to any employee who, immediately after the grant, would own stock
possessing five percent or more of the total combined voting power of the Company or any of its affiliates. In
computing the stock ownership of an employee for purposes of this limitation, the rules of Section 425(d) of the
Code shall apply and stock which an employee may purchase under the Plan or under any other plan maintained
by the Company shall be treated as stock owned by that employee.
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(ii) No option shall be granted to any employee which at the Date of Grant, would permit his rights
to purchase stock under the Plan and all other employee stock purchase plans of the Company and its affiliates
to accrue at a rate exceeding $25,000 of fair market value (determined pursuant to Section 7 below) for each
calendar year in which such option is outstanding at any time.
7.
OPTION PRICE
(a)
The option price per share of the Stock that may be purchased pursuant to each option shall be determined
by the Committee, subject to approval by the Board, but shall not in any event be less than the lesser of (i) 85% of the fair
market value per share of the Stock on the Date of Grant, or (ii) 85% of the fair market value per share of the Stock on the
Date of Exercise, subject to adjustment as set forth in Section 10 below.
(b)
During such time as the Stock is not listed on an established stock exchange but is listed in NASDAQ,
the fair market value per share shall be the average of the highest and lowest trading prices for the Stock on the applicable
date or, if no trade of Stock occurred on that day, the fair market value shall be determined by reference to such prices on
the next preceding day on which such prices were quoted.
(c)
During such time as the Stock is not listed on an established stock exchange or NASDAQ, the fair market
value per share shall be the average of the closing dealer “bid” and “ask” prices for the Stock, as quoted by NASDAQ for
the applicable date or, if no “bid” and “ask” prices are quoted for that day, the fair market value shall be determined by
reference to such prices on the next preceding day on which such prices were quoted.
(d)
If the Stock is listed on an established stock exchange or exchanges, the fair market value shall be
deemed to be the closing price of the Stock on such stock exchange or exchanges on the applicable date or, if no sale of
the Stock has been made on any stock exchange on that day, the fair market value shall be determined in reference to such
prices on the next preceding day on which such prices were quoted.
(e)
In the event the Stock is not traded on an established stock exchange and no closing dealer “bid” and
“ask” prices are available, then the fair market value of the Stock shall be as determined in good faith by the Committee.
8.
TERMS AND CONDITIONS OF OPTIONS
(a)
Each eligible employee who desires to accept all or any part of the option to purchase shares of Stock
under the Plan shall signify his or her election to do so by authorizing the Company or Affiliate, in the form and manner
prescribed by the Company, to make payroll deductions.
(b)
Each option granted under the Plan shall expire on the date determined by the Committee; provided,
however, that, subject to the provisions of paragraph (d) below, each option shall terminate not later than the date which is
five years from the Date of Grant, and provided further, that options exercised more than 27 months after the Date of Grant
must be exercised at an option price per share equal to 85% of the fair market value per share on the Date of Exercise.
(c)
The Committee may from time to time establish such further terms, conditions and limitations on the
exercise of options granted under the Plan as it may, in its sole discretion, deem appropriate, and which are not inconsistent
with Section 423 of the Code, including, without limitation, payroll deduction requirements, restrictions on exercise
dates, restrictions on transfer of the Stock purchased pursuant to the options granted under the Plan and participation in
the dividend reinvestment plan of the Company.
(d)
An option granted pursuant to the Plan may be exercised only while the Optionee is employed by
the Company or one of its affiliates and, if not fully exercised prior to termination of employment, will expire on the
date of termination, whether by death, disability, or otherwise; provided, however, that in the event of a termination of
employment by reason of retirement, the option may be exercised by the Optionee or his heirs or personal representatives
for a period of three months following termination of employment.
(e)
During the lifetime of an Optionee, an option granted pursuant to the Plan shall be exercisable only by
the Optionee and shall not be assignable or transferable by him other than by will or the laws of descent and distribution
as provided in subsection (d) of this section.
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9.
EXERCISE OF OPTIONS
Each Optionee who elects to exercise an option granted pursuant to this Plan shall comply with such rules,
regulations and procedures regarding the exercise of options, as the Committee shall from time to time establish.
10.
CHANGES IN CAPITAL STRUCTURE
(a)
In the event of any change in the Stock subject to the Plan or the Stock subject to any option granted
hereunder, through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend or
other change in the corporate structure of the Company, the Committee shall appropriately adjust the number of shares
subject to the Plan and, where appropriate, the maximum number of shares subject to each outstanding option. Such
adjustment shall not result in the issuance of fractional shares. Each such adjustment shall be made in such manner as not
to constitute a “modification” of the option as defined in Section 425 of the Code.
(b)
If the Company is succeeded by another corporation in a merger or consolidation or if more than 50%
of its stock is acquired by another corporation, all options granted under the Plan shall be assumed by the successor
corporation and each such option shall be applicable to the stock of the successor corporation, with only such modifications
as may be necessary to continue the status of such option as an option granted under an employee stock purchase plan
within the meaning of Section 423 of the Code.
(c)
The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.
11.
REGISTRATION OF STOCK
No option granted pursuant to the Plan shall be exercisable in whole or in part if at any time the Committee
shall determine in its discretion that the listing, registration or qualification of the shares of Stock subject to such option
on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the granting of such option or the issuance of shares
thereunder, unless such listing, registration, qualification, consent or approval may be effected or obtained free of any
conditions not acceptable to the Board.
12.
AMENDMENT OR TERMINATION OF THE PLAN
(a)
The Board may at any time amend, modify, suspend or terminate the Plan; provided that, except as
provided in Section 10, above, the Board may not, without the consent of the shareholders of the Company, make any
amendment or modification which:
(i)
increases the maximum number of shares of Stock as to which options may be granted under
the Plan,
(ii)
changes the class of eligible employees,
(iii)
increases materially the benefits accruing to an employee under the Plan, or
(iv)
otherwise requires the approval of the shareholders of the Company in order to maintain the
exemption available under Rule 16b-3 (or any similar rule) under the Securities Exchange Act of 1934.
(b)
Notwithstanding the provisions of paragraph (a) above, the Board reserves the right to amend or modify
the terms and provisions of the Plan and of any outstanding options granted under the Plan to the extent necessary
to qualify the options granted under the Plan for such favorable federal income tax treatment (including deferral of
taxation upon exercise) as may be afforded options granted under an employee stock purchase plan within the meaning
of Section 423 of the Code, the regulations promulgated thereunder, and any amendments or replacements thereof.
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(c)
No amendment, modification or termination of the Plan (whether by action of the Board or by expiration
of the Plan term) shall in any manner affect any option theretofore granted under the Plan without the consent of the
Optionee or any person claiming under or through the Optionee.
13.
EFFECTIVE DATE
The Plan shall become effective on the date on which it is adopted by the Board, provided that the Plan is
approved by the shareholders of the Company within twelve months thereafter. The Board may issue options pursuant
to the Plan prior to its approval by the shareholders of the Company, provided that all such options are contingent upon
shareholder approval of the Plan within said twelve-month period.
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EXHIBIT B
February 26, 2014
REPORT OF AUDIT COMMITTEE
To the Board of Directors of Fulton Financial Corporation:
We have reviewed and discussed with management Fulton Financial Corporation’s audited financial statements
as of, and for the year ended, December 31, 2013.
We have discussed with representatives of KPMG LLP, Fulton Financial Corporation’s independent auditor, the
matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees issued by the
Public Company Accounting Oversight Board (“PCAOB”).
We have received and reviewed the written disclosures and the letter from the independent auditor required by
the PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, as
amended, by the PCAOB, and have discussed with the auditor the auditor’s independence.
Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the
financial statements referred to above be included in Fulton Financial Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2013.
John M. Bond, Jr., Chair
Denise L. Devine, Vice Chair
George W. Hodges
Albert Morrison III
Ernest J. Waters
<12345678> UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013,
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-10587
_______________________________________________________
FULTON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
(State or other jurisdiction of
incorporation or organization)
One Penn Square, P. O. Box 4887, Lancaster, Pennsylvania
(Address of principal executive offices)
23-2195389
(I.R.S. Employer
Identification No.)
17604
(Zip Code)
(717) 291-2411
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $2.50 par value
Name of exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based on the average bid and asked prices on
June 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2.2 billion. The number
of shares of the registrant’s Common Stock outstanding on January 31, 2014 was 191,381,000.
Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on May 8, 2014 are incorporated
by reference in Part III.
1
Description
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
TABLE OF CONTENTS
Business ............................................................................................................................................................................
Risk Factors ......................................................................................................................................................................
Unresolved Staff Comments.............................................................................................................................................
Properties ..........................................................................................................................................................................
Legal Proceedings.............................................................................................................................................................
Mine Safety Disclosures...................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.......
Selected Financial Data ....................................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations...........................................
Quantitative and Qualitative Disclosures About Market Risk..........................................................................................
Financial Statements and Supplementary Data: ...............................................................................................................
Consolidated Balance Sheets....................................................................................................................................
Consolidated Statements of Income .........................................................................................................................
Consolidated Statements of Comprehensive Income ...............................................................................................
Consolidated Statements of Shareholders’ Equity....................................................................................................
Consolidated Statements of Cash Flows ..................................................................................................................
Notes to Consolidated Financial Statements ............................................................................................................
Management Report On Internal Control Over Financial Reporting .......................................................................
Report of Independent Registered Public Accounting Firm.....................................................................................
Quarterly Consolidated Results of Operations (unaudited)......................................................................................
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ..........................................
Controls and Procedures...................................................................................................................................................
Other Information .............................................................................................................................................................
Directors, Executive Officers and Corporate Governance ...............................................................................................
Executive Compensation ..................................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................
Certain Relationships and Related Transactions, and Director Independence .................................................................
Principal Accounting Fees and Services...........................................................................................................................
Page
3
14
24
24
24
24
25
27
29
59
66
67
68
69
70
71
117
118
119
120
120
120
121
121
121
121
121
Exhibits, Financial Statement Schedules..........................................................................................................................
122
Signatures .........................................................................................................................................................................
Exhibit Index ....................................................................................................................................................................
125
127
2
PART I
Item 1. Business
General
Fulton Financial Corporation (the Corporation) was incorporated under the laws of Pennsylvania on February 8, 1982 and became
a bank holding company through the acquisition of all of the outstanding stock of Fulton Bank on June 30, 1982. In 2000, the
Corporation became a financial holding company as defined in the Gramm-Leach-Bliley Act (GLB Act), which allowed the
Corporation to expand its financial services activities under its holding company structure (See "Competition" and "Supervision
and Regulation"). The Corporation directly owns 100% of the common stock of six community banks and ten non-bank entities.
As of December 31, 2013, the Corporation had approximately 3,620 full-time equivalent employees.
The common stock of Fulton Financial Corporation is listed for quotation on the Global Select Market of The NASDAQ Stock
Market under the symbol FULT. The Corporation’s internet address is www.fult.com. Electronic copies of the Corporation’s 2013
Annual Report on Form 10-K are available free of charge by visiting "Investor Relations" at www.fult.com. Electronic copies of
quarterly reports on Form 10-Q and current reports on Form 8-K are also available at this Internet address. These reports, as well
as any amendments thereto, are posted as soon as reasonably practicable after they are electronically filed with the Securities and
Exchange Commission (SEC).
Bank and Financial Services Subsidiaries
The Corporation’s six subsidiary banks are located primarily in suburban or semi-rural geographical markets throughout a five-
state region (Pennsylvania, Delaware, Maryland, New Jersey and Virginia). Each of these banking subsidiaries delivers financial
services in a highly personalized, community-oriented style, and decisions are generally made by the local management team in
each market. Where appropriate, operations are centralized through common platforms and back-office functions.
From time to time, in some markets and in certain circumstances, merging subsidiary banks allows the Corporation to leverage
one bank’s stronger brand recognition over a larger market. It also enables the Corporation to create operating and marketing
efficiencies and avoid direct competition among subsidiary banks.
The Corporation’s subsidiary banks are located in areas that are home to a wide range of manufacturing, distribution, health care
and other service companies. The Corporation and its banks are not dependent upon one or a few customers or any one industry,
and the loss of any single customer or a few customers would not have a material adverse impact on any of the subsidiary banks.
Each of the subsidiary banks offers a full range of consumer and commercial banking products and services in its local market
area. Personal banking services include various checking account and savings deposit products, certificates of deposit and individual
retirement accounts. The subsidiary banks offer a variety of consumer lending products to creditworthy customers in their market
areas. Secured consumer loan products include home equity loans and lines of credit, which are underwritten based on loan-to-
value limits specified in the Corporation's lending policy. Subsidiary banks also offer a variety of fixed and variable-rate products,
including construction loans and jumbo loans. Residential mortgages are offered through Fulton Mortgage Company, which
operates as a division of each subsidiary bank. Consumer loan products also include automobile loans, automobile and equipment
leases, personal lines of credit and checking account overdraft protection.
Commercial banking services are provided to small and medium sized businesses (generally with sales of less than $100 million)
in the subsidiary banks’ market areas. The Corporation's policies limit the maximum total lending commitment to an individual
borrower to $39.0 million as of December 31, 2013, which is below the Corporation’s regulatory lending limit. Commercial lending
options include commercial, financial, agricultural and real estate loans. Floating, adjustable and fixed rate loans are provided,
with floating and adjustable rate loans generally tied to an index such as the Prime Rate or the London Interbank Offered Rate.
The commercial lending policy of the Corporation's subsidiary banks encourages relationship banking and provides strict guidelines
related to customer creditworthiness and collateral requirements. In addition, equipment leasing, letters of credit, cash management
services and traditional deposit products are offered to commercial customers.
Investment management, trust, brokerage, insurance and investment advisory services are offered to consumer and commercial
banking customers in the market areas serviced by the Corporation's subsidiary banks by the Corporation's Fulton Bank, N.A.
subsidiary bank.
The Corporation’s subsidiary banks deliver their products and services through traditional branch banking, with a network of full
service branch offices. Electronic delivery channels include a network of automated teller machines, telephone banking, mobile
banking and online banking. The variety of available delivery channels allows customers to access their account information and
perform certain transactions, such as transferring funds and paying bills, at virtually any hour of the day.
3
The following table provides certain information for the Corporation’s banking subsidiaries as of December 31, 2013:
Subsidiary
Main Office
Location
Total
Assets
Total
Deposits
(dollars in millions)
Branches (1)
Fulton Bank, N.A................................ Lancaster, PA
Fulton Bank of New Jersey................. Mt. Laurel, NJ
The Columbia Bank............................ Columbia, MD
Lafayette Ambassador Bank............... Bethlehem, PA
FNB Bank, N.A. ................................. Danville, PA
Swineford National Bank ................... Middleburg, PA
$
$
9,516
3,302
1,960
1,386
348
295
$
6,722
2,734
1,531
1,115
272
250
119
71
38
23
8
7
266
(1) Remote service facilities (mainly stand-alone automated teller machines) are excluded. See additional information in "Item 2. Properties."
Non-Bank Subsidiaries
The Corporation owns 100% of the common stock of six non-bank subsidiaries, which are consolidated for financial reporting
purposes: (i) Fulton Reinsurance Company, LTD, which engages in the business of reinsuring credit life and accident and health
insurance directly related to extensions of credit by the banking subsidiaries of the Corporation; (ii) Fulton Financial Realty
Company, which holds title to or leases certain properties upon which Corporation branch offices and other facilities are located;
(iii) Central Pennsylvania Financial Corp., which owns certain limited partnership interests in partnerships invested primarily in
low and moderate income housing projects; (iv) FFC Management, Inc., which owns certain investment securities and other passive
investments; (v) FFC Penn Square, Inc., which owns trust preferred securities issued by a subsidiary of Fulton Bank, N.A; and
(vi) Fulton Insurance Services Group, Inc., which engages in the sale of various life insurance products.
The Corporation owns 100% of the common stock of four non-bank subsidiaries which are not consolidated for financial reporting
purposes. The following table provides information for these non-bank subsidiaries, whose sole assets consist of junior subordinated
deferrable interest debentures issued by the Corporation, as of December 31, 2013 (dollars in thousands):
Subsidiary
Fulton Capital Trust I.................................................................................................
Columbia Bancorp Statutory Trust ............................................................................
Columbia Bancorp Statutory Trust II.........................................................................
Columbia Bancorp Statutory Trust III .......................................................................
State of Incorporation
Pennsylvania
Delaware
Delaware
Delaware
$
Total Assets
154,640
6,186
4,124
6,186
Competition
The banking and financial services industries are highly competitive. Within its geographical region, the Corporation’s subsidiaries
face direct competition from other commercial banks, varying in size from local community banks to larger regional and national
banks, credit unions and non-bank entities. With the growth in electronic commerce, the Corporation's subsidiary banks also face
competition from financial institutions that do not have a physical presence in the Corporation’s geographical markets.
The industry is also highly competitive due to the GLB Act. Under the GLB Act, banks, insurance companies and securities firms
may affiliate under a financial holding company structure, allowing expansion into non-banking financial services activities that
were previously restricted. These activities include a full range of banking, securities and insurance activities, including securities
and insurance underwriting, issuing and selling annuities and merchant banking activities. While the Corporation does not currently
engage in all of these activities, the ability to do so without separate approval from the Federal Reserve Board (FRB) enhances
the ability of the Corporation – and financial holding companies in general – to compete more effectively in all areas of financial
services.
As a result of the GLB Act, there is a great deal of competition for customers that were traditionally served by the banking industry.
While the GLB Act increased competition, it also provided opportunities for the Corporation to expand its financial services
offerings. The Corporation competes through the variety of products that it offers and the quality of service that it provides to its
customers. However, there is no guarantee that these efforts will insulate the Corporation from competitive pressure, which could
impact its pricing decisions for loans, deposits and other services and could ultimately impact financial results.
4
Market Share
Deposit market share information is compiled as of June 30 of each year by the Federal Deposit Insurance Corporation (FDIC).
The Corporation’s banks maintain branch offices in 52 counties across five states. In 15 of these counties, the Corporation ranked
in the top 5 in deposit market share (based on deposits as of June 30, 2013). The following table summarizes information about
the counties in which the Corporation has branch offices and its market position in each county.
No. of Financial
Institutions
Deposit Market Share
(June 30, 2013)
County
Lancaster ..............
Berks.....................
Bucks....................
Centre ...................
Chester..................
Columbia ..............
Cumberland ..........
Dauphin ................
Delaware...............
Lebanon ................
Lehigh...................
Lycoming..............
Montgomery .........
Montour................
Northampton.........
Northumberland ...
State
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
PA
Schuylkill .............
PA
Snyder...................
PA
Union....................
PA
York......................
DE
New Castle ...........
Sussex...................
DE
Anne Arundel ....... MD
Baltimore.............. MD
Baltimore City ...... MD
Cecil ..................... MD
Frederick............... MD
Howard ................. MD
Montgomery ......... MD
Prince George’s .... MD
Washington........... MD
NJ
Atlantic .................
NJ
Burlington.............
NJ
Camden.................
NJ
Cumberland ..........
NJ
Gloucester.............
Population
(2013 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
18
20
36
17
35
6
18
16
34
11
22
11
45
5
17
18
18
8
8
15
20
16
30
40
34
7
18
20
36
19
13
16
22
21
12
22
15
13
20
4
9
2
6
10
17
6
14
11
33
3
12
4
3
1
3
14
25
6
12
20
17
4
5
5
24
27
5
8
14
11
5
6
531,000 Fulton Bank, N.A.
415,000 Fulton Bank, N.A.
627,000 Fulton Bank, N.A.
156,000 Fulton Bank, N.A.
511,000 Fulton Bank, N.A.
67,000 FNB Bank, N.A.
241,000 Fulton Bank, N.A.
271,000 Fulton Bank, N.A.
563,000 Fulton Bank, N.A.
136,000 Fulton Bank, N.A.
358,000 Lafayette Ambassador Bank
118,000 FNB Bank, N.A.
813,000 Fulton Bank, N.A.
18,000 FNB Bank, N.A.
300,000 Lafayette Ambassador Bank
94,000 Swineford National Bank
FNB Bank, N.A.
146,000 Fulton Bank, N.A.
40,000 Swineford National Bank
45,000 Swineford National Bank
439,000 Fulton Bank, N.A.
551,000 Fulton Bank, N.A.
208,000 Fulton Bank, N.A.
559,000 The Columbia Bank
825,000 The Columbia Bank
622,000 The Columbia Bank
102,000 The Columbia Bank
243,000 The Columbia Bank
308,000 The Columbia Bank
1,025,000 The Columbia Bank
892,000 The Columbia Bank
150,000 The Columbia Bank
276,000 Fulton Bank of New Jersey
452,000 Fulton Bank of New Jersey
513,000 Fulton Bank of New Jersey
158,000 Fulton Bank of New Jersey
290,000 Fulton Bank of New Jersey
5
%
23.7%
3.8%
1.8%
1.4%
3.0%
4.2%
1.5%
3.7%
0.2%
31.3%
3.6%
0.8%
0.4%
26.4%
13.7%
1.7%
4.0%
4.0%
27.0%
7.2%
10.2%
0.2%
7.2%
0.3%
0.7%
0.3%
10.4%
0.6%
9.4%
0.2%
0.8%
19.7%
1.1%
0.7%
2.1%
1.8%
13.5%
2
8
17
16
11
5
15
7
33
1
10
14
28
2
3
16
9
9
2
4
4
13
4
27
25
16
4
17
4
35
22
2
13
19
10
11
2
State
Population
(2013 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
%
No. of Financial
Institutions
Deposit Market Share
(June 30, 2013)
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
VA
VA
VA
VA
VA
VA
VA
126,000 Fulton Bank of New Jersey
369,000 Fulton Bank of New Jersey
832,000 Fulton Bank of New Jersey
628,000 Fulton Bank of New Jersey
501,000 Fulton Bank of New Jersey
583,000 Fulton Bank of New Jersey
65,000 Fulton Bank of New Jersey
330,000 Fulton Bank of New Jersey
107,000 Fulton Bank of New Jersey
232,000 Fulton Bank, N.A.
1,136,000 Fulton Bank, N.A.
320,000 Fulton Bank, N.A.
42,000 Fulton Bank, N.A.
183,000 Fulton Bank, N.A.
214,000 Fulton Bank, N.A.
453,000 Fulton Bank, N.A.
16
28
47
29
31
22
8
31
13
14
41
22
14
12
17
17
7
24
32
13
17
8
4
13
4
10
28
18
4
7
12
11
12
22
36
26
15
18
1
9
5
11
46
19
11
14
15
11
2.7%
0.8%
0.3%
0.5%
1.2%
0.6%
26.0%
3.1%
9.4%
1.6%
0.1%
0.7%
2.2%
0.5%
0.3%
1.5%
County
Hunterdon.............
Mercer ..................
Middlesex .............
Monmouth ............
Morris ...................
Ocean....................
Salem....................
Somerset ...............
Warren ..................
Chesapeake City ...
Fairfax ..................
Henrico .................
Manassas ..............
Newport News......
Richmond City .....
Virginia Beach......
Supervision and Regulation
The Corporation operates in an industry that is subject to various laws and regulations that are enforced by a number of federal
and state agencies. Changes in these laws and regulations, including interpretation and enforcement activities, could impact the
cost of operating in the financial services industry, limit or expand permissible activities or affect competition among banks and
other financial institutions.
The following discussion summarizes the current regulatory environment for financial holding companies and banks, including
a summary of the more significant laws and regulations.
Regulators – The Corporation is a registered financial holding company, and its subsidiary banks are depository institutions whose
deposits are insured by the FDIC. The Corporation and its subsidiaries are subject to various regulations and examinations by
regulatory authorities. The following table summarizes the charter types and primary regulators for each of the Corporation’s
subsidiary banks:
Charter
Subsidiary
Fulton Bank, N.A. ........................................................................................................... National
Fulton Bank of New Jersey ............................................................................................. NJ
The Columbia Bank ........................................................................................................ MD
Lafayette Ambassador Bank ........................................................................................... PA
FNB Bank, N.A............................................................................................................... National
Swineford National Bank................................................................................................ National
Fulton Financial (Parent Company) ................................................................................ N/A
Primary Regulator(s)
OCC
NJ/FDIC
MD/FDIC
PA/Federal Reserve Bank
OCC
OCC
Federal Reserve Bank
OCC - Office of the Comptroller of the Currency
Federal statutes that apply to the Corporation and its subsidiaries include the GLB Act, the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), the Bank Holding Company Act (BHCA), the Federal Reserve Act and the Federal
Deposit Insurance Act, among others. In general, these statutes and related interpretations establish the eligible business activities
of the Corporation, certain acquisition and merger restrictions, limitations on intercompany transactions, such as loans and
dividends, and capital adequacy requirements, among other things.
6
The Corporation is subject to regulation and examination by the Federal Reserve Bank, and is required to file periodic reports and
to provide additional information that the Federal Reserve Bank may require. In addition, the Federal Reserve Bank must approve
certain proposed changes in organizational structure or other business activities before they occur. The BHCA imposes certain
restrictions upon the Corporation regarding the acquisition of substantially all of the assets of or direct or indirect ownership or
control of any bank for which it is not already the majority owner.
Dodd-Frank Act – The Dodd-Frank Act was enacted in July 2010 and resulted in significant financial regulatory reform. The
Dodd-Frank Act also changed the responsibilities of the current federal banking regulators. Among other things, the Dodd-Frank
Act created the Financial Stability Oversight Council, with oversight authority for monitoring and regulating systemic risk, and
the Consumer Financial Protection Bureau (CFPB), which has broad regulatory and enforcement powers over consumer financial
products and services. Effective July 21, 2011, the CFPB became responsible for administering and enforcing numerous federal
consumer financial laws enumerated in the Dodd-Frank Act. The Dodd-Frank Act also provided that, for banks with total assets
of more than $10 billion, the CFPB would have exclusive or primary authority to examine those banks for, and enforce compliance
with, the federal consumer financial laws. As of December 31, 2013, none of the Corporation's subsidiary banks had total assets
of more than $10 billion, however, the Corporation's largest subsidiary bank, Fulton Bank, N. A., had $9.5 billion in assets. Although
not subject to CFPB examination, the Corporation's subsidiary banks remain subject to the review and supervision of other
applicable regulatory authorities, and such authorities may enforce compliance with regulations issued by the CFPB. In the event
that Fulton Bank, N.A.'s total assets exceed $10 billion in the future, Fulton Bank, N.A. would become subject to supervision,
examination and enforcement by the CFPB.
The scope of the Dodd-Frank Act impacts many aspects of the financial services industry, and it requires the development and
adoption of numerous regulations, some of which have not yet been issued. The effects of the Dodd-Frank Act on the financial
services industry will depend, in large part, upon the extent to which regulators exercise the authority granted to them under the
Dodd-Frank Act and the approaches taken in implementing regulations. Additional uncertainty regarding the effects of the Dodd-
Frank Act exists due to court decisions and the potential for additional legislative changes to the Dodd-Frank Act.
The Dodd-Frank Act's provisions that have received the most public attention have generally been those which apply only to larger
institutions with total consolidated assets of $50 billion or more. However, the Dodd-Frank Act contains numerous other provisions
that affect all bank holding companies, including the Corporation.
The following is a listing of significant provisions of the Dodd-Frank Act, and, if applicable, the resulting regulatory rules adopted,
that apply (or will apply), most directly to the Corporation and its subsidiaries:
•
Federal deposit insurance – On April 1, 2011, the FDIC's revised deposit insurance assessment base changed from total
domestic deposits to average total assets, minus average tangible equity. In addition, the Dodd-Frank Act created a two
scorecard system, one for large depository institutions that have more than $10 billion in assets and another for highly
complex institutions that have over $50 billion in assets. See details under the heading "Federal Deposit Insurance" below.
• Debit card interchange fees – In June 2011, the FRB adopted regulations, which became effective on October 1, 2011,
setting maximum permissible interchange fees issuers can receive or charge on electronic debit card transactions and
network exclusivity arrangements (the "Current Rule"). Recently, there has been litigation regarding certain provisions
of the Current Rule, including the level of the maximum permissible debit card interchange fees. The final outcome of
such litigation or any future litigation, or any further rulemaking by the FRB, may result in a reduction in the Current
Rule's maximum permissible debit card interchange fees, thereby potentially reducing the Corporation's debit card income
in future periods.
•
•
Interest on demand deposits – Beginning in July 2011, depository institutions were no longer prohibited from paying
interest on business transaction and other accounts.
Stress testing – In October 2012, the FRB issued final rules regarding company-run stress testing. In accordance with
these rules, the Corporation is required to conduct an annual stress test in the manner specified, and using assumptions
for baseline, adverse and severely adverse scenarios announced by the FRB. The stress test is designed to assess the
potential impact of the various scenarios on the Corporation's earnings, capital levels and capital ratios over at least a
nine-quarter time horizon. The Corporation's board of directors and its senior management will be required to consider
the results of the stress test in the normal course of business, including as part of its capital planning process and the
evaluation of the adequacy of its capital. As required, the Corporation will use data as of September 30, 2013 to conduct
the stress test, using scenarios that were released by the FRB in November 2013. Stress test results must be reported to
the Federal Reserve Bank in March 2014. Public disclosure of summary stress test results under the severely adverse
scenario will begin in June 2015 for stress tests commencing in the fall of 2014. While the Corporation believes that both
the quality and magnitude of its capital base are sufficient to support its current operations given its risk profile, the results
of the stress testing process may lead the Corporation to retain additional capital or alter the mix of its capital components.
7
Under similar rules adopted by the OCC, national banks and federal savings associations with total consolidated assets
of more than $10 billion are also required to conduct annual stress tests. Although the total consolidated assets of Fulton
Bank, N.A., the Corporation's largest subsidiary bank, are less than $10 billion, if Fulton Bank, N.A.’s assets exceed $10
billion in the future, it will become subject to the OCC’s stress test rules.
• Ability-to-pay rules and qualified mortgages – As required by the Dodd-Frank Act, the CFPB issued a series of final rules
in January 2013 amending Regulation Z, implementing by the Truth in Lending Act, requiring mortgage lenders to make
a reasonable and good faith determination based on verified and documented information that a consumer applying for
a residential mortgage loan has a reasonable ability to repay the loan according to its terms. These final rules, most of
which became effective January 10, 2014, prohibit creditors, such as the Corporation's bank subsidiaries, from extending
residential mortgage loans without regard for the consumer's ability to repay and add restrictions and requirements to
residential mortgage origination and servicing practices. In addition, these rules restrict the imposition of prepayment
penalties and compensation practices relating to residential mortgage loan origination. Mortgage lenders are required to
determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider
eight underwriting factors when making the credit decision. Alternatively, the mortgage lender can originate "qualified
mortgages," which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay
requirements. In general, a "qualified mortgage" is a residential mortgage loan that does not have certain high risk features,
such as negative amortization, interest-only payments, balloon payments, or a term exceeding 30 years. In addition, to
be a qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan amount and the
borrower’s total debt-to-income ratio must be no higher than 43% (subject to certain limited exceptions for loans eligible
for purchase, guarantee or insurance by a government sponsored entity or a federal agency).
Compliance with these rules has increased the Corporation's overall regulatory compliance costs and required changes
to the underwriting practices of the Corporation's subsidiaries with respect to mortgage loans. Moreover, these rules will
adversely affect the volume of mortgage loans that are underwritten by the Corporation's subsidiaries and may subject
the Corporation to increased potential liability related to such residential mortgage origination activities. The Corporation
estimates that approximately 5% of its total residential mortgage loan originations in 2013 would not have been considered
"qualified mortgages."
• Volcker Rule – As mandated by the Dodd-Frank Act, in December 2013, the OCC, FRB, FDIC, SEC and Commodity
Futures Trading Commission issued final rulings (the "Final Rules") implementing certain prohibitions and restrictions
on the ability of a banking entity and non-bank financial company supervised by the FRB to engage in proprietary trading
and have certain ownership interests in, or relationships with, a "covered fund" (the so-called "Volcker Rule"). The Final
Rules generally treat as a covered fund any entity that would be an investment company under the Investment Company
Act of 1940 (the "1940 Act") but for the application of the exemptions from SEC registration set forth in Section 3(c)(1)
(fewer than 100 beneficial owners) or Section 3(c)(7) (qualified purchasers) of the 1940 Act. The Final Rules also require
regulated entities to establish an internal compliance program that is consistent with the extent to which it engages in
activities covered by the Volcker Rule, which must include making regular reports about those activities to regulators.
Although the Final Rules provide some tiering of compliance and reporting obligations based on size, the fundamental
prohibitions of the Volcker Rule apply to banking entities of any size, including the Corporation. Banking entities have
until July 21, 2015 to conform their activities and investments to the requirements of the Final Rules.
While the Corporation does not engage in proprietary trading or in any other activities prohibited by the Final Rules, the
Corporation will continue to evaluate whether any of its investments that fall within the definition of a "covered fund"
and would need to be disposed of by July 21, 2015. However, based on the Corporation's evaluation to date, it does not
currently expect the Final Rules will have a material effect on its business, financial condition or results of operations.
•
Incentive compensation – As required by the Dodd-Frank Act, a joint interagency proposed regulation was issued in April
2011. The proposed rule would require the reporting of incentive-based compensation arrangements by a covered financial
institution and prohibit incentive-based compensation arrangements at a covered financial institution that provides
excessive compensation or that could expose the institution to inappropriate risks that could lead to material financial
loss. The proposed rule, if adopted as currently proposed, could limit the manner in which the Corporation structures
incentive compensation for its executives.
Capital Requirements – There are a number of restrictions on financial and bank holding companies and FDIC-insured depository
subsidiaries that are designed to minimize potential loss to depositors and the FDIC insurance funds. Also, a bank holding company
is required to serve as a source of financial strength to its depository institution subsidiaries and to commit resources to support
such institutions in circumstances where it might not do so absent such policy. Under the BHCA, the FRB has the authority to
require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the FRB’s
8
determination that such activity or control constitutes a serious risk to the financial soundness and stability of a depository institution
subsidiary of the bank holding company.
Bank holding companies are required to comply with the FRB’s risk-based capital guidelines, which require a minimum ratio of
total capital to risk-weighted assets of 8.00%. At least half of the total capital is required to be Tier 1 capital. In addition to the
risk-based capital guidelines, the FRB has adopted a minimum leverage capital ratio under which a bank holding company must
maintain a level of Tier 1 capital to average total consolidated assets of at least 3.00% in the case of a bank holding company
which has the highest regulatory examination rating and is not contemplating significant growth or expansion. For all other bank
holding companies, the minimum ratio of Tier 1 capital to total assets is 4.00%. Depository institutions are required to comply
with similar capital guidelines issued by their primary federal regulator. Bank holding companies and depository institutions with
supervisory, financial, operational, or managerial weaknesses, as well as those that are anticipating or experiencing significant
growth, are expected to maintain capital ratios well above the minimum levels. Moreover, higher capital ratios may be required
for any bank holding company and depository institution if warranted by its particular circumstances or risk profile. In all cases,
bank holding companies and depository institutions should hold capital commensurate with the level and nature of the risks,
including the volume and severity of problem loans, to which they are exposed.
The Basel Committee on Banking Supervision (Basel) is a committee of central banks and bank regulators from major industrialized
countries that develops broad policy guidelines for use by each country’s regulators with the purpose of ensuring that financial
institutions have adequate capital given the risk levels of assets and off-balance sheet financial instruments. In December 2010,
Basel released frameworks for strengthening international capital and liquidity regulations, referred to as Basel III.
In July 2013, the FRB approved final rules (the "U.S. Basel III Capital Rules") establishing a new comprehensive capital framework
for U.S. banking organizations and implementing the Basel III framework for strengthening international capital standards. The
U.S. Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and
depository institutions.
The new minimum regulatory capital requirements established by the U.S. Basel III Capital Rules are effective for the Corporation
beginning on January 1, 2015, and become fully phased in on January 1, 2019.
When fully phased in, the U.S. Basel III Capital Rules will require the Corporation and its bank subsidiaries to:
• Meet a new minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a minimum Tier 1 capital
ratio of 6.00% of risk-weighted assets;
• Continue to require the current minimum Total capital ratio of 8.00% of risk-weighted assets and the minimum Tier 1
leverage capital ratio of 4.00% of average assets;
• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses as a
result of which certain non-qualifying capital instruments, including cumulative preferred stock and trust preferred
securities, will be excluded as a component of Tier 1 capital for institutions of the Corporation's size.
The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expand the risk-weightings for assets and
off balance sheet exposures from the current 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number
of categories, depending on the nature of the assets and resulting in higher risk weights for a variety of asset categories.
The new rules provide that the failure to maintain the "capital conservation buffer" will result in restrictions on capital distributions
and discretionary cash bonus payments to executive officers. As a result, under the U.S. Basel III Capital Rules, if any of the
Corporation's bank subsidiaries 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 its bank subsidiaries, it may not have sufficient funds to pay dividends on its capital stock,
service its debt obligations or repurchase its common stock. In addition, the Corporation and its bank subsidiaries may be limited
in their ability to pay certain cash bonuses to executive officers which may make it more difficult to retain key personnel.
As of December 31, 2013, the Corporation believes its current capital levels would meet the fully-phased in minimum capital
requirements, including capital conservation buffer, as prescribed in the U.S. Basel III Capital Rules.
The Basel III liquidity framework also includes new liquidity requirements that, if implemented by U.S. bank regulators, may
require the Corporation to maintain increased levels of liquid assets or alter its strategies for liquidity management. The Basel III
liquidity framework requires banks and bank holding companies to measure their liquidity against specific ratios. One ratio, referred
9
to as the Liquidity Coverage Ratio, or LCR, is designed to ensure that sufficient high quality liquid resources are available for a
one month period in case of a stress scenario. A second ratio, referred to as the Net Stable Funding Ratio (NSFR), is designed to
promote resiliency over longer-term time horizons by creating additional incentives for banks to fund their activities with more
stable sources of funding on an ongoing structural basis. These new liquidity standards are subject to further rulemaking, and their
terms may change before implementation. In October 2013, U.S. bank regulators proposed rules implementing portions of the
Basel III liquidity framework for large, internationally active banking organizations, and the FRB proposed similar, but less
stringent rules , applicable to bank holding companies with consolidated assets of $50.0 billion or more. Because of the Corporation's
size, neither of these proposed rules as currently drafted will apply to it. U.S. bank regulators have not proposed rules implementing
the Basel III liquidity framework and have not determined to what extent they will apply to banking organizations that are not
large, internationally active banking organizations, and that do not have consolidated assets of $50.0 billion or more.
Prompt Corrective Regulatory Action – The Federal Deposit Insurance Corporation Improvement Act (FDICIA) established a
system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, the federal bank
regulators are required to take certain, and authorized to take other, supervisory actions against undercapitalized institutions, based
upon five categories of capitalization which FDICIA created: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized," the severity of which depends upon the institution’s degree of
capitalization. Generally, a capital restoration plan must be filed with the institution’s primary federal regulator within 45 days of
the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized,"
and the plan must be guaranteed by any parent holding company. In addition, various mandatory supervisory actions become
immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion. Under current
federal banking regulations, generally, an insured depository institution is treated as well capitalized if its total risk-based capital
ratio is 10.00% or greater, its Tier 1 risk-based capital ratio is 6.00% or greater and its Tier 1 leverage capital ratio is 5.00% or
greater, and it is not subject to any order or directive to meet a specific capital level. As of December 31, 2013, each of the
Corporation’s bank subsidiaries’ capital ratios were above the minimum levels required to be considered "well capitalized" by its
primary federal regulator.
Loans and Dividends from Subsidiary Banks – There are various restrictions on the extent to which the Corporation's bank
subsidiaries can make loans or extensions of credit to, or enter into certain transactions with, its affiliates, which would include
the Corporation and its non-banking subsidiaries. In general, these restrictions require that such loans be secured by designated
amounts of specified collateral and are limited, as to any one of the Corporation or its non-bank subsidiaries, to 10% of the lending
bank’s regulatory capital (20% in the aggregate to all such entities). The Dodd-Frank Act expanded these restrictions, effective in
July 2012, to cover securities lending, repurchase agreement and derivatives activities that the Corporation’s bank subsidiaries
may have with an affiliate.
For safety and soundness reasons, banking regulations also limit the amount of cash that can be transferred from subsidiary banks
to the Parent Company in the form of dividends. Dividend limitations vary, depending on the subsidiary bank’s charter and whether
or not it is a member of the Federal Reserve System. Generally, subsidiaries are prohibited from paying dividends when doing so
would cause them to fall below the regulatory minimum capital levels. Additionally, limits may exist on paying dividends in excess
of net income for specified periods. See Note K, "Regulatory Matters," in the Notes to Consolidated Financial Statements for
additional information regarding regulatory capital and dividend and loan limitations.
Federal Deposit Insurance – Substantially all of the deposits of the Corporation’s subsidiary banks are insured up to the applicable
limits by the Deposit Insurance Fund (DIF) of the FDIC, generally up to $250,000 per insured depositor.
The subsidiary banks pay deposit insurance premiums based on assessment rates established by the FDIC. The FDIC has established
a risk-based assessment system under which institutions are classified and pay premiums according to their perceived risk to the
DIF. An institution’s base assessment rate is generally subject to following adjustments: (1) a decrease for the institution’s long-
term unsecured debt, including most senior and subordinated debt, (2) an increase for brokered deposits above a threshold amount
and (3) an increase for unsecured debt held that is issued by another insured depository institution.
On April 1, 2011, as required by the Dodd-Frank Act, the deposit insurance assessment base changed from total domestic deposits
to average total assets, minus average tangible equity. In addition, the FDIC also created a two scorecard system, one for large
depository institutions that have $10 billion or more in assets and another for highly complex institutions that have $50 billion or
more in assets. As of December 31, 2013, none of the Corporation’s individual subsidiary banks had assets of $10 billion or more
and, therefore, did not meet the classification of large depository institutions.
The FDIC annually establishes for the DIF a designated reserve ratio, or DRR, of estimated insured deposits. The DRR is currently
2.00%. The FDIC is authorized to change deposit insurance assessment rates as necessary to maintain the DRR, without further
notice-and-comment rulemaking, provided that: (1) no such adjustment can be greater than three basis points from one quarter to
10
the next, (2) adjustments cannot result in rates more than three basis points above or below the base rates and (3) rates cannot be
negative.
The Dodd-Frank Act increased the minimum DRR to 1.35% of insured deposits, which must be reached by September 30, 2020,
and provides that in setting the assessment rates necessary to meet the new requirement, the FDIC shall offset the effect of this
provision on insured depository institutions with total consolidated assets of less than $10 billion, so that more of the cost of raising
the reserve ratio will be borne by the institutions with more than $10 billion in assets. In October 2010, the FDIC adopted a
restoration plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020. The FDIC is expected to pursue further
rulemaking regarding the method that will be used to reach the reserve ratio of 1.35% so that more of the cost of raising the reserve
ratio to 1.35% will be borne by institutions with more than $10 billion in assets. To the extent that any of the Corporation’s
subsidiary banks’ assets exceeds $10 billion in the future, such rulemaking could result in an increase in the deposit insurance
assessments for such banks.
USA Patriot Act – Anti-terrorism legislation enacted under the USA Patriot Act of 2001 (Patriot Act) expanded the scope of anti-
money laundering laws and regulations and imposed significant new compliance obligations for financial institutions, including
the Corporation’s subsidiary banks. These regulations include obligations to maintain appropriate policies, procedures and controls
to detect, prevent and report money laundering and terrorist financing.
Among other requirements, the Patriot Act and the related regulations impose the following requirements with respect to financial
institutions:
• Establishment of anti-money laundering programs.
• Establishment of a program specifying procedures for obtaining identifying information from customers seeking to open
new accounts, including verifying the identity of customers within a reasonable period of time.
• Establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering.
• Prohibition on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect
to correspondent accounts of foreign banks.
Failure to comply with the Patriot Act’s requirements could have serious legal, financial, regulatory and reputational consequences.
In addition, bank regulators will consider a holding company’s effectiveness in combating money laundering when ruling on
BHCA and Bank Merger Act applications. The Corporation has adopted policies, procedures and controls to address compliance
with the Patriot Act and will continue to revise and update its policies, procedures and controls to reflect required changes.
Residential Lending Laws – As a residential mortgage lender, the Corporation and its bank subsidiaries are subject to multiple
federal consumer protection status and regulations, including, but not limited to, the Truth-In-Lending Act, the Home Mortgage
Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Act and the Flood Disaster Protection Act. Failure to comply
with these and similar statutes and regulations can result in the Corporation and its bank subsidiaries becoming subject to formal
or informal enforcement actions, civil money penalties and consumer litigation.
Community Reinvestment – Under the Community Reinvestment Act (CRA), each of the Corporation’s subsidiary banks has a
continuing and affirmative obligation, consistent with its safe and sound operation, to ascertain and meet the credit needs of its
entire community, including low and moderate income areas. The CRA does not establish specific lending requirements or programs
for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes
are best suited to its particular community. The CRA requires an institution’s primary federal regulator, in connection with its
examination of the institution, to assess the institution's record of meeting the credit needs of its community and to take such record
into account in its evaluation of certain applications by such institution. The assessment focuses on three tests: (1) a lending test,
to evaluate the institution’s record of making loans, including community development loans, in its designated assessment areas;
(2) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing,
and programs benefiting low or moderate income individuals and areas and small businesses; and (3) a service test, to evaluate
the institution’s delivery of banking services throughout its CRA assessment area, including low and moderate income areas. The
CRA also requires all institutions to make public disclosure of their CRA ratings. As of December 31, 2013, all of the Corporation’s
subsidiary banks are rated as "satisfactory." Regulations require that the Corporation’s subsidiary banks publicly disclose certain
agreements that are in fulfillment of CRA. None of the Corporation’s subsidiary banks have any such agreements in place at this
time.
Standards for Safety and Soundness – Pursuant to the requirements of FDICIA, as amended by the Riegle Community Development
and Regulatory Improvement Act of 1994, the federal bank regulatory agencies adopted guidelines establishing general standards
relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate
11
risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal
shareholder. An institution must submit a compliance plan to its regulator if it is notified that it is not satisfying any of such safety
and soundness standards. If the institution fails to submit an acceptable compliance plan or fails in any material respect to implement
an accepted compliance plan, the regulator must issue an order directing corrective actions and may issue an order directing other
actions of the types to which a significantly undercapitalized institution is subject under the "prompt corrective action" provisions
of FDICIA. If the institution fails to comply with such an order, the regulator may seek to enforce such order in judicial proceedings
and to impose civil money penalties.
Privacy Protection – The Corporation’s bank subsidiaries are subject to regulations implementing the privacy protection provisions
of the GLB Act. These regulations require each of the Corporation’s bank subsidiaries to disclose its privacy policy, including
identifying with whom it shares "nonpublic personal information," to customers at the time of establishing the customer relationship
and annually thereafter. The regulations also require the bank to provide its customers with initial and annual notices that accurately
reflect its privacy policies and practices. In addition, to the extent its sharing of such information is not covered by an exception,
the bank is required to provide its customers with the ability to "opt-out" of having the bank share their nonpublic personal
information with unaffiliated third parties.
The Corporation’s bank subsidiaries are subject to regulatory guidelines establishing standards for safeguarding customer
information. These regulations implement certain provisions of the GLB Act. The guidelines describe the federal bank regulatory
agencies’ expectations for the creation, implementation and maintenance of an information security program, which would include
administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope
of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records
and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against
unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Federal Reserve System – FRB regulations require depository institutions to maintain cash reserves against their transaction
accounts (primarily NOW and demand deposit accounts). A reserve of 3% is to be maintained against aggregate transaction accounts
between $13.3 million and $89.0 million (subject to adjustment by the FRB) plus a reserve of 10% (subject to adjustment by the
FRB between 8% and 14%) against that portion of total transaction accounts in excess of $89.0 million. The first $13.3 million
of otherwise reservable balances (subject to adjustment by the FRB) is exempt from the reserve requirements. Each of the
Corporation’s bank subsidiaries is in compliance with the foregoing requirements.
Required reserves must be maintained in the form of either vault cash, an account at a Federal Reserve Bank or a pass-through
account as defined by the FRB. Pursuant to the Emergency Economic Stabilization Act of 2008, the Federal Reserve Banks pay
interest on depository institutions’ required and excess reserve balances. The interest rate paid on required reserve balances is
currently the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal
to the lowest target federal funds rate in effect during the reserve maintenance period.
FHLB members are also authorized to borrow from the Federal Reserve "discount window," but FRB regulations require institutions
to exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
Sarbanes-Oxley Act of 2002 – The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), which was signed into law in July 2002, impacts
all companies with securities registered under the Securities Exchange Act of 1934, including the Corporation. Sarbanes-Oxley
created new requirements in the areas of corporate governance and financial disclosure including, among other things, (i) increased
responsibility for Chief Executive Officers and Chief Financial Officers with respect to the content of filings with the SEC;
(ii) enhanced requirements for audit committees, including independence and disclosure of expertise; (iii) enhanced requirements
for auditor independence and the types of non-audit services that auditors can provide; (iv) accelerated filing requirements for
SEC reports; (v) disclosure of a code of ethics; (vi) increased disclosure and reporting obligations for companies, their directors
and their executive officers; and (vii) new and increased civil and criminal penalties for violations of securities laws. Many of the
provisions became effective immediately, while others became effective as a result of rulemaking procedures delegated by Sarbanes-
Oxley to the SEC.
Section 404 of Sarbanes-Oxley requires management to issue a report on the effectiveness of its internal controls over financial
reporting. In addition, the Corporation’s independent registered public accountants are required to issue an opinion on the
effectiveness of the Corporation’s internal control over financial reporting. These reports can be found in Item 8, "Financial
Statements and Supplementary Data." Certifications of the Chief Executive Officer and the Chief Financial Officer as required
by Sarbanes-Oxley and the resulting SEC rules can be found in the "Signatures" and "Exhibits" sections.
12
Executive Officers
As of December 31, 2013, the executive officers of the Corporation are as follows:
Name
E. Philip Wenger
Age
56
Patrick S. Barrett
50
Curtis J. Myers
Craig H. Hill
Meg R. Mueller
Charles J. Nugent
Craig A. Roda
45
58
49
65
57
Philmer H. Rohrbaugh
61
Office Held and Term of Office
Director of the Corporation since 2009. Mr. Wenger was appointed Chairman of the Board,
President and Chief Executive Officer of the Corporation in January 2013. He previously
served as President and Chief Operating Officer of the Corporation from 2008 to 2012, a
Director of Fulton Bank, N.A. from 2003 to 2009, Chairman of Fulton Bank, N.A. from
2006 to 2009 and has been employed by the Corporation in a number of positions since
1979.
Senior Executive Vice President and Chief Financial Officer of the Corporation effective
January 1, 2014. Mr. Barrett joined the Corporation as Senior Executive Vice President in
November 2013. He held multiple roles with SunTrust Banks, Inc. in the three years prior
to joining the Corporation, ending as Chief Financial Officer of SunTrust Wholesale Bank
from 2011 to 2013. Mr. Barrett previously held a number of senior finance and managing
director roles with JPMorgan Chase & Co. from 2003 to 2010, ending as Managing Director
- Investor Relations. He spent 10 years as a Certified Public Accountant with Deloitte Touche
Tohmatsu from 1993 to 2003, ending as an Audit Partner, Financial Services in 2003.
Senior Executive Vice President of the Corporation; and President and Chief Operating
Officer of Fulton Bank, N.A. since July 2013. President and Chief Operating Officer of
Fulton Bank, N.A. and Executive Vice President of the Corporation since August 2011.
President and Chief Operating Officer of Fulton Bank, N.A. since February 2009. Mr. Myers
has been employed by Fulton Bank, N.A. in a number of positions since 1990.
Senior Executive Vice President of the Corporation since January 2006. Executive Vice
President and Director of Human Resources from 1999 through 2005. Mr. Hill serves as the
Corporation's Senior Executive Vice President of Human Resources, Corporate
Communications and Administrative Services.
Senior Executive Vice President and Chief Credit Officer of the Corporation since July 2013.
Executive Vice President and Chief Credit Officer since 2010. Ms. Mueller has been
employed by the Corporation in a number of positions since 1996.
Retired, effective December 31, 2013. Mr. Nugent served as Senior Executive Vice President
and Chief Financial Officer of the Corporation since January 2001 and Executive Vice
President and Chief Financial Officer of the Corporation from 1992 to 2001. Mr. Nugent
has served as a director of the Federal Home Loan Bank of Pittsburgh since 2010.
Senior Executive Vice President of Community Banking of the Corporation since July 2011;
and Chairman and Chief Executive Officer of Fulton Bank, N.A., since February 2009. Chief
Executive Officer and President of Fulton Bank, N.A. from 2006 to 2009.
Senior Executive Vice President and Chief Risk Officer of the Corporation since November
2012. Mr. Rohrbaugh was a managing partner of KPMG, LLP's Chicago office from 2009
to 2012; Vice Chairman Industries and part of the U.S. Management Committee of KPMG
from 2006 to 2009; and joined KPMG in 2002. He has more than 25 years of experience in
various management positions. Mr. Rohrbaugh is a Certified Public Accountant and currently
serves as a director of a public manufacturing company.
Angela M. Sargent
46
Senior Executive Vice President and Chief Information Officer of the Corporation since July
2013. Executive Vice President and Chief Information Officer since 2002. Ms. Sargent has
been employed by the Corporation in a number of positions since 1992.
James E. Shreiner
64
Senior Executive Vice President of the Corporation since January 2006 and Executive Vice
President of the Corporation and Executive Vice President of Fulton Bank, N.A. from 2000
to 2005. Mr. Shreiner serves as Senior Executive Vice President of Operations and Credit.
13
Item 1A. Risk Factors
An investment in the Corporation's common stock involves certain risks, including, among others, the risks described below. In
addition to the other information contained in this report, you should carefully consider the following risk factors.
Difficult conditions in the economy and the capital markets may materially adversely affect the Corporation's business and
results of operations.
The Corporation's results of operations and financial condition are affected by conditions in the capital markets and the economy
generally. The Corporation's financial performance is highly dependent upon the business environment in the markets where the
Corporation operates and in the U.S. as a whole. Unfavorable or uncertain economic and market conditions can be caused by
declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in
the cost of credit and capital, increases in inflation or interest rates, high unemployment, natural disasters or a combination of
these or other factors.
Specifically, the business environment impacts the ability of borrowers to pay interest on, and repay principal of, outstanding loans
and the value of collateral securing those loans, as well as demand for loans and other products and services the Corporation offers.
If the quality of the Corporation’s loan portfolio declines, the Corporation may have to increase its provision for credit losses,
which would negatively impact its results of operations, and could result in charge-offs of a higher percentage of its loans. Unlike
large, national institutions, the Corporation is not able to spread the risks of unfavorable local economic conditions across a large
number of diversified economies and geographic locations. If the communities in which the Corporation operates do not grow, or
if prevailing economic conditions locally or nationally are unfavorable, its business could be adversely affected. In addition,
increased market competition in a lower demand environment could adversely affect the profit potential of the Corporation.
Since emerging from a recession during the second half of 2009, the U.S. economy has generally been improving; however, the
pace of economic growth has been somewhat sluggish and uneven. There can be no assurance that this improvement will continue,
and certain sectors of the economy remain weak and unemployment remains elevated. Some state and local governments and
many businesses are still experiencing serious financial difficulty. Loan demand shows signs of improvement; however, intense
competition among lenders is contributing to downward pressure on loan yields. Confidence levels of both individuals and
businesses in the economy appear to be improving, but their confidence remains fragile.
The Corporation is subject to certain risks in connection with the establishment and level of its allowance for credit losses.
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. While
the Corporation believes that its allowance for credit losses as of December 31, 2013 is sufficient to cover incurred losses in the
loan portfolio on that date, the Corporation may be required to increase its provision for credit losses due to changes in the risk
characteristics of the loan portfolio, thereby negatively impacting its results of operations.
The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet
date and is recorded as a reduction to loans. Management’s estimate of losses inherent in the loan portfolio is dependent on the
proper application of its methodology for determining its allowance needs. The most critical judgments underpinning that
methodology include: the ability to identify potential problem loans in a timely manner; proper collateral valuation of impaired
loans evaluated for impairment; proper measurement of allowance needs for pools of loans measured for impairment; and an
overall assessment of the risk profile of the loan portfolio.
The Corporation determines the appropriate level of the allowance for credit losses based on many quantitative and qualitative
factors, including, but not limited to: the size and composition of the loan portfolio; changes in risk ratings; changes in collateral
values; delinquency levels; historical losses; and economic conditions.
If the Corporation’s assumptions and judgments regarding such matters prove to be inaccurate, its allowance for credit losses
might not be sufficient, and additional provisions for credit losses might need to be made. Depending on the amount of such
provisions for credit losses, the adverse impact of the Corporation’s earnings could be material.
In addition, as the Corporation’s loan portfolio grows, it will generally be necessary to increase the allowance for credit losses
through additional provisions, which would adversely impact the Corporation’s operating results. Furthermore, bank regulators
may require the Corporation to make additional provisions for credit losses or otherwise recognize further loan charge-offs or
impairments following their periodic reviews of the Corporation’s loan portfolio, underwriting procedures and allowance for credit
losses. Any increase in the Corporation’s allowance for credit losses or loan charge-offs as required by such regulatory authorities
could have a material adverse effect on the Corporation’s financial condition and results of operations. See Item 7, "Management’s
14
Discussion and Analysis of Financial Condition and Results of Operations," "Financial Condition - Provision and Allowance for
Credit Losses."
Economic downturns and the composition of the Corporation’s loan portfolio subject the Corporation to credit risk.
Economic downturns and the composition of the Corporation’s loan portfolio subject the Corporation to credit risk. National,
regional and local economic conditions can impact the Corporation’s loan portfolio. For example, an increase in unemployment,
a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the communities
the Corporation serves. Weakness in the market areas served by the Corporation may depress the Corporation’s earnings and
consequently its financial condition because:
•
•
•
borrowers may not be able to pay interest on, and repay their principal of, outstanding loans;
the value of the collateral securing the Corporation’s loans to borrowers may decline; and
demand for loans, as well as and other products and services the Corporation offers, may decline.
Approximately $5.7 billion, or 44%, of the Corporation’s loan portfolio was in commercial mortgage and construction loans at
December 31, 2013. The Corporation did not have a concentration of credit risk with any single borrower, industry or geographical
location. However, commercial mortgage and construction loans generally involve a greater degree of credit risk than residential
mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because
payments on commercial mortgage loans often depend on the successful operation and management of the properties and the
businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control,
such as adverse conditions in the real estate markets, adverse economic conditions or changes in government regulation. See Item
7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Financial Condition - Loans."
Changes in interest rates may have an adverse effect on the Corporation's net income.
The Corporation is affected by fiscal and monetary policies of the federal government, including those of the FRB, which regulates
the national money supply and engages in other lending and investment activities in order to manage recessionary and inflationary
pressures, many of which affect interest rates charged on loans and paid on deposits.
Net interest income is the most significant component of the Corporation's net income, accounting for approximately 75% of total
revenues in 2013. The narrowing of interest rate spreads, the difference between interest rates earned on loans and investments
and interest rates paid on deposits and borrowings, could adversely affect the Corporation's net interest income and financial
condition. The Corporation cannot predict or control changes in interest rates.
Low market interest rates, which have been projected by many to continue for some time, have pressured net interest margins.
Interest-earning assets, such as loans and investments, have been originated, acquired or repriced at lower rates, reducing the
average rate earned on those assets. While the average rate paid on interest-bearing liabilities, such as deposits and borrowings,
has also declined, the decline has not always occurred at the same pace as the decline in the average rate earned on interest-earning
assets, resulting in a narrowing of the net interest margin. For example, competition sometimes requires the Corporation to lower
rates charged on loans more than the decline in market rates would otherwise indicate. Competition may also require the Corporation
to pay higher rates on deposits than market rates would otherwise indicate, further narrowing net interest margin. Further, due to
historically low market interest rates, rates paid on deposits may reach a “natural floor” below which rates may not be able to be
lowered. See Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Net Interest
Income."
Movements in interest rates can also cause demand for some of the Corporation’s products and services to be cyclical. As a result,
the Corporation may need to periodically scale certain of its businesses, including its personnel, to match increases and decreases
in demand and volume. The need to change the scale of these businesses is challenging and there is often a lag between changes
in the businesses and the Corporation’s reaction to these changes. For example, demand for residential mortgage loans has
historically tended to increase during periods when interest rates were declining, and to decrease during periods when interest
rates were rising. During 2012, long-term interest rates in general, and those for residential mortgage loans in particular, were at
or near historic lows. This low level of interest rates contributed to a significant increase in the volume of residential mortgage
loans originated by the Corporation, a significant increase in gains realized on the sale of some of those loans to investors in the
secondary market, and significant growth in the Corporation's residential mortgage loans held in its loan portfolio during 2012.
This level of growth was not repeated in 2013 and, as a result, the Corporation’s income related to residential mortgage loans
declined.
15
Changes in interest rates or disruption in liquidity markets may adversely affect the Corporation’s sources of funding; liquidity
planning at both the bank and holding company levels has become an area of increased regulatory emphasis.
The Corporation must maintain sufficient funds to respond to the needs of its depositors and borrowers. The Corporation’s liquidity
management emphasizes core deposits and repayments and maturities of loans and investments as its primary sources of liquidity.
These primary sources of liquidity can be supplemented by FHLB advances, borrowings from the Federal Reserve Bank, proceeds
from the sales of loans and liquidity resources of the holding company. Lower-cost, core deposits may be adversely affected by
changes in interest rates and the supplemental sources of liquidity are often more expensive and may not always be as readily
available. Technology and other factors have also made it more convenient for customers to transfer low-cost deposits into higher-
cost deposits or into alternative investments or deposits of other banks or non-bank providers; these funding changes can also
increase the Corporation’s funding costs and/or create liquidity challenges.
While the Corporation attempts to manage its liquidity through models, assumptions and estimates used in the models do not
always accurately forecast the impact of changes in customer behavior. For example, the Corporation may face limitations on its
ability to fund loan growth if customers move funds out of the Corporation’s subsidiary banks’ deposit accounts in response to
increases in interest rates. In the current, unusually low interest rate environment, customers are less sensitive to interest rates
when making deposit decisions. However, should interest rates rise, customers may become more aware of interest rate differences
and alternative opportunities, which could cause them to move funds into those other opportunities and out of deposit accounts
maintained by the Corporation’s bank subsidiaries. Due to regulatory limitations on the Corporation’s ability to rely on short term
funding sources, any significant movements of deposits away from traditional depository accounts which negatively impacts the
Corporation’s loan-to-deposit ratio could restrict its ability to achieve growth in loans or result in the necessity to pay higher
interest rates on deposit products in order to retain deposits to fund loans.
Market conditions have been negatively impacted by disruptions in the liquidity markets in the past, and such disruptions or an
adverse change in the Corporation's results of operations or financial condition could, in the future, have a negative impact on
secondary sources of liquidity. See Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," "Interest Rate
Risk, Asset/Liability Management and Liquidity."
Liquidity must also be managed at the holding company level. Banking regulators are paying close attention to liquidity at the
holding company level, in addition to consolidated and bank liquidity levels. For safety and soundness reasons, banking regulations
limit the amount of cash that can be transferred from subsidiary banks to the parent company in the form of loans and dividends.
Generally, these limitations are based on the subsidiary banks' regulatory capital levels and their net income. These factors have
affected some institutions' ability to pay dividends and have required some institutions to establish borrowing facilities at the
holding company level.
As discussed under Part I, Item 1, "Business," "Supervision and Regulation," proposals included within the Basel III liquidity
framework include new liquidity requirements which, if implemented by U.S. bank regulators, may require the Corporation to
maintain increased levels of liquid assets or alter its strategies for liquidity management.
Price fluctuations in securities markets, as well as other market events, such as a disruption in credit and other markets and
the abnormal functioning of markets for securities, could have an impact on the Corporation's results of operations.
The market value of the Corporation's securities investments, which include municipal securities, auction rate securities, corporate
debt securities and equity investments, as well as the revenues the Corporation earns from its trust and investment management
services business, are particularly sensitive to price fluctuations and market events. Declines in the values of the Corporation’s
securities holdings, combined with adverse changes in the expected cash flows from these investments, could result in other-than-
temporary impairment charges:
• Municipal Securities. As of December 31, 2013, the Corporation had $284.8 million of municipal securities issued by
various municipalities in its investment portfolio. Ongoing uncertainty with respect to the financial viability of municipal
insurers places greater emphasis on the underlying strength of issuers. Increasing pressure on local tax revenues of issuers
due to adverse economic conditions could also have a negative impact on the underlying credit quality of issuers. The
Corporation evaluates existing and potential holdings primarily on the underlying credit worthiness of the issuing
municipality and then, to a lesser extent, on the credit enhancement corresponding to the individual issuance. As of
December 31, 2013, approximately 95% of municipal securities were supported by the general obligation of corresponding
municipalities. In addition, approximately 84% of these securities were school district issuances that are supported by
the general obligation of the corresponding municipalities as of December 31, 2013.
16
• Auction Rate Securities. As of December 31, 2013, the Corporation had $159.3 million of investments in Auction Rate
Certificates (ARCs). Recent market prices for ARCs represent forced liquidations or distressed sales and do not provide
an accurate basis for determining their fair value. The Corporation does not have the intent to sell the ARCs and does not
believe it will more likely than not be required to sell any of the ARCs prior to a recovery of their fair value to amortized
cost, which may be at maturity. However, if the Corporation chose to liquidate these securities prior to their maturity, it
would likely have to do so at such "distressed" sale prices and would likely do so at a loss.
• Corporate Debt Securities. As of December 31, 2013, the Corporation had $98.7 million of corporate debt securities
issued by financial institutions. Declines in the values of these securities, combined with adverse changes in the expected
cash flows from these investments, could result in other-than-temporary impairment charges
• Equity Investments. The Corporation's holdings of equity investments include stocks of publicly traded financial
institutions, including shares of a single financial institution which, as of December 31, 2013, had a fair value of $29.3
million. The Corporation's holdings of this financial institution constituted approximately 72% of the fair value of the
Corporation's aggregate holdings of publicly traded financial institutions as of that date.
•
Investment Management and Trust Services Revenues. The Corporation's investment management and trust services
revenue, which is partially based on the value of the underlying investment portfolios, can also be impacted by fluctuations
in the securities markets. If the values of those investment portfolios decrease, whether due to factors influencing U.S.
securities markets, in general, or otherwise, the Corporation's revenue could be negatively impacted. In addition, the
Corporation's ability to sell its brokerage services is dependent, in part, upon consumers' level of confidence in securities
markets.
See also Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk."
The supervision and regulation to which the Corporation is subject is increasing and can be a competitive disadvantage; the
Corporation may incur fines, penalties and other negative consequences from regulatory violations, including inadvertent or
unintentional violations.
Virtually every aspect of the Corporation's operations is subject to extensive regulation and, in the current economic, political and
regulatory climate, the Corporation and its bank subsidiaries are subject to heightened regulatory scrutiny, especially given the
Corporation's size and complexity. The Corporation has six banking subsidiaries. The Corporation and its subsidiaries are subject
to regulation by a variety of federal and state banking regulatory agencies. This corporate structure presents challenges, in terms
of compliance with different, and potentially inconsistent, regulatory requirements. As a result, the time, expense and internal and
external resources associated with regulatory compliance continue to increase, and balancing the need to address regulatory changes
and effectively manage growth in non-interest expenses has become more challenging than it has been in the past. Thus, the
Corporation’s compliance obligations increase the Corporation's expense, require management's attention and can be a disadvantage
from a competitive standpoint with respect to non-regulated competitors and larger bank competitors.
Compliance with banking statutes and regulations is important to the Corporation’s ability to engage in new activities and to
consummate certain transactions. Bank regulators are scrutinizing banks through longer and more extensive bank examinations
in both the safety and soundness and compliance areas. The results of such examinations could result in a delay in receiving
required regulatory approvals for potential new activities and transactional matters. In the event that the Corporation’s compliance
record would be determined to be unsatisfactory, such approvals may not be able to be obtained. Federal and state banking regulators
also possess broad powers to take supervisory actions, as they deem appropriate. These supervisory actions may result in higher
capital requirements, higher deposit insurance premiums and limitations on the Corporation’s operations and expansion activities
that could have a material adverse effect on its business and profitability.
In recent years, a combination of financial reform legislation and heightened scrutiny by banking regulators have significantly
increased expectations regarding what constitutes an effective risk and compliance management infrastructure. To keep pace with
these expectations, the Corporation has invested considerable resources in initiatives designed to strengthen its risk management
framework and regulatory compliance programs.
Further, failure to comply with these regulatory requirements, including inadvertent or unintentional violations, may result in the
assessment of fines and penalties, the commencement of informal or formal regulatory enforcement actions against the Corporation
or its bank subsidiaries. As an example, three of the Corporation's bank subsidiaries were recently subject to civil money penalties
for certain alleged failures to comply with the Flood Disaster Protection Act. Other negative consequences also can result from
such failures, including regulatory restrictions on the Corporation's activities, including restrictions on the Corporation’s ability
to grow through acquisition, reputational damage, restrictions on the ability of institutional investment managers to invest in the
17
Corporation's securities and increases in the Corporation's costs of doing business. The occurrence of one or more of these events
may have a material adverse effect on the Corporation's business, financial condition or results of operations.
Among other areas that the Corporation continues to focus substantial resources on to improve its compliance functions are the
requirements under the Flood Disaster Protection Act, the Bank Secrecy Act, the Patriot Act and related anti-money laundering
regulations. Although the Corporation has made progress in continuing to build-out its risk and compliance management
infrastructures, the pace at which it has progressed may not be consistent with current regulatory expectations. As a result, the
Corporation believes that there is an increasing risk that it, or one or more of its bank subsidiaries, may become subject to regulatory
enforcement action in addition to the civil monetary penalties recently imposed against three of its banking subsidiaries. Any such
enforcement action by the Corporation’s banking regulators would likely require that it accelerate its efforts to resolve identified
deficiencies and improve its compliance functions and to undertake additional remedial actions, and could also involve the
imposition of material restrictions on the Corporation’s activities or the assessment of fines or penalties against the Corporation
or one or more of its bank subsidiaries.
Management has accelerated its efforts to resolve identified deficiencies and enhance the Corporation’s compliance and risk
management functions, and this work will continue. Although management is not able to predict the outcome of these matters,
costs associated with these efforts, including additional expenses for salaries and benefits, outside professional services, such as
consulting and legal, and for enhancing or acquiring systems to strengthen and support the Corporation’s regulatory compliance
and risk management infrastructures, could materially affect the Corporation’s results of operations in future periods. See also
Part I, Item 1, Business, "Supervision and Regulation."
Financial reform legislation continues to have a significant impact on the Corporation's business and results of operations;
however, until more implementing regulations are adopted, the extent to which the legislation will impact the Corporation is
uncertain.
On July 21, 2010, the President of the United States signed into law the Dodd-Frank Act. The scope of the Dodd-Frank Act impacted
many aspects of the financial services industry, and it requires the development and adoption of many regulations, a significant
number of which have not yet been adopted or fully implemented. The effects of the Dodd-Frank Act on the financial services
industry will depend, in large part, upon the extent to which regulators exercise the authority granted to them under the Dodd-
Frank Act and the approaches taken in implementing regulations. The delay in the implementation of many of the regulations
mandated by the Dodd-Frank Act on the timelines contemplated by such legislation has resulted in a lack of clear regulatory
guidance to banks. The resulting uncertainty has caused banks to take a cautious approach to business initiatives and planning.
Additional uncertainty regarding the effect of the Dodd-Frank Act exists due to court decisions and the potential for additional
legislative changes to the Dodd-Frank Act.
The Corporation, as well as the broader financial services industry, is continuing to assess the potential impact of the Dodd-Frank
Act (and its possible impact on customers' behaviors) on its business and operations but, at this stage, the extent of the impact
cannot be fully determined with any degree of certainty. However, the Corporation has been impacted, and will likely continue to
be in the future, by the so-called Durbin Amendment to the Dodd-Frank Act, which reduced debit card interchange revenue of
banks; and revised FDIC deposit insurance assessments. The Durbin amendment is currently the subject of litigation that could
result in a further reduction to permissible interchange income, although the outcome of that litigation is not yet final. The
Corporation also is likely to be impacted by the Dodd-Frank Act in the areas of corporate governance, capital requirements, risk
management, stress testing and regulation under consumer protection laws.
The Dodd-Frank Act established the CFPB. Among other things, the CFPB was given rulemaking authority over most providers
of consumer financial services in the U.S., examination and enforcement authority over the consumer operations of large banks,
as well as interpretive authority with respect to numerous existing consumer financial services regulations. The CFPB began
exercising these oversight authorities over the largest banks during 2011. Because the CFPB is a relatively new agency, the impact
on the Corporation, including its retail banking and mortgage businesses, is largely uncertain. However, any new regulatory
requirements, or modified interpretations of existing regulations, will affect the Corporation's consumer business practices and
operations, potentially resulting in increased compliance costs. Furthermore, the CFPB represents an additional source of potential
enforcement or litigation against the Corporation and, as a relatively new agency with a focus on consumer protection, the CFPB
may have new or different enforcement or litigation strategies than those typically utilized by other regulatory agencies. Such
actions could further increase the Corporation's costs.
Pursuant to the Dodd-Frank Act, the CFPB issued a series of final rules in January 2013 related to mortgage loan origination and
mortgage loan servicing. These final rules, most provisions of which became effective January 10, 2014, prohibit creditors, such
as the Corporation's bank subsidiaries, from extending residential mortgage loans without regard for the consumer's ability to
18
repay, provide certain safe harbor protections for the origination of loans that meet the requirements for a "qualified mortgage"
and add restrictions and requirements to residential mortgage origination and servicing practices. In addition, these rules restrict
the imposition of prepayment penalties and compensation practices relating to residential mortgage loan origination. Compliance
with these rules will likely increase the Corporation’s overall regulatory compliance costs and required the Corporation’s bank
subsidiaries to change their underwriting practices. Moreover, these rules may adversely affect the volume of mortgage loans that
the Corporation’s bank subsidiaries originate and may subject those subsidiaries to increased potential liability related to their
residential loan origination activities. See also Part I, Item 1, "Business," "Supervision and Regulation."
Additional growth, particularly at the Corporation's largest subsidiary, Fulton Bank, N.A., will subject it to additional regulation
and increased supervision.
The Dodd-Frank Act imposes additional regulatory requirements on institutions with $10 billion or more in assets. The Corporation's
largest bank subsidiary, Fulton Bank, N.A., had $9.5 billion in assets as of December 31, 2013. Additional growth that results in
Fulton Bank, N.A. having assets of $10 billion or more would subject Fulton Bank, N.A. to the following:
Supervision, examination and enforcement by the CFPB with respect to consumer financial protection laws;
Stress testing requirements;
•
•
• A modified methodology for calculating FDIC insurance assessments and potentially higher assessment rates as a result
of institutions with $10 billion or more in assets being required to bear a greater portion of the cost of raising the reserve
ratio to 1.35% as required by the Dodd-Frank Act;
• Heightened compliance standards under the Volcker Rule; and
• Enhanced supervision as a larger financial institution.
See also Part I, Item 1, "Business," "Supervision and Regulation."
The Corporation is exposed to many types of operational and other risks; some of these risks are associated with third-party
vendors and other financial institutions.
The Corporation is exposed to many types of operational risk, including the risk of human error or fraud by employees and outsiders,
unsatisfactory performance by employees and vendors, clerical and record-keeping errors, and computer and telecommunications
systems malfunctions.
Reputation risk, or the risk to the Corporation's earnings and capital from negative public opinion, is inherent in the Corporation's
business. Negative public opinion could result from the Corporation's actual or alleged conduct in any number of activities,
including lending practices, corporate governance, regulatory, compliance, mergers and acquisitions, and disclosure, sharing or
inadequate protection of customer information and from actions taken by government regulators and community organizations in
response to that conduct. Because the Corporation conducts the majority of its businesses under the "Fulton" brand, negative public
opinion about one business could affect the Corporation's other businesses.
The Corporation relies upon certain third-party vendors to provide products and services necessary to maintain its day-to-day
operations. For example, the Corporation's businesses are dependent on its ability to process a large number of increasingly complex
transactions; a significant amount of this processing is provided to the Corporation by third-party vendors. Accordingly, the
Corporation’s operations are exposed to the risk that these vendors might not perform in accordance with applicable contractual
arrangements or service level agreements. The failure of an external vendor to perform in accordance with applicable contractual
arrangements or service level agreements could be disruptive to the Corporation’s operations, which could have a material adverse
effect on the Corporation’s financial condition and results of operations.
The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, execution of
transactions or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one
institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is
sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing
houses, banks, securities firms and exchanges, with which the Corporation interacts on a daily basis, and therefore could adversely
affect the Corporation.
Any of these operational or other risks could result in the Corporation's diminished ability to operate one or more of its businesses,
financial loss, potential liability to customers, inability to secure insurance, reputational damage and regulatory intervention, which
could materially adversely affect the Corporation.
19
The Corporation's framework for managing risks may not be effective in mitigating risk and loss to the Corporation; for
example, the Corporation’s internal control may be ineffective.
The Corporation’s risk management framework is subject to inherent limitations, and there may exist, or develop in the future,
risks that the Corporation has not anticipated or identified. If the Corporation's risk management framework proves to be ineffective,
the Corporation could suffer unexpected losses and could be materially adversely affected. In addition, the Corporation historically
has followed a "super-community" banking strategy under which the Corporation has operated its subsidiary banks autonomously
to maximize the advantage of community banking and service to its customers. This banking strategy challenges the Corporation's
efforts to manage risk efficiently and effectively through a centralized risk management and compliance function. The evolving
need for organization-wide risk management procedures may require further changes in the Corporation's historical multi-bank,
de-centralized operating approach.
One critical component of the Corporation’s risk management framework is its system of internal controls. Management regularly
reviews and updates the Corporation’s internal controls, disclosure controls and procedures, and corporate governance policies
and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can
provide reasonable, but not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of the
Corporation’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material
adverse effect on the Corporation’s business, results of operations, and financial condition. See Part II, Item 9A, "Controls and
Procedures."
Loss of, or failure to adequately safeguard, confidential or proprietary information may adversely affect the Corporation's
operations, net income or reputation.
The Corporation regularly collects, processes, transmits and stores significant amounts of its own confidential information, as
well as confidential information regarding its customers, employees and others that is necessary to the conduct of its business. In
some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties
on behalf of the Corporation. A failure in or breach of the Corporation's operational or information security systems, or those of
the Corporation's third-party service providers, as a result of cyber attacks or information security breaches or due to employee
error, malfeasance or other disruptions could adversely affect the Corporation’s business, result in the disclosure or misuse of
confidential or proprietary information, damage the Corporation’s reputation, increase the Corporation’s costs and/or cause losses
and could subject the Corporation to significant regulatory consequences. As a result, cyber security and the continued development
and enhancement of the controls and processes designed to protect the Corporation's systems, computers, software, data and
networks from attack, damage or unauthorized access remain a priority for the Corporation.
The safeguards employed by the Corporation do not provide absolute assurance that mishandling, misuse or loss of the information
will not occur, and that if mishandling, misuse or loss of the information did occur, those events will be promptly detected and
addressed. As information security risks and cyber threats continue to evolve (and possibly increase as technological developments
may further increase cyber threats), the Corporation may be required to expend additional resources to continue to enhance its
information security measures and/or to investigate and remediate any information security vulnerabilities.
If the goodwill that the Corporation has recorded in connection with its acquisitions becomes impaired, it could have a negative
impact on the Corporation's results of operations.
In the past, the Corporation supplemented its internal growth with strategic acquisitions of banks, branches and other financial
services companies. If the purchase price of an acquired company exceeds the fair value of the company's net assets, the excess
is carried on the acquirer's balance sheet as goodwill. Companies must evaluate goodwill for impairment at least annually. A more
frequent evaluation could be triggered by, for example, a broad price decline in the shares of comparable publicly traded financial
institutions. Write-downs of the amount of any impairment, if necessary, are to be charged to earnings in the period in which the
impairment occurs. There can be no assurance that future evaluations of goodwill will not result in impairment charges.
The Corporation continually encounters technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-
driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve
customers and to reduce costs. The Corporation’s future success depends, in part, upon its ability to address the needs of its
customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional
efficiencies in the Corporation’s operations. Many of the Corporation’s competitors have substantially greater resources to invest
in technological improvements. The Corporation may not be able to effectively implement new technology-driven products and
services, be successful in marketing these products and services to its customers, or effectively deploy new technologies to improve
20
the efficiency of its operations. Failure to successfully keep pace with technological change affecting the financial services industry
could have a material adverse impact on the Corporation’s business, financial condition and results of operations.
Further, the costs of new technology, including personnel, can be high in both absolute and relative terms. There can be no assurance,
given the past pace of change and innovation, that the Corporation’s technology, either purchased or developed internally, will
meet or continue to meet the needs of the Corporation and the needs of its customers.
The competition the Corporation faces is significant and may reduce the Corporation's customer base and negatively impact
the Corporation's results of operations.
There is significant competition among commercial banks in the market areas served by the Corporation. In addition, as a result
of the deregulation of the financial services industry, the Corporation also competes with other providers of financial services,
such as savings and loan associations, credit unions, consumer finance companies, securities firms, insurance companies,
commercial finance and leasing companies, the mutual funds industry, full service brokerage firms and discount brokerage firms,
some of which are subject to less extensive regulations than the Corporation is with respect to the products and services they
provide and have different cost structures. Some of the Corporation's competitors have greater resources, higher lending limits,
lower cost of funds and may offer other services not offered by the Corporation. The Corporation also experiences competition
from a variety of institutions outside its market areas. Some of these institutions conduct business primarily over the Internet and
may thus be able to realize certain cost savings and offer products and services at more favorable rates and with greater convenience
to the customer.
Competition may adversely affect the rates the Corporation pays on deposits and charges on loans, thereby potentially adversely
affecting the Corporation's profitability. The Corporation's profitability depends upon its continued ability to successfully compete
in the market areas it serves. Further, intense competition among lenders is contributing to downward pressure on loan yields. See
Part I, Item 1, "Business," "Competition."
The Corporation may not be able to attract and retain skilled people.
The Corporation’s success depends, in large part, on its ability to attract and retain skilled people. Competition for the best people
in most activities engaged in by the Corporation can be intense, and the Corporation may not be able to hire sufficiently skilled
people or to retain them. As an example and as noted above, the Corporation is engaged in an effort to enhance its compliance
and risk management functions. As many of the Corporation’s peers are engaged in similar efforts, the competition for personnel
with skills in these areas can be significant and, to the extent that the Corporation is able to attract qualified personnel, the expense
associated with hiring such personnel may be substantial. The unexpected loss of services of one or more of the Corporation’s
key personnel could have a material adverse impact on the Corporation’s business because of their skills, knowledge of the
Corporation’s markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel.
The Corporation's future growth may require the Corporation to raise additional capital in the future, but that capital may not
be available when it is needed or may be available only at an excessive cost.
The Corporation is required by regulatory authorities to maintain adequate levels of capital to support its operations. The Corporation
anticipates that current capital levels will satisfy regulatory requirements for the foreseeable future. The Corporation, however,
may at some point choose to raise additional capital to support its continued growth. The Corporation's ability to raise additional
capital will depend, in part, on conditions in the capital markets at that time, which are outside of the Corporation's control.
Accordingly, the Corporation may be unable to raise additional capital, if and when needed, on terms acceptable to the Corporation,
or at all. If the Corporation cannot raise additional capital when needed, its ability to further expand operations through internal
growth and acquisitions could be materially impacted. In the event of a material decrease in the Corporation's stock price, future
issuances of equity securities could result in dilution of existing shareholder interests.
Capital planning has taken on more importance due to regulatory requirements and the Basel III capital standards.
Consistent with current regulatory guidance, the Corporation conducts an annual stress test. The Corporation's board of directors
and its senior management will be required to consider the results of the stress test in the normal course of business, including as
part of its capital planning process and the evaluation of the adequacy of its capital. The Corporation will also be required to report
the results of the annual stress test to the Federal Reserve and, beginning with the stress test conducted in the fall of 2014, publicly
disclose a summary of the results of the stress test completed under the severely adverse scenario. The results of the stress testing
process may lead the Corporation to retain additional capital or alter the mix of its capital components. In addition, the
implementation of certain regulations with regard to regulatory capital could disproportionately affect the Corporation's regulatory
capital position relative to that of its competitors, including those who may not be subject to the same regulatory requirement.
21
In 2013, the federal banking regulatory agencies implemented the U.S. Basel III Capital Rules, including: (i) new minimum
Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets, (ii) increased minimum Tier 1 capital ratio (from 4.00% to
6.00% of risk-weighted assets), (iii) retention of the current minimum Total capital ratio of 8.00% of risk-weighted assets and the
minimum Tier 1 leverage capital ratio at 4.00% of average assets and (iv) a new "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. As a result of the implementation of the new capital standards, certain non-qualifying capital
instruments, including cumulative preferred stock and trust preferred securities, will be excluded as a component of Tier 1 capital
for institutions of the Corporation’s size.
The fully phased-in capital standards under the U.S. Basel III Capital Rules require banks to maintain more capital than the
minimum levels required under current regulatory capital standards. The new minimum regulatory capital requirements begin to
apply to the Corporation in 2015. The required minimum capital conservation buffer will be phased in incrementally starting on
January 1, 2016 and will be fully phased in on January 1, 2019. The failure to meet the established capital requirements could
result in the federal banking regulators placing limitations or conditions on the activities of the Corporation or its bank subsidiaries
or restricting the commencement of new activities, and such failure could subject the Corporation or its bank subsidiaries to a
variety of enforcement remedies, including limiting the ability of the Corporation or its bank subsidiaries to pay dividends, issuing
a directive to increase capital and terminating FDIC deposit insurance. In addition, the failure to comply with the capital conservation
buffer will result in restrictions on capital distributions and discretionary cash bonus payments to executive officers. As of December
31, 2013, the Corporation believes its current capital levels would meet the fully-phased in minimum capital requirements, including
capital conservation buffers, as set forth in the U.S. Basel III Capital Rules. See Part I, Item 1, "Business," "Supervision and
Regulation - Capital Requirements."
The Corporation is a holding company and relies on dividends from its subsidiaries for substantially all of its revenue and its
ability to make dividends, distributions and other payments.
The Corporation is a separate and distinct legal entity from its banking and nonbanking subsidiaries, and depends on the payment
of dividends from its subsidiaries, principally its banking subsidiaries, for substantially all of its revenues. As a result, the
Corporation's ability to make dividend payments on its common stock depends primarily on certain federal and state regulatory
considerations and the receipt of dividends and other distributions from its subsidiaries. There are various regulatory and prudential
supervisory restrictions, which may change from time to time, that impact the ability of the Corporation’s banking subsidiaries to
pay dividends or make other payments to it. There can be no assurance that the Corporation’s banking subsidiaries will be able to
pay dividends at past levels, or at all, in the future. If the Corporation does not receive sufficient cash dividends or is unable to
borrow from its banking subsidiaries, then the Corporation may not have sufficient funds to pay dividends to its shareholders,
repurchase its common stock or service its debt obligations. See Part I, Item 1, "Business," "Supervision and Regulation - Loans
and Dividends from Subsidiary Banks."
A downgrade in the credit ratings of the Corporation or its bank subsidiaries could have a material adverse impact on the
Corporation.
Fitch, Inc. and Moody's Investors Service, Inc. continuously evaluate the Corporation and its subsidiaries, and their ratings of the
Corporation and its subsidiary's long-term and short-term debt are based on a number of factors, including financial strength, as
well as factors not entirely within its and its subsidiaries' control, such as conditions affecting the financial services industry
generally. Moreover, Fitch and Moody's have indicated that they are evaluating the impact of the Dodd-Frank Act on the rating
support assumptions currently included in their methodologies. In light of these reviews and the continued focus on the financial
services industry generally, the Corporation and its subsidiaries may not be able to maintain their current respective ratings. Ratings
downgrades by Fitch or Moody's could have a significant and immediate impact on the Corporation's funding and liquidity through
cash obligations, reduced funding capacity and collateral triggers. A reduction in the Corporation's or its subsidiaries' credit ratings
could also increase the Corporation's borrowing costs and limit its access to the capital markets.
Downgrades in the credit or financial strength ratings assigned to the counterparties with whom the Corporation transacts, could
create the perception that the Corporation's financial condition will be adversely impacted as a result of potential future defaults
by such counterparties. Additionally, the Corporation could be adversely affected by a general, negative perception of financial
institutions caused by the downgrade of other financial institutions. Accordingly, ratings downgrades for other financial institutions
could affect the market price of the Corporation's stock and could limit access to or increase its cost of capital.
22
Anti-takeover provisions could negatively impact the Corporation's shareholders.
Provisions of banking laws, Pennsylvania corporate law and of the Corporation's Amended and Restated Articles of Incorporation
and Bylaws could make it more difficult for a third party to acquire control of the Corporation or have the effect of discouraging
a third party from attempting to acquire control of the Corporation.
The Corporation's Amended and Restated Articles of Incorporation and Bylaws include certain provisions which may be considered
to be "anti-takeover" in nature because they may have the effect of discouraging or making more difficult the acquisition of control
over the Corporation by means of a hostile tender offer, exchange offer, proxy contest or similar transaction. These provisions are
intended to protect the Corporation's shareholders by providing a measure of assurance that the Corporation's shareholders will
be treated fairly in the event of an unsolicited takeover bid and by preventing a successful takeover bidder from exercising its
voting control to the detriment of the other shareholders. However, the anti-takeover provisions set forth in the Corporation's
Amended and Restated Articles of Incorporation and Bylaws, taken as a whole, may discourage a hostile tender offer, exchange
offer, proxy solicitation or similar transaction relating to the Corporation's common stock. To the extent that these provisions
actually discourage such a transaction, holders of the Corporation's common stock may not have an opportunity to dispose of part
or all of their stock at a higher price than that prevailing in the market. In addition, some of these provisions make it more difficult
to remove, and thereby may serve to entrench, the Corporation's incumbent directors and officers, even if their removal would be
regarded by some shareholders as desirable.
The ability of a third party to acquire the Corporation is also limited under applicable banking regulations. The BHCA requires
any "bank holding company" (as defined in that Act) to obtain the approval of the FRB prior to acquiring more than 5% of the
Corporation’s outstanding common stock. Any person other than a bank holding company is required to obtain prior approval of
the FRB to acquire 10% or more of the Corporation’s outstanding common stock under the Change in Bank Control Act of 1978.
Any holder of 25% or more of the Corporation’s outstanding common stock, other than an individual, is subject to regulation as
a bank holding company under the BHCA. In addition, the delays associated with obtaining necessary regulatory approvals for
acquisitions of interests in bank holding companies also tend to make more difficult certain acquisition structures, such as a tender
offer. While these provisions do not prohibit an acquisition, they would likely act as a deterrent factor to an unsolicited takeover
attempt.
23
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table summarizes the Corporation’s full-service branch properties, by subsidiary bank, as of December 31, 2013.
Remote service facilities (mainly stand-alone automated teller machines) are excluded.
Subsidiary Bank
Fulton Bank, N.A. ...........................................................................................................
Fulton Bank of New Jersey .............................................................................................
The Columbia Bank.........................................................................................................
Lafayette Ambassador Bank............................................................................................
FNB Bank, N.A. ..............................................................................................................
Swineford National Bank ................................................................................................
Owned
Leased
47
39
9
5
6
5
72
32
29
18
2
2
Total
Branches
119
71
38
23
8
7
Total..........................................................................................................................
111
155
266
The following table summarizes the Corporation’s other significant administrative properties. Banking subsidiaries also maintain
administrative offices at their respective main banking branches, which are included within the preceding table.
Entity
Fulton Bank, N.A./Fulton Financial Corporation ...........
Fulton Financial Corporation ..........................................
Fulton Bank, N.A. ...........................................................
Property
Corporate Headquarters
Operations Center
Operations Center
Owned/
Leased
(1)
Location
Lancaster, PA
East Petersburg, PA Owned
Owned
Mantua, NJ
(1)
Includes approximately 100,000 square feet which is owned by an independent third-party who financed the construction through a loan from Fulton Bank,
N.A. The Corporation is leasing this space from the third-party in an arrangement accounted for as a capital lease. The lease term expires in 2027. The
Corporation owns the remainder of the Corporate Headquarters location. This property also includes a Fulton Bank, N.A. branch, which is included in the
preceding table.
Item 3. Legal Proceedings
The Corporation and its subsidiaries are involved in various legal proceedings in the ordinary course of business of the
Corporation. The Corporation periodically evaluates the possible impact of pending litigation matters based on, among other
factors, the advice of counsel, available insurance coverage and recorded liabilities and reserves for probable legal liabilities and
costs. In addition, from time to time, the Corporation is the subject of 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 industry participants. These inquiries could lead to administrative, civil or criminal proceedings, and could possibly result
in fines, penalties, restitution or the need to alter the Corporation’s business practices, and cause the Corporation to incur additional
costs. The Corporation’s practice is to cooperate fully with regulatory and governmental investigations.
As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from
the final outcomes of pending proceedings will not have a material adverse effect on the financial position, the operating results
and/or the liquidity of the Corporation. However, legal proceedings are often unpredictable, and the actual results of such
proceedings cannot be determined with certainty.
Item 4. Mine Safety Disclosures
Not applicable.
24
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock
As of December 31, 2013, the Corporation had 192.7 million shares of $2.50 par value common stock outstanding held by
approximately 42,000 holders of record. The closing price per share of the Corporation’s common stock on December 31, 2013
was $13.09. The common stock of the Corporation is traded on the Global Select Market of The NASDAQ Stock Market under
the symbol FULT.
The following table presents the quarterly high and low prices of the Corporation’s stock and per share cash dividends declared
for each of the quarterly periods in 2013 and 2012:
Price Range
High
Low
Per
Share
Dividend
2013
First Quarter...............................................................................................................
$
11.91
$
9.78
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
11.91
13.08
13.40
2012
First Quarter...............................................................................................................
$
10.80
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
10.68
10.72
10.49
10.30
11.23
11.50
9.18
9.32
8.75
9.22
$
0.08
0.08
0.08
0.08
0.07
0.07
0.08
0.08
Restrictions on the Payments of Dividends
The Corporation is a separate and distinct legal entity from its banking and nonbanking subsidiaries, and depends on the payment
of dividends from its subsidiaries, principally its banking subsidiaries, for substantially all of its revenues. As a result, the
Corporation's ability to make dividend payments on its common stock depends primarily on certain federal and state regulatory
considerations and the receipt of dividends and other distributions from its subsidiaries. There are various regulatory and prudential
supervisory restrictions, which may change from time to time, that impact the ability of its banking subsidiaries to pay dividends
or make other payments to it. For additional information regarding the regulatory restrictions applicable to the Corporation and
its subsidiaries, see Part I, Item 1, "Business - Supervision and Regulation," Part I, Item 1A, "Risk Factors - The Corporation is a
holding company and relies on dividends from its subsidiaries for substantially all of its revenue and its ability to make dividends,
distributions and other payments" and Part II, Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - Note K - Regulatory Matters" of this Report.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about options outstanding under the Corporation’s Amended and Restated Equity and
Cash Incentive Compensation Plan and the number of securities remaining available for future issuance under the Corporation's
Amended and Restated Equity and Cash Incentive Compensation Plan, the 2011 Directors' Equity Participation Plan and the
Employee Stock Purchase Plan as of December 31, 2013:
Plan Category
Equity compensation plans approved by security holders.........
Equity compensation plans not approved by security holders...
Total .....................................................................................
Equity compensation
plans approved by
security holders
Weighted-average exercise
price of outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in first column) (1)
5,567,701
—
5,567,701
$
$
13.25
N/A
13.25
11,803,838
—
11,803,838
(1) Consists of 11,032,143 shares that may be awarded under the Amended and Restated Equity and Cash Incentive Compensation Plan, 437,776 shares that may
be awarded under the 2011 Directors' Equity Participation Plan and 333,919 of shares that may be purchased under the Employee Stock Purchase Plan.
Excludes accrued purchase rights under the Employee Stock Purchase Plan as of December 31, 2013 as the number of shares to be purchased is indeterminable
until the time shares are issued.
25
Performance Graph
The following graph shows cumulative investment returns to shareholders based on the assumptions that (A) an investment of
$100.00 was made on December 31, 2008, in each of the following: (i) Fulton Financial Corporation common stock; (ii) the stock
of all companies on the NASDAQ Bank Index; (iii); the stock all companies on the Standard and Poor's 500 index (S&P 500);
and (B) all dividends were reinvested in such securities over the past five years. The graph is not indicative of future price
performance.
The graph below is furnished under this Part II, Item 5 of this Form 10-K and shall not be deemed to be "soliciting material" or
to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act of 1934, as
amended.
Index
Fulton Financial Corporation..........................
S&P 500..........................................................
NASDAQ Bank Index ....................................
2008
100.00
100.00
100.00
$
$
$
2009
92.28
126.46
83.70
$
$
$
2010
110.76
145.51
95.55
$
$
$
2011
107.28
148.59
85.52
$
$
$
2012
108.28
172.37
101.50
$
$
$
2013
151.41
228.19
143.84
$
$
$
Year Ending December 31
Issuer Purchases of Equity Securities
Not applicable.
26
Item 6. Selected Financial Data
5-YEAR CONSOLIDATED SUMMARY OF FINANCIAL RESULTS
(dollars in thousands, except per-share data)
2013
2012
2011
2010
2009
SUMMARY OF OPERATIONS
Interest income............................................................. $
Interest expense ...........................................................
Net interest income ......................................................
Provision for credit losses............................................
Investment securities gains, net ...................................
Non-interest income, excluding investment securities
gains.........................................................................
Gain on sale of Global Exchange Division..................
Non-interest expense ...................................................
Income before income taxes ........................................
Income taxes ................................................................
Net income...................................................................
Preferred stock dividends and discount accretion .......
Net income available to common shareholders ........... $
PER COMMON SHARE
Net income (basic)....................................................... $
Net income (diluted) ....................................................
Cash dividends.............................................................
RATIOS
Return on average assets..............................................
Return on average common shareholders’ equity........
Return on average tangible common shareholders’
$
$
$
609,689
82,495
527,194
40,500
8,004
179,660
—
461,433
212,925
51,085
161,840
—
161,840
0.84
0.83
0.32
0.96%
7.88
10.76
3.50
63.39
38.55
equity (1)..................................................................
Net interest margin ......................................................
Efficiency ratio (1).......................................................
Dividend payout ratio ..................................................
PERIOD-END BALANCES
Total assets................................................................... $ 16,934,634
2,568,434
Investment securities ...................................................
12,782,220
Loans, net of unearned income....................................
12,491,186
Deposits .......................................................................
1,258,629
Short-term borrowings.................................................
Federal Home Loan Bank (FHLB) advances and
883,584
2,063,187
long-term debt..........................................................
Shareholders’ equity ....................................................
AVERAGE BALANCES
Total assets................................................................... $ 16,811,337
2,718,173
Investment securities ...................................................
12,578,524
Loans, net of unearned income....................................
12,473,184
Deposits .......................................................................
1,196,323
Short-term borrowings.................................................
FHLB advances and long-term debt ............................
Shareholders’ equity ....................................................
889,461
2,053,821
$
$
$
647,496
103,168
544,328
94,000
3,026
207,171
6,215
449,294
217,446
57,601
159,845
—
159,845
0.80
0.80
0.30
0.98%
7.79
10.73
3.76
57.61
37.50
$
$
$
693,698
133,538
560,160
135,000
4,561
182,932
—
416,242
196,411
50,838
145,573
—
145,573
0.73
0.73
0.20
0.90%
7.45
10.54
3.90
54.27
27.40
$
$
$
745,373
186,627
558,746
160,000
701
181,548
—
408,254
172,741
44,409
128,332
(16,303)
112,029
0.59
0.59
0.12
0.78%
6.29
9.39
3.80
53.32
20.34
786,467
265,513
520,954
190,020
1,079
172,843
—
415,524
89,332
15,408
73,924
(20,169)
53,755
0.31
0.31
0.12
0.45%
3.54
5.96
3.52
57.77
38.71
$ 16,533,097
2,721,082
12,146,971
12,484,163
868,399
$ 16,375,174
2,596,347
11,971,223
12,535,015
597,033
$ 16,280,005
2,763,951
11,935,128
12,396,641
674,077
$ 16,640,095
3,164,910
11,974,742
12,105,449
868,940
894,253
2,081,656
1,040,149
1,992,539
1,119,450
1,880,389
1,540,773
1,936,482
$ 16,257,776
2,766,552
11,968,567
12,392,580
690,883
933,727
2,050,994
$ 16,114,343
2,637,130
11,906,447
12,455,065
495,791
1,034,475
1,953,396
$ 16,436,457
2,856,171
11,960,262
12,351,190
587,602
1,326,449
1,977,166
$ 16,491,607
3,044,153
11,977,105
11,643,724
1,043,279
1,712,630
1,889,561
(1) Ratio represents a financial measure derived by methods other than Generally Accepted Accounting Principles ("GAAP"). See reconciliation of this non-
GAAP financial measure to the most directly comparable GAAP measure under the following heading, "Supplemental Reporting of Non-GAAP Based
Financial Measures."
27
Supplemental Reporting of Non-GAAP Based Financial Measures
This Annual Report on Form 10-K contains supplemental financial information, as detailed below, which has been derived by
methods other than Generally Accepted Accounting Principles ("GAAP"). The Corporation has presented these non-GAAP
financial measures because it believes that these measures provide useful and comparative information to assess trends in the
Corporation's results of operations. Presentation of these non-GAAP financial measures is consistent with how the Corporation
evaluates its performance internally, and these non-GAAP financial measures are frequently used by securities analysts, investors
and other interested parties in the evaluation of companies in the Corporation's industry. Management believes that these non-
GAAP financial measures, in addition to GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors
should recognize that the Corporation's presentation of these non-GAAP financial measures might not be comparable to similarly-
titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis
measures, and the Corporation strongly encourages a review of its consolidated financial statements in their entirety. Following
are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure as of and for the year
ended December 31:
2013
2012
2011
2010
2009
(in thousands, except per share data and percentages)
Return on average common shareholders' equity (tangible)
Net income ...................................................................... $
161,840
Plus: Intangible amortization, net of tax .........................
1,584
Numerator .................................................................. $
163,424
$
$
159,845
1,970
161,815
$
$
145,573
2,767
148,340
$
$
112,029
3,406
115,435
$
$
53,755
3,736
57,491
Average common shareholders' equity............................ $ 2,053,821
$ 2,050,994
$ 1,953,396
$ 1,780,148
$ 1,520,093
Less: Average goodwill and intangible assets.................
(534,431)
Average tangible shareholders' equity (denominator) $ 1,519,390
(542,600)
(545,920)
(550,271)
(555,270)
$ 1,508,394
$ 1,407,476
$ 1,229,877
$
964,823
Return on average common shareholders' equity
(tangible), annualized.......................................
Efficiency ratio
10.76%
10.73%
10.54%
9.39%
5.96%
Non-interest expense ....................................................... $
Less: Intangible amortization ..........................................
461,433
(2,438)
Numerator .................................................................. $
458,995
Net interest income (fully taxable equivalent) (1) .......... $
Plus: Total Non-interest income......................................
Less: Investment securities gains, net .............................
544,474
187,664
(8,004)
$
$
$
$
$
$
449,294
(3,031)
446,263
561,190
216,412
(3,026)
$
$
$
416,242
(4,257)
411,985
576,232
187,493
(4,561)
$
$
$
408,254
(5,240)
403,014
574,257
182,249
(701)
415,524
(5,747)
409,777
536,499
173,922
(1,079)
Denominator .............................................................. $
724,134
$
774,576
$
759,164
$
755,805
$
709,342
Efficiency ratio .....................................................
63.39%
57.61%
54.27%
53.32%
57.77%
Non-performing assets to tangible common shareholders' equity and allowance for credit losses
Non-performing assets (numerator) ................................ $
169,329
$
237,199
$
317,331
$
361,731
$
305,028
Tangible common shareholders' equity........................... $ 1,530,111
$ 1,546,093
$ 1,448,330
$ 1,332,410
$ 1,013,629
Plus: Allowance for credit losses
Tangible common shareholders' equity and allowance
204,917
225,439
258,177
275,498
257,553
for credit losses (denominator).................................... $ 1,735,028
Non-performing assets to tangible common
$ 1,771,532
$ 1,706,507
$ 1,607,908
$ 1,271,182
shareholders' equity and allowance for credit
losses ...................................................................
9.76%
13.39%
18.60%
22.50%
24.00%
(1) Presented on a fully taxable equivalent basis, using a 35% Federal tax rate and statutory interest expense disallowances.
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) relates
to Fulton Financial Corporation (the Corporation), a financial holding company registered under the Bank Holding Company Act
and incorporated under the laws of the Commonwealth of Pennsylvania in 1982, and its wholly owned subsidiaries. Management’s
Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in
this report.
FORWARD-LOOKING STATEMENTS
The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition
and results of operations. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the
use of words such as "may," "should," "will," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes,"
"plans," "expects," "future," "intends" and similar expressions which are intended to identify forward-looking statements.
These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, some of
which are beyond the Corporation's control and ability to predict, that could cause actual results to differ materially from those
expressed in the forward-looking statements. The Corporation undertakes no obligation, other than as required by law, to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors could
affect future financial results including, without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
the impact of adverse changes in the economy and real estate markets, including protracted periods of low-growth and
sluggish loan demand;
increases in non-performing assets, which may require the Corporation to increase the allowance for credit losses, charge-
off loans and incur elevated collection and carrying costs related to such non-performing assets;
the effect of market interest rates, particularly a continuing period of low market interest rates, and relative balances of
rate-sensitive assets to rate-sensitive liabilities, on net interest margin and net interest income;
capital and liquidity strategies, including the expected impact of the capital and liquidity requirements upon adoption of
the U.S. Basel III Capital Rules;
investment securities gains and losses, including other-than-temporary declines in the value of securities which may result
in charges to earnings;
non-interest income growth, including the impact of potential regulatory changes;
the impact of increased regulatory scrutiny of the banking industry;
the increasing time and expense associated with regulatory compliance and risk management;
the uncertainty and lack of clear regulatory guidance associated with the delay in implementing many of the regulations
mandated by the Dodd-Frank Act;
operational risk, i.e. the risk of loss resulting from human error, inadequate or failed internal processes and systems,
outsourcing arrangements, compliance and legal risk and external events;
the level of non-interest expenses, including salaries and employee benefits expenses, operating risk losses, amortization
of intangible assets and goodwill impairment; and
the effect of competition on rates of deposit and loan growth and net interest margin.
OVERVIEW
Fulton Financial Corporation is a financial holding company comprised of six wholly owned banking subsidiaries which provide
a full range of retail and commercial financial services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia. The
Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans
and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet
growth and/or maintaining or increasing the net interest margin, which is net interest income (fully taxable-equivalent, or FTE)
as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various
services and products offered to its customers and through gains on sales of assets, such as loans, investments, lines of business
or properties. Offsetting these revenue sources are provisions for credit losses on loans, non-interest expenses and income taxes.
29
The following table presents a summary of the Corporation’s earnings and selected performance ratios:
Net income (in thousands) .............................................................................................................. $ 161,840
0.83
Diluted net income per share .......................................................................................................... $
0.96%
Return on average assets.................................................................................................................
7.88%
Return on average equity ................................................................................................................
10.76%
Return on average tangible equity (1) ............................................................................................
3.50%
Net interest margin (2)....................................................................................................................
63.39%
Efficiency ratio (1)..........................................................................................................................
$
$
2013
2012
159,845
0.80
0.98%
7.79%
10.73%
3.76%
57.61%
(1) Ratio represents a financial measure derived by methods other than Generally Accepted Accounting Principles ("GAAP"). See reconciliation of this non-
GAAP financial measure to the most directly comparable GAAP measure under the heading, "Supplemental Reporting of Non-GAAP Based Financial
Measures" in Item 6, "Selected Financial Data."
(2) Presented on an FTE basis, using a 35% Federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section of
Management’s Discussion.
During 2013, the Corporation continued to focus on achieving its corporate objectives, which included the following:
• Net Income Per Share Growth - Diluted net income per share increased $0.03, or 3.8%, in comparison to 2012 due to a
decrease in weighted average diluted shares outstanding as a result of the Corporation's repurchase of 8.0 million shares
in 2013 and an increase in net income. Net income increased $2.0 million, or 1.2%, in comparison to 2012. This increase
was driven largely by a $53.5 million decrease in the provision for credit losses and a $6.5 million reduction in income
tax expense, partially offset by a $17.1 million decrease in net interest income, a $28.7 million decrease in non-interest
income, mainly in mortgage banking income, and a $12.1 million increase in non-interest expenses, most notably a $9.3
million increase in salaries and employee benefits.
• Quality Loan Growth and Net Interest Margin Management - Average loans increased $610.0 million, or 5.1%, in
comparison to 2012, with notable increases in commercial mortgages, commercial loans, home equity loans and residential
mortgages. The Corporation's loan growth occurred throughout most of its markets.
During 2013, growth in average loans partially mitigated the negative impact of the decline in net interest margin, from
3.76% in 2012 to 3.50% in 2013. Net interest margin compression resulted from the decline in yields on interest-earning
assets outpacing the decline in the cost of interest-bearing liabilities. Net interest margin compression slowed as the year
progressed, and the Corporation anticipates that this trend will continue in 2014.
• Asset Quality Improvement - Overall asset quality improved in 2013, with decreases in non-performing loans, net charge-
offs and overall delinquency levels resulting in a 56.9% decrease in the provision for credit losses.
• Core Deposit Growth - Average demand and savings deposit accounts increased $669.0 million, or 7.7%, in comparison
to 2012. As a result, the Corporation was able to fund its loan growth with lower cost core deposits as opposed to higher
cost time deposits, while also executing its customer relationship banking strategy.
• Return on Average Assets and Return on Average Equity Improvement - Return on average assets improves when net
income increases at a higher rate than average assets. In 2013, return on average assets decreased two basis points in
comparison to 2012, due to a 3.4% increase in average assets, which exceeded the 1.2% increase in net income. As noted
above, average asset growth was largely attributable to the 5.1% increase in average loans. The increases in average
balances are expected to have a positive impact on future earnings.
In 2013, return on average equity increased nine basis points, or 1.2%, in comparison to 2012. This increase resulted
from the growth in net income exceeding a 0.1% increase in average shareholders’ equity. During 2013, capital was
deployed for organic growth, and 8.0 million shares were repurchased for a total cost of $90.9 million. As of December
31, 2013, the Corporation had a share repurchase program in place, pursuant to which an additional 4.0 million shares,
or approximately 2.1% of outstanding shares, could be repurchased. During the first quarter of 2014, the Corporation
repurchased 4.0 million shares under this repurchase plan at an average cost of $12.45 per share, completing this repurchase
program on February 19, 2014.
• Enhance Compliance and Risk Management Infrastructure - The time and expense associated with regulatory compliance
and risk management efforts continues to increase. Virtually every aspect of the Corporation’s operations is subject to
30
extensive regulation and, in recent years, a combination of financial reform legislation and heightened scrutiny by banking
regulators has significantly increased expectations regarding what constitutes an effective risk and compliance
management infrastructure. To keep pace with these expectations, over the past two years, the Corporation has invested
considerable resources in initiatives designed to strengthen its risk management framework and regulatory compliance
programs.
Among the areas that the Corporation continues to focus substantial resources on to improve its compliance functions
are the requirements under the Flood Disaster Protection Act, the Bank Secrecy Act, the Patriot Act and related anti-
money laundering regulations. Although the Corporation has made progress in continuing to build-out its risk and
compliance management infrastructures, the pace at which it has progressed may not be consistent with current regulatory
expectations. As a result, the Corporation believes that there is an increasing risk that it, or one or more of its bank
subsidiaries, may become subject to regulatory enforcement action in addition to the civil monetary penalties recently
imposed against three of its banking subsidiaries. Any such enforcement action by the Corporation’s banking regulators
would likely require that it accelerate its efforts to resolve identified deficiencies and improve its compliance functions
and to undertake additional remedial actions, and could also involve the imposition of material restrictions on the
Corporation’s activities or the assessment of fines or penalties against the Corporation or one or more of its bank
subsidiaries.
Management has accelerated its efforts to resolve identified deficiencies and enhance the Corporation’s compliance and
risk management functions, and this work will continue. Although management is not able to predict the outcome of
these matters, costs associated with these efforts, including additional expenses for salaries and benefits, outside
professional services, such as consulting and legal, and for enhancing or acquiring systems to strengthen and support the
Corporation’s regulatory compliance and risk management infrastructures, could materially affect results of operations
in future periods.
• Expense Management - Non-interest expenses increased $12.1 million, or 2.7%, in comparison to 2012, driven largely
by regulatory compliance and risk management efforts, as discussed above, and a core processing system conversion.
The expense categories with the most notable increases were salaries and employee benefits, other outside services, data
processing, software expense and professional fees. These increases were somewhat mitigated by a $3.8 million decrease
in other real estate owned (OREO) and repossession expenses, reflecting the improvement in asset quality.
During 2013, the Corporation successfully completed its conversion to a new core processing system. The core processing
system is used to maintain customer account records, reflect account transactions and activity, and support customer
relationship management for substantially all deposit and loan customers. Total implementation costs specifically
associated with this conversion were approximately $3.5 million and $975,000, respectively, during 2013 and 2012. The
Corporation expects that data processing and software expenses will increase as a result of the conversion and continued
investments in its information technology infrastructure.
To mitigate the increases in expenses associated with investments in technology and the build out of its risk management
and compliance infrastructure, the Corporation has implemented a series of initiatives intended to reduce non-interest
expenses by approximately $8 million annually.
These initiatives include the consolidation of 13 branches in early 2014, which will result in the transfer of deposits,
employees and other branch resources to existing branch locations. Approximately $2 million of expenses, consisting of
lease termination costs and the write-off of leasehold improvements, will be incurred in 2014 to complete the branch
consolidation. Ongoing estimated annual expense reductions associated with the branch consolidations will be
approximately $3 million.
Other initiatives include the streamlining of subsidiary bank management structures and certain changes to employee
benefits plans. These initiatives will result in one-time gains, net of charges, of $2.7 million in 2014. Ongoing estimated
annual expense reductions associated with these initiatives will be approximately $5 million in 2014.
31
CRITICAL ACCOUNTING POLICIES
The following is a summary of those accounting policies that the Corporation considers to be most important to the presentation
of its financial condition and results of operations, as they require management’s most difficult judgments as a result of the need
to make estimates about the effects of matters that are inherently uncertain. See additional information regarding these critical
accounting policies in Note A, "Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial
Statements.
Allowance for Credit Losses - The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded
lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as
of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents
management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated
balance sheet.
The Corporation’s allowance for loan losses includes: 1) specific allowances allocated to impaired loans evaluated for impairment
under the Financial Accounting Standards Board's Accounting Standards Codification (FASB ASC) Section 310-10-35; and 2)
allowances calculated for pools of loans evaluated for impairment under FASB ASC Subtopic 450-20.
Management's estimate of incurred losses in the loan portfolio is based on a methodology that includes the following critical
judgments:
• The ability to identify potential problem loans in a timely manner. 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 allowance for credit loss methodology for these
loans, which bases the probability of default on this migration. Assigning risk ratings involves judgment. Risk ratings
are initially assigned to loans by loan officers and are reviewed on a regular basis by credit administration staff. The
Corporation's loan review officers provide an independent assessment of risk rating accuracy. Ratings may be changed
based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan
review activities identify a deterioration or an improvement in the loan.
The Corporation does not assign internal risk ratings for residential mortgages, home equity loans, residential mortgages,
consumer loans, lease receivables, and construction loans to individuals secured by residential real estate, as these
portfolios consist of a larger number of loans with smaller balances. Instead, these portfolios are evaluated for risk through
the monitoring of delinquency status.
• Proper collateral valuation of impaired loans evaluated for impairment under FASB ASC Section 310-10-35.
Substantially all of the Corporation’s impaired loans to borrowers with total outstanding loan balances greater than $1.0
million are measured based on the estimated fair value of each loan’s collateral. Collateral could be in the form of real
estate, in the case of impaired commercial mortgages and construction loans, or business assets, such as accounts receivable
or inventory, in the case of commercial loans. Commercial loans may also be secured by real property.
For loans secured by real estate, estimated fair values are determined primarily through appraisals performed by certified
third-party appraisers, discounted to arrive at expected sale prices, net of estimated selling costs. When a real estate
secured loan becomes 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; environmental 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 third-party appraisals for impaired loans secured predominately by real estate every 12 months.
When updated certified appraisals are not obtained for loans evaluated for impairment under FASB ASC Section 310-10-35
that are secured by real estate, fair values are estimated based on the original appraisal values, as long as the original
appraisal indicated a strong loan-to-value position and, in the opinion of the Corporation's internal loan evaluation staff,
there has not been a significant deterioration in the collateral value since the original appraisal was performed. Original
appraisals are typically used only when the estimated collateral value, as adjusted appropriately for the age of the appraisal,
results in a current loan-to-value ratio that is lower than the Corporation's loan-to-value requirements for new loans,
generally less than 70%.
• Proper measurement of allowance needs for pools of loans measured for impairment under FASB ASC Subtopic
450-20. For loan loss allocation purposes, loans are segmented into pools with similar characteristics. These pools are
32
established by general loan type, or "portfolio segments," as presented in the table under the heading, "Loans, Net of
Unearned Income," within Note D, "Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial
Statements. Certain portfolio segments are further disaggregated and evaluated collectively for impairment based on
"class segments," which are largely based on the type of collateral underlying each loan. For commercial loans, class
segments include loans secured by collateral and unsecured loans. Construction loan class segments include loans secured
by commercial real estate, loans to commercial borrowers secured by residential real estate and loans to individuals
secured by residential real estate. Consumer loan class segments are based on collateral types and include direct consumer
installment loans and indirect automobile loans.
Commercial loans, commercial mortgages and construction loans to commercial borrowers are further segmented into
separate pools based on internally assigned risk ratings. Residential mortgages, home equity loans, consumer loans, and
lease receivables are further segmented into separate pools based on delinquency status.
A loss rate is calculated for each pool through a regression analysis based on historical losses as loans migrate through
the various risk rating or delinquency categories. Estimated loss rates are based on a probability of default and a loss
given default. The loss rate is adjusted to consider qualitative factors, such as economic conditions and trends.
• Overall assessment of the risk profile of the loan portfolio. The allocation of the allowance for credit losses is reviewed
to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Corporation considers risk
factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of
borrower industry types; and the composition of the portfolio by loan type. An unallocated allowance is maintained for
factors and conditions that exist at the balance sheet date, but are not specifically identifiable, and to recognize the inherent
imprecision in estimating and measuring loss exposure.
For additional details related to the allowance for credit losses, see Note D, "Loans and Allowance for Credit Losses," in the Notes
to Consolidated Financial Statements.
Goodwill - Goodwill recorded in connection with acquisitions is not amortized to expense, but is tested at least annually for
impairment. A quantitative annual impairment test is not required if, based on a qualitative analysis, the Corporation determines
that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired. The Corporation
completes its annual goodwill impairment test as of October 31st of each year. The Corporation tests for impairment by first
allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for
each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is
necessary. If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper
carrying value of the goodwill.
Reporting unit valuation is inherently subjective, with a number of factors based on assumptions and management judgments.
Among these are future growth rates for the reporting units, selection of comparable market transactions, discount rates and
earnings capitalization rates. Changes in assumptions and results due to economic conditions, industry factors and reporting unit
performance and cash flow projections could result in different assessments of the fair values of reporting units and could result
in impairment charges.
If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its
carrying amount, an interim impairment test is required. Such events may include adverse changes in legal factors or in the business
climate, unanticipated competition, the loss of key employees, or similar events.
For additional details related to the annual goodwill impairment test, see Note F, "Goodwill and Intangible Assets," in the Notes
to Consolidated Financial Statements.
Income Taxes – The provision for income taxes is based upon income before income taxes, adjusted for the effect of certain tax-
exempt income, non-deductible expenses and credits. In addition, certain items of income and expense are reported in different
periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in
the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the
financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.
The Corporation must also evaluate the likelihood that deferred tax assets will be recovered through future taxable income. If any
such assets are more likely than not to not be recovered, a valuation allowance must be recognized. The assessment of the carrying
value of deferred tax assets is based on certain assumptions, changes in which could have a material impact on the Corporation’s
consolidated financial statements.
33
The Corporation accounts for uncertain tax positions by applying a recognition threshold and measurement attribute for tax positions
taken or expected to be taken in a tax return. Recognition and measurement of tax positions is based on management’s evaluations
of relevant tax code and appropriate industry information about audit proceedings for comparable positions at other organizations.
Virtually all of the Corporation’s unrecognized tax benefits relate to 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
or through settlements of positions with the tax authorities.
See also Note L, "Income Taxes," in the Notes to Consolidated Financial Statements.
Fair Value Measurements – FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to
measure assets and liabilities at fair value based on 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 includes 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 measured at fair value both on a recurring and nonrecurring basis into
the above three levels.
The determination of fair value for assets categorized as Level 3 items involves a great deal of subjectivity due to the use of
unobservable inputs. In addition, determining when a market is no longer active and placing little or no reliance on distressed
market prices requires the use of management’s judgment. The Corporation's Level 3 assets include available for sale debt securities
in the form of pooled trust preferred securities, certain single-issuer trust preferred securities issued by financial institutions and
auction rate securities. The Corporation also categorizes impaired loans, net of allowance allocations, other real estate owned
(OREO) and mortgage servicing rights as Level 3 assets measured at fair value on a non-recurring basis.
The Corporation engages third-party valuation experts to assist in valuing interest rate swap derivatives and most available-for-
sale investment securities, both measured at fair value on a recurring basis, and mortgage servicing rights, which are measured at
fair value on a non-recurring basis. The pricing data and market quotes the Corporation obtains from outside sources are reviewed
internally for reasonableness.
See Note R, "Fair Value Measurements," in the Notes to Consolidated Financial Statements for the disclosures required by FASB
ASC Topic 820.
New Accounting Standards
In July 2013, the FASB issued Accounting Standards Update 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASC Update 2013-11
generally require an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a
deferred tax asset for a net operating loss carryforward or a similar tax loss. ASU Update 2013-11 is effective for interim and
annual reporting periods beginning after December 15, 2013. For the Corporation, this standards update is effective with its March
31, 2014 quarterly report on Form 10-Q. The adoption of ASC Update 2013-11 is not expected to have a material impact on the
Corporation's consolidated financial statements.
In December 2013, the FASB issued Accounting Standards Update 2013-12, “Definition of a Public Business Entity - An Addition
to the Master Glossary." ASC Update 2013-12 amends the Master Glossary of the FASB ASC to include one definition of public
business entity and identifies the types of business entities that are excluded from the scope of the FASB's private company decision-
making framework. ASC Update 2013-12 does not have an effective date, but the term "public business entity" will be used in all
future ASC updates. The Corporation meets the definition of a public business entity, and the adoption of ASC Update 2013-12
did not have a significant impact on the Corporation's consolidated financial statements.
In January 2014, the FASB issued Accounting Standards Update 2014-01, "Accounting for Investments in Qualified Affordable
Housing Projects." ASC Update 2014-01provides guidance on accounting for investments made by a reporting entity in flow-
through limited liability entities that manage or invest in affordable housing projects that qualify for the low income housing tax
credit. ASC Update 2014-01 is effective for public business entities' interim and annual reporting periods beginning after December
15, 2014. For the Corporation, this standards update is effective with its March 31, 2015 quarterly report on Form 10-Q. The
adoption of ASC Update 2014-01 is not expected to have a material impact on the Corporation's consolidated financial statements.
34
In January 2014, the FASB issued Accounting Standards Update 2014-04, "Reclassification of Residential Real Estate
Collateralized Consumer Mortgage Loans upon Foreclosure." ASC Update 2014-04 clarifies when an in substance repossession
or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property
recognized. ASC Update 2014-04 is effective for public business entities' interim and annual reporting periods beginning after
December 15, 2014. For the Corporation, this standards update is effective with its March 31, 2015 quarterly report on Form 10-
Q. The adoption of ASC Update 2014-04 is not expected to have a material impact on the Corporation's consolidated financial
statements.
35
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the most significant component of the Corporation’s net income. The Corporation manages the risk associated
with changes in interest rates through the techniques described within Item 7A, "Quantitative and Qualitative Disclosures About
Market Risk."
The following table provides a comparative average balance sheet and net interest income analysis for 2013 compared to 2012 and
2011. Interest income and yields are presented on an FTE basis, using a 35% federal tax rate and statutory interest expense disallowances.
The discussion following this table is based on these tax-equivalent amounts.
2013
2012
2011
Average
Balance
Interest (1)
Yield/
Rate
Average
Balance
Interest (1)
Yield/
Rate
Average
Balance
Interest (1)
Yield/
Rate
(dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income (2) .... $ 12,578,524
Taxable investment securities (3)......
2,391,650
Tax-exempt investment securities (3)
Equity securities (3)...........................
285,174
38,722
Total investment securities...................
2,715,546
Loans held for sale ............................
Other interest-earning assets .............
36,561
229,444
54,321
14,577
1,829
70,727
1,551
2,264
Total interest-earning assets .................
15,560,075
626,969
Noninterest-earning assets:
Cash and due from banks ..................
Premises and equipment....................
Other assets (3)..................................
Less: Allowance for loan losses ........
207,931
226,041
1,037,338
(220,048)
$
552,427
4.39% $ 11,968,567
$
575,534
4.81% $ 11,906,447
$
605,672
5.09%
2.27
5.11
4.72
2.60
4.24
0.99
4.03
2,401,343
287,763
35,151
2,724,257
54,351
207,415
67,349
15,942
1,639
84,930
2,064
1,830
14,954,590
664,358
2.80
5.54
4.66
3.12
3.80
0.88
4.45
2,223,376
330,087
37,011
80,184
18,520
1,593
2,590,474
100,297
43,470
249,672
1,958
1,843
14,790,063
709,770
3.61
5.61
4.31
3.87
4.50
0.74
4.80
234,494
219,236
1,099,616
(250,160)
274,138
207,081
1,119,339
(276,278)
Total Assets.................................. $ 16,811,337
$ 16,257,776
$ 16,114,343
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits ............................... $ 2,822,583
Savings deposits ................................
3,363,943
$
Time deposits.....................................
Total interest-bearing deposits..............
Short-term borrowings ......................
Long-term debt ..................................
3,129,162
9,315,688
1,196,323
889,461
Total interest-bearing liabilities......
11,401,472
Noninterest-bearing liabilities:
Demand deposits ...............................
Other..................................................
3,157,496
198,548
Total Liabilities..................................
14,757,516
Shareholders’ equity.............................
2,053,821
Total Liabilities and Shareholders'
Equity......................................... $ 16,811,337
Net interest income/net interest margin
(FTE)................................................
Tax equivalent adjustment....................
Net interest income...............................
3,656
4,096
29,018
36,770
2,420
43,305
82,495
0.12
0.93
0.39
0.20
4.87
0.72
0.13% $ 2,560,831
$
3,356,070
3,717,556
9,634,457
690,883
933,727
4,187
6,002
46,706
56,895
1,068
45,205
11,259,067
103,168
2,758,123
189,592
14,206,782
2,050,994
0.16% $ 2,391,043
$
5,312
0.22%
11,536
66,235
83,083
746
49,709
133,538
0.34
1.54
0.83
0.15
4.81
1.15
0.18
1.26
0.59
0.15
4.84
0.92
3,365,445
4,297,105
10,053,593
495,791
1,034,475
11,583,859
2,401,472
175,616
14,160,947
1,953,396
$ 16,257,776
$ 16,114,343
544,474
3.50%
561,190
3.76%
576,232
3.90%
(17,280)
$
527,194
(16,862)
$
544,328
(16,072)
$
560,160
(1)
(2)
(3)
Includes dividends earned on equity securities.
Includes non-performing loans.
Includes amortized historical cost for available for sale securities; the related unrealized holding gains (losses) are included in other assets.
36
The following table summarizes the changes in FTE interest income and expense resulting from changes in average balances (volumes)
and changes in rates:
2013 vs. 2012
Increase (decrease) due
to change in
Rate
Net
Volume
2012 vs. 2011
Increase (decrease) due
to change in
Rate
Volume
Net
Interest income on:
(in thousands)
Loans and leases........................................... $
Taxable investment securities.......................
Tax-exempt investment securities ................
Equity securities ...........................................
Loans held for sale .......................................
Other interest-earning assets ........................
Total interest income............................. $
19,078
(270)
(142)
168
(644)
205
18,395
$ (42,185) $ (23,107) $
(12,758)
(1,223)
22
131
229
(13,028)
(1,365)
190
(513)
434
$ (55,784) $ (37,389) $
3,178
6,067
(2,349)
(82)
441
(339)
6,916
$ (33,316) $ (30,138)
(12,835)
(2,578)
46
106
(13)
$ (52,328) $ (45,412)
(18,902)
(229)
128
(335)
326
Interest expense on:
Demand deposits .......................................... $
Savings deposits ...........................................
Time deposits ...............................................
Short-term borrowings .................................
Long-term debt .............................................
Total interest expense............................ $
$
$
(785) $
(531) $
254
(1,125)
7
(5,534)
(6,663)
(19,529)
951
322
(2,039)
(4,504)
(7,490) $ (13,183) $ (20,673) $ (12,461) $ (17,909) $ (30,370)
(1,481) $
(5,502)
(11,274)
23
325
356
(32)
(8,255)
299
(4,829)
(1,906)
(17,688)
1,352
(1,900)
(1,913)
(11,025)
401
139
Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage
of the direct changes that are attributable to each component.
Comparison of 2013 to 2012
FTE net interest income decreased $16.7 million, or 3.0%, to $544.5 million in 2013. Net interest margin decreased 26 basis points,
or 6.9%, to 3.50% in 2013 from 3.76% in 2012.
FTE interest income decreased $37.4 million, or 5.6%. A 42 basis point, or 9.4%, decrease in yields on interest-earning assets resulted
in a $55.8 million decrease in interest income, partially offset by an $18.4 million increase in FTE interest income as a result of a
$605.5 million, or 4.0%, increase in average interest-earning assets.
Average investment securities decreased $8.7 million, or 0.3%, in comparison to 2012. The average yield on investment securities
decreased 52 basis points, or 16.7%, to 2.60% in 2013 from 3.12% in 2012, as the reinvestment of cash flows and purchases of
mortgage-backed securities and collateralized mortgage obligations were made at yields that were lower than the overall portfolio
yield. The decrease in the investment portfolio yield was partially mitigated by a $2.1 million decrease in net amortization of investment
securities premiums, which had a 7 basis point positive impact on the overall change in the portfolio yield.
Average loans and average FTE yields, by type, are summarized in the following table:
2013
2012
Balance
Yield
Balance
Yield
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Real estate - commercial mortgage ......................... $ 4,864,460
3,680,772
Commercial - industrial, financial and agricultural.
1,734,622
Real estate - home equity ........................................
1,312,127
Real estate - residential mortgage............................
591,540
Real estate - construction.........................................
299,127
Consumer.................................................................
95,876
Leasing and other ....................................................
Total.................................................................. $ 12,578,524
4.65% $ 4,619,587
4.11
3,551,056
4.22
1,605,088
4.13
1,185,928
4.11
620,166
4.87
307,746
8.70
78,996
4.39% $11,968,567
5.14% $ 244,873
129,716
4.48
129,534
4.46
126,199
4.58
(28,626)
4.20
(8,619)
5.53
12.41
16,880
4.81% $ 609,957
5.3%
3.7
8.1
10.6
(4.6)
(2.8)
21.4
5.1%
37
The $374.6 million, or 4.6%, increase in commercial loans and commercial mortgages was attributable to both new and existing
customers. The $129.5 million, or 8.1%, increase in home equity loans was a result of certain promotions, while the $126.2 million,
or 10.6%, increase in residential mortgages was due to the Corporation retaining certain 15-year fixed rate residential mortgages in
portfolio in the second half of 2012.
The average yield on loans during 2013 of 4.39% represented a 42 basis point, or 8.7%, decrease in comparison to 2012. The decrease
in average yields on loans was attributable to repayments of higher-yielding loans, increased refinancing activity, the renegotiation
of certain existing loans to commercial borrowers to eliminate interest rate floors and new loan production at rates lower than the
overall portfolio yield.
Interest expense decreased $20.7 million, or 20.0%, to $82.5 million in 2013 from $103.2 million in 2012. Interest expense decreased
$13.2 million due to a 20 basis point, or 21.7%, decrease in the average cost of total interest-bearing liabilities. While total interest-
bearing liabilities increased $142.4 million, or 1.3%, the change in the overall funding mix resulted in an additional $7.5 million
decrease in interest expense. Decreases in higher cost time deposits and long-term debt were more than offset by increases in interest-
bearing demand deposits and short-term borrowings. However, the cost of these funding sources was significantly lower, resulting
in the interest expense decrease.
Average deposits and interest rates, by type, are summarized in the following table:
2013
2012
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Noninterest-bearing demand ................................... $ 3,157,496
2,822,583
Interest-bearing demand ..........................................
3,363,943
Savings ....................................................................
9,344,022
Total demand and savings................................
3,129,162
Time deposits...........................................................
Total deposits.................................................... $ 12,473,184
—% $ 2,758,123
0.13
2,560,831
0.12
3,356,070
0.08
8,675,024
0.93
3,717,556
0.29% $12,392,580
—% $ 399,373
261,752
7,873
668,998
(588,394)
80,604
0.16
0.18
0.12
1.26
0.46% $
14.5%
10.2
0.2
7.7
(15.8)
0.7%
The $669.0 million, or 7.7%, increase in average total demand and savings account balances was primarily due to a $340.6 million,
or 8.3%, increase in personal account balances, a $270.4 million, or 9.4%, increase in business account balances and a $61.6 million,
or 3.8%, increase in municipal account balances. The $588.4 million, or 15.8%, decrease in time deposits occurred in accounts with
balances less than $100,000 across most original maturity terms.
The average cost of interest-bearing deposits decreased 20 basis points, or 33.9%, to 0.39% in 2013 from 0.59% in 2012 primarily
due a decrease in higher cost time deposits and an increase in lower cost interest-bearing savings and demand balances. Also contributing
to the decrease in the average cost of interest-bearing deposits was the repricing of time deposits to lower rates.
38
Average borrowings and interest rates, by type, are summarized in the following table:
2013
2012
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Short-term borrowings:
Customer repurchase agreements..................... $
Customer short-term promissory notes ............
Total short-term customer funding............
Federal funds purchased...................................
Short-term FHLB advances (1) ........................
Total short-term borrowings .....................
186,851
98,882
285,733
612,508
298,082
1,196,323
0.11% $
0.05
0.09
0.23
0.24
0.20
206,842
138,632
345,474
335,573
9,836
690,883
0.12% $ (19,991)
(39,750)
0.06
(59,741)
0.10
276,935
0.21
288,246
0.29
505,440
0.15
Long-term debt:
FHLB Advances ...............................................
Other long-term debt ........................................
Total long-term debt..................................
519,876
369,585
889,461
Total.......................................... $ 2,085,784
4.14
563,905
5.90
369,822
4.87
933,727
2.19% $ 1,624,610
(44,029)
4.14
(237)
5.91
(44,266)
4.84
2.85% $ 461,174
(9.7)%
(28.7)
(17.3)
82.5
29.3
73.2
(7.8)
(0.1)
(4.7)
28.4 %
(1) Represents FHLB advances with an original maturity term of less than one year.
Total short-term borrowings increased $505.4 million, or 73.2%, primarily due to increases in short-term FHLB advances and Federal
funds purchased. The $44.3 million decrease in long-term debt was due to the repayment of FHLB advances, which were not replaced
with new long-term borrowings. The overall increase in borrowings of $461.2 million, or 28.4%, was driven by the growth in average
loans exceeding the increase in average deposits. The average cost of total borrowings decreased 66 basis points, or 23.2%, to 2.19%
in 2013 from 2.85% in 2012, primarily due to an increase in lower cost short-term FHLB advances and Federal funds purchased.
Comparison of 2012 to 2011
FTE net interest income decreased $15.0 million, or 2.6%, from $576.2 million in 2011 to $561.2 million in 2012. Net interest margin
decreased 14 basis points, or 3.6%, from 3.90% in 2011 to 3.76% in 2012.
FTE interest income decreased $45.4 million, or 6.4%. A 35 basis point, or 7.3%, decrease in yields on interest-earning assets resulted
in a $52.3 million decrease in interest income, while a $164.5 million, or 1.1%, increase in average interest-earning assets resulted
in a $6.9 million increase in interest income.
The increase in average interest-earning assets was primarily due to a $133.8 million, or 5.2%, increase in average investments. The
average yield on investment securities decreased 75 basis points, or 19.4%, to 3.12% in 2012 from 3.87% in 2011, as the reinvestment
of cash flows and purchases of mortgage-backed securities and collateralized mortgage obligations were made at yields that were
lower than the overall portfolio yield. A $6.1 million, or 101.7%, increase in net premium amortization, due primarily to higher
prepayments on mortgage-backed securities and collateralized mortgage obligations, contributed 21 basis points to the decrease in
average investment yields and 4 basis points to the decrease in net interest margin.
Average loans and average FTE yields, by type, are summarized in the following table:
2012
2011
Balance
Yield
Balance
Yield
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Real estate - commercial mortgage ......................... $ 4,619,587
3,551,056
Commercial - industrial, financial and agricultural.
1,605,088
Real estate - home equity ........................................
1,185,928
Real estate - residential mortgage............................
620,166
Real estate - construction.........................................
307,746
Consumer.................................................................
78,996
Leasing and other ....................................................
Total.................................................................. $ 11,968,567
5.14% $ 4,458,205
3,681,321
4.48
1,627,308
4.46
1,036,742
4.58
700,070
4.20
333,199
5.53
12.41
69,602
4.81% $ 11,906,447
5.49% $ 161,382
(130,265)
4.72
(22,220)
4.62
149,186
5.10
(79,904)
4.30
(25,453)
5.96
9,394
12.82
62,120
5.09% $
3.6%
(3.5)
(1.4)
14.4
(11.4)
(7.6)
13.5
0.5%
39
The average yield on loans during 2012 of 4.81% represented a 28 basis point, or 5.5%, decrease in comparison to 2011. The decrease
in average yields on loans was attributable to increased refinancing activity, repayments of higher-yielding loans and new loan
production at rates lower than the overall portfolio yield.
Interest expense decreased $30.4 million, or 22.7%, to $103.2 million in 2012 from $133.5 million in 2011 as the result of a change
in the overall funding mix. Interest expense decreased $17.9 million due to a 23 basis point, or 20.0%, decrease in the average cost
of total interest-bearing liabilities. Interest expense decreased an additional $12.5 million as a result of a $324.8 million, or 2.8%,
decrease in average interest-bearing liabilities.
Average deposits and interest rates, by type, are summarized in the following table:
2012
2011
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Noninterest-bearing demand..................................... $ 2,758,123
2,560,831
Interest-bearing demand ...........................................
3,356,070
Savings......................................................................
8,675,024
Total demand and savings .................................
3,717,556
Time deposits............................................................
Total deposits..................................................... $ 12,392,580
—% $ 2,401,472
2,391,043
0.16
3,365,445
0.18
8,157,960
0.12
4,297,105
1.26
0.46% $12,455,065
—% $ 356,651
169,788
0.22
(9,375)
0.34
517,064
0.21
(579,549)
1.54
0.67% $ (62,485)
14.9 %
7.1
(0.3)
6.3
(13.5)
(0.5)%
Average total deposits decreased $62.5 million, or 0.5%, due to a decrease in certificates of deposit being largely offset by an increase
in core demand and savings accounts. The average cost of interest-bearing deposits decreased 24 basis points, or 28.9%, from 0.83%
in 2011 to 0.59% in 2012 due primarily to the repricing of certificates of deposit to lower rates and, to a lesser degree, a reduction in
average rates paid on interest-bearing demand and savings deposits. Excluding early redemptions, $3.0 billion of time deposits matured
during 2012 at a weighted average rate of 0.96%, while $2.6 billion of time deposits were issued at a weighted average rate of 0.41%.
Average borrowings and interest rates, by type, are summarized in the following table:
2012
2011
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Short-term borrowings:
Customer repurchase agreements....................... $
Customer short-term promissory notes ..............
Total short-term customer funding..............
Federal funds purchased.....................................
Short-term FHLB advances (1) ..........................
Total short-term borrowings .......................
206,842
138,632
345,474
335,573
9,836
690,883
0.12% $
0.06
0.10
0.21
0.29
0.15
208,144
174,624
382,768
113,023
—
495,791
0.13% $
0.13
0.13
0.22
—
0.15
(1,302)
(35,992)
(37,294)
222,550
9,836
195,092
Long-term debt:
FHLB Advances .................................................
Other long-term debt ..........................................
Total long-term debt....................................
563,905
369,822
933,727
Total............................................ $ 1,624,610
651,268
4.14
383,207
5.91
4.84
1,034,475
2.85% $ 1,530,266
4.14
5.94
4.81
3.30% $
(87,363)
(13,385)
(100,748)
94,344
(0.6)%
(20.6)
(9.7)
196.9
N/M
39.3
(13.4)
(3.5)
(9.7)
6.2 %
(1) Represents FHLB advances with an original maturity term of less than one year.
N/M - Not meaningful
Average short-term borrowings increased $195.1 million, or 39.3%, due to an increase in Federal funds purchased. Average long-
term debt decreased $100.7 million, or 9.7%, due to maturities of FHLB advances, which were not replaced with new long-term
borrowings.
The average cost of short-term borrowings was 0.15% in both 2012 and 2011, while the average cost of long-term debt increased
slightly, to 4.84% in 2012 from 4.81% in 2011. In December 2012, the Corporation prepaid approximately $20 million of FHLB
advances, with a weighted average interest rate of 4.38% and maturing in January 2017. The Corporation incurred a $3.0 million
penalty in connection with prepaying these FHLB advances, recorded as a component of other non-interest expense.
40
Provision for Credit Losses
The provision for credit losses was $40.5 million for 2013, a decrease of $53.5 million, or 56.9%, in comparison to 2012. The provision
for credit losses for 2012 decreased $41.0 million, or 30.4%, in comparison to 2011.
The provision for credit losses is recognized as an expense in the consolidated statements of income and is the amount necessary to
adjust the allowance for credit losses to its appropriate balance, as determined through the Corporation's allowance methodology. The
Corporation determines the appropriate level of the allowance for credit losses based on many quantitative and qualitative factors,
including, but not limited to: the size and composition of the loan portfolio, changes in risk ratings, changes in collateral values,
delinquency levels, historical losses and economic conditions. See further discussion of the Corporation's allowance methodology
under the heading "Critical Accounting Policies." For details related to the Corporation's allowance and provision for credit losses,
see the "Financial Condition" section of Management's Discussion under the heading "Provision and Allowance for Credit Losses."
Non-Interest Income and Expense
Comparison of 2013 to 2012
Non-Interest Income
The following table presents the components of non-interest income for the past two years:
2013
Increase (decrease)
%
$
2012
(dollars in thousands)
Service charges on deposit accounts:
Overdraft fees .............................................................................. $
Cash management fees ................................................................
Other ............................................................................................
Total service charges on deposit accounts...........................
Investment management and trust services ......................................
Other service charges and fees:
Merchant fees ..............................................................................
Debit card income........................................................................
Letter of credit fees......................................................................
Foreign currency processing income...........................................
Other ............................................................................................
Total other service charges and fees....................................
Mortgage banking income:
Gain on sales of mortgage loans..................................................
Mortgage servicing income .........................................................
Total mortgage banking income...........................................
Credit card income ...........................................................................
Gain on sale of Global Exchange .....................................................
Other income ....................................................................................
Total, excluding investment securities gains........................
Investment securities gains...............................................................
Total............................................................................... $
28,222
11,883
15,365
55,470
41,706
13,783
9,191
4,889
1,245
7,849
36,957
24,609
6,047
30,656
8,706
—
6,165
179,660
8,004
187,664
$
$
$
33,329
11,004
17,169
61,502
38,239
12,472
8,716
5,052
10,431
7,674
44,345
46,310
(1,710)
44,600
7,944
6,215
10,541
213,386
3,026
216,412
$
(5,107)
879
(1,804)
(6,032)
3,467
1,311
475
(163)
(9,186)
175
(7,388)
(21,701)
7,757
(13,944)
762
(6,215)
(4,376)
(33,726)
4,978
(28,748)
(15.3)%
8.0
(10.5)
(9.8)
9.1
10.5
5.4
(3.2)
(88.1)
2.3
(16.7)
(46.9)
(453.6)
(31.3)
9.6
(100.0)
(41.5)
(15.8)
164.5
(13.3)%
The $5.1 million, or 15.3%, decrease in overdraft fee income included a $3.1 million decrease in fees assessed on personal accounts
and a $2.0 million decrease in fees assessed on commercial accounts. The overall decline in these fees resulted from a reduction in
the number of overdraft items paid, largely due to changes in customer behavior.
The $3.5 million, or 9.1%, increase in investment management and trust services was due primarily to a $2.2 million, or 13.8%,
increase in brokerage revenue and a $1.3 million, or 5.7%, increase in trust commissions. These increases resulted from new trust
business sales, improved market conditions that increased the values of existing assets under management, and additional recurring
revenue generated through the brokerage business due to growth in new accounts.
41
Merchant fee income increased $1.3 million, or 10.5%, due to increases in the number of merchant customers and sales volumes in
2013. In December 2012, the Corporation's Fulton Bank, N.A. subsidiary sold its Global Exchange Group division (Global Exchange)
for a gain of $6.2 million. Global Exchange provided international payment solutions to meet the needs of companies, law firms and
professionals. Foreign currency processing income decreased $9.2 million, or 88.1%, in 2013, largely due to this sale.
Mortgage banking income decreased $13.9 million, or 31.3%. Gains on sales of mortgage loans decreased $21.7 million, or 46.9%,
due to a $993.2 million, or 39.7%, decrease in new loan commitments and an 11.9% decrease in pricing spreads during 2013. Both
decreases resulted from an increase in mortgage interest rates in mid-2013. The decline in new loan commitments was mainly in
refinancing volumes, which represented approximately 48% of new loan commitments in 2013 compared to 69% during 2012.
Mortgage servicing income increased $7.8 million, largely a result of a $3.6 million reversal of the valuation allowance for mortgage
servicing rights (MSRs) in 2013 compared to a $2.1 million impairment charge recorded in the prior year, and an increase in servicing
income due to growth in the portfolio.
The $4.4 million, or 41.5%, decrease in other income was largely due to $2.0 million of gains on the sales of two branches and one
operations facility and gains on investments in corporate owned life insurance in 2012.
Investment securities gains of $8.0 million for 2013 included $3.8 million of net realized gains on sales of financial institution stocks
and $4.4 million of net realized gains on sales of debt securities, partially offset by $124,000 of other-than-temporary impairment
charges for certain financial institution stocks and pooled trust preferred debt securities. Investment securities gains of $3.0 million
for 2012 included $3.8 million of net realized gains on sales of securities, partially offset by other-than-temporary impairment charges
of $809,000. See Note C, "Investment Securities," in the Notes to Consolidated Financial Statements for additional details.
Non-Interest Expense
The following table presents the components of non-interest expense for each of the past two years:
Salaries and employee benefits ......................................................... $
Net occupancy expense .....................................................................
Other outside services .......................................................................
Data processing .................................................................................
Equipment expense ...........................................................................
Professional fees ...............................................................................
FDIC insurance .................................................................................
Software ............................................................................................
Operating risk loss ............................................................................
Marketing ..........................................................................................
OREO and repossession expense ......................................................
Telecommunications .........................................................................
Supplies .............................................................................................
Postage ..............................................................................................
Intangible amortization .....................................................................
FHLB prepayment penalty................................................................
Other..................................................................................................
Total ........................................................................................... $
2013
253,240
46,944
18,856
16,555
15,419
13,150
11,605
11,560
9,290
7,705
7,364
7,362
5,331
4,879
2,438
—
29,735
461,433
$
$
Increase (decrease)
%
$
2012
(dollars in thousands)
243,915
44,663
17,752
14,936
14,243
11,522
11,996
9,520
9,454
8,240
11,182
6,884
4,891
4,625
3,031
3,007
29,433
449,294
$
$
9,325
2,281
1,104
1,619
1,176
1,628
(391)
2,040
(164)
(535)
(3,818)
478
440
254
(593)
(3,007)
302
12,139
3.8%
5.1
6.2
10.8
8.3
14.1
(3.3)
21.4
(1.7)
(6.5)
(34.1)
6.9
9.0
5.5
(19.6)
(100.0)
1.0
2.7%
Salaries and employee benefits increased $9.3 million, or 3.8%, with salaries increasing $6.1 million, or 3.0%, and employee benefits
increasing $3.2 million, or 7.7%. The increase in salaries was primarily due to an increase in staffing levels and normal merit increases.
Average full-time equivalent employees increased to 3,607 in 2013 from 3,520 in 2012. The $3.2 million increase in employee benefits
was primarily due to higher health insurance expense, driven by higher claims, and an increase in defined benefit plan expenses.
Net occupancy expense increased $2.3 million, or 5.1%, as a result of new branches opened in late 2012 and an increase in rent
expense. Other outside services increased $1.1 million, or 6.2%, due to increases in consulting expense, incurred primarily for risk
management and compliance, and employment agency fees for new hires.
42
Data processing increased $1.6 million, or 10.8%, primarily due to growth in transaction volumes and the impact of the core processing
system conversion. Equipment expense increased $1.2 million, or 8.3%, mainly in depreciation expense related to assets acquired to
support the core system conversion and the overall information technology infrastructure. Professional fees increased $1.6 million,
or 14.1%, due to an increase in legal costs associated with regulatory compliance and risk management efforts, partially offset by
lower legal expenses for workout costs associated with problem assets.
Software expense increased $2.0 million, or 21.4%, due to increased maintenance and license costs associated with the core processing
system conversion. OREO and repossession expense decreased $3.8 million, or 34.1%, due to a $1.9 million decrease in collections
and repossession expense, a $963,000 decrease in property maintenance costs, a $645,000 increase in net gains on sales of properties,
and a $409,000 decrease in valuation provisions. These decreases reflect the continued improvement in overall asset quality.
In December 2012, the Corporation prepaid approximately $20 million of FHLB advances, incurring a $3.0 million penalty.
As noted previously, the Corporation successfully completed its conversion to a new core processing system during 2013. Total
implementation costs specifically associated with this conversion were approximately $3.5 million and $975,000, respectively, during
2013 and 2012.
Comparison of 2012 to 2011
Non-Interest Income
The following table presents the components of non-interest income:
2012
Increase (decrease)
%
$
2011
(dollars in thousands)
Service charges on deposit accounts:
Overdraft fees ............................................................................... $
Cash management fees .................................................................
Other.............................................................................................
Total service charges on deposit accounts............................
Other service charges and fees:
Merchant fees ...............................................................................
Foreign currency processing income............................................
Debit card income ........................................................................
Letter of credit fees ......................................................................
Other.............................................................................................
Total other service charges and fees.....................................
Mortgage banking income:
Gain on sales of mortgage loans ..................................................
Mortgage servicing income ..........................................................
Total mortgage banking income............................................
Investment management and trust services.......................................
Credit card income ............................................................................
Gain on sale of Global Exchange......................................................
Other income.....................................................................................
Total, excluding investment securities gains.........................
Investment securities gains ...............................................................
Total.................................................................................. $
33,329
11,004
17,169
61,502
12,472
10,431
8,716
5,052
7,674
44,345
46,310
(1,710)
44,600
38,239
7,944
6,215
10,541
213,386
3,026
216,412
$
$
32,062
10,590
15,426
58,078
10,126
9,400
15,535
5,038
7,383
47,482
22,207
3,467
25,674
36,483
7,004
—
8,211
182,932
4,561
187,493
$
$
1,267
414
1,743
3,424
2,346
1,031
(6,819)
14
291
(3,137)
24,103
(5,177)
18,926
1,756
940
6,215
2,330
30,454
(1,535)
28,919
4.0%
3.9
11.3
5.9
23.2
11.0
(43.9)
0.3
3.9
(6.6)
108.5
(149.3)
73.7
4.8
13.4
—
28.4
16.6
(33.7)
15.4%
The $1.3 million, or 4.0%, increase in overdraft fees was due to an increase in the per-item fee charged. Commercial account overdraft
fees increased $634,000, or 7.3%, while fees on personal accounts increased $633,000, or 2.7%.
The $6.8 million, or 43.9%, decrease in debit card income was the result of new regulations, effective October 2011, that established
maximum interchange fees that issuers could charge on debit card transactions, as required under the Dodd-Frank Act. During 2011,
changes to various fee pricing structures were made to mitigate the negative effect of the reduction in debit card interchange fees.
These fee changes had a positive impact on cash management fees ($414,000, or 3.9%, increase), other service charges on deposit
43
accounts ($1.7 million, or 11.3%, increase) and merchant fees ($2.3 million, or 23.2%, increase). Also contributing to the increase in
other service charges on deposit accounts was an increase in the number of accounts, while higher transaction volumes also contributed
to the growth in merchant fees.
Mortgage banking income increased $18.9 million, or 73.7%. Gains on sales of mortgage loans increased $24.1 million, or 108.5%,
due to a $918.5 million, or 58.0%, increase in new loan commitments and a 32.1% increase in pricing spreads during 2012. The
increase in new loan commitments was largely driven by an increase in refinancing volume resulting from historically low interest
rates. The increase in gains on sales of mortgage loans was partially offset by a $4.5 million increase in MSR amortization due to
prepayments of serviced loans and a $2.1 million impairment charge for MSRs recorded in the third quarter of 2012. The impairment
charge was the result of an increase in forecasted mortgage prepayments, which caused a decline in the fair value of the MSR asset.
Foreign currency processing income increased $1.0 million, or 11.0%, due primarily to an increase in volumes.
The $1.8 million, or 4.8%, increase in investment management and trust services was due primarily to a $1.5 million, or 10.5%,
increase in brokerage revenue and a $421,000, or 2.0%, increase in trust commissions. These increases resulted from the Corporation's
expanded focus on generating recurring revenue in the brokerage business, increased sales of new trust business, and an improvement
in the market values of existing assets under management.
The $940,000, or 13.4%, increase in credit card income was due to an increase in the volume of transactions on previously issued
cards and an increase in average balances, which generate fees under a joint marketing agreement with an independent third-party
issuer. The $2.3 million, or 28.4%, increase in other income was due to gains on the sales of two branches and one operations facility
and gains on investments in corporate owned life insurance.
Investment securities gains of $3.0 million for 2012 included $3.8 million of net realized gains on sales of securities, partially offset
by other-than-temporary impairment charges of $809,000. During 2012, the Corporation recorded other-than-temporary impairment
charges of $356,000 for financial institutions stocks, $434,000 for auction rate securities and $19,000 for pooled trust preferred
securities issued by financial institutions. The $4.6 million of net gains in 2011 included $7.5 million of net realized gains on sales
of securities, partially offset by other-than-temporary impairment charges of $2.9 million. During 2011, the Corporation recorded
other-than-temporary impairment charges of $1.4 million for pooled trust preferred securities issued by financial institutions, $1.2
million for financial institutions stocks and $292,000 for auction rate securities.
Non-Interest Expense
The following table presents the components of non-interest expense:
Salaries and employee benefits ......................................................... $
Net occupancy expense .....................................................................
Other outside services .......................................................................
Data processing .................................................................................
Equipment expense ...........................................................................
FDIC insurance premiums ................................................................
Professional fees ...............................................................................
OREO and repossession expense ......................................................
Software ............................................................................................
Operating risk loss ............................................................................
Marketing ..........................................................................................
Telecommunications .........................................................................
Supplies .............................................................................................
Postage ..............................................................................................
Intangible amortization .....................................................................
FHLB prepayment penalty................................................................
Other..................................................................................................
Total ........................................................................................... $
N/M - Not meaningful
44
2012
243,915
44,663
17,752
14,936
14,243
11,996
11,522
11,182
9,520
9,454
8,240
6,884
4,891
4,625
3,031
3,007
29,433
449,294
$
$
Increase (decrease)
%
$
2011
(dollars in thousands)
227,435
44,003
10,421
13,544
12,870
14,480
12,159
9,578
8,400
1,328
9,667
8,119
5,507
5,065
4,257
—
29,409
416,242
$
$
16,480
660
7,331
1,392
1,373
(2,484)
(637)
1,604
1,120
8,126
(1,427)
(1,235)
(616)
(440)
(1,226)
3,007
24
33,052
7.2%
1.5
70.3
10.3
10.7
(17.2)
(5.2)
16.7
13.3
611.9
(14.8)
(15.2)
(11.2)
(8.7)
(28.8)
N/M
0.1
7.9%
Salaries and employee benefits increased $16.5 million, or 7.2%, with salaries increasing $12.6 million, or 6.6%, and employee
benefits increasing $3.9 million, or 10.4%. The increase in salaries expense was largely due to annual merit increases in 2012, overtime
and temporary employee expense to support residential lending, a $6.9 million increase in employee bonus and incentive compensation
expense and a $585,000 increase in stock-based compensation expense. The $3.9 million increase in employee benefits was primarily
due to a $2.3 million increase in healthcare costs and a $1.4 million increase in defined benefit plan expenses.
Other outside services increased $7.3 million, or 70.3%, due primarily to a $5.9 million increase in consulting services related to
compliance and risk management, an increase in employment agency fees and the outsourcing of certain functions. Data processing
increased $1.4 million, or 10.3%, primarily due to increased transaction volumes. The $1.4 million, or 10.7%, increase in equipment
expense was largely due to depreciation expense related to the addition of assets supporting the information technology infrastructure.
The $2.5 million, or 17.2%, decrease in FDIC insurance expense was due, in part, to a change in how the insurance assessment is
calculated. Effective April 1, 2011, the assessment was based on total average assets minus average tangible equity, as compared to
the previous calculation, which was based on average domestic deposits. 2011 included three months of expense assessed under the
FDIC's prior methodology. Also contributing to the decrease was lower assessment rates based on improvements in subsidiary bank
impaired asset levels.
OREO and repossession expense increased $1.6 million, or 16.7%, due to a $2.2 million increase in valuation provisions and a $1.4
million decrease in net gains on sales, partially offset by a $2.0 million decrease in repossession and other OREO expenses. This
expense category is expected to be volatile as the Corporation continues to work through its non-performing assets. Software expense
increased $1.1 million, or 13.3%, due to additional maintenance costs related to the addition of assets supporting the information
technology infrastructure.
The $8.1 million increase in operating risk loss was largely due to estimated losses associated with previously sold residential mortgages.
Provisions for such losses were $4.9 million in 2012, as compared to a credit of $1.1 million in 2011. The charges in 2012 included
$3.4 million related to a specific investor program with the FHLB and $1.5 million related to alleged breaches of representations and
warranties made in connection with previously sold residential mortgages. The remaining increase in operating risk loss was primarily
due to a $1.2 million increase in debit card fraud losses.
Marketing expense decreased $1.4 million, or 14.8%, largely due to $1.3 million of expense related to the merger of the Corporation's
New Jersey banks in the fourth quarter of 2011. Telecommunications expense decreased $1.2 million, or 15.2%, largely due to a
renegotiated contract for data lines. The $1.2 million, or 28.8%, decrease in intangible amortization was primarily due to core deposit
intangible assets, which are amortized on an accelerated basis.
The proceeds from the sale of Global Exchange and short-term borrowings were used to prepay approximately $20 million of FHLB
advances. The Corporation incurred a $3.0 million penalty in connection with prepaying these FHLB advances.
In 2012, the Corporation also incurred implementation costs of $975,000 related to its core processing system conversion.
Income Taxes
Income tax expense for 2013 was $51.1 million, a decrease of $6.5 million, or 11.3%, from 2012. Income tax expense for 2012
increased $6.8 million, or 13.3%, from 2011. The Corporation’s effective tax rate (income taxes divided by income before income
taxes) was 24.0%, 26.5% and 25.9% in 2013, 2012 and 2011, respectively.
The Corporation’s effective tax rates are generally lower than the 35% federal statutory rate due to investments in tax-free municipal
securities and tax credits earned from investments in partnerships that generate such credits under various federal programs (Tax
Credit Investments). Net credits associated with Tax Credit Investments were $10.3 million, $9.6 million and $8.5 million in 2013,
2012 and 2011, respectively. In addition, a $3.5 million ($2.3 million, net of federal tax) decrease in the valuation allowance for certain
state deferred tax assets resulting from net operating loss carryforwards was recorded as a credit to income tax expense in 2013. This
decrease resulted from an improvement in forecasts for state taxable income that will allow a larger portion of this deferred tax asset
to be realized.
For additional information regarding income taxes, see Note L, "Income Taxes," in the Notes to Consolidated Financial Statements.
45
FINANCIAL CONDITION
The table below presents condensed consolidated ending balance sheets for the Corporation.
December 31
2013
2012
(dollars in thousands)
Increase (decrease)
%
$
Assets
Cash and due from banks .................................................... $
Other interest-earning assets................................................
Loans held for sale...............................................................
218,540
$
256,300
$
248,161
21,351
244,959
67,899
Investment securities ...........................................................
2,568,434
2,721,082
Loans, net of allowance.......................................................
12,579,440
11,923,068
Premises and equipment ......................................................
Goodwill and intangible assets............................................
226,021
533,076
Other assets..........................................................................
539,611
Total Assets................................................................... $ 16,934,634
Liabilities and Shareholders’ Equity
Deposits ............................................................................... $ 12,491,186
Short-term borrowings.........................................................
1,258,629
Long-term debt ....................................................................
Other liabilities ....................................................................
883,584
238,048
227,723
535,563
556,503
$ 16,533,097
$ 12,484,163
$
$
868,399
894,253
204,626
Total Liabilities .................................................................
14,871,447
14,451,441
Total Shareholders’ Equity................................................
2,063,187
Total Liabilities and Shareholders’ Equity................... $ 16,934,634
2,081,656
$ 16,533,097
$
(37,760)
3,202
(46,548)
(152,648)
656,372
(1,702)
(2,487)
(16,892)
401,537
7,023
390,230
(10,669)
33,422
420,006
(18,469)
401,537
(14.7)%
1.3
(68.6)
(5.6)
5.5
(0.7)
(0.5)
(3.0)
2.4 %
0.1 %
44.9
(1.2)
16.3
2.9
(0.9)
2.4 %
Loans held for sale
Loans held for sale represent residential mortgage loans which the Corporation intends to sell to third-party investors as part of
its mortgage banking activities. The $46.5 million, or 68.6%, decrease in loans held for sale resulted from a decrease in loans
originated for sale in December 2013 as compared to December 2012, due to an increase in interest rates.
As noted within the "Non-Interest Income" section of Management's Discussion, the Corporation's mortgage banking income in
2013 decreased in comparison to 2012 due to a decrease in both volumes of new loan commitments and a decrease in spreads on
loans sold.
46
Investment Securities
The following table presents the carrying amount of investment securities held to maturity (HTM) and available for sale (AFS)
as of the dates shown:
U.S. Government securities ................................ $
U.S. Government sponsored agency securities...
State and municipal.............................................
Corporate debt securities ....................................
2013
AFS
525
726
284,849
98,749
HTM
2012
AFS
December 31
Total
(in thousands)
HTM
2011
AFS
Total
$ — $
325
$
325
$ — $
334
$
334
—
—
—
2,397
315,519
112,842
2,397
5,987
315,519
112,842
179
—
4,073
322,018
123,306
10,060
322,197
123,306
Collateralized mortgage obligations ...................
1,032,398
— 1,211,119
1,211,119
— 1,001,209
1,001,209
Mortgage-backed securities ................................
Auction rate securities ........................................
945,712
159,274
Total debt securities..........................................
2,522,233
Equity securities..................................................
46,201
Total ............................................................ $2,568,434
292
—
292
—
879,621
149,339
879,913
149,339
503
—
880,097
225,211
880,600
225,211
2,671,162
2,671,454
6,669
2,556,248
2,562,917
49,628
49,628
—
33,430
33,430
$
292
$2,720,790
$2,721,082
$ 6,669
$2,589,678
$2,596,347
Total investment securities decreased $152.6 million, or 5.6%, to $2.6 billion at December 31, 2013, as portfolio cash flows were
not fully reinvested. Decreases in collateralized mortgage obligations and state and municipal holdings were partially offset by an
increase in mortgage-backed securities. Portfolio cash flows that were reinvested during 2013 were used to purchase collateralized
mortgage obligations and mortgage-backed securities with average lives of approximately four years to provide for more structured
cash flows, thereby limiting price and extension risk in the current low interest rate environment. As of December 31, 2013, the
weighted average remaining lives of collateralized mortgage obligations and mortgage-backed securities were four and five years,
respectively.
The net pre-tax unrealized loss on available for sale investment securities was $39.8 million as of December 31, 2013, compared
to a $41.5 million net pre-tax unrealized gain as of December 31, 2012. The change was due to an increase in interest rates, which
caused the fair values of collateralized mortgage obligations and mortgage-backed securities to decrease below amortized cost.
See additional details regarding investment security price risk within Item 7A, "Quantitative and Qualitative Disclosures About
Market Risk."
Loans
The following table presents loans outstanding, by type, as of the dates shown, and the change in loans for the most recent year:
December 31
2013 vs. 2012
Increase (decrease)
2013
2012
2011
2010
2009
$
%
(dollars in thousands)
Real estate – commercial mortgage.................... $ 5,101,922
$ 4,664,426
$ 4,602,596
$ 4,375,980
$ 4,292,300
$
437,496
9.4%
Commercial – industrial, financial and
agricultural .....................................................
Real estate – home equity...................................
3,628,420
3,612,065
3,639,368
3,704,384
3,699,198
1,764,197
1,632,390
1,624,562
1,641,777
1,644,260
Real estate – residential mortgage......................
1,337,380
1,257,432
1,097,503
Real estate – construction...................................
Consumer............................................................
Leasing and other ...............................................
573,672
283,124
103,301
584,118
309,864
93,914
615,445
318,874
79,869
996,381
801,185
350,498
72,121
921,979
978,267
361,720
84,733
Gross loans ...................................................
12,792,016
12,154,209
11,978,217
11,942,326
11,982,457
16,355
131,807
79,948
(10,446)
(26,740)
9,387
637,807
Unearned income................................................
(9,796)
(7,238)
(6,994)
(7,198)
(7,715)
(2,558)
0.5
8.1
6.4
(1.8)
(8.6)
10.0
5.2
35.3
Loans, net of unearned income..................... $ 12,782,220
$ 12,146,971
$ 11,971,223
$ 11,935,128
$ 11,974,742
$
635,249
5.2%
The Corporation does not have a concentration of credit risk with any single borrower, industry or geographical location within
the Corporation's footprint. The Corporation's policies limit the maximum total lending commitment to an individual borrower to
$39.0 million at December 31, 2013, which is below the Corporation's maximum lending limit. As of December 31, 2013, the
Corporation had 60 relationships with total borrowing commitments between $20.0 million and $39.0 million.
47
Approximately $5.7 billion, or 44.4%, of the Corporation’s loan portfolio was in commercial mortgage and construction loans as
of December 31, 2013. The performance of these loans can be adversely impacted by fluctuations in real estate values. The
Corporation limits its maximum exposure to any builder or developer to $28.0 million, and limits its exposure to any one
development project to $15.0 million.
Geographically, the $437.5 million, or 9.4%, increase in commercial mortgages occurred throughout all markets, with increases
in Pennsylvania ($154.0 million, or 6.2%), Maryland ($123.4 million, or 29.5%), New Jersey ($67.6 million, or 5.6%), Virginia
($64.1 million, or 17.8%) and Delaware ($28.4 million, or 17.0%).
Construction loans include loans to commercial borrowers secured by residential real estate, loans to commercial borrowers secured
by commercial real estate and other construction loans, which represent loans to individuals secured by residential real estate. The
following table presents outstanding construction loans and their delinquency rates by these class segments, as of December 31:
2013
Delinquency
Rate
$
% of Total
$
(dollars in thousands)
2012
Delinquency
Rate
% of Total
Commercial..................................... $
Commercial - residential.................
Other ...............................................
Total Real estate - construction....... $
269,497
235,369
68,806
573,672
0.8%
8.2
0.8
3.8%
47.0% $
41.0
12.0
100.0% $
226,350
288,552
69,216
584,118
3.6%
8.2
2.6
38.8%
49.4
11.8
5.7%
100.0%
Construction loans decreased $10.4 million, or 1.8%. Geographically, the decrease in construction loans occurred in the Virginia
($26.4 million, or 21.9%), Pennsylvania ($24.9 million, or 7.9%) and Maryland ($6.6 million, or 9.8%) markets, partially offset
by increases in the New Jersey ($25.3 million, 38.8%) and Delaware ($22.2 million, or 138.5%) markets. In comparison to December
31, 2009, construction loans have decreased $404.6 million, or 41.4%, as the Corporation has actively reduced its exposure to
credit risk in this portfolio.
The following table summarizes the industry concentrations within the commercial loan portfolio as of December 31:
Services...........................................................................................................................................
Manufacturing.................................................................................................................................
Retail...............................................................................................................................................
Construction....................................................................................................................................
Wholesale .......................................................................................................................................
Health care ......................................................................................................................................
Real estate (1) .................................................................................................................................
Agriculture......................................................................................................................................
Arts and entertainment....................................................................................................................
Transportation.................................................................................................................................
Financial services............................................................................................................................
Other ...............................................................................................................................................
Total.........................................................................................................................................
2013
2012
19.2%
17.4%
13.5
11.0
10.0
9.7
8.1
7.0
5.8
2.7
2.5
1.6
8.9
14.7
10.1
10.3
10.5
8.2
7.4
5.7
2.6
3.0
2.2
7.9
100.0%
100.0%
(1) Includes borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for others; and appraising
real estate.
48
Commercial loans and commercial mortgage loans also include shared national credits, which are participations in loans or loan
commitments of at least $20 million that are shared by three or more banks. Below is a summary of the Corporation's outstanding
purchased shared national credits as of December 31:
2013
2012
(dollars in thousands)
Commercial - industrial, financial and agricultural......................................................................... $
Real estate - commercial mortgage .................................................................................................
129,840
87,868
Total............................................................................................................................................ $
217,708
$
$
81,978
47,637
129,615
Total shared national credits increased $88.1 million, or 68.0%, in comparison to 2012. The Corporation's shared national credits
are to borrowers located in its geographical markets and the increase was due to normal lending activities consistent with the
Corporation's underwriting policies. This increase was due to additions which were all located within the Corporation's geographical
markets. As of December 31, 2013, none of the shared national credits were past due, as compared to one past due shared national
credit, which constituted 2.7% of the total balance, as of December 31, 2012.
Home equity loans increased $131.8 million, or 8.1%, primarily a result of an increase in 15-year fixed rate loans due to certain
promotions. Geographically, the increase was in the Pennsylvania ($107.2 million, or 11.3%), New Jersey ($14.4 million, or 5.2%)
and Delaware ($10.0 million, 11.7%) markets.
Residential mortgages increased $80.0 million, or 6.4%, due primarily to an increase in fixed rate mortgages. During the second
half of 2012, the Corporation elected to retain certain 15-year fixed rate mortgages in portfolio instead of selling them to third-
party investors. A portion of these loans closed during the first quarter of 2013, driving some of the growth since December 31,
2012. Geographically, the increase in residential mortgages was primarily in the Pennsylvania ($37.4 million, or 5.8%), Virginia
($26.3 million, or 11.7%) and Maryland ($9.9 million, or 6.7%) markets.
Consumer loans decreased $26.7 million, or 8.6%, due to a decrease in direct consumer loans, partially offset by a $7.2 million,
or 5.0%, increase in indirect automobile loans. Leasing and other loans increased $9.4 million, or 10.0%, including a $23.7 million,
or 31.2%, increase in leases, due primarily to growth in equipment leases.
49
Provision and Allowance for Credit Losses
The Corporation accounts for the credit risk associated with lending activities through the allowance for credit losses and the
provision for credit losses.
A summary of the Corporation’s loan loss experience follows:
2013
2012
2011
2010
2009
(dollars in thousands)
Loans, net of unearned income outstanding at end of year....................... $ 12,782,220
$ 12,146,971
$ 11,971,223
$ 11,935,128
$ 11,974,742
Daily average balance of loans, net of unearned income.......................... $ 12,578,524
$ 11,968,567
$ 11,906,447
$ 11,960,262
$ 11,977,105
Balance of allowance for credit losses at beginning of year..................... $
225,439
$
258,177
$
275,498
$
257,553
$
180,137
Loans charged off:
Commercial – industrial, financial and agricultural ........................
Real estate – commercial mortgage .................................................
Consumer and home equity .............................................................
Real estate – residential mortgage ...................................................
Real estate – construction ................................................................
Leasing and other.............................................................................
30,383
20,829
10,070
9,705
6,572
2,653
41,868
51,988
13,470
4,509
26,250
2,281
52,301
26,032
9,686
32,533
38,613
2,168
35,865
28,209
11,210
6,896
66,412
2,833
34,761
15,530
10,770
7,056
44,909
6,048
Total loans charged off.....................................................................
80,212
140,366
161,333
151,425
119,074
Recoveries of loans previously charged off:
Commercial – industrial, financial and agricultural ........................
Real estate – commercial mortgage .................................................
Consumer and home equity .............................................................
Real estate – residential mortgage ...................................................
Real estate – construction ................................................................
Leasing and other.............................................................................
Total recoveries................................................................................
Net loans charged off ................................................................................
Provision for credit losses.........................................................................
9,281
3,494
2,378
548
2,682
807
19,190
61,022
40,500
Balance at end of year............................................................................... $
204,917
Components of Allowance for Credit Losses:
Allowance for loan losses ......................................................................... $
202,780
Reserve for unfunded lending commitments (1) ......................................
2,137
Allowance for credit losses....................................................................... $
204,917
$
$
$
4,282
3,371
1,811
459
2,814
891
13,628
126,738
94,000
225,439
223,903
1,536
225,439
2,521
1,967
1,431
325
1,746
1,022
9,012
152,321
135,000
258,177
256,471
1,706
258,177
4,536
1,008
1,540
9
1,296
981
9,370
142,055
160,000
275,498
274,271
1,227
275,498
$
$
$
1,679
536
1,678
150
1,194
1,233
6,470
112,604
190,020
257,553
256,698
855
257,553
$
$
$
$
$
$
Selected Asset Quality Ratios:
Net charge-offs to average loans...............................................................
Allowance for loan losses to loans outstanding........................................
Allowance for credit losses to loans outstanding......................................
Non-performing assets (2) to total assets..................................................
Non-performing assets (2) to total loans and OREO ................................
Non-accrual loans to total loans................................................................
0.49%
1.59%
1.60%
1.00%
1.32%
1.05%
1.06%
1.84%
1.86%
1.43%
1.95%
1.52%
1.28%
2.14%
2.16%
1.94%
2.64%
2.15%
1.19%
2.30%
2.31%
2.22%
3.02%
2.35%
0.94%
2.14%
2.15%
1.83%
2.54%
1.99%
Allowance for credit losses to non-performing loans ...............................
132.82%
106.82%
90.11%
83.80%
91.42%
Non-performing assets (2) to tangible common shareholders’ equity
and allowance for credit losses (3) .......................................................
9.76%
13.39%
18.60%
22.50%
24.00%
Includes accruing loans past due 90 days or more.
(1) Reserve for unfunded lending commitments recorded within other liabilities on the consolidated balance sheets.
(2)
(3) Ratio represents a financial measure derived by methods other than Generally Accepted Accounting Principles ("GAAP"). See reconciliation of this non-
GAAP financial measure to the most directly comparable GAAP measure under the heading, "Supplemental Reporting of Non-GAAP Based Financial
Measures" in Item 6, "Selected Financial Data."
The provision for credit losses decreased $53.5 million, or 56.9%, in comparison to 2012 due to improvements in credit quality
metrics, including a decrease in net loans charged off, a reduction in the level non-performing loans and lower delinquencies.
Net charge-offs decreased $65.7 million, or 51.9%, to $61.0 million in 2013 from $126.7 million in 2012. This decrease was
primarily due to a $31.3 million, or 64.3%, decrease in commercial mortgage net charge-offs, a $19.5 million, or 83.4%, decrease
50
in construction loan net charge-offs and a $16.5 million, or 43.9%, decrease in commercial loan net charge-offs, partially offset
by a $5.1 million, or 126.1%, increase in residential mortgage net charge-offs. Of the $61.0 million of net charge-offs recorded in
2013, 50.4% were for loans originated in Pennsylvania, 38.2% in New Jersey and 7.4% in Maryland.
During 2013 and 2012, the Corporation sold $41.8 million and $50.5 million, respectively, of non-accrual commercial mortgage,
commercial and construction loans to investors. When an appropriate price can be obtained, these sales can be advantageous as
they reduce the cost of resolving problem credits and enable the Corporation to redeploy resources to other work-out and collection
efforts. Total charge-offs for 2013 and 2012 associated with these transactions were $18.0 million and $24.6 million, respectively.
The following table presents a summary of these transactions:
2013
2012
Real Estate -
Commercial
mortgage
Commercial -
industrial,
financial and
agricultural
Real Estate -
Construction
Total
Real Estate -
Commercial
mortgage
Commercial -
industrial,
financial and
agricultural
Real Estate -
Construction
Total
(in thousands)
Unpaid principal balance
of loans sold ................... $
21,760
$
23,600
$
9,930
$
55,290
$
43,960
$
19,990
$
7,720
$
71,670
Charge-offs prior to sale.....
(4,890)
(3,890)
(4,680)
(13,460)
(10,780)
(6,130)
(4,300)
(21,210)
Net recorded investment in
loans sold .......................
Proceeds from sale, net of
selling expenses .............
Total charge-off upon sale.. $
Existing allocation for
credit losses on sold
loans ............................... $
16,870
10,410
19,710
10,050
5,250
3,400
41,830
33,180
13,860
23,860
17,620
6,020
3,420
2,270
50,460
25,910
(6,460) $
(9,660) $
(1,850) $
(17,970) $
(15,560) $
(7,840) $
(1,150) $
(24,550)
(6,620) $
(5,780) $
(1,320) $
(13,720) $
(16,780) $
(8,910) $
(1,920) $
(27,610)
The following table presents non-performing assets as of December 31:
2013
2012
Non-accrual loans (1) (2) (3) ................................. $
Accruing loans past due 90 days or more (2) ........
Total non-performing loans ............................
OREO.....................................................................
Total non-performing assets ........................... $
133,753
20,524
154,277
15,052
169,329
$
$
184,832
26,221
211,053
26,146
237,199
2011
(in thousands)
257,761
$
28,767
286,528
30,803
317,331
$
$
$
2010
2009
280,688
48,084
328,772
32,959
361,731
$
$
238,360
43,359
281,719
23,309
305,028
(1)
In 2013, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was approximately
$9.7 million. The amount of interest income on non-accrual loans that was included in 2013 was approximately $347,000.
(2) Accrual of interest is generally discontinued when a loan becomes 90 days past due as to principal and interest. When interest accruals are discontinued,
interest credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently
for six consecutive months or the loan is considered secured and in the process of collection. Certain loans, primarily adequately collateralized residential
mortgage loans, may continue to accrue interest after reaching 90 days past due.
(3) Excluded from the amounts presented as of December 31, 2013 were $68.1 million of loans, modified under TDRs. These loans were reviewed for impairment
under FASB ASC Section 310-10-35, but continue to accrue interest and are, therefore, not included in non-accrual loans. All non-accrual loans as of December
31, 2013 were reviewed for impairment under FASB ASC Section 310-10-35.
51
The following table presents loans whose terms were modified under TDRs as of December 31:
2013
2012
Real estate – residential mortgage .............................................. $ 28,815
19,758
Real estate – commercial mortgage ............................................
10,117
Real estate – construction ...........................................................
8,045
Commercial – industrial, financial and agricultural....................
1,376
Real estate - home equity and consumer.....................................
68,111
Total accruing TDRs ..............................................................
30,209
Non-accrual TDRs (1).................................................................
Total TDRs............................................................................. $ 98,320
$ 32,993
34,672
10,564
5,745
1,534
85,508
31,245
$ 116,753
(1)
Included within non-accrual loans in the preceding table.
2011
(in thousands)
$ 32,331
22,425
7,645
3,581
193
66,175
32,587
$ 98,762
2010
2009
$ 37,826
18,778
5,440
5,502
263
67,809
51,175
$ 118,984
$
$
24,639
15,997
—
1,459
—
42,095
15,875
57,970
Total TDRs modified during 2013 and still outstanding as of December 31, 2013 totaled $28.6 million. Of these loans, $9.8 million,
or 34.3%, had a payment default, which the Corporation defines as a single missed scheduled payment, subsequent to modification
during 2013. Total TDRs modified during 2012 and still outstanding as of December 31, 2012 totaled $61.9 million. Of these
loans, $21.2 million, or 34.2%, had a payment default subsequent to modification during 2012.
The following table presents the changes in non-accrual loans for the years ended December 31:
Commercial -
Industrial,
Financial and
Agricultural
Real Estate -
Commercial
Mortgage
Real Estate -
Construction
Real Estate -
Residential
Mortgage
Real Estate -
Home
Equity
(in thousands)
Consumer
Leasing
Total
Balance of non-accrual loans
at December 31, 2011......... $
Additions...........................
Payments ...........................
Charge-offs (1)..................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2012.........
Additions...........................
Payments ...........................
Charge-offs (1)..................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2013......... $
75,704
$
109,412
$
58,894
$
7,834
$
5,493
$
60,229
(24,947)
(41,586)
(3,555)
(150)
65,695
41,804
(31,336)
(29,754)
(4,788)
(4,911)
66,390
(62,224)
(50,249)
(7,344)
(1,025)
54,960
40,195
(32,236)
(20,412)
(702)
(1,239)
24,830
(28,271)
(20,262)
(3,765)
—
31,426
13,769
(14,195)
(6,572)
(3,166)
(341)
18,952
(512)
(3,913)
(1,258)
—
21,103
19,277
(3,222)
(9,612)
(2,306)
(2,958)
14,405
(1,349)
(5,845)
(1,079)
—
11,625
12,566
(3,453)
(6,289)
(332)
(845)
368
374
(39)
(690)
—
—
13
573
(4)
(575)
—
(5)
$
56
$ 257,761
703
(593)
(156)
—
—
10
266
(35)
(241)
—
—
185,883
(117,935)
(122,701)
(17,001)
(1,175)
184,832
128,450
(84,481)
(73,455)
(11,294)
(10,299)
36,710
$
40,566
$
20,921
$
22,282
$
13,272
$
2
$
— $ 133,753
(1) Excludes charge-offs of loans on accrual status.
Non-accrual loans decreased $51.1 million, or 27.6%, in 2013 due mainly to decrease in non-accrual loan additions from $185.9
million in 2012 to $128.5 million in 2013, while balances continued to be reduced through payments and charge-offs.
52
The following table presents non-performing loans, by type, as of the dates shown and the changes in non-performing loans for
the most recent year:
2013
2012
Real estate – commercial mortgage ....... $ 44,068
Commercial – industrial, financial and
agricultural .........................................
Real estate – residential mortgage .........
Real estate – construction ......................
Real estate – home equity ......................
Consumer ...............................................
Leasing...................................................
38,021
31,347
21,267
16,983
2,543
48
Total non-performing loans ............ $ 154,277
$ 57,120
66,954
34,436
32,005
17,204
3,315
19
$ 211,053
December 31
2011
2010
(dollars in thousands)
$ 93,720
2009
$ 61,052
$ 113,806
2013 vs. 2012
Increase (decrease)
$
%
$ (13,052)
(22.9)%
80,944
16,336
60,744
11,207
3,384
107
$ 286,528
87,455
50,412
84,616
10,188
2,154
227
$ 328,772
69,604
45,748
92,841
10,790
1,529
155
$ 281,719
(28,933)
(3,089)
(10,738)
(221)
(772)
29
$ (56,776)
(43.2)
(9.0)
(33.6)
(1.3)
(23.3)
152.6
(26.9)%
Non-performing commercial mortgages decreased $13.1 million, or 22.9%, in comparison to December 31, 2012. Geographically,
the decrease occurred in the New Jersey ($7.7 million, or 28.8%), Pennsylvania ($3.6 million, or 17.4%) and Virginia ($2.9 million,
or 52.5%) markets.
Non-performing commercial loans decreased $28.9 million, or 43.2%, in comparison to December 31, 2012. Geographically, the
decrease occurred in the Pennsylvania ($20.1 million, or 43.1%), New Jersey ($5.5 million, or 46.1%), Maryland ($2.0 million,
or 42.1%) and Virginia ($1.4 million, or 40.2%) markets.
Non-performing residential mortgages decreased $3.1 million, or 9.0%, in comparison to December 31, 2012. Geographically,
the increase occurred primarily in the Pennsylvania ($1.5 million, or 12.1%), Virginia ($1.1 million, or 13.2%) and New Jersey
($1.1 million, or 12.8%) markets.
Non-performing construction loans decreased $10.7 million, or 33.6%, in comparison to December 31, 2012. Geographically, the
decrease occurred in the New Jersey ($7.8 million, or 62.5%), Virginia ($2.7 million, or 80.1%) and Maryland ($2.2 million, or
33.6%) markets, partially offset by an increase in the Pennsylvania ($2.0 million, or 21.0%) market.
The following table summarizes OREO, by property type, as of December 31:
2013
2012
Residential properties...................................................................................................................... $
Commercial properties ....................................................................................................................
Undeveloped land ...........................................................................................................................
Total OREO ............................................................................................................................. $
$
(in thousands)
7,052
5,586
2,414
15,052
$
6,788
15,482
3,876
26,146
As noted under the heading "Critical Accounting Policies" within Management's Discussion, the Corporation's ability to identify
potential problem loans in a timely manner is key to maintaining an adequate allowance for credit losses. For commercial loans,
commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit
quality. For a complete description of the Corporation's risk ratings, refer to the "Allowance for Credit Losses" section within Note
A, "Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements. The evaluation of credit
risk for residential mortgages, home equity loans, construction loans to individuals, consumer loans and lease receivables is based
on aggregate payment history, through the monitoring of delinquency levels and trends.
53
Total internally risk rated loans were $9.2 billion and $8.8 billion as of December 31, 2013 and 2012, respectively. The following
table presents internal risk ratings for commercial loans, commercial mortgages and construction loans to commercial borrowers,
by class segment, as of December 31:
Special Mention
2013 vs. 2012
Increase (decrease)
Substandard or Lower
2013 vs. 2012
Increase (decrease)
Total Criticized Loans
2013
2012
$
%
2013
2012
$
%
2013
2012
(dollars in thousands)
Real estate - commercial mortgage ..... $ 141,013
$ 157,640
$ (16,627)
(10.5)% $ 196,922
$ 251,452
$ (54,530)
(21.7)% $ 337,935
$ 409,092
Commercial - secured..........................
111,613
137,277
(25,664)
(18.7)
125,382
194,952
(69,570)
(35.7)
Commercial -unsecured.......................
11,666
5,421
6,245
115.2
2,755
6,000
(3,245)
(54.1)
236,995
14,421
332,229
11,421
Total commercial - industrial,
financial and agricultural ............
123,279
142,698
(19,419)
(13.6)
128,137
200,952
(72,815)
(36.2)
251,416
343,650
Construction - commercial residential.
31,522
Construction - commercial ..................
2,932
52,434
2,799
(20,912)
(39.9)
133
4.8
57,806
8,124
79,581
12,081
(21,775)
(27.4)
(3,957)
(32.8)
89,328
11,056
132,015
14,880
Total real estate - construction
(excluding construction - other)..
34,454
55,233
(20,779)
(37.6)
65,930
91,662
(25,732)
(28.1)
100,384
146,895
Total..................................................... $ 298,746
$ 355,571
$ (56,825)
(16.0)% $ 390,989
$ 544,066
$ (153,077)
(28.1)% $ 689,735
$ 899,637
% of total risk rated loans ....................
3.2%
4.0%
4.2%
6.2%
7.4%
10.2%
As of December 31, 2013, total loans with risk ratings of substandard or lower were $153.1 million, or 28.1%, less than 2012,
while special mention loans were $56.8 million, or 16.0%, lower. Overall reductions in criticized loans, while not the sole factor
for measuring allocations on the above loan types, contributed to a decrease in allocations for impaired loans of $16.0 million, or
20.2%, in 2013.
The following table presents a summary of delinquency status and rates, as a percentage of total loans, for loans that do not have
internal risk ratings, by class segment, as of December 31:
Delinquent (1)
Non-performing (2)
Total Past Due
2013
2012
2013
2012
2013
2012
$
%
$
%
$
%
$
%
$
%
$
%
(dollars in thousands)
Real estate - home
equity ............... $ 16,029
0.91% $ 12,645
0.77% $ 16,983
0.96% $ 17,204
1.06% $ 33,012
1.87% $
29,849
1.83%
23,279
1.74
32,123
2.55
31,347
2.34
34,436
2.74
54,626
4.08
66,559
5.29
—
—
865
3,795
1.25
2.28
548
2,391
0.80
1.81
904
3,170
1.31
1.90
548
5,977
0.80
4.51
1,769
6,965
2.56
4.18
indirect.............
3,312
2.20
2,270
1.58
152
0.10
145
0.11
3,464
2.30
2,415
1.69
Total
Consumer .......
Leasing and other
and Overdrafts .
6,898
2.44
6,065
1.96
2,543
0.89
3,315
1.07
9,441
3.33
9,380
3.03
581
0.62
711
0.82
48
0.05
19
0.02
629
0.67
730
0.84
Total ..................... $ 46,787
1.32% $ 52,409
1.56% $ 51,469
1.45% $ 55,878
1.67% $ 98,256
2.77% $ 108,287
3.23%
(1)
(2)
Includes all accruing loans 30 days to 89 days past due.
Includes all accruing loans 90 days or more past due and all non-accrual loans.
As of December 31, 2013, delinquency rates for the above class segments decreased slightly, primarily due to a decrease in
residential mortgage delinquencies, partially offset by increases in home equity delinquencies 30 to 89 days past due.
54
Real estate -
residential
mortgage..........
Real estate -
construction -
other.................
Consumer - direct.
3,586
2.70
Consumer -
The following table summarizes the allocation of the allowance for loan losses:
2013
2012
2011
2010
2009
% of
Loans In
Each
Category Allowance
Allowance
% of
Loans In
Each
% of
Loans In
Each
% of
Loans In
Each
Category Allowance
Category Allowance
Category Allowance
% of
Loans In
Each
Category
(dollars in thousands)
Real estate -
commercial
mortgage.................. $
Commercial -
industrial, financial
and agricultural........
Real estate - residential
mortgage..................
Consumer, home
equity, leasing &
other.........................
Real estate -
construction..................
Unallocated ..................
55,659
39.9% $
62,928
38.4 % $
85,112
36.8 % $
40,831
36.8 % $
32,257
35.9 %
50,330
28.4
60,205
29.7
74,896
31.0
101,436
31.0
96,901
30.9
33,082
10.5
34,536
10.4
22,986
8.3
17,425
8.3
13,704
7.7
34,852
16.7
27,895
16.7
17,321
17.2
14,963
17.2
13,620
17.3
12,649
16,208
4.5
N/A
17,287
21,052
4.8
N/A
30,066
26,090
6.7
N/A
58,117
41,499
6.7
N/A
67,388
32,828
8.2
N/A
$ 202,780
100.0% $ 223,903
100.0 % $ 256,471
100.0 % $ 274,271
100.0 % $ 256,698
100.0 %
N/A – Not applicable
Management believes that the $202.8 million allowance for loan losses as of December 31, 2013 is sufficient to cover incurred
losses in the loan portfolio. See additional disclosures in Note A, "Summary of Significant Accounting Policies," and Note D,
"Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements and "Critical Accounting Policies,"
in Management’s Discussion.
Other Assets
Other assets decreased $16.9 million, or 3.0%, to $539.6 million as of December 31, 2013. As of December 31, 2012, the Corporation
had $53.2 million of receivables outstanding related to investment securities sales that had not settled at the end of the year. The
Corporation had no such receivables outstanding as of December 31, 2013. In addition, prepaid FDIC insurance assessments
decreased $23.6 million, as the FDIC refunded $21.0 million in prepaid assessments during 2013, and OREO decreased $11.1
million. These decreases were partially offset by a $50.2 million increase in Tax Credit Investments and an $11.3 million increase
in net deferred tax assets, mainly due to an increase in unrealized losses on available for sale investment securities.
Deposits and Borrowings
The following table summarizes the changes in ending deposits, by type:
2013
Increase (decrease)
%
$
2012
(dollars in thousands)
Noninterest-bearing demand.......................................................... $ 3,283,172
2,945,210
Interest-bearing demand.................................................................
3,344,882
Savings...........................................................................................
9,573,264
Total demand and savings.......................................................
2,917,922
Time deposits .................................................................................
Total deposits.......................................................................... $ 12,491,186
$ 3,009,966
2,755,603
3,335,256
9,100,825
3,383,338
$ 12,484,163
$
$
273,206
189,607
9,626
472,439
(465,416)
7,023
9.1%
6.9
0.3
5.2
(13.8)
0.1%
Non-interest bearing demand deposits increased $273.2 million, or 9.1%, primarily due to an increase in business account balances.
Interest-bearing demand accounts increased $189.6 million, or 6.9%, due to a $118.2 million, or 7.2%, increase in personal account
balances and an $84.5 million, or 8.4%, increase in municipal account balances. The $9.6 million, or 0.3%, increase in savings
account balances was due to a $70.5 million, or 3.5%, increase in personal account balances and a $16.6 million, or 2.2%, increase
in business account balances, partially offset by a $77.5 million, or 14.0%, decrease in municipal account balances.
The $465.4 million, or 13.8%, decrease in time deposits was in accounts with balances less than $100,000 across most original
maturity terms, partially offset by a $172.6 million increase in time deposits with balances of $100,000 or more.
55
The increase in personal interest-bearing demand and savings account balances resulted from a combination of factors, including
the Corporation's promotional efforts, customers' migration away from certificates of deposit and increased savings by customers.
The following table summarizes the changes in ending borrowings, by type:
2013
Increase (Decrease)
%
2012
(dollars in thousands)
$
Short-term borrowings:
Customer repurchase agreements.............................................. $
Customer short-term promissory notes .....................................
Total short-term customer funding.....................................
Federal funds purchased............................................................
Short-term FHLB Advances (1)................................................
Total short-term borrowings .........................................
175,621
100,572
276,193
582,436
400,000
1,258,629
$
156,238
119,691
275,929
592,470
—
868,399
Long-term debt:
FHLB Advances.............................................................................
Other long-term debt......................................................................
Total long-term debt...........................................................
513,854
369,730
883,584
Total borrowings....................................................... $ 2,142,213
524,817
369,436
894,253
$ 1,762,652
$
$
19,383
(19,119)
264
(10,034)
400,000
390,230
(10,963)
294
(10,669)
379,561
12.4%
(16.0)
0.1
(1.7)
N/M
44.9
(2.1)
0.1
(1.2)
21.5%
(1) Represents FHLB advances with an original maturity term of less than one year.
N/M - Not meaningful
The $390.2 million increase in total short-term borrowings was necessary to meet the funding gap caused by the increase in loans
exceeding the increase in total deposits. The $11.0 million, or 2.1%, decrease in FHLB advances was a result of FHLB maturities,
which were not replaced with new long-term borrowings.
Other liabilities
Other liabilities increased $33.4 million, or 16.3%, to $238.0 million as of December 31, 2013. The increase in other liabilities
was primarily due to a $15.4 million increase in dividends payable to shareholders and $6.2 million of investment securities
purchases executed prior to December 31, 2013, but not settled until after December 31, 2013. Also contributing to the increase
in other liabilities was an increase in commitments to Tax Credit Investments. These increases were partially offset by an $11.3
million decrease in the funded status of the defined benefit pension plan.
Shareholders’ Equity
Total shareholders’ equity decreased $18.5 million, or 0.9%, to $2.1 billion, or 12.2% of total assets, as of December 31, 2013.
The decrease was due primarily to $90.9 million of common stock repurchases, $61.9 million of dividends on shares outstanding
and a $52.8 million net increase in after-tax unrealized holding losses on available for sale investment securities, partially offset
by $161.8 million of net income.
In January 2013, the Corporation announced that its board of directors had approved a share repurchase program pursuant to which
the Corporation was authorized to repurchase of up to eight million shares, through June 30, 2013. In June 2013, the Corporation
announced that its board of directors had extended the timeframe for this stock repurchase program to September 30, 2013. During
2013, the Corporation repurchased 8.0 million shares, completing this repurchase program.
In October 2013, the Corporation announced that its board of directors had approved a share repurchase program pursuant to which
the Corporation was authorized to repurchase up to 4 million shares, or approximately 2.1% of its outstanding shares, through
March 2014. During the first quarter of 2014, the Corporation repurchased 4.0 million shares under this repurchase plan at an
average cost of $12.45 per share, completing this repurchase program on February 19, 2014.
The Corporation and its subsidiary banks are subject to regulatory capital requirements administered by various banking regulators.
Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the
Corporation’s financial statements. The regulations require that banks maintain minimum amounts and ratios of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier I capital to average assets (as defined). As of
December 31, 2013, the Corporation and each of its bank subsidiaries met the minimum capital requirements. In addition, all of
56
the Corporation’s bank subsidiaries’ capital ratios exceeded the amounts required to be considered "well capitalized" as defined
in the regulations. See also Note K, "Regulatory Matters," in the Notes to Consolidated Financial Statements.
The following table summarizes the Corporation’s capital ratios in comparison to regulatory requirements at December 31:
Total capital (to risk weighted assets)....................................................
Tier I capital (to risk weighted assets)...................................................
Tier I capital (to average assets)............................................................
2013
15.0%
13.1%
10.6%
2012
15.6%
13.4%
11.0%
Regulatory
Minimum
for Capital
Adequacy
8.0%
4.0%
4.0%
In July 2013, the FRB approved final rules (the "U.S. Basel III Capital Rules") establishing a new comprehensive capital framework
for U.S. banking organizations and implementing the Basel Committee on Banking Supervision's December 2010 framework for
strengthening international capital standards. The U.S. Basel III Capital Rules substantially revise the risk-based capital
requirements applicable to bank holding companies and depository institutions.
The new minimum regulatory capital requirements established by the U.S. Basel III Capital Rules are effective for the Corporation
beginning on January 1, 2015, and become fully phased in on January 1, 2019.
When fully phased in, the U.S. Basel III Capital Rules will require the Corporation and its bank subsidiaries to:
• Meet a new minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a Tier 1 capital ratio of
6.00% of risk-weighted assets;
• Continue to require the current minimum Total capital ratio of 8.00% of risk-weighted assets and the minimum Tier 1
leverage capital ratio of 4.00% of average assets;
• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses as a
result of which certain non-qualifying capital instruments, including cumulative preferred stock and trust preferred
securities, will be excluded as a component of Tier 1 capital for institutions of the Corporation's size.
The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expand the risk-weightings for assets and
off balance sheet exposures from the current 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number
of categories, depending on the nature of the assets and resulting in higher risk weights for a variety of asset categories.
As of December 31, 2013 the Corporation believes its current capital levels would meet the fully-phased in minimum capital
requirements, including capital conservation buffer, as prescribed in the U.S. Basel III Capital Rules.
57
Contractual Obligations and Off-Balance Sheet Arrangements
The Corporation has various financial obligations that require future cash payments. These obligations include the payment of
liabilities recorded on the Corporation’s consolidated balance sheet as well as contractual obligations for purchased services or
for operating leases.
The following table summarizes the Corporation's significant contractual obligations to third parties, by type, that were fixed and
determinable as of December 31, 2013:
One Year
or Less
One to
Three Years
Payments Due In
Three to
Five Years
(in thousands)
Over Five
Years
Total
Deposits with no stated maturity (1)................. $ 9,573,264
1,860,872
Time deposits (2) ..............................................
1,258,629
Short-term borrowings (3) ................................
6,091
Long-term debt (3)............................................
16,598
Operating leases (4) ..........................................
20,391
Purchase obligations (5) ...................................
1,651
Uncertain tax positions (6)................................
$
— $
— $
798,223
—
381,555
30,372
31,563
—
175,267
—
314,892
24,123
11,817
—
— $ 9,573,264
2,917,922
1,258,629
883,584
131,528
63,771
1,651
83,560
—
181,046
60,435
—
—
Includes demand deposits and savings accounts, which can be withdrawn by customers at any time.
(1)
(2) See additional information regarding time deposits in Note H, "Deposits," in the Notes to Consolidated Financial Statements.
(3) See additional information regarding borrowings in Note I, "Short-Term Borrowings and Long-Term Debt," in the Notes to Consolidated Financial Statements.
(4) See additional information regarding operating leases in Note P, "Leases," in the Notes to Consolidated Financial Statements.
(5)
(6)
Includes information technology, telecommunication and data processing outsourcing contracts.
Includes accrued interest. See additional information related to uncertain tax positions in Note L, "Income Taxes," in the Notes to Consolidated Financial
Statements.
In addition to the contractual obligations listed in the preceding table, the Corporation is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate
risk that are not recognized on the consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments
issued to guarantee the financial or performance obligation of a customer to a third party. Commitments and standby letters of
credit do not necessarily represent future cash needs as they may expire without being drawn.
The following table presents the Corporation’s commitments to extend credit and letters of credit as of December 31, 2013 (in
thousands):
Commercial and other .............................................................................................................................. $
Home equity .............................................................................................................................................
Commercial mortgage and construction ..................................................................................................
Total commitments to extend credit.................................................................................................. $
Standby letters of credit............................................................................................................................ $
Commercial letters of credit .....................................................................................................................
Total letters of credit ......................................................................................................................... $
2,773,415
1,245,589
360,574
4,379,578
391,445
36,344
427,789
58
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of
market risk exposures generally faced by financial institutions include interest rate risk, equity market price risk, debt security
market price risk, foreign currency price risk and commodity price risk. Due to the nature of its operations, only equity market
price risk, debt security market price risk and interest rate risk are significant to the Corporation.
Equity Market Price Risk
Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial
position or results of operations of the Corporation. As of December 31, 2013, the Corporation’s equity investments consisted of
$40.6 million of common stocks of publicly traded financial institutions and $5.6 million of other equity investments. The equity
investments most susceptible to market price risk are the financial institutions stocks, which had a cost basis of $28.5 million and
a fair value of $40.6 million as of December 31, 2013, including an investment in a single financial institution with a cost basis
of $20.0 million and a fair value of $29.3 million. The fair value of this investment accounted for 72.1% of the fair value of the
common stocks of publicly traded financial institutions. No other investment within the financial institutions stock portfolio
exceeded 5% of the portfolio's fair value. In total, gross unrealized gains and gross unrealized losses in this portfolio were
approximately $12.2 million and $66,000, respectively, as of December 31, 2013.
Management continuously monitors the fair value of its equity investments and evaluates current market conditions and operating
results of the issuers. Periodic sale and purchase decisions are made based on this monitoring process. None of the Corporation’s
equity securities are classified as trading.
Another source of equity market price risk is the Corporation's $65.0 million investment in FHLB stock, which the Corporation
is required to own in order to borrow from the FHLB. FHLBs obtain funding primarily through the issuance of consolidated
obligations of the FHLB system. The U.S. government does not guarantee these obligations, and each of the FHLB banks is,
generally, jointly and severally liable for repayment of each others' debt. The financial stress on the FHLB system resulting from
the recent economic crisis appears to have abated, and the New York, Pittsburgh and Atlanta regional banks within the FHLB
system, of which the Corporation is a member, have resumed redemptions of capital stock and dividend payments.
Finally, the Corporation’s investment management and trust services income may be impacted by fluctuations in the equity markets.
A portion of this revenue is based on the value of the underlying investment portfolios, many of which include equity investments.
If the values of those investment portfolios decrease, whether due to factors influencing U.S. securities markets in general or
otherwise, the Corporation’s revenue would be negatively impacted. In addition, the Corporation’s ability to sell its brokerage
services in the future will be dependent, in part, upon consumers’ level of confidence in financial markets.
Debt Security Market Price Risk
Debt security market price risk is the risk that changes in the values of debt securities, unrelated to interest rate changes, could
have a material impact on the financial position or results of operations of the Corporation. The Corporation’s debt security
investments consist primarily of U.S. government sponsored agency issued mortgage-backed securities and collateralized mortgage
obligations, state and municipal securities, U.S. government debt securities, auction rate securities and corporate debt securities.
All of the Corporation's investments in mortgage-backed securities and collateralized mortgage obligations have principal payments
that are guaranteed by U.S. government sponsored agencies.
Municipal Securities
As of December 31, 2013, the Corporation owned $284.8 million of municipal securities issued by various municipalities. Ongoing
uncertainty with respect to the financial strength of municipal bond insurers places much greater emphasis on the underlying
strength of issuers. Continued pressure on local tax revenues of issuers due to adverse economic conditions could have an adverse
impact on the underlying credit quality of issuers. The Corporation evaluates existing and potential holdings primarily based on
the creditworthiness of the issuing municipality and then, to a lesser extent, on any underlying credit enhancement. Municipal
securities can be supported by the general obligation of the issuing municipality, allowing the securities to be repaid by any means
available to the issuing municipality. As of December 31, 2013, approximately 95% of municipal securities were supported by
the general obligation of corresponding municipalities. Approximately 84% of these securities were school district issuances,
which are also supported by the states of the issuing municipalities.
Auction Rate Securities
As of December 31, 2013, the Corporation’s investments in student loan auction rate securities, also known as auction rate
certificates (ARCs), had a cost basis of $172.3 million and a fair value of $159.3 million.
59
ARCs are long-term securities that were structured to allow their sale in periodic auctions, resulting in both the treatment of ARCs
as short-term instruments in normal market conditions and fair values that could be derived based on periodic auction prices.
However, beginning in 2008, market auctions for these securities began to fail due to an insufficient number of buyers, resulting
in an illiquid market. This illiquidity has resulted in recent market prices that represent forced liquidations or distressed sales and
do not provide an accurate basis for fair value. Therefore, as of December 31, 2013, the fair values of the ARCs were derived
using significant unobservable inputs based on an expected cash flows model which produced fair values which were materially
different from those that would be expected from settlement of these investments in the illiquid market that presently exists. The
expected cash flows model, prepared by a third-party valuation expert, produced fair values which assumed a return to market
liquidity sometime within the next five years. The Corporation believes that the trusts underlying the ARCs will self-liquidate as
student loans are repaid.
The credit quality of the underlying debt associated with the ARCs is also a factor in the determination of their estimated fair
value. As of December 31, 2013, approximately $151 million, or 95%, of the ARCs were rated above investment grade, with
approximately $8 million, or 5%, AAA rated and $104 million, or 65%, AA rated. Approximately $8 million, or 5%, of ARCs
were either not rated or rated below investment grade by at least one ratings agency. Of this amount, approximately $5 million,
or 61%, of the loans underlying these ARCs have principal payments which are guaranteed by the federal government. In total,
approximately $155 million, or 98%, of the loans underlying the ARCs have principal payments which are guaranteed by the
federal government. At December 31, 2013, all ARCs were current and making scheduled interest payments.
Corporate Debt Securities
The Corporation holds corporate debt securities in the form of pooled trust preferred securities, single-issuer trust preferred
securities and subordinated debt issued by financial institutions, as presented in the following table as of December 31, 2013:
Amortized
Cost
Estimated
Fair Value
Single-issuer trust preferred securities................................................................................................ $
Subordinated debt ...............................................................................................................................
Pooled trust preferred securities .........................................................................................................
Corporate debt securities issued by financial institutions.............................................................. $
$
(in thousands)
47,481
47,405
2,997
97,883
$
40,531
50,327
5,306
96,164
The fair values for pooled trust preferred securities and certain single-issuer trust preferred securities were based on quotes provided
by third-party brokers who determined fair values based predominantly on internal valuation models which were not indicative
prices or binding offers.
The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $7.0 million as of December 31,
2013. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities in
2013, 2012 or 2011. The Corporation held six single-issuer trust preferred securities that were rated below investment grade by
at least one ratings agency, with an amortized cost of $13.5 million and an estimated fair value of $11.3 million as of December 31,
2013. The majority of the single-issuer trust preferred securities rated below investment grade were rated BB or Ba. Single-issuer
trust preferred securities with an amortized cost of $4.7 million and an estimated fair value of $3.8 million as of December 31,
2013 were not rated by any ratings agency.
The Corporation held eight pooled trust preferred securities as of December 31, 2013. Each of these securities, with a total amortized
cost of $3.0 million and an estimated fair value of $5.3 million, were rated below investment grade by at least one ratings agency,
with ratings ranging from C to Ca. For each of these securities, the class of securities held by the Corporation was below the most
senior tranche, with the Corporation’s interests being subordinate to other investors in the pool.
The amortized cost of pooled trust preferred securities is the purchase price of the securities, net of cumulative credit related other-
than-temporary impairment charges, determined using an expected cash flow model. The most significant input to the expected
cash flow model is the expected payment deferral rate for each pooled trust preferred security. The Corporation evaluates the
financial metrics, such as capital ratios and non-performing asset ratios, of the individual financial institution issuers that comprise
each pooled trust preferred security to estimate its expected deferral rate.
During 2013, the Corporation recorded $97,000 of other-than-temporary impairment charges for pooled trust preferred securities.
Additional impairment charges for corporate debt securities issued by financial institutions may be necessary in the future depending
upon the performance of the individual investments.
60
See Note C, "Investment Securities," in the Notes to Consolidated Financial Statements for further discussion related to the
Corporation’s other-than-temporary impairment evaluations for debt securities, and see Note R, "Fair Value Measurements," in
the Notes to Consolidated Financial Statements for further discussion related to the fair values of debt securities.
Interest Rate Risk, Asset/Liability Management and Liquidity
Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Corporation’s liquidity
position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create
fluctuations in the Corporation’s net interest income and changes in the economic value of its equity.
The Corporation employs various management techniques to minimize its exposure to interest rate risk. An Asset/Liability
Management Committee (ALCO), consisting of key financial and senior management personnel, meets on a regular basis. The
ALCO is responsible for reviewing the interest rate sensitivity and liquidity positions of the Corporation, approving asset and
liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions.
From a liquidity standpoint, the Corporation must maintain a sufficient level of liquid assets to meet the cash needs of its customers,
who, as depositors, may want to withdraw funds or who, as borrowers, need credit availability. Liquidity is provided on a continuous
basis through scheduled and unscheduled principal and interest payments on outstanding loans and investments and through the
availability of deposits and borrowings. The Corporation also maintains secondary sources that provide liquidity on a secured and
unsecured basis to meet short-term and long-term needs.
The consolidated statements of cash flows provide details related to the sources and uses of cash. The Corporation generated
$301.6 million in cash from operating activities during 2013, mainly due to net income, as adjusted for non-cash charges, including
the provision for credit losses and depreciation and amortization. Also contributing to the increase in cash from operating activities
was the proceeds received from the sales of mortgage loans in excess of cash used from originations. Investing activities resulted
in a net cash outflow of $598.7 million in 2013 due mainly to a net increase in loans. Financing activities resulted in a net cash
inflow of $259.4 million in 2013 due to a net increase in demand and savings deposits and short-term borrowings, partially offset
by cash outflows from a decrease in time deposits, acquisitions of treasury stock and dividends paid to shareholders.
Liquidity must also be managed at the Fulton Financial Corporation parent company level. For safety and soundness reasons,
banking regulations limit the amount of cash that can be transferred from subsidiary banks to the parent company in the form of
loans and dividends. Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income.
The Corporation meets its cash needs mainly through dividends from subsidiary banks. Secondary sources of liquidity include
loans from subsidiary banks and external borrowings. Management continuously monitors liquidity and capital needs and will
implement appropriate strategies, as necessary, to meet regulatory and business requirements.
As of December 31, 2013, liquid assets (defined as cash and due from banks, short-term investments, deposits in other financial
institutions, Federal funds sold, loans held for sale and securities available for sale) totaled $2.8 billion, or 16.6% of total assets,
as compared to $3.0 billion, or 18.4% of total assets, as of December 31, 2012.
61
The following table presents the expected maturities of available for sale investment securities, at estimated fair value, as of
December 31, 2013 and the weighted average yields of such securities (calculated based on historical cost):
MATURING
Within One Year
Yield
Amount
After One But
Within Five Years
Yield
Amount
After Five But
Within Ten Years
Yield
Amount
(dollars in thousands)
— —% $
After Ten Years
Yield
Amount
— —% $
— —%
U.S. Government securities.................... $
U.S. Government sponsored agency
securities .............................................
525
0.14% $
— —
State and municipal (1) ..........................
30,666
2.47
Auction rate securities (2) ......................
Corporate debt securities ........................
— —
655
2.43
106
22,867
1.49
5.40
46
196,629
1.37
5.49
— —
— —
44,338
4.39
6,089
3.70
574
34,687
159,274
47,667
0.81
6.62
1.69
2.58
Total................................................. $
31,846
2.43% $ 67,311
4.73% $ 202,764
5.43% $ 242,202
2.52%
Collateralized mortgage obligations (3) . $1,032,398
Mortgage-backed securities (3) .............. $ 945,712
1.94%
2.61%
(1) Weighted average yields on tax-exempt securities have been computed on a fully taxable-equivalent basis assuming a tax rate of 35% and statutory interest
expense disallowances.
(2) Maturities of auction rate securities are based on contractual maturities.
(3) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the
underlying loans. For the purpose of this table, all balances and weighted average rates are shown in one period. As of December 31, 2013, the weighted
average remaining lives of collateralized mortgage obligations and mortgage-backed securities were four and five years, respectively.
The Corporation’s investment portfolio consists mainly of mortgage-backed securities and collateralized mortgage obligations
which have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows
from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the
level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease.
As rates decrease, cash flows generally increase as prepayments increase.
The following table presents the approximate contractual maturity and interest rate sensitivity of certain loan types subject to
changes in interest rates as of December 31, 2013:
One Year
or Less
One
Through
Five Years
More Than
Five Years
Total
(in thousands)
Commercial, financial and agricultural:
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
Real estate – mortgage (1):
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
Real estate – construction:
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
897,277
284,302
1,181,579
1,118,712
487,132
1,605,844
174,792
73,449
248,241
$
$
$
$
$
$
1,700,557
259,979
1,960,536
3,066,632
955,488
4,022,120
154,676
23,977
178,653
$
$
$
$
$
$
406,505
79,800
486,305
1,906,593
668,942
2,575,535
103,481
43,297
146,778
$
$
$
$
$
$
3,004,339
624,081
3,628,420
6,091,937
2,111,562
8,203,499
432,949
140,723
573,672
(1)
Includes commercial mortgages, residential mortgages and home equity loans.
62
Contractual maturities of time deposits of $100,000 or more outstanding as of December 31, 2013 were as follows (in thousands):
Three months or less ................................................................................................................................................ $
Over three through six months .................................................................................................................................
Over six through twelve months ..............................................................................................................................
Over twelve months .................................................................................................................................................
199,590
200,869
314,840
375,378
Total................................................................................................................................................................... $ 1,090,677
The Corporation maintains liquidity sources in the form of demand and savings deposits, time deposits, repurchase agreements
and short-term promissory notes. Additional liquidity can generally be obtained from these sources, if necessary, by increasing
interest rates. The positive impact to liquidity resulting from higher interest rates could have a detrimental impact on the net interest
margin and net income if rates on interest-earning assets do not have a corresponding increase.
Borrowing availability with the FHLB and Federal Reserve Bank, along with Federal funds lines at various correspondent banks,
provides the Corporation with additional liquidity.
Each of the Corporation’s subsidiary banks is a member of the FHLB and has access to FHLB overnight and term credit facilities.
As of December 31, 2013, the Corporation had $513.9 million of term advances outstanding from the FHLB with an additional
borrowing capacity of approximately $1.7 billion under these facilities. Advances from the FHLB are secured by FHLB stock,
qualifying residential mortgages, investments and other assets.
As of December 31, 2013, the Corporation had aggregate availability under Federal funds lines of $1.6 billion, with $582.4 million
of that amount outstanding. A combination of commercial real estate loans, commercial loans and securities are pledged to the
Federal Reserve Bank of Philadelphia to provide access to Federal Reserve Bank Discount Window borrowings. As of December 31,
2013 and 2012, the Corporation had $2.0 billion of collateralized borrowing availability at the Discount Window, and no outstanding
borrowings.
63
The following table provides information about the Corporation's interest rate sensitive financial instruments as of December 31,
2013. The table presents expected cash flows and weighted average rates for each of the Corporation’s significant interest rate
sensitive financial instruments, by expected maturity period. None of the Corporation's financial instruments are classified as
trading. All dollars amounts are in thousands.
2014
2015
2016
2017
2018
Beyond
Total
Expected Maturity Period
Estimated
Fair Value
Fixed rate loans (1) ..................... $1,041,701
$ 504,759
$ 375,127
$ 366,056
$ 226,072
$ 696,610
$ 3,210,325
$ 3,204,624
Average rate .......................
3.97%
4.52%
4.37%
4.60%
4.21%
4.05%
4.21%
Floating rate loans (1) (2) ...........
2,195,289
1,421,509
1,154,186
989,919
1,390,154
2,416,793
9,567,850
9,480,105
Average rate .......................
3.83%
4.09%
4.10%
4.08%
3.89%
4.08%
4.00%
Fixed rate investments (3)...........
387,362
308,732
261,873
242,972
197,245
951,845
2,350,029
2,316,771
Average rate .......................
2.55%
2.63%
2.64%
Floating rate investments (3) ......
Average rate .......................
—
—
48
177,246
1.39%
2.15%
Other interest-earning assets (4) .
185,339
Average rate .......................
0.13%
Total............................................ $3,809,691
—
—
—
—
2.80%
4,955
0.92%
—
—
2.72%
59
2.18%
—
—
2.86%
2.74%
41,951
224,259
205,462
1.48%
2.00%
—
—
185,339
241,811
0.09%
$2,235,048
$1,968,432
$1,603,902
$1,813,530
$4,107,199
$ 15,537,802
$15,448,773
Average rate......................
3.56%
3.98%
3.78%
4.00%
3.80%
3.69%
3.75%
Fixed rate deposits (5)................. $1,533,182
$ 526,686
$ 251,262
$
93,414
$
64,926
$
29,554
$ 2,499,024
$ 2,512,388
Average rate .......................
0.63%
1.32%
1.21%
1.40%
1.58%
1.83%
0.90%
Floating rate deposits (6) ............
4,812,438
714,534
380,373
347,505
328,339
125,801
6,708,990
6,705,078
Average rate .......................
0.08%
0.05%
0.05%
0.06%
Fixed rate borrowings (7)............
7,542
145,725
236,595
315,494
Average rate .......................
4.71%
4.60%
4.00%
4.85%
Floating rate borrowings (8) .......
1,258,629
Average rate .......................
0.10%
Total............................................ $7,611,791
—
—
—
—
—
—
0.06%
518
4.68%
—
—
0.10%
0.07%
161,214
867,088
866,949
6.18%
4.82%
16,496
1,275,125
1,267,664
2.38%
0.13%
$1,386,945
$ 868,230
$ 756,413
$ 393,783
$ 333,065
$ 11,350,227
$11,352,079
Average rate......................
0.20%
1.01%
1.46%
2.23%
0.32%
3.31%
0.63%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Amounts are based on contractual payments and maturities, adjusted for expected prepayments. Excludes $4.0 million of overdraft balances.
Line of credit amounts are based on historical cash flow assumptions, with an average life of approximately 5 years.
Amounts are based on contractual maturities; adjusted for expected prepayments on mortgage-backed securities and collateralized mortgage obligations
and expected calls on agency and municipal securities. Excludes equity securities, as such investments do not have maturity dates.
Excludes Federal Reserve Bank and FHLB stock as such restricted investments do not have maturity dates.
Amounts are based on contractual maturities of time deposits.
Estimated based on history of deposit flows.
Amounts are based on contractual maturities of debt instruments, adjusted for possible calls. Amounts also include junior subordinated deferrable
interest debentures.
Amounts include Federal funds purchased, short-term promissory notes and securities sold under agreements to repurchase, which mature in less than
90 days, in addition to junior subordinated deferrable interest debentures.
The preceding table and discussion addressed the liquidity implications of interest rate risk and focused on expected cash flows
from financial instruments. Expected maturities, however, do not necessarily reflect the net interest income impact of interest rate
changes. Certain financial instruments, such as adjustable rate loans, have repricing periods that differ from expected cash flow
periods.
Included within the $9.6 billion of floating rate loans above are $3.7 billion of loans, or 39.0% of the total, that float with the prime
interest rate, $1.7 billion, or 17.6%, of loans which float with other interest rates, primarily the London Interbank Offered Rate
(LIBOR), and $4.2 billion, or 43.4%, of adjustable rate loans. The $4.2 billion of adjustable rate loans include loans that are fixed
rate instruments for a certain period of time, and then convert to floating rates.
64
The following table presents the percentage of adjustable rate loans, as of December 31, 2013, stratified by the period until their
next repricing:
Fixed Rate Term
One year...............................................................................................................................................................................
Two years.............................................................................................................................................................................
Three years...........................................................................................................................................................................
Four years ............................................................................................................................................................................
Five years.............................................................................................................................................................................
Greater than five years.........................................................................................................................................................
Percent of Total
Adjustable Rate
Loans
30.1%
17.1
16.0
13.5
14.1
9.2
As of December 31, 2013, approximately $5.8 billion of loans had interest rate floors, with approximately $3.1 billion priced at
their interest rate floor. Of this total, approximately $3.0 billion are scheduled to reprice during the next twelve months. The
weighted average interest rate increase that would be necessary for these loans to begin repricing to higher rates was approximately
0.64%.
The Corporation uses three complementary methods to measure and manage interest rate risk. They are static gap analysis,
simulation of net interest income, and estimates of economic value of equity. Using these measurements in tandem provides a
reasonably comprehensive summary of the magnitude of the Corporation's interest rate risk, level of risk as time evolves, and
exposure to changes in interest rates.
Static gap provides a measurement of repricing risk in the Corporation’s balance sheet as of a point in time. This measurement is
accomplished through stratification of the Corporation’s assets and liabilities into repricing periods. The sum of assets and liabilities
in each of these periods are compared for mismatches within that maturity segment. Core deposits having no contractual maturities
are placed into repricing periods based upon historical balance performance. Repricing for mortgage loans, mortgage-backed
securities and collateralized mortgage obligations is based upon industry projections for prepayment speeds. The Corporation’s
policy limits the cumulative six-month ratio of rate sensitive assets to rate sensitive liabilities (RSA/RSL) to a range of 0.85 to
1.15. As of December 31, 2013, the cumulative six-month ratio of RSA/RSL was 1.05.
Simulation of net interest income is performed for the next twelve-month period. A variety of interest rate scenarios are used to
measure the effects of sudden and gradual movements upward and downward in the yield curve. These results are compared to
the results obtained in a flat or unchanged interest rate scenario. Simulation of net interest income is used primarily to measure
the Corporation’s short-term earnings exposure to rate movements. The Corporation’s policy limits the potential exposure of net
interest income, in a non-parallel instantaneous shock, to 10% of the base case net interest income for a 100 basis point shock in
interest rates, 15% for a 200 basis point shock and 20% for a 300 basis point shock. A "shock" is an immediate upward or downward
movement of interest rates. The shocks do not take into account changes in customer behavior that could result in changes to mix
and/or volumes in the balance sheet, nor do they account for competitive pricing over the forward 12-month period.
The following table summarizes the expected impact of interest rate shocks on net interest income (due to the current level of
interest rates, the 200 and 300 basis point downward shock scenarios are not shown):
Rate Shock (1)
+300 bp ...............................................................................................................
+200 bp ...............................................................................................................
+100 bp ...............................................................................................................
–100 bp ...............................................................................................................
Annual change
in net interest income
+ $37.7 million
+ $22.0 million
+ $ 6.5 million
– $19.1 million
% Change
+ 7.4%
+ 4.3%
+ 1.3%
– 3.7%
(1) These results include the effect of implicit and explicit floors that limit further reduction in interest rates.
Economic value of equity estimates the discounted present value of asset cash flows and liability cash flows. Discount rates are
based upon market prices for like assets and liabilities. Upward and downward shocks of interest rates are used to determine the
comparative effect of such interest rate movements relative to the unchanged environment. This measurement tool is used primarily
to evaluate the longer-term repricing risks and options in the Corporation’s balance sheet. The Corporation's policy limits the
economic value of equity that may be at risk, in a non-parallel instantaneous shock, to 10% of the base case economic value of
equity for a 100 basis point shock in interest rates, 20% for a 200 basis point shock and 30% for a 300 basis point shock. As of
December 31, 2013, the Corporation was within economic value of equity policy limits for every 100 basis point shock.
65
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share data)
Assets
Cash and due from banks............................................................................................................ $
Interest-bearing deposits with other banks .................................................................................
Federal Reserve Bank and Federal Home Loan Bank stock ......................................................
Loans held for sale......................................................................................................................
Investment securities:
December 31
2013
2012
$
218,540
163,988
84,173
21,351
256,300
173,257
71,702
67,899
Held to maturity (estimated fair value of $319 in 2012) .....................................................
Available for sale.................................................................................................................
Loans, net of unearned income...................................................................................................
Allowance for loan losses...........................................................................................................
Net Loans......................................................................................................................
Premises and equipment .............................................................................................................
Accrued interest receivable.........................................................................................................
Goodwill and intangible assets ...................................................................................................
Other assets.................................................................................................................................
—
2,568,434
12,782,220
(202,780)
12,579,440
226,021
44,037
533,076
495,574
Total Assets................................................................................................................... $ 16,934,634
292
2,720,790
12,146,971
(223,903)
11,923,068
227,723
45,786
535,563
510,717
$ 16,533,097
Liabilities
Deposits:
Noninterest-bearing ............................................................................................................. $
Interest-bearing....................................................................................................................
Total Deposits...............................................................................................................
3,283,172
9,208,014
12,491,186
$
3,009,966
9,474,197
12,484,163
Short-term borrowings:
Federal funds purchased ......................................................................................................
Other short-term borrowings ...............................................................................................
Total Short-Term Borrowings.......................................................................................
Accrued interest payable.............................................................................................................
Other liabilities ...........................................................................................................................
Federal Home Loan Bank advances and long-term debt............................................................
Total Liabilities.............................................................................................................
Shareholders’ Equity
Common stock, $2.50 par value, 600 million shares authorized, 217.8 million shares issued
582,436
676,193
1,258,629
15,218
222,830
883,584
14,871,447
592,470
275,929
868,399
19,330
185,296
894,253
14,451,441
in 2013 and 216.8 million shares issued in 2012.................................................................
Additional paid-in capital ...........................................................................................................
Retained earnings........................................................................................................................
Accumulated other comprehensive (loss) income......................................................................
Treasury stock, 25.2 million shares in 2013 and 17.6 million shares in 2012............................
544,568
1,432,974
463,843
(37,341)
(340,857)
2,063,187
Total Shareholders’ Equity...........................................................................................
Total Liabilities and Shareholders’ Equity................................................................... $ 16,934,634
542,093
1,426,267
363,937
5,675
(256,316)
2,081,656
$ 16,533,097
See Notes to Consolidated Financial Statements
66
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share data)
Interest Income
Loans, including fees ..................................................................................................................... $
Investment securities:
2013
2012
2011
540,667
$
564,616
$
596,390
Taxable...................................................................................................................................
Tax-exempt ............................................................................................................................
Dividends ...............................................................................................................................
Loans held for sale .........................................................................................................................
Other interest income.....................................................................................................................
Total Interest Income...........................................................................................
Interest Expense
Deposits..........................................................................................................................................
Short-term borrowings ...................................................................................................................
Long-term debt...............................................................................................................................
Total Interest Expense.........................................................................................
Net Interest Income .............................................................................................
Provision for credit losses..............................................................................................................
Net Interest Income After Provision for Credit Losses........................................
Non-Interest Income
Service charges on deposit accounts..............................................................................................
Investment management and trust services....................................................................................
Other service charges and fees.......................................................................................................
Mortgage banking income .............................................................................................................
Gain on sale of Global Exchange...................................................................................................
Other ..............................................................................................................................................
Investment securities gains, net:
Other-than-temporary impairment losses ..............................................................................
Less: Portion of loss (gain) recognized in other comprehensive loss (before taxes).............
Net other-than-temporary impairment losses.................................................................
Net gains on sales of investment securities............................................................................
Investment securities gains, net .....................................................................................................
Total Non-Interest Income...................................................................................
Non-Interest Expense
Salaries and employee benefits......................................................................................................
Net occupancy expense..................................................................................................................
Other outside services ....................................................................................................................
Data processing..............................................................................................................................
Equipment expense ........................................................................................................................
Professional fees ............................................................................................................................
FDIC insurance expense ................................................................................................................
Software .........................................................................................................................................
Operating risk loss .........................................................................................................................
Marketing.......................................................................................................................................
Other real estate owned and repossession expense........................................................................
Telecommunications ......................................................................................................................
Intangible amortization ..................................................................................................................
FHLB advances prepayment penalty .............................................................................................
Other ..............................................................................................................................................
Total Non-Interest Expense.................................................................................
Income Before Income Taxes...............................................................................
Income taxes ..................................................................................................................................
Net Income........................................................................................................... $
54,321
9,475
1,411
1,551
2,264
609,689
36,770
2,420
43,305
82,495
527,194
40,500
486,694
55,470
41,706
36,957
30,656
—
14,871
(202)
78
(124)
8,128
8,004
187,664
253,240
46,944
18,856
16,555
15,419
13,150
11,605
11,560
9,290
7,705
7,364
7,362
2,438
—
39,945
461,433
212,925
51,085
161,840
Per Share:
Net Income (Basic) ........................................................................................................................ $
Net Income (Diluted) .....................................................................................................................
Cash Dividends ..............................................................................................................................
0.84
0.83
0.32
$
$
67,349
10,362
1,275
2,064
1,830
647,496
56,895
1,068
45,205
103,168
544,328
94,000
450,328
61,502
38,239
44,345
44,600
6,215
18,485
(1,107)
298
(809)
3,835
3,026
216,412
243,915
44,663
17,752
14,936
14,243
11,522
11,996
9,520
9,454
8,240
11,182
6,884
3,031
3,007
38,949
449,294
217,446
57,601
159,845
0.80
0.80
0.30
$
$
80,184
12,039
1,284
1,958
1,843
693,698
83,083
746
49,709
133,538
560,160
135,000
425,160
58,078
36,483
47,482
25,674
—
15,215
(1,997)
(913)
(2,910)
7,471
4,561
187,493
227,435
44,003
10,421
13,544
12,870
12,159
14,480
8,400
1,328
9,667
9,578
8,119
4,257
—
39,981
416,242
196,411
50,838
145,573
0.73
0.73
0.20
See Notes to Consolidated Financial Statements
67
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
2013
2012
2011
Net Income..............................................................................................................................................
$ 161,840
$ 159,845
$ 145,573
Other Comprehensive Income (Loss), net of tax:...................................................................................
Unrealized (loss) gain on securities...................................................................................................
(49,607)
1,569
8,768
Reclassification adjustment for securities gains included in net income ..........................................
(5,203)
(1,967)
(2,964)
Non-credit related unrealized gain on other-than-temporarily impaired debt securities...................
Unrealized gain on derivative financial instruments .........................................................................
Unrecognized pension and postretirement income (cost) .................................................................
Amortization (accretion) of net unrecognized pension and postretirement income (cost) ...............
1,977
136
8,369
1,312
1,330
136
240
136
(4,207)
(10,672)
859
(48)
Other Comprehensive Loss ..........................................................................................................
(43,016)
(2,280)
(4,540)
Total Comprehensive Income.......................................................................................................
$ 118,824
$ 157,565
$ 141,033
See Notes to Consolidated Financial Statements
68
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share data)
Common Stock
Shares
Outstanding
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Balance at December 31, 2010......................................
199,050
$
538,492
$
1,420,127
$
158,453
$
12,495
$
(249,178)
$
1,880,389
Net income..............................................................
Other comprehensive loss.......................................
Stock issued, including related tax benefits ...........
1,114
1,894
Stock-based compensation awards .........................
Common stock cash dividends - $0.20 per share ...
(649)
4,249
145,573
(39,967)
(4,540)
5,590
145,573
(4,540)
6,835
4,249
(39,967)
Balance at December 31, 2011......................................
200,164
$
540,386
$
1,423,727
$
264,059
$
7,955
$
(243,588)
$
1,992,539
Net income..............................................................
Other comprehensive loss.......................................
159,845
(2,280)
Stock issued, including related tax benefits ...........
1,176
1,707
Stock-based compensation awards .........................
Acquisition of treasury stock
..................................
(2,115)
Common stock cash dividends - $0.30 per share ...
(2,294)
4,834
(59,967)
7,631
(20,359)
159,845
(2,280)
7,044
4,834
(20,359)
(59,967)
Balance at December 31, 2012......................................
199,225
$
542,093
$
1,426,267
$
363,937
$
5,675
$
(256,316)
$
2,081,656
Net income..............................................................
Other comprehensive loss.......................................
161,840
(43,016)
Stock issued, including related tax benefits ...........
1,427
2,475
Stock-based compensation awards .........................
Acquisition of treasury stock..................................
(8,000)
Common stock cash dividends - $0.32 per share ...
1,377
5,330
(61,934)
6,386
(90,927)
161,840
(43,016)
10,238
5,330
(90,927)
(61,934)
Balance at December 31, 2013......................................
192,652
$
544,568
$
1,432,974
$
463,843
$
(37,341)
$
(340,857)
$
2,063,187
See Notes to Consolidated Financial Statements
69
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................................................................................. $
Adjustments to reconcile net income to net cash provided by operating activities:
161,840
$
159,845
$
145,573
2013
2012
2011
Provision for credit losses ...................................................................................
Depreciation and amortization of premises and equipment ................................
Net amortization of investment security premiums ............................................
Deferred income tax expense ..............................................................................
Investment securities gains, net...........................................................................
Gains on sales of mortgage loans........................................................................
Proceeds from sales of mortgage loans held for sale ..........................................
Originations of mortgage loans held for sale ......................................................
Amortization of intangible assets........................................................................
Gain on sale of Global Exchange........................................................................
Stock-based compensation ..................................................................................
Excess tax benefits from stock-based compensation ..........................................
Decrease in accrued interest receivable ..............................................................
Decrease in other assets.......................................................................................
Decrease in accrued interest payable ..................................................................
Decrease in other liabilities .................................................................................
Total adjustments......................................................................................
Net cash provided by operating activities ................................................
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ............................................
Proceeds from maturities of securities held to maturity......................................
Proceeds from maturities of securities available for sale....................................
Purchase of securities held to maturity ...............................................................
Purchase of securities available for sale..............................................................
(Increase) decrease in short-term investments ....................................................
Net cash received from sale of Global Exchange ...............................................
Net increase in loans ...........................................................................................
Net purchases of premises and equipment ..........................................................
Net cash used in investing activities .........................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits .....................................................
Net decrease in time deposits ..............................................................................
Increase (decrease) in short-term borrowings .....................................................
Additions to long-term debt ................................................................................
Repayments of long-term debt ............................................................................
Net proceeds from issuance of common stock....................................................
Excess tax benefits from stock-based compensation ..........................................
Dividends paid.....................................................................................................
Acquisition of treasury stock...............................................................................
Net cash provided by (used in) financing activities..................................
Net (Decrease) Increase in Cash and Due From Banks ..............................................
Cash and Due From Banks at Beginning of Year........................................................
Cash and Due From Banks at End of Year.................................................................. $
Supplemental Disclosures of Cash Flow Information
Cash paid during period for:
40,500
25,911
10,002
11,825
(8,004)
(24,609)
1,424,896
(1,353,739)
2,438
—
5,330
(302)
1,749
37,236
(4,112)
(29,344)
139,777
301,617
267,023
103
637,851
—
(776,352)
(3,202)
—
(699,961)
(24,209)
(598,747)
472,439
(465,416)
390,230
—
(10,669)
9,936
302
(46,525)
(90,927)
259,370
(37,760)
256,300
218,540
Interest................................................................................................................. $
Income taxes........................................................................................................
86,607
32,605
See Notes to Consolidated Financial Statements
94,000
22,575
12,151
17,007
(3,026)
(46,310)
1,825,562
(1,800,142)
3,031
(6,215)
4,834
(39)
5,312
15,791
(6,356)
(3,508)
134,667
294,512
244,312
390
878,721
(346)
(1,127,394)
12,853
11,834
(302,486)
(38,024)
(320,140)
579,759
(630,612)
271,366
5,700
(151,596)
7,005
39
(71,972)
(20,359)
(10,670)
(36,298)
292,598
256,300
109,524
30,985
$
$
135,000
21,081
6,022
4,378
(4,561)
(22,207)
1,228,668
(1,160,516)
4,257
—
4,249
—
2,743
32,581
(7,647)
(18,427)
225,621
371,194
427,934
454
667,171
(29)
(984,172)
(128,106)
—
(190,101)
(25,339)
(232,188)
754,392
(616,018)
(77,044)
25,000
(104,610)
6,835
—
(33,917)
—
(45,362)
93,644
198,954
292,598
141,185
20,920
$
$
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: Fulton Financial Corporation (Parent Company) is a multi-bank financial holding company which provides a full range
of banking and financial services to businesses and consumers through its six wholly owned banking subsidiaries: Fulton Bank,
N.A., Fulton Bank of New Jersey, The Columbia Bank, Lafayette Ambassador Bank, FNB Bank, N.A. and Swineford National
Bank. In addition, the Parent Company owns the following non-bank subsidiaries: Fulton Reinsurance Company, LTD, Fulton
Financial Realty Company, Central Pennsylvania Financial Corp., FFC Management, Inc., FFC Penn Square, Inc. and Fulton
Insurance Services Group, Inc. Collectively, the Parent Company and its subsidiaries are referred to as the Corporation.
The Corporation’s primary sources of revenue are interest income on loans and investment securities and fee income 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 geographical market as a result of the
growth in electronic delivery systems. The Corporation is subject to the regulations of certain Federal and state agencies and
undergoes periodic examinations by such regulatory authorities.
The Corporation offers, through its banking subsidiaries, a full range of retail and commercial banking services in Pennsylvania,
Delaware, Maryland, New Jersey and Virginia. Industry diversity is the key to the economic well-being of these markets, and the
Corporation is not dependent upon any single customer or industry.
Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States (U.S. 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 U.S. 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 Securities and Exchange
Commission (SEC).
Federal Reserve Bank and Federal Home Loan Bank (FHLB) Stock: Certain of the Corporation's wholly owned banking
subsidiaries are members of the Federal Reserve Bank and FHLB and are 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 held to maturity 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 and all marketable equity securities
are classified as available for sale. Securities available for sale are carried at estimated fair value with the related unrealized holding
gains and losses reported in shareholders’ equity as a component of other comprehensive income, net of tax. Realized securities
gains and losses are computed using the specific identification method and are recorded on a trade date basis.
Securities are evaluated periodically to determine whether declines in value are other-than-temporary. For its investments in equity
securities, most notably its investments in stocks of financial institutions, the Corporation evaluates the near-term prospects of the
issuers in relation to the severity and duration of the impairment. Equity securities with fair values less than cost are considered
to be other-than-temporarily impaired if the Corporation does not have the ability and intent to hold the investments for a reasonable
period of time that would be sufficient for a recovery of fair value.
Impaired debt securities are determined to be other-than-temporarily impaired if the Corporation concludes at the balance sheet
date that it has the intent to sell, or believes it will more likely than not be required to sell, an impaired debt security before a
recovery of its amortized cost basis. Credit losses on other-than-temporarily impaired debt securities are recorded through earnings,
regardless of the intent or the requirement to sell. Credit loss is measured as the difference between the present value of an impaired
debt security’s expected cash flows and its amortized cost. Non-credit related other-than-temporary impairment charges are recorded
71
as decreases to accumulated other comprehensive income as long as the Corporation has no intent or expected requirement to sell
the impaired debt security before a recovery of its amortized cost basis.
Loans and Revenue Recognition: Loan and lease financing receivables are stated at their principal amount outstanding, except
for mortgage loans held for sale, which are carried at fair value, as detailed below. Interest income on loans is accrued as earned.
Unearned income on lease financing receivables is recognized on a basis which approximates the effective yield method. Premiums
and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.
In general, a loan is placed on non-accrual status once it becomes 90 days delinquent as to principal or interest. In certain cases a
loan may be placed on non-accrual status prior to being 90 days delinquent if there is an indication that the borrower is having
difficulty making payments, or the Corporation believes it is probable that all amounts will not be collected according to the
contractual terms of the loan agreement. When interest accruals are discontinued, unpaid interest previously credited to income
is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently
for six consecutive months or the loan is considered secured and in the process of collection. The Corporation generally applies
payments received on non-accruing loans to principal until such time as the principal is paid off, after which time any payments
received are recognized as interest income. If the Corporation believes that all amounts outstanding on a non-accrual loan will
ultimately be collected, payments received subsequent to its classification as a non-accrual loan are allocated between interest
income and principal.
A loan that is 90 days delinquent may continue to accrue interest if the loan is both adequately secured and is in the process of
collection. 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 and lease financing receivables deemed to be a loss are written off through a charge against the allowance for credit losses.
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. Principal
recoveries of loans previously charged off are recorded as increases to the allowance for credit losses. Past due status is determined
based on contractual due dates for loan payments.
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 generally using the effective yield method. For mortgage loans sold, the
net amount is included in the gain or loss on the sale of the related loan.
Troubled Debt Restructurings (TDRs): Loans whose terms are modified are classified as TDRs if the Corporation grants the
borrowers concessions and it is determined that those borrowers are experiencing financial difficulty. Concessions granted under
a TDR typically involve a temporary deferral of scheduled loan payments, an extension of a loan’s stated maturity date or a
reduction in the interest rate. Non-accrual TDRs can be restored to accrual status if principal and interest payments, under the
modified terms, are current for six consecutive months after modification.
Allowance for Credit Losses: The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded
lending commitments. The allowance for loan losses represents management’s estimate of incurred losses in the loan portfolio as
of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents
management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated
balance sheet. The allowance for credit losses is increased by charges to expense, through the provision for credit losses, and
decreased by charge-offs, net of recoveries. Management believes that the allowance for loan losses and the reserve for unfunded
lending commitments are adequate as of the balance sheet date; however, future changes to the allowance or reserve may be
necessary based on changes in any of the factors discussed in the following paragraphs.
Maintaining an adequate allowance for credit losses is dependent upon various factors, including the ability to identify potential
problem loans in a timely manner. 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 allowance for credit loss methodology for these loans, which bases the probability of default on this migration. Assigning
risk ratings involves judgment. Risk ratings are initially assigned to loans by loan officers and are reviewed on a regular basis by
credit administration staff. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Ratings
may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific
loan review activities identify a deterioration or an improvement in the loan.
72
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 constitute an undue and unwarranted 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 does not assign internal risk ratings for smaller balance, homogeneous loans, such as home equity, residential
mortgage, consumer, lease receivables and construction loans to individuals secured by residential real estate. For these loans, the
most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories
is a significant component of the allowance for credit loss methodology for these loans, which bases the probability of default on
this migration.
The Corporation’s allowance for loan losses includes: 1) specific allowances allocated to impaired loans evaluated for impairment
under the Financial Accounting Standards Board's Accounting Standards Codification (FASB ASC) Section 310-10-35; and 2)
allowances calculated for pools of loans measured for impairment under FASB ASC Subtopic 450-20.
A loan is considered to be impaired if it is probable that all amounts will not be collected according to the contractual terms of the
loan agreement. Impaired loans consist of all loans on non-accrual status and accruing TDRs. An allowance for loan losses is
established for an impaired loan if its carrying value exceeds its estimated fair value. Impaired loans to borrowers with total
outstanding loans greater than $1.0 million are evaluated individually for impairment. Impaired loans with to borrowers with total
outstanding loans less than $1.0 million are pooled and measured for impairment collectively.
All loans evaluated for impairment under FASB ASC Section 310-10-35 are measured for losses on a quarterly basis. As of
December 31, 2013 and 2012, substantially all of the Corporation’s impaired loans to borrowers with total outstanding loan
balances greater than $1.0 million were measured based on the estimated fair value of each loan’s collateral. Collateral could be
in the form of real estate, in the case of impaired commercial mortgages and construction loans, or business assets, such as accounts
receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by
real property.
For loans secured by real estate, estimated fair values are determined primarily through appraisals performed by certified third-
party appraisers, discounted to arrive at expected sale prices, net of estimated selling costs. When a real estate secured loan becomes
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;
environmental 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 third-party appraisals for impaired loans secured
predominately by real estate every 12 months.
As of December 31, 2013 and 2012, approximately 79% and 68%, respectively, of impaired loans with principal balances greater
than $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using third-party appraisals that
had been updated within the preceding 12 months.
When updated appraisals are not obtained for loans evaluated for impairment under FASB ASC Section 310-10-35 that are secured
by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated a strong
loan-to-value position and, in the opinion of the Corporation's internal loan evaluation staff, there has not been a significant
deterioration in the collateral value since the original appraisal was performed. Original appraisals are typically used only when
the estimated collateral value, as adjusted appropriately for the age of the appraisal, results in a current loan-to-value ratio that is
lower than the Corporation's loan-to-value requirements for new loans, generally less than 70%.
For impaired loans with principal balances greater than $1.0 million secured by non-real estate collateral, such as accounts receivable
or inventory, estimated fair values are determined based on borrower financial statements, inventory listings, accounts receivable
agings or borrowing base certificates. Indications of value from these sources are generally discounted based on the age of the
financial information or the quality of the assets. Liquidation or collection discounts are applied to these assets based upon existing
loan evaluation policies.
73
All loans not evaluated for impairment under FASB ASC Section 310-10-35 are evaluated for impairment under FASB ASC
Subtopic 450-20, using a pooled loss evaluation approach. In general, these loans include residential mortgages, home equity
loans, consumer loans, and lease receivables. Accruing commercial loans, commercial mortgages and construction loans are also
evaluated for impairment under FASB ASC Subtopic 450-20.
The Corporation segments its loan portfolio by general loan type, or "portfolio segments," as presented in the table under the
heading, "Loans, Net of Unearned Income," within Note D, "Loans and Allowance for Credit Losses." Certain portfolio segments
are further disaggregated and evaluated collectively for impairment based on "class segments," which are largely based on the
type of collateral underlying each loan. For commercial loans, class segments include loans secured by collateral and unsecured
loans. Construction loan class segments include loans secured by commercial real estate, loans to commercial borrowers secured
by residential real estate and loans to individuals secured by residential real estate. Consumer loan class segments are based on
collateral types and include direct consumer installment loans and indirect automobile loans.
The Corporation calculates allowance allocation needs for loans measured under FASB ASC Subtopic 450-20 through the following
procedures:
• The loans are segmented into pools with similar characteristics, as noted above. Commercial loans, commercial mortgages
and construction loans to commercial borrowers are further segmented into separate pools based on internally assigned
risk ratings. Residential mortgages, home equity loans, consumer loans, and lease receivables are further segmented into
separate pools based on delinquency status.
• A loss rate is calculated for each pool through a regression analysis of historical losses as loans migrate through the
various risk rating or delinquency categories. Estimated loss rates are based on a probability of default and a loss given
default.
• The loss rate is adjusted to consider qualitative factors, such as economic conditions and trends.
• The resulting adjusted loss rate is applied to the balance of the loans in the pool to arrive at the allowance allocation for
the pool.
The allocation of the allowance for credit losses is reviewed to evaluate its appropriateness in relation to the overall risk profile
of the loan portfolio. The Corporation considers risk factors such as: local and national economic conditions; trends in delinquencies
and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type. An unallocated
allowance is maintained for factors and conditions that exist at the balance sheet date, but are not specifically identifiable, and to
recognize the inherent imprecision in estimating and measuring loss exposure.
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, eight years for furniture and five years
for equipment. Leasehold improvements are amortized over the shorter of the useful life or the non-cancelable lease term. Interest
costs incurred during the construction of major bank premises are capitalized.
Other Real Estate Owned: Assets acquired in settlement of mortgage loan indebtedness are recorded as other real estate owned
(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 OREO and repossession expense on the consolidated statements of income.
Mortgage Servicing Rights: The estimated fair value of mortgage servicing rights (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
servicing 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 life 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, included
as a component of mortgage banking income on the consolidated statements of income. If subsequent valuations indicate that
impairment no longer exists, the valuation allowance is reduced through an increase to servicing income.
Derivative Financial Instruments: The Corporation manages its exposure to certain interest rate and foreign currency risks
through the use of derivatives. None of the Corporation's outstanding derivative contracts are designated as hedges and none are
entered into for speculative purposes. Derivative instruments are carried at fair value, with changes in fair values recognized in
earnings as components of non-interest income and non-interest expense on the consolidated statements of income.
74
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 appropriate.
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. Gross derivative assets and liabilities
are recorded within other assets and other liabilities, respectively, on the consolidated balance sheets, with changes in fair value
during the period recorded within mortgage banking income on the consolidated statements of income.
Interest Rate Swaps
The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk
management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical
notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the
Corporation receives a floating rate. These interest rate swaps are derivative financial instruments that are recorded at their fair
values within other assets and liabilities on the consolidated balance sheets. Changes in fair value during the period are recorded
within other non-interest expense on the consolidated statements of income.
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 future date at a contractual price. The Corporation offsets its foreign exchange
contract exposure with customers by entering into contracts with third-party correspondent financial institutions to mitigate its
exposure to fluctuations in foreign currency exchange rates. The Corporation also holds certain amounts of foreign currency with
international correspondent banks. The Corporation's policy limits the total net foreign currency open positions, which includes
all outstanding contracts and foreign account balances, to $500,000. Gross derivative assets and liabilities are recorded within
other assets and other liabilities, respectively, on the consolidated balance sheets, with changes in fair value during the period
recorded within other service charges and fees on the consolidated statements of income.
Balance Sheet Offsetting: Certain financial assets and liabilities may be eligible for offset on the consolidated balance sheets as
they are subject to master netting arrangements or similar agreements. The Corporation elects to not offset assets and liabilities
subject to such arrangements on the consolidated financial statements.
The Corporation is a party to interest rate swap transactions 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 swap agreements in the event of default.
The Corporation also enters into agreements with customers in which it sells securities subject to an obligation to repurchase the
same or similar securities, referred to as repurchase agreements. Under these agreements, the Corporation may transfer legal
control over the assets but still maintain effective control through agreements that both entitle and obligate the Corporation to
repurchase the assets. Therefore, repurchase agreements are reported as secured borrowings, classified within short-term
borrowings on the consolidated balance sheets, while the securities underlying the repurchase agreements remain classified with
investment securities on the consolidated balance sheets. The Corporation has no intention of setting off these amounts, therefore,
these repurchase agreements are not eligible for offset.
Fair Value Option: FASB ASC Subtopic 825-10 permits entities to measure many financial instruments and certain other items
at fair value and requires certain disclosures for items for which the fair value option is applied.
The Corporation has elected to measure mortgage loans held for sale at fair value to more accurately reflect the results of its
mortgage banking activities in its consolidated financial statements. Derivative financial instruments related to these activities are
also recorded at fair value, as detailed under the heading "Derivative Financial Instruments" above. 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 value during the period are
recorded as components of mortgage banking income on the consolidated statements of income. Interest income earned on mortgage
loans held for sale is classified within interest income on the consolidated statements of income.
75
Income Taxes: The provision for income taxes is based upon income before income taxes, adjusted primarily for the effect of
tax-exempt income, non-deductible expenses and credits received from investments in partnerships that generate such credits
under various federal programs (Tax Credit Investments). Certain items of income and expense are reported in different periods
for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the
deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the
financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate. The deferred
income tax provision or benefit is based on the changes in the deferred tax asset or liability from period to period.
The Corporation accounts for uncertain tax positions by applying a recognition threshold and measurement attribute for tax positions
taken or expected to be taken on a tax return. Recognition and measurement of tax positions is based on management’s evaluations
of relevant tax code and appropriate industry information about audit proceedings for comparable positions at other organizations.
Virtually all of the Corporation’s unrecognized tax benefits relate to 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 or through settlements of positions with the tax authorities.
Stock-Based Compensation: The Corporation grants equity awards to employees under its Amended and Restated Equity and
Cash Incentive Compensation Plan (Employee Option Plan). Such awards are in the form of stock options or restricted stock.
Employees may purchase shares of the Corporation’s common stock under the Corporation's Employee Stock Purchase Plan
(ESPP). The Corporation also grants stock or restricted stock to non-employee members of the board of directors under its 2011
Directors' Equity Participation Plan (Directors' Plan).
Compensation expense is equal to the fair value of the stock-based compensation awards, net of estimated forfeitures, and is
recognized over the vesting period of such awards. The vesting period represents the period during which employees are required
to provide service in exchange for such awards.
Stock option fair values are estimated through the use of the Black-Scholes valuation methodology as of the date of grant. Stock
options carry terms of up to ten years. Restricted stock fair values are equal to the average trading price of the Corporation’s stock
on the date of grant. Restricted stock awards earn dividends during the vesting period, which are forfeitable if the awards do not
vest. Stock options and restricted stock under the Employee Option Plan have historically been granted annually and become fully
vested over or after a three year period. Restricted stock awards granted under the Directors' Plan generally vest one year from
the date of grant. Certain events, as defined in the Employee Option Plan and the Directors' Plan, result in the acceleration of the
vesting of both stock options and restricted stock.
Net Income Per Share: Basic net income per common share is calculated as net income divided by the weighted average number
of shares outstanding.
Diluted net income per common share is calculated as net income 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 and restricted stock.
A reconciliation of weighted average common shares outstanding used to calculate basic and diluted net income per share follows:
Weighted average common shares outstanding (basic) ........................................
Impact of common stock equivalents....................................................................
Weighted average common shares outstanding (diluted)......................................
2013
193,334
1,020
194,354
2012
(in thousands)
199,067
972
200,039
2011
198,912
746
199,658
In 2013, 2012 and 2011, 3.6 million, 5.2 million and 5.2 million stock options, respectively, were excluded from the diluted earnings
per share computation as their effect would have been anti-dilutive.
Disclosures about Segments of an Enterprise and Related Information: The Corporation does not have any operating segments
which require disclosure of additional information. While the Corporation owns six separate banks, each engages in similar
activities, provides similar products and services, and operates in the same general geographical area. The Corporation’s non-
banking activities are immaterial and, therefore, separate information has not been disclosed.
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.
76
Business Combinations 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 tested for impairment at least annually. A quantitative annual impairment test is not
required if, based on a qualitative analysis, the Corporation determines that the existence of events and circumstances indicate
that it is more likely than not that goodwill is not impaired. 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
test of goodwill impairment as of October 31st of each year. If certain events occur which indicate goodwill might be impaired
between annual tests, goodwill must be tested when such events occur. Based on the results of its annual impairment test, the
Corporation concluded that there was no impairment in 2013, 2012 or 2011. See Note F, "Goodwill and Intangible Assets," for
additional details.
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 expense on the consolidated statements of income.
Variable Interest Entities: FASB ASC Topic 810 provides guidance on when to consolidate certain Variable Interest Entities
(VIE’s) in the financial statements of the Corporation. VIE’s 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 Parent Company owns all of the common stock of four subsidiary trusts, which have issued securities (Trust Preferred
Securities) in conjunction with the Parent Company issuing junior subordinated deferrable interest debentures to the trusts. The
terms of the junior subordinated deferrable interest debentures are the same as the terms of the Trust Preferred Securities. The
Parent Company’s obligations under the debentures constitute a full and unconditional guarantee by the Parent Company of the
obligations of the trusts. The provisions of FASB ASC Topic 810 related to subsidiary trusts, as interpreted by the SEC, disallow
consolidation of subsidiary trusts in the financial statements of the Corporation. As a result, Trust Preferred Securities are not
included on the Corporation’s consolidated balance sheets. The junior subordinated debentures issued by the Parent Company to
the subsidiary trusts, which have the same total balance and rate as the combined equity securities and Trust Preferred Securities
issued by the subsidiary trusts, remain in long-term debt. See Note I, "Short-Term Borrowings and Long-Term Debt," for additional
information.
The Corporation has made certain Tax Credit Investments under various Federal programs that promote investment in low and
moderate income housing and local economic development. Tax Credit Investments are amortized under the effective yield method
over the life of the Federal income tax credits generated as a result of such investments, generally six to ten years. As of December 31,
2013 and 2012, the Corporation’s Tax Credit Investments, included in other assets on the consolidated balance sheets, totaled
$169.6 million and $119.4 million, respectively. The net income tax benefit associated with these investments was $10.3 million,
$9.6 million and $8.5 million in 2013, 2012 and 2011, respectively. None of the Corporation’s Tax Credit Investments were
consolidated based on FASB ASC Topic 810 as of December 31, 2013 or 2012.
Fair Value Measurements: FASB ASC Topic 820 establishes 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 includes 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 R, "Fair Value Measurements," for additional details.
New Accounting Standards: In July 2013, the FASB issued Accounting Standards Update 2013-11, "Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists."
The provisions of ASC Update 2013-11 generally require an entity to present an unrecognized tax benefit, or a portion of an
77
unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward or a similar tax loss. ASC
Update 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. For the Corporation,
this standards update is effective with its March 31, 2014 quarterly report on Form 10-Q. The adoption of ASC Update 2013-11
is not expected to have a material impact on the Corporation's consolidated financial statements.
In December 2013, the FASB issued Accounting Standards Update 2013-12, "Definition of a Public Business Entity - An Addition
to the Master Glossary." ASC Update 2013-12 amends the Master Glossary of the FASB ASC to include one definition of public
business entity and identifies the types of business entities that are excluded from the scope of the FASB's private company decision-
making framework. ASC Update 2013-12 does not have an effective date, but the term "public business entity" will be used in all
future ASC updates. The Corporation meets the definition of a public business entity, and the adoption of ASC Update 2013-12
did not have a significant impact on the Corporation's consolidated financial statements.
In January 2014, the FASB issued Accounting Standards Update 2014-01, "Accounting for Investments in Qualified Affordable
Housing Projects." ASC Update 2014-01provides guidance on accounting for investments made by a reporting entity in flow-
through limited liability entities that manage or invest in affordable housing projects that qualify for the low income housing tax
credit. ASC Update 2014-01 is effective for public business entities' interim and annual reporting periods beginning after December
15, 2014. For the Corporation, this standards update is effective with its March 31, 2015 quarterly report on Form 10-Q. The
adoption of ASC Update 2014-01 is not expected to have a material impact on the Corporation's consolidated financial statements.
In January 2014, the FASB issued Accounting Standards Update 2014-04, "Reclassification of Residential Real Estate
Collateralized Consumer Mortgage Loans upon Foreclosure." ASC Update 2014-04 clarifies when an in substance repossession
or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property
recognized. ASC Update 2014-04 is effective for public business entities' interim and annual reporting periods beginning after
December 15, 2014. For the Corporation, this standards update is effective with its March 31, 2015 quarterly report on Form 10-
Q. The adoption of ASC Update 2014-04 is not expected to have a material impact on the Corporation's consolidated financial
statements.
Reclassifications: Certain amounts in the 2012 and 2011 consolidated financial statements and notes have been reclassified to
conform to the 2013 presentation.
NOTE B – RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation’s subsidiary banks are required to maintain reserves, in the form of cash and balances with the Federal Reserve
Bank, against their deposit liabilities. The amounts of such reserves as of December 31, 2013 and 2012 were $93.1 million and
$101.8 million, respectively.
78
NOTE C – INVESTMENT SECURITIES
The following tables present the amortized cost and estimated fair values of investment securities as of December 31:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(in thousands)
2013 Available for Sale
Equity securities .......................................................................... $
U.S. Government securities.........................................................
U.S. Government sponsored agency securities ...........................
State and municipal securities .....................................................
Corporate debt securities .............................................................
Collateralized mortgage obligations............................................
Mortgage-backed securities.........................................................
Auction rate securities .................................................................
33,922
525
720
281,810
100,468
1,069,138
949,328
172,299
$ 2,608,210
2012 Held to Maturity
Mortgage-backed securities......................................................... $
292
2012 Available for Sale
Equity securities .......................................................................... $
U.S. Government securities.........................................................
U.S. Government sponsored agency securities ...........................
State and municipal securities .....................................................
Corporate debt securities .............................................................
Collateralized mortgage obligations............................................
Mortgage-backed securities.........................................................
Auction rate securities .................................................................
45,530
325
2,376
301,842
112,162
1,195,234
847,790
174,026
$ 2,679,285
$
$
$
$
$
12,355
—
7
6,483
5,685
8,036
13,881
234
46,681
27
5,016
—
21
13,763
7,858
16,008
31,831
—
74,497
$
$
$
$
$
(76) $
46,201
525
—
(1)
726
(3,444)
284,849
(7,404)
98,749
(44,776)
1,032,398
(17,497)
945,712
(13,259)
159,274
(86,457) $ 2,568,434
— $
319
(918) $
49,628
325
—
2,397
—
(86)
315,519
(7,178)
112,842
(123)
1,211,119
879,621
—
(24,687)
149,339
(32,992) $ 2,720,790
Securities carried at $1.7 billion and $1.8 billion as of December 31, 2013 and 2012 were pledged as collateral to secure public
and trust deposits and customer repurchase agreements.
Available for sale equity securities include common stocks of financial institutions ($40.6 million at December 31, 2013 and $44.2
million at December 31, 2012) and other equity investments ($5.6 million at December 31, 2013 and $5.4 million at December 31,
2012).
As of December 31, 2013, the financial institutions stock portfolio had a cost basis of $28.5 million and a fair value of $40.6
million, including an investment in a single financial institution with a cost basis of $20.0 million and a fair value of $29.3 million.
This investment accounted for 72.1% of the Corporation's investments in the common stocks of publicly traded financial
institutions. No other investment in the financial institutions stock portfolio exceeded 5% of the portfolio's fair value.
79
The amortized cost and estimated fair value of debt securities as of December 31, 2013, by contractual maturity, are shown in the
following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized
Cost
Estimated
Fair Value
(in thousands)
Due in one year or less.................................................................................................................... $
Due from one year to five years .....................................................................................................
Due from five years to ten years.....................................................................................................
Due after ten years ..........................................................................................................................
Collateralized mortgage obligations ...............................................................................................
Mortgage-backed securities ............................................................................................................
31,717
63,649
200,862
259,594
555,822
1,069,138
949,328
$ 2,574,288
$
31,846
67,311
202,764
242,202
544,123
1,032,398
945,712
$ 2,522,233
The following table presents information related to gains and losses on the sales of equity and debt securities, and losses recognized
for other-than-temporary impairment of investments:
Gross
Realized
Gains
Gross
Realized
Losses
Other-
than-
temporary
Impairment
Losses
Net
Gains
(Losses)
(in thousands)
2013:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
2012:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
2011:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
3,787
4,391
8,178
1,215
2,620
3,835
835
6,655
7,490
$
$
$
$
$
$
(28) $
(22)
(50) $
— $
—
— $
— $
(19)
(19) $
(27) $
(97)
(124) $
(356) $
(453)
(809) $
(1,212) $
(1,698)
(2,910) $
3,732
4,272
8,004
859
2,167
3,026
(377)
4,938
4,561
The following table presents a summary of other-than-temporary impairment charges recorded as decreases to investment securities
gains on the consolidated statements of income, by investment security type:
Equity securities - financial institution stocks ...................................................... $
Pooled trust preferred securities............................................................................
Auction rate securities...........................................................................................
Total debt securities .......................................................................................
Total other-than-temporary impairment charges .................................... $
2013
2012
(in thousands)
356
$
19
434
453
809
$
$
$
27
97
—
97
124
2011
1,212
1,406
292
1,698
2,910
Other-than-temporary impairment charges related to financial institutions stocks were due to the severity and duration of the
declines in fair values of certain bank stock holdings, in conjunction with management’s evaluation of the near-term prospects of
each specific issuer. The credit related other-than-temporary impairment charges for debt securities were determined based on
expected cash flows models.
80
The following table presents changes in the cumulative credit related other-than-temporary impairment charges, recognized as
components of earnings, for debt securities still held by the Corporation at December 31:
Balance of cumulative credit losses on debt securities, beginning of year ........................ $ (23,079) $ (22,781) $ (27,560)
Additions for credit losses recorded which were not previously recognized as
components of earnings ..................................................................................................
Reductions for securities sold ............................................................................................
Reductions for increases in cash flows expected to be collected that are recognized
(97)
2,468
(453)
—
(1,698)
6,400
2013
2012
(in thousands)
2011
over the remaining life of the security............................................................................
77
Balance of cumulative credit losses on debt securities, end of year .................................. $ (20,691) $ (23,079) $ (22,781)
155
17
The following table presents 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, 2013:
Less Than 12 months
12 Months or Longer
Total
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
(in thousands)
— $
— $
48
$
(1) $
48
$
U.S. Government sponsored
agency securities................... $
State and municipal securities ..
Corporate debt securities ..........
Collateralized mortgage
obligations.............................
Mortgage-backed securities......
Auction rate securities ..............
57,360
7,473
732,774
669,546
—
(3,132)
(236)
(42,837)
(17,497)
—
Total debt securities...........
1,467,153
(63,702)
Equity securities .......................
—
—
3,203
37,642
21,070
—
157,806
219,769
903
$ 1,467,153
$
(63,702) $
220,672
$
(312)
(7,168)
60,563
45,115
(1,939)
—
(13,259)
(22,679)
(76)
753,844
669,546
157,806
1,686,922
903
(22,755) $ 1,687,825
$
(1)
(3,444)
(7,404)
(44,776)
(17,497)
(13,259)
(86,381)
(76)
(86,457)
The Corporation’s mortgage-backed securities and collateralized mortgage obligations 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. Because the declines in market
values of state and municipal securities, collateralized mortgage obligations and mortgage-backed securities are attributable to
changes in interest rates and not credit quality, and because 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, the
Corporation did not consider those investments to be other-than-temporarily impaired as of December 31, 2013.
The unrealized holding losses on student loan auction rate securities, also known as auction rate certificates (ARCs) are attributable
to liquidity issues resulting from the failure of periodic auctions. As of December 31, 2013, approximately $151 million, or 95%,
of the ARCs were rated above investment grade, with approximately $8 million, or 5%, AAA rated and $104 million, or 65%, AA
rated. Approximately $8 million, or 5%, of ARCs were either not rated or rated below investment grade by at least one ratings
agency. Of this amount, approximately $5 million, or 61%, of the loans underlying these ARCs have principal payments which
are guaranteed by the federal government. In total, approximately $155 million, or 98%, of the loans underlying the ARCs have
principal payments which are guaranteed by the federal government. As of December 31, 2013, all ARCs were current and making
scheduled interest payments. Based on management’s evaluations, ARCs with a fair value of $159.3 million were not subject to
any other-than-temporary impairment charges as of December 31, 2013. The Corporation does not have the intent to sell and does
not believe it will more likely than not be required to sell these securities prior to a recovery of their fair value to amortized cost,
which may be at maturity.
81
The majority of the Corporation’s available for sale corporate debt securities are issued by financial institutions. The following
table presents the amortized cost and estimated fair values of corporate debt securities as of December 31:
2013
2012
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
Single-issuer trust preferred securities ........................................ $
Subordinated debt........................................................................
Pooled trust preferred securities ..................................................
Corporate debt securities issued by financial institutions ....
Other corporate debt securities....................................................
Available for sale corporate debt securities.......................... $
47,481
47,405
2,997
97,883
2,585
100,468
$
$
$
(in thousands)
40,531
50,327
5,306
96,164
2,585
98,749
$
56,834
47,286
5,530
109,650
2,512
112,162
$
$
51,656
51,747
6,927
110,330
2,512
112,842
The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $7.0 million as of December 31,
2013. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities in
2013, 2012 or 2011. The Corporation held six single-issuer trust preferred securities that were rated below investment grade by
at least one ratings agency, with an amortized cost of $13.5 million and an estimated fair value of $11.3 million as of December 31,
2013. The majority of the single-issuer trust preferred securities rated below investment grade were rated BB or Ba. Single-issuer
trust preferred securities with an amortized cost of $4.7 million and an estimated fair value of $3.8 million as of December 31,
2013 were not rated by any ratings agency.
The Corporation held eight pooled trust preferred securities, as of December 31, 2013, with an amortized cost of $3.0 million and
an estimated fair value of $5.3 million, that were rated below investment grade by at least one ratings agency, with ratings ranging
from C to Ca. For each of these securities, the class of securities held by the Corporation was below the most senior tranche, with
the Corporation’s interests being subordinate to other investors in the pool. The Corporation determines the fair value of pooled
trust preferred securities based on quotes provided by third-party brokers.
The amortized cost of pooled trust preferred securities is the purchase price of the securities, net of cumulative credit related other-
than-temporary impairment charges, determined using an expected cash flow model. The most significant input to the expected
cash flow model is the expected payment deferral rate for each pooled trust preferred security. The Corporation evaluates the
financial metrics, such as capital ratios and non-performing asset ratios, of the individual financial institution issuers that comprise
each pooled trust preferred security to estimate its expected deferral rate.
Based on management's evaluations, corporate debt securities with a fair value of $98.7 million were not subject to any additional
other-than-temporary impairment charges as of December 31, 2013. 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.
82
NOTE D – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans, net of unearned income
Loans, net of unearned income are summarized as follows as of December 31:
2013
2012
(in thousands)
Real estate – commercial mortgage................................................................................................ $ 5,101,922
3,628,420
Commercial – industrial, financial and agricultural .......................................................................
1,764,197
Real estate – home equity ...............................................................................................................
1,337,380
Real estate – residential mortgage ..................................................................................................
573,672
Real estate – construction ...............................................................................................................
283,124
Consumer........................................................................................................................................
99,256
Leasing and other............................................................................................................................
4,045
Overdrafts .......................................................................................................................................
12,792,016
Loans, gross of unearned income ............................................................................................
(9,796)
Unearned income ............................................................................................................................
Loans, net of unearned income................................................................................................ $ 12,782,220
$ 4,664,426
3,612,065
1,632,390
1,257,432
584,118
309,864
75,521
18,393
12,154,209
(7,238)
$ 12,146,971
The Corporation has extended credit to the 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. The aggregate dollar amount of
these loans, including unadvanced commitments, was $149.1 million and $118.8 million as of December 31, 2013 and 2012,
respectively. During 2013, additions totaled $46.3 million and repayments and other changes in related-party loans totaled $16.0
million.
The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.9 billion and $4.5 billion as
of December 31, 2013 and 2012, respectively.
Allowance for Credit Losses
The following table presents the components of the allowance for credit losses as of December 31:
Allowance for loan losses ..................................................................................... $
Reserve for unfunded lending commitments ........................................................
Allowance for credit losses ................................................................................... $
202,780
2,137
204,917
2013
2012
(in thousands)
223,903
$
1,536
225,439
$
The following table presents the activity in the allowance for credit losses for the years ended December 31:
Balance at beginning of year................................................................................. $
Loans charged off..................................................................................................
Recoveries of loans previously charged off ..........................................................
Net loans charged off .....................................................................................
Provision for credit losses .....................................................................................
Balance at end of year ........................................................................................... $
2013
225,439
(80,212)
19,190
(61,022)
40,500
204,917
2012
(in thousands)
258,177
$
(140,366)
13,628
(126,738)
94,000
225,439
$
2011
256,471
1,706
258,177
2011
275,498
(161,333)
9,012
(152,321)
135,000
258,177
$
$
$
$
83
The following table presents the activity in the allowance for loan losses, by portfolio segment, for the years ended December 31,
and loans, net of unearned income, and their related allowance for loan losses, by portfolio segment, as of December 31:
Real Estate -
Commercial
Mortgage
Commercial -
Industrial,
Financial and
Agricultural
Real Estate -
Home
Equity
Real Estate -
Residential
Mortgage
Real Estate -
Construction
(in thousands)
Consumer
Leasing
and other
and
Overdrafts
Unallocated
(1)
Total
Balance at December 31, 2011..........................
$
85,112
$
74,896
$
12,841
$
22,986
$
30,066
$
2,083
$
2,397
$
26,090
$
256,471
Loans charged off..............................................
(51,988)
(41,868)
(10,147)
(4,509)
(26,250)
(3,323)
(2,281)
Recoveries of loans previously charged off ......
3,371
4,282
704
459
2,814
1,107
891
Net loans charged off ........................................
(48,617)
(37,586)
(9,443)
(4,050)
(23,436)
(2,216)
(1,390)
—
—
—
(140,366)
13,628
(126,738)
Provision for loan losses ...................................
Balance at December 31, 2012..........................
26,433
62,928
22,895
60,205
19,378
22,776
15,600
34,536
10,657
17,287
2,500
2,367
1,745
2,752
(5,038)
94,170
21,052
223,903
Loans charged off..............................................
(20,829)
(30,383)
(8,193)
(9,705)
(6,572)
(1,877)
(2,653)
Recoveries of loans previously charged off ......
3,494
9,281
860
548
2,682
1,518
807
Net loans charged off ........................................
(17,335)
(21,102)
(7,333)
(9,157)
(3,890)
(359)
(1,846)
—
—
—
(80,212)
19,190
(61,022)
Provision for loan losses (2)..............................
10,066
11,227
12,779
7,703
(748)
1,252
2,464
(4,844)
39,899
Balance at December 31, 2013..........................
$
55,659
$
50,330
$
28,222
$
33,082
$
12,649
$
3,260
$
3,370
$
16,208
$
202,780
Allowance for loan losses at December 31, 2013
Measured for impairment under FASB ASC
Subtopic 450-20 ..........................................
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
$
$
Loans, net of unearned income at December 31, 2013
41,215
$
36,263
$
19,163
$
11,337
$
8,778
$
3,248
$
3,370
$
16,208
$
139,582
14,444
14,067
9,059
21,745
3,871
12
—
N/A
63,198
55,659
$
50,330
$
28,222
$
33,082
$
12,649
$
3,260
$
3,370
$
16,208
$
202,780
Measured for impairment under FASB ASC
Subtopic 450-20 ..........................................
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
$
5,041,598
$
3,583,665
$
1,749,560
$
1,286,283
$
542,634
$
283,111
$
93,505
N/A
$ 12,580,356
60,324
44,755
14,637
51,097
31,038
13
—
N/A
201,864
$
5,101,922
$
3,628,420
$
1,764,197
$
1,337,380
$
573,672
$
283,124
$
93,505
N/A
$ 12,782,220
Allowance for loan losses at December 31, 2012
Measured for impairment under FASB ASC
Subtopic 450-20 ..........................................
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
$
$
Loans, net of unearned income at December 31, 2012
41,316
$
41,421
$
14,396
$
10,428
$
11,028
$
2,342
$
2,745
$
21,052
$
144,728
21,612
18,784
8,380
24,108
6,259
25
7
N/A
79,175
62,928
$
60,205
$
22,776
$
34,536
$
17,287
$
2,367
$
2,752
$
21,052
$
223,903
Measured for impairment under FASB ASC
Subtopic 450-20 ..........................................
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
$
4,574,794
$
3,540,625
$
1,619,247
$
1,203,336
$
542,128
$
309,835
$
86,666
N/A
$ 11,876,631
89,632
71,440
13,143
54,096
41,990
29
10
N/A
270,340
$
4,664,426
$
3,612,065
$
1,632,390
$
1,257,432
$
584,118
$
309,864
$
86,676
N/A
$ 12,146,971
(1)
(2)
The Corporation’s unallocated allowance, which was approximately 8% and 9% of the total allowance for credit losses as of December 31, 2013 and
December 31, 2012, respectively, was, in the opinion of management, reasonable and appropriate given that the estimates used in the allocation process
are inherently imprecise.
For the year ended December 31, 2013, the provision for loan losses excluded a $601,000 increase in the reserve for unfunded lending commitments. The
total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $40.5 million for the year ended December 31, 2013.
For the year ended December 31, 2012, the provision for loan losses excluded a $170,000 decrease in the reserve for unfunded lending commitments. The
total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $94.0 million for the year ended December 31, 2012.
N/A – Not applicable.
During 2013 and 2012, the Corporation sold $41.8 million and $50.5 million, respectively, of non-accrual commercial mortgage,
commercial and construction loans to investors. Total charge-offs associated with these transactions were $18.0 million and $24.6
million in 2013 and 2012, respectively. Charge-offs recorded upon sales occurred based on the third parties' purchase offers, which
were based on economic return expectations relative to the perceived lending risk of the acquired loans, and the Corporation’s
view of the acceptability of that purchase price in relationship to other recent loan sale transactions and the desire to eliminate
these impaired loans from the portfolio.
84
The following table presents a summary of these transactions:
2013
2012
Real Estate -
Commercial
mortgage
Commercial -
industrial,
financial and
agricultural
Real Estate -
Construction
Total
Real Estate -
Commercial
mortgage
Commercial -
industrial,
financial and
agricultural
Real Estate -
Construction
Total
(in thousands)
Unpaid principal balance
of loans sold ................... $
21,760
$
23,600
$
9,930
$
55,290
$
43,960
$
19,990
$
7,720
$
71,670
Charge-offs prior to sale.....
(4,890)
(3,890)
(4,680)
(13,460)
(10,780)
(6,130)
(4,300)
(21,210)
Net recorded investment in
loans sold .......................
Proceeds from sale, net of
selling expenses .............
Total charge-off upon sale.. $
Existing allocation for
credit losses on sold
loans ............................... $
Impaired Loans
16,870
10,410
19,710
10,050
5,250
3,400
41,830
33,180
13,860
23,860
17,620
6,020
3,420
2,270
50,460
25,910
(6,460) $
(9,660) $
(1,850) $
(17,970) $
(15,560) $
(7,840) $
(1,150) $
(24,550)
(6,620) $
(5,780) $
(1,320) $
(13,720) $
(16,780) $
(8,910) $
(1,920) $
(27,610)
The following table presents total impaired loans, by class segment, as of December 31:
2013
2012
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage ........ $
Commercial - secured.............................
Commercial - unsecured.........................
Real estate - home equity .......................
Real estate - residential mortgage ..........
Construction - commercial residential ...
Construction - commercial .....................
With a related allowance recorded:
Real estate - commercial mortgage ........
Commercial - secured.............................
Commercial - unsecured.........................
Real estate - home equity .......................
Real estate - residential mortgage ..........
Construction - commercial residential ...
Construction - commercial .....................
Construction - other................................
Consumer - indirect ................................
Consumer - direct ...................................
Leasing and other and overdrafts ...........
28,892
$
24,494
$
23,890
21,383
— $
—
44,649
$
34,189
$
40,409
30,112
—
399
—
18,943
2,996
75,120
43,282
34,267
1,113
20,383
63,682
25,769
485
719
2
11
—
—
300
—
13,740
1,976
61,893
35,830
22,324
1,048
14,337
51,097
14,579
195
548
2
11
—
—
—
—
—
—
14,444
13,315
752
9,059
21,745
3,493
77
301
2
10
—
132
300
486
40,432
6,294
132,702
69,173
52,660
2,142
12,843
53,610
21,336
2,602
576
—
29
10
131
300
486
23,548
5,685
94,451
55,443
39,114
2,083
12,843
53,610
9,831
2,350
576
—
29
10
Total........................................................ $
264,833
$
201,864
$
63,198
$
347,683
$
270,340
$
189,713
139,971
63,198
214,981
175,889
—
—
—
—
—
—
—
21,612
17,187
1,597
8,380
24,108
4,787
1,146
326
—
25
7
79,175
79,175
85
As of December 31, 2013 and 2012, there were $61.9 million and $94.5 million, respectively, of impaired loans that did not have
a related allowance for loan loss. The estimated fair values of the collateral for these loans exceeded their carrying amount, or the
loans have been charged down to collateral values. Accordingly, no specific valuation allowance was considered to be necessary.
The following table presents average impaired loans, by class segment, for the years ended December 31:
2013
2012
2011
Average
Recorded
Investment
Interest
Income
Recognized
(1)
Average
Recorded
Investment
Interest
Income
Recognized
(1)
Average
Recorded
Investment
Interest
Income
Recognized
(1)
(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage ...... $
Commercial - secured...........................
Commercial - unsecured.......................
Real estate - home equity .....................
Real estate - residential mortgage ........
Construction - commercial residential .
Construction - commercial ...................
With a related allowance recorded:
Real estate - commercial mortgage ......
Commercial - secured...........................
Commercial - unsecured.......................
Real estate - home equity .....................
Real estate - residential mortgage ........
Construction - commercial residential .
Construction - commercial ...................
Construction - other..............................
Consumer - indirect ..............................
Consumer - direct .................................
Leasing and other and overdrafts .........
28,603
$
30,299
26
262
695
20,132
3,195
83,212
44,136
27,919
1,411
14,092
52,251
12,335
1,352
523
1
19
11
489
173
—
1
25
256
2
946
706
153
5
65
1,210
168
3
1
—
—
—
$
41,575
$
538
$
44,486
$
26,443
52
433
989
27,361
3,492
100,345
64,739
45,217
2,604
8,017
44,791
19,284
2,233
974
—
84
83
50
—
2
45
185
19
839
755
97
6
23
1,446
130
17
7
—
—
—
30,829
177
80
4,242
24,770
2,989
107,573
79,831
78,380
3,864
1,952
53,610
47,529
1,090
1,100
—
189
59
Total...................................................... $
237,262
$
3,257
$
288,371
$
3,320
$
375,177
$
154,050
2,311
188,026
2,481
267,604
647
182
3
—
43
195
22
1,092
1,270
1,231
34
—
1,458
457
17
1
—
2
—
4,470
5,562
(1) All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the years ended December 31, 2013, 2012 and 2011
represent amounts earned on accruing TDRs.
86
Credit Quality Indicators and Non-performing Assets
The following table presents internal credit risk ratings for commercial loans, commercial mortgages and construction loans to
commercial borrowers, by class segment, at December 31:
Pass
Special Mention
Substandard or Lower
Total
2013
2012
2013
2012
2013
2012
2013
2012
(dollars in thousands)
Real estate - commercial
mortgage .................................. $
4,763,987
$ 4,255,334
$
141,013
$
157,640
$
196,922
$
251,452
$
5,101,922
$ 4,664,426
Commercial - secured ...................
3,167,168
Commercial -unsecured ................
209,836
3,081,215
187,200
111,613
11,666
137,277
5,421
125,382
2,755
194,952
6,000
3,404,163
3,413,444
224,257
198,621
Total commercial - industrial,
financial and agricultural ...
Construction - commercial
residential.................................
Construction - commercial ...........
Total real estate - construction
(excluding construction -
other)..................................
3,377,004
3,268,415
123,279
142,698
128,137
200,952
3,628,420
3,612,065
146,041
258,441
156,537
211,470
31,522
2,932
52,434
2,799
57,806
8,124
79,581
12,081
235,369
269,497
288,552
226,350
404,482
368,007
34,454
55,233
65,930
91,662
504,866
514,902
Total .............................................. $
8,545,473
$ 7,891,756
$
298,746
$
355,571
$
390,989
$
544,066
$
9,235,208
$ 8,791,393
% of Total......................................
92.6%
89.8%
3.2%
4.0%
4.2%
6.2%
100.0%
100.0%
The following table presents the delinquency status of home equity, residential mortgage, consumer, leasing and other and
construction loans to individuals, by class segment, at December 31:
Performing
Delinquent (1)
Non-performing (2)
Total
2013
2012
2013
2012
2013
2012
2013
2012
(dollars in thousands)
Real estate - home equity ............ $
1,731,185
$ 1,602,541
$
16,029
$
12,645
$
16,983
$
17,204
$
1,764,197
$ 1,632,390
Real estate - residential
mortgage ................................
1,282,754
1,190,873
23,279
32,123
31,347
34,436
1,337,380
1,257,432
Real estate - construction - other.
Consumer - direct........................
Consumer - indirect.....................
Total consumer.....................
Leasing and other and overdrafts
68,258
126,666
147,017
273,683
92,876
67,447
159,616
140,868
300,484
85,946
—
3,586
3,312
6,898
581
865
3,795
2,270
6,065
711
548
2,391
152
2,543
48
904
3,170
145
3,315
19
68,806
132,643
150,481
283,124
93,505
69,216
166,581
143,283
309,864
86,676
Total ............................................ $
3,448,756
$ 3,247,291
$
46,787
$
52,409
$
51,469
$
55,878
$
3,547,012
$ 3,355,578
% of Total....................................
97.2%
96.7%
1.3%
1.6%
1.5%
1.7%
100.0%
100.0%
(1)
(2)
Includes all accruing loans 30 days to 89 days past due.
Includes all accruing loans 90 days or more past due and all non-accrual loans.
The following table presents non-performing assets as of December 31:
Non-accrual loans ........................................................................................................................... $
Accruing loans greater than 90 days past due ................................................................................
Total non-performing loans.....................................................................................................
Other real estate owned ..................................................................................................................
Total non-performing assets .................................................................................................... $
2013
2012
(in thousands)
133,753
20,524
154,277
15,052
169,329
$
$
184,832
26,221
211,053
26,146
237,199
87
The following table presents loans whose terms were modified under TDRs as of December 31:
2013
2012
Real-estate - residential mortgage .................................................................................................. $
Real-estate - commercial mortgage................................................................................................
Construction - commercial residential ...........................................................................................
Commercial - secured.....................................................................................................................
Real estate - home equity ...............................................................................................................
Commercial - unsecured.................................................................................................................
Consumer - direct ...........................................................................................................................
Total accruing TDRs..................................................................................................................
Non-accrual TDRs (1) ....................................................................................................................
Total TDRs ................................................................................................................................ $
(1)
Included within non-accrual loans in the preceding table.
$
(in thousands)
28,815
19,758
10,117
7,933
1,365
112
11
68,111
30,209
98,320
$
32,993
34,672
10,564
5,624
1,518
121
16
85,508
31,245
116,753
As of December 31, 2013 and 2012, there were $9.6 million and $7.4 million, respectively, of commitments to lend additional
funds to borrowers whose loans were modified under TDRs.
The following table presents TDRs, by class segment, as of December 31, 2013 and 2012 that were modified during the years
ended December 31, 2013 and 2012:
2013
2012
Number
of Loans
Recorded
Investment
Number
of Loans
Recorded
Investment
(dollars in thousands)
49
Real estate - residential mortgage .................................................................
Real estate - commercial mortgage ...............................................................
Construction - commercial residential ..........................................................
Real estate - home equity ..............................................................................
Commercial - secured ...................................................................................
Commercial - unsecured ...............................................................................
12
Consumer - direct..........................................................................................
Construction - commercial............................................................................ —
125
36
16
8
1
3
$
9,611
9,439
5,285
2,602
1,699
12
1
—
83
29
9
118
28
—
22
1
$
17,442
23,980
7,804
5,477
6,199
—
23
944
$
28,649
290
$
61,869
The following table presents TDRs, by class segment, as of December 31, 2013 and 2012 that were modified during the years
ended December 31, 2013 and 2012 and had a post-modification payment default during their respective year of modification.
The Corporation defines a payment default as a single missed scheduled payment:
2013
2012
Number
of Loans
Recorded
Investment
Number
of Loans
(dollars in thousands)
Recorded
Investment
Real estate - residential mortgage..................................................................
Real estate - commercial mortgage ...............................................................
Real estate - home equity ..............................................................................
Construction - commercial residential...........................................................
2
Commercial - secured....................................................................................
Construction - commercial ............................................................................ —
Consumer - direct .......................................................................................... —
43
15
19
1
6
$
4,211
3,683
1,249
568
108
—
—
34
8
27
5
8
1
2
$
8,151
4,849
1,885
3,194
2,129
944
2
$
9,819
85
$
21,154
88
The following table presents past due status and non-accrual loans, by portfolio segment and class segment, at December 31:
2013
31-59
Days Past
Due
60-89
Days Past
Due
Past Due
and
Accruing
Non-
accrual
Days
Total Past
Due
Current
Total
(in thousands)
Real estate - commercial mortgage .................................... $
15,474
$
4,009
$
3,502
$
40,566
$
44,068
$
63,551
$ 5,038,371
$ 5,101,922
Commercial - secured.........................................................
Commercial - unsecured.....................................................
Total Commercial - industrial, financial and agricultural ..
Real estate - home equity ...................................................
Real estate - residential mortgage.......................................
Construction - commercial .................................................
Construction - commercial residential................................
Construction - other............................................................
Total Real estate - construction ..........................................
Consumer - direct ...............................................................
Consumer - indirect ............................................................
Total Consumer ..................................................................
Leasing and other and overdrafts .......................................
8,916
332
9,248
13,555
16,969
14
—
—
14
2,091
2,864
4,955
559
1,365
125
1,490
2,474
6,310
—
645
—
645
1,495
448
1,943
22
1,311
—
1,311
3,711
9,065
—
346
—
346
2,391
150
2,541
48
35,774
936
36,710
13,272
22,282
2,171
18,202
548
37,085
936
38,021
16,983
31,347
2,171
18,548
548
47,366
3,356,797
3,404,163
1,393
222,864
224,257
48,759
3,579,661
3,628,420
33,012
1,731,185
1,764,197
54,626
1,282,754
1,337,380
2,185
267,312
269,497
19,193
216,176
235,369
548
68,258
68,806
20,921
21,267
21,926
551,746
573,672
—
2
2
—
2,391
152
2,543
48
5,977
3,464
9,441
629
126,666
132,643
147,017
150,481
273,683
283,124
92,876
93,505
$
60,774
$
16,893
$
20,524
$
133,753
$
154,277
$
231,944
$12,550,276
$12,782,220
2012
31-59
Days Past
Due
60-89
Days Past
Due
Past Due
and
Accruing
Non-
accrual
Days
Total Past
Due
Current
Total
(in thousands)
Real estate - commercial mortgage .................................... $
12,993
$
8,473
$
2,160
$
54,960
$
57,120
$
78,586
$ 4,585,840
$ 4,664,426
Commercial - secured.........................................................
Commercial - unsecured.....................................................
Total Commercial - industrial, financial and agricultural ..
Real estate - home equity ...................................................
8,013
461
8,474
9,579
8,030
12
8,042
3,066
1,060
199
1,259
5,579
Real estate - residential mortgage.......................................
21,827
10,296
13,333
Construction - commercial .................................................
Construction - commercial residential................................
Construction - other............................................................
Total Real estate - construction ..........................................
Consumer - direct ...............................................................
Consumer - indirect ............................................................
Total Consumer ..................................................................
Leasing and other and overdrafts .......................................
—
466
865
1,331
2,842
1,926
4,768
662
—
—
—
—
953
344
1,297
49
—
251
328
579
3,157
145
3,302
9
63,602
2,093
65,695
11,625
21,103
8,035
22,815
576
64,662
2,292
66,954
17,204
34,436
8,035
23,066
904
80,705
3,332,739
3,413,444
2,765
195,856
198,621
83,470
3,528,595
3,612,065
29,849
1,602,541
1,632,390
66,559
1,190,873
1,257,432
8,035
218,315
226,350
23,532
265,020
288,552
1,769
67,447
69,216
31,426
32,005
33,336
550,782
584,118
13
—
13
10
3,170
145
3,315
19
6,965
2,415
9,380
730
159,616
166,581
140,868
143,283
300,484
309,864
85,946
86,676
$
59,634
$
31,223
$
26,221
$
184,832
$
211,053
$
301,910
$11,845,061
$12,146,971
89
NOTE E – PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
2013
2012
Land ................................................................................................................................................ $
Buildings and improvements ..........................................................................................................
Furniture and equipment.................................................................................................................
Construction in progress .................................................................................................................
Less: Accumulated depreciation and amortization.........................................................................
$
$
(in thousands)
37,815
281,904
170,970
14,195
504,884
(278,863)
226,021
37,245
270,480
172,263
17,098
497,086
(269,363)
227,723
$
NOTE F – GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the changes in goodwill:
Balance at beginning of year................................................................................. $
Sale of Global Exchange.......................................................................................
Other goodwill (deductions) additions, net...........................................................
Balance at end of year ........................................................................................... $
530,656
—
(49)
530,607
2013
2012
(in thousands)
536,005
$
(5,295)
(54)
530,656
$
$
$
2011
535,518
—
487
536,005
In December 2012, the Corporation's Fulton Bank, N.A. subsidiary sold its Global Exchange Group division (Global Exchange)
for a gain of $6.2 million. Global Exchange provided international payment solutions to meet the needs of companies, law firms
and professionals. As a result of this divestiture, $5.3 million of goodwill allocated to Global Exchange was written-off and included
as a reduction to the gain on sale recorded in non-interest income on the consolidated statements of income.
All of the Corporation’s reporting units passed the 2013 goodwill impairment test, resulting in no goodwill impairment charges
in 2013. Two reporting units, with total allocated goodwill of $172.0 million, had fair values that exceeded adjusted net book
values by less than 5%. The remaining five reporting units, with total allocated goodwill of $358.6 million, had fair values that
exceeded net book values by approximately 29% in the aggregate.
The estimated fair values of the Corporation’s reporting units are subject to uncertainty, including future changes in the trading
and acquisition multiples of comparable financial institutions and future operating results of reporting units which could differ
significantly from the assumptions used in the valuation of reporting units.
The following table summarizes intangible assets as of December 31:
2013
Accumulated
Amortization
Gross
2012
Accumulated
Amortization
Net
Net
Gross
(in thousands)
Amortizing:
Core deposit .................... $
Other................................
Total amortizing .....................
Non-amortizing ......................
50,279
$
(48,839) $
1,440
$
50,279
$
9,123
59,402
1,263
(9,057)
(57,896)
(300)
66
1,506
963
9,123
59,402
1,263
$
60,665
$
(58,196) $
2,469
$
60,665
$
(46,766) $
(8,992)
(55,758)
—
(55,758) $
3,513
131
3,644
1,263
4,907
As a result of the divestiture of Global Exchange, gross intangible assets totaling $2.3 million ($266,000, net of accumulated
amortization) that were allocated to Global Exchange were written-off and included as a reduction to the gain on sale recorded in
non-interest income on the consolidated statements of income.
90
Core deposit intangible assets are amortized using an accelerated method over the estimated remaining life of the acquired core
deposits. As of December 31, 2013, these assets had a weighted average remaining life of approximately two years. Other amortizing
intangible assets, consisting primarily of premiums paid on branch acquisitions in prior years that did not qualify for business
combinations accounting under FASB ASC Topic 810, had a weighted average remaining life of one year. Amortization expense
related to intangible assets totaled $2.4 million, $3.0 million and $4.3 million in 2013, 2012 and 2011, respectively.
Future amortization expense is expected to be as follows (in thousands):
Year
2014.......................................................................................................................................................................... $
2015..........................................................................................................................................................................
Total................................................................................................................................................................... $
1,259
247
1,506
NOTE G – MORTGAGE SERVICING RIGHTS
The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance sheets:
Amortized cost:
Balance at beginning of year .......................................................................................................... $
Originations of mortgage servicing rights ......................................................................................
Amortization expense .....................................................................................................................
Balance at end of year..................................................................................................................... $
Valuation allowance:
Balance at beginning of year .......................................................................................................... $
Reversals (additions) ......................................................................................................................
Balance at end of year..................................................................................................................... $
Net MSRs at end of year................................................................................................................. $
2013
2012
(in thousands)
39,737
12,072
(9,357)
42,452
$
$
(3,680) $
3,680
— $
$
42,452
34,666
15,451
(10,380)
39,737
(1,550)
(2,130)
(3,680)
36,057
MSRs represent the economic value of existing contractual rights to service mortgage loans that have been sold. Accordingly,
actual and expected prepayments of the underlying mortgage loans can impact the value of MSRs.
The Corporation estimates the fair value of its MSRs 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 estimated fair value of MSRs was $49.3 million as of December 31, 2013 and $36.1 million as of December 31, 2012. The
estimated fair value of MSRs exceeded their book value at December 31, 2013. Therefore, no further adjustment to the valuation
allowance was necessary as of December 31, 2013.
Estimated MSR amortization expense for the next five years, based on balances as of December 31, 2013 and the contractual
remaining lives of the underlying loans, follows (in thousands):
Year
2014.......................................................................................................................................................................... $
2015..........................................................................................................................................................................
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
9,432
8,459
7,391
6,220
4,940
91
NOTE H – DEPOSITS
Deposits consisted of the following as of December 31:
2013
2012
(in thousands)
Noninterest-bearing demand........................................................................................................... $ 3,283,172
2,945,210
Interest-bearing demand .................................................................................................................
3,344,882
Savings and money market accounts..............................................................................................
2,917,922
Time deposits..................................................................................................................................
$ 12,491,186
$ 3,009,966
2,755,603
3,335,256
3,383,338
$ 12,484,163
Included in time deposits were certificates of deposit equal to or greater than $100,000 of $1.1 billion and $1.2 billion as of
December 31, 2013 and 2012, respectively. The scheduled maturities of time deposits as of December 31, 2013 were as follows
(in thousands):
Year
2014.......................................................................................................................................................................... $ 1,860,872
532,330
2015..........................................................................................................................................................................
265,893
2016..........................................................................................................................................................................
100,606
2017..........................................................................................................................................................................
74,661
2018..........................................................................................................................................................................
83,560
Thereafter .................................................................................................................................................................
$ 2,917,922
NOTE I – SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of December 31, 2013, 2012 and 2011 and the related maximum amounts outstanding at the end of any
month in each of the three years then ended are presented below. The securities underlying the repurchase agreements remain in
available for sale investment securities.
2013
December 31
2012
2011
Maximum Outstanding
2012
2013
2011
(in thousands)
Federal funds purchased.......................... $
Short-term FHLB advances (1)
Customer repurchase agreements............
Customer short-term promissory notes ...
582,436
400,000
175,621
100,572
$ 1,258,629
$ 592,470
—
156,238
119,691
$ 868,399
$
$
253,470
—
186,735
156,828
597,033
$
848,179
600,000
215,305
115,129
$
636,562
25,000
258,734
152,570
$
381,093
—
235,780
196,562
(1) Represents FHLB advances with an original maturity term of less than one year.
As of December 31, 2013, the Corporation had aggregate availability under Federal funds lines of $1.6 billion, with $582.4 million
of that amount outstanding. A combination of commercial real estate loans, commercial loans and securities are pledged to the
Federal Reserve Bank of Philadelphia to provide access to Federal Reserve Bank Discount Window borrowings. As of December 31,
2013 and 2012, the Corporation had $2.0 billion and $1.9 billion, respectively, of collateralized borrowing availability at the
Discount Window, and no outstanding borrowings.
92
The following table presents information related to customer repurchase agreements:
2013
Amount outstanding as of December 31............................................................... $ 175,621
Weighted average interest rate at year end............................................................
Average amount outstanding during the year........................................................ $ 186,851
Weighted average interest rate during the year.....................................................
0.11%
0.12%
2012
(dollars in thousands)
$
156,238
$
2011
186,735
0.16%
0.12%
$
206,842
$
208,144
0.12%
0.13%
FHLB advances and long-term debt included the following as of December 31:
FHLB advances .............................................................................................................................. $
Subordinated debt ...........................................................................................................................
Junior subordinated deferrable interest debentures ........................................................................
Other long-term debt.......................................................................................................................
Unamortized issuance costs............................................................................................................
$
2013
2012
(in thousands)
513,854
200,000
171,136
1,243
(2,649)
883,584
$
$
524,817
200,000
171,136
1,264
(2,964)
894,253
Excluded from the preceding table is the Parent Company’s revolving line of credit with its subsidiary banks. As of December 31,
2013 and 2012, there were no amounts outstanding under this line of credit. This line of credit, with a total commitment of $100.0
million, is secured by equity securities and insurance investments and bears interest at the prime rate minus 1.50%. Although the
line of credit and related interest are eliminated in the consolidated financial statements, this borrowing arrangement is senior to
the subordinated debt and the junior subordinated deferrable interest debentures.
FHLB advances mature through March 2027 and carry a weighted average interest rate of 4.14%. As of December 31, 2013, the
Corporation had an additional borrowing capacity of approximately $1.7 billion with the FHLB. Advances from the FHLB are
secured by FHLB stock, qualifying residential mortgages, investments and other assets.
The following table summarizes the scheduled maturities of FHLB advances and long-term debt as of December 31, 2013 (in
thousands):
Year
2014.......................................................................................................................................................... $
2015..........................................................................................................................................................
2016..........................................................................................................................................................
2017..........................................................................................................................................................
2018..........................................................................................................................................................
Thereafter .................................................................................................................................................
$
6,091
145,289
236,266
314,892
—
181,046
883,584
In May 2007, the Corporation issued $100 million of ten-year subordinated notes, which mature on May 1, 2017 and carry a fixed
rate of 5.75% and an effective rate of approximately 5.96% as a result of issuance costs. Interest is paid semi-annually in May and
November. In March 2005, the Corporation issued $100 million of ten-year subordinated notes, which mature April 1, 2015 and
carry a fixed rate of 5.35% and an effective rate of approximately 5.49% as a result of issuance costs. Interest is paid semi-annually
in October and April.
The Parent Company owns all of the common stock of four subsidiary trusts, which have issued Trust Preferred Securities in
conjunction with the Parent Company issuing junior subordinated deferrable interest debentures to the trusts. The Trust Preferred
Securities are redeemable on specified dates, or earlier if the deduction of interest for federal income taxes is prohibited, the Trust
Preferred Securities no longer qualify as Tier I regulatory capital, or if certain other events arise.
93
The following table provides details of the debentures as of December 31, 2013 (dollars in thousands):
Debentures Issued to
Fixed/
Variable
Columbia Bancorp Statutory Trust....... Variable
Columbia Bancorp Statutory Trust II ... Variable
Columbia Bancorp Statutory Trust III.. Variable
Fulton Capital Trust I............................
Fixed
Interest
Rate
2.90% $
2.13%
2.01%
6.29%
6,186
4,124
6,186
154,640
$
171,136
Amount
Maturity
Callable
06/30/34
03/15/35
06/15/35
02/01/36
03/31/14
03/15/14
03/15/14
N/A
Call
Price
100.0
100.0
100.0
N/A
N/A – Not applicable.
NOTE J – DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the notional amounts and fair values of derivative financial instruments as of December 31:
2013
2012
Notional
Amount
Asset
(Liability)
Fair Value
Notional
Amount
Asset
(Liability)
Fair Value
(in thousands)
Interest Rate Locks with Customers
Positive fair values ...................................................................... $
Negative fair values.....................................................................
Net interest rate locks with customers..................................
75,217
11,393
$
$
867
(59)
808
314,416
9,714
$
Forward Commitments
Positive fair values ......................................................................
Negative fair values.....................................................................
Net forward commitments....................................................
Interest Rate Swaps with Customers
Positive fair values ......................................................................
Negative fair values.....................................................................
Net interest rate swaps with customers ................................
Interest Rate Swaps with Dealer Counterparties
Positive fair values ......................................................................
Negative fair values.....................................................................
Net interest rate swaps with dealer counterparties ...............
Foreign Exchange Contracts with Customers
Positive fair values ......................................................................
Negative fair values.....................................................................
Net foreign exchange contracts with customers...................
Foreign Exchange Contracts with Correspondent Banks
Positive fair values ......................................................................
Negative fair values.....................................................................
Net foreign exchange contracts with correspondent banks ..
Net derivative fair value asset .........................................
87,904
2,373
111,899
105,673
105,673
111,899
2,150
12,775
17,348
5,872
$
1,263
(5)
1,258
2,105
(2,993)
(888)
2,993
(2,105)
888
24
(343)
(319)
498
(48)
450
2,197
79,152
236,500
130,841
—
—
130,841
1,941
10,199
60,106
37,557
$
6,912
(155)
6,757
707
(915)
(208)
7,090
—
7,090
—
(7,090)
(7,090)
137
(348)
(211)
1,064
(1,121)
(57)
6,281
94
The following table presents the fair value gains and losses on derivative financial instruments:
Interest rate locks with customers................................... $
Forward commitments ....................................................
Interest rate swaps with customers .................................
Interest rate swaps with counterparties...........................
Foreign exchange contracts with customers ...................
Foreign exchange contracts with correspondent banks ..
Net fair value (losses) gains on derivative financial
instruments .................................................................. $
2013
2012
(in thousands)
2011
Statements of Income
Classification
(5,949) $
1,466
(7,978)
7,978
(108)
507
2,879
2,503
4,346
(4,346)
(1,487)
1,648
$
3,861 Mortgage banking income
(11,190) Mortgage banking income
2,744 Other non-interest expense
(2,744) Other non-interest expense
1,295 Other service charges and fees
(2,133) Other service charges and fees
(4,084) $
5,543
$
(8,167)
The Corporation has elected to record 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 and for the
years ended December 31, 2013 and 2012:
Cost (1)
Fair Value
Balance Sheet
Classification
Fair Value
(Loss) Gain
Statements of Income
Classification
(in thousands)
21,172
$
21,351 Loans held for sale
$
(1,975) Mortgage banking income
December 31, 2013:
Mortgage loans held for sale ... $
December 31, 2012:
Mortgage loans held for sale ...
65,745
67,899 Loans held for sale
469 Mortgage banking income
(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance.
The fair values of interest rate swap agreements the Corporation enters into with customers and dealer counterparties may be
eligible for offset on the consolidated balance sheets as they are subject to master netting arrangements or similar agreements. The
Corporation elects to not offset assets and liabilities subject to such arrangements on the consolidated financial statements. The
following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the
consolidated balance sheets:
Gross Amounts
Recognized
on the
Consolidated
Balance Sheets
Gross Amounts Not Offset
on the Consolidated
Balance Sheets
Financial
Instruments (1)
Cash
Collateral (2)
Net
Amount
(in thousands)
December 31, 2013
Interest rate swap assets................................................................... $
Interest rate swap liabilities ............................................................. $
December 31, 2012
Interest rate swap assets................................................................... $
Interest rate swap liabilities ............................................................. $
5,098
5,098
7,090
7,090
$
$
$
$
(2,104) $
— $ 2,994
(2,104) $
(730) $ 2,264
— $
— $ 7,090
— $
(7,090) $
—
(1) For interest rate swap assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default. For
interest rate swap liabilities, amounts represent any derivative asset fair values that could be offset in the event of counterparty or customer default.
(2) Amounts represent cash collateral posted on interest rate swap transactions with financial institution counterparties. Interest rate swaps with customers are
collateralized by the underlying loans to those borrowers.
95
NOTE K – REGULATORY MATTERS
Regulatory Capital Requirements
The Corporation’s subsidiary banks are subject to various regulatory capital requirements administered by banking regulators.
Failure to meet minimum capital requirements can initiate 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 subsidiary banks must meet specific capital guidelines
that involve quantitative measures of the subsidiary banks’ assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The subsidiary banks’ capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the subsidiary banks to maintain minimum
amounts and ratios of Total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets (as defined in the
regulations). Management believes, as of December 31, 2013, that all of its bank subsidiaries meet the capital adequacy requirements
to which they were subject.
As of December 31, 2013 and 2012, the Corporation’s four significant subsidiaries, Fulton Bank, N.A., Fulton Bank of New Jersey,
The Columbia Bank and Lafayette Ambassador Bank, were well capitalized under the regulatory framework for prompt corrective
action based on their capital ratio calculations. To be categorized as well capitalized, these banks must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since
December 31, 2013 that management believes have changed the institutions’ categories.
The following tables present the Total risk-based, Tier I risk-based and Tier I leverage requirements for the Corporation and its
significant subsidiaries with total assets in excess of $1 billion.
Actual
Amount
Ratio
2013
For Capital
Adequacy Purposes
Ratio
Amount
(dollars in thousands)
Well Capitalized
Amount
Ratio
Total Capital (to Risk-Weighted Assets):
Corporation ....................................... $ 1,987,737
Fulton Bank, N.A..............................
1,053,214
Fulton Bank of New Jersey...............
The Columbia Bank..........................
Lafayette Ambassador Bank.............
343,341
215,648
155,475
Tier I Capital (to Risk-Weighted Assets):
Corporation .......................................
1,736,567
Fulton Bank, N.A..............................
Fulton Bank of New Jersey...............
The Columbia Bank..........................
Lafayette Ambassador Bank.............
941,546
308,210
198,135
140,733
Tier I Capital (to Average Assets):
Corporation .......................................
1,736,567
Fulton Bank, N.A..............................
Fulton Bank of New Jersey...............
The Columbia Bank..........................
Lafayette Ambassador Bank.............
941,546
308,210
198,135
140,733
N/A
801,523
248,900
139,594
109,458
N/A
480,914
149,340
83,756
65,675
N/A
469,558
160,312
93,873
69,454
N/A
10.0%
10.0
10.0
10.0
N/A
6.0%
6.0
6.0
6.0
N/A
5.0%
5.0
5.0
5.0
15.0% $ 1,056,974
8.0%
641,218
199,120
111,675
87,566
528,487
320,609
99,560
55,837
43,783
654,532
375,647
128,250
75,098
55,563
8.0
8.0
8.0
8.0
4.0%
4.0
4.0
4.0
4.0
4.0%
4.0
4.0
4.0
4.0
13.1
13.8
15.4
14.2
13.1
11.8
12.4
14.2
12.9
10.6
10.0
9.6
10.6
10.1
96
Actual
Amount
Ratio
2012
For Capital
Adequacy Purposes
Ratio
Amount
(dollars in thousands)
Well Capitalized
Amount
Ratio
Total Capital (to Risk-Weighted Assets):
Corporation ........................................ $ 1,992,968
1,022,411
Fulton Bank, N.A...............................
337,660
Fulton Bank of New Jersey................
231,762
The Columbia Bank ...........................
145,391
Lafayette Ambassador Bank ..............
Tier I Capital (to Risk-Weighted Assets):
Corporation ........................................ $ 1,710,343
896,058
Fulton Bank, N.A...............................
299,852
Fulton Bank of New Jersey................
214,891
The Columbia Bank ...........................
128,975
Lafayette Ambassador Bank ..............
Tier I Capital (to Average Assets):
Corporation ........................................ $ 1,710,343
896,058
Fulton Bank, N.A...............................
299,852
Fulton Bank of New Jersey................
214,891
The Columbia Bank ...........................
128,975
Lafayette Ambassador Bank ..............
N/A – Not applicable as "well capitalized" applies to banks only.
Dividend and Loan Limitations
15.6% $ 1,023,759
622,643
13.1
191,842
14.1
107,363
17.3
87,119
13.4
13.4
11.5
12.5
16.0
11.8
11.0
10.1
9.5
11.3
9.5
$ 511,880
311,322
95,921
53,681
43,559
$ 624,838
353,206
126,733
76,174
54,569
8.0%
8.0
8.0
8.0
8.0
4.0%
4.0
4.0
4.0
4.0
4.0%
4.0
4.0
4.0
4.0
N/A
778,304
239,802
134,204
108,899
N/A
466,982
143,881
80,522
65,339
N/A
441,507
158,416
95,217
68,211
N/A
10.0%
10.0
10.0
10.0
N/A
6.0%
6.0
6.0
6.0
N/A
5.0%
5.0
5.0
5.0
The dividends that may be paid by subsidiary banks to the Parent Company are subject to certain legal and regulatory limitations.
Dividend limitations vary, depending on the subsidiary bank’s charter and primary regulator and whether or not it is a member of
the Federal Reserve System. Generally, subsidiaries are prohibited from paying dividends when doing so would cause them to
fall below the regulatory minimum capital levels. Additionally, limits may exist on paying dividends in excess of net income for
specified periods. The total amount available for payment of dividends by subsidiary banks was approximately $304 million as
of December 31, 2013, based on the subsidiary banks maintaining enough capital to be considered well capitalized, as defined
above.
Under current Federal Reserve regulations, the subsidiary banks are limited in the amount they may loan to their 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 each bank subsidiary’s regulatory capital.
U.S. Basel III Capital Rules
In July 2013, the Federal Reserve Board approved final rules (the "U.S. Basel III Capital Rules") establishing a new comprehensive
capital framework for U.S. banking organizations and implementing the Basel Committee on Banking Supervision's December
2010 framework for strengthening international capital standards. The U.S. Basel III Capital Rules substantially revise the risk-
based capital requirements applicable to bank holding companies and depository institutions.
The new minimum regulatory capital requirements established by the U.S. Basel III Capital Rules are effective for the Corporation
beginning on January 1, 2015, and become fully phased in on January 1, 2019.
When fully phased in, the U.S. Basel III Capital Rules will require the Corporation and its bank subsidiaries to:
• Meet a new 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;
• Continue to require the current minimum Total capital ratio of 8.00% of risk-weighted assets and the minimum Tier 1
leverage capital ratio of 4.00% of average assets;
97
• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses as a
result of which certain non-qualifying capital instruments, including cumulative preferred stock and trust preferred
securities, will be excluded as a component of Tier 1 capital for institutions of the Corporation's size.
The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expand the risk-weightings for assets and
off balance sheet exposures from the current 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number
of categories, depending on the nature of the assets and resulting in higher risk weights for a variety of asset categories.
As of December 31, 2013 the Corporation believes its current capital levels would meet the fully-phased in minimum capital
requirements, including capital conservation buffers, as prescribed in the U.S. Basel III Capital Rules.
NOTE L – INCOME TAXES
The components of the provision for income taxes are as follows:
Current tax expense (benefit):
Federal .......................................................................................................... $
State ..............................................................................................................
Deferred tax expense (benefit):
Federal ..........................................................................................................
State ..............................................................................................................
Income tax expense.............................................................................................. $
2013
2012
(in thousands)
2011
38,573
687
39,260
15,357
(3,532)
11,825
51,085
$
$
$
41,151
(557)
40,594
17,007
—
17,007
57,601
$
40,141
6,319
46,460
8,662
(4,284)
4,378
50,838
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
2013
2012
2011
Statutory tax rate ...................................................................................................
Tax-exempt income...............................................................................................
Low income housing investments.........................................................................
Valuation allowance..............................................................................................
Bank owned life insurance ....................................................................................
State income taxes, net of federal benefit .............................................................
Executive compensation .......................................................................................
Non-deductible goodwill.......................................................................................
Other, net...............................................................................................................
Effective income tax rate ......................................................................................
35.0%
(5.2)
(4.9)
(2.0)
(0.5)
1.1
0.1
—
0.4
24.0%
35.0%
(5.0)
(4.4)
(0.6)
(0.8)
0.6
0.5
0.9
0.3
26.5%
35.0%
(5.3)
(4.3)
4.6
(0.6)
(4.0)
0.1
—
0.4
25.9%
98
The net deferred tax asset recorded by the Corporation is included in other assets and consists of the following tax effects of
temporary differences as of December 31:
Deferred tax assets:
Allowance for credit losses ..................................................................................................... $
Unrealized holding losses on securities available for sale ......................................................
State loss carryforwards ..........................................................................................................
Deferred compensation............................................................................................................
Other-than-temporary impairment of investments ..................................................................
Other accrued expenses ...........................................................................................................
Postretirement and defined benefit plans ................................................................................
Other ........................................................................................................................................
Total gross deferred tax assets..........................................................................................
Deferred tax liabilities:
Mortgage servicing rights........................................................................................................
Premises and equipment ..........................................................................................................
Direct leasing...........................................................................................................................
Acquisition premiums/discounts .............................................................................................
Unrealized holding gains on securities available for sale .......................................................
Other ........................................................................................................................................
Total gross deferred tax liabilities ....................................................................................
Net deferred tax asset, before valuation allowance..........................................................
Valuation allowance .........................................................................................................
Net deferred tax asset ....................................................................................................... $
2013
2012
(in thousands)
75,525
13,922
13,724
12,099
10,378
9,987
9,561
10,850
156,046
15,118
9,864
7,948
7,631
—
5,610
46,171
109,875
(11,880)
97,995
$
$
83,657
—
13,811
11,546
13,951
9,542
14,034
13,477
160,018
12,856
9,893
5,958
6,802
14,527
7,218
57,254
102,764
(16,107)
86,657
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income and/or capital gain income during periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies,
such as those that may be implemented to generate capital gains, in making this assessment.
The valuation allowance relates to state deferred tax assets and net operating loss carryforwards for which realizability is uncertain.
As of December 31, 2013 and 2012, the Corporation had state net operating loss carryforwards of approximately $475 million
and $453 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2033.
In 2013, a $3.5 million ($2.3 million, net of federal tax) decrease in the valuation allowance for certain state deferred tax assets
was recorded as a credit to income tax expense. This decrease resulted from an improvement in forecasts for state taxable income
that will allow a larger portion of this deferred tax asset to be realized.
The Corporation has $9.8 million of deferred tax assets resulting from unrealized other-than-temporary impairment losses on
investment securities, which would be characterized as capital losses for tax purposes. If realized, the income tax benefits of these
potential capital losses can only be recognized for tax purposes to the extent of capital gains generated during carryback and
carryforward periods. Other deferred tax assets include $1.8 million related to realized capital losses on sales of investment
securities that have not been deducted on tax returns as there were no capital gains available for offset in the current or carryback
periods. Substantially all of these losses may be carried forward through 2018. If sufficient capital gains are not realized during
this period, some or all of this deferred tax asset may need to be written off. The Corporation has the ability to generate sufficient
offsetting capital gains in future periods through the execution of certain tax planning strategies, which may include the sale and
leaseback of some or all of its branch and office properties. As such, no valuation allowance for the deferred tax assets related to
the realized or unrealized capital losses is considered necessary as of December 31, 2013.
Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is more likely than not that the Corporation will realize the benefits of its deferred
tax assets, net of the valuation allowance, as of December 31, 2013.
99
Uncertain Tax Positions
The following summarizes the changes in unrecognized tax benefits for the years ended December 31:
2013
2012
(in thousands)
2011
Balance at beginning of year .............................................................................................. $
Prior period tax positions ...................................................................................................
Current period tax positions ...............................................................................................
Settlement with taxing authority ........................................................................................
Lapse of statute of limitations ............................................................................................
Balance at end of year ........................................................................................................ $
1,453
—
318
—
(120)
1,651
$
$
9,438
(378)
203
(7,171)
(639)
1,453
$
$
4,083
4,492
1,958
—
(1,095)
9,438
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 $238,000 is
expected to reverse in 2014 due to lapsing of the statute of limitations. Decreases can also occur through the settlement of a position
with the taxing authority.
The $378,000 decrease for prior period tax positions in 2012 resulted from changes in state tax regulations, which impacted the
amount of positions taken in prior years that will ultimately be recognized. The Corporation settled a portion of its uncertain tax
positions with the applicable state taxing authority in 2012 for approximately $7.2 million ($5.2 million including interest and
penalties, and net of federal tax benefit).
Recognition and measurement of tax positions is based on management’s evaluations of relevant tax code and appropriate industry
information about audit proceedings for comparable positions at other organizations.
As of December 31, 2013, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate.
Not included in the table above is $521,000 of federal tax expense 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 as a benefit
approximately $3,000 and $84,000 for interest and penalties in income tax expense related to unrecognized tax positions in 2013
and 2012, respectively, as a result of reversal s exceeding current period expenses. As of December 31, 2013 and 2012, total
accrued interest and penalties related to unrecognized tax positions were approximately $439,000 and $442,000, respectively.
The Corporation and its subsidiaries file income tax returns in the federal jurisdiction and various states. 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 2010.
NOTE M – EMPLOYEE BENEFIT PLANS
The following summarizes the Corporation’s expense under its retirement plans for the years ended December 31:
Fulton Financial Corporation 401(k) Retirement Plan ......................................... $
Pension Plan ..........................................................................................................
$
2013
11,807
2,477
14,284
2012
(in thousands)
11,983
$
1,834
13,817
$
$
$
2011
11,271
413
11,684
Fulton Financial Corporation 401(k) Retirement Plan – A defined contribution plan that includes two contribution features:
• Employer Profit Sharing – elective contributions based on a formula providing for an amount not to exceed 5% of each
eligible employee’s covered compensation. During an eligible employee’s first five years of employment, employer
contributions vest over a five-year graded vesting schedule. Employees hired after July 1, 2007 are not eligible for this
contribution.
100
•
401(k) Contributions – 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 contributions. Employee and employer contributions under these features
are 100% vested.
Defined Benefit Pension Plan – Contributions to the Corporation’s defined benefit pension plan (Pension Plan) are actuarially
determined and funded annually, if necessary. The Corporation recognizes the funded status of its Pension Plan and postretirement
benefits plan on the consolidated balance sheets and recognizes the changes in that funded status through other comprehensive
income. See the heading “Postretirement Benefits” below for a description of the Corporation’s postretirement benefits plan.
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:
Service cost (1)...................................................................................................... $
Interest cost ...........................................................................................................
Expected return on assets ......................................................................................
Net amortization and deferral................................................................................
Net periodic pension cost ...................................................................................... $
2013
202
3,087
(3,194)
2,382
2,477
2012
(in thousands)
157
$
3,223
(3,230)
1,684
1,834
$
$
$
2011
60
3,412
(3,348)
289
413
(1) The Pension Plan was curtailed effective January 1, 2008. Pension plan service cost for all years presented was related to administrative costs associated
with the plan and not due to the accrual of additional participant benefits.
The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the plan years
ended December 31:
2013
2012
Projected benefit obligation at beginning of year........................................................................... $
Service cost.....................................................................................................................................
Interest cost.....................................................................................................................................
Benefit payments ............................................................................................................................
Change due to change in assumptions ............................................................................................
Experience (gain) loss.....................................................................................................................
Projected benefit obligation at end of year ..................................................................................... $
$
(in thousands)
84,032
202
3,087
(3,009)
(10,773)
(177)
73,362
$
Fair value of plan assets at beginning of year................................................................................. $
Actual return on assets....................................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year........................................................................................... $
54,772
3,685
(3,009)
55,448
$
$
77,055
157
3,223
(2,522)
6,070
49
84,032
55,102
2,192
(2,522)
54,772
The following table presents the funded status of the Pension Plan, included in other liabilities on the consolidated balance sheets,
as of December 31:
Projected benefit obligation............................................................................................................ $
Fair value of plan assets..................................................................................................................
Funded status .................................................................................................................................. $
(73,362) $
55,448
(17,914) $
(84,032)
54,772
(29,260)
2013
2012
(in thousands)
101
The following table summarizes the changes in the unrecognized net loss included as a component of accumulated other
comprehensive loss:
Unrecognized Net Loss
Net of tax
Gross of tax
Balance as of December 31, 2011 .................................................................................................. $
Recognized as a component of 2012 periodic pension cost ...........................................................
Unrecognized losses arising in 2012 ..............................................................................................
Balance as of December 31, 2012 ..................................................................................................
Recognized as a component of 2013 periodic pension cost ...........................................................
Unrecognized gains arising in 2013 ...............................................................................................
Balance as of December 31, 2013 .................................................................................................. $
$
(in thousands)
24,513
(1,684)
7,155
29,984
(2,382)
(11,441)
16,161
$
15,933
(1,095)
4,652
19,490
(1,548)
(7,437)
10,505
The total amount of unrecognized net loss that will be amortized as a component of net periodic pension cost in 2014 is expected
to be $1.1 million.
The following rates were used to calculate net periodic pension cost and the present value of benefit obligations as of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
4.75%
6.00%
3.75%
6.00%
4.25%
6.00%
2013
2012
2011
As of December 31, 2013, 2012 and 2011, the discount rate used to calculate the present value of benefit obligations was determined
using the Citigroup Average Life discount rate table, as adjusted based on the Pension Plan's expected benefit payments and
rounded to the nearest 0.25%.
The 6.00% 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, 2013 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:
2013
2012
Estimated
Fair Value
% of Total
Assets
(dollars in thousands)
Estimated
Fair Value
% of Total
Assets
Equity mutual funds .................................................................... $
Equity common trust funds .........................................................
Equity securities ...................................................................
Cash and money market funds ....................................................
Fixed income mutual funds .........................................................
Corporate debt securities .............................................................
U.S. Government agency securities.............................................
Fixed income securities and cash .........................................
Other alternative investment funds..............................................
$
5,882
8,418
14,300
10,574
9,579
7,815
3,938
31,906
9,242
55,448
$
25.8%
57.5%
16.7%
100.0% $
7,318
4,750
12,068
9,422
9,599
7,345
5,474
31,840
10,864
54,772
22.0%
58.2%
19.8%
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. Pension Plan assets are invested with a conservative
growth objective, with target asset allocations of approximately 25% in equities, 55% in fixed income securities and cash and
20% in alternative investments. 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.
102
The fair values for all assets held by the Pension Plan, excluding equity common trust funds, are based on quoted prices for identical
instruments and would be categorized as Level 1 assets under FASB ASC Topic 810. Equity common trust funds would be
categorized as Level 2 assets under FASB ASC Topic 810.
Estimated future benefit payments are as follows (in thousands):
Year
2014.......................................................................................................................................................................... $
2015..........................................................................................................................................................................
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019 – 2023..............................................................................................................................................................
$
2,603
2,796
3,039
3,359
3,714
21,822
37,333
Postretirement Benefits
The Corporation currently provides medical benefits and life insurance benefits under a postretirement benefits plan (Postretirement
Plan) to certain retired full-time employees who were employees of the Corporation prior to January 1, 1998. Certain full-time
employees may become eligible for these discretionary benefits if they reach retirement age while working for the Corporation.
Early retirees receive no benefits for the time between their retirement date to the date they attain age 65. Benefits are based on a
graduated scale for years of service after attaining the age of 40.
The components of the expense for postretirement benefits other than pensions are as follows:
Service cost ........................................................................................................... $
Interest cost ...........................................................................................................
Expected return on plan assets ..............................................................................
Net amortization and deferral................................................................................
Net postretirement benefit cost ............................................................................. $
2013
228
322
(1)
(363)
186
2012
(in thousands)
211
$
346
(2)
(363)
192
$
$
$
2011
201
428
(3)
(363)
263
The following table summarizes the changes in the accumulated postretirement benefit obligation and fair value of plan assets
for the years ended December 31:
2013
2012
Accumulated postretirement benefit obligation at beginning of year ............................................ $
Service cost.....................................................................................................................................
Interest cost.....................................................................................................................................
Benefit payments ............................................................................................................................
Experience gain ..............................................................................................................................
Change due to change in assumptions ............................................................................................
Accumulated postretirement benefit obligation at end of year....................................................... $
$
(in thousands)
9,272
228
322
(230)
(423)
(1,000)
8,169
$
Fair value of plan assets at beginning of year................................................................................. $
Employer contributions ..................................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year........................................................................................... $
45
208
(230)
23
$
$
103
9,651
211
346
(249)
—
(687)
9,272
75
219
(249)
45
The following table presents the funded status of the Postretirement Plan, included in other liabilities on the consolidated balance
sheets as of December 31:
Accumulated postretirement benefit obligation.............................................................................. $
Fair value of plan assets..................................................................................................................
Funded status ........................................................................................................................... $
2013
2012
(in thousands)
(8,169) $
23
(8,146) $
(9,272)
45
(9,227)
The following table summarizes the changes in items recognized as a component of accumulated other comprehensive loss:
Unrecognized
Prior Service
Cost
Gross of tax
Unrecognized
Net Loss (Gain)
Balance as of December 31, 2011.................................................. $
Recognized as a component of 2012 postretirement benefit cost..
Unrecognized gains arising in 2012...............................................
Balance as of December 31, 2012..................................................
Recognized as a component of 2013 postretirement benefit cost..
Unrecognized gains arising in 2013...............................................
Balance as of December 31, 2013.................................................. $
(2,210) $
363
—
(1,847)
363
—
(1,484) $
(in thousands)
$
982
—
(685)
297
—
(1,434)
(1,137) $
Total
Net of tax
(1,228) $
363
(685)
(1,550)
363
(1,434)
(2,621) $
(799)
236
(445)
(1,008)
236
(932)
(1,704)
For measuring the postretirement benefit obligation, the annual increase in the per capita cost of health care benefits was assumed
to be 7% in year one, declining to an ultimate rate of 5.5% by year three. This health care cost trend rate has a significant impact
on the amounts reported. Assuming a 1.0% increase in the health care cost trend rate above the assumed annual increase, the
accumulated postretirement benefit obligation would increase by approximately $920,000 and the current period expense would
increase by approximately $90,000. Conversely, a 1.0% decrease in the health care cost trend rate would decrease the accumulated
postretirement benefit obligation by approximately $760,000 and the current period expense by approximately $70,000.
The following rates were used to calculate net periodic postretirement benefit cost and the present value of benefit obligations as
of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
4.75%
3.00%
3.75%
3.00%
4.25%
3.00%
2013
2012
2011
As of December 31, 2013 and 2012, the discount rate used to calculate the accumulated postretirement benefit obligation was
determined using the Citigroup Average Life discount rate table, as adjusted based on the Postretirement Plan's expected benefit
payments and rounded to the nearest 0.25%.
Effective February 1, 2014, the Corporation amended the Postretirement Plan, making all active full-time employees ineligible
for benefits under this plan. As a result of this amendment, the Corporation recorded a $1.5 million curtailment gain in 2014, as
determined by consulting actuaries. The curtailment gain resulted from the recognition of the remaining pre-curtailment prior
service cost as of December 31, 2013. In addition, this amendment resulted in a $3.4 million decrease in the accumulated
postretirement benefit obligation and a corresponding increase in unrecognized prior service cost credits and unrecognized gains.
The total amount of unrecognized prior service costs and unrecognized gains that will be recognized as reductions to net periodic
postretirement cost in 2014 are expected to be $237,000 and $70,000, respectively.
104
Estimated future benefit payments under the curtailed Postretirement Plan are as follows (in thousands):
Year
2014.......................................................................................................................................................................... $
2015..........................................................................................................................................................................
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019 – 2023..............................................................................................................................................................
$
451
458
459
469
472
2,461
4,770
NOTE N – SHAREHOLDERS’ EQUITY
Accumulated Other Comprehensive Loss
The following table presents the components of other comprehensive loss for the years ended December 31:
Before-Tax
Amount
Tax Effect
(in thousands)
Net of Tax
Amount
2013:
Unrealized (loss) gain on securities ................................................................................................. $
(76,319)
$
26,712
$
(49,607)
Reclassification adjustment for securities (gains) losses included in net income ...........................
Non-credit related unrealized gain on other-than-temporarily impaired debt securities .................
Unrealized gain on derivative financial instruments .......................................................................
Unrecognized pension and postretirement income (cost)................................................................
Amortization (accretion) of net unrecognized pension and postretirement income (cost)..............
(8,004)
3,042
209
12,875
2,019
Total Other Comprehensive Loss............................................................................................... $
(66,178)
2012:
Unrealized (loss) gain on securities ................................................................................................. $
Reclassification adjustment for securities (gains) losses included in net income ...........................
Non-credit related unrealized gain on other-than-temporarily impaired debt securities .................
Unrealized gain on derivative financial instruments .......................................................................
Unrecognized pension and postretirement income (cost)................................................................
Amortization (accretion) of net unrecognized pension and postretirement income (cost)..............
Total Other Comprehensive Loss............................................................................................... $
2011:
Unrealized (loss) gain on securities ................................................................................................. $
Reclassification adjustment for securities (gains) losses included in net income ...........................
Non-credit related unrealized gain on other-than-temporarily impaired debt securities .................
Unrealized gain on derivative financial instruments .......................................................................
Unrecognized pension and postretirement income (cost)................................................................
Amortization (accretion) of net unrecognized pension and postretirement income (cost)..............
2,414
(3,026)
2,046
209
(6,470)
1,321
(3,506)
13,490
(4,561)
369
209
(16,418)
(74)
$
$
$
$
2,801
(1,065)
(73)
(4,506)
(707)
23,162
(845)
1,059
(716)
(73)
2,263
(462)
1,226
(4,722)
1,597
(129)
(73)
5,746
26
$
$
$
$
(5,203)
1,977
136
8,369
1,312
(43,016)
1,569
(1,967)
1,330
136
(4,207)
859
(2,280)
8,768
(2,964)
240
136
(10,672)
(48)
Total Other Comprehensive Loss............................................................................................... $
(6,985)
$
2,445
$
(4,540)
105
The following table presents changes in each component of accumulated other comprehensive income (loss), net of tax, for the
years ended December 31:
Unrealized
Gain
(Losses) on
Investment
Securities
Not Other-
Than-
Temporarily
Impaired
Unrealized
Non-Credit
Gains
(Losses) on
Other-Than-
Temporarily
Impaired
Debt
Securities
Unrealized
Effective
Portions of
Losses on
Forward-
Starting
Interest Rate
Swaps
Total
Unrecognized
Pension and
Postretirement
Plan Income
(Cost)
(in thousands)
Balance as of December 31, 2010 .................................................................... $
22,354
$
(2,355)
$
(4,414) $
(3,090)
$
12,495
Current-period other comprehensive income (loss) .........................................
Amounts reclassified from accumulated other comprehensive income (loss) .
Balance as of December 31, 2011 ....................................................................
Current-period other comprehensive income (loss) .........................................
Amounts reclassified from accumulated other comprehensive income (loss) .
Balance as of December 31, 2012 ....................................................................
Other comprehensive income (loss) before reclassifications ...........................
Amounts reclassified from accumulated other comprehensive income (loss) .
7,664
(2,964)
27,054
1,275
(1,967)
26,362
(49,607)
(4,265)
1,344
—
(1,011)
1,624
—
613
1,977
(938)
(10,672)
(48)
(15,134)
(4,207)
859
—
136
(2,954)
—
136
(18,482)
(2,818)
8,369
1,312
—
136
(1,664)
(2,876)
7,955
(1,308)
(972)
5,675
(39,261)
(3,755)
Balance as of December 31, 2013 .................................................................... $
(27,510)
$
1,652
$
(8,801) $
(2,682)
$ (37,341)
Common Stock Repurchase Plans
In January 2013, the Corporation announced that its board of directors had approved a share repurchase program pursuant to which
the Corporation was authorized to repurchase of up to eight million shares. During 2013, the Corporation repurchased eight million
shares, completing this repurchase program.
In October 2013, the Corporation announced that its board of directors had approved a share repurchase program pursuant to
which the Corporation is authorized to repurchase up to four million shares, or approximately 2.1% of its outstanding shares,
through March 2014. During the first quarter of 2014, the Corporation repurchased 4.0 million shares under this repurchase plan
at an average cost of $12.45 per share, completing this repurchase program on February 19, 2014.
NOTE O – STOCK-BASED COMPENSATION PLANS
The following table presents compensation expense and related tax benefits for all equity awards, including stock options and
restricted stock, recognized in the consolidated statements of income:
Compensation expense.......................................................................................... $
Tax benefit.............................................................................................................
Stock-based compensation, net of tax................................................................... $
5,330
(1,475)
3,855
2013
2012
(in thousands)
4,834
$
(1,253)
3,581
$
$
$
2011
4,249
(1,192)
3,057
The tax benefit shown in the preceding table is less than the benefit that would be calculated using the Corporation’s 35% statutory
federal tax rate. 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. The Corporation granted
50,000, 15,000 and 1,000 non-qualified stock options in 2013, 2012 and 2011, respectively.
106
The following table presents compensation expense and related tax benefits for restricted stock awards recognized in the
consolidated statements of income, and included as a component of total stock-based compensation within the preceding table:
Compensation expense.......................................................................................... $
Tax benefit.............................................................................................................
Restricted stock compensation, net of tax............................................................. $
3,705
(1,297)
2,408
2013
2012
(in thousands)
3,506
$
(1,227)
2,279
$
$
$
2011
3,194
(1,119)
2,075
The following table provides information about stock option activity for the year ended December 31, 2013:
Outstanding as of December 31, 2012 ........................................
Granted .................................................................................
Exercised ..............................................................................
Forfeited ...............................................................................
Expired .................................................................................
Outstanding as of December 31, 2013 ........................................
Exercisable as of December 31, 2013 .........................................
Stock
Options
6,076,121
617,869
(451,102)
(255,902)
(419,285)
5,567,701
4,496,435
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in millions)
13.17
11.58
8.38
14.70
13.77
13.25
13.74
4.2 years
3.2 years
$
$
7.2
5.1
The following table provides information about nonvested stock options and restricted stock granted under the Employee Option
Plan and Directors' Plan for the year ended December 31, 2013:
Nonvested Stock Options
Restricted Stock
Nonvested as of December 31, 2012...........................................
Granted .................................................................................
Vested...................................................................................
Forfeited ...............................................................................
Nonvested as of December 31, 2013...........................................
Options
1,024,168
617,869
(521,503)
(49,268)
1,071,266
Weighted
Average
Grant Date
Fair Value
2.07
2.49
2.00
2.05
2.35
$
$
Shares
971,453
424,619
(437,209)
(15,824)
943,039
Weighted
Average
Grant Date
Fair Value
10.20
11.63
10.07
10.28
10.90
$
$
As of December 31, 2013, there was $5.1 million of total unrecognized compensation cost related to nonvested stock options and
restricted stock that will be recognized as compensation expense over a weighted average period of two years. As of December 31,
2013, the Employee Option Plan had 11.0 million shares reserved for future grants through 2023 and the Directors’ Plan had
438,000 shares reserved for future grants through 2021.
The following table presents information about stock options exercised:
Number of options exercised ................................................................................
Total intrinsic value of options exercised.............................................................. $
Cash received from options exercised .................................................................. $
Tax deduction realized from options exercised..................................................... $
451,102
1,612
3,650
1,416
$
$
$
141,305
402
987
322
$
$
$
261,272
763
1,855
652
2013
2012
(dollars in thousands)
2011
Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options.
107
The fair value of stock option awards under the Employee Option Plan was estimated on the grant date using the Black-Scholes
valuation methodology, which is dependent upon certain assumptions, as summarized in the following table:
Risk-free interest rate ............................................................................................
Volatility of Corporation’s stock...........................................................................
Expected dividend yield........................................................................................
Expected life of options ........................................................................................
1.27%
27.64%
2.48%
7 Years
1.68%
26.60%
2.54%
7 Years
2.35%
22.80%
2.41%
6 Years
2013
2012
2011
The expected life of the options was estimated based on historical activity. Volatility of the Corporation’s stock was based on
historical volatility for the period commensurate with the expected life of the options. The risk-free interest rate is the zero-coupon
U.S. Treasury rate commensurate with the expected life of the options on the date of the grant.
Based on the assumptions above, the Corporation calculated an estimated fair value per option of $2.49, $2.22 and $2.10 for
options granted in 2013, 2012 and 2011, respectively. The Corporation granted 617,869 options in 2013, 470,528 options in 2012
and 616,686 options in 2011.
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:
ESPP shares purchased..........................................................................................
Average purchase price per share (85% of market value)..................................... $
Compensation expense recognized (in thousands) ............................................... $
2013
141,608
10.02
251
$
$
2012
165,456
8.35
244
$
$
2011
164,610
8.39
244
NOTE P – LEASES
Certain branch offices and equipment are leased under agreements that expire at varying dates through 2035. Most leases contain
renewal provisions at the Corporation’s option. Total rental expense was approximately $19.0 million in 2013, $19.4 million in
2012 and $18.6 million in 2011.
Future minimum payments as of December 31, 2013 under non-cancelable operating leases with initial terms exceeding one year
are as follows (in thousands):
Year
2014.......................................................................................................................................................................... $
2015..........................................................................................................................................................................
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
$
16,598
15,858
14,514
13,168
10,955
60,435
131,528
NOTE Q – COMMITMENTS AND CONTINGENCIES
Commitments
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of its customers.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a
fee. Since a portion of the commitments is expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case
basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory, property, equipment and income producing commercial
properties. The Corporation records a reserve for unfunded commitments, included in other liabilities on the consolidated balance
108
sheets, which represents management’s estimate of losses inherent in these commitments. See Note D, "Loans and Allowance for
Credit Losses," for additional information.
Standby letters of credit are conditional commitments issued to guarantee the financial or performance obligation of a customer
to a third-party. The credit risk involved in issuing letters of credit is similar to that involved in extending loan facilities. These
obligations are underwritten consistently with commercial lending standards. The maximum exposure to loss for standby letters
of credit is equal to the contractual (or notional) amount of the instruments.
The following table presents commitments to extend credit and letters of credit:
2013
2012
(in thousands)
Commercial and other..................................................................................................................... $ 2,773,415
1,245,589
Home equity....................................................................................................................................
360,574
Commercial mortgage and construction.........................................................................................
Total commitments to extend credit ........................................................................................ $ 4,379,578
$ 2,711,766
964,145
335,830
$ 4,011,741
Standby letters of credit .................................................................................................................. $
Commercial letters of credit ...........................................................................................................
Total letters of credit................................................................................................................ $
391,445
36,344
427,789
$
$
425,095
26,191
451,286
Residential Lending
Residential mortgages are originated and sold by the Corporation and consist primarily of conforming, prime loans sold to
government sponsored agencies such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). The Corporation also sells certain residential mortgages to non-government sponsored
agency investors.
The Corporation provides customary representations and warranties to investors that specify, among other things, that the loans
have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan or
reimburse the investor for a credit loss incurred on a loan if it is determined that the representations and warranties have not been
met. This generally results from an underwriting or documentation deficiency. As of December 31, 2013 and 2012, total outstanding
repurchase requests totaled approximately $6.1 million and $4.5 million, respectively.
From 2000 to 2011, the Corporation sold loans to the FHLB under its Mortgage Partnership Finance Program (MPF Program).
No loans were sold under this program in 2013 or 2012. The Corporation provided a "credit enhancement" for residential mortgage
loans sold under the MPF Program whereby it would assume credit losses in excess of a defined "First Loss Account" (FLA)
balance, up to specified amounts. The FLA is funded by the FHLB based on a percentage of the outstanding principal balance of
loans sold. As of December 31, 2013, the unpaid principal balance of loans sold under the MPF Program was approximately $178
million. As of December 31, 2013 and 2012, the reserves for estimated credit losses related to loans sold under the MPF Program
were $2.5 million and $3.6 million, respectively. Required reserves are calculated based on delinquency status and estimated loss
rates established through the Corporation's existing allowance for credit loss methodology.
As of December 31, 2013 and 2012, the reserve for losses on residential mortgage loans sold was $8.6 million and $6.0 million,
respectively, including both reserves for credit losses under the MPF Program and reserves for representation and warranty
exposures. Management believes that the reserves recorded as of December 31, 2013 are adequate. However, declines in collateral
values, the identification of additional loans to be repurchased, or a deterioration in the credit quality of loans sold under the MPF
Program could necessitate additional reserves, established through charges to earnings, in the future.
Other Contingencies
The Corporation and its subsidiaries are involved in various legal proceedings in the ordinary course of business of the
Corporation. The Corporation periodically evaluates the possible impact of pending litigation matters based on, among other
factors, the advice of counsel, available insurance coverage and recorded liabilities and reserves for probable legal liabilities and
costs. In addition, from time to time, the Corporation is the subject of 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 industry participants. These inquiries could lead to administrative, civil or criminal proceedings, and could possibly result
in fines, penalties, restitution or the need to alter the Corporation’s business practices, and cause the Corporation to incur additional
costs. The Corporation’s practice is to cooperate fully with regulatory and governmental investigations.
109
As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from
the final outcomes of pending proceedings will not have a material adverse effect on the financial position, the operating results
and/or the liquidity of the Corporation. However, legal proceedings are often unpredictable, and the actual results of such
proceedings cannot be determined with certainty.
NOTE R – FAIR VALUE MEASUREMENTS
As required by FASB ASC Topic 820, all assets and liabilities required to be measured at fair value both on a recurring and non-
recurring basis have been categorized based on the method of their fair value determination.
Following is a summary of the Corporation’s assets and liabilities measured at fair value on a recurring basis and reported on the
consolidated balance sheets at December 31:
Mortgage loans held for sale ....................................................... $
Available for sale investment securities:
2013
Level 1
Level 2
Level 3
Total
— $
(in thousands)
21,351
$
— $
21,351
Equity securities ...................................................................
46,201
U.S. Government securities..................................................
U.S. Government sponsored agency securities ....................
State and municipal securities ..............................................
Corporate debt securities ......................................................
Collateralized mortgage obligations.....................................
Mortgage-backed securities..................................................
Auction rate securities ..........................................................
—
—
—
—
—
—
—
Total available for sale investment securities..............................
Other assets..................................................................................
46,201
15,779
—
525
726
284,849
89,662
1,032,398
945,712
—
2,353,872
7,227
—
—
—
—
9,087
—
—
159,274
168,361
—
46,201
525
726
284,849
98,749
1,032,398
945,712
159,274
2,568,434
23,006
Total assets .................................................................... $
Other liabilities ............................................................................ $
61,980
$ 2,382,450
15,648
$
5,161
$
$
168,361
$ 2,612,791
— $
20,809
Mortgage loans held for sale ....................................................... $
Available for sale investment securities:
2012
Level 1
Level 2
Level 3
Total
— $
(in thousands)
67,899
$
— $
67,899
Equity securities ...................................................................
49,628
U.S. Government securities..................................................
U.S. Government sponsored agency securities ....................
State and municipal securities ..............................................
Corporate debt securities ......................................................
Collateralized mortgage obligations.....................................
Mortgage-backed securities..................................................
Auction rate securities ..........................................................
—
—
—
—
—
—
—
Total available for sale investment securities..............................
Other assets..................................................................................
49,628
15,259
—
325
2,397
315,519
102,555
1,211,119
879,621
—
2,511,536
14,710
—
—
—
—
10,287
—
—
149,339
159,626
—
49,628
325
2,397
315,519
112,842
1,211,119
879,621
149,339
2,720,790
29,969
Total assets .................................................................... $
Other liabilities ............................................................................ $
64,887
$ 2,594,145
15,524
$
8,161
$
$
159,626
$ 2,818,658
— $
23,685
110
The valuation techniques used to measure fair value for the items in the table above are as follows:
• Mortgage loans held for sale – This category consists of mortgage loans held for sale that the Corporation has elected to
measure at fair value. Fair values as of December 31, 2013 and December 31, 2012 were measured as the price that
secondary market investors were offering for loans with similar characteristics. See Note A, "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 within this asset category are both equity and debt securities. Level
2 available for sale debt securities are valued by a third-party pricing service commonly used in the banking industry.
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
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.
Management tests the values provided by the pricing service by obtaining securities prices from an alternative third-party
source and comparing the results. This test is done for approximately 75% of the securities valued by the pricing service.
Generally, differences by security in excess of 5% are researched to reconcile the difference.
• Equity securities – Equity securities consist of stocks of financial institutions ($40.6 million at December 31,
2013 and $44.2 million at December 31, 2012) and other equity investments ($5.6 million at December 31, 2013
and $5.4 million at December 31, 2012). These Level 1 investments are measured at fair value based on quoted
prices for identical securities in active markets.
• U.S. Government securities/U.S. Government sponsored agency securities/State and municipal securities/
Collateralized mortgage obligations/Mortgage-backed securities – These debt securities are classified as Level
2 investments. Fair values are determined by a third-party pricing service, as detailed above.
• Corporate debt securities – This category consists of subordinated debt issued by financial institutions ($50.3
million at December 31, 2013 and $51.7 million at December 31, 2012), single-issuer trust preferred securities
issued by financial institutions ($40.5 million at December 31, 2013 and $51.7 million at December 31, 2012),
pooled trust preferred securities issued by financial institutions ($5.3 million at December 31, 2013 and $6.9
million at December 31, 2012) and other corporate debt issued by non-financial institutions ($2.6 million at
December 31, 2013 and $2.5 million at December 31, 2012).
Level 2 investments include subordinated debt, other corporate debt issued by non-financial institutions and
$36.7 million and $48.3 million of single-issuer trust preferred securities held at December 31, 2013 and 2012,
respectively. The fair values for these corporate debt securities are determined by a third-party pricing service,
as detailed above.
Level 3 investments include investments in pooled trust preferred securities and certain single-issuer trust
preferred securities ($3.8 million at December 31, 2013 and $3.4 million at December 31, 2012). The fair values
of these securities were determined based on quotes provided by third-party brokers who determined fair values
based predominantly on internal valuation models which were not indicative prices or binding offers. The
Corporation’s third-party pricing service cannot derive fair values for these securities primarily due to inactive
markets for similar investments. Level 3 values are tested by management primarily through trend analysis, by
comparing current values to those reported at the end of the preceding calendar quarter, and determining if they
are reasonable based on price and spread movements for this asset class.
• Auction rate securities – Due to their illiquidity, ARCs are classified as Level 3 investments and are valued
through the use of an expected cash flows model prepared by a third-party valuation expert. The assumptions
used in preparing the expected cash flows model include estimates for coupon rates, time to maturity and market
rates of return. The most significant unobservable input to the expected cash flows model is an assumed return
to market liquidity sometime within the next five years. If the assumed return to market liquidity was lengthened
beyond the next five years, this would result in a decrease in the fair value of these ARCs. The Corporation
believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid. Level 3 values are
tested by management through the performance of a trend analysis of the market price and discount rate. Changes
in the price and discount rates are compared to changes in market data, including bond ratings, parity ratios,
balances and delinquency levels.
111
• Other assets – Included within this category are the following:
• Level 1 assets, consisting of mutual funds that are held in trust for employee deferred compensation plans ($15.3
million at December 31, 2013 and $14.1 million at December 31, 2012) and the fair value of foreign currency
exchange contracts ($522,000 at December 31, 2013 and $1.2 million at December 31, 2012). The mutual funds
and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical
instruments in active markets.
• Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and
forward commitments with secondary market investors ($2.1 million at December 31, 2013 and $7.6 million at
December 31, 2012) and the fair value of interest rate swaps ($5.1 million at December 31, 2013 and $7.1 million
at December 31, 2012). The fair values of the interest rate locks, forward commitments and interest rate swaps
represent the amounts that would be required to settle the derivative financial instruments at the balance sheet
date. See Note J, "Derivative Financial Instruments," for additional information.
• Other liabilities – Included within this category are the following:
• Level 1 employee deferred compensation liabilities which represent amounts due to employees under deferred
compensation plans ($15.3 million at December 31, 2013 and $14.1 million at December 31, 2012) and the fair
value of foreign currency exchange contracts ($391,000 at December 31, 2013 and $1.5 million at December 31,
2012). The fair values of these liabilities are determined in the same manner as the related assets, as described
under the heading "Other assets," above.
• 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 ($64,000 at December 31, 2013 and $1.1 million at
December 31, 2012) and the fair value of interest rate swaps ($5.1 million at December 31, 2013 and $7.1 million
at December 31, 2012). The fair values of these liabilities are determined in the same manner as the related
assets, which are described under the heading "Other assets" above.
The following table presents the changes in available for sale investment securities measured at fair value on a recurring basis
using unobservable inputs (Level 3) for the years ended December 31:
Pooled Trust
Preferred
Securities
Balance as of December 31, 2011 .................................................................. $
Realized adjustments to fair value (1)............................................................
Unrealized adjustments to fair value (2) ........................................................
Sales ...............................................................................................................
Settlements - calls...........................................................................................
Discount accretion (3) ....................................................................................
Balance as of December 31, 2012 ..................................................................
Realized adjustments to fair value (1)............................................................
Unrealized adjustments to fair value (2) ........................................................
Sales ...............................................................................................................
Settlements - calls...........................................................................................
Discount accretion (3) ....................................................................................
Balance as of December 31, 2013 .................................................................. $
5,109
(19)
2,466
—
(673)
44
6,927
1,604
1,981
(4,987)
(219)
—
5,306
Single-issuer
Trust
Preferred
Securities
(in thousands)
4,180
$
19
359
(956)
(250)
8
3,360
—
412
—
9
3,781
$
$
Auction Rate
Securities
(ARCs)
$
225,211
(434)
(8,612)
—
(69,068)
2,242
149,339
—
11,688
(25)
(2,725)
997
159,274
(1) Realized adjustments to fair value represent credit related other-than-temporary impairment charges and gains on sales of investment securities, both included
as components of investment securities gains on the consolidated statements of income.
(2) Pooled trust preferred securities, single-issuer trust preferred securities and ARCs are classified as available for sale investment securities; as such, the
unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of available for sale investment securities
on the consolidated balance sheet.
Included as a component of net interest income on the consolidated statements of income.
(3)
112
Certain financial assets 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 financial
assets measured at fair value on a nonrecurring basis and reported on the consolidated balance sheets at December 31:
Level 1
Level 2
Level 3
Total
2013
Net loans...................................................................................... $
Other financial assets...................................................................
Total assets ........................................................................... $
— $
—
— $
(in thousands)
— $
—
— $
138,666
57,504
196,170
Net loans...................................................................................... $
Other financial assets...................................................................
Total assets ........................................................................... $
— $
—
— $
(in thousands)
— $
—
— $
191,165
62,203
253,368
Level 1
Level 2
Level 3
2012
$
$
$
$
138,666
57,504
196,170
Total
191,165
62,203
253,368
The valuation techniques used to measure fair value for the items in the table above are as follows:
• Net loans – This category consists of loans that were evaluated for impairment under FASB ASC Section 310-10-35 and
have been classified as Level 3 assets. The amount shown is the balance of impaired loans, net of the related allowance
for loan losses. See Note D, "Loans and Allowance for Credit Losses," for additional details.
• Other financial assets – This category includes OREO ($15.1 million at December 31, 2013 and $26.1 million at
December 31, 2012) and MSRs net of the MSR valuation allowance ($42.5 million at December 31, 2013 and $36.1
million at December 31, 2012), both classified as Level 3 assets.
Fair values for OREO were based on estimated selling prices less estimated selling costs for similar assets in active
markets.
MSRs are initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors. MSRs
are amortized as a reduction to servicing 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 at the end of each quarter through a discounted cash flows valuation. During 2013, the Corporation engaged
a third-party valuation expert to estimate the fair value of its MSRs. Significant inputs to the valuation include 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, 2013 valuation were 10.5% and 9.1%, respectively.
Management tests the reasonableness of the significant inputs to the third-party valuation in comparison to market data.
As required by FASB ASC Section 825-10-50, the following table details the book values and the estimated fair values of the
Corporation’s financial instruments as of December 31, 2013 and 2012. In addition, a general description of the methods and
assumptions used to estimate such fair values is also provided.
Fair values of financial instruments are significantly affected by assumptions used, principally the timing of future cash flows and
discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by
comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an
immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent
management’s estimate of the underlying value of the Corporation.
113
2013
2012
Book Value
Estimated
Fair Value
Book Value
Estimated
Fair Value
(in thousands)
FINANCIAL ASSETS
Cash and due from banks ............................................................ $
Interest-bearing deposits with other banks ..................................
Federal Reserve Bank and FHLB stock ......................................
Loans held for sale (1).................................................................
Securities held to maturity...........................................................
Securities available for sale (1) ...................................................
Loans, net of unearned income (1) ..............................................
Accrued interest receivable .........................................................
Other financial assets (1) .............................................................
FINANCIAL LIABILITIES
Demand and savings deposits...................................................... $ 9,573,264
2,917,922
Time deposits...............................................................................
1,258,629
Short-term borrowings.................................................................
15,218
Accrued interest payable .............................................................
124,440
Other financial liabilities (1) .......................................................
883,584
FHLB advances and long-term debt............................................
218,540
163,988
84,173
21,351
—
2,568,434
12,782,220
44,037
146,933
$
218,540
163,988
84,173
21,351
—
2,568,434
12,688,774
44,037
146,933
$
256,300
173,257
71,702
67,899
292
2,720,790
12,146,971
45,786
201,069
$
256,300
173,257
71,702
67,899
319
2,720,790
12,127,309
45,786
201,069
$ 9,573,264
2,927,374
1,258,629
15,218
124,440
875,984
$ 9,100,825
3,383,338
868,399
19,330
58,255
894,253
$ 9,100,825
3,413,060
868,399
19,330
58,255
853,547
(1) These financial instruments, or certain financial instruments within these categories, are measured at fair value on the Corporation’s consolidated balance
sheets. Descriptions of the fair value determinations for these financial instruments are disclosed above.
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
Cash and due from banks
Interest-bearing deposits
Accrued interest receivable
Liabilities
Demand and savings deposits
Short-term borrowings
Accrued interest payable
Federal Reserve Bank and FHLB stock represent restricted investments and are carried at cost on the consolidated balance sheets.
The estimated fair values of securities held to maturity as of December 31, 2013 were generally based on valuations performed
by a third-party pricing service commonly used in the banking industry. Management tests the values provided by the pricing
service by obtaining securities prices from an alternative third-party source and comparing the results. The estimated fair value
of these securities would be categorized as Level 2 assets under FASB Topic 820.
Estimated fair values for loans and time deposits were estimated by discounting future cash flows using the current rates at which
similar loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities.
Fair values estimated in this manner do not fully incorporate an exit price approach to fair value, as defined in FASB ASC Topic
820.
The fair values of FHLB advances and long-term debt were estimated by discounting the remaining contractual cash flows using
a rate at which the Corporation could issue debt with similar remaining maturities as of the balance sheet date. The fair values of
these borrowings would be categorized as Level 2 liabilities under FASB Topic 820.
114
NOTE S – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
(in thousands)
December 31
2013
2012
ASSETS
Cash........................................ $
Other assets ............................
Receivable from subsidiaries .
$
8
2,526
21,849
LIABILITIES AND EQUITY
40 Long-term debt ............................. $
10,126 Payable to non-bank subsidiaries .
20,829 Other liabilities.............................
Total Liabilities...................
December 31
2013
2012
$
368,487
42,944
66,313
477,744
368,172
23,733
58,246
450,151
Investments in:
Bank subsidiaries ............
Non-bank subsidiaries ....
2,109,696
406,852
2,111,708
389,104 Shareholders’ equity.....................
2,063,187
2,081,656
Total Assets................... $ 2,540,931
$ 2,531,807
Total Liabilities and
Shareholders’ Equity. $ 2,540,931
$ 2,531,807
CONDENSED STATEMENTS OF INCOME
2013
2012
(in thousands)
2011
Income:
Dividends from subsidiaries........................................................................................ $ 114,438
Other............................................................................................................................
106,297
Expenses.............................................................................................................................
Income before income taxes and equity in undistributed net income of subsidiaries.
Income tax benefit ..............................................................................................................
220,735
138,164
82,571
(10,744)
93,315
$ 142,000
$ 91,325
88,380
230,380
124,525
105,855
(10,847)
116,702
78,662
169,987
112,398
57,589
(11,523)
69,112
Equity in undistributed net income (loss) of:
Bank subsidiaries ........................................................................................................
56,552
Non-bank subsidiaries.................................................................................................
11,973
Net Income .................................................................................................................. $ 161,840
46,350
(3,207)
$ 159,845
80,908
(4,447)
$ 145,573
115
CONDENSED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net Income ......................................................................................................................... $ 161,840
Adjustments to reconcile net income to net cash provided by operating activities:
$ 159,845
$ 145,573
2013
2012
(in thousands)
2011
Stock-based compensation ............................................................................................
Excess tax benefits from stock-based compensation.....................................................
Decrease (increase) in other assets ................................................................................
Equity in undistributed net income of subsidiaries .......................................................
Increase in other liabilities and payable to non-bank subsidiaries ................................
Total adjustments....................................................................................................
Net cash provided by operating activities ..............................................................
5,330
(302)
1,893
(68,525)
26,946
(34,658)
127,182
4,834
(39)
(6,340)
(43,143)
6,885
(37,803)
122,042
Cash Flows From Investing Activities:
Investments in bank subsidiaries ...................................................................................
Investments in non-bank subsidiaries............................................................................
Net cash used in investing activities ......................................................................
—
—
— (32,649)
— (32,649)
Cash Flows From Financing Activities:
Repayments of long-term debt ......................................................................................
Net proceeds from issuance of common stock ..............................................................
—
9,936
Excess tax benefits from stock-based compensation.....................................................
Dividends paid...............................................................................................................
Acquisition of treasury stock.........................................................................................
Net cash used in financing activities ......................................................................
Net (Decrease) Increase in Cash and Cash Equivalents ................................................
Cash and Cash Equivalents at Beginning of Year.........................................................
Cash and Cash Equivalents at End of Year.................................................................... $
8
$
40
$
(4,125)
7,005
39
(71,972)
(20,359)
(89,412)
(19)
59
302
(46,525)
(90,927)
(127,214)
(32)
40
4,249
—
2,086
(76,461)
18,428
(51,698)
93,875
(15,000)
(41,125)
(56,125)
(10,619)
6,835
—
(33,917)
—
(37,701)
49
10
59
116
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 Company’s internal control over financial reporting as of December 31, 2013, using
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework (1992). Based on this assessment, management concluded that, as of December 31, 2013, the company’s
internal control over financial reporting is effective based on those criteria.
/s/ E. PHILIP WENGER
E. Philip Wenger
Chairman, Chief Executive Officer and President
/s/ PATRICK S. BARRETT
Patrick S. Barrett
Senior Executive Vice President and
Chief Financial Officer
117
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Fulton Financial Corporation:
We have audited the accompanying consolidated balance sheets of Fulton Financial Corporation and subsidiaries (the Company)
as of December 31, 2013 and 2012, and 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, 2013. We also have audited Fulton
Financial Corporation’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal
Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Fulton Financial Corporation’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 these consolidated financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. 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.
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.
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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Fulton Financial Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, Fulton Financial Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 3, 2014
118
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per-share data)
FOR THE YEAR 2013
Interest income ............................................................................ $
Interest expense ...........................................................................
Net interest income......................................................................
Provision for credit losses ...........................................................
Non-interest income ....................................................................
Non-interest expenses..................................................................
Income before income taxes........................................................
Income tax expense .....................................................................
Net income................................................................................... $
Per share data:
Net income (basic) ............................................................... $
Net income (diluted).............................................................
Cash dividends .....................................................................
FOR THE YEAR 2012
Interest income ............................................................................ $
Interest expense ...........................................................................
Net interest income......................................................................
Provision for credit losses ...........................................................
Non-interest income ....................................................................
Non-interest expenses..................................................................
Income before income taxes........................................................
Income tax expense .....................................................................
Net income................................................................................... $
Per share data:
Net income (basic) ............................................................... $
Net income (diluted).............................................................
Cash dividends .....................................................................
Mar 31
Three Months Ended
Sep 30
Jun 30
Dec 31
151,322
$
153,078
$
152,832
$
152,457
21,678
129,644
15,000
47,259
110,936
50,967
11,740
39,227
0.20
0.20
0.08
$
$
21,013
132,065
13,500
52,316
117,130
53,751
13,169
40,582
0.21
0.21
0.08
$
$
20,299
132,533
9,500
47,357
116,605
53,785
13,837
39,948
0.21
0.21
0.08
$
$
19,505
132,952
2,500
40,732
116,762
54,422
12,339
42,083
0.22
0.22
0.08
166,891
$
163,985
$
161,060
$
155,560
28,196
138,695
28,000
51,638
110,669
51,664
13,532
38,132
0.19
0.19
0.07
$
$
26,455
137,530
25,500
53,308
112,087
53,251
13,360
39,891
0.20
0.20
0.07
$
$
25,179
135,881
23,000
51,943
109,982
54,842
13,260
41,582
0.21
0.21
0.08
$
$
23,338
132,222
17,500
59,523
116,556
57,689
17,449
40,240
0.20
0.20
0.08
119
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management,
including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and
procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31, 2013, the Corporation’s disclosure controls and
procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information
required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
The "Management Report on Internal Control over Financial Reporting" and the "Report of Independent Registered Public
Accounting Firm" may be found in Item 8, "Financial Statements and Supplementary Data" of this document.
Changes in Internal Controls
There was no change in the Corporation’s "internal control over financial reporting" (as such term is defined in Rule 13a-15(f)
under the Exchange Act) that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the Corporation’s internal control over financial reporting.
Item 9B. Other Information
Not applicable.
120
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Incorporated by reference herein is the information appearing under the headings "Information about Nominees, Directors and
Independence Standards," "Related Person Transactions," "Section 16(a) Beneficial Ownership Reporting Compliance," "Code
of Conduct," "Procedure for Shareholder Nominations," and "Other Board Committees" within the Corporation’s 2014 Proxy
Statement. The information concerning executive officers required by this Item is provided under the caption "Executive Officers"
within Item 1, Part I, "Business" in this Annual Report.
The Corporation has adopted a code of ethics (Code of Conduct) that applies to all directors, officers and employees, including
the Chief Executive Officer, the Chief Financial Officer and the Corporate Controller. A copy of the Code of Conduct may be
obtained free of charge by writing to the Corporate Secretary at Fulton Financial Corporation, P.O. Box 4887, Lancaster,
Pennsylvania 17604-4887, and is also available via the internet at www.fult.com.
Item 11. Executive Compensation
Incorporated by reference herein is the information appearing under the headings "Information Concerning Compensation" and
"Human Resources Committee Interlocks and Insider Participation" within the Corporation’s 2014 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by reference herein is the information appearing under the heading "Security Ownership of Directors, Nominees,
Management and Certain Beneficial Owners" within the Corporation’s 2014 Proxy Statement, and information appearing under
the heading "Securities Authorized for Issuance under Equity Compensation Plans" within Item 5, "Market for Registrant’s
Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities" in this Annual Report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference herein is the information appearing under the headings "Related Person Transactions" and "Information
about Nominees, Directors and Independence Standards" within the Corporation’s 2014 Proxy Statement, and the information
appearing in "Note D - Loans and Allowance for Credit Losses," of the Notes to Consolidated Financial Statements in Item 8,
"Financial Statements and Supplementary Data" in this Annual Report.
Item 14. Principal Accounting Fees and Services
Incorporated by reference herein is the information appearing under the heading "Relationship With Independent Public
Accountants" within the Corporation’s 2014 Proxy Statement.
121
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1.
Financial Statements — The following consolidated financial statements of Fulton Financial Corporation and subsidiaries
are incorporated herein by reference in response to Item 8 above:
(i)
(ii)
(iii)
(iii)
(iv)
(v)
(vi)
Consolidated Balance Sheets - December 31, 2013 and 2012.
Consolidated Statements of Income - Years ended December 31, 2013, 2012 and 2011.
Consolidated Statements of Comprehensive Income - Years ended December 31, 2013, 2012 and 2011.
Consolidated Statements of Shareholders’ Equity - Years ended December 31, 2013, 2012 and 2011.
Consolidated Statements of Cash Flows - Years ended December 31, 2013, 2012 and 2011.
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2.
3.
Financial Statement Schedules — All financial statement schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable
and have therefore been omitted.
Exhibits — The following is a list of the Exhibits required by Item 601 of Regulation S-K and filed as part of this report:
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
Articles of Incorporation, as amended and restated, of Fulton Financial Corporation as amended – Incorporated by
reference to Exhibit 3.1 of the Fulton Financial Corporation Form 8-K dated June 24, 2011.
Bylaws of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit 3.1 of the Fulton Financial
Corporation Current Report on Form 8-K dated September 18, 2008.
An Indenture entered into on March 28, 2005 between Fulton Financial Corporation and Wilmington Trust Company
as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.35% subordinated
notes due April 1, 2015 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current
Report on Form 8-K dated March 31, 2005.
Purchase Agreement entered into between Fulton Financial Corporation, Fulton Capital Trust I, FFC Management,
Inc. and Sandler O’Neill & Partners, L.P. with respect to the Trust’s issuance and sale in a firm commitment public
offering of $150 million aggregate liquidation amount of 6.29% Capital Securities – Incorporated by reference to
Exhibit 1.1 of the Fulton Financial Corporation Current Report on Form 8-K dated January 20, 2006.
First Supplemental Indenture entered into on May 1, 2007 between Fulton Financial Corporation and Wilmington
Trust Company as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.75%
subordinated notes due May 1, 2017 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation
Current Report on Form 8-K dated May 1, 2007.
Amended Employment Agreement between Fulton Financial Corporation and Craig H. Hill dated November 12,
2008 – Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-
K dated November 14, 2008.
Amended Employment Agreement between Fulton Financial Corporation and Charles J. Nugent dated November
12, 2008 – Incorporated by reference to Exhibit 10.3 of the Fulton Financial Corporation Current Report on Form
8-K dated November 14, 2008.
Amended Employment Agreement between Fulton Financial Corporation and James E. Shreiner dated November
12, 2008 – Incorporated by reference to Exhibit 10.4 of the Fulton Financial Corporation Current Report on Form
8-K dated November 14, 2008.
Amended Employment Agreement between Fulton Financial Corporation and E. Philip Wenger dated November
12, 2008 – Incorporated by reference to Exhibit 10.5 of the Fulton Financial Corporation Current Report on Form
8-K dated November 14, 2008.
Employment Agreement between Fulton Financial Corporation and Craig A. Roda dated August 1, 2011 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
August 5, 2011.
Employment Agreement between Fulton Financial Corporation and Philmer H. Rohrbaugh dated November 1, 2012
– Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
October 22, 2012.
122
10.7
10.8
10.9
Employment Agreement between Fulton Financial Corporation and Meg R. Mueller dated July 1, 2013 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
June 21, 2013.
Employment Agreement between Fulton Financial Corporation and Curtis J. Myers dated July 1, 2013 – Incorporated
by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.
Employment Agreement between Fulton Financial Corporation and Angela M. Sargent dated July 1, 2013 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
June 21, 2013.
10.10 Employment Agreement between Fulton Financial Corporation and Patrick S. Barrett dated November 4, 2013 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
October 24, 2013.
10.11 Form of Death Benefit Only Agreement to Senior Management – Incorporated by reference to Exhibit 10.9 of the
Fulton Financial Corporation Annual Report on Form 10K dated March 1, 2007.
10.12 Fulton Financial Corporation Amended and Restated Equity and Cash Incentive Compensation Plan – Incorporated
by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated May 3, 2013.
10.13 Form of Option Award and Form of Restricted Stock Award under the Fulton Financial Corporation Amended and
Restated Equity and Cash Incentive Compensation Plan between Fulton Financial Corporation and Officers of the
Corporation – Incorporated by reference to Exhibits 10.1 and 10.2 of the Fulton Financial Corporation Current
Report on Form 8-K dated June 19, 2013.
10.14 Form of Amendment to Stock Option Agreement for John M. Bond – Incorporated by reference to Exhibit 10.1 of
the Fulton Financial Corporation Current Report on Form 8-K dated December 22, 2006.
10.15 Amended and Restated Fulton Financial Corporation Employee Stock Purchase Plan – Incorporated by reference
to Exhibit A to Fulton Financial Corporation’s definitive proxy statement, dated April 2, 2007.
10.16 Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective January 1, 2008 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
December 26, 2007.
10.17 Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective January 1, 2014 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
December 20, 2013.
10.18 Form of Supplemental Executive Retirement Plan – For Use with Executives with no Pre-2008 Accruals –
Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated
December 26, 2007.
10.19 Form of Amended and Restated Supplemental Executive Retirement Plan - For Use with Executives with Pre-409A
Accruals – Incorporated by reference to Exhibit 10.3 of the Fulton Financial Corporation Current Report on Form
8-K dated December 26, 2007.
10.20 Form of Amended and Restated Supplemental Executive Retirement Plan – For Use with Executives First Covered
After 2004 but Before 2008 – Incorporated by reference to Exhibit 10.4 of the Fulton Financial Corporation Current
Report on Form 8-K dated December 26, 2007.
10.21 Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated June 23, 2011. Portions of this
exhibit have been redacted and are subject to a confidential treatment request filed with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted material
was filed separately with the Securities and Exchange Commission. – Incorporated by reference to Exhibit 10.1 of
the Fulton Financial Corporation Quarterly Report on Form 10-Q dated August 8, 2011.
10.22 Fulton Financial Corporation Variable Compensation Plan Summary Description – Incorporated by reference to
Exhibit 99.1 of the Fulton Financial Corporation Current Report on Form 8-K dated March 18, 2011.
10.23 Fulton Financial Corporation Directors' Equity Participation Plan – Incorporated by reference to Exhibit A to Fulton
Financial Corporation’s definitive proxy statement, dated March 24, 2011.
10.24 Form of Restricted Stock Agreement between Fulton Financial Corporation and Directors of the Corporation as of
July 1, 2011 – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on
Form 10-Q dated August 8, 2011.
Subsidiaries of the Registrant.
21
23
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
123
101
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Balance Sheets at December 31, 2013 and December 31, 2012; (ii) the Consolidated
Statements of Income for the years ended December 31, 2013, 2012 and 2011; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2013, 2012 and 2011;(iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2013, 2012 and 2011; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2013, 2012 and 2011; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
124
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 3, 2014
FULTON FINANCIAL CORPORATION
(Registrant)
By:
/S/ E. PHILIP WENGER
E. Philip Wenger,
Chairman, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/S/ JOE N. BALLARD
Joe N. Ballard
/S/ PATRICK S. BARRETT
Patrick S. Barrett
/S/ JOHN M. BOND, JR.
John M. Bond, Jr.
/S/ CRAIG A. DALLY
Craig A. Dally
/S/ MICHAEL J. DEPORTER
Michael J. DePorter
/S/ DENISE L. DEVINE
Denise L. Devine
/S/ PATRICK J. FREER
Patrick J. Freer
/S/ GEORGE W. HODGES
George W. Hodges
/S/ ALBERT MORRISON
Albert Morrison, III
Director
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Director
Director
Senior Vice President
and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
125
Signature
Capacity
Date
/S/ R SCOTT SMITH, JR.
R. Scott Smith, Jr.
/S/ GARY A. STEWART
Gary A. Stewart
/S/ ERNEST J. WATERS
Ernest J. Waters
/S/ E. PHILIP WENGER
E. Philip Wenger
Director
Director
Director
Chairman, Chief Executive
Officer and President (Principal
Executive Officer)
March 3, 2014
March 3, 2014
March 3, 2014
March 3, 2014
126
Exhibits Required Pursuant to Item 601 of Regulation S-K
EXHIBIT INDEX
3.1 Articles of Incorporation, as amended and restated, of Fulton Financial Corporation as amended – Incorporated by
reference to Exhibit 3.1 of the Fulton Financial Corporation Form 8-K dated June 24, 2011.
3.2 Bylaws of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit 3.1 of the Fulton Financial
Corporation Current Report on Form 8-K dated September 18, 2008.
4.1 An Indenture entered into on March 28, 2005 between Fulton Financial Corporation and Wilmington Trust Company
as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.35% subordinated notes
due April 1, 2015 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current Report on
Form 8-K dated March 31, 2005.
4.2 Purchase Agreement entered into between Fulton Financial Corporation, Fulton Capital Trust I, FFC Management, Inc.
and Sandler O’Neill & Partners, L.P. with respect to the Trust’s issuance and sale in a firm commitment public offering
of $150 million aggregate liquidation amount of 6.29% Capital Securities – Incorporated by reference to Exhibit 1.1
of the Fulton Financial Corporation Current Report on Form 8-K dated January 20, 2006.
4.3 First Supplemental Indenture entered into on May 1, 2007 between Fulton Financial Corporation and Wilmington Trust
Company as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.75% subordinated
notes due May 1, 2017 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current Report
on Form 8-K dated May 1, 2007.
10.1 Amended Employment Agreement between Fulton Financial Corporation and Craig H. Hill dated November 12, 2008
– Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated
November 14, 2008.
10.2 Amended Employment Agreement between Fulton Financial Corporation and Charles J. Nugent dated November 12,
2008 – Incorporated by reference to Exhibit 10.3 of the Fulton Financial Corporation Current Report on Form 8-K
dated November 14, 2008.
10.3 Amended Employment Agreement between Fulton Financial Corporation and James E. Shreiner dated November 12,
2008 – Incorporated by reference to Exhibit 10.4 of the Fulton Financial Corporation Current Report on Form 8-K
dated November 14, 2008.
10.4 Amended Employment Agreement between Fulton Financial Corporation and E. Philip Wenger dated November 12,
2008 – Incorporated by reference to Exhibit 10.5 of the Fulton Financial Corporation Current Report on Form 8-K
dated November 14, 2008.
10.5 Employment Agreement between Fulton Financial Corporation and Craig A. Roda dated August 1, 2011 – Incorporated
by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated August 5, 2011.
10.6 Employment Agreement between Fulton Financial Corporation and Philmer H. Rohrbaugh dated November 1, 2012 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated October
22, 2012.
10.7 Employment Agreement between Fulton Financial Corporation and Meg R. Mueller dated July 1, 2013 – Incorporated
by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.
10.8 Employment Agreement between Fulton Financial Corporation and Curtis J. Myers dated July 1, 2013 – Incorporated
by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.
10.9 Employment Agreement between Fulton Financial Corporation and Angela M. Sargent dated July 1, 2013 – Incorporated
by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.
10.10 Employment Agreement between Fulton Financial Corporation and Patrick S. Barrett dated November 4, 2013 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated October
24, 2013.
10.11 Form of Death Benefit Only Agreement to Senior Management – Incorporated by reference to Exhibit 10.9 of the Fulton
Financial Corporation Annual Report on Form 10K dated March 1, 2007.
10.12 Fulton Financial Corporation Amended and Restated Equity and Cash Incentive Compensation Plan – Incorporated by
reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated May 3, 2013.
10.13 Form of Option Award and Form of Restricted Stock Award under the Fulton Financial Corporation Amended and
Restated Equity and Cash Incentive Compensation Plan between Fulton Financial Corporation and Officers of the
Corporation – Incorporated by reference to Exhibits 10.1 and 10.2 of the Fulton Financial Corporation Current Report
on Form 8-K dated June 19, 2013.
127
10.14 Form of Amendment to Stock Option Agreement for John M. Bond – Incorporated by reference to Exhibit 10.1 of the
Fulton Financial Corporation Current Report on Form 8-K dated December 22, 2006.
10.15 Amended and Restated Fulton Financial Corporation Employee Stock Purchase Plan – Incorporated by reference to
Exhibit A to Fulton Financial Corporation’s definitive proxy statement, dated April 2, 2007.
10.16 Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective January 1, 2008 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
December 26, 2007.
10.17 Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective January 1, 2014 –
Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated
December 20, 2013.
10.18 Form of Supplemental Executive Retirement Plan – For Use with Executives with no Pre-2008 Accruals – Incorporated
by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated December 26,
2007.
10.19 Form of Amended and Restated Supplemental Executive Retirement Plan – For Use with Executives with Pre-409A
Accruals – Incorporated by reference to Exhibit 10.3 of the Fulton Financial Corporation Current Report on Form 8-
K dated December 26, 2007.
10.20 Form of Amended and Restated Supplemental Executive Retirement Plan - For Use with Executives First Covered
After 2004 but Before 2008 – Incorporated by reference to Exhibit 10.4 of the Fulton Financial Corporation Current
Report on Form 8-K dated December 26, 2007.
10.21 Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated June 23, 2011. Portions of this
exhibit have been redacted and are subject to a confidential treatment request filed with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted material
was filed separately with the Securities and Exchange Commission. – Incorporated by reference to Exhibit 10.1 of the
Fulton Financial Corporation Quarterly Report on Form 10-Q dated August 8, 2011.
10.22 Fulton Financial Corporation Variable Compensation Plan Summary Description – Incorporated by reference to
Exhibit 99.1 of the Fulton Financial Corporation Current Report on Form 8-K dated March 18, 2011.
10.23 Fulton Financial Corporation Directors' Equity Participation Plan – Incorporated by reference to Exhibit A to Fulton
Financial Corporation’s definitive proxy statement, March 24, 2011.
10.24 Form of Restricted Stock Agreement between Fulton Financial Corporation and Directors of the Corporation as of
July 1, 2011 – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on
Form 10-Q dated August 8, 2011.
21 Subsidiaries of the Registrant.
23 Consent of Independent Registered Public Accounting Firm.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Balance Sheets at December 31, 2013 and December 31, 2012; (ii) the Consolidated
Statements of Income for the years ended December 31, 2013, 2012 and 2011; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2013, 2012 and 2011; (iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2013, 2012 and 2011; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2013, 2012 and 2011; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
128
Exhibit 21 - Subsidiaries of the Registrant
The following are the subsidiaries of Fulton Financial Corporation:
Subsidiary
State of Incorporation or
Organization
Name Under Which Business is
Conducted
Fulton Bank, N.A.
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
Swineford National Bank
1255 North Susquehanna Trail
P.O Box 241
Hummels Wharf, Pennsylvania 17831
United States of America
Fulton Bank
United States of America
Swineford National Bank
Lafayette Ambassador Bank
Pennsylvania
Lafayette Ambassador Bank
2005 City Line Road
Bethlehem, Pennsylvania 18017
Fulton Financial Realty Company
Pennsylvania
Fulton Financial Realty Company
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
Fulton Reinsurance Company, LTD
Turks & Caicos Islands
Fulton Reinsurance Company, LTD
One Beatrice Butterfield Building
Butterfield Square, Providenciales
Turks & Caicos Islands, BWI
Delaware National Insurance Agency, Inc.
Delaware
Delaware National Insurance Agency, Inc.
9 South DuPont Highway
P.O. Box 520
Georgetown, DE 19947
FNB Bank, N.A.
354 Mill Street
P.O. Box 279
Danville, Pennsylvania 17821
United States of America
FNB Bank, N.A.
Central Pennsylvania Financial Corp.
Pennsylvania
Central Pennsylvania Financial Corp.
100 W. Independence Street
Shamokin, PA 17872
Fulton Bank of New Jersey
New Jersey
The Bank
533 Fellowship Road
Mt. Laurel, NJ 08054
Exhibit 21 - Subsidiaries of the Registrant (Continued)
Subsidiary
FFC Management, Inc.
P.O. Box 609
Georgetown, DE 19947
State of Incorporation or
Organization
Name Under Which Business is
Conducted
Delaware
FFC Management, Inc.
Fulton Insurance Services Group, Inc.
Pennsylvania
Fulton Insurance Services Group, Inc.
One Penn Square
P.O. Box 7989
Lancaster, Pennsylvania 17604
FFC Penn Square, Inc.
P.O. Box 609
Georgetown, DE 19947
Virginia Financial Services, LLC
One Commercial Place #2000
Norfolk, VA 23510
The Columbia Bank
7168 Gateway Drive
Columbia, MD 21046
Delaware
FFC Penn Square, Inc.
Virginia
Virginia Financial Services, LLC
Maryland
The Columbia Bank
Columbia Bancorp Statutory Trust
Delaware
Columbia Bancorp Statutory Trust
7168 Gateway Drive
Columbia, MD 21046
Columbia Bancorp Statutory Trust II
7168 Gateway Drive
Columbia, MD 21046
Delaware
Columbia Bancorp Statutory Trust II
Columbia Bancorp Statutory Trust III
Delaware
Columbia Bancorp Statutory Trust III
7168 Gateway Drive
Columbia, MD 21046
Fulton Capital Trust I
One Penn Square
P.O. Box 4887
Lancaster, PA 17604
Pennsylvania
Fulton Capital Trust I
Exhibit 23 - Consent of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Fulton Financial Corporation:
We consent to the incorporation by reference in the registration statement (No. 333-05471, No. 333-05481, No. 333-44788, No.
333-81377, No. 333-64744, No. 333-76594, No. 333-76600, No. 333-76596, No. 333-107625, No. 333-114206, No. 333-116625,
No. 333-121896, No. 333-126281, No. 333-131706, No. 333-135839, No. 333-145542, No. 333-168237, No. 333-175065, No.
333-189457 and No. 333-128894) on Forms S-8 and on the registration statement (No. 333-37835, No. 333-61268, No. 333-123532,
No. 333-130718, No. 333-156339, No. 333-156396, No. 333-189459 and No. 333-189488) on Forms S-3 of Fulton Financial
Corporation of our report dated March 3, 2014, with respect to the consolidated balance sheets of Fulton Financial Corporation
and subsidiaries as of December 31, 2013 and 2012, and 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, 2013, and the effectiveness
of internal control over financial reporting as of December 31, 2013, which report appears in the December 31, 2013 annual report
on Form
of Fulton Financial Corporation.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 3, 2014
Exhibit 31.1 – Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, E. Philip Wenger certify that:
1.
I have reviewed this annual report on Form 10-K of Fulton Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, 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.
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 3, 2014
/s/ E. Philip Wenger
E. Philip Wenger
Chairman, Chief Executive Officer and
President
Exhibit 31.2 – Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Patrick S. Barrett, certify that:
1.
I have reviewed this annual report on Form 10-K of Fulton Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, 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.
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 3, 2014
/s/ Patrick S. Barrett
Partrick S. Barrett
Senior Executive Vice President and Chief Financial Officer
Exhibit 32.1 – Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, E. Philip Wenger, Chief Executive Officer of Fulton Financial Corporation, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, certify that:
The Form 10-K of Fulton Financial Corporation, containing the consolidated financial statements for the year ended December 31,
2013, fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. The information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Fulton
Financial Corporation.
Dated: March 3, 2014
/s/ E. Philip Wenger
E. Philip Wenger
Chairman, Chief Executive Officer and
President
Exhibit 32.2 – Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Patrick S. Barrett, Chief Financial Officer of Fulton Financial Corporation, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, certify that:
The Form 10-K of Fulton Financial Corporation, containing the consolidated financial statements for the year ended December 31,
2013, fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. The information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Fulton
Financial Corporation.
Dated: March 3, 2014
/s/ Patrick S. Barrett
Patrick S. Barrett
Senior Executive Vice President and Chief Financial Officer
JOB TITLE Fulton Financial Combo
REVISION 5
JOB NUMBER 263922
TYPE
SERIAL
PAGE NO.
ii
DATE Wednesday, March 19, 2014
OPERATOR JioMerD
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INVEStoR INfoRmAtIoN
Investor InformatIon
stock LIstIng
go green!
Would you like to help your company manage expenses? Vote your
Common shares of Fulton Financial Corporation are
shares online or by phone as outlined on the voter instruction form
traded under the symbol “FULT” and are listed in the
enclosed in this proxy packet.
NASDAQ Global Select Market.
cash DIvIDenDs
The Fulton Financial Corporation Board of Directors
decides whether to declare a quarterly cash dividend
in the third month of each quarter (i.e., March, June,
September and December).
DIvIDenD reInvestment PLan
anD DIrect DePosIt of cash DIvIDenDs
Fulton Financial Corporation offers its shareholders
the convenience of a Dividend Reinvestment and Stock
Would you like to receive your proxy materials sooner? Sign up
to receive your materials electronically when you vote your shares
online at www.proxyvote.com.
Investor InformatIon anD Documents
Purchase Plan and direct deposit of cash dividends.
A copy of the Corporation’s Annual Report, Form 10-K, Proxy
Holders of stock may have their quarterly dividends
automatically reinvested in additional shares of the
Statement and other documents filed with the Securities and
Exchange Commision can be viewed on the Corporation’s website at
www.fult.com. In addition, copies of the Form 10-K and Proxy Statement
Corporation’s common stock by utilizing the Dividend
may be obtained without charge to shareholders by writing to:
Reinvestment Plan.
Shareholders participating in the Plan may also make
Corporate Secretary
Fulton Financial Corporation
voluntary cash contributions not to exceed $5,000 per
P.O. Box 4887
month.
Lancaster, PA 17604-4887
In addition, shareholders have the option of having
their cash dividends sent directly to their financial
News, stock information, Corporate presentations and other
information can be found on the Corporation’s website at
institution for deposit into their checking or savings
www.fult.com.
account.
Shareholders may receive information on either the
Dividend Reinvestment Plan and Stock Purchase Plan,
including a plan prospectus, or direct deposit of cash
dividends by writing to:
Stock Transfer Department
Fulton Financial Advisors
P.O. Box 3215
Lancaster, PA 17604-3215
or by calling: 717-291-2546 or toll-free:
1-800-626-0255.
The Annual Meeting of Shareholders of Fulton Financial Corporation
will be held on Thursday, May 8, 2014 at 10:00 a.m. at the Lancaster
Marriott at Penn Square in downtown Lancaster, PA.
To make a reservation, please return the Annual Meeting Response
Card you received with your proxy statement. Your reservation will
help ensure that we have adequate seating for all shareholders who
plan to join us that day.
263922_FFC_Nar.indd 7
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SENIoR mANAGEmENt, DIRECtoRS
& ADVISoRY BoARD mEmBERS
fuLton fInancIaL
corPoratIon
BoarD of DIrectors
Joe N. Ballard, LTG, US Army (Ret.)
John M. Bond, Jr.
Craig A. Dally
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morrison III
R. Scott Smith, Jr.
Gary A. Stewart
Ernest J. Waters
E. Philip Wenger
suBsIDIary Bank
BoarDs of DIrectors
fuLton Bank, n.a.
Richard J. Ashby, Jr.
Larry D. Bashore
Jennifer Craighead
Steven S. Etter
Carlos E. Graupera
George W. Hodges
Christ G. Kraras
Ronald T. Moore
Curtis J. Myers
Craig A. Roda
Ivy E. Silver
Elizabeth Addington Twohy
Ernest J. Waters
fuLton Bank, n.a
DIvIsIonaL BoarDs
BranDywIne DIvIsIon
Carolyn J. Beam, Chairman
Robert F. Adams, Esq.
Denise L. Day
Dallas Krapf
James D. McLeod, Jr.
Michael J. O’Rourke
caPItaL DIvIsIon
LeBanon vaLLey DIvIsIon
Robert S. Jones, Chairman
Barry E. Ansel, Chairman
James C. Byerly
Samuel T. Cooper III, Esq.
Charles J. DeHart III, Esq.
Dolores Liptak
Barry E. Musser, C.P.A.
Beth A. Peiffer
Steven C. Wilds
Donald H. Dreibelbis
Randall I. Ebersole
Robert J. Funk
Robert P. Hoffman
Wendie DiMatteo Holsinger
Robert J. Longo
PremIer DIvIsIon
DeLaware natIonaL DIvIsIon
Joseph R. Feilmeier, Chairman
P. Randolph Taylor, Chairman
Jeffrey M. Fried
Heidi Gilmore
Amy A. Higgins
Greg N. Johnson
Terry A. Megee
Ralph W. Simpers
David T. Wilgus
york DIvIsIon
Joseph E. Rilatt, Chairman
Vernon L. Bracey
Robert S. Freed
Jevon L. Holland
William S. Shipley III
Gary A. Stewart, Jr.
Christine R. Wardrop
Constance L. Wolf
great vaLLey DIvIsIon
Jeffrey R. Rush, Chairman
Eric G. Burkey
Marcelino Colon
Michael D. Fromm
William P. Gage
Kathryn G. Goodman
William G. Koch, Sr., C.P.A.
Barry R. Angely
Anthony D. Cino
Rosemary Espanol
Richard Gastineau
Pamela Northrop Gundlach
Robert Walton
centraL vIrgInIa DIvIsIon
Oliver Way, Chairman
Gail W. Johnson
Robert H. Keiter, C.P.A.
George Keith Martin
Jacques J. Moore, Jr.
Lloyd M. Poe
Robert E. Porter, Jr.
hamPton roaDs DIvIsIon
T. A. Grell, Jr., Chairman
Joanna Brumsey, C.P.A.
Thomas E. Fraim, Jr.
T. Richard Litton, Jr.
Linda McKee
Timothy J. Stiffler
Joseph D. Taylor
northern vIrgInIa DIvIsIon
Oliver Way, Chairman
Thomas M. Crutchfield, C.P.A.
Ambrish K. Gupta, M.D.
Manuel A. Ojeda
Mark D. Wolfe
fuLton fInancIaL
corPoratIon senIor
management
E. Philip Wenger
Chairman, President and
Chief Executive Officer
Patrick S. Barrett
Senior Executive Vice President/
Chief Financial Officer
James E. Shreiner
Senior Executive Vice President/
Operations and Credit
Craig H. Hill
Senior Executive Vice President/
Human Resources,
Corporate Communications
and Administrative Services
Craig A. Roda
Senior Executive Vice President/
Community Banking
Philmer H. Rohrbaugh
Senior Executive Vice President/
Chief Risk Officer
Meg R. Mueller
Senior Executive Vice President/
Chief Credit Officer
Curtis J. Myers
Senior Executive Vice President/
President and Chief Operating Officer
of Fulton Bank
Angela M. Sargent
Senior Executive Vice President/
Chief Information Officer
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263922_FFC_Nar.indd 8
3/11/14 6:34 PM
OUR MISSION:
By caring, listening, understanding and delivering a consistently superior customer experience, we will increase
shareholder value and enrich the communities we serve while creating opportunities for financial success for
our customers and for career success for our employees.
We will conduct all of our business with honesty and integrity, effectively manage risk and be in full compliance
with all legal and regulatory requirements.
OUR VISION:
We will be a high-performing, Mid-Atlantic regional financial services company whose team members deliver
compliant products and services through relationship-based banking more effectively than our competitors,
enabling us to sustain a long-term competitive advantage.
OUR VALUES:
• Integrity
• Respect for the individual
• Focus on employee and customer relationships
• Passion for creating value through successful execution
• Inclusion
• Corporate citizenship
• Teamwork/collaboration
• Caring and compassionate
• Open communication
• Dedication to career success
• Individual and team accountability with a competitive spirit
STRATEGIC SERVICE DIFFERENTIATION:
Fulfilling our Customer Promise to: Care, Listen, Understand and Deliver
we will care, listen,
understand and deliver.
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the ColumBia Bank
DiviSional BoarDS
hagerStown truSt DiviSion
Paul N. Crampton, Jr.
Louis J. Giustini
Donald R. Harsh, Jr.
Doris E. Lehman
Paul C. Mellott, Jr.
John A. Scaldara, Jr.
Gregory Snook
Michael S. Zampelli
PeoPleS Bank oF
elkton DiviSion
Harry C. Brown
Donald S. Hicks
John A. Scaldara, Jr.
Nancy R. Simpers
David K. Williams, Jr.
State College DiviSion
weSt
Fulton Bank oF new JerSey
Dennis N. DeSimone
Lawrence M. DiVietro, Jr.
James R. Johnson, Jr.
Warner A. Knobe
Joel A. Kobert
Stephen R. Miller
Antoinette Pergolin
Anthony J. Santye, Jr.
Leslie E. Smith, Jr.
Angela M. Snyder
Mark F. Strauss, Esq.
Norman Worth
Fulton Bank oF new JerSey
DiviSional BoarD
Central region
James R. Johnson, Jr.
Timothy J. Losch
Priscilla Luppke
Leonard Smith
Allen Weiss
the ColumBia Bank
Joe N. Ballard, LTG, US Army (Ret.)
John M. Bond, Jr.
Robert R. Bowie, Jr.
Garnett Y. Clark, Jr.
Donald R. Harsh
James R. Moxley III
Mark A. Mullican
John A. Scaldara, Jr.
Gregory Snook
David K. Williams, Jr.
Elizabeth M. Wright
John A. Rodgers, Chairman
Elizabeth A. Dupuis
Thomas J. Kearney
Jeffrey M. Krauss
Thomas F. Songer
Fulton Bank, n.a.
aDviSory BoarDS
Central
Ronald L. Miller, C.P.A.
Wilbur G. Rohrer
Paul W. Stauffer
eaSt
Galen Eby
R. Douglas Good, Esq.
Richard M. Hurst
Aldus R. King
John D. Yoder
lanCaSter City
Clarence (Ted) E. Darcus
Ron Ford
Jessica H. May
north
Dean A. Hoover
Louis G. Hurst
Kent M. Martin
northweSt
P. Larry Groff, Sr.
Peter J. Hondru
Kenneth L. Kreider
Robert W. Obetz, Jr.
David W. Sweigart III
J. David Young, Jr., Esq.
Dennis M. Zubler
South
Frank M. Abel, V.M.D.
John E. Chase
James W. Hostetter, Sr., C.P.A.
Dwight E. Wagner
Tony Legenstein
Lynette Trout
agriCultural aDviSory BoarD
Harry H. Bachman
Robert Barley
Phoebe R. Bitler
Dennis L. Grumbine
William Hostetter
Amos M. Hursh
Aldus R. King
Jay H. Kopp
Rodney L. Metzler
William D. Robinson
Scott I. Sechler
Kyle Wagner
SwineForD national Bank
Arthur F. Bowen
Thomas C. Clark, Esq.
Michael N. O’Keefe
William D. Robinson
Gene D. Zartman
laFayette amBaSSaDor Bank
Gary A. Clewell
John Crampsie
Craig A. Dally
Thomas Daub
Rocco A. Del Vecchio
Robert E. Gadomski
Sara (Sally) Jane Gammon
Dolores Laputka
Jamie P. Musselman
Gerald A. Nau
John J. Simon
FnB Bank, n.a.
Robert O. Booth
Kenneth A. Holdren
Bryan L. Holmes
James D. Hawkins
Gerald A. Nau
Wendy S. Tripoli
263922_FFC_Cover_r1.indd 2
3/18/14 5:26 AM
2013 AnnuAl RepoRt
Fulton Financial Corporation
Banking SuBSidiarieS:
Fulton Bank, N.A.
Fulton Bank of New Jersey
Swineford National Bank
Lafayette Ambassador Bank
FNB Bank, N.A.
The Columbia Bank
Residential mortgage lending offered through:
Fulton Mortgage Company
Investment management and
planning services offered through:
Fulton Financial Advisors &
Clermont Wealth Strategies
263922_FFC_Cover_r1.indd 1
3/18/14 5:26 AM
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank of New Jersey (cid:127) Lafayette Ambassador Bank (cid:127) Swineford National Bank