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
2014 ANNUAL REPORT
Fulton Financial Corporation
279447_FFC_14_AR_CVR.indd 1
3/13/15 9:31 PM
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank o(cid:31) Ne(cid:31) (cid:31)e(cid:31)(cid:31)e(cid:31) (cid:127) (cid:31)a(cid:31)a(cid:31)ette Amba(cid:31)(cid:31)a(cid:31)o(cid:31) Bank (cid:127) (cid:31)(cid:31)ine(cid:31)o(cid:31)(cid:31) National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank o(cid:31) Ne(cid:31) (cid:31)e(cid:31)(cid:31)e(cid:31) (cid:127) (cid:31)a(cid:31)a(cid:31)ette Amba(cid:31)(cid:31)a(cid:31)o(cid:31) Bank (cid:127) (cid:31)(cid:31)ine(cid:31)o(cid:31)(cid:31) National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank o(cid:31) Ne(cid:31) (cid:31)e(cid:31)(cid:31)e(cid:31) (cid:127) (cid:31)a(cid:31)a(cid:31)ette Amba(cid:31)(cid:31)a(cid:31)o(cid:31) Bank (cid:127) (cid:31)(cid:31)ine(cid:31)o(cid:31)(cid:31) National Bank
10 YEARS IN REVIEW
(2005-2014)
6
.
6
1
3
.
6
1
4
.
6
1
5
.
6
1
9
.
6
1
1
.
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2
.
6
1
9
.
5
1
9
.
4
1
4
.
2
1
20
18
16
14
12
10
8
6
4
2
0
05 06 07 08 09 10 11 12 13 14
5
.
3
0
1
6
.
4
0
1
9
.
0
0
1
100
5
.
8
8
0
.
0
6
9
.
1
6
9
.
2
6
0
.
0
4
2
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2
1
.
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5
.
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8
1
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6
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7
.
2
5
1
8
.
1
6
1
8
.
9
5
1
9
.
7
5
1
6
.
5
4
1
3
.
8
2
1
9
.
3
7
6
.
5
-
05 06 07 08 09 10 11 12 13 14
3
9
9
,
1
2
8
0
,
2
3
6
0
,
2
7
9
9
,
1
0
8
8
,
1
5
7
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,
1
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9
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,
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6
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5
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1
6
6
5
,
1
3
8
2
,
1
200
180
160
140
120
100
80
60
40
20
0
-20
Net Income
(loss)
(in millions
of dollars)
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
0
Common
Shareholders’
Equity
(in millions
of dollars)
05 06 07 08 09 10 11 12 13 14
05 06 07 08 09 10 11 12 13 14
5
.
2
1
5
.
2
1
5
.
2
1
4
.
3
1
4
.
2
1 1
.
2
1
2
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0
1
6
.
0
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.
0
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8
.
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0
.
2
1
1
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2
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9
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1
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.
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.
2
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2
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.
1
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4
.
0
1
4
8
.
13
12
11
10
9
8
7
6
5
4
3
2
1
0
Loans
(in billions
of dollars)
05 06 07 08 09 10 11 12 13 14
05 06 07 08 09 10 11 12 13 14
Total Assets
(in billions
of dollars)
Common
Stock Cash
Dividends
(in millions
of dollars)
Deposits
(in billions
of dollars)
80
60
40
20
0
13
12
11
10
9
8
7
6
5
4
3
2
1
0
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 $25,000 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 Tuesday, May 5, 2015 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.
279447_FFC_14_AR_CVR.indd 2
3/13/15 9:31 PM
Dear Shareholder,
2014 was a year of ongoing challenges for much
of the financial services industry. The slow
pace of the economic recovery hindered efforts
to grow loans and a continuing low interest
rate environment produced net interest margin
compression. Heightened regulatory scrutiny
necessitated sustained and significant investments in
compliance and risk-monitoring programs. Evolving
customer preferences and usage patterns continued
to influence the channels through which financial
services are delivered. Accordingly, much of the
industry is working to reinvent itself to keep pace
with significant change.
Our company experienced similar challenges. For
us, the most significant headwind of 2014 was the
persistently low interest rate environment: lower loan
yields resulted in year-over-year margin compression
and lower net interest income. Earnings were also
negatively impacted by a reduction in mortgage
banking income. However, we were pleased to
see good growth in core deposits and steady
improvement in overall asset quality.
For the year ended December 31, 2014, diluted
earnings per share was 84 cents, a 1.2% increase over
the 83 cents we reported in 2013. The book value
of our stock as of December 31, 2014 increased
4.2% as compared to December 31, 2013. Net
income was $157.9 million, a decrease of 2.4% from
2013. Net interest income decreased $12.3 million,
or 2.3%, compared to 2013, while the net interest
margin decreased 11 basis points, to 3.39%. Non-
interest income, excluding investment securities
gains, decreased $14.3 million, or 8.0%, compared to
2013, while non-interest expense also decreased, by
$2.2 million, or 0.5%.
For the year, our return on average assets was 0.93%
and our return on average common shareholders’
equity (tangible)1 was 10.31%. Quality earning asset
growth remains a top priority. Full-year growth
in average loans was $306.7 million, or 2.4%, in
comparison to 2013, a level which was just short of
our target range.
From a funding standpoint, overall average deposit
growth outpaced our loan growth. We were
particularly pleased with the year-over-year increase
in our core deposits. Average deposits for the year
ended December 31, 2014 increased $394.5 million,
or 3.2%, compared to 2013.
Over the last several years, we have reported steady
improvement in asset quality, and 2014 was no
exception. Non-performing loans decreased $15.8
million, or 10.2%, in comparison to 2013. We were
able to reduce our provision for credit losses by
$28.0 million, or 69.1% in 2014, and we saw broad
improvement across all credit metrics. Although
significant further reductions in our provision
for credit losses are unlikely, going forward, we
expect credit quality to show further improvement
consistent with the pace we realized during 2014.
Strategically, the deployment of our capital for
the enhancement of long-term shareholder value
remains one of our highest priorities. In December,
we paid a special cash dividend of two cents per
share, bringing our total dividends paid in 2014 to
34 cents per share, an increase of 6.3% over those
paid in 2013. We also worked to deliver shareholder
value through open market share repurchases during
the first and third quarters of 2014, with repurchases
from those programs totaling 8 million shares.
In addition, in the fourth quarter of 2014, we issued
$100 million of subordinated debt that funded a
$100 million accelerated share repurchase agreement.
In total, in 2014, the Corporation repurchased
14.5 million, or 7.5%, of its shares outstanding as
of December 31, 2013. These actions will have a
positive impact on future earnings per share and on
our return on equity.
In 2014 and early in 2015, we received
enforcement actions from bank and holding
company regulators. Each of these actions
was related to the same issue: deficiencies in
the company’s Bank Secrecy Act/Anti-Money
Laundering (BSA/AML) compliance program.
Over the past few years, we have devoted
considerable resources to building a compliant
and sustainable BSA/AML compliance program
that will serve us well into the future. We are
continuing with our efforts to enhance these
programs to enable us to successfully comply
with all regulations in this area and meet the
expectations of our regulators.
Despite the significant investments we have
made in our BSA/AML program and in other
regulatory and compliance activities, we were
able to decrease our non-interest expenses in
2014. You may recall that in early 2014, we
consolidated 13 branches, reorganized our
regional management structure and made
changes to our employee benefit programs.
These factors all contributed to our year-over-
year expense reduction.
We review our branch infrastructure frequently,
with an emphasis on creating efficiencies
within that network. Branches continue to be
an important service delivery channel, but the
type of services we deliver at those locations is
evolving. An increasing number of customers
now handle many of their routine transactions
through other means – ATMs, telephone
banking, online and mobile banking and remote
deposit capture. However, many customers
still prefer to visit a branch for more complex
financial needs such as consumer and mortgage
loans, investment advice and various business
services. With customers visiting our branches
less frequently, we find that we can, in some
cases, continue to meet customer expectations
for convenient access to our branch network
with fewer branch locations than in the past.
The results from our 2014 branch
consolidations support these observations.
When we measured retention among customers
who had banked at one of the 13 branches
we consolidated, that retention remained the
same as at other branches that were unaffected
by consolidation. In fact, as of December
31, 2014, we had retained 96% of the retail
customers and 92% of the commercial
customers of those branches. In addition, we
were able to find other positions within our
company for 56 out of the 70 employees whose
positions were eliminated as a result of those
consolidations. The cost savings from the
consolidations of these 13 branches was $2.5
million in 2014.
We had two leadership changes to note. At the
end of 2014, Jim Shreiner, Senior Executive
Vice President and a member of our senior
management team, retired after nearly 40 years
of service to our company. During Jim’s tenure
at Fulton, he was instrumental in performing a
number of roles that supported and contributed
to the growth and success of our organization.
We thank Jim for his leadership, and we wish
him well in his retirement.
And in 2015, the Hon. Craig A. Dally will
conclude his board service when his term
ends at our Annual Meeting of Shareholders,
in order to comply with recently adopted
rules that restrict Pennsylvania judges from
serving as a director of a business entity. Judge
Dally has served as a member of the Fulton
Financial Corporation board since 2000, and
he has served on the board of our banking
subsidiary, Lafayette Ambassador Bank, since
1990. We appreciate Judge Dally’s dedication to
the Pennsylvania communities he serves in his
role as judge, and we thank him for his many
years of service to our company and to the
communities in which we operate.
JOB TITLE Fulton Financial Combo
REVISION 6
JOB NUMBER 279447
TYPE
SERIAL
PAGE NO. B
DATE Friday, March 20, 2015
OPERATOR Alonzov
Looking ahead, we will continue to focus
on the build-out of our compliance, risk
management and technology infrastructures
and other initiatives that drive operational
excellence. One example of an initiative
that is geared to improving our overall
operational excellence is our development
of plans to seek regulatory approval to
begin consolidating our six subsidiary banks.
After completing this process, we expect to
conduct our core banking business through
a single subsidiary bank. The timing of the
commencement of this multi-year process
will depend on our making necessary progress
in enhancing our BSA/AML compliance
program and establishing, to the satisfaction
of our regulators, that those enhancements
are sustainable to achieve compliance with
the regulatory enforcement actions related to
deficiencies in the BSA/AML
compliance program.
In the second quarter of 2015, we plan to
consolidate nine additional branches. We
expect to incur implementation costs of
approximately $1.5 million in consolidating
these branches and, once the process is
complete, to realize annualized expense
savings of approximately $2.4 million. We are
working hard to achieve the high customer
and staff retention rates we had experienced
with the 2014 consolidations.
We have also made additional cost-saving
modifications to our employee benefit
programs in 2015. These changes mainly focus
on standardizing the benefit levels for all of
our employees and are expected to produce
an additional $2.2 million in annualized cost
reduction.
In 2015, our entire team will continue to
take the steps needed to achieve our targeted
organic growth and transform our company,
embracing the inevitable changes required
to remain competitive in our industry, and
retaining those elements of our culture that
are critical to delivering on our customer
promise. The steps we have taken over
the past two years, and those we will take
in the next few years, are part of the vital
transformation process that will position
our company to prosper in today’s financial
services environment and beyond.
While the ways in which we deliver financial
services continue to change, the core values
on which this company was built remain
constant. So does our focus on using all the
tools available to us, including the continued
prudent deployment of our capital, to provide
an appropriate return to you, our shareholder.
Thank you for your investment in Fulton
Financial Corporation.
E. Philip Wenger
Chairman, President and CEO
1Return on average common shareholders’ equity (tangible) is a non-GAAP
financial measure. Please refer to the section entitled, “Supplemental Reporting
of Non-GAAP-Based Financial Measures” which appears in the Form 10-K
that accompanies this letter for a reconciliation of this measure to the most
comparable GAAP measure.
This letter contains forward-looking statements regarding Fulton’s finan-
cial condition and results of operations. Please refer to the section titled
“Forward-Looking Statements” under Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, in the Form 10-K
that accompanies this letter for information regarding how forward-looking
statements can be identified, and factors that could cause actual results to differ
materially from those expressed in the forward-looking statements.
SENIOR MANAGEMENT, DIRECTORS
& ADVISORY BOARD MEMBERS
Fulton Financial corporation
Senior ManageMent
Fulton Bank, n.a
diviSional BoardS
E. Philip Wenger
Chairman, President and Chief Executive Officer
Patrick S. Barrett
Senior Executive Vice President/Chief Financial Officer
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
Brandywine Division
Joseph R. Feilmeier, Chairman
Robert F. Adams, Esq.
Denise L. Day
Dallas Krapf
James D. McLeod, Jr.
Michael J. O’Rourke
capital diviSion
Robert S. Jones, Chairman
James C. Byerly
Samuel T. Cooper III, Esq.
Charles J. DeHart III, Esq.
Steven S. Etter
Dolores Liptak
Barry E. Musser, C.P.A.
Beth A. Peiffer
Steven C. Wilds
Angela M. Sargent
Senior Executive Vice President/Chief Information Officer
central virginia diviSion
Fulton Financial corporation
Board oF directorS
John M. Bond, Jr.
Lisa Crutchfield
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.
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
Oliver L. 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.
delaware diviSion
P. Randolph Taylor, Chairman
Jeffrey M. Fried
Amy A. Higgins
Greg N. Johnson
Terry A. Megee
Ralph W. Simpers
David T. Wilgus
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.
HaMpton roadS diviSion
David Durham, Chairman
Thomas E. Fraim, Jr.
T. Richard Litton, Jr.
Timothy J. Stiffler
Joseph D. Taylor
lancaSter diviSion
Galen Eby
William (Smokey) Glover
Dean A. Hoover
Peter J. Hondru
James W. Hostetter, Sr., C.P.A.
Louis G. Hurst
Aldus R. King
Tony Legenstein
Kent M. Martin
Jessica H. May
Ronald. L. Miller, C.P.A.
Robert W. Obetz, Jr.
Jeffrey R. Rush
Mark B. Smith
David W. Sweigart III
Lynette Trout
Dwight E. Wagner
John D. Yoder
J. David Young, Jr., Esq.
Dennis M. Zubler
leBanon diviSion
Barry E. Ansel, Chairman
Donald H. Dreibelbis
Robert J. Funk
Robert P. Hoffman
Wendie DiMatteo Holsinger
Kenneth Sandoe
nortHern virginia diviSion
Oliver L. Way
Thomas M. Crutchfield, C.P.A.
Ambrish K. Gupta, M.D.
Manuel A. Ojeda
preMier diviSion
Joseph R. Feilmeier, Chairman
Anthony D. Cino
Rosemary Espanol
Richard Gastineau
Pamela Northrop Gundlach
Robert Walton
State college diviSion
Jean M. Galliano, Chairman
Elizabeth A. Dupuis
Thomas J. Kearney
Jeffrey M. Krauss
Thomas F. Songer
JOB TITLE Fulton Financial Combo
REVISION 6
JOB NUMBER 279447
TYPE
SERIAL
PAGE NO. D
DATE Friday, March 20, 2015
OPERATOR Alonzov
FnB Bank, n.a.
Robert O. Booth
Kenneth A. Holdren
Bryan L. Holmes
James D. Hawkins
Gerald A. Nau
Wendy S. Tripoli
Fulton Bank oF new JerSey
Christopher S. Bateman
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.
Angela M. Snyder
Paul V. Stahlin
Mark F. Strauss, Esq.
Norman Worth
Fulton Bank oF new JerSey
diviSional Board
central region
James R. Johnson, Jr.
Priscilla Luppke
Leonard Smith
Paul V. Stahlin
Allen Weiss
tHe coluMBia Bank
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
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.
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
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.
Brian L. Holmes
Michael N. O’Keefe
William D. Robinson
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
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, 2014,
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 checkmark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by checkmark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by checkmark 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 checkmark 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 checkmark 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 checkmark 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 checkmark 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, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2.3 billion. The number
of shares of the registrant’s Common Stock outstanding on January 31, 2015 was 179,030,000.
Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on May 5, 2015 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
15
26
26
26
27
28
31
33
63
69
70
71
72
73
74
125
126
127
128
128
128
129
129
129
129
129
Exhibits, Financial Statement Schedules..........................................................................................................................
130
Signatures .........................................................................................................................................................................
Exhibit Index ....................................................................................................................................................................
133
135
2
JOB TITLE Fulton Financial Combo
REVISION 6
JOB NUMBER 279447
TYPE
SERIAL
PAGE NO. 2
DATE Friday, March 20, 2015
OPERATOR alonzov
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, 2014, the Corporation had approximately 3,560 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 2014
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 on the Corporation's website 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. The Corporation has announced that it is developing plans to seek
regulatory approval to begin the process of consolidating its six subsidiary banks. This process is expected to eventually result in
the Corporation conducting its core banking business through a single subsidiary bank. The timing of the commencement of this
multi-year process will depend significantly on the Corporation and its banking subsidiaries making necessary progress in enhancing
a largely centralized compliance program designed to comply with the requirements of the Bank Secrecy Act, the USA Patriot
Act of 2001 and related anti-money laundering regulations, and establishing, to the satisfaction of the Corporation’s banking
regulatory agencies, that those enhancements are sustainable to achieve compliance with the regulatory enforcement orders issued
to the Corporation and its subsidiary banks by their respective banking regulatory agencies relating to identified deficiencies in
that compliance program. Where appropriate, operations are centralized through common platforms and back-office functions.
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 $150 million)
in the subsidiary banks’ market areas. The Corporation's policies limit the maximum total lending commitment to an individual
borrower to $50.0 million as of December 31, 2014, which is below the Corporation’s regulatory lending limit. In addition, the
Corporation has established lower total lending limits for certain types of lending commitments, and also based on the Corporation's
internal risk rating of the borrower. Commercial lending products 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
for secured loans. 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.
3
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.
The following table provides certain information for the Corporation’s banking subsidiaries as of December 31, 2014:
Subsidiary
Fulton Bank, N.A.
Fulton Bank of New Jersey
The Columbia Bank
Lafayette Ambassador Bank
FNB Bank, N.A.
Swineford National Bank
Main Office
Location
Total
Assets
Total
Deposits
(dollars in millions)
Branches (1)
Lancaster, PA
Mt. Laurel, NJ
Columbia, MD
Bethlehem, PA
Danville, PA
Middleburg, PA
$
$
9,489
3,473
2,090
1,421
340
308
7,242
2,908
1,642
1,158
269
257
115
70
33
21
8
7
254
(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 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, 2014 (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 geographic 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. As a result of electronic delivery channels, the subsidiary banks also face competition
from financial institutions that do not have a physical presence in the Corporation’s geographic markets.
The industry is also highly competitive due, in part, to the GLB Act. As a result of the GLB Act, there is a great deal of competition
from many types of entities for customers that were traditionally served only by the banking industry. 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 many of these activities, the ability to do so generally enhances the ability of
financial holding companies to compete more effectively.
4
JOB TITLE Fulton Financial Combo
REVISION 6
JOB NUMBER 279447
TYPE
SERIAL
PAGE NO. 4
DATE Friday, March 20, 2015
OPERATOR alonzov
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 16 of these counties, the Corporation ranked
in the top 5 in deposit market share (based on deposits as of June 30, 2014). 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, 2014)
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
(2014 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
20
19
37
18
34
6
18
16
31
12
22
11
42
5
17
18
16
8
8
16
15
15
30
39
30
7
18
19
35
19
14
16
21
20
12
22
14
12
19
4
9
2
6
9
17
6
13
10
34
3
12
4
3
1
3
13
23
5
12
19
17
4
5
6
25
26
4
8
13
11
5
6
534,000 Fulton Bank, N.A.
414,000 Fulton Bank, N.A.
628,000 Fulton Bank, N.A.
156,000 Fulton Bank, N.A.
514,000 Fulton Bank, N.A.
67,000 FNB Bank, N.A.
244,000 Fulton Bank, N.A.
272,000 Fulton Bank, N.A.
564,000 Fulton Bank, N.A.
136,000 Fulton Bank, N.A.
357,000 Lafayette Ambassador Bank
117,000 FNB Bank, N.A.
818,000 Fulton Bank, N.A.
19,000 FNB Bank, N.A.
301,000 Lafayette Ambassador Bank
94,000 FNB Bank, N.A.
Swineford National Bank
146,000 Fulton Bank, N.A.
40,000 Swineford National Bank
45,000 Swineford National Bank
441,000 Fulton Bank, N.A.
555,000 Fulton Bank, N.A.
211,000 Fulton Bank, N.A.
564,000 The Columbia Bank
831,000 The Columbia Bank
622,000 The Columbia Bank
102,000 The Columbia Bank
245,000 The Columbia Bank
313,000 The Columbia Bank
1,036,000 The Columbia Bank
902,000 The Columbia Bank
150,000 The Columbia Bank
277,000 Fulton Bank of New Jersey
451,000 Fulton Bank of New Jersey
512,000 Fulton Bank of New Jersey
157,000 Fulton Bank of New Jersey
291,000 Fulton Bank of New Jersey
5
%
24.2%
4.0%
1.8%
2.0%
3.4%
4.2%
1.6%
4.0%
0.2%
31.5%
3.5%
0.8%
0.4%
25.0%
13.6%
3.9%
1.9%
4.1%
26.2%
6.7%
10.2%
0.2%
7.8%
0.3%
0.7%
0.4%
12.6%
0.7%
9.3%
0.2%
0.6%
20.0%
1.2%
0.9%
2.1%
1.8%
13.3%
2
8
17
14
10
5
14
7
29
1
12
14
26
2
3
9
4
9
2
4
4
14
3
27
23
13
3
17
4
36
22
2
12
17
12
11
2
State
Population
(2014 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
%
No. of Financial
Institutions
Deposit Market Share
(June 30, 2014)
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
VA
VA
VA
VA
VA
VA
VA
126,000 Fulton Bank of New Jersey
372,000 Fulton Bank of New Jersey
838,000 Fulton Bank of New Jersey
629,000 Fulton Bank of New Jersey
502,000 Fulton Bank of New Jersey
587,000 Fulton Bank of New Jersey
65,000 Fulton Bank of New Jersey
334,000 Fulton Bank of New Jersey
107,000 Fulton Bank of New Jersey
236,000 Fulton Bank, N.A.
1,142,000 Fulton Bank, N.A.
323,000 Fulton Bank, N.A.
43,000 Fulton Bank, N.A.
184,000 Fulton Bank, N.A.
217,000 Fulton Bank, N.A.
454,000 Fulton Bank, N.A.
16
26
46
28
31
21
8
30
13
14
36
21
13
12
16
17
7
21
30
11
18
7
4
13
2
8
29
17
4
7
12
11
11
21
33
27
15
17
1
9
5
10
41
18
11
15
15
11
2.5%
0.9%
0.3%
0.5%
1.3%
0.7%
25.1%
2.9%
8.9%
1.7%
0.1%
0.9%
1.9%
0.5%
0.2%
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 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 Corporation is a registered financial holding company, and its subsidiary banks are depository institutions whose deposits are
insured by the Federal Deposit Insurance Corporation (FDIC). The Corporation and its subsidiaries are subject to regulation and
examination by regulatory authorities. The following table summarizes the charter types and primary regulators for each of the
Corporation’s subsidiary banks:
Subsidiary
Charter
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 Corporation (Parent Company)............................................................ N/A
Primary Regulator(s)
OCC
NJ/FDIC
MD/FDIC
PA/Federal Reserve
OCC
OCC
Federal Reserve
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, regulations promulgated thereunder, 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.
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 may require. In addition, the Federal Reserve must approve certain
proposed changes in organizational structure or other business activities before they occur. The BHCA imposes certain restrictions
6
JOB TITLE Fulton Financial Combo
REVISION 6
JOB NUMBER 279447
TYPE
SERIAL
PAGE NO. 6
DATE Friday, March 20, 2015
OPERATOR alonzov
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, 2014, 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.
•
•
Interest on demand deposits – Beginning in July 2011, depository institutions were no longer prohibited from paying
interest on business transaction and certain other accounts.
Stress testing – In October 2012, the Board of Governors of the Federal Reserve System (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 a nine-quarter time horizon. The Corporation's board of directors and its senior
management are required to consider the results of the stress test in the normal course of business, including as part of
the Corporation's capital planning process and the evaluation of the adequacy of its capital. Public disclosure of summary
stress test results under the severely adverse scenario will begin in June 2015 for stress tests that commenced 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 annual stress testing process may lead the Corporation to
retain additional capital or alter the mix of its capital components. Under similar rules adopted by the OCC, national
banks 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 the Truth in Lending Act, which requires 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 prohibit
7
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).
•
Integrated disclosures under the Real Estate Settlement Procedures Act and the Truth in Lending Act - As required by
the Dodd-Frank Act, the CFPB issued final rules in December 2013 revising and integrating previously separate disclosures
required under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) in connection
with certain closed-end consumer mortgage loans. These final rules will become effective August 1, 2015 and require
lenders to provide a new Loan Estimate, combining content from the former Good Faith Estimate required under RESPA
and the initial disclosures required under TILA not later than the third business day after submission of a loan application,
and a new Closing Disclosure, combining content of the former HUD-1 Settlement Statement required under RESPA
and the final disclosures required under TILA at least three days prior to the loan closing.
• 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. In December 2014, the
FRB extended, until July 21, 2016, the date by which banking entities must conform their activities and investments to
the requirements of the Final Rules, and announced its intention to grant an additional one-year extension of the
conformance period to July 21, 2017. The Corporation does not engage in proprietary trading or in any other activities
prohibited by the Final Rules. Based on the Corporation's evaluation of its investments, none fall within the definition
of a "covered fund" and would need to be disposed of by July 21, 2016 or any further extension of the conformance date
that maybe granted by the FRB. Therefore, it does not currently expect that 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
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
8
JOB TITLE Fulton Financial Combo
REVISION 6
JOB NUMBER 279447
TYPE
SERIAL
PAGE NO. 8
DATE Friday, March 20, 2015
OPERATOR alonzov
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 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 became effective for the
Corporation 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.
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 off-balance sheet exposures 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 restrictions on payments of discretionary cash bonuses
to executive officers which may make it more difficult for the Corporation to retain key personnel.
As of December 31, 2014, 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 require financial institutions to maintain increased
levels of liquid assets or alter their strategies for liquidity management. The Basel III liquidity framework requires banks and bank
holding companies to measure their liquidity against specific ratios.
In September 2014, the FRB approved final rules (the U.S. Liquidity Coverage Ratio Rule) implementing portions of the Basel
III liquidity framework for large, internationally active banking organizations, generally those having $250 billion or more in total
assets, and similar, but less stringent rules, applicable to bank holding companies with consolidated assets of $50 billion or more.
The U.S. Liquidity Coverage Ratio Rule requires banking organizations to maintain a Liquidity Coverage Ratio, or LCR, that is
designed to ensure that sufficient high quality liquid resources are available for a one month period in case of a stress scenario.
9
Impacted financial institutions are required to be compliant with the U.S. Liquidity Coverage Ratio Rule by January 1, 2017.
Because the Corporation’s total assets and the scope of its operations do not currently meet the thresholds set forth in the U.S.
Liquidity Coverage Ratio Rule, the Corporation is not currently required to maintain a minimum LCR.
The Basel III liquidity framework also introduced a second ratio, referred to as the Net Stable Funding Ratio (NSFR), which is
designed to promote funding 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. This new liquidity standard is subject to further
rulemaking. To date, U.S. banking regulators have not proposed any additional liquidity rules. Because of the Corporation's size,
neither the U.S. Liquidity Coverage Ratio Rule or any additional proposed rules under the Basel III liquidity framework will apply
to it.
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 federal
banking regulations effective as of December 31, 2014, 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. On January 1, 2015
and thereafter, 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 8.00% or greater, its common equity tier 1 risk-based capital ratio is 6.50% 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, 2014, 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 under the regulations in effect on December 31, 2014 and the
regulations that became effective on January 1, 2015.
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, 2014, 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.
10
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 10
OPERATOR alonzov
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
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. The
Corporation and its banking subsidiaries are currently subject to regulatory enforcement orders (the Regulatory Orders) issued by
banking regulatory agencies relating to identified deficiencies in a largely centralized compliance program (the BSA/AML
Compliance Program) designed to comply with the Bank Secrecy Act, the Patriot Act and related anti-money laundering regulations
(the BSA/AML Requirements). The Regulatory Orders require, among other things, that the Corporation and its banking
subsidiaries review, assess and take actions to strengthen and enhance the BSA/AML Compliance Program, and, in some cases,
conduct retrospective reviews of past account activity and transactions, as well as certain reports filed in accordance with the BSA/
AML Requirements, to determine whether suspicious activity and certain transactions in currency were properly identified and
reported in accordance with the BSA/AML Requirements. See Part I, Item 1A "Risk Factors - The Corporation and its bank
subsidiaries are subject to regulatory enforcement orders requiring improvement in compliance functions and remedial actions,"
Part I, Item 3 "Legal Proceedings - Regulatory Matters," Part II, Item 7 "Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Compliance, Risk Management and Information Technology Infrastructures," Part II, Item
8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note K - Regulatory Matters,"
and Part II, Item 9B "Other Information" for additional information regarding the Regulatory Orders.
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 Equal Credit Opportunity Act, the Real Estate Settlement Procedures 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
11
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, 2014, 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 are party to any such agreements 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
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 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.
12
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 12
OPERATOR alonzov
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.
13
Executive Officers
As of December 31, 2014, the executive officers of the Corporation are as follows:
Name
E. Philip Wenger
Age
57
Patrick S. Barrett
51
Craig H. Hill
Meg R. Mueller
Curtis J. Myers
Craig A. Roda
59
50
46
58
Philmer H. Rohrbaugh
62
Angela M. Sargent
James E. Shreiner
47
65
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 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.
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 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.
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.
Retired effective December 31, 2014. Mr. Shreiner served as 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 served as
Senior Executive Vice President of Operations and Credit.
14
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 14
OPERATOR alonzov
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.
INTEREST RATE AND LIQUIDITY RISKS.
The Corporation is subject to interest rate risk.
The Corporation cannot predict or control changes in interest rates. 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 difference between interest earned on interest earning assets and interest paid on interest-bearing liabilities.
Net interest income is the most significant component of the Corporation's net income, accounting for approximately 76% of total
revenues in 2014. The narrowing of interest rate spreads, the difference between interest rates earned on loans and investments
and interest rates paid on deposits and borrowings, has adversely affected the Corporation's net interest income.
Low market interest rates have pressured the net interest margin in recent years. 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.
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. Thus, although loan demand has improved in recent years, intense competition among lenders has contributed to downward
pressure on loan yields, also narrowing the net interest margin. Further, due to historically low market interest rates, rates paid on
deposits have tended to reach a natural floor below which it is difficult to further reduce such rates. See Item 7, "Management’s
Discussion and Analysis of Financial Condition and Results of Operations," "Net Interest Income."
Changes in interest rates can affect demand for the Corporation’s products and services.
Movements in interest rates can 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.
Changes in interest rates or disruption in liquidity markets may adversely affect the Corporation’s sources of funding.
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, including capital markets funding. 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 various techniques, assumptions and estimates used 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, 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.
15
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 planning at both the bank and holding company levels has become an area of increased regulatory emphasis.
Due to regulatory limitations on the Corporation’s ability to rely on short-term borrowings, 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 require the Corporation to pay higher interest rates on deposit products in order to retain deposits to
fund loans.
Liquidity must also be managed at the holding company level. Banking regulators carefully scrutinize 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.
LEGAL, COMPLIANCE AND REPUTATIONAL RISKS.
The supervision and regulation to which the Corporation is subject is increasing and can be a competitive disadvantage.
Virtually every aspect of the Corporation's operations is subject to extensive regulation and, in the current 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 and the Corporation and its subsidiaries are subject to regulation by a variety of
federal and state banking regulatory agencies. This corporate structure presents challenges, specifically, the need for compliance
with different, and potentially inconsistent, regulatory requirements. 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 overall 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 increasing amounts of management's attention and can be a disadvantage
from a competitive standpoint with respect to non-regulated competitors and larger bank competitors. The Corporation has
announced that it is developing plans to seek regulatory approval to begin the process of consolidating its six subsidiary banks.
This process is expected to eventually result in the Corporation conducting its core banking business through a single subsidiary
bank. The timing of the commencement of this multi-year process will depend significantly on the Corporation and its banking
subsidiaries making necessary progress in enhancing a largely centralized compliance program designed to comply with the
requirements of the Bank Secrecy Act, the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively,
the BSA/AML Requirements), and establishing, to the satisfaction of the Corporation’s banking regulatory agencies, that those
enhancements are sustainable to achieve compliance with the regulatory enforcement orders issued to the Corporation and its
subsidiary banks by their respective banking regulatory agencies relating to identified deficiencies in that compliance program.
There is no assurance that the regulatory approvals required for such consolidation could be obtained or that such consolidation
would significantly reduce the time, expense and internal and external resources associated with regulatory compliance.
The Corporation may incur negative consequences from regulatory violations, including inadvertent or unintentional
violations.
Compliance with banking statutes and regulations is important to the Corporation’s ability to engage in new activities and to
consummate certain transactions. Banking regulators are scrutinizing banks through longer and more intensive bank examinations.
The results of such examinations could result in a delay or failure to receive required regulatory approvals for potential new
activities and transactional matters. 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. As noted below and as examples of such limitations, the regulatory enforcement orders to which the Corporation
and five of its subsidiary banks are subject impose certain restrictions on the expansion activities of the Corporation and such
subsidiary banks.
16
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 16
OPERATOR alonzov
Further, failure to comply with these regulatory requirements, including inadvertent or unintentional violations, may result in the
assessment of fines and penalties, or the commencement of further informal or formal regulatory enforcement actions against the
Corporation or its bank subsidiaries. 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 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.
The Corporation and its bank subsidiaries are subject to regulatory enforcement orders requiring improvement in compliance
functions and remedial actions.
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, including those designed to comply with the BSA/AML Requirements.
Nonetheless, during 2014, the Corporation and five of its banking subsidiaries became subject to regulatory enforcement orders
issued by banking regulatory agencies relating to identified deficiencies in a largely centralized compliance program (the BSA/
AML Compliance Program) designed to comply with the BSA/AML Requirements (the 2014 Regulatory Orders). The 2014
Regulatory Orders are described in Current Reports on Form 8-K filed with the Securities and Exchange Commission on July 18,
2014, September 9, 2014, and December 29, 2014.
On February 25, 2015, Fulton Bank of New Jersey (FBNJ), the Corporation’s sixth banking subsidiary, entered into a Stipulation
and Consent to the Issuance of a Consent Order with the Federal Deposit Insurance Corporation (the FDIC) consenting to the
issuance by the FDIC of a Consent Order (the 2015 FDIC Consent Order). In addition, on February 25, 2015, FBNJ entered into
a Consent Order with the Commissioner of Banking and Insurance for the State of New Jersey (the New Jersey Consent Order,
and, together with the FDIC Consent Order, the 2015 Consent Orders). See Part II, Item 9B "Other Information" for additional
information regarding the 2015 Consent Orders.
The 2014 Regulatory Orders and the 2015 Consent Orders (collectively, the Regulatory Orders) require, among other things, that
the Corporation and its banking subsidiaries review, assess and take actions to strengthen and enhance the BSA/AML Compliance
Program, and, in some cases, conduct retrospective reviews of past account activity and transactions, as well as certain reports
filed in accordance with the BSA/AML Requirements, to determine whether suspicious activity and certain transactions in currency
were properly identified and reported in accordance with the BSA/AML Requirements.
In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program,while the Regulatory Orders
remain in effect, the Corporation is subject to certain restrictions on expansion activities of the Corporation and its subsidiary
banks. Further, any failure to comply with the requirements of any of the Regulatory Orders involving the Corporation or its
subsidiary banks could result in further enforcement actions, the imposition of material restrictions on the activities of the
Corporation or its subsidiary banks, or the assessment of fines or penalties.
During the year ended December 31, 2014, the Corporation incurred approximately $8 million of outside services expense related
to strengthening and enhancing the BSA/AML Compliance Program. Additional expenses and investments have been incurred
as the Corporation further expanded its hiring of personnel and use of outside professionals, such as consulting and legal services,
and capital investments in operating systems to strengthen and support the BSA/AML Compliance Program, as well as the
Corporation’s broader compliance and risk management infrastructures. The expense and capital investment associated with all
of these efforts, including in connection with the Regulatory Orders, have had an adverse effect on the Corporation’s results of
operations in recent periods and could have a material adverse effect on the Corporation’s results of operations in future periods.
As noted below, recruitment and retention of the personnel necessary to strengthen and enhance the Corporation’s BSA/AML
Compliance Program can be challenging. Further, the Corporation’s employees have been required to adopt and embrace
governance practices necessary to strengthen the Corporation’s risk management framework and regulatory compliance programs,
which can pose additional challenges in retaining and motivating the Corporation’s employees.
Finally, due to the existence of the Regulatory Orders, some counterparties may not be permitted to, due to their internal policies,
or may choose not to do business with the Corporation or its bank subsidiaries. Should counterparties which the Corporation or
its bank subsidiaries rely upon for the conduct of their business become unwilling to do business with the Corporation or its bank
subsidiaries, the Corporation’s results of operations and financial condition could be materially adversely effected.
17
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 the Act 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 depends, 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 with respect to certain matters. The resulting uncertainty can cause 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 and, 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 Corporation has also been 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 utilized by other banking 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
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. In December 2013, the CFPB issued final rules revising and integrating previously separate
disclosures required under the Truth in Lending Act and the Real Estate Settlement Procedures Act in connection with closed-end
consumer mortgages. These final rules will become effective August 1, 2015, and compliance with these rules will require the
Corporation to adapt its systems and procedures to accommodate the use of new disclosure forms to be provided to closed-end
consumer mortgage borrowers at the time of application and at the time of closing for those loans within the timeframes required
under these new rules. Compliance with these new rules may increase the Corporation’s overall regulatory compliance costs. See
also Part I, Item 1, "Business," "Supervision and Regulation."
Additional growth, particularly at the Corporation's largest subsidiary, Fulton Bank, N.A., would 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, 2014. Additional growth (or the
consolidation of the Corporation’s subsidiary banks as discussed above) 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 jurisdiction by the CFPB with respect to consumer financial protection laws;
18
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
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PAGE NO. 18
OPERATOR alonzov
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 FDIC
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."
Negative publicity could damage the Corporation’s reputation.
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.
STRATEGIC AND EXTERNAL RISKS.
The Corporation is in the process of transforming its business model and this transformation may not be successful.
The Corporation historically has followed a “super-community” banking strategy under which the Corporation has operated its
subsidiary banks autonomously to maximize the advantages of the community banking model in serving the needs to its customers.
Reliance on this model has posed challenges to the Corporation's efforts to manage risk efficiently and effectively through a
centralized risk management and compliance function. As a result, over the next several years, the Corporation plans to transition
to a business model that will be oriented less on geographic boundaries and more focused on alignment with the customer segments
the Corporation serves.
The transformation of the Corporation’s business model may have some or all of the following unintended effects:
• The efficiencies sought may not be achieved;
•
Some customers may not receive the change in business model in a positive manner and relationships with these customers
may be jeopardized;
• The changes in organizational structure and the evolution of the Corporation’s culture that will be required to support
the transition to the new business model may lead to dissatisfaction among employees which could make it more difficult
for the Corporation to retain key employees;
• The transition to the new business model may create operational and other challenges that are disruptive to the
Corporation’s business; and
• Expenses will be incurred in the implementation of the new business model and the implementation process may distract
the Corporation from the achievement of other fundamental business objectives.
The Corporation may not be able to achieve its growth plans.
The Corporation’s business plan includes the pursuit of profitable growth. Under current economic, competitive and regulatory
conditions, profitable growth may be difficult to achieve due to one or more of the following factors:
•
•
In the current, prolonged low interest rate environment, the Corporation’s net interest margin has been compressed and
it is possible that a net interest margin that is lower than historical levels could continue for some time. As a result,
income growth will likely need to come from growth in the volume of earning assets, particularly loans, and an increase
in non-interest income. However, customer demand and competition could make such income growth difficult to achieve;
In recent years, reductions in the Corporation’s provision for credit losses have had a significant favorable impact on the
Corporation’s earnings, in comparison to earlier years, during which credit losses and the provision for credit losses were
elevated. Significant further reductions in the provision for loan losses are not likely;
• Operating expenses, particularly in the compliance and risk management areas, have been elevated and such expenses
are unlikely to be reduced in the near future; and
• Growth through acquisition or branching to supplement organic growth is unlikely to occur while the Regulatory Orders
referenced above are in place, due to an inability to obtain the required regulatory approvals.
19
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, 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. See Part I, Item 1, "Business," "Competition."
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. As of December 31, 2014, the Corporation had $530.6 million of goodwill
recorded on its balance sheet. The Corporation is required to evaluate goodwill for impairment at least annually. 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.
ECONOMIC AND CREDIT RISKS.
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 changes in 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.
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, 2014 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
20
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 20
OPERATOR alonzov
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. 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.
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.
Furthermore, banking 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 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 changes in interest rates, as well as other factors, such as a substantial decline in the stock market
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 $9.6 billion, or 73.3%, of the Corporation’s loan portfolio was in commercial loans, commercial mortgage loans,
and construction loans at December 31, 2014. Commercial loans, commercial mortgage loans and construction loans generally
involve a greater degree of credit risk than residential mortgage loans and consumer loans because they typically have larger
balances and are more affected by adverse conditions in the economy. Because payments on these loans often depend on the
successful operation and management of businesses and properties, 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."
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.
As of December 31, 2014, the Corporation’s securities investments included $100.9 million of investments in student loan auction
rate certificates (ARCs). Following the failures of periodic auctions for these ARCs, which began in 2008 and have continued
since that time, there has not been an active market for these securities. Other than sporadic redemptions and tender offers made
by the issuers of these ARCs, these securities are illiquid. Secondary market transactions involving ARCs typically 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 "distressed" sale prices and would likely do so at a loss.
21
A portion of the Corporation's securities portfolio includes holdings of equity investments, including stocks of publicly traded
financial institutions. The portfolio of publicly traded financial institutions includes shares of a single financial institution which,
as of December 31, 2014, had a fair value of $30.4 million. The Corporation's holdings of this financial institution constituted
approximately 72.7% of the fair value of the Corporation's aggregate holdings of publicly traded financial institutions as of that
date.
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."
OPERATIONAL RISKS.
The Corporation is exposed to many types of operational and other risks and the Corporation's framework for managing risks
may not be effective in mitigating risk.
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, computer and telecommunications
systems malfunctions or failures and reliance on data that may be faulty or incomplete. In an environment characterized by
continual, rapid technological change, as discussed below, when the Corporation introduces new products and services, or makes
changes to its information technology systems and processes, these operational risks are increased. Any of these operational 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.
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. The Corporation’s traditional super-
community banking strategy challenges the Corporation's efforts to manage risk efficiently and effectively through a centralized
risk management and compliance function.
The Corporation’s operational risks include risks associated with third-party vendors and other financial institutions.
The Corporation relies upon certain third-party vendors to provide products and services necessary to maintain its day-to-day
operations, including, notably, responsibility for the core processing system that services all of the Corporation’s bank subsidiaries.
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. Further, third-party vendor risk management has become
a point of regulatory emphasis recently. A failure of the Corporation to follow applicable regulatory guidance in this area could
expose the Corporation to regulatory sanctions.
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 risk 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.
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JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
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PAGE NO. 22
OPERATOR alonzov
The Corporation’s internal controls may be ineffective.
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.
The Corporation’s insurance includes coverage for so-called "cyber security risks." However, in the event of a breach of data
security, the amount of such coverage may prove to be inadequate. Further, such insurance includes deductibles and exclusions
which may result in less than full coverage for losses incurred.
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 financial institution competitors have substantially greater
resources to invest in technological improvements and new payment services developed and offered by non-financial institution
competitors pose an increasing threat to the traditional payment services offered by financial institutions. 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 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 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 talented personnel
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. 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.
23
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 and retaining such personnel may be substantial.
RISKS RELATED TO AN INVESTMENT IN THE CORPORATION’S SECURITIES.
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. In 2014, the
Corporation issued subordinated debt intended to qualify as Tier 2 capital for regulatory purposes and 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 future 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 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 using data as of September 30 of each
year and different scenarios provided by the FRB, and reports the results of the stress test to the FRB by March 31 of the following
year. Beginning with the results of the stress test reported to the FRB in March 2015, the Corporation will also be required to
publicly disclose a summary of the results of the stress test completed under the severely adverse scenario. The Corporation's
board of directors and its senior management are 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 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 requirements.
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 and included in Tier 2 capital.
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 on January 1, 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, 2014, 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
24
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 24
OPERATOR alonzov
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."
In addition, as noted above, liquidity and capital planning at both the bank and holding company levels has become an area of
increased regulatory emphasis. In recent years, the Corporation has pursued a strategy of capital management under which it has
sought to deploy its capital, through stock repurchases, increased regular dividends and special dividends, in a manner that is
beneficial to the Corporation’s shareholders. This capital management strategy is subject to regulatory supervision.
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.
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. To the extent that these provisions 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. These provisions may also adversely affect the market price of the Corporation’s stock. 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.
Certain provisions of Pennsylvania corporate law applicable to the Corporation’s and the Corporation's Amended and Restated
Articles of Incorporation and Bylaws include 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 of 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.
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
and, under certain circumstances, such approvals are required at an even lower ownership percentage. 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
25
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.
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, 2014.
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 ................................................................................................
Total..........................................................................................................................
Owned
Leased
45
38
9
5
6
5
70
32
24
16
2
2
Total
Branches
115
70
33
21
8
7
108
146
254
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.
Regulatory Matters
In July 2014, three wholly owned banking subsidiaries of the Corporation, Fulton Bank, N.A., Swineford National Bank and FNB
Bank, N.A., each entered into a Stipulation and Consent to the Issuance of a Consent Order with their primary federal banking
regulatory agency, the Office of the Comptroller of the Currency (OCC), consenting to the issuance by the OCC of a Consent
Order (collectively, together with each Stipulation and Consent to the Issuance of a Consent Order, the OCC Consent Orders).
26
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 26
OPERATOR alonzov
The OCC Consent Orders relate to identified deficiencies in a centralized Bank Secrecy Act and anti-money laundering compliance
program (the BSA/AML Compliance Program), which was designed to comply with the requirements of the Bank Secrecy Act,
the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements), as disclosed
by the Corporation in a Current Report on Form 8-K filed with the SEC on July 18, 2014. The OCC Consent Orders require,
among other things, that the banking subsidiaries review, assess and take actions to strengthen and enhance their the BSA/AML
Compliance Program, including elements of the BSA/AML Compliance Program relating to: internal controls designed to ensure
compliance with the BSA/AML Requirements; the periodic risk assessment process relating to the BSA/AML Requirements;
customer due diligence procedures; enhanced due diligence procedures for higher-risk customers; procedures for monitoring for,
identifying, investigating and reporting suspicious activity, or known or suspected violations of law; the qualifications and
sufficiency of staff responsible for carrying out the BSA/AML Compliance Program; and training related to the BSA/AML
Requirements.
In September 2014, the Corporation and its wholly owned banking subsidiary, Lafayette Ambassador Bank (Lafayette), entered
into a Cease and Desist Order Issued Upon Consent (the Cease and Desist Order) with their primary federal banking regulatory
agency, the Board of Governors of the Federal Reserve System (the FRB), as disclosed by the Corporation in a Current Report on
Form 8-K filed with the SEC on September 9, 2014. The Cease and Desist Order relates to identified deficiencies in the BSA/
AML Compliance Program, which was designed to comply with the BSA/AML Requirements. The requirements of the Cease
and Desist Order are similar to the requirements of the OCC Consent Orders. In addition, the Cease and Desist Order requires,
among other things, that the Corporation engage an independent third-party firm to conduct a comprehensive assessment of the
BSA/AML Compliance Program, and that Lafayette engage an independent third-party firm to conduct a retrospective review of
account and transaction activity from January 1, 2014 to June 30, 2014 associated with high-risk customers to determine whether
suspicious activity was properly identified and reported in accordance with the BSA/AML Requirements. Based on the results of
this transaction review, the FRB may require a review of transactions for additional time periods.
As disclosed by the Corporation in a Current Report on Form 8-K filed with the SEC on December 29, 2014, in December 2014,
The Columbia Bank (Columbia), a wholly-owned banking subsidiary of the Corporation, entered into a Stipulation and Consent
to the Issuance of a Consent Order with the Federal Deposit Insurance Corporation (the FDIC) consenting to the issuance by the
FDIC of a Consent Order (the FDIC Consent Order). In addition, Columbia entered into a Stipulation and Consent to the Issuance
of a Consent Order with the Commissioner of Financial Regulation for the State of Maryland (the Commissioner), consenting to
the issuance by the Commissioner of a Consent Order, and an Acknowledgement of Adoption of FDIC Consent Order by the
Commissioner of Financial Regulation, pursuant to which, the Commissioner and Columbia agreed that, upon issuance of the
FDIC Consent Order, the FDIC Consent Order shall be binding between the Commissioner and Columbia with the same legal
effect as if the Commissioner had issued a separate Consent Order that included all of the provisions of the FDIC Consent Order.
The FDIC Consent Order relates to identified deficiencies in the BSA/AML Compliance Program, which was designed to comply
with the BSA/AML Requirements. The requirements of the FDIC Consent Order are similar to the requirements of the OCC
Consent Orders and the Cease and Desist Order. In addition, the FDIC Consent Order requires, among other things, that: (i) the
Board of Directors of Columbia designate a permanent, qualified and experienced Bank Secrecy Act officer that: is acceptable to
the FDIC and the Commissioner; reports monthly to the Board of Directors of Columbia; and is provided with sufficient authority
and resources to implement the BSA/AML Compliance Program; and (ii) Columbia conduct a retrospective review of currency
transaction aggregation reports and Currency Transaction Reports from May 1, 2013 through the effective date of the FDIC Consent
Order to determine whether transactions by a common conductor were properly identified and reported.
On February 25, 2015, Fulton Bank of New Jersey (FBNJ), the Corporation’s sixth wholly owned banking subsidiary, entered
into a Stipulation and Consent to the Issuance of a Consent Order with the FDIC consenting to the issuance by the FDIC of a
Consent Order (the 2015 FDIC Consent Order). In addition, on February 25, 2015, FBNJ entered into a Consent Order with the
Commissioner of Banking and Insurance for the State of New Jersey (the New Jersey Consent Order and, together with the FDIC
Consent Order, the 2015 Consent Orders). The 2015 Consent Orders impose substantially identical requirements and relate to
identified deficiencies in the BSA/AML Compliance Program, which was designed to comply with the BSA/AML Requirements.
The requirements of the 2015 Consent Orders are similar to the requirements of the FDIC Consent Order, except that FBNJ is
required to review and enhance its periodic risk assessment process relating to the BSA/AML Requirements, and FBNJ is not
required to conduct a retrospective review of past currency transaction aggregation reports and Currency Transaction Reports. See
Part II, Item 9B "Other Information" for additional information regarding the 2015 Consent Orders.
Item 4. Mine Safety Disclosures
Not applicable.
27
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, 2014, the Corporation had 178.9 million shares of $2.50 par value common stock outstanding held by
approximately 36,000 holders of record. The closing price per share of the Corporation’s common stock on December 31, 2014
was $12.36. 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 2014 and 2013:
Price Range
High
Low
Per
Share
Dividend
2014
First Quarter...............................................................................................................
$
13.18
$
11.73
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
13.16
12.71
12.67
11.35
11.05
10.43
2013
First Quarter...............................................................................................................
$
11.91
$
9.78
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
11.91
13.08
13.40
10.30
11.23
11.50
0.08
0.08
0.08
0.10
0.08
0.08
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, 2014:
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)
4,302,464
—
4,302,464
$
$
12.89
N/A
12.89
14,004,874
—
14,004,874
(1) Consists of 11,393,846 shares that may be awarded under the Amended and Restated Equity and Cash Incentive Compensation Plan, 409,749 shares that may
be awarded under the 2011 Directors' Equity Participation Plan and 2,201,279 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, 2014 as the number of shares to be purchased is indeterminable
until the time shares are issued.
28
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 28
OPERATOR alonzov
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 ....................................
2009
100.00
100.00
100.00
$
$
$
2010
120.02
115.06
114.16
$
$
$
2011
116.25
117.49
102.17
$
$
$
2012
117.33
136.30
121.26
$
$
$
2013
164.07
180.44
171.86
$
$
$
2014
159.38
205.14
180.31
$
$
$
Year Ending December 31
29
Issuer Purchases of Equity Securities
The following table presents the Corporation's monthly repurchases of its common stock during the fourth quarter of 2014:
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
October 1, 2014 to October 31, 2014
—
—
—
November 1, 2014 to November 30, 2014
6,509,357
$12.29
6,509,357
December 1, 2014 to December 31,2014
—
—
—
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
—
1,627,340
1,627,340
In November 2014, the Corporation entered into an accelerated share repurchase agreement (ASR) with a third party to repurchase
$100 million of shares of its common stock. Under the terms of the ASR, the Corporation paid $100 million to the third party in
November 2014 and received an initial delivery of 6.5 million shares, representing 80% of the shares expected to be delivered
under the ASR, based on the closing price for the Corporation’s shares on November 13, 2014. The final number of shares of to
be repurchased under the ASR will depend upon the daily volume-weighted average prices of the Corporation’s shares, less a
discount, over the term of the ASR. The ASR contains customary terms for such transactions, including mechanisms to determine
the number of shares or the amount of cash that will be delivered at settlement, circumstances under which adjustments may be
made to the transaction, circumstances under which the transaction may be terminated prior to its scheduled maturity and customary
representations and warranties made by the parties. Final settlement of the ASR is scheduled for no later than April 17, 2015, and
may occur earlier at the option of the third party.
30
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 30
OPERATOR alonzov
Item 6. Selected Financial Data
5-YEAR CONSOLIDATED SUMMARY OF FINANCIAL RESULTS
(dollars in thousands, except per-share data)
2014
2013
2012
2011
2010
SUMMARY OF INCOME
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’
$
$
$
596,078
81,211
514,867
12,500
2,041
165,338
—
459,246
210,500
52,606
157,894
—
157,894
0.85
0.84
0.34
0.93%
7.62
10.31
3.39
65.65
40.48
equity (1)..................................................................
Net interest margin ......................................................
Efficiency ratio (1).......................................................
Dividend payout ratio ..................................................
PERIOD-END BALANCES
Total assets................................................................... $ 17,124,767
2,323,371
Investment securities ...................................................
13,111,716
Loans, net of unearned income....................................
13,367,506
Deposits .......................................................................
329,719
Short-term borrowings.................................................
Federal Home Loan Bank (FHLB) advances and
1,139,413
1,996,665
long-term debt..........................................................
Shareholders’ equity ....................................................
AVERAGE BALANCES
Total assets................................................................... $ 16,959,507
2,480,454
Investment securities ...................................................
12,885,180
Loans, net of unearned income....................................
12,867,663
Deposits .......................................................................
832,839
Short-term borrowings.................................................
FHLB advances and long-term debt ............................
Shareholders’ equity ....................................................
965,601
2,071,640
$
$
$
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
$
$
$
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
$ 16,934,634
2,568,434
12,782,220
12,491,186
1,258,629
$ 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
883,584
2,063,187
894,253
2,081,656
1,040,149
1,992,539
1,119,450
1,880,389
$ 16,811,337
2,718,174
12,578,524
12,473,184
1,196,323
889,461
2,053,821
$ 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
(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."
31
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:
2014
2013
2012
2011
2010
(in thousands, except per share data and percentages)
Return on average common shareholders' equity (tangible)
Net income ...................................................................... $
157,894
Plus: Intangible amortization, net of tax .........................
818
Numerator .................................................................. $
158,712
$
$
161,840
1,584
163,424
$
$
159,845
1,970
161,815
$
$
145,573
2,767
148,340
$
$
112,029
3,406
115,435
Average common shareholders' equity............................ $ 2,071,640
$ 2,053,821
$ 2,050,994
$ 1,953,396
$ 1,780,148
Less: Average goodwill and intangible assets.................
(532,425)
Average tangible shareholders' equity (denominator) $ 1,539,215
(534,431)
(542,600)
(545,920)
(550,271)
$ 1,519,390
$ 1,508,394
$ 1,407,476
$ 1,229,877
Return on average common shareholders' equity
(tangible), annualized.......................................
Efficiency ratio
10.31%
10.76%
10.73%
10.54%
9.39%
Non-interest expense ....................................................... $
Less: Intangible amortization ..........................................
459,246
(1,259)
Numerator .................................................................. $
457,987
Net interest income (fully taxable equivalent) (1) .......... $
Plus: Total Non-interest income......................................
Less: Investment securities gains, net .............................
532,322
167,379
(2,041)
$
$
$
$
$
$
461,433
(2,438)
458,995
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)
Denominator .............................................................. $
697,660
$
724,134
$
774,576
$
759,164
$
755,805
Efficiency ratio .....................................................
65.65%
63.39%
57.61%
54.27%
53.32%
Non-performing assets to tangible common shareholders' equity and allowance for credit losses
Non-performing assets (numerator) ................................ $
150,504
$
169,329
$
237,199
$
317,331
$
361,731
Tangible common shareholders' equity........................... $ 1,464,862
$ 1,530,111
$ 1,546,093
$ 1,448,330
$ 1,332,410
Plus: Allowance for credit losses
Tangible common shareholders' equity and allowance
185,931
204,917
225,439
258,177
275,498
for credit losses (denominator).................................... $ 1,650,793
Non-performing assets to tangible common
$ 1,735,028
$ 1,771,532
$ 1,706,507
$ 1,607,908
shareholders' equity and allowance for credit
losses ...................................................................
9.12%
9.76%
13.39%
18.60%
22.50%
(1) Presented on a fully taxable equivalent basis, using a 35% Federal tax rate and statutory interest expense disallowances.
32
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 32
OPERATOR alonzov
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
identify forward-looking
statements. Statements relating to the "outlook" or "outlook for 2015" contained herein are forward-looking statements.
intended
to
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 effects of market interest rates, and the relative balances of rate-sensitive assets to rate-sensitive liabilities, on net
interest margin and net interest income;
the effects of changes in interest rates on demand for the Corporation’s products and services;
the effects of changes in interest rates or disruptions in liquidity markets on the Corporation’s sources of funding;
the Corporation’s ability to manage liquidity, both at the holding company level and at its subsidiary banks;
the impact of increased regulatory scrutiny of the banking industry;
the effects of the increasing amounts of time and expense associated with regulatory compliance and risk
management;
the potential for negative consequences from regulatory violations, including potential supervisory actions and the
assessment of fines and penalties;
the additional time, expense and investment required to comply with, and the restrictions on potential growth and
investment activities resulting from, the existing enforcement orders by federal and state bank regulatory agencies
requiring improvement in compliance functions and other remedial actions, or any future enforcement orders;
the Corporation’s ability to manage the uncertainty associated with the delay in implementing many of the regulations
mandated by the Dodd-Frank Act;
the effects of negative publicity on the Corporation’s reputation;
the Corporation’s ability to successfully transform its business model;
the Corporation’s ability to achieve its growth plans;
the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;
the Corporation’s ability to manage the level of non-interest expenses, including salaries and employee benefits
expenses, operating risk losses and goodwill impairment;
the impact of adverse conditions in the economy and capital markets on the performance of the Corporation’s loan
portfolio and demand for the Corporation’s products and services;
increases in non-performing assets, which may require the Corporation to increase the allowance for credit losses,
charge off loans and incur elevated collection and carrying costs related to such non-performing assets;
investment securities gains and losses, including other-than-temporary declines in the value of securities which may
result in charges to earnings;
the impact of operational risks, including the risk of human error, inadequate or failed internal processes and systems,
computer and telecommunications systems failures, faulty or incomplete data and an inadequate risk management
framework;
the impact of failures of third parties upon which the Corporation relies to perform in accordance with contractual
arrangements;
the failure or circumvention of the Corporation’s system of internal controls;
the loss of, or failure to safeguard, confidential or proprietary information;
the Corporation’s failure to identify and to address cyber-security risks;
the Corporation’s ability to keep pace with technological changes;
the Corporation’s ability to attract and retain talented personnel;
33
•
•
•
capital and liquidity strategies, including the Corporation’s ability to comply with applicable capital and liquidity
requirements, and the Corporation’s ability to generate capital internally or raise capital on favorable terms;
the Corporation’s reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or
other distributions; and
the effects of any downgrade in the Corporation’s credit ratings on its borrowing costs or access to capital markets.
OVERVIEW AND OUTLOOK
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.
The following table presents a summary of the Corporation’s earnings and selected performance ratios:
Net income (in thousands) .............................................................................................................. $ 157,894
0.84
Diluted net income per share .......................................................................................................... $
0.93%
Return on average assets.................................................................................................................
7.62%
Return on average equity ................................................................................................................
10.31%
Return on average tangible equity (1) ............................................................................................
3.39%
Net interest margin (2)....................................................................................................................
65.65%
Efficiency ratio (1)..........................................................................................................................
$
$
2014
2013
161,840
0.83
0.96%
7.88%
10.76%
3.50%
63.39%
(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.
Highlights of 2014 included diluted earnings per share growth, average loan and core deposit growth, asset quality improvements,
a decrease in non-interest expenses and continued strong capital levels despite revenue growth challenges resulting primarily from
the persistent low interest rate environment. Details were as follows:
• Net Income Per Share Growth - Diluted net income per share increased $0.01, or 1.2%, to $0.84 per diluted share,
compared to $0.83 in 2013. This increase was due to a 7.2 million, or 3.7%, decrease in weighted average diluted shares
outstanding as net income decreased $3.9 million, or 2.4%, in comparison to 2013. The decrease in net income was driven
largely by a $12.3 million, or 2.3%, decrease in net interest income, a $20.3 million, or 10.8%, decrease in non-interest
income, mainly in mortgage banking income, partially offset by a $28.0 million, or 69.1%, decrease in the provision for
credit losses and a $2.2 million, or 0.5%, decrease in non-interest expense.
•
Loan Growth and Net Interest Margin Compression - Average loans increased $306.7 million, or 2.4%, in comparison
to 2013, with notable increases in commercial mortgages, residential mortgages and construction loans. The Corporation's
loan growth occurred throughout most of its markets and after a slow weather-related start to 2014, full-year loan growth
was modest and ended just short of the Corporation's targeted 2014 growth rate of 3% to 7%. The Corporation's outlook
for 2015 anticipates an annual average loan growth rate of 3% to 7%.
During 2014, net interest margin compression continued at a modest pace, decreasing 11 basis points to 3.39% in 2014
from 3.50% in 2013. Net interest margin compression resulted from the decline in yields on interest-earning assets as
the cost of interest-bearing liabilities was unchanged in comparison to 2013. The Corporation anticipates that net interest
margin compression will continue in 2015, at a rate of 0 to 4 basis points per quarter, on average, based on the current
interest rate environment.
• Asset Quality - Overall asset quality improved in 2014, with decreases in non-performing loans, net charge-offs and
overall delinquency levels resulting in a 69.1% decrease in the provision for credit losses to $12.5 million. It is expected
34
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 34
OPERATOR alonzov
that this modest provision for credit losses will continue for 2015, although provisions could be impacted by the
performance of individual credits.
• Core Deposit Growth - Average demand and savings deposit accounts increased $530.7 million, or 5.7%, in comparison
to 2013. Overall average deposit growth outpaced loan growth, which enhanced the Corporation's funding position by
reducing the average loan-to-deposit ratio to 100.1% for the year ended December 31, 2014. Annual average growth in
deposits during 2015 is expected to be in the range of 3% to 7%.
• Non-Interest Income - Non-interest income decreased $20.3 million, or 10.8%, in comparison to 2013, driven by a $13.5
million, or 44.2%, decrease in mortgage banking income, due primarily to lower volumes, a $6.1 million, or 21.5%,
decrease in overdraft fees, and a $6.0 million, or 74.5%, decrease in gains on sales of investment securities. Barring any
regulatory intervention on products or pricing, in 2015 the Corporation anticipates an annual mid- to high single digit
annual growth rate in non-interest income, excluding the impact of securities gains. This forecasted growth is based on
an expected increase in mortgage banking income as well as higher fee income generated from growing deposit balances.
• Non-Interest Expense - Non-interest expense decreased $2.2 million, or 0.5%, in comparison to 2013 driven largely by
decreases in other real estate owned and operating risk loss and the impact of certain cost savings initiatives implemented
in early 2014. Partially offsetting these decreases was an increase in outside consulting services related to the regulatory
compliance and risk management efforts discussed in further detail below.
In 2014, the Corporation implemented a series of initiatives which reduced non-interest expenses in 2014 by approximately
$7 million, or an annualized rate of approximately $8 million. These initiatives included the consolidation of 13 branches,
streamlining of subsidiary bank management structures and other employee compensation and benefit reductions.
The branch consolidations resulted in the transfer of deposits, employees and other branch resources to existing branch
locations. During 2014, implementation costs incurred totaled $2.1 million, consisting mainly of lease termination costs
and the write-off of leasehold improvements. Total expense reductions realized in 2014 as a result of the branch
consolidations were approximately $2.4 million.
The streamlining of subsidiary bank management structures resulted in the elimination of five subsidiary bank divisional
executive positions, while other employee compensation and benefit reductions were realized from changes to certain
employee benefits plans, most notably an amendment to the postretirement benefits plan (Postretirement Plan). During
2014, $1.1 million of net implementation gains were recognized from these actions.
The Corporation has begun to implement additional cost savings initiatives for 2015, including the consolidation of 9
branches and compensation and benefit reductions, projected to reduce non-interest expense by approximately $4.6
million annually. Implementation costs associated with these initiatives are projected to be $1.7 million. The outlook for
2015 anticipates annual non-interest expense growth in the low-single digit rate, reflecting higher staffing costs, which
will be largely offset by the impact of cost savings initiatives and lower outside services expense.
• Compliance, Risk Management and Information Technology Infrastructures - 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, including those designed to comply with the requirements of the Bank Secrecy Act,
the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements).
Nonetheless, during 2014, the Corporation and five of its banking subsidiaries became subject to regulatory enforcement
orders issued by banking regulatory agencies relating to identified deficiencies in a largely centralized compliance program
(the BSA/AML Compliance Program) designed to comply with the BSA/AML Requirements (the 2014 Regulatory
Orders). The 2014 Regulatory Orders are described in Current Reports on Form 8-K filed with the Securities and Exchange
Commission on July 18, 2014, September 9, 2014, and December 29, 2014.
On February 25, 2015, Fulton Bank of New Jersey (FBNJ), the Corporation’s sixth banking subsidiary, entered into a
Stipulation and Consent to the Issuance of a Consent Order with the Federal Deposit Insurance Corporation (the FDIC)
consenting to the issuance by the FDIC of a Consent Order (the 2015 FDIC Consent Order). In addition, on February 25,
2015, FBNJ entered into a Consent Order with the Commissioner of Banking and Insurance for the State of New Jersey
(the New Jersey Consent Order and, together with the FDIC Consent Order, the 2015 Consent Orders). See Part II, Item
9B "Other Information" for additional information regarding the 2015 Consent Orders.
35
The 2014 Regulatory Orders and the 2015 Consent Orders (collectively, the Regulatory Orders) require, among other
things, that the Corporation and its banking subsidiaries review, assess and take actions to strengthen and enhance the
BSA/AML Compliance Program, and, in some cases, conduct retrospective reviews of past account activity and
transactions, as well as certain reports filed in accordance with the BSA/AML Requirements, to determine whether
suspicious activity and certain transactions in currency were properly identified and reported in accordance with the BSA/
AML Requirements.
In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program, while the Regulatory
Orders remain in effect, the Corporation is subject to certain restrictions on expansion activities of the Corporation and
its subsidiary banks. Further, any failure to comply with the requirements of any of the Regulatory Orders involving the
Corporation or its subsidiary banks could result in further enforcement actions, the imposition of material restrictions on
the activities of the Corporation or its subsidiary banks, or the assessment of fines or penalties.
During the year ended December 31, 2014 the Corporation incurred approximately $8 million of outside services expense
related to strengthening and enhancing the BSA/AML Compliance Program. Additional expenses and investments have
been incurred as the Corporation further expanded its hiring of personnel and use of outside professionals, such as
consulting and legal services, and capital investments in operating systems to strengthen and support the BSA/AML
Compliance Program, as well as the Corporation’s broader compliance and risk management infrastructures. The expense
and capital investment associated with all of these efforts, including in connection with the Regulatory Orders, have had
an adverse effect on the Corporation’s results of operations in recent periods and could have a material adverse effect on
the Corporation’s results of operations in future periods.
• Capital Management - During 2014, the Corporation repurchased 8.0 million shares of its common stock for a total cost
of $95.3 million. In addition, in November 2014 the Corporation issued $100.0 million in subordinated debt and
contemporaneously entered into an accelerated share repurchase agreement (ASR) with a third party to repurchase $100.0
million of its common stock. Final settlement of the ASR is scheduled for no later than April 17, 2015, and may occur
earlier at the option of the third party. For more details on the ASR see Note N, "Shareholders' Equity," in the Notes to
Consolidated Financial Statements.
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 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 Corporation’s allowance for loan losses includes: 1) specific allowances allocated to 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:
•
Identification of 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 assessments identify a deterioration or an improvement in the loan.
36
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 36
OPERATOR alonzov
The Corporation does not assign internal risk ratings for residential mortgages, home equity loans, 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 or
equal to $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 state
certified third-party appraisers, discounted to arrive at expected sale prices. For collateral-dependent loans, estimated
real estate fair values are also 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; market factors; payment status; the strength of any guarantors; and the existence and age of other indications of
value such as broker price opinions, among others. The Corporation generally obtains updated state certified 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 credit administration
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
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 migration 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
37
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.
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
38
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 38
OPERATOR alonzov
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
For a description of new accounting standards issued, but not yet adopted by the Corporation, see Note A, "Summary of Significant
Accounting Policies" in the Notes to Consolidated Financial Statements, under the subheading "New Accounting Standards."
39
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 2014 compared to 2013 and
2012. 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.
2014
2013
2012
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) .... $ 12,885,180
Taxable investment securities (3)......
2,189,510
Tax-exempt investment securities (3)
Equity securities (3)...........................
261,825
33,957
Total investment securities...................
2,485,292
Loans held for sale ............................
Other interest-earning assets .............
17,524
314,345
50,651
13,810
1,728
66,189
786
4,018
Total interest-earning assets .................
15,702,341
613,533
Noninterest-earning assets:
Cash and due from banks ..................
Premises and equipment....................
Other assets (3)..................................
Less: Allowance for loan losses ........
177,664
224,903
1,049,765
(195,166)
$
542,540
4.21% $ 12,578,524
$
552,427
4.39% $ 11,968,567
$
575,534
4.81%
2.31
5.27
5.09
2.66
4.49
1.28
3.91
2,391,650
285,174
38,722
2,715,546
36,561
229,444
54,321
14,577
1,829
70,727
1,551
2,264
15,560,075
626,969
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
207,931
226,041
1,037,338
(220,048)
234,494
219,236
1,099,616
(250,160)
Total Assets.................................. $ 16,959,507
$ 16,811,337
$ 16,257,776
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits ............................... $ 3,013,879
Savings deposits ................................
3,431,957
$
Time deposits.....................................
Total interest-bearing deposits..............
Short-term borrowings ......................
Long-term debt ..................................
2,992,920
9,438,756
832,839
965,601
Total interest-bearing liabilities......
11,237,196
Noninterest-bearing liabilities:
Demand deposits ...............................
Other..................................................
3,428,907
221,764
Total Liabilities..................................
14,887,867
Shareholders’ equity.............................
2,071,640
Total Liabilities and Shareholders'
Equity......................................... $ 16,959,507
Net interest income/net interest margin
(FTE)................................................
Tax equivalent adjustment....................
Net interest income...............................
3,793
4,298
27,019
35,110
1,608
44,493
81,211
3,656
4,096
29,018
36,770
2,420
43,305
82,495
0.13% $ 2,822,583
$
0.13
0.90
0.37
0.19
4.61
0.72
3,363,943
3,129,162
9,315,688
1,196,323
889,461
11,401,472
3,157,496
198,548
14,757,516
2,053,821
0.13% $ 2,560,831
$
3,356,070
3,717,556
9,634,457
690,883
933,727
0.12
0.93
0.39
0.20
4.87
0.72
4,187
6,002
46,706
56,895
1,068
45,205
0.16%
0.18
1.26
0.59
0.15
4.84
0.92
11,259,067
103,168
2,758,123
189,592
14,206,782
2,050,994
$ 16,811,337
$ 16,257,776
532,322
3.39%
544,474
3.50%
561,190
3.76%
(17,455)
$
514,867
(17,280)
$
527,194
(16,862)
$
544,328
(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.
40
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 40
OPERATOR alonzov
The following table summarizes the changes in FTE interest income and expense resulting from changes in average balances (volumes)
and changes in rates:
2014 vs. 2013
Increase (decrease) due
to change in
Rate
Net
Volume
2013 vs. 2012
Increase (decrease) due
to change in
Rate
Volume
Net
Interest income on:
Loans and leases........................................... $
Taxable investment securities.......................
Tax-exempt investment securities ................
Equity securities ...........................................
Loans held for sale .......................................
Other interest-earning assets ........................
Total interest income............................. $
Interest expense on:
Demand deposits .......................................... $
Savings deposits ...........................................
Time deposits ...............................................
Short-term borrowings .................................
Long-term debt .............................................
13,262
(4,661)
(1,221)
(235)
(849)
975
7,271
243
84
(1,242)
(706)
3,585
Total interest expense............................ $
1,964
$
(in thousands)
$ (23,149) $
991
454
134
84
779
(9,887) $
(3,670)
(767)
(101)
(765)
1,754
$ (20,707) $ (13,436) $
28,390
(271)
(142)
169
(734)
205
27,617
$ (51,497) $ (23,107)
(13,028)
(1,365)
190
(513)
434
$ (65,006) $ (37,389)
(12,757)
(1,223)
21
221
229
$
(106) $
118
(757)
(106)
(2,397)
(3,248) $
$
137
202
(1,999)
(812)
1,188
(1,284) $
$
(930) $
(531)
399
(1,920)
(1,906)
14
(11,025)
(6,663)
(17,688)
1,352
402
950
(2,154)
(1,900)
254
(7,454) $ (13,219) $ (20,673)
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 2014 to 2013
FTE net interest income decreased $12.3 million, or 2.3%, to $514.9 million in 2014. Net interest margin decreased 11 basis points,
or 3.1%, to 3.39% in 2014 from 3.50% in 2013.
FTE interest income decreased $13.4 million, or 2.1%, as average yields on interest earning assets decreased 12 basis points. This
decrease in yields resulted in a $20.7 million decrease in FTE interest income, partially offset by a $7.3 million increase in FTE
interest income as a result of a $142.3 million, or 0.9%, increase in average interest-earning assets.
Average investment securities decreased $230.3 million, or 8.5%, in comparison to 2013 as portfolio cash flows were not fully
reinvested. The average yield on investment securities increased 6 basis points, or 2.3%, to 2.66% in 2014 from 2.60% in 2013. A
$5.5 million, or 45.1%, decrease in net premium amortization on mortgage-backed securities and collateralized mortgage obligations
had an 18 basis point positive impact on the yield, partially offset by the impact of purchases of mortgage-backed securities and
collateralized mortgage obligations at yields that were lower than the overall portfolio yield and a 3 basis point reduction in yields
due to the accelerated discount accretion on the redemption of $50.2 million of student loan auction rate certificates (ARCs) during
2014.
41
Average loans and average FTE yields, by type, are summarized in the following table:
2014
2013
Balance
Yield
Balance
Yield
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Real estate - commercial mortgage ......................... $ 5,117,433
3,659,059
Commercial - industrial, financial and agricultural.
1,738,449
Real estate - home equity ........................................
1,355,876
Real estate - residential mortgage............................
631,968
Real estate - construction.........................................
277,853
Consumer.................................................................
104,542
Leasing and other ....................................................
Total.................................................................. $ 12,885,180
4.38% $ 4,864,460
3.94
3,680,772
4.17
1,734,622
3.95
1,312,127
4.04
591,540
5.11
299,127
8.40
95,876
4.21% $12,578,524
4.65% $ 252,973
(21,713)
4.11
3,827
4.22
43,749
4.13
40,428
4.11
(21,274)
4.87
8.95
8,666
4.39% $ 306,656
5.2%
(0.6)
0.2
3.3
6.8
(7.1)
9.0
2.4%
The $231.3 million, or 2.7%, increase in commercial loans and commercial mortgages was attributable to both new and existing
customers. The $43.7 million, or 3.3%, increase in residential mortgages was due to the Corporation retaining certain 15-year fixed
rate residential mortgages in portfolio.
Construction loans increased $40.4 million, or 6.8%. Beginning in 2009 through 2013, the Corporation reduced its exposure in its
construction portfolio, however, during 2014 it has experienced growth in the construction portfolio in the Pennsylvania, Maryland
and Delaware markets. Average consumer loans decreased $21.3 million, or 7.1%, as a result of a $28.1 million, or 18.2%, decrease
in direct consumer loans, partially offset by an increase of $6.8 million, or 4.6%, in indirect vehicle loans.
The average yield on loans during 2014 of 4.21% represented an 18 basis point, or 4.1%, decrease in comparison to 2013. The
decrease in average yields on loans was attributable to repayments of higher-yielding loans, continued refinancing activity at lower
rates, 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.
Average other interest-earning assets increased $84.9 million, or 37.0%, primarily due to a transfer of approximately $170 million
in clearing account balances from non-interest earning assets to low-yielding Federal Reserve Bank accounts in the fourth quarter
of 2014, as a result of the Corporation changing its provider of check clearing services. The average yield on other interest-earning
assets increased 29 basis points, or 29.3%, due to increases in dividends on Federal Home Loan Bank stock. Each of the Corporation’s
subsidiary banks is a member of the Federal Home Loan Bank for the region encompassing the headquarters of the subsidiary bank.
Memberships are maintained with the Atlanta, New York and Pittsburgh regional Federal Home Loan Banks (collectively referred
to as the FHLB). As of December 31, 2014, the Corporation held $45.7 million of FHLB stock. Dividends have increased in recent
years as the FHLB has emerged from the effects of the economic downturn.
Interest expense decreased $1.3 million, or 1.6%, to $81.2 million in 2014 from $82.5 million in 2013. Although the total cost of
interest-bearing liabilities was unchanged at 72 basis points, interest expense decreased $3.2 million due to a change in the overall
funding mix. Total average interest-bearing liabilities decreased $164.3 million, or 1.4%; however, the shift from lower-cost, short-
term borrowings to higher-cost, long-term debt and non-maturity deposits created a $2.0 million increase in interest expense as a
result of the Corporation's continuing efforts to lengthen maturities and lock in longer-term rates.
Average deposits and interest rates, by type, are summarized in the following table:
2014
2013
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Noninterest-bearing demand ................................... $ 3,428,907
3,013,879
Interest-bearing demand ..........................................
3,431,957
Savings ....................................................................
9,874,743
Total demand and savings................................
2,992,920
Time deposits...........................................................
Total deposits.................................................... $ 12,867,663
—% $ 3,157,496
0.13
2,822,583
0.13
3,363,943
0.08
9,344,022
0.90
3,129,162
0.27% $12,473,184
—% $ 271,411
191,296
0.13
68,014
0.12
530,721
0.08
(136,242)
0.93
0.29% $ 394,479
8.6%
6.8
2.0
5.7
(4.4)
3.2%
42
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 42
OPERATOR alonzov
The $530.7 million, or 5.7%, increase in average total demand and savings account balances was primarily due to a $256.7 million,
or 8.1%, increase in business account balances, a $200.2 million, or 4.5%, increase in personal account balances, and a $93.7 million,
or 5.5%, increase in municipal account balances. The $136.2 million, or 4.4%, 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 2 basis points, or 5.1%, to 0.37% in 2014 from 0.39% in 2013 primarily due
to a decrease in higher-cost time deposits and an increase in lower-cost, interest-bearing savings and demand balances.
Average borrowings and interest rates, by type, are summarized in the following table:
2014
2013
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 .....................
197,432
88,670
286,102
285,169
261,568
832,839
0.10% $
0.06
0.08
0.20
0.29
0.19
186,851
98,882
285,733
612,803
297,787
1,196,323
0.11% $
0.05
0.09
0.23
0.24
0.20
10,581
(10,212)
369
(327,634)
(36,219)
(363,484)
Long-term debt:
FHLB Advances ...............................................
Other long-term debt ........................................
Total long-term debt..................................
583,893
381,708
965,601
Total.......................................... $ 1,798,440
3.79
519,876
5.86
369,585
4.61
889,461
2.56% $ 2,085,784
64,017
4.14
12,123
5.90
4.87
76,140
2.19% $ (287,344)
5.7 %
(10.3)
0.1
(53.5)
(12.2)
(30.4)
12.3
3.3
8.6
(13.8)%
(1) Represents FHLB advances with an original maturity term of less than one year.
Total short-term borrowings decreased $363.5 million, or 30.4%, primarily in Federal funds purchased due to an improvement in
the Corporation's funding position as increases in average deposits and decreases in average investments outpaced the growth in
average loans. The $76.1 million increase in long-term debt was due to additional long-term FHLB advances as longer-term rates
were locked and durations extended to manage interest rate risk. The average cost of total borrowings increased 37 basis points, or
16.9%, to 2.56% in 2014 from 2.19% in 2013, primarily due to the Corporation's continuing efforts to lengthen maturities and lock
in longer-term rates.
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 $65.0 million decrease in interest income, partially offset by a $27.6 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.
43
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
3,551,056
4.11
1,605,088
4.22
1,185,928
4.13
620,166
4.11
4.87
307,746
78,996
8.95
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
16,880
12.93
4.81% $ 609,957
5.3%
3.7
8.1
10.6
(4.6)
(2.8)
21.4
5.1%
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
3,717,556
0.93
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 to 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.
44
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 44
OPERATOR alonzov
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
612,803
297,787
1,196,323
0.11% $
0.05
0.09
0.23
0.24
0.20
206,842
138,632
345,474
335,205
10,204
690,883
0.12% $ (19,991)
(39,750)
0.06
(59,741)
0.10
277,598
0.21
287,583
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
933,727
4.87
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)
82.8
N/M
73.2
(7.8)
(0.1)
(4.7)
28.4 %
(1) Represents FHLB advances with an original maturity term of less than one year.
N/M - Not meaningful.
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.
Provision for Credit Losses
The provision for credit losses was $12.5 million for 2014, a decrease of $28.0 million, or 69.1%, in comparison to 2013. The
provision for credit losses for 2013 decreased $53.5 million, or 56.9%, in comparison to 2012.
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."
45
Non-Interest Income and Expense
Comparison of 2014 to 2013
Non-Interest Income
The following table presents the components of non-interest income for 2014 and 2013:
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......................................................................
Commercial loan swap 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...........................................
Other non-interest income:
Credit card income ...........................................................................
Other income ....................................................................................
Total other income................................................................
Total, excluding investment securities gains........................
Investment securities gains...............................................................
Total............................................................................... $
Increase (Decrease)
%
2013
(dollars in thousands)
$
$
2014
22,145
12,709
14,439
49,293
44,605
13,826
9,948
4,563
3,615
1,248
6,696
39,896
10,063
7,044
17,107
$
28,222
11,883
15,365
55,470
41,706
13,783
9,191
4,889
1,159
1,245
6,690
36,957
24,609
6,047
30,656
8,177
6,260
14,437
165,338
2,041
167,379
$
8,706
6,165
14,871
179,660
8,004
187,664
$
(6,077)
826
(926)
(6,177)
2,899
43
757
(326)
2,456
3
6
2,939
(14,546)
997
(13,549)
(529)
95
(434)
(14,322)
(5,963)
(20,285)
(21.5)%
7.0
(6.0)
(11.1)
7.0
0.3
8.2
(6.7)
211.9
0.2
0.1
8.0
(59.1)
16.5
(44.2)
(6.1)
1.5
(2.9)
(8.0)
(74.5)
(10.8)%
The $6.1 million, or 21.5%, decrease in overdraft fee income consisted of a $3.8 million decrease in fees assessed on personal accounts
and a $2.3 million decrease in fees assessed on commercial accounts. The overall decline in these fees resulted from a reduction in
the number of overdrafts.
The $2.9 million, or 7.0%, increase in investment management and trust services income was due to a $2.0 million, or 11.2%, increase
in brokerage revenue and an $884,000, or 3.7%, increase in trust commissions. These increases resulted from improved market
conditions that increased the values of existing assets under management, additional recurring revenue generated through the brokerage
business due to growth in new accounts and new trust business sales.
Commercial swap fees increased $2.5 million, or 211.9%, due to the favorable interest rate environment and the continued expansion
of this product. For additional details see Note J, "Derivative Financial Instruments" in the Notes to Consolidated Financial Statements.
Gains on sales of mortgage loans decreased $14.5 million, or 59.1%, due to a $660.8 million, or 43.8%, decrease in new loan
commitments and a 27.2% decrease in pricing spreads compared to the prior year. The decline in new loan commitments was largely
in refinancing volumes, which decreased $453.3 million, or 62.0%, and represented approximately 33% of new loan commitments
in 2014, compared to approximately 48% during 2013. The decrease in volumes was mainly due to higher mortgage interest rates.
Investment securities gains of $2.0 million for 2014 were the net result of $1.7 million of net realized gains on the sales of debt
securities, $335,000 of net realized gains on the sales of financial institution stocks and $30,000 of other-than-temporary impairment
charges for certain financial institution stocks and pooled trust preferred securities. Investment securities gains of $8.0 million for
2013 included $4.4 million of net realized gains on sales of financial institution stocks and $3.8 million of net realized gains on sales
46
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 46
OPERATOR alonzov
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. 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 ...........................................................................
Software ............................................................................................
Professional fees ...............................................................................
FDIC insurance .................................................................................
Supplies and postage .........................................................................
Marketing ..........................................................................................
Telecommunications .........................................................................
Operating risk loss ............................................................................
OREO and repossession expense ......................................................
Intangible amortization .....................................................................
Other..................................................................................................
Total ........................................................................................... $
2014
251,021
48,130
28,404
17,162
13,567
12,758
12,097
10,958
9,795
8,133
6,870
4,271
3,270
1,259
31,551
459,246
$
$
Increase (Decrease)
%
$
2013
(dollars in thousands)
253,240
46,944
18,856
16,555
15,419
11,560
13,150
11,605
10,210
7,705
7,362
9,290
7,364
2,438
29,735
461,433
$
$
(2,219)
1,186
9,548
607
(1,852)
1,198
(1,053)
(647)
(415)
428
(492)
(5,019)
(4,094)
(1,179)
1,816
(2,187)
(0.9)%
2.5
50.6
3.7
(12.0)
10.4
(8.0)
(5.6)
(4.1)
5.6
(6.7)
(54.0)
(55.6)
(48.4)
6.1
(0.5)%
Salaries and employee benefits decreased $2.2 million, or 0.9%. Salaries increased $2.2 million, or 1.1%, primarily due to normal
merit increases, partially offset by a decrease in staffing levels resulting from cost savings initiatives. Average full-time equivalent
employees decreased to 3,561 in 2014 from 3,607 in 2013.
Employee benefits decreased $4.4 million, or 10.0%, primarily due to the impact of the Corporation's 2014 cost savings initiatives,
which included the elimination and reduction of certain employee benefit plans, most notably a decrease in profit sharing contributions
and an amendment to the Postretirement Plan, which resulted in net reductions to employee benefits, partially offset by a $2.0 million
increase in healthcare expense due to an increase in claims.
Other outside services increased $9.5 million, or 50.6%, due to increases in consulting services related to the acceleration of risk
management and compliance efforts, including those in connection with the enhancement of the BSA/AML compliance program.
The $1.9 million, or 12.0%, decrease in equipment expense was primarily due to a decrease in depreciation expense as certain assets
became fully depreciated.
Equipment expense decreased $1.9 million, or 12.0%, primarily due to lower depreciation expense as a result of certain assets being
fully depreciated. Software expense increased $1.2 million, or 10.4%, largely due to a full year of expenses related to the Corporation's
new core processing system, which the Corporation converted to during 2013.
The $5.0 million, or 54.0%, decrease in operating risk loss was primarily due to a $5.5 million decrease in losses associated with
previously sold residential mortgages and $1.2 million decrease in debit card fraud, partially offset by a $1.5 million increase in
check fraud losses. During the first quarter of 2014, the Corporation entered into a settlement agreement with a secondary market
investor. Under this agreement, the Corporation agreed to pay this investor $4.5 million to settle all outstanding and potential future
repurchase requests under a series of specified loan purchase agreements with that secondary market investor. The result of this
settlement was a reduction to outstanding repurchase requests of $7.5 million and a reduction to reserves for repurchases of $5.1
million. See Note Q "Commitments and Contingencies," in the Notes to Consolidated Financial Statements for additional details
related to repurchases of previously sold residential mortgages.
OREO and repossession expense decreased $4.1 million, or 55.6%, primarily due to an increase in net gains on sales of properties
and a decrease in valuation provisions, which reflect the continued improvement in overall asset quality and a $3.0 million, or 20.1%,
decrease in OREO balances. The $1.2 million, or 48.4%, decrease in intangible amortization was primarily due to core deposit
47
intangible assets, which are amortized on an accelerated basis. The $1.8 million, or 6.1%, increase in other expenses was due mainly
to an increase in the Pennsylvania bank shares tax due to legislative changes.
Comparison of 2013 to 2012
Non-Interest Income
The following table presents the components of non-interest income:
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............................................
Gain on sale of Global Exchange......................................................
Other non-interest income:
Credit card income ............................................................................
Other income.....................................................................................
Total other income.................................................................
Total, excluding investment securities gains.........................
Investment securities gains ...............................................................
Total.................................................................................. $
Increase (Decrease)
%
$
2012
(dollars in thousands)
$
2013
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
—
$
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
6,215
8,706
6,165
14,871
179,660
8,004
187,664
$
7,944
10,541
18,485
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)
(6,215)
762
(4,376)
(3,614)
(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)
(100.0)
9.6
(41.5)
(19.6)
(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.
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.
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.
48
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 48
OPERATOR alonzov
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 $4.4 million of net realized gains on sales of financial institution stocks
and $3.8 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:
Salaries and employee benefits ......................................................... $
Net occupancy expense .....................................................................
Other outside services .......................................................................
Data processing .................................................................................
Equipment expense ...........................................................................
Professional fees ...............................................................................
FDIC insurance .................................................................................
Software ............................................................................................
Supplies and postage .........................................................................
Operating risk loss ............................................................................
Marketing ..........................................................................................
OREO and repossession expense ......................................................
Telecommunications .........................................................................
Intangible amortization .....................................................................
FHLB prepayment penalty................................................................
Other..................................................................................................
Total ........................................................................................... $
2013
253,240
46,944
18,856
16,555
15,419
13,150
11,605
11,560
10,210
9,290
7,705
7,364
7,362
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
9,516
9,454
8,240
11,182
6,884
3,031
3,007
29,433
449,294
$
$
9,325
2,281
1,104
1,619
1,176
1,628
(391)
2,040
694
(164)
(535)
(3,818)
478
(593)
(3,007)
302
12,139
3.8%
5.1
6.2
10.8
8.3
14.1
(3.3)
21.4
7.3
(1.7)
(6.5)
(34.1)
6.9
(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.
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
49
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.
Income Taxes
Income tax expense for 2014 was $52.6 million, an increase of $1.5 million, or 3.0%, from 2013. Income tax expense for 2013
decreased $6.5 million, or 11.3%, from 2012. The Corporation’s effective tax rate (income taxes divided by income before income
taxes) was 25.0%, 24.0% and 26.5% in 2014, 2013 and 2012, 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 $10.4 million, $10.3 million and $9.6 million in 2014,
2013 and 2012, respectively. The increase in the effective tax rate in comparison to 2013 was due primarily to a $3.5 million ($2.3
million, net of federal tax) decrease in the valuation allowance for certain state deferred tax assets that was recorded as a credit to
income tax expense in 2013.
For additional information regarding income taxes, see Note L, "Income Taxes," in the Notes to Consolidated Financial Statements.
FINANCIAL CONDITION
The table below presents condensed consolidated ending balance sheets for the Corporation.
December 31
2014
2013
(dollars in thousands)
Increase (decrease)
%
$
Assets
Cash and due from banks .................................................... $
Other interest-earning assets................................................
Loans held for sale...............................................................
105,702
$
218,540
$
423,083
17,522
248,161
21,351
Investment securities ...........................................................
2,323,371
2,568,434
Loans, net of allowance.......................................................
12,927,572
12,579,440
Premises and equipment ......................................................
Goodwill and intangible assets............................................
226,027
531,803
Other assets..........................................................................
569,687
Total Assets................................................................... $ 17,124,767
226,021
533,076
539,611
$ 16,934,634
Liabilities and Shareholders’ Equity
Deposits ............................................................................... $ 13,367,506
Short-term borrowings.........................................................
329,719
$ 12,491,186
1,258,629
$
$
Long-term debt ....................................................................
Other liabilities ....................................................................
Total Liabilities .............................................................
Total Shareholders’ Equity............................................
1,996,665
Total Liabilities and Shareholders’ Equity............. $ 17,124,767
1,139,413
291,464
883,584
238,048
15,128,102
14,871,447
2,063,187
$ 16,934,634
$
(112,838)
174,922
(3,829)
(245,063)
348,132
6
(1,273)
30,076
190,133
876,320
(928,910)
255,829
53,416
256,655
(66,522)
190,133
(51.6)%
70.5
(17.9)
(9.5)
2.8
—
(0.2)
5.6
1.1 %
7.0 %
(73.8)
29.0
22.4
1.7
(3.2)
1.1 %
Cash and Due From Banks and Other Interest-Earning Assets
The $112.8 million, or 51.6%, decrease in cash and due from banks and the $174.9 million, or 70.5%, increase in other interest
earning assets was primarily due to a transfer of approximately $170 million in clearing account balances from non-interest earning
50
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 50
OPERATOR alonzov
assets to low-yielding Federal Reserve Bank accounts in the fourth quarter of 2014, when the Corporation changed providers of
check clearing services.
Investment Securities
The following table presents the carrying amount of investment securities as of December 31:
2014
2013
(in thousands)
2012
U.S. Government securities .................................................................................................................. $
U.S. Government sponsored agency securities.....................................................................................
$
200
214
$
525
726
State and municipal...............................................................................................................................
Corporate debt securities.......................................................................................................................
245,215
98,034
284,849
98,749
325
2,397
315,519
112,842
Collateralized mortgage obligations .....................................................................................................
902,313
1,032,398
1,211,119
Mortgage-backed securities ..................................................................................................................
Auction rate securities...........................................................................................................................
928,831
100,941
945,712
159,274
879,913
149,339
Total debt securities............................................................................................................................
2,275,748
2,522,233
2,671,454
Equity securities....................................................................................................................................
47,623
Total .............................................................................................................................................. $2,323,371
46,201
49,628
$2,568,434
$2,721,082
Total investment securities decreased $245.1 million, or 9.5%, to $2.3 billion at December 31, 2014, mainly in collateralized
mortgage obligations, ARCs and state and municipal securities, as normal portfolio cash flows and cash flows from security calls
were not fully reinvested due to relatively low yields available on current investment options. Portfolio cash flows that were
reinvested during 2014 were used to purchase securities with average lives of approximately five years to provide for more
structured cash flows, thereby limiting price and extension risk in a rising interest rate environment. State and municipal securities
decreased primarily due to maturities that were not fully reinvested. The decrease in ARCs resulted primarily from ARCs with a
total book value of $51.2 million which were redeemed at par and ARCs with a total book value of $11.9 million were sold,
resulting in no gain or loss. As of December 31, 2014, the weighted average remaining lives of collateralized mortgage obligations
and mortgage-backed securities were four and five years, respectively.
The net pre-tax unrealized gain on available for sale investment securities was $11.3 million as of December 31, 2014, compared
to a $39.8 million net pre-tax unrealized loss as of December 31, 2013. The change was due to a decrease in market interest rates,
which caused the fair values of collateralized mortgage obligations and mortgage-backed securities to increase. 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
2014 vs. 2013
Increase (Decrease)
2014
2013
2012
2011
2010
$
%
(dollars in thousands)
Real estate – commercial mortgage.................... $ 5,197,155
$ 5,101,922
$ 4,664,426
$ 4,602,596
$ 4,375,980
$
95,233
1.9%
Commercial – industrial, financial and
agricultural .....................................................
Real estate – home equity...................................
3,725,567
3,628,420
3,612,065
3,639,368
3,704,384
1,736,688
1,764,197
1,632,390
1,624,562
1,641,777
Real estate – residential mortgage......................
1,377,068
1,337,380
1,257,432
1,097,503
Real estate – construction...................................
Consumer............................................................
Leasing and other ...............................................
690,601
265,431
131,583
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
Gross loans ...................................................
13,124,093
12,792,016
12,154,209
11,978,217
11,942,326
Unearned income................................................
(12,377)
(9,796)
(7,238)
(6,994)
(7,198)
97,147
(27,509)
39,688
116,929
(17,693)
28,282
332,077
(2,581)
2.7
(1.6)
3.0
20.4
(6.2)
27.4
2.6
26.3
Loans, net of unearned income..................... $ 13,111,716
$ 12,782,220
$ 12,146,971
$ 11,971,223
$ 11,935,128
$
329,496
2.6%
The Corporation does not have a concentration of credit risk with any single borrower, industry or geographical location within
the Corporation's footprint. As of December 31, 2014, the Corporation's policies limit the maximum total lending commitment to
51
an individual borrower to $50.0 million. In addition, the Corporation has established lower total lending limits for certain types
of lending commitments, and lower total lending limits based on the Corporation's internal risk rating of an individual borrower
at the time the lending commitment is approved. As of December 31, 2014, the Corporation had 75 relationships with total borrowing
commitments between $20.0 million and $45.0 million.
Approximately $5.9 billion, or 44.9%, of the Corporation’s loan portfolio was in commercial mortgage and construction loans as
of December 31, 2014. 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 $33.0 million, and limits its exposure to any one
development project to $15.0 million.
Geographically, the $95.2 million, or 1.9%, increase in commercial mortgage loans occurred in several markets, with increases in
New Jersey ($74.4 million, or 5.8%), Delaware ($28.9 million, or 14.8%), and Maryland ($27.0 million, or 5.0%), partially offset
by decreases in Pennsylvania ($25.2 million, or 0.9%) and Virginia ($9.9 million, or 2.3%).
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:
2014
Delinquency
Rate
$
% of Total
$
(dollars in thousands)
2013
Delinquency
Rate
% of Total
Commercial..................................... $
Commercial - residential.................
Other ...............................................
Total Real estate - construction....... $
427,419
203,670
59,512
690,601
0.6%
6.6
0.6
61.9% $
29.5
8.6
300,931
203,935
68,806
1.4%
8.1
0.8
52.5%
35.5
12.0
2.4%
100.0% $
573,672
3.7%
100.0%
Construction loans increased $116.9 million, or 20.4% as a result of growth in commercial construction loans. Geographically,
the increase in construction loans occurred in the Pennsylvania ($73.2 million, or 25.3%), Maryland ($25.4 million, or 41.5%)
and Delaware ($21.7 million, or 56.7%) markets.
Commercial loans increased $97.1 million, or 2.7%. Geographically, the increase was primarily in the New Jersey ($53.7 million,
or 10.7%), Maryland ($26.7 million, or 9.8%) and Delaware ($18.4 million, or 23.9%) markets.
The following table summarizes the industry concentrations within the commercial loan portfolio as of December 31:
Services...........................................................................................................................................
Manufacturing.................................................................................................................................
Construction (1) ..............................................................................................................................
Retail...............................................................................................................................................
Health care ......................................................................................................................................
Wholesale .......................................................................................................................................
Real estate (2) .................................................................................................................................
Agriculture......................................................................................................................................
Arts and entertainment....................................................................................................................
Transportation.................................................................................................................................
Financial services............................................................................................................................
Other ...............................................................................................................................................
Total.........................................................................................................................................
2014
2013
19.2%
19.2%
13.1
11.0
9.6
9.0
8.7
7.6
5.5
3.4
2.4
1.9
8.6
13.5
10.0
11.0
8.1
9.7
7.0
5.8
2.7
2.5
1.6
8.9
100.0%
100.0%
(1) Includes commercial loans to borrowers engaged in the construction industry.
(2) Includes commercial loans to borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for
others; and appraising real estate.
52
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 52
OPERATOR alonzov
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:
2014
2013
(dollars in thousands)
Commercial - industrial, financial and agricultural......................................................................... $
Real estate - commercial mortgage .................................................................................................
116,705
137,952
Total............................................................................................................................................ $
254,657
$
$
129,840
87,868
217,708
Total shared national credit increased $36.9 million, or 17.0%, in comparison to 2013. 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. As of December 31, 2014 and 2013, none of the shared national credits were past due.
Residential mortgages increased $39.7 million, or 3.0%, as a result of the retention of certain 15-year fixed rate mortgages in the
portfolio instead of selling those mortgages to third-party investors. Geographically, the increase in residential mortgages was
experienced in the Pennsylvania ($20.1 million, or 3.0%), Virginia ($10.9 million, or 4.4%), Maryland ($6.3 million, or 4.0%)
and Delaware ($4.4 million, or 5.4%) markets.
Consumer loans decreased $17.7 million, or 6.2%, due to a $23.3 million, or 17.6%, decrease in direct consumer loans, partially
offset by a $5.6 million, or 3.7%, increase in indirect vehicle loans. Leasing and other loans increased $28.3 million, or 27.4%,
due primarily to growth in equipment leases.
53
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:
2014
2013
2012
2011
2010
(dollars in thousands)
Loans, net of unearned income outstanding at end of year....................... $ 13,111,716
$ 12,782,220
$ 12,146,971
$ 11,971,223
$ 11,935,128
Daily average balance of loans, net of unearned income.......................... $ 12,885,180
$ 12,578,524
$ 11,968,567
$ 11,906,447
$ 11,960,262
Balance of allowance for credit losses at beginning of year..................... $
204,917
$
225,439
$
258,177
$
275,498
$
257,553
Loans charged off:
Commercial – industrial, financial and agricultural ........................
24,516
Real estate - home equity and consumer..........................................
Real estate – commercial mortgage .................................................
Real estate – residential mortgage ...................................................
Real estate – construction ................................................................
Leasing and other.............................................................................
7,811
6,004
2,918
1,209
2,135
30,383
10,070
20,829
9,705
6,572
2,653
41,868
13,470
51,988
4,509
26,250
2,281
52,301
9,686
26,032
32,533
38,613
2,168
35,865
11,210
28,209
6,896
66,412
2,833
Total loans charged off.....................................................................
44,593
80,212
140,366
161,333
151,425
Recoveries of loans previously charged off:
Commercial – industrial, financial and agricultural ........................
Real estate - home equity and consumer..........................................
Real estate – commercial mortgage .................................................
Real estate – residential mortgage ...................................................
Real estate – construction ................................................................
Leasing and other.............................................................................
Total recoveries................................................................................
Net loans charged off ................................................................................
Provision for credit losses.........................................................................
4,256
2,347
1,960
451
3,177
916
13,107
31,486
12,500
Balance at end of year............................................................................... $
185,931
Components of Allowance for Credit Losses:
Allowance for loan losses ......................................................................... $
184,144
Reserve for unfunded lending commitments (1) ......................................
1,787
Allowance for credit losses....................................................................... $
185,931
$
$
$
9,281
2,378
3,494
548
2,682
807
19,190
61,022
40,500
204,917
202,780
2,137
204,917
4,282
1,811
3,371
459
2,814
891
13,628
126,738
94,000
225,439
223,903
1,536
225,439
$
$
$
2,521
1,431
1,967
325
1,746
1,022
9,012
152,321
135,000
258,177
256,471
1,706
258,177
$
$
$
4,536
1,540
1,008
9
1,296
981
9,370
142,055
160,000
275,498
274,271
1,227
275,498
$
$
$
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................................................................
0.24%
1.40%
1.42%
0.88%
1.15%
0.92%
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%
Allowance for credit losses to non-performing loans ...............................
134.26%
132.82%
106.82%
90.11%
83.80%
Non-performing assets (2) to tangible common shareholders’ equity
and allowance for credit losses (3) .......................................................
9.12%
9.76%
13.39%
18.60%
22.50%
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 $28.0 million, or 69.1%, in comparison to 2013 due to improvements in credit quality,
as shown by improvements in net loans charged off, the level of non-performing loans and delinquencies.
Net charge-offs decreased $29.5 million, or 48.4%, to $31.5 million in 2014 from $61.0 million in 2013. This decrease was across
all categories but was primarily due to a $13.3 million, or 76.7%, decrease in commercial mortgage net charge-offs, a $6.7 million,
54
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 54
OPERATOR alonzov
or 73.1%, decrease in residential mortgage net charge-offs and a $5.9 million, or 150.6%, decrease in construction loan net charge-
offs. The $31.5 million of net charge-offs were primarily in the Pennsylvania ($20.2 million, or 64.3%), New Jersey ($8.3 million,
or 26.4%), and Maryland ($3.8 million, or 12.1%) markets, partially offset by $935,000 of recoveries in the Virginia market.
The following table presents non-performing assets as of December 31:
2014
2013
Non-accrual loans (1) (2) (3) ................................. $
Accruing loans past due 90 days or more (2) ........
Total non-performing loans ............................
OREO.....................................................................
Total non-performing assets ........................... $
121,080
17,402
138,482
12,022
150,504
$
$
133,753
20,524
154,277
15,052
169,329
2012
(in thousands)
184,832
$
26,221
211,053
26,146
237,199
$
$
$
2011
2010
257,761
28,767
286,528
30,803
317,331
$
$
280,688
48,084
328,772
32,959
361,731
(1)
In 2014, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was approximately
$7.7 million. The amount of interest income on non-accrual loans that was included in 2014 was approximately $1.8 million.
(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, 2014 were $67.6 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, 2014were reviewed for impairment under FASB ASC Section 310-10-35.
The following table presents loans whose terms were modified under TDRs as of December 31:
2014
2013
Real estate – residential mortgage .............................................. $ 31,308
18,822
Real estate – commercial mortgage ............................................
9,241
Real estate – construction ...........................................................
5,237
Commercial – industrial, financial and agricultural....................
2,975
Real estate - home equity ............................................................
38
Consumer ....................................................................................
67,621
Total accruing TDRs ..............................................................
24,616
Non-accrual TDRs (1).................................................................
Total TDRs............................................................................. $ 92,237
$ 28,815
19,758
10,117
8,045
1,365
11
68,111
30,209
$ 98,320
(1)
Included within non-accrual loans in the preceding table.
2012
(in thousands)
$ 32,993
34,672
10,564
5,745
1,518
16
85,508
31,245
$ 116,753
2011
2010
$ 32,331
22,425
7,645
3,581
183
10
66,175
32,587
$ 98,762
$
37,826
18,778
5,440
5,502
263
—
67,809
51,175
$ 118,984
Total TDRs modified during 2014 and still outstanding as of December 31, 2014 totaled $16.4 million. Of these loans, $7.1 million,
or 36.3%, had a payment default, which the Corporation defines as a single missed scheduled payment, subsequent to modification
during 2014. 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 subsequent to modification during 2013.
55
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, 2012......... $
Additions...........................
Payments ...........................
Charge-offs (1)..................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2013.........
Additions...........................
Payments ...........................
Charge-offs (1)..................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2014......... $
65,695
$
54,960
$
31,426
$
21,103
$
11,625
$
13
$
10
$ 184,832
41,804
(31,336)
(29,754)
(4,788)
(4,911)
36,710
38,578
(17,937)
(24,517)
(763)
(2,302)
40,195
(32,236)
(20,412)
(702)
(1,239)
40,566
31,509
(18,603)
(6,005)
(2,976)
(54)
13,769
(14,195)
(6,572)
(3,166)
(341)
20,921
4,627
(7,185)
(1,210)
(805)
—
19,277
(3,222)
(9,612)
(2,306)
(2,958)
22,282
10,125
(2,047)
(2,918)
(4,329)
(3,070)
12,566
(3,453)
(6,289)
(332)
(845)
13,272
10,406
(3,321)
(5,486)
(2,199)
(2,189)
573
(4)
(575)
—
(5)
2
2,331
(7)
(2,321)
—
(5)
266
(35)
(241)
—
—
—
803
—
(803)
—
—
128,450
(84,481)
(73,455)
(11,294)
(10,299)
133,753
98,379
(49,100)
(43,260)
(11,072)
(7,620)
29,769
$
44,437
$
16,348
$
20,043
$
10,483
$
— $
— $ 121,080
(1) Excludes charge-offs of loans on accrual status.
Non-accrual loans decreased $12.7 million, or 9.5%, in 2014 due mainly to a decrease in non-accrual loan additions from $128.5
million in 2013 to $98.4 million in 2014, while balances continued to be reduced through payments and charge-offs.
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:
2014
2013
Real estate – commercial mortgage ....... $ 45,237
Commercial – industrial, financial and
agricultural .........................................
Real estate – residential mortgage .........
Real estate – construction ......................
Real estate – home equity ......................
Consumer ...............................................
Leasing...................................................
30,388
28,995
16,399
14,740
2,590
133
Total non-performing loans ............ $ 138,482
$ 44,068
38,021
31,347
21,267
16,983
2,543
48
$ 154,277
December 31
2012
2011
(dollars in thousands)
$ 113,806
2010
$ 93,720
$ 57,120
2014 vs. 2013
Increase (Decrease)
$
%
$
1,169
2.7 %
66,954
34,436
32,005
17,204
3,315
19
$ 211,053
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
(7,633)
(2,352)
(4,868)
(2,243)
47
85
$ (15,795)
(20.1)
(7.5)
(22.9)
(13.2)
1.8
177.1
(10.2)%
Non-performing commercial loans decreased $7.6 million, or 20.1%, in comparison to December 31, 2013. Geographically, the
decrease primarily occurred in the Pennsylvania ($10.9 million, or 41.1%) market, partially offset by increases in the New Jersey
($2.6 million, or 41.0%), and Virginia ($1.1 million, or 52.3%) markets.
Non-performing residential mortgages decreased $2.4 million, or 7.5%, in comparison to December 31, 2013. Geographically,
the decrease occurred primarily in the New Jersey ($2.2 million, or 29.2%) and Delaware ($969,000, or 43.6%) markets, partially
offset by an increase in the Virginia ($1.2 million, or 15.2%) market.
Non-performing construction loans decreased $4.9 million, or 22.9%, in comparison to December 31, 2013. Geographically, the
decrease occurred in the Pennsylvania ($1.8 million, or 15.8%), New Jersey ($1.7 million, or 37.4%) and Maryland ($1.2 million,
or 28.1%) markets.
56
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 56
OPERATOR alonzov
The following table summarizes OREO, by property type, as of December 31:
2014
2013
Residential properties...................................................................................................................... $
Commercial properties ....................................................................................................................
Undeveloped land ...........................................................................................................................
Total OREO ............................................................................................................................. $
$
(in thousands)
6,656
3,453
1,913
12,022
$
7,052
5,586
2,414
15,052
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.
Total internally risk rated loans were $9.6 billion and $9.2 billion as of December 31, 2014 and 2013, respectively. The following
table presents internal risk ratings of special mention or lower for commercial loans, commercial mortgages and construction loans
to commercial borrowers, by class segment, as of December 31:
Special Mention
2014 vs. 2013
Increase (Decrease)
Substandard or Lower
2014 vs. 2013
Increase (Decrease)
Total Criticized Loans
2014
2013
$
%
2014
2013
$
%
2014
2013
(dollars in thousands)
Real estate - commercial mortgage ..... $ 127,302
$ 141,013
$ (13,711)
(9.7)% $ 170,837
$ 196,922
$ (26,085)
(13.2)% $ 298,139
$ 337,935
Commercial - secured..........................
120,584
Commercial -unsecured.......................
7,463
111,613
11,666
8,971
8.0
110,544
125,382
(14,838)
(11.8)
(4,203)
(36.0)
6,810
2,755
4,055
147.2
231,128
14,273
236,995
14,421
Total commercial - industrial,
financial and agricultural ............
128,047
123,279
4,768
3.9
117,354
128,137
(10,783)
(8.4)
245,401
251,416
Construction - commercial residential.
Construction - commercial ..................
27,495
12,202
30,946
3,508
(3,451)
(11.2)
8,694
247.8
40,066
5,586
55,309
10,621
(15,243)
(27.6)
(5,035)
(47.4)
67,561
17,788
86,255
14,129
Total real estate - construction
(excluding construction - other)..
39,697
34,454
5,243
15.2
45,652
65,930
(20,278)
(30.8)
85,349
100,384
Total..................................................... $ 295,046
$ 298,746
$ (3,700)
(1.2)% $ 333,843
$ 390,989
$ (57,146)
(14.6)% $ 628,889
$ 689,735
% of total risk rated loans ....................
3.1%
3.2%
3.5%
4.2%
6.6%
7.4%
As of December 31, 2014, total loans with risk ratings of substandard or lower were $57.1 million, or 14.6%, less than 2013, while
special mention loans were $3.7 million, or 1.2%, 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 $2.3 million, or 3.7%,
in 2014.
57
Real estate -
residential
mortgage..........
Real estate -
construction -
other.................
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
2014
2013
2014
2013
2014
2013
$
%
$
%
$
%
$
%
$
%
$
%
(dollars in thousands)
Real estate - home
equity ............... $ 10,931
0.63% $ 16,029
0.91% $ 14,740
0.85% $ 16,983
0.96% $ 25,671
1.48% $
33,012
1.87%
26,934
1.96
23,279
1.74
28,995
2.10
31,347
2.34
55,929
4.06
54,626
4.08
Consumer - direct.
2,891
2.64
3,586
2.70
—
—
—
—
332
2,414
0.56
2.21
548
2,391
0.80
1.81
332
5,305
0.56
4.85
548
5,977
0.80
4.51
Consumer -
indirect.............
2,574
1.65
3,312
2.20
176
0.11
152
0.10
2,750
1.76
3,464
2.30
Total
Consumer .......
Leasing and other
and Overdrafts .
5,465
2.06
6,898
2.44
2,590
0.97
2,543
0.89
8,055
3.03
9,441
3.33
523
0.44
581
0.62
133
0.11
48
0.05
656
0.55
629
0.67
Total ..................... $ 43,853
1.23% $ 46,787
1.32% $ 46,790
1.32% $ 51,469
1.45% $ 90,643
2.55% $
98,256
2.77%
(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, 2014, delinquency rates for the above class segments decreased, primarily due to a decrease in home equity
delinquencies, partially offset by a slight increase in residential mortgages 30 to 89 days past due.
The following table summarizes the allocation of the allowance for loan losses:
2014
2013
2012
2011
2010
% 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 ..................
53,493
39.6% $
55,659
39.9% $
62,928
38.4% $
85,112
36.8% $
40,831
36.8%
51,378
28.4
50,330
29,072
10.5
33,082
28.4
10.5
60,205
34,536
29.7
10.4
74,896
31.0
101,436
31.0
22,986
8.3
17,425
8.3
33,085
16.2
34,852
16.7
27,895
16.7
17,321
17.2
14,963
17.2
9,756
7,360
5.3
N/A
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
$ 184,144
100.0% $ 202,780
100.0% $ 223,903
100.0% $ 256,471
100.0% $ 274,271
100.0%
N/A – Not applicable
Management believes that the $184.1 million allowance for loan losses as of December 31, 2014 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 increased $30.7 million, or 5.6%, to $569.7 million as of December 31, 2014. The increase resulted primarily from
a $37.7 million increase in additional investments in partnerships that generate tax credits under various federal programs (Tax
58
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 58
OPERATOR alonzov
Credit Investments), and a $14.8 million increase increases in the fair value of commercial interest rate swaps. These increases
were partially offset by a decrease in net deferred tax assets, mainly due to an unrealized gain on available for sale investment
securities as of December 31, 2014 as compared to an unrealized loss as of December 31, 2013.
Deposits and Borrowings
The following table summarizes the increases in ending deposits, by type:
2014
2013
(dollars in thousands)
$
Increase
%
Noninterest-bearing demand.......................................................... $ 3,640,623
3,150,612
Interest-bearing demand.................................................................
3,504,820
Savings...........................................................................................
10,296,055
Total demand and savings.......................................................
3,071,451
Time deposits .................................................................................
Total deposits.......................................................................... $ 13,367,506
$ 3,283,172
2,945,210
3,344,882
9,573,264
2,917,922
$ 12,491,186
$
$
357,451
205,402
159,938
722,791
153,529
876,320
10.9%
7.0
4.8
7.6
5.3
7.0%
Non-interest bearing demand deposits increased $357.5 million, or 10.9%, primarily due to an increase in business account balances.
Interest-bearing demand accounts increased $205.4 million, or 7.0%, due to a $110.9 million, or 10.2%, increase in municipal
account balances and a $75.7 million, or 4.3%, increase in personal account balances. The $159.9 million, or 4.8%, increase in
savings account balances was due to a $98.1 million, or 20.5%, increase in municipal account balances and a $77.2 million, or
3.7%, increase in personal account balances, partially offset by a $15.4 million, or 2.0%, decrease in business account balances.
The $153.5 million, or 5.3%, increase in time deposits was in accounts with balances less than $100,000, with original maturity
terms of four to five years, partially offset by a $32.5 million decrease in time deposits with balances of $100,000 or more.
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:
2014
Increase (Decrease)
%
$
2013
(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 .........................................
158,394
95,106
253,500
6,219
70,000
329,719
$
175,621
100,572
276,193
582,436
400,000
1,258,629
Long-term debt:
FHLB Advances.............................................................................
Other long-term debt......................................................................
Total long-term debt...........................................................
673,107
466,306
1,139,413
Total borrowings....................................................... $ 1,469,132
513,854
369,730
883,584
$ 2,142,213
$
$
(17,227)
(5,466)
(22,693)
(576,217)
(330,000)
(928,910)
159,253
96,576
255,829
(673,081)
(9.8)%
(5.4)
(8.2)
(98.9)
(82.5)
(73.8)
31.0
26.1
29.0
(31.4)%
(1) Represents FHLB advances with an original maturity term of less than one year.
The $928.9 million decrease in total short-term borrowings was a result of the increase in deposits exceeding the increase in total
loans, as well as the decrease in investment securities. The $159.3 million, or 31.0%, increase in FHLB advances was a result of
a change in funding mix from short-term federal funds purchased and short-term FHLB advance to long-term FHLB advances.
The $96.6 million, or 26.1%, increase in other long-term debt was the result of the issuance of $100.0 million in subordinated debt
in November 2014.
59
Other Liabilities
Other liabilities increased $53.4 million, or 22.4%, to $291.5 million as of December 31, 2014. The increase was primarily due
to a $17.5 million increase in commitments to Tax Credit Investments, a $14.8 million increase in the fair value of commercial
interest rate swaps and an $11.2 million increase in accrued salaries and benefits due to an increase in the defined benefit pension
plan obligation.
Shareholders’ Equity
Total shareholders’ equity decreased $66.5 million, or 3.2%, to $2.0 billion, or 11.7% of total assets, as of December 31, 2014.
The decrease was due primarily to $175.3 million of common stock repurchases and $62.9 million of dividends on shares
outstanding, partially offset by $157.9 million of net income and a $51.1 million net increase in after-tax unrealized holding gains
on available for sale investment securities.
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 4.0 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.
In May 2014, 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 4.0 million shares, or approximately 2.1% of its outstanding shares, through
December 31, 2014. During the third quarter of 2014, 4.0 million shares were repurchased by the Corporation at an average cost
of $11.36 per share, completing this repurchase program on August 25, 2014.
In November 2014, the Corporation entered into an accelerated share repurchase agreement (ASR) with a third party to repurchase
$100 million of shares of its common stock. Final settlement of the ASR is scheduled for no later than April 17, 2015, and may
occur earlier at the option of the third party. For further discussion see Note N, "Shareholders' Equity," in the Notes to the
Consolidated Financial Statements.
The Corporation and its subsidiary banks are subject to regulatory capital requirements administered by various banking regulators.
Failure to meet minimum capital requirements can trigger certain actions by regulators that could have a material effect on the
Corporation’s financial statements. The 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, 2014, the Corporation and each of its bank subsidiaries met the minimum capital requirements. In addition, all of
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)............................................................
2014
14.7%
12.3%
10.0%
2013
15.0%
13.1%
10.6%
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 became effective for the
Corporation 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;
60
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 60
OPERATOR alonzov
• 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 off-balance sheet exposures and resulting in higher risk weights for a
variety of asset categories.
As of December 31, 2014 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.
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, 2014:
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)................. $ 10,296,055
1,592,986
Time deposits (2) ..............................................
329,719
Short-term borrowings (3) ................................
184,950
Long-term debt (3)............................................
16,226
Operating leases (4) ..........................................
16,519
Purchase obligations (5) ...................................
1,944
Uncertain tax positions (6)................................
$
— $
— $
792,382
—
550,717
28,965
19,823
—
609,283
—
127,007
21,173
4,870
—
— $ 10,296,055
3,071,451
329,719
1,139,413
118,204
41,212
1,944
76,800
—
276,739
51,840
—
—
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 sheet. 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.
61
The following table presents the Corporation’s commitments to extend credit and letters of credit as of December 31, 2014 (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 ......................................................................................................................... $
2,743,415
1,294,205
351,444
4,389,064
382,465
32,304
414,769
62
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 62
OPERATOR alonzov
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, 2014, the Corporation’s equity investments consisted of
$41.8 million of common stocks of publicly traded financial institutions and $5.8 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 $27.7
million and a fair value of $41.8 million as of December 31, 2014, including an investment in a single financial institution with
a cost basis of $20.0 million and a fair value of $30.4 million. The fair value of this investment accounted for 72.7% 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 $14.1 million and $5,000, respectively, as of December 31, 2014.
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.
In addition to its equity portfolio, 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, 2014, the Corporation owned $245.2 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, 2014, approximately 95% of municipal securities were supported by
the general obligation of corresponding municipalities. Approximately 88% 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, 2014, the Corporation’s investments in student loan auction rate securities, also known as auction rate
certificates (ARCs), had a cost basis of $108.8 million and a fair value of $100.9 million.
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. Therefore, as of December 31, 2014, the fair values of the ARCs currently in the portfolio 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 current market. The expected cash flows model,
63
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, 2014, all of the ARCs were rated above investment grade, with approximately $5.4 million, or 5%,
"AAA" rated and $95.5 million, or 95%, "AA" rated. All of the loans underlying the ARCs have principal payments which are
guaranteed by the federal government. At December 31, 2014, all of the Corporation's ARCs were current and making scheduled
interest payments.
During 2014, ARCs with a total book value of $51.2 million were redeemed at par and ARCs with a total book value of $11.9
million were sold, with no gain or loss upon sale. As of December 31, 2014, all ARCs were current and making scheduled interest
payments. Based on management’s evaluations, ARCs with a fair value of $100.9 million were not subject to any other-than-
temporary impairment charges as of December 31, 2014. 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.
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, 2014:
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)
47,569
47,530
2,010
97,109
$
42,016
50,023
4,088
96,127
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 $5.6 million as of December 31,
2014. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities in
2014, 2013 or 2012. Seven of the Corporation's 20 single-issuer trust preferred securities held were rated below investment grade
by at least one ratings agency, with an amortized cost of $14.5 million and an estimated fair value of $12.4 million as of December 31,
2014. The majority of the single-issuer trust preferred securities rated below investment grade were rated "BB" or "Ba". Three
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, 2014 were not rated by any ratings agency.
As of December 31, 2014, all five of the Corporation's pooled trust preferred securities with a total amortized cost of $2.0 million
and an estimated fair value of $4.1 million, were rated below investment grade by at least one ratings agency, with ratings ranging
from "C" to "Ca". 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 flows 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 2014, the Corporation recorded $18,000 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.
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.
64
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 64
OPERATOR alonzov
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
$210.4 million in cash from operating activities during 2014, mainly due to net income, as adjusted for non-cash charges, including
the provision for credit losses and depreciation and amortization. Investing activities resulted in a net cash outflow of $275.5
million in 2014 due mainly to a net increase in loans, a decrease in short-term investments and purchases of securities, partially
offset by proceeds from maturities of securities. Financing activities resulted in a net cash outflow of $47.8 million in 2014 due
to a net decrease in short-term borrowings and outflows related to the acquisition of treasury stock and dividends paid to
shareholders, partially offset by cash inflows from increases in demand and savings deposits, time deposits and long-term debt.
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, 2014, 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 $2.9 billion, or 16.8% of total assets,
as compared to $3.1 billion, or 18.1% of total assets, as of December 31, 2013.
The following table presents the expected maturities of available for sale investment securities, at estimated fair value, as of
December 31, 2014 and the weighted average yields of such securities (calculated based on historical cost):
Maturing
U.S. Government securities.................... $
U.S. Government sponsored agency
securities .............................................
State and municipal (1) ..........................
Within One Year
Yield
Amount
200
0.12% $
After One But
Within Five Years
Yield
Amount
After Five But
Within Ten Years
Yield
Amount
(dollars in thousands)
— —% $
— —% $
4
15,629
0.63
4.97
57
37,303
1.49
5.68
10
169,354
1.26
5.31
After Ten Years
Yield
Amount
— —%
143
22,929
100,941
47,911
3.06
7.20
1.66
2.62
ARCs (2) ................................................
— —
— —
— —
Corporate debt securities ........................
1,018
6.86
42,782
4.33
6,323
3.70
Total................................................. $
16,851
5.02% $ 80,142
4.96% $ 175,687
5.26% $ 171,924
2.60%
Collateralized mortgage obligations (3) . $ 902,313
Mortgage-backed securities (3) .............. $ 928,831
1.91%
2.48%
(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 ARCs 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, 2014, the weighted
average remaining lives of collateralized mortgage obligations and mortgage-backed securities were four and five years, respectively.
65
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, 2014:
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 ................................................................... $
953,886
228,867
1,182,753
1,168,533
458,956
1,627,489
185,815
66,444
252,259
$
$
$
$
$
$
1,680,947
251,182
1,932,129
3,093,396
1,065,751
4,159,147
195,112
27,052
222,164
$
$
$
$
$
$
468,107
142,578
610,685
2,072,034
452,241
2,524,275
183,583
32,595
216,178
$
$
$
$
$
$
3,102,940
622,627
3,725,567
6,333,963
1,976,948
8,310,911
564,510
126,091
690,601
(1)
Includes commercial mortgages, residential mortgages and home equity loans.
Contractual maturities of time deposits of $100,000 or more outstanding as of December 31, 2014 were as follows (in thousands):
Three months or less ................................................................................................................................................ $
Over three through six months .................................................................................................................................
Over six through twelve months ..............................................................................................................................
Over twelve months .................................................................................................................................................
176,128
143,441
322,708
605,960
Total................................................................................................................................................................... $ 1,248,237
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, 2014, the Corporation had $673.1 million of term advances outstanding from the FHLB with an additional
borrowing capacity of approximately $2.6 billion under these facilities. Advances from the FHLB are secured by FHLB stock,
qualifying residential mortgages, investments and other assets.
As of December 31, 2014, the Corporation had aggregate availability under Federal funds lines of $1.2 billion, with $6.2 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,
2014 and 2013, the Corporation had $1.1 billion and $2.0 billion, respectively, of collateralized borrowing availability at the
Discount Window, and no outstanding borrowings. The $900.0 million decrease in availability at the Discount Window was
primarily the result of certain pledged loans that were shifted from the Federal Reserve Bank to be used as collateral with the
Federal Home Loan Bank of Pittsburgh in order to optimize the Corporation's borrowing capacity.
66
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 66
OPERATOR alonzov
The following table provides information about the Corporation's interest rate sensitive financial instruments as of December 31,
2014. 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.
2015
2016
2017
2018
2019
Beyond
Total
Expected Maturity Period
Estimated
Fair Value
Fixed rate loans (1) ..................... $ 986,066
$ 497,696
$ 360,687
$ 368,169
$ 209,002
$ 646,177
$ 3,067,797
$ 3,050,762
Average rate .......................
3.80%
4.38%
4.32%
4.60%
4.54%
3.87%
4.12%
Floating rate loans (1) (2) ...........
2,313,130
1,506,899
1,227,062
1,057,203
1,359,071
2,576,533
10,039,898
9,975,760
Average rate .......................
3.80%
3.92%
3.93%
3.92%
3.82%
3.91%
3.88%
Fixed rate investments (3)...........
359,025
320,657
282,801
224,078
188,874
744,167
2,119,602
2,129,504
Average rate .......................
2.80%
2.78%
2.78%
Floating rate investments (3) ......
4
4,969
113,720
Average rate .......................
0.63%
0.94%
2.00%
Other interest-earning assets .......
375,652
Average rate .......................
0.40%
Total ............................................ $4,033,877
—
—
—
—
2.61%
32
2.04%
—
—
2.58%
23
1.47%
—
—
2.76%
2.74%
40,582
159,330
146,558
1.44%
1.83%
64,953
440,605
440,605
4.49%
1.01%
$2,330,221
$1,984,270
$1,649,482
$1,756,970
$4,072,412
$ 15,827,232
$15,743,189
Average rate .......................
3.40%
3.86%
3.72%
3.90%
3.77%
3.68%
3.67%
Fixed rate deposits (4)................. $1,356,322
$ 448,515
$ 351,761
$ 115,882
$ 424,705
$
22,001
$ 2,719,186
$ 2,734,921
Average rate .......................
0.71%
1.03%
1.33%
1.66%
2.13%
1.85%
1.11%
Floating rate deposits (5) ............
4,896,773
815,596
458,211
380,987
318,055
138,075
7,007,697
6,990,394
Average rate .......................
0.15%
0.11%
0.10%
Fixed rate borrowings (6)............
186,334
236,722
315,566
Average rate .......................
3.67%
4.00%
4.85%
Floating rate borrowings (7) .......
329,718
Average rate .......................
0.13%
Total ............................................ $6,769,147
—
—
—
—
0.09%
593
4.67%
—
—
0.09%
0.13%
0.14%
125,330
258,373
1,122,918
1,136,820
1.85%
5.59%
4.31%
—
—
16,496
346,214
335,879
2.39%
0.24%
$1,500,833
$1,125,538
$ 497,462
$ 868,090
$ 434,945
$ 11,196,015
$11,198,014
Average rate .......................
0.36%
1.00%
1.82%
0.46%
1.34%
3.55%
0.80%
(1) Amounts are based on contractual payments and maturities, adjusted for expected prepayments. Excludes $4.0 million of overdraft balances.
(2) Line of credit amounts are based on historical cash flow assumptions, with an average life of approximately 5 years.
(3) 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.
(4) Amounts are based on contractual maturities of time deposits.
(5) Estimated based on history of deposit flows.
(6) Amounts are based on contractual maturities of debt instruments, adjusted for possible calls. Amounts also include junior subordinated deferrable interest
debentures.
(7) 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 $10.0 billion of floating rate loans above are $3.5 billion of loans, or 35.0% of the total, that float with the
prime interest rate, $2.0 billion, or 19.9%, of loans which float with other interest rates, primarily the London Interbank Offered
Rate (LIBOR), and $4.5 billion, or 45.1%, of adjustable rate loans. The $4.5 billion of adjustable rate loans include loans that are
fixed rate instruments for a certain period of time, and then convert to floating rates.
67
The following table presents the percentage of adjustable rate loans, as of December 31, 2014, 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
30.6%
18.3
15.8
16.0
10.4
8.9
The Corporation uses two complementary methods to measure and manage interest rate risk. They are 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.
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 abrupt interest rate changes 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
+ $70.6 million
+ $44.9 million
+ $19.0 million
– $19.4 million
% Change in net
interest income
+ 14.5%
+ 9.2%
+ 3.9%
– 4.0%
(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. Abrupt changes or "shocks" in interest rates, both 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, 2014, the Corporation was within economic value of equity policy
limits for every 100 basis point shock.
68
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 68
OPERATOR alonzov
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share data)
December 31
2014
2013
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......................................................................................................................
Available for sale investment securities......................................................................................
Loans, net of unearned income...................................................................................................
Allowance for loan losses...........................................................................................................
Net Loans......................................................................................................................
Premises and equipment .............................................................................................................
Accrued interest receivable.........................................................................................................
Goodwill and intangible assets ...................................................................................................
Other assets.................................................................................................................................
105,702
358,130
64,953
17,522
2,323,371
13,111,716
(184,144)
12,927,572
226,027
41,818
531,803
527,869
Total Assets................................................................................................................... $ 17,124,767
$
218,540
163,988
84,173
21,351
2,568,434
12,782,220
(202,780)
12,579,440
226,021
44,037
533,076
495,574
$ 16,934,634
Liabilities
Deposits:
Noninterest-bearing ............................................................................................................. $
Interest-bearing....................................................................................................................
Total Deposits...............................................................................................................
3,640,623
9,726,883
13,367,506
$
3,283,172
9,208,014
12,491,186
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, 218.2 million shares issued
6,219
323,500
329,719
18,045
273,419
1,139,413
15,128,102
582,436
676,193
1,258,629
15,218
222,830
883,584
14,871,447
in 2014 and 217.8 million shares issued in 2013.................................................................
545,555
1,420,523
Additional paid-in capital ...........................................................................................................
558,810
Retained earnings........................................................................................................................
(17,722)
Accumulated other comprehensive loss .....................................................................................
Treasury stock, 39.3 million shares in 2014 and 25.2 million shares in 2013............................
(510,501)
1,996,665
Total Shareholders’ Equity...........................................................................................
Total Liabilities and Shareholders’ Equity................................................................... $ 17,124,767
544,568
1,432,974
463,843
(37,341)
(340,857)
2,063,187
$ 16,934,634
See Notes to Consolidated Financial Statements
69
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share data)
Interest Income
Loans, including fees ..................................................................................................................... $
Investment securities:
2014
2013
2012
530,308
$
540,667
$
564,616
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 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 ........................................................................................................................
Software .........................................................................................................................................
Professional fees ............................................................................................................................
FDIC insurance expense ................................................................................................................
Supplies and postage......................................................................................................................
Marketing.......................................................................................................................................
Telecommunications ......................................................................................................................
Operating risk loss .........................................................................................................................
Other real estate owned and repossession expense........................................................................
Intangible amortization ..................................................................................................................
FHLB advances prepayment penalty .............................................................................................
Other ..............................................................................................................................................
Total Non-Interest Expense.................................................................................
Income Before Income Taxes...............................................................................
Income taxes ..................................................................................................................................
Net Income........................................................................................................... $
50,651
8,977
1,338
786
4,018
596,078
35,110
1,608
44,493
81,211
514,867
12,500
502,367
49,293
44,605
39,896
17,107
—
14,437
(122)
92
(30)
2,071
2,041
167,379
251,021
48,130
28,404
17,162
13,567
12,758
12,097
10,958
9,795
8,133
6,870
4,271
3,270
1,259
—
31,551
459,246
210,500
52,606
157,894
Per Share:
Net Income (Basic) ........................................................................................................................ $
Net Income (Diluted) .....................................................................................................................
Cash Dividends ..............................................................................................................................
0.85
0.84
0.34
$
$
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
11,560
13,150
11,605
10,210
7,705
7,362
9,290
7,364
2,438
—
29,735
461,433
212,925
51,085
161,840
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
9,520
11,522
11,996
9,516
8,240
6,884
9,454
11,182
3,031
3,007
29,433
449,294
217,446
57,601
159,845
0.80
0.80
0.30
See Notes to Consolidated Financial Statements
70
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 70
OPERATOR alonzov
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
2014
2013
2012
Net Income..............................................................................................................................................
$ 157,894
$ 161,840
$ 159,845
Other Comprehensive Income (Loss), net of tax:...................................................................................
Unrealized gain (loss) on securities...................................................................................................
33,734
(49,607)
1,569
Reclassification adjustment for securities gains included in net income ..........................................
Reclassification adjustment for postretirement plan curtailment gain included in net income.........
Non-credit related unrealized gain on other-than-temporarily impaired debt securities...................
Unrealized gain on derivative financial instruments .........................................................................
(1,327)
(944)
780
136
Unrecognized pension and postretirement (cost) income .................................................................
(13,168)
Amortization of net unrecognized pension and postretirement income............................................
408
(5,203)
(1,967)
—
1,977
136
8,369
1,312
—
1,330
136
(4,207)
859
Other Comprehensive Income (Loss)...........................................................................................
19,619
(43,016)
(2,280)
Total Comprehensive Income.......................................................................................................
$ 177,513
$ 118,824
$ 157,565
See Notes to Consolidated Financial Statements
71
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, 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
Net income .............................................................
Other comprehensive income ................................
157,894
19,619
Stock issued, including related tax benefits...........
781
987
Stock-based compensation awards ........................
Acquisition of treasury stock .................................
(14,509)
Deferred accelerated stock repurchase...................
Common stock cash dividends - $0.34 per share...
1,684
5,865
(20,000)
(62,927)
5,611
(175,255)
157,894
19,619
8,282
5,865
(175,255)
(20,000)
(62,927)
Balance at December 31, 2014 .....................................
178,924
$
545,555
$
1,420,523
$
558,810
$
(17,722)
$
(510,501)
$
1,996,665
See Notes to Consolidated Financial Statements
72
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 72
OPERATOR alonzov
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:
157,894
$
161,840
$
159,845
2014
2013
2012
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 ..............................................................
(Increase) decrease in other assets ......................................................................
Increase (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 available for sale....................................
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 increase (decrease) in time deposits .............................................................
(Decrease) increase 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...............................................................................
Deferred accelerated stock repurchase payment .................................................
Net cash (used in) provided by financing activities.................................
Net Decrease 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:
12,500
24,555
5,120
18,523
(2,041)
(10,063)
654,654
(640,762)
1,259
—
5,865
(81)
2,219
(8,803)
2,827
(13,294)
52,478
210,372
32,227
417,559
(164,769)
(174,922)
—
(360,982)
(24,561)
(275,448)
722,791
153,529
(928,910)
262,113
(6,284)
8,201
81
(64,028)
(175,255)
(20,000)
(47,762)
(112,838)
218,540
105,702
Interest................................................................................................................. $
Income taxes........................................................................................................
78,384
16,778
See Notes to Consolidated Financial Statements
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
267,126
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
86,607
32,605
$
$
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
244,702
878,375
(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
$
$
73
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 Stock: Certain of the Corporation's wholly owned banking subsidiaries
are members of the Federal Reserve Bank and Federal Home Loan Bank 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. Each of the Corporation’s subsidiary banks is a member of the Federal Home
Loan Bank for the region encompassing the headquarters of the subsidiary bank. Memberships are maintained with the Atlanta,
New York and Pittsburgh regional Federal Home Loan Banks (collectively referred to as the FHLB).
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, all debt securities and 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
74
JOB TITLE Fulton Financial Combo
REVISION 6
JOB NUMBER 279447
TYPE
SERIAL
PAGE NO. 74
DATE Friday, March 20, 2015
OPERATOR alonzov
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.
Fair Value Option: As permitted under FASB ASC Subtopic 825-10, the Corporation has elected to measure mortgage loans held
for sale at fair value. Derivative financial instruments related to mortgage banking activities are also recorded at fair value, as
detailed under the heading "Derivative Financial Instruments" below. The Corporation determines fair value for its mortgage loans
held for sale based on the price that secondary market investors would pay for loans with similar characteristics, including interest
rate and term, as of the date fair value is measured. Changes in fair values during the period are recorded as components of mortgage
banking income on the consolidated statements of income. Interest income earned on mortgage loans held for sale is classified
within interest income on the consolidated statements of income.
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 above. 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. Past due status is determined based on contractual due dates for loan payments. An adequately secured loan is one that
has collateral with a supported fair value that is sufficient to discharge the debt, and/or has an enforceable guarantee from a
financially responsible party. A loan is considered to be in the process of collection if collection is proceeding through legal action
or through other activities that are reasonably expected to result in repayment of the debt or restoration to current status in the near
future.
Loans and lease financing receivables deemed to be a loss are written off through a charge against the allowance for loan 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 loan losses.
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, net
loan origination fees and costs are included in the gain or loss on 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 incurred losses in its unfunded loan commitments and is recorded in other liabilities on the consolidated
balance sheets. 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,
75
an internal risk rating process is used. The risk rating process allows management to identify riskier credits in a timely manner
and to allocate resources to managing troubled assets. 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 assessments identify a deterioration or an improvement in the loan.
The following is a summary of the Corporation's internal risk rating categories:
•
•
•
Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending
on the degree of potential risk.
Special Mention: These loans 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 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 commitments greater than or equal to $1.0 million are evaluated individually for impairment. Impaired loans to
borrowers with total outstanding commitments 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, 2014 and 2013, substantially all of the Corporation’s impaired loans to borrowers with total outstanding loan
balances greater than or equal to $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 state certified
third-party appraisers, discounted to arrive at expected sale prices. For collateral dependent loans, estimated real estate fair values
are also 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; market factors; payment status; the strength of any guarantors;
and the existence and age of other indications of value such as broker price opinions, among others. The Corporation generally
obtains updated state certified third-party appraisals for impaired loans secured predominately by real estate every 12 months.
As of December 31, 2014 and 2013, approximately 81% and 79%, respectively, of impaired loans with principal balances greater
than or equal to $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using state certified
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 credit administration 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
76
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 76
OPERATOR alonzov
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 or equal to $1.0 million secured by non-real estate collateral, such as
accounts receivable or inventory, estimated fair values are determined based on borrower financial statements, inventory listings,
accounts receivable agings or borrowing base certificates. Indications of value from these sources are generally discounted based
on the age of the financial information or the quality of the assets. Liquidation or collection discounts are applied to these assets
based upon existing loan evaluation policies.
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 migration 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, 8 years for furniture and 5 years for
equipment. Leasehold improvements are amortized over the shorter of the useful life or the non-cancelable lease term. 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
77
to the valuation include expected net servicing income, the discount rate and the expected lives of the underlying loans. Expected
life is based on the contractual terms of the loans, as adjusted for prepayment projections. To the extent the amortized cost of the
MSRs exceeds their estimated fair value, a valuation allowance is established through a charge against servicing income, 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 or non-interest expense on the consolidated statements of income.
Derivative contracts create counterparty credit risk with both the Corporation's customers and with institutional derivative
counterparties. The Corporation manages counterparty credit risk through its credit approval processes, monitoring procedures
and obtaining adequate collateral, when the Corporation determines it is appropriate to do so and in accordance with counterparty
contracts.
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 values
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
value 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 values during the period
recorded within other service charges and fees on the consolidated statements of income.
Balance Sheet Offsetting: Although 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 such qualifying
assets and liabilities.
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
78
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 78
OPERATOR alonzov
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.
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 resulting in temporary net income differences between financial reporting and tax
returns. 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, consisting of stock options, restricted stock,
restricted stock units (RSUs) and performance based restricted stock units (PSUs) under its Amended and Restated Equity and
Cash Incentive Compensation Plan (Employee Equity Plan). In addition, employees may purchase stock under the Corporation’s
Employee Stock Purchase Plan (ESPP).
The Corporation also grants stock equity awards to non-employee members of its board of directors under the 2011 Directors’
Equity Participation Plan (Directors’ Plan). Under the Directors’ Plan, the Corporation can grant equity awards to non-employee
holding company and subsidiary bank directors in the form of stock options, restricted stock or common stock.
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, RSUs and a majority of PSUs are based on the trading price of the
Corporation's stock on the date of grant and earn dividends during the vesting period, which are forfeitable if the awards do not
vest. The fair value of certain PSUs are estimated through the use of the Monte Carlo valuation methodology as of the date of
grant.
Equity awards issued under the Employee Equity Plan are generally granted annually and become fully vested over or after a
three-year vesting period. The vesting period for non-performance based awards represents the period during which employees
are required to provide service in exchange for such awards. Equity awards under the Directors' Plan generally vest immediately
upon grant. Certain events, as defined in the Employee Equity Plan and the Directors' Plan, result in the acceleration of the vesting
of equity awards.
The fair value of stock options, restricted stock and RSUs granted to employees is recognized as compensation expense over the
vesting period for such awards. Compensation expense for PSUs is also recognized over the vesting period, however, compensation
expense for PSUs may vary based on the expectations for actual performance relative to defined performance measures.
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 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, restricted stock, RSUs and PSUs.
PSUs are required to be included in weighted average shares outstanding if performance measures, as defined in each PSU award
agreement, are met as of the end of the period.
79
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)......................................
2014
186,219
962
187,181
2013
(in thousands)
193,334
1,020
194,354
2012
199,067
972
200,039
In 2014, 2013 and 2012, 2.8 million, 3.6 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.
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 2014, 2013 or 2012. 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 seven to ten years. As of
80
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 80
OPERATOR alonzov
December 31, 2014 and 2013, the Corporation’s Tax Credit Investments, included in other assets on the consolidated balance
sheets, totaled $155.6 million and $129.2 million, respectively. The net income tax benefit associated with these investments,
which consists of the amortization of the investments, net of tax benefits, and the income tax credits earned on the investments,
and is recorded in income taxes on the consolidated income statements, was $10.4 million, $10.3 million and $9.6 million in 2014,
2013 and 2012, respectively. None of the Corporation’s Tax Credit Investments were consolidated based on FASB ASC Topic 810
as of December 31, 2014 or 2013.
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 April 2014, the FASB issued ASC Update 2014-08, "Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity." ASC Update 2014-08 changes the criteria for reporting discontinued
operations, including a change in the definition of what constitutes the disposal of a component and additional disclosure
requirements. For public business entities, ASC Update 2014-08 is effective for disposals that occur within annual 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 2014-08 is not expected to have a material impact on the Corporation's consolidated financial
statements.
In May 2014, the FASB issued ASC Update 2014-09, "Revenue from Contracts with Customers." This standards update establishes
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance, including industry-specific guidance. The core principle prescribed by this standards
update is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies
to all contracts with customers, except those that are within the scope of other topics in the FASB ASC. The standard also requires
significantly expanded disclosures about revenue recognition. For public business entities, ASC Update 2014-09 is effective for
interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted. For the Corporation,
this standards update is effective with its March 31, 2017 quarterly report on Form 10-Q. The Corporation is currently evaluating
the impact of the adoption of ASC Update 2014-09 on its consolidated financial statements.
In June 2014, the FASB issued ASC Update 2014-11, "Repurchase-to-Maturity Transactions, Repurchase Financings, and
Disclosures." In addition to new disclosure requirements, ASC Update 2014-11 requires that all repurchase-to-maturity transactions
be accounted for as secured borrowings rather than as sales of financial assets. Also, all transfers of financial assets executed
contemporaneously with a repurchase agreement with the same counterparty must be accounted for separately, the result of which
would be the treatment of such transactions as secured borrowings. For public business entities, ASC Update 2014-11 is effective
for 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 2014-11 is not expected to have a material
impact on the Corporation’s consolidated financial statements.
In June 2014, the FASB issued ASC Update 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide
That a Performance Target Could Be Achieved after the Requisite Service Period." ASC Update 2014-12 clarifies guidance related
to accounting for share-based payment awards with terms that allow an employee to vest in the award regardless of whether the
employee is rendering service on the date a performance target is achieved. ASC Update 2014-12 requires that a performance
target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As
such, the performance target should not be reflected in estimating the grant-date fair value of the award. For public business entities,
ASC Update 2014-12 is effective for interim and annual reporting periods beginning after December 15, 2014, with earlier adoption
permitted. For the Corporation, this standards update is effective with its March 31, 2015 quarterly report on Form 10-Q. The
adoption of ASC Update 2014-12 is not expected to have a material impact on the Corporation’s consolidated financial statements.
81
In August 2014, the FASB issued ASC Update 2014-14, "Receivables - Troubled Debt Restructuring by Creditors." ASC Update
2014-14 clarifies TDR guidance related to the classification and measurement of certain government-sponsored loan guarantee
programs upon foreclosure. For public business entities, ASC Update 2014-14 is for effective interim and annual reporting periods
beginning after December 15, 2014, with earlier adoption permitted. For the Corporation, this standards update is effective with
its March 31, 2015 quarterly report on Form 10-Q. The adoption of ASC Update 2014-14 is not expected to have a material impact
on the Corporation’s consolidated financial statements.
In August 2014, the FASB issued ASC Update 2014-15, "Presentation of Financial Statements - Going Concern." ASC Update
2014-15 provides guidance regarding management's responsibility to evaluate whether there is substantial doubt about an entity's
ability to continue as a going concern and to provide related disclosures. The standards update describes how an entity's management
should assess whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity's
ability to continue as a going concern within one year after the date that the financial statements are issued. For public business
entities, ASC Update 2014-15 is effective for annual reporting periods ending after December 15, 2016, with earlier adoption
permitted. For the Corporation, this standards update is effective with its December 31, 2016 annual report on Form 10-K. The
adoption of ASC Update 2014-15 is not expected to have a material impact on the Corporation’s consolidated financial statements.
In November 2014, the FASB issued ASC Update 2014-16, "Derivatives and Hedging: Determining Whether the Host Contract
in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity." ASC Update 2014-16 was
issued to reduce existing diversity in the accounting for hybrid financial instruments issued in the form of a share, such as
redeemable convertible preferred stock. ASC Update 2014-16 applies to all entities that are issuers of, or investors in, hybrid
financial instruments that are issued in the form of a share, and is effective for public business entities’ annual reporting periods
beginning after December 15, 2015, with earlier adoption permitted. For the Corporation, this standards update is effective with
its March 31, 2016 annual report on Form 10-Q. The adoption of ASC Update 2014-16 is not expected to have a material impact
on the Corporation’s consolidated financial statements.
In November 2014, the FASB issued ASC Update 2014-17, "Business Combinations: Pushdown Accounting." ASC Update 2014-17
was issued to provide guidance on whether and at what threshold an acquired entity can apply pushdown accounting in its separate
financial statements. ASC Update 2014-17 applies to the separate financial statements of an acquired entity upon the occurrence
of an event in which an acquirer obtains control of the acquired entity. This update was effective upon issuance and did not have
an impact on the Corporation's consolidated financial statements.
In January 2015, the FASB issued ASC Update 2015-01, "Income Statement - Extraordinary and Unusual Items." ASC Update
2015-01 was issued to eliminate the concept of extraordinary items from U.S. GAAP. net of tax, after income from continuing
operations. ASC Update 2015-01 amends existing extraordinary items disclosure guidance. Under the amended guidance, reporting
entities will no longer separately disclose extraordinary items net of tax, after income from continuing operations in the income
statement. ASC Update 2015-01 is effective for annual reporting periods beginning after December 15, 2015, with earlier adoption
permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Corporation intends to adopt
this standards update effective with its March 31, 2016 quarterly report on Form 10-Q and does not expect the adoption of ASC
Update 2015-01 to have a material impact on its consolidated financial statements.
Reclassifications: Certain amounts in the 2013 and 2012 consolidated financial statements and notes have been reclassified to
conform to the 2014 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, 2014 and 2013 were $97.0 million and
$93.1 million, respectively.
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JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 82
OPERATOR alonzov
NOTE C – INVESTMENT SECURITIES
The following tables present the amortized cost and estimated fair values of investment securities, which were all classified as
available for sale, as of December 31:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(in thousands)
2014
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 .................................................................
33,469
200
209
238,250
99,016
917,395
914,797
108,751
$ 2,312,087
2013
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
$
$
$
$
14,167
—
5
7,231
5,126
5,705
16,978
—
49,212
12,355
—
7
6,483
5,685
8,036
13,881
234
46,681
$
$
$
$
(13) $
47,623
200
—
214
—
(266)
245,215
(6,108)
98,034
(20,787)
902,313
(2,944)
928,831
(7,810)
100,941
(37,928) $ 2,323,371
(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
Securities carried at $1.7 billion as of December 31, 2014 and 2013 were pledged as collateral to secure public and trust deposits
and customer repurchase agreements.
Equity securities include common stocks of financial institutions (estimated fair value of $41.8 million at December 31, 2014 and
$40.6 million at December 31, 2013) and other equity investments (estimated fair value of $5.8 million at December 31, 2014 and
$5.6 million at December 31, 2013).
As of December 31, 2014, the financial institutions stock portfolio had a cost basis of $27.7 million and an estimated fair value
of $41.8 million, including an investment in a single financial institution with a cost basis of $20.0 million and an estimated fair
value of $30.4 million. This investment accounted for 72.7% of the estimated fair value 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 estimated fair value.
83
The amortized cost and estimated fair values of debt securities as of December 31, 2014, 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 ............................................................................................................
16,698
76,704
170,783
182,241
446,426
917,395
914,797
$ 2,278,618
$
16,851
80,142
175,687
171,924
444,604
902,313
928,831
$ 2,275,748
The following table presents information related to gross 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
(in thousands)
2014:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
2013:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
2012:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
335
2,058
2,393
4,391
3,787
8,178
2,620
1,215
3,835
$
$
$
$
$
$
— $
(322)
(322) $
(28) $
(22)
(50) $
— $
—
— $
(12) $
(18)
(30) $
(27) $
(97)
(124) $
(356) $
(453)
(809) $
323
1,718
2,041
4,336
3,668
8,004
2,264
762
3,026
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 .................................... $
2014
2013
(in thousands)
27
$
97
—
97
124
$
$
$
12
18
—
18
30
2012
356
19
434
453
809
Other-than-temporary impairment charges related to investments in common stocks of financial institutions were due to the severity
and duration of the declines in fair values of certain financial institution stocks, in conjunction with management’s assessment of
the near-term prospects of each specific financial institution. The credit related other-than-temporary impairment charges for debt
securities were determined based on expected cash flows models.
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JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 84
OPERATOR alonzov
The following table presents a summary of the cumulative credit related other-than-temporary impairment charges, recognized as
components of earnings, for debt securities held by the Corporation at December 31:
Balance of cumulative credit losses on debt securities, beginning of year ........................ $ (20,691) $ (23,079) $ (22,781)
Additions for credit losses recorded which were not previously recognized as
components of earnings ..................................................................................................
Reductions for securities sold during the period ................................................................
Reductions for increases in cash flows expected to be collected that are recognized
(18)
4,460
(97)
2,468
(453)
—
2014
2013
(in thousands)
2012
over the remaining life of the security............................................................................
155
Balance of cumulative credit losses on debt securities, end of year .................................. $ (16,242) $ (20,691) $ (23,079)
17
7
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, 2014:
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)
State and municipal securities ..
Corporate debt securities ..........
Collateralized mortgage
obligations.............................
Mortgage-backed securities......
Auction rate securities ..............
Total debt securities...........
Equity securities .......................
3,282
4,952
46,121
36,791
—
91,146
5
(4)
(17)
(179)
(40)
—
(240)
(1)
19,640
36,849
592,119
235,368
100,941
984,917
77
$
91,151
$
(241) $
984,994
$
(262)
(6,091)
22,922
41,801
(20,608)
(2,904)
(7,810)
(37,675)
(12)
638,240
272,159
100,941
1,076,063
82
(37,687) $ 1,076,145
(266)
(6,108)
(20,787)
(2,944)
(7,810)
(37,915)
(13)
(37,928)
$
The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do
not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the decline in market
value of these securities is 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 these investments to be other-than-temporarily impaired as
of December 31, 2014.
The unrealized holding losses on student loan auction rate certificates (ARCs) are attributable to liquidity issues resulting from
the failure of periodic auctions. The Corporation had previously purchased ARCs for investment management and trust customers
as short-term investments with fair values that could be derived based on periodic auctions under normal market conditions. During
2008 and 2009, the Corporation purchased ARCs from these customers due to the failure of these periodic auctions, which made
these previously short-term investments illiquid.
As of December 31, 2014, all of the ARCs were rated above investment grade, with approximately $5.4 million, or 5%, "AAA"
rated and $95.5 million, or 95%, "AA" rated. All of the loans underlying the ARCs have principal payments which are guaranteed
by the federal government.
During 2014, ARCs with a total book value of $51.2 million were redeemed at par and ARCs with a total book value of $11.9
million were sold with no gain or loss upon sale. As of December 31, 2014, all ARCs were current and making scheduled interest
payments. Based on management’s evaluations, ARCs with a fair value of $100.9 million were not subject to any other-than-
temporary impairment charges as of December 31, 2014. 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.
For its investments in equity securities, particularly its investments in common stocks of financial institutions, management
evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation
and the Corporation’s ability and intent to hold those investments for a reasonable period of time sufficient for a recovery of fair
85
value, the Corporation does not consider those investments with unrealized holding losses as of December 31, 2014 to be other-
than temporarily impaired.
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:
2014
2013
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.......................... $
47,569
47,530
2,010
97,109
1,907
99,016
$
$
$
(in thousands)
42,016
50,023
4,088
96,127
1,907
98,034
$
47,481
47,405
2,997
97,883
2,585
100,468
$
$
40,531
50,327
5,306
96,164
2,585
98,749
The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $5.6 million as of December 31,
2014. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities in
2014, 2013 or 2012. Seven of the Corporation's 20 single-issuer trust preferred securities held were rated below investment grade
by at least one ratings agency, with an amortized cost of $14.5 million and an estimated fair value of $12.4 million as of December 31,
2014. All of the single-issuer trust preferred securities rated below investment grade were rated "BB" or "Ba." Three 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,
2014 were not rated by any ratings agency.
During the year ended December 31, 2014, the Corporation sold three pooled trust preferred securities with a total amortized cost
of $728,000, for a gain of $1.7 million. As of December 31, 2014, all five of the Corporation's pooled trust preferred securities,
with an amortized cost of $2.0 million and an estimated fair value of $4.1 million, were rated below investment grade by at least
one ratings agency, with ratings ranging from "C" to "Ca". 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 flows 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 $98.0 million were not subject to any additional
other-than-temporary impairment charges as of December 31, 2014. 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.
As mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), in December 2013, five
regulatory bodies 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 Federal Reserve Board 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 (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. The Corporation does not engage in proprietary trading or in any other activities prohibited by the Final Rules. Based on
the Corporation's evaluation of its investments, none fall within the definition of a "covered fund" and would need to be disposed
of by July 21, 2015. Therefore, it does not currently expect that the Final Rules will have a material effect on its business, financial
condition or results of operations.
86
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 86
OPERATOR alonzov
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:
2014
2013
(in thousands)
Real estate – commercial mortgage................................................................................................ $ 5,197,155
3,725,567
Commercial – industrial, financial and agricultural .......................................................................
1,736,688
Real estate – home equity ...............................................................................................................
1,377,068
Real estate – residential mortgage ..................................................................................................
690,601
Real estate – construction ...............................................................................................................
265,431
Consumer........................................................................................................................................
127,562
Leasing and other............................................................................................................................
4,021
Overdrafts .......................................................................................................................................
13,124,093
Loans, gross of unearned income ............................................................................................
(12,377)
Unearned income ............................................................................................................................
Loans, net of unearned income................................................................................................ $ 13,111,716
$ 5,101,922
3,628,420
1,764,197
1,337,380
573,672
283,124
99,256
4,045
12,792,016
(9,796)
$ 12,782,220
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 $252.6 million and $149.1 million as of December 31, 2014 and 2013,
respectively. During 2014, additions totaled $120.2 million and repayments and other changes in related-party loans totaled $16.7
million.
The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.9 billion as of December 31,
2014 and 2013.
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 ................................................................................... $
184,144
1,787
185,931
2014
2013
(in thousands)
202,780
$
2,137
204,917
$
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 ........................................................................................... $
2014
204,917
(44,593)
13,107
(31,486)
12,500
185,931
2013
(in thousands)
225,439
$
(80,212)
19,190
(61,022)
40,500
204,917
$
2012
223,903
1,536
225,439
2012
258,177
(140,366)
13,628
(126,738)
94,000
225,439
$
$
$
$
87
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, 2012..........................
$
62,928
$
60,205
$
22,776
$
34,536
$
17,287
$
2,367
$
2,752
$
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)..............................
Balance at December 31, 2013..........................
10,066
55,659
11,227
50,330
12,779
28,222
7,703
(748)
33,082
12,649
1,252
3,260
2,464
3,370
(4,844)
39,899
16,208
202,780
—
—
—
(44,593)
13,107
(31,486)
Loans charged off..............................................
(6,004)
(24,516)
(5,486)
(2,918)
(1,209)
(2,325)
(2,135)
Recoveries of loans previously charged off ......
1,960
4,256
1,025
Net loans charged off ........................................
(4,044)
(20,260)
(4,461)
Provision for loan losses (2)..............................
1,878
21,308
4,510
451
(2,467)
(1,543)
3,177
1,968
1,322
916
(1,003)
(1,219)
(4,861)
758
(352)
(8,848)
12,850
Balance at December 31, 2014..........................
$
53,493
$
51,378
$
28,271
$
29,072
$
9,756
$
3,015
$
1,799
$
7,360
$
184,144
Allowance for loan losses at December 31, 2014
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, 2014
36,778
$
38,348
$
19,047
$
10,480
$
6,485
$
2,980
$
1,799
$
7,360
$
123,277
16,715
13,030
9,224
18,592
3,271
35
—
N/A
60,867
53,493
$
51,378
$
28,271
$
29,072
$
9,756
$
3,015
$
1,799
$
7,360
$
184,144
Measured for impairment under FASB ASC
Subtopic 450-20 ..........................................
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
$
5,133,896
$
3,690,561
$
1,723,230
$
1,325,717
$
665,012
$
265,393
$
119,206
N/A
$ 12,923,015
63,259
35,006
13,458
51,351
25,589
38
—
N/A
188,701
$
5,197,155
$
3,725,567
$
1,736,688
$
1,377,068
$
690,601
$
265,431
$
119,206
N/A
$ 13,111,716
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
(1)
(2)
The Corporation’s unallocated allowance, which was approximately 4% and 8% of the total allowance for credit losses as of December 31, 2014 and
December 31, 2013, 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, 2014, the provision for loan losses excluded a $350,000 decrease in the reserve for unfunded lending commitments. The
total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $12.5 million for the year ended December 31, 2014.
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.
N/A – Not applicable.
88
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 88
OPERATOR alonzov
Impaired Loans
The following table presents total impaired loans by class segment as of December 31:
2014
2013
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.............................
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 ...................................
25,802
$
23,236
$
17,599
14,582
— $
—
28,892
$
24,494
$
23,890
21,383
—
4,873
18,041
1,707
68,022
49,619
24,824
1,241
19,392
56,607
14,007
1,501
452
20
19
—
4,873
14,801
1,581
59,073
40,023
19,335
1,089
13,458
46,478
7,903
1,023
281
19
19
—
—
—
—
16,715
12,165
865
9,224
18,592
2,675
459
137
18
17
399
—
18,468
3,471
75,120
43,282
34,267
1,113
20,383
63,682
22,594
3,660
719
2
11
300
—
13,265
2,451
61,893
35,830
22,324
1,048
14,337
51,097
12,777
1,997
548
2
11
Total........................................................ $
235,704
$
188,701
$
60,867
$
264,833
$
201,864
$
167,682
129,628
60,867
189,713
139,971
—
—
—
—
—
—
14,444
13,315
752
9,059
21,745
2,646
924
301
2
10
63,198
63,198
As of December 31, 2014 and 2013, there were $59.1 million and $61.9 million, respectively, of impaired loans that did not have
a related allowance for loan loss. The estimated fair values of the collateral securing these loans exceeded their carrying amount,
or the loans have been charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered
to be necessary.
89
The following table presents average impaired loans, by class segment, for the years ended December 31:
2014
2013
2012
Average
Recorded
Investment
Interest
Income
Recognized
(1)
Average
Recorded
Investment
Interest
Income
Recognized
(1)
Average
Recorded
Investment
Interest
Income
Recognized
(1)
$
41,575
$
538
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 .........
23,467
$
18,928
—
180
1,532
15,421
1,907
61,435
38,240
20,991
895
13,976
50,281
8,723
1,900
387
7
16
—
320
119
—
1
31
227
—
698
524
129
3
108
1,178
136
—
—
—
1
—
(in thousands)
$
28,603
$
30,299
26
262
695
19,847
3,480
83,212
44,136
27,919
1,411
14,092
52,251
11,219
2,468
523
1
19
11
489
173
—
1
25
256
2
946
706
153
5
65
1,210
168
3
1
—
—
—
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
Total...................................................... $
196,851
$
2,777
$
237,262
$
3,257
$
288,371
$
135,416
2,079
154,050
2,311
188,026
(1) All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the years ended December 31, 2014, 2013 and 2012
represents amounts earned on accruing TDRs.
90
50
—
2
45
185
19
839
755
97
6
23
1,446
130
17
7
—
—
—
2,481
3,320
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 90
OPERATOR alonzov
Credit Quality Indicators and Non-performing Assets
The following table presents internal credit risk ratings for real estate - commercial mortgages, commercial - secured loans,
commercial - unsecured loans, construction - commercial residential loans and construction - commercial loans as of December 31:
Pass
Special Mention
Substandard or Lower
Total
2014
2013
2014
2013
2014
2013
2014
2013
(dollars in thousands)
Real estate - commercial
mortgage .................................. $
4,899,016
$ 4,763,987
$
127,302
$
141,013
$
170,837
$
196,922
$
5,197,155
$ 5,101,922
Commercial - secured ...................
3,333,486
Commercial -unsecured ................
146,680
3,167,168
209,836
120,584
7,463
111,613
11,666
110,544
6,810
125,382
2,755
3,564,614
3,404,163
160,953
224,257
Total commercial - industrial,
financial and agricultural ...
Construction - commercial
residential.................................
Construction - commercial ...........
Total real estate - construction
(excluding construction -
other)..................................
3,480,166
3,377,004
128,047
123,279
117,354
128,137
3,725,567
3,628,420
136,109
409,631
117,680
286,802
27,495
12,202
30,946
3,508
40,066
5,586
55,309
10,621
203,670
427,419
203,935
300,931
545,740
404,482
39,697
34,454
45,652
65,930
631,089
504,866
Total .............................................. $
8,924,922
$ 8,545,473
$
295,046
$
298,746
$
333,843
$
390,989
$
9,553,811
$ 9,235,208
% of Total......................................
93.4%
92.6%
3.1%
3.2%
3.5%
4.2%
100.0%
100.0%
The following table presents the delinquency and non-performing status of home equity, real estate - residential mortgages,
construction loans to individuals, consumer, leasing and other loans by class segment as of December 31:
Performing
Delinquent (1)
Non-performing (2)
Total
2014
2013
2014
2013
2014
2013
2014
2013
(dollars in thousands)
Real estate - home equity ............ $
1,711,017
$ 1,731,185
$
10,931
$
16,029
$
14,740
$
16,983
$
1,736,688
$ 1,764,197
Real estate - residential
mortgage ................................
1,321,139
1,282,754
26,934
23,279
28,995
31,347
1,377,068
1,337,380
Real estate - construction - other.
Consumer - direct........................
Consumer - indirect.....................
Total consumer.....................
Leasing and other and overdrafts
59,180
104,018
153,358
257,376
118,550
68,258
126,666
147,017
273,683
92,876
—
2,891
2,574
5,465
523
—
3,586
3,312
6,898
581
332
2,414
176
2,590
133
548
2,391
152
2,543
48
59,512
109,323
156,108
265,431
119,206
68,806
132,643
150,481
283,124
93,505
Total ............................................ $
3,467,262
$ 3,448,756
$
43,853
$
46,787
$
46,790
$
51,469
$
3,557,905
$ 3,547,012
% of Total....................................
97.5%
97.2%
1.2%
1.3%
1.3%
1.5%
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 .................................................................................................... $
2014
2013
(in thousands)
121,080
17,402
138,482
12,022
150,504
$
$
133,753
20,524
154,277
15,052
169,329
91
The following table presents loans whose terms were modified under TDRs as of December 31:
2014
2013
Real-estate - residential mortgage .................................................................................................. $
Real-estate - commercial mortgage................................................................................................
Construction - commercial residential ...........................................................................................
Commercial - secured.....................................................................................................................
Real estate - home equity ...............................................................................................................
Commercial - unsecured.................................................................................................................
Consumer - direct ...........................................................................................................................
Consumer - indirect ........................................................................................................................
Construction - commercial .............................................................................................................
Total accruing TDRs..................................................................................................................
Non-accrual TDRs (1) ....................................................................................................................
Total TDRs ................................................................................................................................ $
(1)
Included within non-accrual loans in the preceding table.
$
(in thousands)
31,308
18,822
9,241
5,170
2,975
67
19
19
—
67,621
24,616
92,237
$
28,815
19,758
9,889
7,933
1,365
112
11
—
228
68,111
30,209
98,320
As of December 31, 2014 and 2013, there were $3.9 million and $9.6 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, 2014 and 2013 that were modified during the years ended
December 31, 2014 and 2013:
2014
2013
Number
of Loans
Recorded
Investment
Number
of Loans
Recorded
Investment
(dollars in thousands)
8
Real estate - commercial mortgage ...............................................................
Construction - commercial residential ..........................................................
Real estate - residential mortgage .................................................................
Real estate - home equity ..............................................................................
Commercial - secured ...................................................................................
Consumer - indirect.......................................................................................
7
Consumer - direct..........................................................................................
Commercial - unsecured ............................................................................... —
86
11
30
23
4
3
$
6,841
3,616
2,407
1,551
1,955
20
7
—
16
3
49
36
8
—
12
1
$
9,439
5,285
9,611
2,602
1,699
—
1
12
$
16,397
125
$
28,649
92
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 92
OPERATOR alonzov
The following table presents TDRs, by class segment, as of December 31, 2014 and 2013 that were modified during the years
ended December 31, 2014 and 2013 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:
Construction - commercial residential...........................................................
Real estate - commercial mortgage ...............................................................
Real estate - residential mortgage..................................................................
Commercial - secured....................................................................................
Real estate - home equity ..............................................................................
Consumer - direct ..........................................................................................
2014
2013
Number
of Loans
Recorded
Investment
Number
of Loans
(dollars in thousands)
Recorded
Investment
2
2
11
4
11
1
31
$
1,803
1,660
1,430
1,208
961
1
$
7,063
1
6
19
2
15
—
43
$
568
3,683
4,211
108
1,249
—
$
9,819
The following table presents past due status and non-accrual loans by portfolio segment and class segment as of December 31:
2014
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 .................................... $
14,399
$
3,677
$
800
$
44,437
$
45,237
$
63,313
$ 5,133,842
$ 5,197,155
Commercial - secured.........................................................
Commercial - unsecured.....................................................
Total Commercial - industrial, financial and agricultural ..
Real estate - home equity ...................................................
4,839
395
5,234
8,048
Real estate - residential mortgage.......................................
18,789
Construction - commercial .................................................
Construction - commercial residential................................
Construction - other............................................................
Total Real estate - construction ..........................................
Consumer - direct ...............................................................
Consumer - indirect ............................................................
Total Consumer ..................................................................
Leasing and other and overdrafts .......................................
—
160
—
160
2,034
2,156
4,190
357
958
65
1,023
2,883
8,145
—
—
—
—
857
418
1,275
166
610
9
619
4,257
8,952
—
—
51
51
2,414
176
2,590
133
28,747
1,022
29,769
10,483
20,043
2,604
13,463
281
29,357
1,031
30,388
14,740
28,995
2,604
13,463
332
35,154
3,529,460
3,564,614
1,491
159,462
160,953
36,645
3,688,922
3,725,567
25,671
1,711,017
1,736,688
55,929
1,321,139
1,377,068
2,604
424,815
427,419
13,623
190,047
203,670
332
59,180
59,512
16,348
16,399
16,559
674,042
690,601
—
—
—
—
2,414
176
2,590
133
5,305
2,750
8,055
656
104,018
109,323
153,358
156,108
257,376
265,431
118,550
119,206
$
51,177
$
17,169
$
17,402
$
121,080
$
138,482
$
206,828
$12,904,888
$13,111,716
93
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
375
270
—
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
4,220
16,153
548
37,085
936
38,021
16,983
31,347
4,220
16,499
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
4,609
296,322
300,931
16,769
187,166
203,935
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
NOTE E – PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
2014
2013
Land ................................................................................................................................................ $
Buildings and improvements ..........................................................................................................
Furniture and equipment.................................................................................................................
Construction in progress .................................................................................................................
Less: Accumulated depreciation and amortization.........................................................................
$
$
(in thousands)
37,667
287,271
176,808
21,055
522,801
(296,774)
226,027
37,815
281,904
170,970
14,195
504,884
(278,863)
226,021
$
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 ....................................................................................
Balance at end of year ........................................................................................... $
530,607
—
(14)
530,593
2014
2013
(in thousands)
530,656
$
—
(49)
530,607
$
$
$
2012
536,005
(5,295)
(54)
530,656
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.
94
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 94
OPERATOR alonzov
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 for the year ended December 31, 2012.
All of the Corporation’s reporting units passed the 2014 goodwill impairment test, resulting in no goodwill impairment charges
in 2014. Two reporting units, with total allocated goodwill of $170.4 million, had fair values that exceeded adjusted net book
values by less than 5%. The remaining five reporting units, with total allocated goodwill of $360.2 million, had fair values that
exceeded net book values by approximately 27% 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:
2014
Accumulated
Amortization
Gross
2013
Accumulated
Amortization
Net
Net
Gross
(in thousands)
Amortizing:
Core deposit .................... $
Other................................
Total amortizing .....................
Non-amortizing ......................
50,279
$
(50,054) $
225
$
50,279
$
9,123
59,402
963
(9,101)
(59,155)
—
22
247
963
9,123
59,402
1,263
$
60,365
$
(59,155) $
1,210
$
60,665
$
(48,839) $
(9,057)
(57,896)
(300)
(58,196) $
1,440
66
1,506
963
2,469
Core deposit intangible assets are amortized using an accelerated method over the estimated remaining life of the acquired core
deposits. 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. As December 31, 2014, all amortizing intangible
assets had a weighted average remaining life of less than one year. Amortization expense related to intangible assets totaled $1.3
million, $2.4 million and $3.0 million in 2014, 2013 and 2012, respectively. Amortization expense for 2015 is expected to be
$247,000 with no remaining amortization in future years.
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...............................................................................................................................
Balance at end of year........................................................................................................... $
Net MSRs at end of year....................................................................................................... $
2014
2013
(in thousands)
42,452
5,047
(5,351)
42,148
$
$
— $
—
— $
$
42,148
39,737
12,072
(9,357)
42,452
(3,680)
3,680
—
42,452
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. No adjustment to the valuation
95
allowance was necessary for the year ended December 31, 2014. A $3.7 million decrease to the valuation allowance was recorded
for the year ended December 31, 2013.
The Corporation accounts for MSRs at the lower of amortized cost or fair value. The estimated fair value of MSRs were $46.0
million and $49.3 million as of December 31, 2014 and 2013, respectively. As a result of the MSR fair values exceeding book
values, no increases to the valuation allowance were necessary for the years ended December 31, 2014 or 2013.
Estimated MSR amortization expense for the next five years, based on balances as of December 31, 2014 and the contractual
remaining lives of the underlying loans, follows (in thousands):
Year
2015.......................................................................................................................................................................... $
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
10,224
9,028
7,717
6,283
4,717
NOTE H – DEPOSITS
Deposits consisted of the following as of December 31:
2014
2013
(in thousands)
Noninterest-bearing demand........................................................................................................... $ 3,640,623
3,150,612
Interest-bearing demand .................................................................................................................
3,504,820
Savings and money market accounts..............................................................................................
3,071,451
Time deposits..................................................................................................................................
$ 13,367,506
$ 3,283,172
2,945,210
3,344,882
2,917,922
$ 12,491,186
Included in time deposits were certificates of deposit equal to or greater than $100,000 of $1.2 billion and $1.1 billion as of
December 31, 2014 and 2013, respectively. The scheduled maturities of time deposits as of December 31, 2014 were as follows
(in thousands):
Year
2015.......................................................................................................................................................................... $ 1,592,986
422,414
2016..........................................................................................................................................................................
369,968
2017..........................................................................................................................................................................
109,299
2018..........................................................................................................................................................................
499,984
2019..........................................................................................................................................................................
76,800
Thereafter .................................................................................................................................................................
$ 3,071,451
96
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 96
OPERATOR alonzov
NOTE I – SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of December 31, 2014, 2013 and 2012 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.
Federal funds purchased.......................... $
Short-term FHLB advances (1)...............
Customer repurchase agreements............
Customer short-term promissory notes ...
$
2014
6,219
70,000
158,394
95,106
329,719
December 31
2013
2012
Maximum Outstanding
2013
2014
2012
(in thousands)
$ 582,436
400,000
175,621
100,572
$ 1,258,629
$
$
592,470
—
156,238
119,691
868,399
$
577,581
600,000
244,729
95,106
$
848,179
600,000
215,305
115,129
$
636,562
25,000
258,734
152,570
(1) Represents FHLB advances with an original maturity term of less than one year.
As of December 31, 2014, the Corporation had aggregate availability under Federal funds lines of $1.2 billion, with $6.2 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,
2014 and 2013, the Corporation had $1.1 billion and $2.0 billion, respectively, of collateralized borrowing availability at the
Discount Window, and no outstanding borrowings.
The following table presents information related to customer repurchase agreements:
2014
Amount outstanding as of December 31............................................................... $ 158,394
Weighted average interest rate at year end............................................................
Average amount outstanding during the year........................................................ $ 197,432
Weighted average interest rate during the year.....................................................
0.13%
0.10%
FHLB advances and long-term debt included the following as of December 31:
2013
(dollars in thousands)
$
175,621
$
2012
156,238
0.12%
0.16%
$
186,851
$
206,842
0.11%
0.12%
2014
2013
(in thousands)
FHLB advances .............................................................................................................................. $
Subordinated debt ...........................................................................................................................
Junior subordinated deferrable interest debentures ........................................................................
Unamortized issuance costs and other............................................................................................
673,107
300,000
171,136
(4,830)
$ 1,139,413
$
$
513,854
200,000
171,136
(1,406)
883,584
Excluded from the preceding table is the Parent Company’s revolving line of credit with its subsidiary banks. As of December 31,
2014 and 2013, 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 London Interbank Offered Rate (LIBOR)
plus 2.00%. Although balances drawn on the line of credit and related interest income and expense 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 3.43%. As of December 31, 2014, the
Corporation had an additional borrowing capacity of approximately $2.6 billion with the FHLB. Advances from the FHLB are
secured by FHLB stock, qualifying residential mortgages, investments and other assets.
97
The following table summarizes the scheduled maturities of FHLB advances and long-term debt as of December 31, 2014 (in
thousands):
Year
2015 ................................................................................................................................................................ $
2016 ................................................................................................................................................................
2017 ................................................................................................................................................................
2018 ................................................................................................................................................................
2019 ................................................................................................................................................................
Thereafter........................................................................................................................................................
$
184,950
236,015
314,702
—
127,007
276,739
1,139,413
In November 2014, the Corporation issued $100 million of ten-year subordinated notes, which mature on November 15, 2024 and
carry a fixed rate of 4.50% and an effective rate of approximately 4.87% as a result of issuance costs. Interest is paid semi-annually
in May and November. 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 certain events arise.
The following table provides details of the debentures as of December 31, 2014 (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
N/A – Not applicable.
Interest
Rate
2.91% $
Amount
Maturity
Callable
6,186
4,124
6,186
154,640
$
171,136
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
2.13%
2.01%
6.29%
98
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 98
OPERATOR alonzov
NOTE J – DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the notional amounts and fair values of derivative financial instruments as of December 31:
2014
2013
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..................................
89,655
301
$
$
1,391
(6)
1,385
75,217
11,393
$
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 .........................................
—
93,802
468,080
25,418
25,418
468,080
11,616
5,250
5,287
13,572
$
—
(1,164)
(1,164)
19,716
(198)
19,518
198
(19,716)
(19,518)
810
(441)
369
446
(876)
(430)
160
87,904
2,373
111,899
105,673
105,673
111,899
2,150
12,775
17,348
5,872
$
867
(59)
808
1,263
(5)
1,258
2,105
(2,993)
(888)
2,993
(2,105)
888
24
(343)
(319)
498
(48)
450
2,197
The following table presents the fair value gains and losses on derivative financial instruments for the years ended December 31:
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 .................................................................. $
2014
2013
(in thousands)
2012
Statements of Income
Classification
$
577
(2,422)
20,406
(20,406)
688
(880)
(5,949) $
1,466
(7,978)
7,978
(108)
507
2,879 Mortgage banking income
2,503 Mortgage banking income
4,346 Other non-interest expense
(4,346) Other non-interest expense
(1,487) Other service charges and fees
1,648 Other service charges and fees
(2,037) $
(4,084) $
5,543
99
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, 2014 and 2013:
Cost (1)
Fair Value
Balance Sheet
Classification
Fair Value
(Loss) Gain
Statements of Income
Classification
(in thousands)
17,080
$
17,522 Loans held for sale
$
263 Mortgage banking income
December 31, 2014:
Mortgage loans held for sale ... $
December 31, 2013:
Mortgage loans held for sale ...
21,172
21,351 Loans held for sale
(1,975) 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 as of December 31:
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)
2014
Interest rate swap assets................................................................... $
19,914
Interest rate swap liabilities ............................................................. $
19,914
2013
Interest rate swap assets................................................................... $
Interest rate swap liabilities ............................................................. $
5,098
5,098
$
$
$
$
(206) $
— $ 19,708
(206) $
(19,210) $
498
(2,104) $
— $ 2,994
(2,104) $
(730) $ 2,264
(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.
NOTE K – REGULATORY MATTERS
Regulatory Capital Requirements
The Corporation’s subsidiary banks are subject to regulatory capital requirements administered by banking regulators. Failure to
meet minimum capital requirements can trigger certain mandatory – and possibly additional discretionary – actions by regulators
that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the 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, 2014, that all of its bank subsidiaries met the capital adequacy requirements
to which they were subject.
100
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 100
OPERATOR alonzov
As of December 31, 2014 and 2013, 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, 2014 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
2014
For Capital
Adequacy Purposes
Ratio
Amount
(dollars in thousands)
Well Capitalized
Amount
Ratio
Total Capital (to Risk-Weighted Assets):
Corporation ....................................... $ 1,970,569
Fulton Bank, N.A..............................
1,065,445
Fulton Bank of New Jersey...............
The Columbia Bank..........................
Lafayette Ambassador Bank.............
347,235
203,109
167,800
Tier I Capital (to Risk-Weighted Assets):
Corporation .......................................
1,655,853
Fulton Bank, N.A..............................
Fulton Bank of New Jersey...............
The Columbia Bank..........................
Lafayette Ambassador Bank.............
977,547
313,843
184,331
154,817
Tier I Capital (to Average Assets):
Corporation .......................................
1,655,853
Fulton Bank, N.A..............................
Fulton Bank of New Jersey...............
The Columbia Bank..........................
Lafayette Ambassador Bank.............
977,547
313,843
184,331
154,817
N/A – Not applicable as "well capitalized" applies to banks only.
14.7% $ 1,076,013
8.0%
13.2
13.1
13.5
15.9
12.3
12.1
11.9
12.3
14.7
10.0
10.5
9.4
9.4
10.8
643,791
211,823
119,934
84,407
538,007
321,896
105,911
59,967
42,203
663,421
373,288
133,580
78,186
57,132
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
804,739
264,779
149,917
105,508
N/A
482,843
158,867
89,950
63,305
N/A
466,610
166,975
97,733
71,416
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
101
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
1,053,214
Fulton Bank, N.A...............................
343,341
Fulton Bank of New Jersey................
215,648
The Columbia Bank ...........................
155,475
Lafayette Ambassador Bank ..............
Tier I Capital (to Risk-Weighted Assets):
Corporation ........................................ $ 1,736,567
941,546
Fulton Bank, N.A...............................
308,210
Fulton Bank of New Jersey................
198,135
The Columbia Bank ...........................
140,733
Lafayette Ambassador Bank ..............
Tier I Capital (to Average Assets):
Corporation ........................................ $ 1,736,567
941,546
Fulton Bank, N.A...............................
308,210
Fulton Bank of New Jersey................
198,135
The Columbia Bank ...........................
140,733
Lafayette Ambassador Bank ..............
N/A – Not applicable as "well capitalized" applies to banks only.
Dividend and Loan Limitations
15.0% $ 1,056,974
641,218
13.1
199,120
13.8
111,675
15.4
87,566
14.2
13.1
11.8
12.4
14.2
12.9
10.6
10.0
9.6
10.6
10.1
$ 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
8.0
4.0%
4.0
4.0
4.0
4.0
4.0%
4.0
4.0
4.0
4.0
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
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 $243 million as
of December 31, 2014, 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 became effective for the
Corporation 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;
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OPERATOR alonzov
• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses.
Certain non-qualifying capital instruments, including cumulative preferred stock and 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 off-balance sheet exposures and resulting in higher risk weights for a
variety of asset categories.
As of December 31, 2014, 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.
Regulatory Enforcement Orders
In July 2014, three wholly owned banking subsidiaries of the Corporation, Fulton Bank, N.A., Swineford National Bank and FNB
Bank, N.A., each entered into a Stipulation and Consent to the Issuance of a Consent Order with their primary federal banking
regulatory agency, the Office of the Comptroller of the Currency (OCC), consenting to the issuance by the OCC of a Consent
Order (collectively, together with each Stipulation and Consent to the Issuance of a Consent Order, the OCC Consent Orders).
The OCC Consent Orders relate to identified deficiencies in a centralized Bank Secrecy Act and anti-money laundering compliance
program (the BSA/AML Compliance Program), which was designed to comply with the requirements of the Bank Secrecy Act,
the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements), as disclosed
by the Corporation in a Current Report on Form 8-K filed with the SEC on July 18, 2014. The OCC Consent Orders require,
among other things, that the banking subsidiaries review, assess and take actions to strengthen and enhance their the BSA/AML
Compliance Program, including elements of the BSA/AML Compliance Program relating to: internal controls designed to ensure
compliance with the BSA/AML Requirements; the periodic risk assessment process relating to the BSA/AML Requirements;
customer due diligence procedures; enhanced due diligence procedures for higher-risk customers; procedures for monitoring for,
identifying, investigating and reporting suspicious activity, or known or suspected violations of law; the qualifications and
sufficiency of staff responsible for carrying out the BSA/AML Compliance Program; and training related to the BSA/AML
Requirements.
In September 2014, the Corporation and its wholly owned banking subsidiary, Lafayette Ambassador Bank (Lafayette), entered
into a Cease and Desist Order Issued Upon Consent (the Cease and Desist Order) with their primary federal banking regulatory
agency, the Board of Governors of the Federal Reserve System (the FRB), as disclosed by the Corporation in a Current Report on
Form 8-K filed with the SEC on September 9, 2014. The Cease and Desist Order relates to identified deficiencies in the BSA/
AML Compliance Program, which was designed to comply with the BSA/AML Requirements. The requirements of the Cease
and Desist Order are similar to the requirements of the OCC Consent Orders. In addition, the Cease and Desist Order requires,
among other things, that the Corporation engage an independent third-party firm to conduct a comprehensive assessment of the
BSA/AML Compliance Program, and that Lafayette engage an independent third-party firm to conduct a retrospective review of
account and transaction activity from January 1, 2014 to June 30, 2014 associated with high-risk customers to determine whether
suspicious activity was properly identified and reported in accordance with the BSA/AML Requirements. Based on the results of
this transaction review, the FRB may require a review of transactions for additional time periods.
As disclosed by the Corporation in a Current Report on Form 8-K filed with the SEC on December 29, 2014, in December 2014,
The Columbia Bank (Columbia), a wholly-owned banking subsidiary of the Corporation, entered into a Stipulation and Consent
to the Issuance of a Consent Order with the Federal Deposit Insurance Corporation (the FDIC) consenting to the issuance by the
FDIC of a Consent Order (the FDIC Consent Order). In addition, Columbia entered into a Stipulation and Consent to the Issuance
of a Consent Order with the Commissioner of Financial Regulation for the State of Maryland (the Commissioner), consenting to
the issuance by the Commissioner of a Consent Order, and an Acknowledgement of Adoption of FDIC Consent Order by the
Commissioner of Financial Regulation, pursuant to which, the Commissioner and Columbia agreed that, upon issuance of the
FDIC Consent Order, the FDIC Consent Order shall be binding between the Commissioner and Columbia with the same legal
effect as if the Commissioner had issued a separate Consent Order that included all of the provisions of the FDIC Consent Order.
The FDIC Consent Order relates to identified deficiencies in the BSA/AML Compliance Program, which was designed to comply
with the BSA/AML Requirements. The requirements of the FDIC Consent Order are similar to the requirements of the OCC
Consent Orders and the Cease and Desist Order. In addition, the FDIC Consent Order requires, among other things, that: (i) the
Board of Directors of Columbia designate a permanent, qualified and experienced Bank Secrecy Act officer that: is acceptable to
the FDIC and the Commissioner; reports monthly to the Board of Directors of Columbia; and is provided with sufficient authority
103
and resources to implement the BSA/AML Compliance Program; and (ii) Columbia conduct a retrospective review of currency
transaction aggregation reports and Currency Transaction Reports from May 1, 2013 through the effective date of the FDIC Consent
Order to determine whether transactions by a common conductor were properly identified and reported.
On February 25, 2015, Fulton Bank of New Jersey (FBNJ), the Corporation’s sixth wholly owned banking subsidiary, entered
into a Stipulation and Consent to the Issuance of a Consent Order with the FDIC consenting to the issuance by the FDIC of a
Consent Order (the 2015 FDIC Consent Order). In addition, on February 25, 2015, FBNJ entered into a Consent Order with the
Commissioner of Banking and Insurance for the State of New Jersey (the New Jersey Consent Order and, together with the FDIC
Consent Order, the 2015 Consent Orders). The 2015 Consent Orders impose substantially identical requirements and relate to
identified deficiencies in the BSA/AML Compliance Program, which was designed to comply with the BSA/AML Requirements.
The requirements of the 2015 Consent Orders are similar to the requirements of the FDIC Consent Order, except that FBNJ is
required to review and enhance its periodic risk assessment process relating to the BSA/AML Requirements, and FBNJ is not
required to conduct a retrospective review of past currency transaction aggregation reports and Currency Transaction Reports. See
Part II, Item 9B "Other Information" for additional information regarding the 2015 Consent Orders.
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.............................................................................................. $
2014
2013
(in thousands)
2012
32,957
1,126
34,083
18,523
—
18,523
52,606
$
$
38,573
687
39,260
15,357
(3,532)
11,825
51,085
$
$
41,151
(557)
40,594
17,007
—
17,007
57,601
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
2014
2013
2012
Statutory tax rate ...................................................................................................
Tax-exempt income...............................................................................................
Low income housing investments.........................................................................
Change in 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%
(5.4)
(4.9)
(0.8)
(0.5)
1.2
0.1
—
0.3
25.0%
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%
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JOB TITLE Fulton Financial Combo
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SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 104
OPERATOR alonzov
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 ..................................................................................................... $
Postretirement and defined benefit plans ................................................................................
State loss carryforwards ..........................................................................................................
Deferred compensation............................................................................................................
Other-than-temporary impairment of investments ..................................................................
Other accrued expenses ...........................................................................................................
Unrealized holding losses on securities available for sale ......................................................
Other ........................................................................................................................................
Total gross deferred tax assets..........................................................................................
Deferred tax liabilities:
Mortgage servicing rights........................................................................................................
Direct leasing...........................................................................................................................
Acquisition premiums/discounts .............................................................................................
Premises and equipment ..........................................................................................................
Unrealized holding gains on securities available for sale .......................................................
Intangible assets.......................................................................................................................
Other ........................................................................................................................................
Total gross deferred tax liabilities ....................................................................................
Net deferred tax asset, before valuation allowance..........................................................
Valuation allowance .........................................................................................................
Net deferred tax asset ....................................................................................................... $
2014
2013
(in thousands)
68,407
16,017
12,960
12,486
8,126
7,335
—
8,433
133,764
15,004
12,399
8,200
7,897
3,949
1,382
7,960
56,791
76,973
(10,187)
66,786
$
$
75,525
9,561
13,724
12,099
10,378
9,987
13,922
10,850
156,046
15,118
7,948
7,631
9,864
—
1,498
4,112
46,171
109,875
(11,880)
97,995
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, 2014 and 2013, the Corporation had state net operating loss carryforwards of approximately $451 million
and $475 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2034.
The Corporation has $8.2 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 $3.1 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. These losses will begin to expire in 2016. If sufficient capital gains are not realized during this period, some or all of this
deferred tax asset may need to be written off through a charge to income tax expense. 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, 2014.
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, 2014.
105
Uncertain Tax Positions
The following summarizes the changes in unrecognized tax benefits for the years ended December 31:
2014
2013
(in thousands)
2012
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 ........................................................................................................ $
1,651
188
269
—
(164)
1,944
$
$
1,453
—
318
—
(120)
1,651
$
$
9,438
(378)
203
(7,171)
(639)
1,453
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 generally 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 future total unrecognized tax benefits cannot be reasonably estimated, approximately $64,000 is
expected to reverse in 2015 due to lapsing of the statute of limitations. Decreases can also occur through the settlement of a position
with the taxing authority.
The $188,000 increase for prior period tax positions in 2014 resulted from changes in state case law, which impacted the estimated
amount of positions taken in prior years that will ultimately be recognized.
As of December 31, 2014, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate.
Not included in the table above is $640,000 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 approximately
$47,000 of interest and penalty expense, net of reversals, in income tax expense related to unrecognized tax positions in 2014.
The Corporation recognized as a benefit approximately $3,000 and $84,000 of interest and penalties in income tax expense related
to unrecognized tax positions in 2013 and 2012, respectively, as a result of reversals exceeding current period expenses. As of
December 31, 2014 and 2013, total accrued interest and penalties related to unrecognized tax positions were approximately
$485,000 and $439,000, respectively.
The Corporation and its subsidiaries file income tax returns in the federal and various state jurisdictions. In most cases, unrecognized
tax benefits are related to tax years that remain subject to examination by the relevant taxing authorities. With few exceptions, the
Corporation is no longer subject to federal, state and local examinations by tax authorities for years before 2011.
NOTE M – EMPLOYEE BENEFIT PLANS
The following summarizes the Corporation’s expense under its retirement plans for the years ended December 31:
401(k) Retirement Plan ......................................................................................... $
Pension Plan ..........................................................................................................
$
2014
8,643
1,514
10,157
2013
(in thousands)
11,807
$
2,477
14,284
$
$
$
2012
11,983
1,834
13,817
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. Employees hired after July 1, 2007 are not eligible for this contribution.
Beginning January 1, 2015, the Corporation suspended all contributions to the plan.
•
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.
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JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 106
OPERATOR alonzov
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 ...................................................................................... $
2014
367
3,413
(3,240)
974
1,514
2013
(in thousands)
202
$
3,087
(3,194)
2,382
2,477
$
$
$
2012
157
3,223
(3,230)
1,684
1,834
(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:
2014
2013
Projected benefit obligation at beginning of year........................................................................... $
Service cost.....................................................................................................................................
Interest cost.....................................................................................................................................
Benefit payments ............................................................................................................................
Change due to change in assumptions ............................................................................................
Experience gain ..............................................................................................................................
Projected benefit obligation at end of year ..................................................................................... $
$
(in thousands)
73,362
367
3,413
(5,164)
22,055
(954)
93,079
$
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........................................................................................... $
55,448
1,446
(5,164)
51,730
$
$
54,772
3,685
(3,009)
55,448
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 .................................................................................................................................. $
(93,079) $
51,730
(41,349) $
(73,362)
55,448
(17,914)
2014
2013
(in thousands)
107
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, 2012 .................................................................................................. $
Recognized as a component of 2013 periodic pension cost ...........................................................
Unrecognized gains arising in 2013 ...............................................................................................
Balance as of December 31, 2013 ..................................................................................................
Recognized as a component of 2014 periodic pension cost ...........................................................
Unrecognized losses arising in 2014 ..............................................................................................
Balance as of December 31, 2014 .................................................................................................. $
$
(in thousands)
29,984
(2,382)
(11,441)
16,161
(974)
22,895
38,082
$
19,490
(1,548)
(7,437)
10,505
(633)
14,882
24,754
The total amount of unrecognized net loss that will be amortized as a component of net periodic pension cost in 2015 is expected
to be $3.6 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 ..................................................
3.75%
6.00%
4.75%
6.00%
3.75%
6.00%
2014
2013
2012
As of December 31, 2014, 2013 and 2012, 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%.
As of December 31, 2014, the mortality table used to calculate the present value of benefit obligations was determined using the
RP-2014 White Collar Mortality Table, compared to the IRS 2014 Static Mortality Table as of December 31, 2013.
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, 2014 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:
2014
2013
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..............................................
$
8,503
6,018
14,521
8,957
9,845
4,971
3,856
27,629
9,580
51,730
$
28.1%
53.4%
18.5%
100.0% $
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%
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,
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OPERATOR alonzov
master limited partnerships, and long-short strategies with traditional stocks and bonds. All alternative investments are in the form
of mutual funds, not individual contracts, to enable daily liquidity.
The fair values for 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
2015.......................................................................................................................................................................... $
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
2020 – 2024..............................................................................................................................................................
$
2,889
3,123
3,388
3,758
3,881
23,574
40,613
Postretirement Benefits
The Corporation provides medical benefits and life insurance benefits under a postretirement benefits plan (Postretirement Plan)
to certain retired full-time employees who were employees of the Corporation prior to January 1, 1998. Prior to February 1, 2014
certain full-time employees became eligible for these discretionary benefits if they reached retirement age while working for the
Corporation.
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 as a reduction
to salaries and employee benefits 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.
2013
(in thousands)
228
$
322
(1)
(363)
186
15
206
—
(347)
(126) $
2012
211
346
(2)
(363)
192
$
$
The components of the expense for postretirement benefits other than pensions are as follows:
2014
Service cost ........................................................................................................... $
Interest cost ...........................................................................................................
Expected return on plan assets ..............................................................................
Net amortization and deferral................................................................................
Net postretirement benefit cost ............................................................................. $
109
The following table summarizes the changes in the accumulated postretirement benefit obligation and fair value of plan assets
for the years ended December 31:
2014
2013
Accumulated postretirement benefit obligation at beginning of year ............................................ $
Service cost.....................................................................................................................................
Interest cost.....................................................................................................................................
Benefit payments ............................................................................................................................
Experience gain ..............................................................................................................................
Change due to change in assumptions ............................................................................................
Effect of curtailment .......................................................................................................................
Accumulated postretirement benefit obligation at end of year....................................................... $
$
(in thousands)
8,169
15
206
(209)
(532)
1,261
(3,358)
5,552
$
Fair value of plan assets at beginning of year................................................................................. $
Employer contributions ..................................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year........................................................................................... $
23
194
(209)
8
$
$
9,272
228
322
(230)
(423)
(1,000)
—
8,169
45
208
(230)
23
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 ........................................................................................................................... $
2014
2013
(in thousands)
(5,552) $
8
(5,544) $
(8,169)
23
(8,146)
The following table summarizes the changes in items recognized as a component of accumulated other comprehensive loss:
Gross of tax
Unrecognized
Prior Service
Cost
Unrecognized
Net Loss
(Gain)
(in thousands)
Total
Net of tax
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.........................................................................................
Recognized as a component of 2014 postretirement benefit cost, before curtailment .........
Unrecognized gains arising in 2014, prior to curtailment.....................................................
Curtailment gain....................................................................................................................
Recognized as a component of 2014 postretirement benefit cost, after curtailment ............
Unrecognized gains arising in 2014, after curtailment .........................................................
(1,847) $
297
$
(1,550) $
(1,008)
363
—
(1,484)
32
—
1,452
235
(3,358)
—
(1,434)
(1,137)
10
(313)
—
70
363
(1,434)
(2,621)
42
(313)
1,452
305
236
(932)
(1,704)
26
(203)
944
199
1,034
(2,324)
(1,511)
Balance as of December 31, 2014......................................................................................... $
(3,123) $
(336) $
(3,459) $
(2,249)
For measuring the postretirement benefit obligation, the annual increase in the per capita cost of health care benefits was assumed
to be 6% in year one, declining to an ultimate rate of 5.5% by year two. 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 $430,000 and the current period expense would
increase by approximately $10,000. Conversely, a 1.0% decrease in the health care cost trend rate would decrease the accumulated
postretirement benefit obligation by approximately $380,000 and the current period expense by approximately $10,000.
110
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 110
OPERATOR alonzov
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 ..................................................
3.75%
3.00%
4.75%
3.00%
3.75%
3.00%
2014
2013
2012
As of December 31, 2014 and 2013, 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%.
As of December 31, 2014, the mortality table used to calculate the accumulated postretirement benefit obligation was determined
using the RP-2014 White Collar Mortality Table, compared to the IRS 2014 Static Mortality Table as of December 31, 2013.
Estimated future benefit payments under the Postretirement Plan are as follows (in thousands):
Year
2015.......................................................................................................................................................................... $
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
2020 – 2024..............................................................................................................................................................
$
404
400
392
389
384
1,809
3,778
111
NOTE N – SHAREHOLDERS’ EQUITY
Accumulated Other Comprehensive Income (Loss)
The following table presents the components of other comprehensive income (loss) for the years ended December 31:
Before-Tax
Amount
Tax Effect
(in thousands)
Net of Tax
Amount
2014:
Unrealized gain on securities ........................................................................................................... $
51,901
$
(18,167)
$
Reclassification adjustment for securities gains included in net income (1) ...................................
Non-credit related unrealized gains on other-than-temporarily impaired debt securities................
Unrealized gain on derivative financial instruments .......................................................................
Unrecognized pension and postretirement cost ...............................................................................
Reclass adjustment for postretirement plan gain included in net income (2) ..................................
Amortization of net unrecognized pension and postretirement income (2).....................................
Total Other Comprehensive Income.......................................................................................... $
(2,041)
1,200
209
(20,258)
(1,452)
627
30,186
2013:
Unrealized loss on securities............................................................................................................ $
(76,319)
Reclassification adjustment for securities gains included in net income (1) ...................................
Non-credit related unrealized gains on other-than-temporarily impaired debt securities................
Unrealized gain on derivative financial instruments .......................................................................
Unrecognized pension and postretirement income ..........................................................................
Amortization of net unrecognized pension and postretirement income (2).....................................
(8,004)
3,042
209
12,875
2,019
Total Other Comprehensive Loss............................................................................................... $
(66,178)
2012:
Unrealized gain on securities ........................................................................................................... $
Reclassification adjustment for securities gains included in net income (1) ...................................
Non-credit related unrealized gains on other-than-temporarily impaired debt securities................
Unrealized gain on derivative financial instruments .......................................................................
Unrecognized pension and postretirement cost ...............................................................................
Amortization of net unrecognized pension and postretirement income (2).....................................
2,414
(3,026)
2,046
209
(6,470)
1,321
$
$
$
$
714
(420)
(73)
7,090
508
(219)
(10,567)
26,712
2,801
(1,065)
(73)
(4,506)
(707)
23,162
(845)
1,059
(716)
(73)
2,263
(462)
$
$
$
$
33,734
(1,327)
780
136
(13,168)
(944)
408
19,619
(49,607)
(5,203)
1,977
136
8,369
1,312
(43,016)
1,569
(1,967)
1,330
136
(4,207)
859
Total Other Comprehensive Loss............................................................................................... $
(3,506)
$
1,226
$
(2,280)
(1) Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included within "Investment securities gains, net" on the
consolidated statements of income. See Note C, "Investment Securities," for additional details.
(2) Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included within "Salaries and employee benefits" on the
consolidated statements of income. See Note M, "Employee Benefit Plans," for additional details.
112
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 112
OPERATOR alonzov
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, 2011 .................................................................... $
27,054
$
(1,011)
$
(15,134) $
(2,954)
$
7,955
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) .
Balance as of December 31, 2013 ....................................................................
Other comprehensive income (loss) before reclassifications ...........................
Amounts reclassified from accumulated other comprehensive income (loss) .
1,275
(1,967)
26,362
(49,607)
(4,265)
(27,510)
33,734
(244)
1,624
—
613
1,977
(938)
1,652
780
(1,083)
(4,207)
859
(18,482)
8,369
1,312
(8,801)
(14,112)
408
—
136
(2,818)
—
136
(1,308)
(972)
5,675
(39,261)
(3,755)
(2,682)
(37,341)
—
136
20,402
(783)
Balance as of December 31, 2014 .................................................................... $
5,980
$
1,349
$
(22,505) $
(2,546)
$ (17,722)
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 8.0 million shares, or approximately 4.0% of its outstanding shares, through
June 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 4.0 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 program
at an average cost of $12.45 per share, completing this repurchase program on February 19, 2014.
In May 2014, 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 4.0 million shares, or approximately 2.1% of its outstanding shares, through
December 31, 2014. During the third quarter of 2014, the Corporation repurchased 4.0 million shares under this repurchase program
at an average cost of $11.36 per share, completing this repurchase program on August 25, 2014.
In November 2014, the Corporation entered into an accelerated share repurchase agreement (ASR) with a third party to repurchase
$100 million of shares of its common stock. Under the terms of the ASR, the Corporation paid $100 million to the third party in
November 2014 and received an initial delivery of 6.5 million shares, representing 80% of the shares expected to be delivered
under the ASR, based on the closing price for the Corporation’s shares on November 13, 2014. The final number of shares to be
repurchased under the ASR will depend upon the daily volume-weighted average prices of the Corporation’s shares, less a discount,
over the term of the ASR. The ASR contains customary terms for such transactions, including mechanisms to determine the number
of shares or the amount of cash that will be delivered at settlement, circumstances under which adjustments may be made to the
transaction, circumstances under which the transaction may be terminated prior to its scheduled maturity and customary
representations and warranties made by the parties. Final settlement of the ASR is scheduled for no later than April 17, 2015, and
may occur earlier at the option of the third party.
113
NOTE O – STOCK-BASED COMPENSATION PLANS
The following table presents compensation expense and related tax benefits for all equity awards recognized in the consolidated
statements of income:
Compensation expense.......................................................................................... $
Tax benefit.............................................................................................................
Stock-based compensation, net of tax................................................................... $
5,865
(1,608)
4,257
2014
2013
(in thousands)
5,330
$
(1,475)
3,855
$
$
$
2012
4,834
(1,253)
3,581
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 did
not grant any non-qualified stock options in 2014. Non-qualified stock options granted in 2013 and 2012 were 50,000 and 15,000
non-qualified stock options, respectively.
The following table presents compensation expense and related tax benefits for restricted stock awards, RSUs and PSUs 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............................................................. $
4,345
(1,510)
2,835
2014
2013
(in thousands)
3,705
$
(1,297)
2,408
$
$
$
2012
3,506
(1,227)
2,279
The following table provides information about stock option activity for the year ended December 31, 2014:
Outstanding as of December 31, 2013 ........................................
Granted .................................................................................
Exercised ..............................................................................
Forfeited ...............................................................................
Expired .................................................................................
Outstanding as of December 31, 2014 ........................................
Exercisable as of December 31, 2014 .........................................
Stock
Options
5,567,701
288,626
(215,047)
(435,502)
(903,314)
4,302,464
3,546,500
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in millions)
13.25
12.61
9.62
14.73
14.95
12.89
13.13
4.4 years
3.5 years
$
$
4.5
4.0
The following table provides information about nonvested stock options, restricted stock, RSUs and PSUs granted under the
Employee Option Plan and Directors' Plan for the year ended December 31, 2014:
Nonvested Stock Options
Restricted Stock/RSUs/PSUs
Nonvested as of December 31, 2013...........................................
Granted .................................................................................
Vested...................................................................................
Forfeited ...............................................................................
Nonvested as of December 31, 2014...........................................
Options
1,071,266
288,626
(514,734)
(89,194)
755,964
114
Weighted
Average
Grant Date
Fair Value
2.35
3.14
2.29
2.49
2.68
$
$
Shares
943,039
553,343
(389,328)
(43,967)
1,063,087
Weighted
Average
Grant Date
Fair Value
10.90
12.51
9.83
10.61
11.83
$
$
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 114
OPERATOR alonzov
As of December 31, 2014, there was $7.4 million of total unrecognized compensation cost related to nonvested stock options,
restricted stock, RSUs and PSUs that will be recognized as compensation expense over a weighted average period of two years.
As of December 31, 2014, the Employee Option Plan had 11.4 million shares reserved for future grants through 2023 and the
Directors’ Plan had 410,000 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..................................................... $
215,047
568
2,068
568
$
$
$
451,102
1,612
3,650
1,416
$
$
$
141,305
402
987
322
2014
2013
(dollars in thousands)
2012
Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options.
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 ........................................................................................
2.44%
28.05%
2.36%
7 Years
1.27%
27.64%
2.48%
7 Years
1.68%
26.60%
2.54%
7 Years
2014
2013
2012
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 $3.14, $2.49 and $2.22 for
options granted in 2014, 2013 and 2012, respectively. The Corporation granted 288,626 options in 2014, 617,869 options in 2013
and 470,528 options in 2012.
The fair value of certain PSUs with market based performance conditions granted in 2014 under the Employee Option Plan was
estimated on the grant date using the Monte Carlo valuation methodology performed by a third-party valuation expert, which is
dependent upon certain assumptions, as summarized in the following table:
Risk-free interest rate ...............................................................................................................................................
Volatility of Corporation’s stock..............................................................................................................................
Expected life of options............................................................................................................................................
0.91%
29.63%
3 Years
The expected life of the PSUs with fair values measured using the Monte Carlo valuation methodology was based on the defined
performance period of three years. Volatility of the Corporation’s stock was based on historical volatility for the period
commensurate with the expected life of the PSUs. The risk-free interest rate is the zero-coupon U.S. Treasury rate commensurate
with the expected life of the PSUs on the date of the grant. Based on the assumptions above, the Corporation calculated an estimated
fair value per PSU granted in 2014 of $10.33.
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) ............................................... $
2014
132,640
10.31
241
$
$
2013
141,608
10.02
251
$
$
2012
165,456
8.35
244
115
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 $18.1 million in 2014, $19.0 million in
2013 and $19.4 million in 2012.
Future minimum payments as of December 31, 2014 under non-cancelable operating leases with initial terms exceeding one year
are as follows (in thousands):
Year
2015.......................................................................................................................................................................... $
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
$
16,226
15,176
13,789
11,517
9,656
51,840
118,204
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
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:
2014
2013
(in thousands)
Commercial and other..................................................................................................................... $ 2,743,415
1,294,205
Home equity....................................................................................................................................
351,444
Commercial mortgage and construction.........................................................................................
Total commitments to extend credit ........................................................................................ $ 4,389,064
$ 2,673,415
1,245,589
360,574
$ 4,279,578
Standby letters of credit .................................................................................................................. $
Commercial letters of credit ...........................................................................................................
Total letters of credit................................................................................................................ $
382,465
32,304
414,769
$
$
391,445
36,344
427,789
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
116
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 116
OPERATOR alonzov
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. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. During the first
quarter of 2014, the Corporation entered into a settlement agreement with a secondary market investor. Under this agreement, the
Corporation agreed to pay this investor $4.5 million to settle all outstanding and potential future repurchase requests under a series
of specified loan purchase agreements with that secondary market investor. The result of this settlement was a reduction to
outstanding repurchase requests of $7.5 million and a reduction to reserves for repurchases of $5.1 million. As of December 31,
2014 and 2013, total outstanding repurchase requests totaled approximately $917,000 and $6.1 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 2014, 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 of Pittsburgh based on a percentage of the
outstanding principal balance of loans sold. As of December 31, 2014, the unpaid principal balance of loans sold under the MPF
Program was approximately $153 million. As of December 31, 2014 and 2013, the reserves for estimated credit losses related to
loans sold under the MPF Program were $2.3 million and $2.5 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
for residential mortgage loans.
As of December 31, 2014 and 2013, the reserve for losses on residential mortgage loans sold was $3.2 million and $8.6 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, 2014 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.
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.
See also, Note K "Regulatory Matters," under the sub-heading "Regulatory Enforcement Orders."
117
NOTE R – FAIR VALUE MEASUREMENTS
As required by FASB ASC Topic 820, all assets and liabilities measured at fair value on both a recurring and nonrecurring basis
have been categorized based on the method of their fair value determination.
The following tables present summaries of the Corporation’s assets and liabilities measured at fair value on a recurring basis and
reported on the consolidated balance sheets as of December 31:
Mortgage loans held for sale ....................................................... $
Available for sale investment securities:
2014
Level 1
Level 2
Level 3
Total
— $
(in thousands)
17,522
$
— $
17,522
Equity securities ...................................................................
47,623
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 ..........................................................
—
—
—
—
—
—
—
—
200
214
245,215
90,126
902,313
928,831
—
Total available for sale investment securities..............................
Other assets..................................................................................
47,623
17,682
2,166,899
21,305
—
—
—
—
7,908
—
—
100,941
108,849
—
47,623
200
214
245,215
98,034
902,313
928,831
100,941
2,323,371
38,987
Total assets .................................................................... $
Other liabilities ............................................................................ $
65,305
$ 2,205,726
17,737
$
21,084
$
$
108,849
$ 2,379,880
— $
38,821
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
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, 2014 and December 31, 2013 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.
118
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 118
OPERATOR alonzov
The pricing service uses pricing models that vary based on asset class and incorporate available market information,
including quoted prices of investment securities with similar characteristics. Because many fixed income securities do
not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark
yield curves, benchmarking of like securities, sector groupings, and matrix pricing.
Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided
markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security
types, additional inputs may be used, or some of the standard market inputs may not be applicable.
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 80% 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 ($41.8 million at December 31,
2014 and $40.6 million at December 31, 2013) and other equity investments ($5.8 million at December 31, 2014
and $5.6 million at December 31, 2013). 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 ($50.0
million at December 31, 2014 and $50.3 million at December 31, 2013), single-issuer trust preferred securities
issued by financial institutions ($42.0 million at December 31, 2014 and $40.5 million at December 31, 2013),
pooled trust preferred securities issued by financial institutions ($4.1 million at December 31, 2014 and $5.3
million at December 31, 2013) and other corporate debt issued by non-financial institutions ($1.9 million at
December 31, 2014 and $2.6 million at December 31, 2013).
Level 2 investments include subordinated debt, other corporate debt issued by non-financial institutions and
$38.2 million and $36.7 million of single-issuer trust preferred securities held at December 31, 2014 and 2013,
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, 2014 and $3.8 million at December 31, 2013). 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.
• 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 ($16.4
million at December 31, 2014 and $15.3 million at December 31, 2013) and the fair value of foreign currency
exchange contracts ($1.3 million at December 31, 2014 and $522,000 at December 31, 2013). 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.
119
• 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 ($1.4 million at December 31, 2014 and $2.1 million at
December 31, 2013) and the fair value of interest rate swaps ($19.9 million at December 31, 2014 and $5.1
million at December 31, 2013). 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, " 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 ($16.4 million at December 31, 2014 and $15.3 million at December 31, 2013) and the fair
value of foreign currency exchange contracts ($1.3 million at December 31, 2014 and $391,000 at December 31,
2013). 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 ($1.2 million at December 31, 2014 and $64,000 at
December 31, 2013) and the fair value of interest rate swaps ($19.9 million at December 31, 2014 and $5.1
million at December 31, 2013). 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, 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 ..................................................................
Sales ...............................................................................................................
Realized adjustments to fair value (1)............................................................
Unrealized adjustments to fair value (2) ........................................................
Settlements - calls...........................................................................................
Discount accretion (3) ....................................................................................
Balance as of December 31, 2014 .................................................................. $
6,927
1,604
1,981
(4,987)
(219)
—
5,306
(1,888)
(18)
923
(239)
4
4,088
Single-issuer
Trust
Preferred
Securities
(in thousands)
3,360
$
—
412
—
—
9
3,781
—
—
32
—
7
3,820
$
$
$
ARCs
149,339
—
11,688
(25)
(2,725)
997
159,274
(11,912)
—
3,970
(51,212)
821
100,941
(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 sheets.
Included as a component of net interest income on the consolidated statements of income.
(3)
120
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 120
OPERATOR alonzov
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
2014
Net loans...................................................................................... $
Other financial assets...................................................................
Total assets ........................................................................... $
— $
—
— $
(in thousands)
— $
—
— $
127,834
54,170
182,004
Net loans...................................................................................... $
Other financial assets...................................................................
Total assets ........................................................................... $
— $
—
— $
(in thousands)
— $
—
— $
138,666
57,504
196,170
Level 1
Level 2
Level 3
2013
$
$
$
$
127,834
54,170
182,004
Total
138,666
57,504
196,170
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 ($12.0 million at December 31, 2014 and $15.1 million at
December 31, 2013) and MSRs ($42.1 million at December 31, 2014 and $42.5 million at December 31, 2013), 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, prepared 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.
The weighted average annual constant prepayment rate and the weighted average discount rate used in the December 31,
2014 valuation were 12.6% and 9.1%, respectively. Management tests the reasonableness of the significant inputs to the
third-party valuation in comparison to market data.
121
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, 2014 and 2013. A general description of the methods and assumptions
used to estimate such fair values is also provided.
2014
2013
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 available for sale (1) ...................................................
Loans, net of unearned income (1) ..............................................
Accrued interest receivable .........................................................
Other financial assets (1) .............................................................
FINANCIAL LIABILITIES
Demand and savings deposits...................................................... $ 10,296,055
3,071,451
Time deposits...............................................................................
329,719
Short-term borrowings.................................................................
18,045
Accrued interest payable .............................................................
172,786
Other financial liabilities (1) .......................................................
1,139,413
FHLB advances and long-term debt............................................
105,702
358,130
64,953
17,522
2,323,371
13,111,716
41,818
169,764
$
105,702
358,130
64,953
17,522
2,323,371
13,030,543
41,818
169,764
$
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
$ 10,296,055
3,069,883
329,719
18,045
172,786
1,142,980
$ 9,573,264
2,917,922
1,258,629
15,218
124,440
883,584
$ 9,573,264
2,927,374
1,258,629
15,218
124,440
875,984
(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.
Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows
and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by
comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an
immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent
management’s estimate of the underlying value of the Corporation.
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.
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. These borrowings
would be categorized within Level 2 liabilities under FASB ASC Topic 820.
122
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 122
OPERATOR alonzov
NOTE S – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
(in thousands)
December 31
2014
2013
ASSETS
Cash........................................ $
Other assets ............................
Receivable from subsidiaries .
$
137
10,053
29,120
LIABILITIES AND EQUITY
8 Long-term debt ............................. $
2,526 Payable to non-bank subsidiaries .
21,849 Other liabilities.............................
Total Liabilities...................
December 31
2014
2013
$
465,936
84,676
81,682
632,294
368,487
42,944
66,313
477,744
Investments in:
Bank subsidiaries ............
Non-bank subsidiaries ....
2,174,786
414,863
2,109,696
406,852 Shareholders’ equity.....................
1,996,665
2,063,187
Total Assets................... $ 2,628,959
$ 2,540,931
Total Liabilities and
Shareholders’ Equity. $ 2,628,959
$ 2,540,931
CONDENSED STATEMENTS OF INCOME
2014
2013
(in thousands)
2012
Income:
Dividends from subsidiaries........................................................................................ $ 139,150
Other............................................................................................................................
120,543
Expenses.............................................................................................................................
Income before income taxes and equity in undistributed net income of subsidiaries.
Income tax benefit ..............................................................................................................
259,693
152,243
107,450
(10,549)
117,999
$ 114,438
$ 142,000
106,297
220,735
138,164
82,571
(10,744)
93,315
88,380
230,380
124,525
105,855
(10,847)
116,702
Equity in undistributed net income (loss) of:
Bank subsidiaries ........................................................................................................
33,134
Non-bank subsidiaries.................................................................................................
6,761
Net Income .................................................................................................................. $ 157,894
56,552
11,973
$ 161,840
46,350
(3,207)
$ 159,845
123
CONDENSED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net Income ......................................................................................................................... $ 157,894
Adjustments to reconcile net income to net cash provided by operating activities:
$ 161,840
$ 159,845
2014
2013
(in thousands)
2012
Stock-based compensation ............................................................................................
Excess tax benefits from stock-based compensation.....................................................
(Increase) decrease 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 ..............................................................
5,865
(81)
(7,120)
(39,895)
37,354
(3,877)
154,017
5,330
(302)
1,893
(68,525)
26,946
(34,658)
127,182
Cash Flows From Investing Activities:
Investments in non-bank subsidiaries............................................................................
Net cash used in investing activities ......................................................................
Cash Flows From Financing Activities:
Repayments of long-term debt ......................................................................................
Additions to long-term debt...........................................................................................
Net proceeds from issuance of common stock ..............................................................
Excess tax benefits from stock-based compensation.....................................................
Dividends paid...............................................................................................................
Acquisition of treasury stock.........................................................................................
Deferred accelerated stock repurchase payment ...........................................................
Net cash used in financing activities ......................................................................
Net Increase (Decrease) in Cash and Cash Equivalents ................................................
—
—
—
97,113
8,201
81
(64,028)
(175,255)
(20,000)
(153,888)
129
—
—
—
—
9,936
302
(46,525)
(90,927)
—
(127,214)
(32)
40
4,834
(39)
(6,340)
(43,143)
6,885
(37,803)
122,042
(32,649)
(32,649)
(4,125)
—
7,005
39
(71,972)
(20,359)
—
(89,412)
(19)
59
8
137
$
8
$
40
Cash and Cash Equivalents at Beginning of Year.........................................................
Cash and Cash Equivalents at End of Year.................................................................... $
124
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 124
OPERATOR alonzov
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, 2014, using
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2014, 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
125
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, 2014 and 2013, 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, 2014. We also have audited the Company’s
internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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, 2014 and 2013, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, Fulton Financial Corporation and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework
(2013) issued by COSO.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 27, 2015
126
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 126
OPERATOR alonzov
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per-share data)
FOR THE YEAR 2014
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 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 .....................................................................
Mar 31
Three Months Ended
Sep 30
Jun 30
Dec 31
148,792
$
147,902
$
149,790
$
149,594
19,227
129,565
2,500
38,506
109,554
56,017
14,234
41,783
0.22
0.22
0.08
$
$
20,004
127,898
3,500
44,872
116,174
53,096
13,500
39,596
0.21
0.21
0.08
$
$
20,424
129,366
3,500
41,900
115,798
51,968
13,402
38,566
0.21
0.21
0.08
$
$
21,556
128,038
3,000
42,101
117,720
49,419
11,470
37,949
0.21
0.21
0.10
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
127
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, 2014, 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
On February 25, 2015, the Corporation’s wholly owned banking subsidiary, Fulton Bank of New Jersey (FBNJ), entered into a
Stipulation and Consent to the Issuance of a Consent Order with the Federal Deposit Insurance Corporation (the FDIC) consenting
to the issuance by the FDIC of a Consent Order (the 2015 FDIC Consent Order). In addition, on February 25, 2015, FBNJ entered
into a Consent Order with the Commissioner of Banking and Insurance for the State of New Jersey (the New Jersey Consent Order
and, together with the FDIC Consent Order, the 2015 Consent Orders). The 2015 Consent Orders impose substantially identical
requirements and relate to identified deficiencies in a centralized Bank Secrecy Act and anti-money laundering compliance program
(the BSA/AML Compliance Program), which was designed to comply with the requirements of the Bank Secrecy Act, the USA
Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements).
The 2015 Consent Orders are similar to the regulatory enforcement orders issued to the Corporation and its other banking
subsidiaries relating to the BSA/AML Compliance Program, which are summarized in Part II, Item 8, "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note K - Regulatory Matters" of this Form 10-K. The 2015
Consent Orders generally require, among other things, that FBNJ review, assess and take actions to strengthen and enhance the
BSA/AML Compliance Program, including increasing oversight of the BSA/AML Compliance Program by the Board of Directors
of FBNJ; designating a qualified Bank Secrecy Act officer that is acceptable to the FDIC and the Commissioner of Banking and
Insurance for the State of New Jersey, that reports monthly to the Board of Directors of FBNJ and is provided with sufficient
authority and resources to implement and enforce the BSA/AML Compliance Program; enhancing the periodic risk assessment
process relating to the BSA/AML Requirements; revising internal controls designed to ensure compliance with the BSA/AML
Requirements, including enhancing customer due diligence procedures and establishing enhanced due diligence procedures for
higher-risk customers; and reviewing and enhancing procedures for monitoring for, identifying, investigating and reporting
suspicious activity, or known or suspected violations of law in accordance with the BSA/AML Requirements.
The foregoing description of the Stipulation and Consent to the Issuance of a Consent Order, the 2015 FDIC Consent Order and
the New Jersey Consent Order are qualified in their entirety by reference to the full text of each of those documents, copies of
which are filed with this Form 10-K as exhibits 99.1, 99.2 and 99.3, respectively.
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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 2015 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 2015 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 2015 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 2015 Proxy Statement.
129
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, 2014 and 2013.
Consolidated Statements of Income - Years ended December 31, 2014, 2013 and 2012.
Consolidated Statements of Comprehensive Income - Years ended December 31, 2014, 2013 and 2012.
Consolidated Statements of Shareholders’ Equity - Years ended December 31, 2014, 2013 and 2012.
Consolidated Statements of Cash Flows - Years ended December 31, 2014, 2013 and 2012.
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
4.4
10.1
10.2
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/A dated September 16, 2014.
An Indenture entered into on March 28, 2005 between Fulton Financial Corporation and Wilmington Trust Company
as trustee, relating to the issuance by Fulton Financial Corporation 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.
An Indenture entered into on November 17, 2014 between Fulton Financial Corporation and Wilmington Trust,
National Association as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of
4.50% subordinated notes due November 15, 2024 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial
Corporation Current Report on Form 8-K dated November 12, 2014.
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 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
10.3 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.
10.5
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10.6
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.
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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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 March 26, 2014.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 Forms of Time-Vested Restricted Stock Unit Award Agreement and Performance Share Restricted Stock Unit
Award Agreement between Fulton Financial Corporation and Certain Employees of the Corporation as of March
18, 2014 – Incorporated by reference to Exhibits 10.1 and 10.2 of the Fulton Financial Corporation Current Report
on Form 8-K dated March 18, 2014.
10.24 Form of Master Confirmation between Fulton Financial Corporation and Goldman, Sachs & Co. - Incorporated by
reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated November 12,
2014.
Subsidiaries of the Registrant.
21
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.
131
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.
99.1
99.2
99.3
101
Stipulation and Consent to the Issuance of a Consent Order between the Federal Deposit Insurance Corporation
and Fulton Bank of New Jersey - filed herewith.
Consent Order issued by the Federal Deposit Insurance Corporation - filed herewith.
Consent Order between the Commission of Banking and Insurance for the State of New Jersey and Fulton Bank
of New Jersey - filed herewith.
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business
Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2014 and December 31, 2013; (ii) the
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012; (iii) the Consolidated
Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012;(iv) the Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012; (v) the Consolidated
Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and, (iv) the Notes to Consolidated
Financial Statements – filed herewith.
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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: February 27, 2015
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/ PATRICK S. BARRETT
Patrick S. Barrett
/S/ JOHN M. BOND, JR.
John M. Bond, Jr.
/S/ LISA CRUTCHFIELD
Lisa Crutchfield
/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
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Director
Director
Director
Executive Vice President
and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
133
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)
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
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EXHIBIT INDEX
Exhibits Required Pursuant to Item 601 of Regulation S-K-
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 16, 2014.
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 Financial Corporation 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.
4.4 An Indenture entered into on November 17, 2014 between Fulton Financial Corporation and Wilmington Trust, National
Association as trustee, relating to the issuance by Fulton Financial Corporation of $100 million aggregate principal
amount of 4.50% subordinated notes due November 15, 2024 – Incorporated by reference to Exhibit 4.1 of the Fulton
Financial Corporation Current Report on Form 8-K dated November 12, 2014.
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 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
135
10.13 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.
10.14 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 March 26, 2014.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 Fulton Financial Corporation Directors' Equity Participation Plan – Incorporated by reference to Exhibit A to Fulton
Financial Corporation’s definitive proxy statement, March 24, 2011.
10.22 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.
10.23 Forms of Time-Vested Restricted Stock Unit Award Agreement and Performance Share Restricted Stock Unit Award
Agreement between Fulton Financial Corporation and Certain Employees of the Corporation as of March 18, 2014
– Incorporated by reference to Exhibits 10.1 and 10.2 of the Fulton Financial Corporation Current Report on Form
8-K dated March 18, 2014.
10.24 Form of Master Confirmation Fulton Financial Corporation and Goldman, Sachs & Co. - Incorporated by reference
to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated November 12, 2014.
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.
99.1 Stipulation and Consent to the Issuance of a Consent Order between the Federal Deposit Insurance Corporation and
Fulton Bank of New Jersey - filed herewith.
99.2 Consent Order issued by the Federal Deposit Insurance Corporation - filed herewith.
99.3 Consent Order between the Commission of Banking and Insurance for the State of New Jersey and Fulton Bank of
New Jersey - filed herewith.
101
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Balance Sheets at December 31, 2014 and December 31, 2013; (ii) the Consolidated
Statements of Income for the years ended December 31, 2014, 2013 and 2012; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2014, 2013 and 2012; (iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
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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
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Exhibit 23 - Consent of Independent Registered Public Accounting Firm
The Board of Directors
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, No. 333-128894 and No. 333-197728) on Form S-8 and on the
registration statement (No. 333-37835, No. 333-61268, No. 333-123532, No. 333-130718, No. 333-156339, No.
333-189459, No. 333-189488, No. 333-156339 and No. 333-197730) on Form S-3 of Fulton Financial Corporation
of our report dated February 27, 2015, with respect to the consolidated balance sheets of Fulton Financial Corporation
and subsidiaries as of December 31, 2014 and 2013, 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, 2014,
and the effectiveness of internal control over financial reporting as of December 31, 2014, which report appears in the
December 31, 2014 annual report on Form
of Fulton Financial Corporation.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 27, 2015
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: February 27, 2015
/s/ E. Philip Wenger
E. Philip Wenger
Chairman, Chief Executive Officer and
President
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 140
OPERATOR alonzov
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: February 27, 2015
/s/ Patrick S. Barrett
Patrick 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,
2014, 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: February 27, 2015
/s/ E. Philip Wenger
E. Philip Wenger
Chairman, Chief Executive Officer and
President
JOB TITLE Fulton Financial Combo
REVISION 6
SERIAL
DATE Friday, March 20, 2015
JOB NUMBER 279447
TYPE
PAGE NO. 142
OPERATOR alonzov
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,
2014, 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: February 27, 2015
/s/ Patrick S. Barrett
Patrick S. Barrett
Senior Executive Vice President and Chief Financial Officer
10 YEARS IN REVIEW
(2005-2014)
6
.
6
1
3
.
6
1
4
.
6
1
5
.
6
1
9
.
6
1
1
.
7
1
2
.
6
1
9
.
5
1
9
.
4
1
4
.
2
1
20
18
16
14
12
10
8
6
4
2
0
05 06 07 08 09 10 11 12 13 14
5
.
3
0
1
6
.
4
0
1
9
.
0
0
1
100
5
.
8
8
0
.
0
6
9
.
1
6
9
.
2
6
0
.
0
4
2
.
3
2
1
.
1
2
5
.
5
8
1
1
.
6
6
1
7
.
2
5
1
8
.
1
6
1
8
.
9
5
1
9
.
7
5
1
6
.
5
4
1
3
.
8
2
1
9
.
3
7
6
.
5
-
05 06 07 08 09 10 11 12 13 14
3
9
9
,
1
2
8
0
,
2
3
6
0
,
2
7
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
200
180
160
140
120
100
80
60
40
20
0
-20
Net Income
(loss)
(in millions
of dollars)
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
0
Common
Shareholders’
Equity
(in millions
of dollars)
05 06 07 08 09 10 11 12 13 14
05 06 07 08 09 10 11 12 13 14
5
.
2
1
5
.
2
1
5
.
2
1
4
.
3
1
4
.
2
1 1
.
2
1
2
.
0
1
6
.
0
1 1
.
0
1
8
.
8
0
.
2
1
1
.
2
1
9
.
1
1
0
.
2
1
1
.
3
1
8
.
2
1 1
.
2
1
2
.
1
1
4
.
0
1
4
8
.
13
12
11
10
9
8
7
6
5
4
3
2
1
0
Loans
(in billions
of dollars)
05 06 07 08 09 10 11 12 13 14
05 06 07 08 09 10 11 12 13 14
Total Assets
(in billions
of dollars)
Common
Stock Cash
Dividends
(in millions
of dollars)
Deposits
(in billions
of dollars)
80
60
40
20
0
13
12
11
10
9
8
7
6
5
4
3
2
1
0
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 $25,000 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 Tuesday, May 5, 2015 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.
279447_FFC_14_AR_CVR.indd 2
3/13/15 9:31 PM
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
2014 ANNUAL REPORT
Fulton Financial Corporation
279447_FFC_14_AR_CVR.indd 1
3/13/15 9:31 PM
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank o(cid:31) Ne(cid:31) (cid:31)e(cid:31)(cid:31)e(cid:31) (cid:127) (cid:31)a(cid:31)a(cid:31)ette Amba(cid:31)(cid:31)a(cid:31)o(cid:31) Bank (cid:127) (cid:31)(cid:31)ine(cid:31)o(cid:31)(cid:31) National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank o(cid:31) Ne(cid:31) (cid:31)e(cid:31)(cid:31)e(cid:31) (cid:127) (cid:31)a(cid:31)a(cid:31)ette Amba(cid:31)(cid:31)a(cid:31)o(cid:31) Bank (cid:127) (cid:31)(cid:31)ine(cid:31)o(cid:31)(cid:31) National Bank
The Columbia Bank (cid:127) FNB Bank, N.A. (cid:127) Fulton Bank, N.A.
Fulton Bank o(cid:31) Ne(cid:31) (cid:31)e(cid:31)(cid:31)e(cid:31) (cid:127) (cid:31)a(cid:31)a(cid:31)ette Amba(cid:31)(cid:31)a(cid:31)o(cid:31) Bank (cid:127) (cid:31)(cid:31)ine(cid:31)o(cid:31)(cid:31) National Bank