ANNUAL
REPORT2015
FULLTON FIN AAANCIA LL CC OR PO RR AATT IOON
2006-2015
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Dear Shareholder:
Fulton Financial Corporation made meaningful
progress in 2015 as we continued to focus internally
to position the company to meet the challenges of
the rapidly changing financial services landscape and
began to intensify our focus on achieving organic
growth. In the latter part of 2015, we saw the results
of these efforts as our performance improved in a
number of key areas.
In 2015, we:
• achieved growth in loans, deposits and non-interest
income;
• invested in people, training and technology to
improve our risk management and compliance
processes;
• managed our balance sheet and capital to benefit
our shareholders; and
• refined our corporate strategy and increased our
focus on successfully executing that strategy.
Financial Performance
For the year ended December 31, 2015, diluted
earnings per share was 85 cents, a 1.2% increase
over the 84 cents diluted earnings per share we
reported in 2014. Net income for 2015 was $149.5
million compared to $157.9 million for 2014. The
book value of our stock as of December 31, 2015
increased 5.0% as compared to December 31, 2014.
The persistently low interest rate environment
continued to exert pressure on our earning asset
yields throughout the year. Net interest income
decreased $14.9 million, or 2.9%, compared to 2014.
Our net interest margin also declined to 3.21%.
However, total non-interest income, excluding
investment securities gains, increased by 4.5%,
or $7.4 million, compared to 2014. Non-interest
expense, excluding the loss on the redemption of
trust preferred securities incurred as part of our
balance sheet restructuring, increased by $15.3
million, or 3.3%, compared to 2014. Our return on
average assets was 0.86% for 2015 and our return
on average common shareholders’ equity (tangible)*
was 10.01%.
Loan and Deposit Growth
Profitable loan and deposit growth, and the
relationship between yields on earning assets and
funding costs, is very important to meeting our
strategic earnings per share goals in the future. Total
loans at December 31, 2015 increased by $726.9
million, or 5.5%, compared to December 31, 2014.
Average loans increased $445.8 million, or 3.5%,
over the same period. We have a well-diversified
loan portfolio, and our growth came from a broad
range of industries. Some of our 2015 loan growth
came from market disruption as other banks in the
markets we serve were acquired by larger banks,
and we were able to attract new customers to our
company.
Our asset quality continued to improve during
the year. Our loan delinquencies and net charge-
offs decreased to the lowest levels since 2007. The
provision for credit losses at December 31, 2015 was
$2.3 million, a decrease of $10.3 million from 2014.
We fund our loans through a combination of
customer core deposits and short-term borrowings.
For the year ended December 31, 2015, average
deposits increased $879.5 million, or 6.8%, compared
to the year ended December 31, 2014. Over the
last several years, we have decreased our reliance on
higher cost time deposits in favor of less expensive
core deposit accounts, as evidenced in our 8.9%
year-over-year core deposit growth. In summary, we
are well-positioned to meet the credit needs of our
customers and continue to make quality earning asset
growth a top priority in 2016.
Non-interest Income and Expenses
Continued revenue growth from investment
management and trust services, deposit account
fees, residential mortgages, debit cards and merchant
services, among others, is very important to our
overall financial performance. In 2015, excluding
investment securities gains, non-interest income
increased by a healthy $7.4 million, or 4.5%, over the
prior year.
We were particularly pleased, despite a
significant number of new regulations, to see
our mortgage banking income increase by
6.4% year-over-year due to higher activity and
higher spread income on the mortgages we
sell in the secondary market. We believe that
residential mortgage lending is foundational
to our relationship banking strategy. Because
of our ongoing commitment to this area,
and in conjunction with our focus on talent
management, we added sales and marketing
expertise to our mortgage lending staff across
all of our geographic markets. With the
competitive changes in our markets, and the
recent decisions by some banks to exit or curtail
their mortgage lending activities due to greater
regulation, we view this business line as an
opportunity for future growth and profitability.
There were a number of expense categories
that contributed to the $20.9 million, or 4.6%,
increase in our non-interest expenses in 2015.
The largest increase was in salaries and benefits,
as we continued to add human resource
expertise to our Bank Secrecy Act/Anti-Money
Laundering compliance programs, areas that
were specifically cited as deficiencies under our
current enforcement actions.
Mitigating our expense growth in 2015 was the
collective impact of our multi-year expense
reduction initiatives. These included branch
consolidations, organizational streamlining
and changes to some of our employee benefit
programs. We are committed to improving our
efficiency ratio over time through disciplined
expense control and revenue growth.
Capital Management and Deployment/
Enhancing Shareholder Value
Our ongoing profitable operations continue
to generate capital, and managing that capital
for the benefit of our shareholders remains
one of our top priorities. Our capital levels
exceed required regulatory minimums, helping
us to ensure safety and soundness and to also
mitigate operational and economic risks.
I am pleased to tell you that in 2015, we
returned almost 80% of the corporation’s
earnings to our shareholders as part of our
capital management initiatives. Over the last
several years, we have deployed that capital
by repurchasing our stock and through the
payment of quarterly and special cash dividends.
In 2015, we increased our quarterly cash
dividend by one cent per share, and we once
again paid a two cent per share special dividend
in December 2015, as we did in December of
2014. We also repurchased $50 million of our
common stock under the share repurchase
program we announced in April 2015. It
is important to note that from June 2012
through January 2016, we repurchased 30.9
million shares, or 15.4% of our outstanding
shares, totaling over $363 million, at an average
purchase price of $11.74 per share. The number
of shares outstanding at the end of 2015 was
174.2 million, compared to 178.9 million at the
end of 2014. We continue to buy back shares
as appropriate under the $50 million repurchase
program announced in October 2015 which
expires on December 31, 2016.
Strategic Execution
The pace of change within our industry is
unprecedented. This means that financial
institutions must become more proactive and
responsive in anticipating, planning for and
managing changes in the competitive landscape
and changes in customer product and service
utilization, financial preferences and behaviors.
In response, we have performed a
comprehensive review of the Corporation’s
strategic plan and how we execute that plan
to grow the company. We have developed
a three-pronged approach to simplify our
processes to be more efficient; differentiate
ourselves in the marketplace to accelerate our
organic growth; and execute everything we do
more effectively to achieve optimal results.
To accomplish our strategic initiatives
successfully, we have made considerable
investments to attract experienced and
motivated employees and equip all of our
team members with the tools and knowledge
they need to do their jobs, cultivate creative
thinking and adapt to change.
Corporate Governance
Over the past year, we have had a few changes
in membership on the Corporation’s board of
directors. John M. Bond, Jr. retired in August
2015, and Gary A. Stewart retired in January
2016. Both were longtime directors of Fulton
Financial Corporation and our subsidiary
banks, and we appreciate their service.
We also added three new directors to the
board. James R. Moxley, III joined the board
in May 2015, Ronald H. Spair became a
director in September 2015, and Mark F.
Strauss joined the board in January 2016. All
three have brought added expertise to the
board, and we welcome their leadership.
Looking Ahead
As a shareholder, it is important that you
know the goals and objectives that your senior
management team seeks to accomplish in
2016. They are:
• Establishing the sustainability of the
framework and processes we put in place
to emerge from the regulatory enforcement
orders concerning our Bank Secrecy Act/
Anti-Money Laundering program;
• Continuing to return capital to our
shareholders through dividends and stock
repurchase initiatives;
• Continuing our disciplined expense control
by finding new ways to gain efficiencies;
• Continuing to invest prudently in technology
and initiatives that produce growth;
• Capitalizing on organic market share
opportunities presented by competitive
disruption in our markets; and
• Focusing on the recruitment, retention
and career success of talented employees
who are able to grow and change with the
company over time.
Our board of directors and management team
look forward to meeting with shareholders at
our annual shareholders meeting in Lancaster,
Pennsylvania on Monday, May 16, at 10 a.m.
Meeting registration materials are enclosed
for mailing, or you may register electronically
when you vote your proxy online.
We thank you for your investment in Fulton
Financial Corporation, and we continue to
work to grow that investment over time.
E. Philip Wenger
Chairman, President and CEO
* Return 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 financial
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
E. Philip Wenger
Chairman, President and Chief Executive Officer
Patrick S. Barrett
Senior Executive Vice President/Chief Financial Officer
Craig A. Roda
Senior Executive Vice President/Chairman and Chief
Executive Officer of Fulton Bank, N.A.
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, N.A.
Angela M. Sargent
Senior Executive Vice President/Chief Information Officer
FULTON FINANCIAL CORPORATION
BOARD OF DIRECTORS
Lisa Crutchfield
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morrison, III
James R. Moxley, III
R. Scott Smith, Jr.
Ronald H. Spair
Mark F. Strauss
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
Ronald T. Moore
Curtis J. Myers
Craig A. Roda
Ivy E. Silver
Elizabeth Addington Twohy
Ernest J. Waters
FULTON BANK, N.A
DIVISIONAL BOARDS
BRANDYWINE DIVISION
Michael Reese, Chair
Robert F. Adams, Esq.
Dallas Krapf
James D. McLeod, Jr.
Michael J. O’Rourke
CAPITAL DIVISION
Joseph F. Rilatt, Chair
James C. Byerly
Samuel T. Cooper III, Esq.
Charles J. DeHart III, Esq.
Dolores Liptak
Barry E. Musser, C.P.A.
Beth A. Peiffer
Steven C. Wilds
CENTRAL VIRGINIA DIVISION
Oliver L. Way, Chair
Gail W. Johnson
Robert H. Keiter, C.P.A.
George Keith Martin
J. Keith Middleton
Lloyd M. Poe
Robert E. Porter, Jr.
DELAWARE DIVISION
P. Randolph Taylor, Chair
Jeffrey M. Fried
Greg N. Johnson
Terry A. Megee
Ralph W. Simpers
David T. Wilgus
GREAT VALLEY DIVISION
Jeffrey R. Rush, Chair
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, Chair
Joanna Brumsey
William L. Stauffer
Timothy J. Stiffler
Joseph D. Taylor, II
LANCASTER DIVISION
William (Smokey) Glover, Co-Chair
Mark B. Smith, Co-Chair
Galen Eby
Peter J. Hondru
Dean A. Hoover
James W. Hostetter, Sr., C.P.A.
Louis G. Hurst
Aldus R. King
Tony Legenstein
Kent M. Martin
Jessica H. May
Edward W. Monborne
Lori Pickell
Jeffrey R. Rush
David W. Sweigart, III
Lynette Trout
Dwight E. Wagner
John D. Yoder
J. David Young, Jr., Esq.
LEBANON DIVISION
Barry E. Ansel, Chair
Jonathan R. Beers
Donald H. Dreibelbis
Robert J. Funk
Robert P. Hoffman
Wendie DiMatteo Holsinger
Kenneth C. Sandoe
NORTHERN VIRGINIA DIVISION
Oliver L. Way, Chair
Thomas M. Crutchfield, C.P.A.
Manuel A. Ojeda
PREMIER DIVISION
Joseph R. Feilmeier, Chair
Herb Benjamin
Anthony D. Cino
Rosemary Espanol
Robert Walton
STATE COLLEGE DIVISION
Jean M. Galliano, Chair
Elizabeth A. Dupuis
Thomas J. Kearney
Jeffrey M. Krauss
Thomas F. Songer, III
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, 2015,
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, 2015, 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, 2016 was 173,623,000.
Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on May 16, 2016 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
27
27
28
29
31
33
63
68
69
70
71
72
73
125
126
127
128
128
128
129
129
129
129
129
Exhibits, Financial Statement Schedules..........................................................................................................................
130
Signatures .........................................................................................................................................................................
Exhibit Index ....................................................................................................................................................................
132
134
2
PART I
Item 1. Business
General
Fulton Financial Corporation (the Corporation) was incorporated under the laws of Pennsylvania on February 8, 1982 and became
a bank holding company through the acquisition of all of the outstanding stock of Fulton Bank on June 30, 1982. In 2000, the
Corporation became a financial holding company as defined in the Gramm-Leach-Bliley Act (GLB Act), which gave the
Corporation the ability to expand its financial services activities under its holding company structure (See "Competition" and
"Supervision and Regulation" below). The Corporation directly owns 100% of the common stock of six community banks and
eight non-bank entities. As of December 31, 2015, the Corporation had approximately 3,460 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 2015
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 that emphasizes relationship banking. Where appropriate, operations
are centralized through common platforms and back-office functions. The Corporation has announced that it is developing plans
to seek regulatory approval to begin the process of consolidating its six subsidiary banks in connection with a transition to a
business model that will be less oriented on geographic boundaries and will instead focus more on alignment with the customer
segments the Corporation serves. The Corporation also believes that consolidation will enhance its ability to manage risk more
efficiently and effectively through a centralized risk management and compliance function. This multi-year process is expected
to eventually result in the Corporation conducting its core banking business through a single subsidiary bank. Consolidation of
the bank subsidiaries will result in a single subsidiary bank with greater than $10 billion of assets, subjecting it to more stringent
regulation applicable to institutions that exceed that threshold. See Item 1A. Risk Factors - "Additional growth, particularly at
the Corporation’s largest subsidiary, Fulton Bank, N.A., would subject it to additional regulation and increased supervision" under
"Legal, Compliance and Reputational Risks." The timing of the commencement of this 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. See Item 1A. Risk
Factors - "The Corporation and its bank subsidiaries are subject to regulatory enforcement orders requiring improvement in
compliance functions and remedial actions" under "Legal, Compliance and Reputational Risks."
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.
However, a large portion of the Corporation’s loan portfolio is comprised of commercial loans, commercial mortgage loans and
construction loans. See Item 1A. Risk Factors - "Economic downturns and the composition of the Corporation’s loan portfolio
subject the Corporation to credit risk" under "Economic and Credit Risks."
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 a single borrower
3
to $50.0 million as of December 31, 2015, 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 (LIBOR), as well as interest rate swaps. 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 Fulton Financial Advisors, a division of
the Corporation's Fulton Bank, N.A. subsidiary bank.
The Corporation’s subsidiary banks deliver their products and services through traditional branch banking, with a network of full
service branch offices. Electronic delivery channels include a network of automated teller machines, telephone banking, mobile
banking and online banking. The variety of available delivery channels allows customers to access their account information and
perform certain transactions, such as depositing checks, transferring funds and paying bills, at virtually any time of the day.
The following table provides certain information for the Corporation’s banking subsidiaries as of December 31, 2015:
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
$
$
9,835
3,677
2,115
1,526
363
306
7,692
3,100
1,697
1,228
267
259
112
65
31
21
7
7
243
(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 five non-bank subsidiaries, which are consolidated for financial reporting
purposes: (i) Fulton Financial Realty Company, which holds title to or leases certain properties upon which Corporation branch
offices and other facilities are located; (ii) Central Pennsylvania Financial Corp., which owns limited partnership interests in
partnerships invested primarily in low and moderate income housing projects; (iii) FFC Management, Inc., which owns certain
investment securities and other passive investments; (iv) FFC Penn Square, Inc., which owns trust preferred securities (TruPS)
issued by a subsidiary of Fulton Bank, N.A; and (v) Fulton Insurance Services Group, Inc., which engages in the sale of various
life insurance products.
The Corporation owns 100% of the common stock of three 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, 2015:
Subsidiary
State of Incorporation
Total Assets
(in thousands)
Columbia Bancorp Statutory Trust................................................................
Columbia Bancorp Statutory Trust II ............................................................
Columbia Bancorp Statutory Trust III...........................................................
Delaware
Delaware
Delaware
$
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 the wide availability 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.
4
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 may enhance the ability of the
Corporation to compete in the future.
5
Market Share
Deposit market share information is compiled as of June 30 of each year by the Federal Deposit Insurance Corporation (FDIC).
The Corporation’s banks maintain branch offices in 52 counties across five states. In 15 of these counties, the Corporation ranked
in the top 5 in deposit market share (based on deposits as of June 30, 2015). 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, 2015)
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
(2015 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
21
20
38
17
32
6
19
16
28
12
21
11
40
5
16
18
14
8
8
15
15
15
29
37
30
7
17
20
32
19
12
16
20
21
12
23
8
15
22
5
9
2
11
7
13
1
17
12
27
1
14
3
7
—
1
13
35
2
15
21
19
4
6
5
22
20
3
9
18
14
6
6
538,000 Fulton Bank, N.A.
414,000 Fulton Bank, N.A.
627,000 Fulton Bank, N.A.
161,000 Fulton Bank, N.A.
518,000 Fulton Bank, N.A.
67,000 FNB Bank, N.A.
247,000 Fulton Bank, N.A.
273,000 Fulton Bank, N.A.
565,000 Fulton Bank, N.A.
137,000 Fulton Bank, N.A.
360,000 Lafayette Ambassador Bank
116,000 FNB Bank, N.A.
822,000 Fulton Bank, N.A.
19,000 FNB Bank, N.A.
302,000 Lafayette Ambassador Bank
94,000 FNB Bank, N.A.
Swineford National Bank
145,000 Fulton Bank, N.A.
41,000 Swineford National Bank
45,000 Swineford National Bank
443,000 Fulton Bank, N.A.
558,000 Fulton Bank, N.A.
216,000 Fulton Bank, N.A.
567,000 The Columbia Bank
833,000 The Columbia Bank
623,000 The Columbia Bank
103,000 The Columbia Bank
247,000 The Columbia Bank
317,000 The Columbia Bank
1,049,000 The Columbia Bank
919,000 The Columbia Bank
150,000 The Columbia Bank
275,000 Fulton Bank of New Jersey
449,000 Fulton Bank of New Jersey
510,000 Fulton Bank of New Jersey
157,000 Fulton Bank of New Jersey
292,000 Fulton Bank of New Jersey
6
%
25.0%
3.2%
1.8%
3.4%
3.3%
4.2%
1.9%
4.2%
0.3%
31.4%
4.1%
0.8%
0.4%
24.3%
13.2%
3.7%
1.9%
4.0%
26.5%
6.9%
10.6%
0.2%
8.1%
0.3%
0.8%
0.3%
13.5%
0.8%
8.7%
0.2%
0.7%
20.4%
1.4%
0.9%
2.3%
1.9%
14.3%
1
8
17
11
9
5
13
6
30
1
7
14
25
2
4
9
14
10
2
5
4
12
3
21
23
12
3
15
5
36
21
2
12
16
11
13
2
State
Population
(2015 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
%
No. of Financial
Institutions
Deposit Market Share
(June 30, 2015)
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
VA
VA
VA
VA
VA
VA
VA
126,000 Fulton Bank of New Jersey
373,000 Fulton Bank of New Jersey
845,000 Fulton Bank of New Jersey
629,000 Fulton Bank of New Jersey
501,000 Fulton Bank of New Jersey
590,000 Fulton Bank of New Jersey
64,000 Fulton Bank of New Jersey
335,000 Fulton Bank of New Jersey
107,000 Fulton Bank of New Jersey
238,000 Fulton Bank, N.A.
1,144,000 Fulton Bank, N.A.
325,000 Fulton Bank, N.A.
43,000 Fulton Bank, N.A.
184,000 Fulton Bank, N.A.
221,000 Fulton Bank, N.A.
455,000 Fulton Bank, N.A.
16
24
46
27
31
21
8
29
13
14
36
24
14
12
18
16
7
26
38
12
27
7
3
10
5
10
19
18
1
4
7
7
11
19
30
26
15
18
1
9
5
10
41
18
11
15
15
10
2.5%
0.9%
0.3%
0.5%
1.3%
0.8%
25.2%
2.6%
8.4%
1.6%
0.1%
0.7%
2.0%
0.5%
0.2%
1.6%
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 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, the National
Bank 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
7
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, 2015, 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 $9.8 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.
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 began in June 2015
for stress tests that commenced in the fall of 2014. 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 did not lead
the Corporation to raise additional capital or alter the mix of its capital components. Pursuant to final rules published in October
2014 and December 2015, the FRB modified the start date of the stress test cycles so that, going forward, stress tests must be
conducted using financial data as of December 31 of the prior year, the results of the stress test must be reported to the FRB on
or before July 31 and a summary of the results of the stress test must be publicly disclosed between October 15 and October 31.
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.
Residential Lending Laws - As a residential mortgage lender, the Corporation and its bank subsidiaries are subject to multiple
federal consumer protection statutes and regulations, including, but not limited to, the Truth-In-Lending Act (TILA), 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,
the imposition of civil money penalties and consumer litigation.
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 TILA, 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 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
8
the Real Estate Settlement Procedures Act (RESPA) and the TILA in connection with certain closed-end consumer mortgage loans.
These final rules became 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.
Consumer Financial Protection Enforcement - The CFPB has exclusive examination and primary enforcement authority with
respect to compliance with federal consumer financial protection laws and regulations by institutions under its supervision and is
authorized, individually or jointly with the federal bank regulatory agencies (the Agencies), to conduct investigations to determine
whether any person is, or has, engaged in conduct that violates such laws or regulations. The CFPB may bring an administrative
enforcement proceeding or civil action in Federal district court. In addition, in accordance with a memorandum of understanding
entered into between the CFPB and the Department of Justice (DOJ), the two agencies have agreed to coordinate efforts related
to enforcing the fair lending laws, which includes information sharing and conducting joint investigations. As an independent
bureau within the FRB, the CFPB may impose requirements that are more severe than those of the other bank regulatory agencies.
During 2015, the CFPB and the DOJ pursued a number of enforcement actions against depository institutions with respect to
compliance with fair lending laws.
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 proprietary trading and covered fund activities covered by the Volcker Rule.
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 covered fund 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.
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.
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'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 will be fully phased in on January 1, 2019.
The U.S. Basel III Capital Rules 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;
9
• 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; and
• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses.
Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, are being phased out as a
component of Tier 1 capital for institutions of the Corporation's size. In July 2015, the previously outstanding trust
preferred securities issued by Fulton Capital Trust I were redeemed.
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 previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number
of categories, depending on the nature of the assets and off-balance sheet exposures and resulting in higher risk weights for a
variety of asset categories.
When fully phased in on January 1, 2019, the Corporation and its bank subsidiaries will also be required to maintain a "capital
conservation buffer" of 2.50% above the minimum risk-based capital requirements. The required minimum capital conservation
buffer began to be phased in incrementally, starting at 0.625%, on January 1, 2016, and will increase to 1.25% on January 1, 2017,
1.875% on January 1, 2018 and 2.50% on January 1, 2019. The 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 may make it more difficult for the Corporation to
retain key personnel.
As of December 31, 2015, the Corporation met the fully-phased in minimum capital requirements, including the new 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.
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 nor any additional proposed rules under the Basel III liquidity framework are
applicable 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. Prior to January
1, 2015, an insured depository institution was treated as well capitalized if its total risk-based capital ratio was 10.00% or greater,
its Tier 1 risk-based capital ratio was 6.00% or greater and its Tier 1 leverage capital ratio was 5.00% or greater, and it was not
subject to any order or directive by its primary federal regulator to meet a specific capital level. Effective January 1, 2015, 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-
10
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,
2015, each of the Corporation’s bank subsidiaries’ capital ratios were above the minimum levels required to be considered "well
capitalized" by its primary federal regulator.
Loans and Dividends from Subsidiary Banks - There are various restrictions on the extent to which the Corporation's bank
subsidiaries can make loans or extensions of credit to, or enter into certain transactions with, its affiliates, which would include
the Corporation and its non-banking subsidiaries. In general, these restrictions require that such loans be secured by designated
amounts of specified collateral and are limited, as to any one of the Corporation or its non-bank subsidiaries, to 10% of the lending
bank’s regulatory capital (20% in the aggregate to all such entities). The Dodd-Frank Act expanded these restrictions, effective in
July 2012, to cover securities lending, repurchase agreement and derivatives activities that the Corporation’s bank subsidiaries
may have with an affiliate.
For safety and soundness reasons, banking regulations also limit the amount of cash that can be transferred from subsidiary banks
to the Parent Company in the form of dividends. Dividend limitations vary, depending on the subsidiary bank’s charter and whether
or not it is a member of the Federal Reserve System. Generally, subsidiaries are prohibited from paying dividends when doing so
would cause them to fall below the regulatory minimum capital levels. Additionally, limits may exist on paying dividends in excess
of net income for specified periods. See "Note 11 - Regulatory Matters," in the Notes to Consolidated Financial Statements in
Item 8. Financial Statements and Supplementary Data 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, 2015, none of the Corporation’s individual subsidiary banks had assets of $10 billion or more
and, therefore, did not meet the classification of large depository institutions.
The FDIC annually establishes for the DIF a designated reserve ratio, or DRR, of estimated insured deposits. The FDIC has
announced that the DRR for 2016 will remain at 2.00%, which is the same ratio that has been in effect since January 1, 2011. 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 DIF reserve ratio 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.
On October 22, 2015, the FDIC issued a proposal to increase the reserve ratio for the DIF to the minimum level of 1.35% as
required by the Reform Act. The proposed rule would impose on insured depository institutions with $10 billion or more in total
consolidated assets a quarterly surcharge equal to an annual rate of 4.5 basis points applied to the deposit insurance assessment
base, after making certain adjustments. If the rule is adopted as proposed, the FDIC expects that these surcharges would commence
in 2016 and continue for approximately eight quarters; however, if the reserve ratio for the DIF does not reach the required level
by December 31, 2018, the FDIC would impose a shortfall assessment on March 31, 2019, which would be collected on June 30,
2019. 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.
11
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; and
• 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 Consent Orders) issued by
bank 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 Consent 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 Item 1A. Risk Factors - "The Corporation and its bank subsidiaries are subject to regulatory
enforcement orders requiring improvement in compliance functions and remedial actions" under "Legal, Compliance and
Reputational Risks;" Item 3. Legal Proceedings; "Regulatory Enforcement Orders," under "Overview and Outlook" in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations; and "Note 11 - Regulatory Matters,"
in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
Commercial Real Estate Guidance - In December 2015, the Agencies released a statement entitled "Statement on Prudent Risk
Management for Commercial Real Estate Lending" (the CRE Statement). In the CRE Statement, the Agencies express concerns
with institutions which ease commercial real estate underwriting standards, direct financial institutions to maintain underwriting
discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicate that they will
continue to pay special attention to commercial real estate lending activities and concentrations going forward. The Agencies
previously issued guidance in December 2006, entitled "Interagency Guidance on Concentrations in Commercial Real Estate
Lending, Sound Risk Management Practices," which states that an institution is potentially exposed to significant commercial real
estate concentration risk, and should employ enhanced risk management practices, where (1) total commercial real estate loans
represents 300% or more of its total capital and (2) the outstanding balance of such institution's commercial real estate loan portfolio
has increased by 50% or more during the prior 36 months.
Community Reinvestment - Under the Community Reinvestment Act (CRA), each of the Corporation’s subsidiary banks has a
continuing and affirmative obligation, consistent with its safe and sound operation, to ascertain and meet the credit needs of its
entire community, including low and moderate income areas. The CRA does not establish specific lending requirements or programs
for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes
are best suited to its particular community. The CRA requires an institution’s primary federal regulator, in connection with its
examination of the institution, to assess the institution's record of meeting the credit needs of its community and to take such record
into account in its evaluation of certain applications by such institution. The assessment focuses on three tests: (1) a lending test,
to evaluate the institution’s record of making loans, including community development loans, in its designated assessment areas;
(2) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing,
and programs benefiting low or moderate income individuals and areas and small businesses; and (3) a service test, to evaluate
the institution’s delivery of banking services throughout its CRA assessment area, including low and moderate income areas. The
CRA also requires all institutions to make public disclosure of their CRA ratings. As of December 31, 2015, all of the Corporation’s
subsidiary banks are rated at least 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
12
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 $15.2 million and $110.2 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 $110.2 million. The first $15.2 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.
Federal Securities Laws - The Corporation is subject to the periodic reporting, proxy solicitation, tender offer, insider trading,
corporate governance and other requirements under the Securities Exchange Act of 1934. Among other things, the federal securities
laws require 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 Part II, 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.
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Executive Officers
As of December 31, 2015, the executive officers of the Corporation are as follows:
Name
E. Philip Wenger
Age
58
Patrick S. Barrett
52
Meg R. Mueller
Curtis J. Myers
Craig A. Roda
51
47
59
Philmer H. Rohrbaugh
63
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 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. Mr. Roda has
been employed by the Corporation in a number of positions since 1979.
Senior Executive Vice President and Chief Risk Officer of the Corporation since November
2012. Mr. Rohrbaugh was a managing partner of KPMG, LLP's Chicago office from 2009
to 2012; Vice Chairman Industries and part of the U.S. Management Committee of KPMG
from 2006 to 2009; and joined KPMG in 2002. He has more than 25 years of experience in
various management positions. Mr. Rohrbaugh is a Certified Public Accountant and currently
serves as a director of a public manufacturing company.
Angela M. Sargent
48
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.
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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.
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, changes in the rate of inflation, 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, 2015 is sufficient to cover incurred losses in the
loan portfolio on that date, the Corporation may need to increase its provision for credit losses due to changes in the risk
characteristics of the loan portfolio, thereby negatively impacting its results of operations.
The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet
date and is recorded as a reduction to loans. Management’s estimate of losses inherent in the loan portfolio is dependent on the
proper application of its methodology for determining its allowance needs. The most critical judgments underpinning that
methodology include: the ability to identify potential problem loans in a timely manner; proper collateral valuation of impaired
loans evaluated for impairment; proper measurement of allowance needs for pools of loans measured for impairment; and an
overall assessment of the risk profile of the loan portfolio.
The Corporation determines the appropriate level of the allowance for credit losses based on many quantitative and qualitative
factors, including, but not limited to: the size and composition of the loan portfolio; changes in risk ratings; changes in collateral
values; delinquency levels; historical losses; and economic conditions. 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 will 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 on 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 "Provision and Allowance for Credit Losses," under "Financial Condition" in Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
15
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 $10.4 billion, or 74.8%, of the Corporation’s loan portfolio was in commercial loans, commercial mortgage loans,
and construction loans at December 31, 2015. 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 likely to be 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. Intense competition among lenders, coupled with moderate levels of recent economic growth, can increase
pressure on the Corporation to relax its credit standards and/or underwriting criteria in order to achieve the Corporation’s loan
growth targets. A relaxation of credit standards or underwriting criteria could result in greater challenges in the repayment or
collection of loans should economic conditions, or individual borrower performance, deteriorate to a degree that could impact
loan performance. Additionally, competitive pressures could drive the Corporation to consider loans and customer relationships
that are outside of the Corporation’s established risk appetite or target customer base. See "Loans," under "Financial Condition"
in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MARKET 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 74% of total
revenues in 2015. 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 pressures the Corporation to lower rates charged on loans more than the decline in market rates would
otherwise indicate. Competition may also pressure 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 "Net Interest Income," in
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 increase or decrease the size of certain of its businesses, including its personnel, to more
appropriately 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
16
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.
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, 2015, the Corporation’s securities investments included $98.1 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.
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, 2015, had a fair value of $10.2 million. The Corporation's holdings of this financial institution constituted
approximately 49.5% 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. or international 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 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
LIQUIDITY RISK.
Changes in interest rates or disruption in liquidity markets may adversely affect the Corporation’s sources of funding.
The Corporation must maintain sufficient sources of liquidity to meet the demands of its depositors and borrowers, support its
operations and meet regulatory expectations. 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 use of liquidity resources
of the holding company, including capital markets funding. Lower-cost, core deposits may be adversely affected by changes in
interest rates, and secondary sources of liquidity can be more costly to the Corporation than funding provided by deposit account
balances having similar maturities. In addition, adverse changes in the Corporation’s results of operations or financial condition,
downgrades in the Corporation’s credit ratings, regulatory actions involving the Corporation, or changes in regulatory, industry
or market conditions could lead to increases in the cost of these secondary sources of liquidity, the inability to refinance or replace
these secondary funding sources as they mature, or the withdrawal of unused borrowing capacity under these secondary funding
sources.
While the Corporation attempts to manage its liquidity through various techniques, the 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 bank subsidiaries’ deposit accounts in response to
increases in interest rates. In the years following the 2008 financial crisis, even as the general level of market interest rates remained
low by historical standards, depositors frequently avoided higher-yielding and higher-risk alternative investments, in favor of the
safety and liquidity of non-maturing deposit accounts. These circumstances contributed to significant growth in non-maturing
deposit account balances at the Corporation, and at depository financial institutions generally. Should interest rates rise, customers
may become more sensitive to interest rates when making deposit decisions and considering alternative opportunities. This increased
17
sensitivity to interest rates could cause customers to move funds into higher-yielding deposit accounts offered by the Corporation’s
bank subsidiaries, require the Corporation’s bank subsidiaries to offer higher interest rates on deposit accounts to retain customer
deposits or cause customers to move funds into alternative investments or deposits of other banks or non-bank providers. 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. Movement of customer deposits into higher-yielding
deposit accounts offered by the Corporation’s bank subsidiaries, the need to offer higher interest rates on deposit accounts to retain
customer deposits or the movement of customer deposits into alternative investments or deposits of other banks or non-bank
providers could increase the Corporation’s funding costs, reduce its net interest margin and/or create liquidity challenges.
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. If the Corporation is not able to continue to rely primarily on customer deposits to meet its liquidity
and funding needs, continue to access secondary, non-deposit funding sources on favorable terms or otherwise fails to manage its
liquidity effectively, the Corporation’s ability to continue to grow may be constrained and the Corporation’s liquidity, operating
margins, results of operations and financial condition may be materially adversely affected. See "Interest Rate Risk, Asset/Liability
Management and Liquidity," in Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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 bank subsidiaries to the parent company in the form of loans and dividends.
Generally, these limitations are based on the bank subsidiaries' 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 bank subsidiaries, and the Corporation and its subsidiaries are subject to regulation by a relatively large
number of federal and state 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. As a result, 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 bank subsidiaries. This multi-year consolidation process is expected to eventually result in the Corporation conducting its core
banking business through a single bank subsidiary, which would reduce the number of government agencies that regulate the
Corporation’s banking operations. The timing of the commencement of this consolidation process will depend significantly on
the Corporation and its bank 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). The Corporation will also need to establish, 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 bank subsidiaries 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 can be obtained or that such consolidation would significantly reduce the time, expense and internal and external
resources associated with regulatory compliance.
18
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 each of its bank subsidiaries are subject impose certain restrictions on the expansion activities of the Corporation and such
bank subsidiaries.
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 and/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, as mentioned above, the Corporation and each of its bank subsidiaries are subject to regulatory enforcement orders
issued during 2014 and 2015 by their respective Federal and state bank regulatory agencies relating to identified deficiencies in
the Corporation’s centralized Bank Secrecy Act and anti-money laundering compliance program (the BSA/AML Compliance
Program), which was designed to comply with the BSA/AML Requirements.
The regulatory enforcement orders, which are in the form of consent orders or orders to cease and desist issued upon consent
(Consent Orders), generally require, among other things, that the Corporation and its bank subsidiaries undertake a number of
required 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 Consent Orders remain
in effect, the Corporation is subject to certain restrictions on expansion activities of the Corporation and its bank subsidiaries.
Further, any failure to comply with the requirements of any of the Consent Orders involving the Corporation or its bank subsidiaries
could result in further enforcement actions, the imposition of material restrictions on the activities of the Corporation or its bank
subsidiaries, or the assessment of fines or penalties.
Additional expenses and investments have been incurred as the Corporation 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 Consent 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 one or more future periods.
Finally, due to the existence of the Consent 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 upon which the Corporation
or its bank subsidiaries rely 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/or financial condition could be materially adversely effected.
19
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.
The Dodd-Frank Act was enacted in 2010. The scope of the Dodd-Frank Act impacted many aspects of the financial services
industry, and the Act required the development and adoption of many regulations, a number of which have not yet been adopted
or fully implemented. 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 certain 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 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 remains a relatively new agency, the
full impact on the Corporation, including its retail banking and mortgage businesses, continues to be 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 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. 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, as well as increase costs. 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, which became effective August 1, 2015, required 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. See
"Supervision and Regulation," in Item 1. Business.
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 $9.8 billion in assets as of December 31, 2015. Additional growth (or the
consolidation of the Corporation’s bank subsidiaries 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;
• Additional 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 bank regulatory supervision as a larger financial institution.
See "Supervision and Regulation," in Item 1. Business.
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Negative publicity could damage the Corporation’s reputation and business.
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 agencies 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 line of business could affect the Corporation's other lines of businesses.
From time to time the Corporation and its subsidiaries may be the subject of litigation and governmental or administrative
proceedings. Adverse outcomes of any such litigation or proceedings may have a material adverse impact on the Corporation’s
business and results of operations as well as its reputation.
Many aspects of the Corporation’s business involve substantial risk of legal liability. From time to time, the Corporation and its
subsidiaries have been named or threatened to be named as defendants in various lawsuits arising from its business activities (and
in some cases from the activities of companies that were acquired). In addition, the Corporation and its bank subsidiaries are
regularly the subject of governmental investigations and other forms of regulatory inquiry. Like other large financial institutions,
we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or
disclosure of confidential information. These matters could result in adverse judgments, settlements, fines, penalties, injunctions
or other relief. Substantial legal liability or significant regulatory actions against us could materially adversely affect our business,
financial condition or results of operations and/or cause significant reputational harm to our business. The Corporation establishes
reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated.
However, the Corporation may still incur legal costs for a matter, even if a reserve has not been established.
Currently, the Corporation and its bank subsidiaries are the subject of regulatory proceedings in the form of the Consent Orders.
The Corporation can provide no assurance as to the outcome or resolution of legal or administrative actions, and such actions may
result in judgments against us for significant damages or the imposition of regulatory restrictions on our operations. Resolution
of these types of matters can be prolonged and costly, and the ultimate results or judgments are uncertain due to the inherent
uncertainty in litigation and other proceedings.
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
bank subsidiaries autonomously to maximize the advantages of the community banking model in serving the needs of 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, the Corporation is in the process of transitioning to a business
model that is primarily focused on alignment of services with the customer segments the Corporation serves and less oriented to
geographic boundaries.
The transformation of the Corporation’s business model, which will be implemented over a period of years, 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.
21
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 Consent Orders
referenced above are in place, due to an inability to obtain the required regulatory approvals.
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 regulation 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, as a result, may 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 "Competition," in Item 1. Business.
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, 2015, 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.
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.
22
The Corporation’s risk management framework is subject to inherent limitations, and risks may exist, or develop in the future,
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 historical
decentralized 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.
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/or 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.
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, financial condition and reputation. See 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’s business is highly dependent on information systems and technology and the ability to collect, process, transmit
and store significant amounts of confidential information regarding customers, employees and others on a daily basis. While the
Corporation performs some of the functions required to operate its business directly, it also outsources significant business functions,
such as processing customer transactions, maintenance of customer-facing websites, including its online banking function, and
developing software for new products and services, among others. These relationships require the Corporation to allow third parties
to access, store, process and transmit customer information. As a result, the Corporation may be subject to cyber security risks
directly, as well as indirectly through the vendors to whom it outsources business functions. The increased use of smartphones,
tablets and other mobile devices as well as cloud computing may also heighten these and other operational risks. Cyber threats
could result in unauthorized access, loss or destruction of customer data, unavailability, degradation or denial of service, introduction
of computer viruses and other adverse events, causing the Corporation to incur additional costs (such as repairing systems or
adding new personnel or protection technologies). Cyber threats may also subject the Company to regulatory investigations,
litigation or enforcement or require the payment of regulatory fines or penalties, all or any of which could adversely affect the
Corporation’s business, financial condition or results of operations and damage its reputation.
The Corporation attempts to reduce its exposure to its vendors’ cyber incidents by performing initial vendor due diligence that is
updated periodically for critical vendors, negotiating service level standards with vendors, negotiating for indemnification from
vendors for confidentiality and data breaches, and limiting third-party access to the least privileged level necessary to perform
outsourced functions, among other things. The Corporation also uses monitoring and preventive controls to detect and respond
23
to cyber threats to its own systems before they become significant. However, there can be no assurance that the measures employed
by the Corporation to combat direct or indirect cyber threats will be effective. In addition, because the methods of cyber attacks
change frequently or, in some cases, are not recognized until launched, the Corporation may be unable to implement effective
preventive control measures or proactively address these methods. The Corporation’s or a vendor’s failure to promptly identify
and counter a cyber attack may result in increased costs and consequences of a successful cyber attack. Although the Corporation
maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance
coverage may be inapplicable or otherwise insufficient to cover any or all losses.
Recent account data compromise events at large retailers has resulted in heightened legislative and regulatory focus on privacy,
data protection and information security. New or revised laws and regulations may significantly impact the Corporation’s current
and planned privacy, data protection and information security-related practices, the collection, use, sharing, retention and
safeguarding of consumer and employee information, and current or planned business activities. Compliance with current or
future privacy, data protection and information security laws to which the Corporation is subject could result in higher compliance
and technology costs and could restrict the Corporation’s ability to provide certain products and services, which could materially
and adversely affect the Corporation’s profitability. The Corporation’s failure to comply with privacy, data protection and
information security laws could result in potentially significant regulatory and governmental investigations and/or actions,
litigation, fines, sanctions and damage to the Corporation’s reputation and its brand.
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. The costs of new technology, including personnel, can be high, in both absolute and
relative terms. Many of the Corporation’s financial institution competitors have substantially greater resources to invest in
technological improvements. In addition, 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.
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.
As an example, and as noted above, the Corporation is engaged in an effort to enhance its compliance and risk management
functions. Because 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 2015, 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
24
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 internal financial data and
different economic scenarios provided by the FRB, and reports the results of the stress test to the FRB. Beginning in 2015, the
Corporation is also be required to publicly disclose a summary of the results of the stress test reported to the FRB completed under
the severely adverse scenario. The Corporation's board of directors and its senior management are required to consider the results
of the annual 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 future stress testing processes 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 TruPS, are excluded as a component of Tier 1 capital for institutions of the
Corporation’s size and are included in Tier 2 capital instead.
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 former regulatory capital standards. The new minimum regulatory capital requirements began to
apply to the Corporation on January 1, 2015. The required minimum capital conservation buffer began to be phased in incrementally
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, 2015, the Corporation's current capital levels met the fully-phased in minimum capital requirements, including
capital conservation buffers, as set forth in the U.S. Basel III Capital Rules. See "Capital Requirements," under "Supervision and
Regulation" in Item 1. Business.
The Corporation is a holding company and relies on dividends and other payments from its subsidiaries for substantially all
of its revenue and its ability to make dividend payments, distributions and other payments.
The Corporation is a separate and distinct legal entity from its bank and nonbank subsidiaries, and depends on the payment of
dividends and other payments and distributions from its subsidiaries, principally its bank subsidiaries, for substantially all of its
revenues. As a result, the Corporation's ability to make dividend payments on its common stock depends primarily on certain
federal and state regulatory considerations and the receipt of dividends and other distributions from its subsidiaries. There are
various regulatory and prudential supervisory restrictions, which may change from time to time, that impact the ability of the
Corporation’s bank subsidiaries to pay dividends or make other payments to it. There can be no assurance that the Corporation’s
bank 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 bank 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 "Loans and Dividends from Subsidiary Banks,"
under "Supervision and Regulation" in Item 1. Business.
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.
25
A downgrade in the credit ratings of the Corporation or its bank subsidiaries could have a material adverse impact on the
Corporation.
Fitch, Inc., Moody's Investors Service, Inc. and DBRS, 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 the Corporation’s and its subsidiaries' control, such as conditions affecting the
financial services industry generally. 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 any of
these credit rating agencies 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 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. Certain provisions in the Corporation's Amended and Restated Articles of Incorporation and Bylaws, taken as
a whole, may also 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
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 methods of effecting acquisitions. While these provisions do not
prohibit an acquisition, they would likely act as deterrents to an unsolicited takeover attempt.
Item 1B. Unresolved Staff Comments
None.
26
Item 2. Properties
The following table summarizes the Corporation’s full-service branch properties, by subsidiary bank, as of December 31, 2015.
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
44
36
8
4
5
5
68
29
23
17
2
2
Total
Branches
112
65
31
21
7
7
102
141
243
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.
During the second quarter of 2015, Fulton Bank, N.A. (the Bank), the Corporation’s largest bank subsidiary, received a letter from
the U.S. Department of Justice (the Department) indicating that the Department had initiated an investigation regarding potential
violations of fair lending laws by the Bank in certain of its geographies. The Bank is cooperating with the Department and responding
to the Department’s requests for information. Although the Corporation is not able to predict the outcome of the Department’s
investigation, it could result in legal proceedings the resolution of which could potentially involve a settlement, fines or other
remedial actions.
The Corporation and each of its bank subsidiaries are subject to regulatory enforcement orders issued during 2014 and 2015 by
their respective Federal and state bank regulatory agencies relating to identified deficiencies in the Corporation’s 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 regulatory enforcement orders, which are in the form of consent orders or orders
to cease and desist issued upon consent (Consent Orders), generally require, among other things, that the Corporation and its bank
subsidiaries undertake a number of required 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 Consent Orders remain in effect, the Corporation is subject to certain restrictions on
27
expansion activities of the Corporation and its bank subsidiaries. Further, any failure to comply with the requirements of any of
the Consent Orders involving the Corporation or its bank subsidiaries could result in further enforcement actions, the imposition
of material restrictions on the activities of the Corporation or its bank subsidiaries, or the assessment of fines or penalties.
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 legal proceedings will not have a material adverse effect on the financial condition of the Corporation.
However, legal proceedings are often unpredictable, and it is possible that the ultimate resolution of any such matters, if unfavorable,
may be material to the Corporation’s results of operations for any particular period, depending, in part, upon the size of the loss
or liability imposed and the operating results for the applicable period.
Item 4. Mine Safety Disclosures
Not applicable.
28
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, 2015, the Corporation had 174.2 million shares of $2.50 par value common stock outstanding held by
approximately 34,000 holders of record. The closing price per share of the Corporation’s common stock on December 31, 2015
was $13.01. 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 2015 and 2014:
Price Range
High
Low
Per
Share
Dividend
2015
First Quarter...............................................................................................................
$
12.68
$
11.00
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
13.52
13.66
14.59
11.85
11.60
11.61
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
0.09
0.09
0.09
0.11
0.08
0.08
0.08
0.10
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 "Supervision and Regulation," in Item 1. Business; Item 1A. Risk Factors - "The Corporation is a holding
company and relies on dividends and other payments from its subsidiaries for substantially all of its revenue and its ability to make
dividend payments, distributions and other payments," under "Risks Related to an Investment in the Corporation’s Securities;"
and "Note 11 - Regulatory Matters," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and
Supplementary Data.
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, 2015:
Plan Category
Equity compensation plans approved by security holders.........
Equity compensation plans not approved by security holders...
Total .....................................................................................
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (1)
Weighted-average exercise
price of outstanding options,
warrants and rights (2)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in first column) (3)
3,770,889
—
3,770,889
$
$
12.31
—
12.31
14,014,131
—
14,014,131
(1) The number of securities to be issued upon exercise of outstanding options, warrants and rights includes 790,802 performance-based restricted stock units
(PSUs), which is the target number of PSUs that are payable under the Amended and Restated Equity and Cash Incentive Compensation Plan (Employee
Equity Plan), though no shares will be issued until achievement of applicable performance goals.
29
(2) The weighted-average exercise price of outstanding options, warrants and rights does not take into account PSUs that may be issued under the Employee
Equity Plan upon achievement of applicable performance goals.
(3) Consists of 11,538,863 shares that may be awarded under the Amended and Restated Equity and Cash Incentive Compensation Plan, 395,879 shares that may
be awarded under the 2011 Directors' Equity Participation Plan and 2,079,389 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, 2015 as the number of shares to be purchased is indeterminable
until the time shares are issued.
Performance Graph
The following graph shows cumulative total shareholder return (i.e., price change, plus reinvestment of dividends) on the common
stock of Fulton Financial Corporation during the five-year period ended December 31, 2015, compared with (1) the NASDAQ
Bank Index and (2) the Standard and Poor's 500 index (S&P 500). 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 Securities Exchange Act
of 1934, as amended.
Total Return Performance
Fulton Financial Corporation
S&P 500
NASDAQ Bank
200
180
160
140
120
100
e
u
l
a
V
x
e
d
n
I
80
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Index
Fulton Financial Corporation..........................
S&P 500..........................................................
NASDAQ Bank Index ....................................
2010
100.00
100.00
100.00
$
$
$
2011
2012
$
$
$
96.85
102.11
89.50
$
$
$
97.76
118.45
106.23
$
$
$
2013
136.69
156.82
150.55
2014
132.79
178.28
157.95
$
$
$
2015
144.00
180.75
171.92
$
$
$
Year Ending December 31
30
Item 6. Selected Financial Data
5-YEAR CONSOLIDATED SUMMARY OF FINANCIAL RESULTS
(dollars in thousands, except per-share data)
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
Loss on redemption of trust preferred securities
Non-interest expense, excluding loss on redemption
of trust preferred securities
Income before income taxes
Income taxes
Net income
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’
equity (1)
Net interest margin
Efficiency ratio (1)
Dividend payout ratio
Average equity to assets ratio
PERIOD-END BALANCES
Total assets
Investment securities
Loans, net of unearned income
Deposits
Short-term borrowings
FHLB advances and long-term debt
Shareholders’ equity
AVERAGE BALANCES
Total assets
Investment securities
Loans, net of unearned income
Deposits
Short-term borrowings
FHLB advances and long-term debt
Shareholders’ equity
2015
2014
2013
2012
2011
$
$
$
$ 583,789
83,795
499,994
2,250
9,066
$
$
172,773
5,626
474,534
199,423
49,921
149,502
0.85
0.85
0.38
0.86%
7.38
10.01
3.21
68.61
44.71
11.64
$
$
$
596,078
81,211
514,867
12,500
2,041
165,338
—
459,246
210,500
52,606
157,894
0.85
0.84
0.34
0.93%
7.62
10.31
3.39
65.65
40.48
12.22
$
$
$
609,689
82,495
527,194
40,500
8,004
179,660
—
461,433
212,925
51,085
161,840
0.84
0.83
0.32
0.96%
7.88
10.76
3.50
63.39
38.55
12.22
$
$
$
647,496
103,168
544,328
94,000
3,026
213,386
—
449,294
217,446
57,601
159,845
0.80
0.80
0.30
0.98%
7.79
10.73
3.76
57.61
37.50
12.62
693,698
133,538
560,160
135,000
4,561
182,932
—
416,242
196,411
50,838
145,573
0.73
0.73
0.20
0.90%
7.45
10.54
3.90
54.27
27.40
12.12
$ 17,914,718
2,484,773
13,838,602
14,132,317
497,663
949,542
2,041,894
$ 17,406,843
2,359,689
13,330,973
13,747,113
323,772
1,023,972
2,026,883
$ 17,124,767
2,323,371
13,111,716
13,367,506
329,719
1,139,413
1,996,665
$ 16,959,507
2,480,454
12,885,180
12,867,663
832,839
965,601
2,071,640
$ 16,934,634
2,568,434
12,782,220
12,491,186
1,258,629
883,584
2,063,187
$ 16,811,337
2,718,174
12,578,524
12,473,184
1,196,323
889,461
2,053,821
$ 16,533,097
2,721,082
12,146,971
12,484,163
868,399
894,253
2,081,656
$ 16,257,776
2,766,552
11,968,567
12,392,580
690,883
933,727
2,050,994
$ 16,375,174
2,596,347
11,971,223
12,535,015
597,033
1,040,149
1,992,539
$ 16,114,343
2,637,130
11,906,447
12,455,065
495,791
1,034,475
1,953,396
(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" below.
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:
2015
2014
2013
2012
2011
(in thousands, except per share data and percentages)
Return on average common shareholders' equity (tangible)
Net income ...................................................................... $
149,502
Plus: Intangible amortization, net of tax .........................
161
Numerator .................................................................. $
149,663
$
$
157,894
818
158,712
$
$
161,840
1,584
163,424
$
$
159,845
1,970
161,815
$
$
145,573
2,767
148,340
Average common shareholders' equity............................ $ 2,026,883
$ 2,071,640
$ 2,053,821
$ 2,050,994
$ 1,953,396
Less: Average goodwill and intangible assets.................
(531,618)
Average tangible shareholders' equity (denominator) $ 1,495,265
(532,425)
(534,431)
(542,600)
(545,920)
$ 1,539,215
$ 1,519,390
$ 1,508,394
$ 1,407,476
Return on average common shareholders' equity
(tangible), annualized.......................................
Efficiency ratio
Non-interest expense ....................................................... $
Less: Intangible amortization ..........................................
Less: Loss on redemption of trust preferred securities ...
Numerator .................................................................. $
474,287
Net interest income (fully taxable equivalent) (1) .......... $
Plus: Total Non-interest income......................................
Less: Investment securities gains, net .............................
518,464
181,839
(9,066)
10.01%
10.31%
10.76%
10.73%
10.54%
480,160
$
459,246
$
461,433
$
449,294
$
416,242
(247)
(5,626)
(1,259)
—
457,987
532,322
167,379
$
$
(2,438)
—
458,995
544,474
187,664
$
$
(3,031)
—
446,263
561,190
216,412
$
$
(4,257)
—
411,985
576,232
187,493
$
$
(2,041)
(8,004)
(3,026)
(4,561)
Denominator .............................................................. $
691,237
$
697,660
$
724,134
$
774,576
$
759,164
Efficiency ratio .....................................................
68.61%
65.65%
63.39%
57.61%
54.27%
Non-performing assets to tangible common shareholders' equity and allowance for credit losses
Non-performing assets (numerator) ................................ $
155,913
$
150,504
$
169,329
$
237,199
$
317,331
Tangible common shareholders' equity........................... $ 1,510,338
$ 1,464,862
$ 1,530,111
$ 1,546,093
$ 1,448,330
Plus: Allowance for credit losses
Tangible common shareholders' equity and allowance
171,412
185,931
204,917
225,439
258,177
for credit losses (denominator).................................... $ 1,681,750
Non-performing assets to tangible common
$ 1,650,793
$ 1,735,028
$ 1,771,532
$ 1,706,507
shareholders' equity and allowance for credit
losses ...................................................................
9.27%
9.12%
9.76%
13.39%
18.60%
(1) Presented on a fully taxable equivalent basis, using a 35% Federal tax rate and statutory interest expense disallowances.
32
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,"
identify forward-looking
"plans," "expects," "future," "intends" and similar expressions which are
statements. Statements relating to the "outlook" or "outlook for 2016" 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 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 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 bank subsidiaries;
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 applicable to the Corporation and its bank
subsidiaries 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 effects of adverse outcomes in litigation and governmental or administrative proceedings;
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 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;
33
•
•
•
•
•
the Corporation’s ability to keep pace with technological changes;
the Corporation’s ability to attract and retain talented personnel;
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) .............................................................................................................. $ 149,502
0.85
Diluted net income per share .......................................................................................................... $
0.86%
Return on average assets.................................................................................................................
7.38%
Return on average equity ................................................................................................................
10.01%
Return on average tangible equity (1) ............................................................................................
3.21%
Net interest margin (2)....................................................................................................................
68.61%
Efficiency ratio (1)..........................................................................................................................
$
$
2015
2014
157,894
0.84
0.93%
7.62%
10.31%
3.39%
65.65%
(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.
The year ended December 31, 2015 marked another year of continued progress in strengthening the Corporation's banking franchise.
Highlights of the year included loan and core deposit growth, consistent asset quality, strong fee income growth, consolidation of
11 branches, funding initiatives and continued strong capital levels. Following is a brief summary of the financial highlights for
the year ended December 31, 2015.
• Net Income Per Share Growth - Diluted net income per share increased $0.01, or 1.2%, to $0.85 per diluted share,
compared to $0.84 in 2014. This increase was due to a 10.4 million, or 5.6%, decrease in weighted average diluted shares
outstanding as net income decreased $8.4 million, or 5.3%, in comparison to 2014. The decrease in net income was driven
by a $14.9 million, or 2.9%, decrease in net interest income and a $20.9 million, or 4.6%, increase in non-interest expense,
partially offset by a $10.3 million decrease in the provision for credit losses and a $14.5 million, or 8.6%, increase in
non-interest income, mainly in investment securities gains and other service charges and fees.
• Net Interest Income and Net Interest Margin - The $14.9 million decrease in net interest income resulted from the impact
of a lower net interest margin, partially offset by the impact of growth in interest-earning assets. For the year ended
December 31, 2015, the net interest margin decreased 18 basis points, or 5.3%, in comparison to 2014, driven by an 18
basis point decrease in yields on interest-earning assets and a 2 basis point increase in the cost of interest-bearing liabilities.
•
Loan Growth - Average loans increased $445.8 million, or 3.5%, in comparison to 2014, with notable increases in
commercial - industrial, financial and agricultural, commercial mortgages and construction loans. The Corporation's loan
growth occurred throughout most of its markets.
• Asset Quality - Overall asset quality continued to improve in 2015, with decreases in net charge-offs and overall
delinquency levels driving a $10.3 million decrease in the provision for credit losses to $2.3 million.
34
• Deposit Growth - Average deposits increased $879.5 million, or 6.8%, in comparison to 2014, with the increase coming
almost entirely in demand and savings accounts. Average deposit growth outpaced loan growth, which enhanced the
Corporation's funding position by reducing the average loan-to-deposit ratio to 97.0% for the year ended December 31,
2015 from 100.1% for the year ended December 31, 2014.
• Non-Interest Income - Non-interest income increased $14.5 million, or 8.6%, in comparison to 2014, primarily driven
by a $7.0 million increase in gains on sales of investment securities and a $4.1 million, or 10.3%, increase in other service
charges and fee income.
• Non-Interest Expense - Non-interest expense increased $20.9 million, or 4.6%, in comparison to 2014, driven largely by
a $9.8 million, or 3.9%, increase in salaries and employee benefits, a $5.6 million loss incurred on the redemption of
trust preferred securities (TruPS), a $2.7 million, or 15.9%, increase in data processing and a $2.0 million, or 15.6%,
increase in software. Excluding the loss incurred on the TruPS, non-interest expense increased $15.3 million, or 3.3%,
compared to 2014.
In both 2015 and 2014, the Corporation implemented cost savings initiatives that mitigated the impact of elevated expenses
related to the continued build out of its risk, compliance and information technology infrastructures, discussed below. In
both periods, these initiatives included branch consolidations, changes in employee benefits and reductions in staffing.
Combined, the annualized expense reductions for these actions are projected to be approximately $14.5 million.
During 2015, these initiatives included the consolidation of 11 branches, modifications to retirement benefits and the
elimination of certain positions. These actions resulted in implementation expenses of $2.0 million in 2015. Total expense
reductions realized in 2015 from these 2015 initiatives, excluding implementation expenses, were $4.7 million. The
annualized expense reductions from the 2015 initiatives are estimated at approximately $6.5 million.
In 2014, these initiatives included the consolidation of 13 branches, streamlining of subsidiary bank management structures
and other employee compensation and benefit reductions. These actions resulted in implementation expenses of $1.0
million and reduced non-interest expenses by $7.0 million in 2014. Annualized expense reductions from these 2014
initiatives were approximately $8.0 million.
The following table presents a summary of the 2015 and 2014 cost savings initiatives:
2015 Actual
2014 Actual
Implementation
Expenses
Expense
Reductions
Net
Implementation
Expenses
(Gains)
(in thousands)
Expense
Reductions
Net
2014 and
2015
Combined
Estimated
Future
Annualized
Cost
Savings
Branch consolidations............................. $
Subsidiary bank management reductions
and other employee benefit reductions ...
Modification of retirement benefits and
staffing reductions...................................
Total cost savings initiatives................... $
1,570
$
(1,590)
(20) $
2,080
$
(2,400) $
(320) $
(6,250)
—
450
2,020
$
—
(3,065)
(4,655)
—
(1,100)
(4,550)
(5,650)
(4,700)
(2,615)
(2,635) $
—
—
—
(3,470)
980
$
(6,950) $
(5,970) $
(14,420)
• Regulatory Enforcement Orders - The Corporation and each of its bank subsidiaries are subject to regulatory enforcement
orders issued during 2014 and 2015 by their respective Federal and state bank regulatory agencies relating to identified
deficiencies in the Corporation’s 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 regulatory enforcement orders, which are in the form of consent orders or orders to cease and desist issued upon
consent (Consent Orders), generally require, among other things, that the Corporation and its bank subsidiaries undertake
a number of required 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.
35
In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program, while the Consent Orders
remain in effect, the Corporation is subject to certain restrictions on expansion activities of the Corporation and its bank
subsidiaries. Further, any failure to comply with the requirements of any of the Consent Orders involving the Corporation
or its bank subsidiaries could result in further enforcement actions, the imposition of material restrictions on the activities
of the Corporation or its bank subsidiaries, or the assessment of fines or penalties.
Additional expenses and investments have been incurred as the Corporation 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
Consent 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 one or more future periods.
2016 Outlook
The Corporation's outlook for 2016:
•
•
•
•
•
•
annual mid- to high- single digit growth rate in average loans and deposits;
net interest margin expected to be stable on an annual basis (based on current interest rate environment) with modest
quarterly volatility of plus or minus 0 to 3 basis points;
provision for credit losses driven primarily by loan growth;
annual mid- to high- single digit growth rate in non-interest income, excluding the impact of securities gains;
annual low- to mid- single digit growth rate in non-interest expense (excluding loss on redemption of TruPS incurred in
2015); and
focus on utilizing capital to support growth and provide appropriate returns to shareholders.
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 1 - Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements
in Item 8. Financial Statements and Supplementary Data.
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. 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.
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
36
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 net sale proceeds. For collateral-dependent loans,
estimated real estate fair values are also net of estimated selling costs. When a real estate secured loan 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 4, "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 4 - Loans and Allowance for Credit Losses," in the Notes
to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
Goodwill - Goodwill recorded in connection with acquisitions is not amortized to expense, but is tested at least annually for
impairment. A quantitative annual impairment test is not required if, based on a qualitative analysis, the Corporation determines
that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired. The Corporation
completes its annual goodwill impairment test as of October 31st of each year. The Corporation tests for impairment by first
allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for
37
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 6 - Goodwill and Intangible Assets," in the Notes
to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
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 "Note 12 - Income Taxes," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary
Data.
Fair Value Measurements – FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to
measure assets and liabilities at fair value based on the following three categories (from highest to lowest priority):
• Level 1 – Inputs that represent quoted prices for identical instruments in active markets.
• Level 2 – Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical
instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from
observable market data other than quoted prices, such as interest rates or other market-corroborated means.
• Level 3 – Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.
The Corporation has categorized all assets and liabilities measured at fair value both on a recurring and nonrecurring basis into
the above three levels.
The determination of fair value for assets categorized as Level 3 items involves a great deal of subjectivity due to the use of
unobservable inputs. In addition, determining when a market is no longer active and placing little or no reliance on distressed
market prices requires the use of management’s judgment. The Corporation's Level 3 assets include available for sale debt securities
in the form of pooled trust preferred securities, certain single-issuer trust preferred securities issued by financial institutions and
auction rate securities. The Corporation also categorizes impaired loans, net of allowance allocations, other real estate owned
(OREO) and mortgage servicing rights as Level 3 assets measured at fair value on a non-recurring basis.
The Corporation engages third-party valuation experts to assist in valuing interest rate swap derivatives and most available-for-
sale investment securities, both measured at fair value on a recurring basis, and mortgage servicing rights, which are measured at
fair value on a non-recurring basis. The pricing data and market quotes the Corporation obtains from outside sources are reviewed
internally for reasonableness.
38
See "Note 18 - Fair Value Measurements," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements
and Supplementary Data 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 "New Accounting Standards,"
in "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data.
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 2015 compared to 2014
and 2013. 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.
2015
2014
2013
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) ..... $13,330,973
Taxable investment securities (3).......
2,093,829
Tax-exempt investment securities (3).
Equity securities (3)............................
230,633
23,348
Total investment securities....................
2,347,810
Loans held for sale .............................
Other interest-earning assets ..............
19,937
447,354
45,279
12,120
1,295
58,694
801
4,785
Total interest-earning assets ..................
16,146,074
602,259
Noninterest-earning assets:
Cash and due from banks ...................
Premises and equipment.....................
Other assets (3)...................................
Less: Allowance for loan losses .........
105,359
226,436
1,103,427
(174,453)
Total Assets................................... $17,406,843
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits ................................ $ 3,255,192
Savings deposits .................................
3,677,079
$
Time deposits......................................
Total interest-bearing deposits...............
Short-term borrowings .......................
Long-term debt ...................................
2,988,648
9,920,919
323,772
1,023,972
Total interest-bearing liabilities.......
11,268,663
Noninterest-bearing liabilities:
Demand deposits ................................
Other...................................................
3,826,194
285,103
Total Liabilities...................................
15,379,960
Shareholders’ equity..............................
2,026,883
Total Liabilities and Shareholders'
Equity.......................................... $17,406,843
Net interest income/net interest margin
(FTE).................................................
Tax equivalent adjustment.....................
Net interest income................................
$
537,979
4.04% $12,885,180
$ 542,540
4.21% $12,578,524
$ 552,427
4.39%
2.16
5.26
5.54
2.50
4.02
1.07
3.73
2,189,510
261,825
33,957
2,485,292
17,524
314,345
50,651
13,810
1,728
66,189
786
4,018
15,702,341
613,533
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
177,664
224,903
1,049,765
(195,166)
$16,959,507
207,931
226,041
1,037,338
(220,048)
$16,811,337
4,299
5,435
30,748
40,482
372
42,941
83,795
3,793
4,298
27,019
35,110
1,608
44,493
81,211
0.13% $ 3,013,879
$
0.15
1.03
0.41
0.11
4.19
0.74
3,431,957
2,992,920
9,438,756
832,839
965,601
11,237,196
3,428,907
221,764
14,887,867
2,071,640
$16,959,507
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
$16,811,337
3,656
4,096
29,018
36,770
2,420
43,305
82,495
0.13%
0.12
0.93
0.39
0.20
4.87
0.72
518,464
3.21%
532,322
3.39%
544,474
3.50%
(18,470)
$
499,994
(17,455)
$ 514,867
(17,280)
$ 527,194
(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
The following table summarizes the changes in FTE interest income and expense resulting from changes in average balances
(volumes) and changes in rates:
2015 vs. 2014
2014 vs. 2013
Increase (decrease) due to change in
Rate
Volume
Net
Increase (decrease) due to change in
Rate
Volume
Net
(in thousands)
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........................ $
18,147
(2,134)
(646)
(577)
102
1,500
16,392
$ (22,708) $
(3,238)
(1,044)
143
(87)
(732)
(4,561) $
(5,372)
(1,690)
(434)
15
768
$ (27,666) $ (11,274) $
13,262
(4,661)
(1,221)
(235)
(849)
975
7,271
Interest expense on:
$ (23,149) $
(9,887)
(3,670)
(767)
(101)
(765)
1,754
$ (20,707) $ (13,436)
991
454
134
84
779
Demand deposits ..................................... $
Savings deposits ......................................
Time deposits ..........................................
Short-term borrowings ............................
Long-term debt........................................
$
359
302
(39)
(725)
2,607
Total interest expense....................... $
2,504
$
147
835
3,768
(511)
(4,159)
80
$
$
506
1,137
3,729
(1,236)
(1,552)
2,584
$
$
243
84
(1,242)
(706)
3,585
1,964
$
$
(106) $
118
(757)
(106)
(2,397)
(3,248) $
137
202
(1,999)
(812)
1,188
(1,284)
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 2015 to 2014
FTE net interest income decreased $13.9 million, or 2.6%, to $518.5 million in 2015. Net interest margin decreased 18 basis points,
or 5.3%, to 3.21% in 2015 from 3.39% in 2014.
FTE interest income decreased $11.3 million, or 1.8%, as average yields on interest earning assets decreased 18 basis points. This
decrease in yields resulted in a $27.7 million decrease in FTE interest income, partially offset by a $16.4 million increase in FTE
interest income as a result of a $443.7 million, or 2.8%, increase in average interest-earning assets.
Average loans and average FTE yields, by type, are summarized in the following table:
2015
2014
Balance
Yield
Balance
Yield
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Real estate - commercial mortgage ......................... $ 5,246,054
3,882,998
Commercial - industrial, financial and agricultural.
1,700,851
Real estate - home equity ........................................
1,371,321
Real estate - residential mortgage............................
726,914
Real estate - construction.........................................
265,688
Consumer.................................................................
137,147
Leasing and other ....................................................
Total.................................................................. $ 13,330,973
4.13% $ 5,117,433
3.80
3,659,059
4.10
1,738,449
3.81
1,355,876
3.88
631,968
5.57
277,853
6.76
104,542
4.04% $12,885,180
4.38% $ 128,621
223,939
3.94
(37,598)
4.17
15,445
3.95
94,946
4.04
(12,165)
5.11
32,605
8.40
4.21% $ 445,793
2.5%
6.1
(2.2)
1.1
15.0
(4.4)
31.2
3.5%
Overall loan growth in 2015 resulted from an increase in business activity in the Corporation's markets. This growth was realized
mainly in commercial loans and commercial mortgages, which realized a combined increase of $352.6 million, or 4.0%.
41
The average yield on loans during 2015 of 4.04% represented a 17 basis point, or 4.0%, decrease in comparison to 2014. The
decrease in average yields on loans was attributable to yields on new loans being lower than the overall portfolio yield.
Average investment securities decreased $137.5 million, or 5.5%, in comparison to 2014 as portfolio cash flows were not fully
reinvested. The average yield on investment securities decreased 16 basis points, or 6.0%, to 2.50% in 2015 from 2.66% in 2014.
Other interest earning assets increased $133.0 million, or 42.3%. During the fourth quarter of 2014, the Corporation changed
providers for check clearing services to the Federal Reserve Bank of Philadelphia, resulting in the transfer of clearing account
balances from noninterest earning assets to low-yielding interest-bearing Federal Reserve Bank accounts, which contributed to
the 21 basis points, or 16.4%, decrease in the average yield on other interest-earning assets.
Interest expense increased $2.6 million, or 3.2%, to $83.8 million in 2015 from $81.2 million in 2014, mainly due to a change in
funding mix from lower cost short-term Federal funds purchased and short-term FHLB advances to higher cost deposits and long-
term FHLB advances. As a result of these funding changes, the total cost of interest-bearing liabilities increased 2 basis points.
Total interest-bearing liabilities increased $31.5 million, or 0.3%. Additional funding to support the increase in interest-earning
assets was provided by a $397.3 million, or 11.6%, increase in noninterest-bearing demand deposits.
Average deposits and interest rates, by type, are summarized in the following table:
2015
2014
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Noninterest-bearing demand ............................... $ 3,826,194
3,255,192
Interest-bearing demand......................................
3,677,079
Savings ................................................................
10,758,465
Total demand and savings............................
2,988,648
Time deposits ......................................................
Total deposits ............................................... $ 13,747,113
—% $ 3,428,907
0.13
3,013,879
0.15
3,431,957
0.09
9,874,743
1.03
2,992,920
0.29% $12,867,663
—% $ 397,287
241,313
0.13
245,122
0.13
883,722
0.08
(4,272)
0.90
0.27% $ 879,450
11.6%
8.0
7.1
8.9
(0.1)
6.8%
The $883.7 million, or 8.9%, increase in average total demand and savings account balances was primarily due to a $410.6 million,
or 11.7%, increase in business account balances, a $315.5 million, or 6.8%, increase in personal account balances, and a $157.6
million, or 9.3%, increase in municipal account balances.
The average cost of interest-bearing deposits increased 4 basis points, or 10.8%, to 0.41% in 2015 from 0.37% in 2014, primarily
due to an increase in the rate on time deposits, which contributed $3.8 million to the increase in interest expense.
Average borrowings and interest rates, by type, are summarized in the following table:
2015
2014
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................
161,093
81,530
242,623
65,779
15,370
323,772
0.10% $
0.02
0.07
0.21
0.33
0.11
197,432
88,670
286,102
285,169
261,568
832,839
0.10% $ (36,339)
(7,140)
0.06
(43,479)
0.08
(219,390)
0.20
(246,198)
0.29
(509,067)
0.19
Long-term debt:
FHLB Advances..........................................
Other long-term debt ...................................
Total long-term debt.............................
622,978
400,994
1,023,972
Total..................................... $ 1,347,744
3.43
583,893
5.38
381,708
4.19
965,601
3.21% $ 1,798,440
39,085
3.79
19,286
5.86
4.61
58,371
2.56% $ (450,696)
(18.4)%
(8.1)
(15.2)
(76.9)
(94.1)
(61.1)
6.7
5.1
6.0
(25.1)%
(1) Represents FHLB advances with an original maturity term of less than one year.
42
Total short-term borrowings decreased $509.1 million, or 61.1%, 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 interest-earning assets. The
$58.4 million increase in long-term debt was primarily due to additional long-term FHLB advances. The average cost of total
borrowings increased 65 basis points, or 25.4%, to 3.21% in 2015 from 2.56% in 2014, primarily due to the change in funding
mix. While total borrowings decreased $450.7 million, or 25.1%, the percentage of lower-cost short-term borrowings decreased
from 46.3% of the total in 2014 to 24.0% in 2015. This change in the funding mix resulted from the improvement in the Corporation's
overall liquidity position and the shift from short-term borrowings to deposits.
In addition, in the third quarter of 2015, the Corporation executed two transactions to restructure its long-term FHLB advances.
First, $200 million of FHLB advances, with a weighted average rate of 4.45% and maturing in the first quarter of 2017, were
refinanced with new advances maturing from September 2019 to December 2020, at a weighted average rate of 2.95%. This
transaction reduced interest expense on a quarterly basis by approximately $750,000, beginning in the fourth quarter of 2015.
Second, forward agreements were executed to refinance an additional $200 million of FHLB advances when they mature in
December 2016. These forward agreements have maturity dates from March 2021 to December 2021 and will reduce the weighted
average rate on these advances from 4.03% to 2.40% and decrease interest expense on a quarterly basis by approximately $800,000
beginning in the first quarter of 2017.
Comparison of 2014 to 2013
FTE net interest income decreased $12.2 million, or 2.2%, to $532.3 million in 2014. The 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 $51.2 million of student loan auction rate
certificates (ARCs) during 2014.
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
3,680,772
3.94
1,734,622
4.17
1,312,127
3.95
591,540
4.04
299,127
5.11
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 experienced growth in the construction portfolio in the Pennsylvania, Maryland
43
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 noninterest-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
2,822,583
0.13
3,363,943
0.13
9,344,022
0.08
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%
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.
44
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
889,461
4.61
2.56% $ 2,085,784
4.14
64,017
5.90
12,123
76,140
4.87
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 in 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.
Provision for Credit Losses
The provision for credit losses was $2.3 million in 2015, a decrease of $10.3 million, or 82.0%, in comparison to 2014. The
provision for credit losses for 2014 decreased $28.0 million, or 69.1%, in comparison to 2013.
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" above. For details related to the Corporation's allowance and
provision for credit losses, see "Provision and Allowance for Credit Losses," under "Financial Condition" below.
45
Non-Interest Income and Expense
Comparison of 2015 to 2014
Non-Interest Income
The following table presents the components of non-interest income for 2015 and 2014:
Increase (Decrease)
%
$
2014
(dollars in thousands)
Service charges on deposit accounts:
Overdraft fees .......................................................................... $
Cash management fees ............................................................
Other ........................................................................................
Total service charges on deposit accounts.......................
Investment management and trust services ..................................
Other service charges and fees:
Merchant fees ..........................................................................
Debit card income....................................................................
Commercial loan swap fees.....................................................
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.......................................
Other non-interest income:
Credit card income .......................................................................
Other income ................................................................................
Total other income............................................................
Total, excluding investment securities gains....................
Investment securities gains...........................................................
Total........................................................................... $
$
2015
21,500
13,342
15,255
50,097
44,056
15,037
10,748
5,518
4,809
1,436
6,444
43,992
13,264
4,944
18,208
$
22,145
12,709
14,439
49,293
44,605
13,826
9,948
3,615
4,563
1,248
6,696
39,896
10,063
7,044
17,107
9,638
6,782
16,420
172,773
9,066
181,839
$
9,177
5,260
14,437
165,338
2,041
167,379
$
(645)
633
816
804
(549)
1,211
800
1,903
246
188
(252)
4,096
3,201
(2,100)
1,101
461
1,522
1,983
7,435
7,025
14,460
(2.9)%
5.0
5.7
1.6
(1.2)
8.8
8.0
52.6
5.4
15.1
(3.8)
10.3
31.8
(29.8)
6.4
5.0
28.9
13.7
4.5
344.2
8.6 %
The $549,000, or 1.2%, decrease in investment management and trust services income was due to a $449,000, or 2.3%, decrease
in brokerage revenue and a $131,000, or 0.5%, decrease in trust commissions. These decreases resulted from a downturn in market
conditions which decreased the values of existing assets under management in trust, wealth management, and brokerage managed
accounts.
Total service charges on deposit accounts increased $804,000, or 1.6%. Improvements were seen in other service charges on
deposits ($816,000, or 5.7%, increase) due to growth in balances, and cash management fees ($633,000, or 5.0%, increase) due
to changes in fee structures. These increases were partially offset by a $645,000, or 2.9%, decrease in overdraft fees due to lower
volumes resulting from changes in customer behavior.
The $1.2 million, or 8.8%, increase in merchant fee income, the $800,000, or 8.0%, increase in debit card income and the $461,000,
or 5.0%, increase in credit card income were largely driven by higher transaction volumes. Commercial swap fees increased $1.9
million, or 52.6%, due to higher commercial loan origination volumes.
Gains on sales of mortgage loans increased $3.2 million, or 31.8%, due to a $136.4 million, or 16.1%, increase in new loan
commitments and a 13.5% increase in pricing spreads compared to 2014. The increase in new loan commitments was largely in
refinancing volumes, which were $479.2 million, or 48.7%, of total new loan commitments in 2015 compared to $277.5 million,
or 32.7%, in 2014. Mortgage servicing income decreased $2.1 million, or 29.8%, due to an increase in amortization of mortgage
servicing rights (MSRs), as prepayments increased when compared to 2014.
46
The $1.5 million, or 28.9%, increase in other income was due to higher gains on sales of fixed assets, primarily former branch
properties, in 2015. These gains were related to the cost savings initiatives discussed in the "Overview and Outlook" section of
Management's Discussion.
Investment securities gains of $9.1 million in 2015 were a result of $6.5 million of net realized gains on the sales of financial
institution stocks and $2.6 million of net realized gains on the sales of debt securities. 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 and $335,000 of net realized gains
on the sales of financial institution stocks.
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.............................................................................
Software........................................................................................
Equipment expense.......................................................................
FDIC insurance.............................................................................
Professional fees ...........................................................................
Supplies and postage.....................................................................
Marketing......................................................................................
Telecommunications.....................................................................
Loss on redemption of trust preferred securities ..........................
OREO and repossession expense..................................................
Operating risk loss ........................................................................
Intangible amortization.................................................................
Other .............................................................................................
Total....................................................................................... $
N/M - Not meaningful
2015
260,832
47,777
27,785
19,894
14,746
14,514
11,470
11,244
10,202
7,324
6,350
5,626
3,630
3,624
247
34,895
480,160
$
$
Increase (Decrease)
%
$
2014
(dollars in thousands)
251,021
48,130
28,404
17,162
12,758
13,567
10,958
12,097
9,795
8,133
6,870
—
3,270
4,271
1,259
31,551
459,246
$
$
9,811
(353)
(619)
2,732
1,988
947
512
(853)
407
(809)
(520)
5,626
360
(647)
(1,012)
3,344
20,914
3.9%
(0.7)
(2.2)
15.9
15.6
7.0
4.7
(7.1)
4.2
(9.9)
(7.6)
N/M
11.0
(15.1)
(80.4)
10.6
4.6%
Salaries and employee benefits increased $9.8 million, or 3.9%, with salaries increasing $8.4 million, or 4.0%, and employee
benefits increasing $1.4 million, or 3.6%. The increase in salaries was primarily due to higher average salaries per full-time
equivalent employee, an increase in incentive compensation, and higher temporary employee expenses, partially offset by a decrease
in the average number of full-time equivalent employees to 3,460 in 2015, compared to 3,530 in 2014. The increase in employee
benefits was primarily due to an increase in defined benefit plan expense in 2015, while 2014 included a $1.5 million gain realized
on a post-retirement plan amendment.
The $4.7 million, or 15.8%, combined increase in data processing and software resulted from higher transaction volumes, contractual
increases in third-party service provider costs, and the implementation of additional systems.
Other outside services expenses remained elevated in 2015, decreasing a modest $619,000, or 2.2%, from 2014. Over time,
investments in third-party services to support the build-out of risk management and compliance infrastructure are expected to
decrease.
The $947,000, or 7.0%, increase in equipment expense was primarily due to an increase in depreciation expense on new office
furniture and equipment. FDIC insurance expense increased $512,000, or 4.7%, as a result of balance sheet growth. Professional
fees, consisting of legal and audit fees, decreased $853,000, or 7.1%, due to a combination of lower loan workout legal costs and
lower corporate legal fees. Marketing expense decreased $809,000, or 9.9%, as fewer promotional campaigns were executed in
2015.
47
The $360,000, or 11.0%, decrease in other real estate owned and repossession expense was primarily due to lower repossession
expense in 2015. This expense category can experience volatility from period to period based on the timing of foreclosures and
sales of properties and payments of expenses, such as real estate taxes.
The $647,000, or 15.1%, decrease in operating risk loss was due to a $1.3 million decrease in check card fraud losses, partially
offset by an $817,000 increase in losses associated with previously sold residential mortgages. See "Note 17 - Commitments and
Contingencies," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for
additional details related to repurchases of previously sold residential mortgages.
Intangible amortization decreased $1.0 million, as core deposit intangible assets recognized from previous acquisitions have been
largely amortized and net book values are approaching $0.
In July 2015, the Corporation redeemed $150.0 million of TruPS. In connection with this redemption, a loss of $5.6 million,
consisting of the remaining unamortized issuance and hedge costs, was recognized as a component of non-interest expense.
Comparison of 2014 to 2013
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 .................................................................
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
9,177
5,260
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)
471
(905)
(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)
5.4
(14.7)
(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.
48
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 10 - Derivative Financial Instruments," in the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
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 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 3 - Investment Securities," in the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data 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.......................................................................
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 3,530 in 2014 from 3,610 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.
49
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 17 - Commitments and Contingencies," in the Notes to Consolidated Financial Statements in Item 8.
Financial Statements and Supplementary Data 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 reflected 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 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.
Income Taxes
Income tax expense for 2015 was $49.9 million, a decrease of $2.7 million, or 5.1%, from 2014, mainly as a result of the 5.3%
decrease in income before income taxes. Income tax expense for 2014 increased $1.5 million, or 3.0%, from 2013. The Corporation’s
effective tax rate (income taxes as a percentage of income before income taxes) was 25.0% in 2015 and 2014 and 24.0% in 2013.
The Corporation’s effective tax rates are lower than the 35% federal statutory rate due to investments in tax-free municipal securities
and federal tax credits earned from investments in qualified affordable housing projects (Tax Credit Investments), partially offset
by the impact of state income taxes. Net credits associated with Tax Credit Investments were $10.4 million in both 2015 and 2014,
and $10.3 million in 2013.
For additional information regarding income taxes, see "Note 12 - Income Taxes," in the Notes to Consolidated Financial Statements
in Item 8. Financial Statements and Supplementary Data.
50
FINANCIAL CONDITION
The table below presents condensed consolidated ending balance sheets.
December 31
2015
2014
(dollars in thousands)
Increase (decrease)
%
$
Assets
Cash and due from banks .................................................... $
Other interest-earning assets................................................
Loans held for sale...............................................................
101,120
$
105,702
$
292,516
16,886
423,083
17,522
Investment securities ...........................................................
2,484,773
2,323,371
Loans, net of allowance.......................................................
13,669,548
12,927,572
Premises and equipment ......................................................
Goodwill and intangible assets............................................
225,535
531,556
Other assets..........................................................................
592,784
Total Assets................................................................... $ 17,914,718
Liabilities and Shareholders’ Equity
Deposits ............................................................................... $ 14,132,317
Short-term borrowings.........................................................
497,663
Long-term debt ....................................................................
949,542
293,302
226,027
531,803
569,687
$ 17,124,767
$ 13,367,506
329,719
1,139,413
291,464
$
$
Other liabilities ....................................................................
Total Liabilities .............................................................
Total Shareholders’ Equity............................................
2,041,894
Total Liabilities and Shareholders’ Equity............. $ 17,914,718
15,872,824
15,128,102
1,996,665
(4,582)
(130,567)
(636)
161,402
741,976
(492)
(247)
23,097
789,951
764,811
167,944
(189,871)
1,838
744,722
45,229
(4.3)%
(30.9)
(3.6)
6.9
5.7
(0.2)
—
4.1
4.6 %
5.7 %
50.9
(16.7)
0.6
4.9
2.3
$ 17,124,767
$
789,951
4.6 %
Other Interest-Earning Assets
The $130.6 million, or 30.9%, decrease in other interest-earning assets was primarily due to lower balances on deposit with the
Federal Reserve Bank and lower interest bearing deposits with other banks, as funds were used to support increases in investment
securities and loans.
Investment Securities
The following table presents the carrying amount of investment securities, which were all classified as available for sale, as of
December 31:
U.S. Government securities .................................................................................................................. $
U.S. Government sponsored agency securities ....................................................................................
State and municipal ..............................................................................................................................
Corporate debt securities ......................................................................................................................
Collateralized mortgage obligations.....................................................................................................
Mortgage-backed securities..................................................................................................................
Auction rate securities ..........................................................................................................................
2015
2014
(in thousands)
2013
— $
25,136
262,765
96,955
821,509
1,158,835
98,059
$
200
214
525
726
245,215
98,034
284,849
98,749
902,313
1,032,398
928,831
100,941
945,712
159,274
Total debt securities ...........................................................................................................................
2,463,259
2,275,748
2,522,233
Equity securities ...................................................................................................................................
21,514
Total ................................................................................................................................................... $2,484,773
47,623
46,201
$2,323,371
$2,568,434
Total investment securities increased $161.4 million, or 6.9%, to $2.5 billion at December 31, 2015, mainly in mortgage-backed
securities, partially offset by a decrease in collateralized mortgage obligations. Portfolio cash flows that were reinvested during
2015 were used to purchase securities with average lives of approximately five years to provide for relatively structured cash
flows, thereby limiting price and extension risk in a rising interest rate environment. Collateralized mortgage obligations decreased
51
primarily due to maturities that were not fully reinvested as the Corporation sought to reduce portfolio price risk. The decrease in
equity securities reflects the sales of certain financial institutions stocks. As of December 31, 2015, the weighted average remaining
lives of collateralized mortgage obligations and mortgage-backed securities were four and five years, respectively.
The net pre-tax unrealized loss on available for sale investment securities was $9.3 million as of December 31, 2015, compared
to an $11.3 million net pre-tax unrealized gain as of December 31, 2014. The change was due to an increase in market interest
rates, which caused the fair values of collateralized mortgage obligations and mortgage-backed securities to decrease below
amortized cost.
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
2015 vs. 2014
Increase (Decrease)
2015
2014
2013
2012
2011
$
%
(dollars in thousands)
Real estate – commercial mortgage.................... $ 5,462,330
$ 5,197,155
$ 5,101,922
$ 4,664,426
$ 4,602,596
$
265,175
5.1%
Commercial – industrial, financial and
agricultural .....................................................
Real estate – home equity...................................
4,088,962
3,725,567
3,628,420
3,612,065
3,639,368
1,684,439
1,736,688
1,764,197
1,632,390
1,624,562
Real estate – residential mortgage......................
1,376,160
1,377,068
1,337,380
1,257,432
1,097,503
Real estate – construction...................................
Consumer............................................................
Leasing and other ...............................................
799,988
268,588
173,651
690,601
265,431
131,583
573,672
283,124
103,301
584,118
309,864
93,914
615,445
318,874
79,869
363,395
(52,249)
(908)
109,387
3,157
42,068
Gross loans ...................................................
13,854,118
13,124,093
12,792,016
12,154,209
11,978,217
730,025
Unearned income................................................
(15,516)
(12,377)
(9,796)
(7,238)
(6,994)
(3,139)
9.8
(3.0)
(0.1)
15.8
1.2
32.0
5.6
25.4
Loans, net of unearned income..................... $ 13,838,602
$ 13,111,716
$ 12,782,220
$ 12,146,971
$ 11,971,223
$
726,886
5.5%
The Corporation does not have a concentration of credit risk with any single borrower, industry or geographical location within
its footprint. Approximately $6.3 billion, or 45.3%, of the loan portfolio was in commercial mortgage and construction loans as
of December 31, 2015. As of December 31, 2015, the Corporation's policies limit the maximum total lending commitment to 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, 2015, the Corporation had 107 relationships with total borrowing
commitments between $20.0 million and $50.0 million.
Commercial mortgage loans increased $265.2 million, or 5.1%, in comparison to December 31, 2014 across all markets.
Commercial loans increased $363.4 million, or 9.8%. Geographically, the increase was primarily in the Pennsylvania ($298.0
million, or 11.3%), Delaware ($33.1 million, or 34.6%), Maryland ($29.5 million, or 9.9%) and New Jersey ($9.3 million, or
1.7%) markets, partially offset by a $6.4 million, or 4.4%, decrease in the Virginia market.
52
The following table summarizes the industry concentrations within the commercial loan portfolio as of December 31:
Services...........................................................................................................................................
Manufacturing.................................................................................................................................
Health care ......................................................................................................................................
Construction (1) ..............................................................................................................................
Retail...............................................................................................................................................
Wholesale .......................................................................................................................................
Real estate (2) .................................................................................................................................
Agriculture......................................................................................................................................
Arts and entertainment....................................................................................................................
Transportation.................................................................................................................................
Financial services............................................................................................................................
Other ...............................................................................................................................................
Total.........................................................................................................................................
2015
2014
22.6%
19.2%
11.3
10.6
9.7
8.3
8.0
7.3
5.1
2.8
2.7
1.7
9.9
13.1
9.0
11.0
9.6
8.7
7.6
5.5
3.4
2.4
1.9
8.6
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.
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. The Corporation only participates in shared national
credits to borrowers located in its geographical markets. Below is a summary of the Corporation's outstanding purchased shared
national credits as of December 31:
2015
2014
(in thousands)
Commercial - industrial, financial and agricultural......................................................................... $
Real estate - commercial mortgage .................................................................................................
152,830
96,219
Total............................................................................................................................................ $
249,049
$
$
116,705
137,952
254,657
Total shared national credit decreased $5.6 million, or 2.2%, in comparison to 2014. As of December 31, 2015, one of the shared
national credits totaling $1.1 million, or 0.4%, of the total, was past due.
Home equity loans decreased $52.2 million, or 3.0%, primarily as a result of customers refinancing outstanding home equity loans
into residential mortgages.
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 delinquency rates, by class segment, as of December 31:
2015
Delinquency
Rate
$
% of Total
$
(dollars in thousands)
2014
Delinquency
Rate
% of Total
Commercial..................................... $
Commercial - residential.................
Other ...............................................
Total Real estate - construction..... $
559,991
179,303
60,694
799,988
0.2%
7.3
1.1
1.8%
70.0% $
22.4
7.6
100.0% $
427,419
203,670
59,512
690,601
0.6%
6.6
0.6
2.4%
61.9%
29.5
8.6
100.0%
Construction loans increased $109.4 million, or 15.8%, as a result of growth in commercial construction loans. Geographically,
the increase occurred in the Pennsylvania ($114.6 million, or 31.6%) and New Jersey ($65.6 million, or 72.2%) markets and were
53
partially offset by decreases in the Virginia ($30.9 million, or 34.2%), Maryland ($24.0 million, or 27.8%) and Delaware ($15.9
million, or 26.5%) markets.
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:
2015
2014
2013
2012
2011
(dollars in thousands)
Loans, net of unearned income outstanding at end of year....................... $ 13,838,602
$ 13,111,716
$ 12,782,220
$ 12,146,971
$ 11,971,223
Daily average balance of loans, net of unearned income.......................... $ 13,330,973
$ 12,885,180
$ 12,578,524
$ 11,968,567
$ 11,906,447
Balance of allowance for credit losses at beginning of year..................... $
185,931
$
204,917
$
225,439
$
258,177
$
275,498
Loans charged off:
Commercial – industrial, financial and agricultural ........................
15,639
24,516
Real estate - home equity and consumer..........................................
Real estate – commercial mortgage .................................................
Real estate – residential mortgage ...................................................
Real estate – construction ................................................................
Leasing and other.............................................................................
5,831
4,218
3,612
201
2,656
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
Total loans charged off.....................................................................
32,157
44,593
80,212
140,366
161,333
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.........................................................................
5,264
2,492
2,801
1,322
2,824
685
15,388
16,769
2,250
Balance at end of year............................................................................... $
171,412
Components of Allowance for Credit Losses:
Allowance for loan losses ......................................................................... $
169,054
Reserve for unfunded lending commitments (1) ......................................
2,358
Allowance for credit losses....................................................................... $
171,412
$
$
$
4,256
2,347
1,960
451
3,177
916
13,107
31,486
12,500
185,931
184,144
1,787
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
$
$
$
$
$
$
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................................................................
0.13%
1.22%
1.24%
0.87%
1.13%
0.94%
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%
Allowance for credit losses to non-performing loans ...............................
118.37%
134.26%
132.82%
106.82%
90.11%
Non-performing assets (2) to tangible common shareholders’ equity
and allowance for credit losses (3) .......................................................
9.27%
9.12%
9.76%
13.39%
18.60%
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 $10.3 million, or 82.0%, in comparison to 2014 due to improvements in credit quality,
as shown by lower net loans charged off and delinquencies.
54
Net charge-offs decreased $14.7 million, or 46.7%, to $16.8 million in 2015 from $31.5 million in 2014. This decrease was primarily
due to a $9.9 million, or 48.8%, decrease in commercial loan net charge-offs, a $2.6 million, or 65.0%, decrease in commercial
mortgage net charge-offs, and a $2.1 million, or 38.9%, decrease in consumer and home equity loan net charge-offs. The $16.8
million of net charge-offs were primarily in the Pennsylvania ($15.5 million, or 92.7%), and New Jersey ($2.6 million, or 15.8%)
markets, partially offset by recoveries in the Maryland, Virginia and Delaware markets.
The following table presents non-performing assets as of December 31:
2015
2014
Non-accrual loans (1) (2) (3) ........................................... $
Loans 90 days or more past due and still accruing (2)
Total non-performing loans.................................
OREO .........................................................................
Total non-performing assets................................ $
129,523
15,291
144,814
11,099
155,913
$
$
121,080
17,402
138,482
12,022
150,504
2013
(in thousands)
133,753
$
20,524
154,277
15,052
169,329
$
$
$
2012
2011
184,832
26,221
211,053
26,146
237,199
$
$
257,761
28,767
286,528
30,803
317,331
(1)
In 2015, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was approximately
$7.0 million. The amount of interest income on non-accrual loans that was recognized in 2015 was approximately $1.2 million.
(2) Accrual of interest is generally discontinued when a loan becomes 90 days past due. When interest accruals are discontinued, 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. Certain loans, primarily adequately collateralized residential mortgage loans, may
continue to accrue interest after reaching 90 days past due.
(3) Excluded from non-performing assets as of December 31, 2015 were $60.6 million of loans modified under trouble debt restructurings (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, 2015 were reviewed for impairment under FASB ASC Section 310-10-35.
The following table presents TDRs as of December 31:
2015
2014
Real estate – residential mortgage .............................................. $ 28,511
17,563
Real estate – commercial mortgage ............................................
3,942
Real estate – construction ...........................................................
5,953
Commercial – industrial, financial and agricultural....................
4,556
Real estate - home equity ............................................................
33
Consumer ....................................................................................
60,558
Total accruing TDRs ..............................................................
31,035
Non-accrual TDRs (1).................................................................
Total TDRs............................................................................. $ 91,593
$ 31,308
18,822
9,241
5,237
2,975
38
67,621
24,616
$ 92,237
(1)
Included within non-accrual loans in the preceding table.
2013
(in thousands)
$ 28,815
19,758
10,117
8,045
1,365
11
68,111
30,209
$ 98,320
2012
2011
$ 32,993
34,672
10,564
5,745
1,518
16
85,508
31,245
$ 116,753
$
$
32,331
22,425
7,645
3,581
183
10
66,175
32,587
98,762
Total TDRs modified during 2015 and still outstanding as of December 31, 2015 totaled $14.4 million. Of these loans, $5.1 million,
or 35.5%, had a payment default during 2015, which the Corporation defines as a single missed scheduled payment, subsequent
to modification. Total TDRs modified during 2014 and still outstanding as of December 31, 2014 totaled $16.4 million. Of these
loans, $7.1 million, or 43.1%, had a payment default subsequent to modification during 2014.
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, 2013......... $
Additions...........................
Payments ...........................
Charge-offs (1)..................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2014.........
Additions...........................
Payments ...........................
Charge-offs (1)..................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2015......... $
36,710
$
40,566
$
20,921
$
22,282
$
13,272
$
2
$
— $ 133,753
38,578
(17,937)
(24,517)
(763)
(2,302)
29,769
51,066
(20,575)
(15,639)
(2,381)
(41)
31,509
(18,603)
(6,005)
(2,976)
(54)
44,437
24,310
(19,786)
(4,218)
(1,668)
(2,344)
4,627
(7,185)
(1,210)
(805)
—
16,348
5,150
(9,253)
(201)
—
—
10,125
(2,047)
(2,918)
(4,329)
(3,070)
20,043
13,845
(3,810)
(3,612)
(4,112)
(440)
10,406
(3,321)
(5,486)
(2,199)
(2,189)
10,483
8,839
(1,945)
(3,604)
(2,039)
(524)
2,331
(7)
(2,321)
—
(5)
—
2,229
—
(2,227)
—
(2)
803
—
(803)
—
—
—
2,835
(1)
(1,409)
—
—
98,379
(49,100)
(43,260)
(11,072)
(7,620)
121,080
108,274
(55,370)
(30,910)
(10,200)
(3,351)
42,199
$
40,731
$
12,044
$
21,914
$
11,210
$
— $
1,425
$ 129,523
(1) Excludes charge-offs of loans on accrual status.
Non-accrual loans increased $8.4 million, or 7.0%, in 2015 due mainly to an increase in non-accrual loan additions from $98.4
million in 2014 to $108.3 million in 2015. The non-accrual loan additions occurred across most loan types, and was not driven by
one specific account or event. Non-accrual loan balances continued to be reduced through significant payments, as well as 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:
2015
2014
December 31
2013
2012
(dollars in thousands)
2011
2015 vs. 2014
Increase (Decrease)
$
%
Commercial – industrial, financial and
Real estate – commercial mortgage .......
Real estate – residential mortgage .........
Real estate – home equity ......................
Real estate – construction ......................
Consumer ...............................................
Leasing...................................................
agricultural ......................................... $ 44,071
41,170
28,484
14,683
12,460
2,440
1,506
Total non-performing loans ............ $ 144,814
$ 30,388
$ 38,021
$ 66,954
$ 80,944
45,237
28,995
14,740
16,399
2,590
133
$ 138,482
44,068
31,347
16,983
21,267
2,543
48
$ 154,277
57,120
34,436
17,204
32,005
3,315
19
$ 211,053
113,806
16,336
11,207
60,744
3,384
107
$ 286,528
$ 13,683
(4,067)
(511)
(57)
(3,939)
(150)
1,373
6,332
$
45.0%
(9.0)
(1.8)
(0.4)
(24.0)
(5.8)
N/M
4.6%
N/M - Not meaningful
Non-performing commercial loans increased $13.7 million, or 45.0%, in comparison to December 31, 2014. Geographically, the
increase primarily occurred in the Pennsylvania ($12.3 million, or 78.4%) Virginia ($3.1 million, or 98.1%) and Maryland ($1.8
million, or 82.9%) markets, partially offset by a decrease in the New Jersey ($3.3 million, or 36.0%) market.
Non-performing commercial mortgages decreased $4.1 million, or 9.0%, in comparison to December 31, 2014. Geographically,
the decrease occurred primarily in the Pennsylvania ($3.0 million, or 16.6%) and Delaware ($1.9 million, or 78.3%) markets,
partially offset by increases in the Maryland and New Jersey markets.
Non-performing construction loans decreased $3.9 million, or 24.0%, in comparison to December 31, 2014. Geographically, the
decrease occurred mainly in the Maryland ($1.9 million, or 59.9%) and New Jersey ($1.1 million, or 37.6%) markets.
56
The following table summarizes OREO, by property type, as of December 31:
2015
2014
Residential properties...................................................................................................................... $
Commercial properties ....................................................................................................................
Undeveloped land ...........................................................................................................................
Total OREO ............................................................................................................................. $
$
(in thousands)
7,303
2,167
1,629
11,099
$
6,656
3,453
1,913
12,022
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
1, "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 $10.3 billion and $9.6 billion as of December 31, 2015 and 2014, 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
2015 vs. 2014
Increase (Decrease)
Substandard or Lower
2015 vs. 2014
Increase (Decrease)
Total Criticized Loans
2015
2014
$
%
2015
2014
$
%
2015
2014
(dollars in thousands)
Real estate - commercial mortgage ..... $ 102,625
$ 127,302
$ (24,677)
(19.4)% $ 155,442
$ 170,837
$ (15,395)
(9.0)% $ 258,067
$ 298,139
Commercial - secured..........................
92,711
120,584
(27,873)
Commercial -unsecured.......................
2,761
7,463
(4,702)
(23.1)
(63.0)
136,710
110,544
26,166
23.7
3,346
6,810
(3,464)
(50.9)
229,421
6,107
231,128
14,273
Total commercial - industrial,
financial and agricultural ............
95,472
128,047
(32,575)
(25.4)
140,056
117,354
22,702
19.3
235,528
245,401
Construction - commercial residential.
17,154
Construction - commercial ..................
3,684
27,495
12,202
(10,341)
(8,518)
(37.6)
(69.8)
21,812
3,597
40,066
5,586
(18,254)
(45.6)
(1,989)
(35.6)
38,966
7,281
67,561
17,788
Total real estate - construction
(excluding construction - other)..
20,838
39,697
(18,859)
(47.5)
25,409
45,652
(20,243)
(44.3)
46,247
85,349
Total..................................................... $ 218,935
$ 295,046
$ (76,111)
(25.8)% $ 320,907
$ 333,843
$ (12,936)
(3.9)% $ 539,842
$ 628,889
% of total risk rated loans ....................
2.1%
3.1%
3.1%
3.5%
5.2%
6.6%
As of December 31, 2015, total loans with risk ratings of special mention and substandard or lower were $89.0 million, or 14.2%,
less than 2014. Overall reductions in criticized loans, while not the sole factor for measuring allocations on these loan types,
contributed to a decrease in allocations for impaired loans of $9.3 million, or 15.2%, in 2015.
57
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
2015
2014
2015
2014
2015
2014
$
%
$
%
$
%
$
%
$
%
$
%
(dollars in thousands)
Real estate - home
equity................ $
8,983
0.53% $ 10,931
0.63% $ 14,683
0.87% $ 14,740
0.85% $ 23,666
1.40% $
25,671
1.48%
Real estate -
residential
mortgage ..........
Real estate -
construction -
other .................
Consumer - direct .
Consumer -
18,305
1.33
26,934
1.96
28,484
2.07
28,995
2.10
46,789
3.40
55,929
4.06
88
2,254
0.14
2.28
—
—
2,891
2.64
609
2,203
1.01
2.23
332
2,414
0.56
2.21
697
4,457
1.15
4.51
332
5,305
0.56
4.85
indirect .............
2,809
1.65
2,574
1.65
237
0.14
176
0.11
3,046
1.79
2,750
1.76
Total
Consumer........
Leasing and other
and Overdrafts..
5,063
1.89
5,465
2.06
2,440
0.90
2,590
0.97
7,503
2.79
8,055
3.03
759
0.48
523
0.44
1,506
0.95
133
0.11
2,265
1.43
656
0.55
Total...................... $ 33,198
0.94% $ 43,853
1.23% $ 47,722
1.34% $ 46,790
1.32% $ 80,920
2.28% $
90,643
2.55%
(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, 2015, delinquency rates for the above class segments decreased, driven by improvements in home equity and
residential mortgage delinquencies.
The following table summarizes the allocation of the allowance for loan losses:
2015
2014
2013
2012
2011
% 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 ..................
47,866
39.5% $
53,493
39.6% $
55,659
39.9% $
62,928
38.4% $
85,112
36.8%
57,098
29.5
51,378
21,375
9.9
29,072
28.4
10.5
50,330
33,082
28.4
10.5
60,205
34,536
29.7
10.4
74,896
31.0
22,986
8.3
27,458
15.3
33,085
16.2
34,852
16.7
27,895
16.7
17,321
17.2
6,529
8,728
5.8
N/A
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
$ 169,054
100.0% $ 184,144
100.0% $ 202,780
100.0% $ 223,903
100.0% $ 256,471
100.0%
N/A – Not applicable
Management believes that the $169.1 million allowance for loan losses as of December 31, 2015 is sufficient to cover incurred
losses in the loan portfolio. See additional disclosures in "Note 1 - Summary of Significant Accounting Policies," and "Note 4 -
Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and
Supplementary Data; and "Critical Accounting Policies" above.
58
Other Assets
Other assets increased $23.1 million, or 4.1%, to $592.8 million as of December 31, 2015. The increase resulted primarily from
a $24.5 million increase in tax credit investments and a $13.2 million increase in the fair value of commercial loan interest rate
swaps. These increases were partially offset by an $11.1 million decrease in net deferred tax assets.
Deposits and Borrowings
The following table summarizes the increase in ending deposits, by type:
2015
Increase (Decrease)
%
$
2014
(dollars in thousands)
Noninterest-bearing demand.......................................................... $ 3,948,114
3,451,207
Interest-bearing demand.................................................................
3,868,046
Savings...........................................................................................
11,267,367
Total demand and savings.......................................................
2,864,950
Time deposits .................................................................................
Total deposits.......................................................................... $ 14,132,317
$ 3,640,623
3,150,612
3,504,820
10,296,055
3,071,451
$ 13,367,506
$
$
307,491
300,595
363,226
971,312
(206,501)
764,811
8.4%
9.5
10.4
9.4
(6.7)
5.7%
Noninterest-bearing demand deposits increased $307.5 million, or 8.4%, primarily due to a $229.0 million, or 8.3%, increase in
business account balances and $78.9 million, or 10.7%, increase in personal account balances. Interest-bearing demand accounts
increased $300.6 million, or 9.5%, due to a $167.0 million, or 9.1%, increase in personal account balances, a $70.2 million, or
31.4%, increase in business account balances and a $63.4 million, or 5.8%, increase in municipal balances. The $363.2 million,
or 10.4%, increase in savings account balances was due to a $309.9 million, or 14.2%, increase in personal account balances and
a $54.5 million, or 7.4%, increase in business account balances.
The $206.5 million, or 6.7%, decrease in time deposits was a result of customers' migration away from certificates of deposit due
to the continued low interest rate environment.
The following table summarizes the changes in ending borrowings, by type:
2015
Increase (Decrease)
%
2014
(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 .........................................
111,496
78,932
190,428
197,235
110,000
497,663
$
158,394
95,106
253,500
6,219
70,000
329,719
Long-term debt:
FHLB Advances.............................................................................
Other long-term debt......................................................................
Total long-term debt...........................................................
587,756
361,786
949,542
Total borrowings....................................................... $ 1,447,205
673,107
466,306
1,139,413
$ 1,469,132
$
$
(46,898)
(16,174)
(63,072)
191,016
40,000
167,944
(85,351)
(104,520)
(189,871)
(21,927)
(29.6)%
(17.0)
(24.9)
N/M
57.1
50.9
(12.7)
(22.4)
(16.7)
(1.5)%
(1) Represents FHLB advances with an original maturity term of less than one year.
N/M – Not meaningful
The $167.9 million increase in total short-term borrowings was a primarily a result of the $191.0 million increase in federal funds
purchased. The $85.4 million, or 12.7% , decrease in long-term FHLB Advances resulted from maturities that were replaced with
short-term advances. Other long-term debt decreased by $104.5 million, or 22.4%, primarily as a result of the maturity of $100
million of subordinated debt in April 2015. In June 2015, the Corporation issued $150 million of ten-year subordinated debt at an
effective rate of 4.69%. The proceeds were used in July 2015 to redeem $150 million of TruPS, that carried an effective rate of
6.52%.
59
Shareholders’ Equity
Total shareholders’ equity increased $45.2 million, or 2.3%, to $2.0 billion, or 11.4% of total assets, as of December 31, 2015. The
increase was due primarily to $149.5 million of net income and $10.8 million of common stock issued, partially offset by $50.0
million of common stock repurchases and $66.7 million of dividends on common shares outstanding.
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 $100.0 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. In April 2015, the third party
delivered an additional 1.8 million shares of common stock pursuant to the terms of the ASR, thereby completing the $100.0
million ASR. The Corporation repurchased a total of 8.3 million shares of common stock under the ASR at an average price of
$12.05 per share.
In April 2015, 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 $50.0 million of its outstanding shares of common stock, or approximately
2.3% of its outstanding shares, through December 31, 2015. During 2015, approximately 4.0 million shares were repurchased
under this program for a total cost of $50.0 million, or $12.57 per share, completing this program in August 2015.
In October 2015, the Corporation announced that its board of directors had approved a share repurchase program pursuant to which
the Corporation is authorized to repurchase up to $50.0 million of its outstanding shares of common stock, or approximately 2.3%
of its outstanding shares, through December 31, 2016. No shares were repurchased under this program as of December 31, 2015.
Subsequent to December 31, 2015, a total of 550,000 shares were repurchased through January 31, 2016 at a total cost of $6.8
million.
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, Tier I and
Common Equity 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, 2015, 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 "Note 11 - Regulatory Matters," in the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
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).............................
Common equity tier I (to risk-weighted assets)...............
Tier I capital (to average assets) ......................................
N/A – Not applicable
2015
13.2%
10.2%
10.2%
9.0%
2014
14.7%
12.3%
N/A
10.0%
Regulatory
Minimum
for Capital
Adequacy
8.0%
6.0%
4.5%
4.0%
Fully Phased-
in, with Capital
Conservation
Buffers
10.5%
8.5%
7.0%
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 will be fully phased in on January 1, 2019.
The U.S. Basel III Capital Rules 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
• 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; 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 TruPS, will be
excluded as a component of Tier 1 capital for institutions of the Corporation's size.
When fully phased in on January 1, 2019, the Corporation and its bank subsidiaries will also be required to maintain a "capital
conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions
on capital distributions and certain discretionary bonus payments
The 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, resulting in higher risk weights for a variety
of asset categories.
As of December 31, 2015, the Corporation and each of its bank subsidiaries met the minimum requirements of the U.S. Basel III
Capital Rules, and each of the Corporation’s bank subsidiaries’ capital ratios exceeded the amounts required to be considered "well
capitalized" as defined in the regulations. As of December 31, 2015, the Corporation's capital levels also met the fully-phased in
minimum capital requirements, including the capital conservation buffers, 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, 2015:
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)................. $ 11,267,367
1,342,715
Time deposits (2) ..............................................
497,663
Short-term borrowings (3) ................................
235,937
Long-term debt (3)............................................
16,325
Operating leases (4) ..........................................
15,262
Purchase obligations (5) ...................................
2,373
Uncertain tax positions (6)................................
$
— $
— $
747,651
—
301,299
28,533
17,066
—
691,039
—
142,370
20,831
325
—
— $ 11,267,367
2,864,949
497,663
949,542
112,508
32,653
2,373
83,544
—
269,936
46,819
—
—
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 8 - Deposits," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements
and Supplementary Data.
(3) See additional information regarding borrowings in "Note 9 - Short-Term Borrowings and Long-Term Debt," in the Notes to Consolidated Financial Statements
in Item 8. Financial Statements and Supplementary Data.
(4) See additional information regarding operating leases in "Note 16 - Leases," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements
(5)
(6)
and Supplementary Data.
Includes information technology, telecommunication and data processing outsourcing contracts.
Includes accrued interest. See additional information related to uncertain tax positions in "Note 12 - Income Taxes," in the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
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 and commercial 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. Commercial letters of
credit are conditional commitments issued to facilitate foreign or domestic trade transactions for customers. Commitments and
standby and commercial 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, 2015 (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 ......................................................................................................................... $
3,518,960
1,300,062
965,116
5,784,138
374,729
39,529
414,258
62
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, foreign currency price
risk and commodity price risk are not significant to the Corporation.
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) 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. For the year ended December 31, 2015, the Corporation changed its presentation of interest rate risk to
be reflective of the two complementary methods it uses to measure and manage interest rate risk, as it provides a more concise
framework for understanding how the Corporation measures and manages its interest rate and market risk.
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 12-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 take into account the potential effects of competition on the pricing of deposits and loans over
the forward 12-month period.
Contractual maturities and repricing opportunities of loans are incorporated in the simulation model as are prepayment assumptions,
maturity data and call options within the investment portfolio. Assumptions based on past experience are incorporated into the
model for non-maturity deposit accounts. The assumptions used are inherently uncertain and, as a result, the model cannot precisely
measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.
Actual results will differ from the model's simulated results due to timing, amount and frequency of interest rate changes as well
as changes in market conditions and the application and timing of various management strategies.
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
+ $73.2 million
+ $48.8 million
+ $22.2 million
– $15.7 million
% Change in net
interest income
+ 14.2%
+ 9.4%
+ 4.3%
– 3.0%
(1) These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.
Economic value of equity estimates the discounted present value of asset 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, 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
63
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, 2015, the Corporation was within economic value of equity policy limits for every 100 basis
point shock.
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 in other assets and liabilities on the consolidated balance sheets. Changes in fair value during the period are recorded in
other non-interest expense on the consolidated statements of income.
Liquidity
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 investments and outstanding loans 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 Corporation maintains liquidity sources in the form of demand and savings deposits, time deposits, repurchase agreements
and short-term promissory notes. The Corporation can access additional liquidity from these sources, if necessary, by increasing
the rates of interest paid on those accounts and borrowings. The positive impact to liquidity resulting from paying higher interest
rates could have a detrimental impact on the net interest margin and net income if rates on interest-earning assets do not experience
a proportionate increase. Borrowing availability with the FHLB and the 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, 2015, the Corporation had $697.8 million of short- and long-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
qualifying commercial real estate and residential mortgage loans, investments and other assets.
As of December 31, 2015, the Corporation had aggregate availability under Federal funds lines of $1.0 billion with $197.2 million
borrowed against that amount. 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,
2015, the Corporation had $1.2 billion of collateralized borrowing availability at the Discount Window, and no outstanding
borrowings.
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.
Management continues to monitor the liquidity and capital needs of the parent company and will implement appropriate strategies,
as necessary, to remain adequately capitalized and to meet its cash needs.
The Corporation’s sources and uses of funds were discussed in general terms in the net interest income section of Management’s
Discussion and Analysis. The consolidated statements of cash flows provide additional information. The Corporation’s operating
activities during 2015 generated $177.0 million of cash, mainly due to net income. Cash used in investing activities was $818.0
million, due to net increases in loans and investment securities partially offset by a decrease in short-term investments. Net cash
provided by financing activities was $636.5 million due to increases in deposits, short-term borrowings and additions to long-
term debt, partially offset by repayments of long-term debt, common stock, cash dividends and purchases of treasury stock.
64
The following table presents the expected maturities of available for sale investment securities, at estimated fair value, as of
December 31, 2015 and the weighted average yields of such securities (calculated based on historical cost):
Within One Year
Yield
Amount
Maturing
After One But
Within Five Years
Yield
Amount
After Five But
Within Ten Years
Yield
Amount
(dollars in thousands)
After Ten Years
Yield
Amount
U.S. Government sponsored agency
securities ............................................. $
— —% $ 25,004
1.83% $
55
2.91% $
77
3.16%
State and municipal (1) ..........................
65,925
4.02
28,796
5.97
115,782
5.21
ARCs (2) ................................................
— —
— —
— —
Corporate debt securities ........................
10,020
3.00
34,077
4.30
11,266
4.23
52,262
98,059
41,592
5.58
1.84
2.54
Total................................................. $
75,945
3.89% $ 87,877
4.12% $ 127,103
5.12% $ 191,990
2.92%
Collateralized mortgage obligations (3) . $ 821,509
Mortgage-backed securities (3) .............. $1,158,835
1.86%
2.34%
(1) Weighted average yields on tax-exempt securities have been computed on a fully taxable-equivalent basis assuming a federal 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, 2015, the weighted
average remaining lives of collateralized mortgage obligations and mortgage-backed securities were four and five years, respectively.
The Corporation’s investment portfolio consists mainly of mortgage-backed securities and collateralized mortgage obligations
which have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows
from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the
level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease.
As rates decrease, cash flows generally increase as prepayments increase.
The following table presents the approximate contractual maturity of fixed rate loans and loan types subject to changes in interest
rates as of December 31, 2015:
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:
1,041,125
233,720
1,274,845
1,219,602
451,306
1,670,908
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
183,699
64,766
248,465
$
$
$
$
$
$
1,831,443
319,520
2,150,963
3,260,916
1,012,855
4,273,771
281,647
14,800
296,447
$
$
$
$
$
$
430,556
232,598
663,154
2,146,990
431,260
2,578,250
235,787
19,289
255,076
$
$
$
$
$
$
3,303,124
785,838
4,088,962
6,627,508
1,895,421
8,522,929
701,133
98,855
799,988
(1) Includes commercial mortgages, residential mortgages and home equity loan.
65
Contractual maturities of time deposits as of December 31, 2015 were as follows (in thousands):
Year
2016.......................................................................................................................................................................... $ 1,342,716
508,171
2017..........................................................................................................................................................................
239,480
2018..........................................................................................................................................................................
527,480
2019..........................................................................................................................................................................
163,559
2020..........................................................................................................................................................................
83,544
Thereafter .................................................................................................................................................................
$ 2,864,950
Contractual maturities of time deposits of $100,000 or more outstanding, included in the table above, as of December 31, 2015
were as follows (in thousands):
Three months or less ................................................................................................................................................ $
Over three through six months .................................................................................................................................
Over six through twelve months ..............................................................................................................................
Over twelve months .................................................................................................................................................
162,192
141,961
231,417
649,845
Total................................................................................................................................................................... $ 1,185,415
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, 2015, the Corporation’s equity investments consisted of
$20.6 million of common stocks of publicly traded financial institutions and $914,000 of other equity investments.
The equity investments most susceptible to market price risk are the financial institutions stocks, which had a cost basis of $13.9
million and a fair value of $20.6 million as of December 31, 2015, including an investment in a single financial institution with
a cost basis of $7.4 million and a fair value of $10.2 million. The fair value of this investment accounted for 49.5% of the fair
value of the common stocks of publicly traded financial institutions. No other investment within the financial institutions stock
portfolio exceeded 10% of the portfolio's fair value. In total, net unrealized gains in this portfolio were approximately $6.8 million
as of December 31, 2015.
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. or international 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, 2015, the Corporation owned $262.8 million of municipal securities issued by various municipalities. Ongoing
uncertainty with respect to the financial strength of municipal bond insurers places much greater emphasis on the underlying
strength of issuers. Continued pressure on local tax revenues of issuers due to adverse economic conditions could have an adverse
impact on the underlying credit quality of issuers. The Corporation evaluates existing and potential holdings primarily based on
66
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, 2015, approximately 96% of municipal securities were supported by
the general obligation of corresponding municipalities. Approximately 75% 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, 2015, the Corporation’s investments in student loan auction rate securities, also known as auction rate
certificates (ARCs), had a cost basis of $106.8 million and a fair value of $98.1 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, 2015, 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
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, 2015, all of the ARCs were rated above investment grade, with approximately $5.6 million, or 6%,
"AAA" rated and $92.5 million, or 94%, "AA" rated. All of the loans underlying the ARCs have principal payments which are
guaranteed by the federal government. At December 31, 2015, all of the Corporation's ARCs were current and making scheduled
interest payments.
Corporate Debt Securities
The Corporation holds corporate debt securities in the form of pooled trust preferred securities, single-issuer trust preferred
securities and subordinated debt issued by financial institutions. As of December 31, 2015, these securities had an amortized cost
of $100.3 million and an estimated fair value of $97.0 million.
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.
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.
See "Note 3 - Investment Securities," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and
Supplementary Data for further discussion related to the Corporation’s other-than-temporary impairment evaluations for debt
securities, and see "Note 18 - Fair Value Measurements," in the Notes to Consolidated Financial Statements in Item 8.
Financial Statements and Supplementary Data for further discussion related to the fair values of debt securities.
67
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share data)
December 31,
2015
2014
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 ...........................................................................................................................
101,120
230,300
62,216
16,886
2,484,773
13,838,602
(169,054)
13,669,548
225,535
42,767
531,556
550,017
Total Assets................................................................................................................ $ 17,914,718
$
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
$ 17,124,767
Liabilities
Deposits:
Noninterest-bearing........................................................................................................ $
Interest-bearing ..............................................................................................................
Total Deposits............................................................................................................
3,948,114
10,184,203
14,132,317
$
3,640,623
9,726,883
13,367,506
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, 218.9 million shares
197,235
300,428
497,663
10,724
282,578
949,542
15,872,824
6,219
323,500
329,719
18,045
273,419
1,139,413
15,128,102
issued in 2015 and 218.2 million shares issued in 2014 ................................................
547,141
1,450,690
Additional paid-in capital......................................................................................................
641,588
Retained earnings ..................................................................................................................
(22,017)
Accumulated other comprehensive loss................................................................................
Treasury stock, 44.7 million shares in 2015 and 39.3 million shares in 2014 ......................
(575,508)
2,041,894
Total Shareholders’ Equity........................................................................................
Total Liabilities and Shareholders’ Equity................................................................ $ 17,914,718
545,555
1,420,523
558,810
(17,722)
(510,501)
1,996,665
$ 17,124,767
See Notes to Consolidated Financial Statements
68
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share data)
Interest Income
Loans, including fees ..................................................................................................................... $
Investment securities:
2015
2014
2013
524,060
$
530,308
$
540,667
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 .............................................................................................................
Other ..............................................................................................................................................
Investment securities gains (losses):
Net gains on sales of investment securities............................................................................
Net other-than-temporary impairment losses.........................................................................
Investment securities gains, net .....................................................................................................
Total Non-Interest Income...................................................................................
Non-Interest Expense
Salaries and employee benefits......................................................................................................
Net occupancy expense..................................................................................................................
Other outside services ....................................................................................................................
Data processing..............................................................................................................................
Software .........................................................................................................................................
Equipment expense ........................................................................................................................
FDIC insurance expense ................................................................................................................
Professional fees ............................................................................................................................
Supplies and postage......................................................................................................................
Marketing.......................................................................................................................................
Telecommunications ......................................................................................................................
Loss on redemption of trust preferred securities............................................................................
Other real estate owned and repossession expense........................................................................
Operating risk loss .........................................................................................................................
Intangible amortization ..................................................................................................................
Other ..............................................................................................................................................
Total Non-Interest Expense.................................................................................
Income Before Income Taxes...............................................................................
Income taxes ..................................................................................................................................
Net Income........................................................................................................... $
Per Share:
Net Income (Basic) ........................................................................................................................ $
Net Income (Diluted) .....................................................................................................................
Cash Dividends ..............................................................................................................................
See Notes to Consolidated Financial Statements
45,279
7,879
985
801
4,785
583,789
40,482
372
42,941
83,795
499,994
2,250
497,744
50,097
44,056
43,992
18,208
16,420
9,066
—
9,066
181,839
260,832
47,777
27,785
19,894
14,746
14,514
11,470
11,244
10,202
7,324
6,350
5,626
3,630
3,624
247
34,895
480,160
199,423
49,921
149,502
0.85
0.85
0.38
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
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
2,071
(30)
2,041
167,379
8,128
(124)
8,004
187,664
251,021
48,130
28,404
17,162
12,758
13,567
10,958
12,097
9,795
8,133
6,870
—
3,270
4,271
1,259
31,551
459,246
210,500
52,606
157,894
0.85
0.84
0.34
$
$
253,240
46,944
18,856
16,555
11,560
15,419
11,605
13,150
10,210
7,705
7,362
—
7,364
9,290
2,438
29,735
461,433
212,925
51,085
161,840
0.84
0.83
0.32
$
$
69
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
2015
2014
2013
Net Income..............................................................................................................................................
$ 149,502
$ 157,894
$ 161,840
Other Comprehensive (Loss) Income, net of tax:...................................................................................
Unrealized (losses) gains on available for sale investment securities:
Unrealized (loss) gain on securities...................................................................................................
Reclassification adjustment for securities gains included in net income ..........................................
Non-credit related unrealized gain on other-than-temporarily impaired debt securities...................
(7,717)
(5,892)
239
33,734
(49,607)
(1,327)
780
(5,203)
1,977
Net unrealized (losses) gains on available for sale investment securities .........................................
(13,370)
33,187
(52,833)
Unrealized gains on derivative financial instruments:
Unrealized gain on derivative financial instruments .........................................................................
Reclassification adjustment for loss on derivative financial instruments included in net income....
Net unrealized gains on derivative financial instruments..................................................................
Defined benefit pension plan and postretirement benefits:
Unrecognized pension and postretirement income (cost) .................................................................
Amortization of net unrecognized pension and postretirement income............................................
Reclassification adjustment for post-retirement plan curtailment gain included in net income .......
75
2,456
2,531
4,680
1,864
—
136
—
136
(13,168)
408
(944)
Net unrealized gains (losses) on pension and postretirement plans ..................................................
6,544
(13,704)
136
—
136
8,369
1,312
—
9,681
Other Comprehensive (Loss) Income...........................................................................................
(4,295)
19,619
(43,016)
Total Comprehensive Income.......................................................................................................
$ 145,207
$ 177,513
$ 118,824
See Notes to Consolidated Financial Statements
70
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, 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........................................
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)
157,894
(62,927)
19,619
5,611
157,894
19,619
8,282
5,865
(175,255)
(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
Net income ....................................................................
Other comprehensive loss .............................................
149,502
(4,295)
Stock issued, including related tax benefits ..................
1,018
1,586
Stock-based compensation awards................................
Acquisition of treasury stock.........................................
Settlement of accelerated stock repurchase agreement .
Common stock cash dividends - $0.38 per share ..........
(3,976)
(1,790)
4,229
5,938
20,000
(66,724)
4,993
(50,000)
(20,000)
149,502
(4,295)
10,808
5,938
(50,000)
—
(66,724)
Balance at December 31, 2015.............................................
174,176
$
547,141
$ 1,450,690
$
641,588
$
(22,017)
$
(575,508)
$
2,041,894
See Notes to Consolidated Financial Statements
71
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:
149,502
$
157,894
$
161,840
2015
2014
2013
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........................................................................
Stock-based compensation ..................................................................................
Excess tax benefits from stock-based compensation ..........................................
(Increase) decrease in accrued interest receivable ..............................................
Loss on redemption of trust preferred securities.................................................
Increase (decrease) in other assets ......................................................................
(Decrease) increase 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 and paydowns of securities available for sale............
Purchase of securities available for sale..............................................................
Decrease (increase) in short-term investments....................................................
Net increase in loans ...........................................................................................
Net purchases of premises and equipment ..........................................................
Net cash used in investing activities .........................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits .....................................................
Net (decrease) increase in time deposits ............................................................
Increase (decrease) in short-term borrowings .....................................................
Additions to long-term debt ................................................................................
Repayments of long-term debt ............................................................................
Net proceeds from issuance of common stock....................................................
Excess tax benefits from stock-based compensation ..........................................
Dividends paid.....................................................................................................
Acquisition of treasury stock...............................................................................
Deferred accelerated stock repurchase payment .................................................
Net cash provided by (used in) 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:
2,250
27,605
7,330
13,424
(9,066)
(13,264)
757,850
(743,950)
247
5,938
(201)
(949)
5,626
(9,931)
(7,321)
(8,128)
27,460
176,962
66,480
439,533
(683,839)
130,567
(743,655)
(27,113)
(818,027)
971,312
(206,501)
167,944
347,778
(539,497)
10,607
201
(65,361)
(50,000)
—
636,483
(4,582)
105,702
101,120
Interest................................................................................................................. $
Income taxes........................................................................................................
91,116
13,378
See Notes to Consolidated Financial Statements
$
$
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
78,384
16,778
$
$
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
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – 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 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
73
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: The Corporation has elected to measure mortgage loans held for sale at fair value. Derivative financial
instruments related to mortgage banking activities are also recorded at fair value, as detailed under the heading "Derivative Financial
Instruments," below. The Corporation determines fair value for its mortgage loans held for sale based on the price that secondary
market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is
measured. Changes in fair values during the period are recorded as components of mortgage banking income on the consolidated
statements of income. Interest income earned on mortgage loans held for sale is classified in interest income on the consolidated
statements of income.
Loans 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. 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.
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, whether
negotiated or imposed by bankruptcy, granted under a TDR typically involve a temporary deferral of scheduled loan payments,
an extension of a loan’s stated maturity date or a reduction in the interest rate. Non-accrual TDRs can be restored to accrual status
if principal and interest payments, under the modified terms, are current for six consecutive months after modification.
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,
an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality
74
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. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Risk
ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or
if specific loan review assessments identify a deterioration or an improvement in the loan.
The following is a summary of the Corporation's internal risk rating categories:
•
•
•
Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending
on the degree of potential risk.
Special Mention: These loans have 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, 2015 and 2014, 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 net sale proceeds. For collateral dependent loans, estimated real estate fair
values are also net of estimated selling costs. When a real estate secured loan 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 predominantly by real estate every 12
months.
As of December 31, 2015 and 2014, approximately 69% and 81%, 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 an
acceptable 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%.
75
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 4, "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 rate forecast.
• 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 (OREO): Assets acquired in settlement of mortgage loan indebtedness are recorded as OREO and
are included in other assets on the consolidated balance sheets, initially at the lower of the estimated fair value of the asset, less
estimated selling costs, or the carrying amount of the loan. Costs to maintain the assets and subsequent gains and losses on sales
are included in OREO and repossession expense on the consolidated statements of income.
Mortgage Servicing Rights (MSRs): The estimated fair value of MSRs related to residential mortgage loans sold and serviced
by the Corporation is recorded as an asset upon the sale of such loans. MSRs are amortized as a reduction to servicing income
over the estimated lives of the underlying loans.
MSRs are stratified and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair
values are determined through a discounted cash flows valuation completed by a third-party valuation expert. Significant inputs
to the valuation include expected net servicing income, the discount rate and the expected 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
76
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 in other assets and other liabilities, respectively, on the consolidated balance sheets, with changes in fair values during
the period recorded in 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 in other assets and liabilities on the consolidated balance sheets. Changes in fair value during the period are recorded in
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 in other
assets and other liabilities, respectively, on the consolidated balance sheets, with changes in fair values during the period recorded
in 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 is also a party to foreign currency exchange contracts with financial institution counterparties, under which the
Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of,
any one contract. As with interest rate swap contracts, cash collateral is posted by the party with a net liability position in accordance
with contract thresholds and can be used to settle the fair value of the foreign currency exchange contracts in the event of default.
For additional details, see "Note 10 - Derivative Financial Instruments."
77
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 in short-term borrowings
on the consolidated balance sheets, while the securities underlying the repurchase agreements remain classified with investment
securities on the consolidated balance sheets. The Corporation has no intention of setting off these amounts, therefore, these
repurchase agreements are not eligible for offset.
Income Taxes: The Corporation accounts for income taxes in accordance with FASB ASC Topic 740, "Income Taxes" (ASC Topic
740). Under ASC Topic 740, deferred tax assets and liabilities are determined based on the differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates
that will be in effect when these differences are settled or realized. ASC Topic 740 also requires that deferred tax assets be reduced
by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the
amount of the allowance, if necessary. We consider all available positive and negative evidence including projected future taxable
income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of
both positive and negative evidence is a requirement pursuant to ASC Topic 740 in determining more-likely-than-not the net
deferred tax assets will be realized. In the event the Corporation determines that the deferred income tax assets would be realized
in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would
reduce the provision for income taxes.
ASC Topic 740 also creates a single model to address uncertainty in tax positions, and clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements by prescribing the minimum recognition threshold a tax position
is required to meet before being recognized in an enterprise's financial statements. It also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The liability for
unrecognized tax benefits is included in other liabilities within the consolidated balance sheets at December 31, 2015 and 2014.
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. The fair value of restricted stock, RSUs and a majority of PSUs are based on the trading
price of the Corporation's stock on the date of grant. The fair value of certain PSUs are estimated through the use of the Monte
Carlo valuation methodology as of the date of grant.
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. Restricted stock, RSUs and PSUs earn dividends during the vesting period, which are forfeitable if the awards
do not vest.
The fair value of stock options, restricted stock and RSUs granted to employees 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.
78
PSUs are required to be included in weighted average diluted shares outstanding if performance measures, as defined in each PSU
award agreement, are met as of the end of the period.
A reconciliation of weighted average common shares outstanding used to calculate basic and diluted net income per share follows:
Weighted average common shares outstanding (basic) ........................................
Impact of common stock equivalents....................................................................
Weighted average common shares outstanding (diluted)......................................
2015
175,721
1,053
176,774
2014
(in thousands)
186,219
962
187,181
2013
193,334
1,020
194,354
In 2015, 2014 and 2013, 1.7 million, 2.8 million and 3.6 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 2015, 2014 or 2013. See "Note 6 - 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 non-interest expense on the consolidated statements of income.
Variable Interest Entities(VIEs): FASB ASC Topic 810 provides guidance on when to consolidate certain VIEs in the financial
statements of the Corporation. VIEs are entities in which equity investors do not have a controlling financial interest or do not
have sufficient equity at risk for the entity to finance activities without additional financial support from other parties. VIEs are
assessed for consolidation under ASC Topic 810 when the Corporation holds variable interests in these entities. The Corporation
consolidates VIEs when it is deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined to be the party
that has the power to make decisions that most significantly affect the economic performance of the VIE and has the obligation
to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.
The Parent Company owns all of the common stock of three 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 (TruPS).
The Parent Company’s obligations under the debentures constitute a full and unconditional guarantee by the Parent Company of
the obligations of the trusts. The provisions of ASC Topic 810 related to subsidiary trusts, as interpreted by the SEC, disallow
consolidation of subsidiary trusts in the financial statements of the Corporation. As a result, TruPS are not included on the
Corporation’s consolidated balance sheets. The junior subordinated debentures issued by the Parent Company to the subsidiary
trusts, which have the same total balance and rate as the combined equity securities and TruPS issued by the subsidiary trusts,
remain in long-term debt. See "Note 9 - Short-Term Borrowings and Long-Term Debt," for additional information.
79
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
December 31, 2015 and 2014, the Corporation’s tax credit investments, included in other assets on the consolidated balance sheets,
totaled $175.0 million and $155.6 million, respectively. As of December 31, 2015 and 2014, total additional equity commitments
to tax credit investments, recognized in other liabilities on the consolidated balance sheets, were approximately $47.6 million, and
$41.4 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, $10.4 million and $10.3 million in 2015, 2014 and 2013, respectively. There
were no impairment losses recognized for tax credit investments in 2015, 2014 or 2013. The Corporation’s tax credit investments
were not consolidated based on FASB ASC Topic 810 as of December 31, 2015 or 2014.
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 18 - Fair Value Measurements," for additional details.
Recently Adopted 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 was effective for disposals that occur within annual
periods beginning after December 15, 2014. For the Corporation, this standards update was effective with its March 31, 2015
quarterly report on Form 10-Q. The adoption of ASC Update 2014-08 did not have a material impact on the Corporation's
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 was effective
for interim and annual reporting periods beginning after December 15, 2014. For the Corporation, this standards update was
effective with its March 31, 2015 quarterly report on Form 10-Q. The adoption of ASC Update 2014-11 did not 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 was effective for interim and annual reporting periods beginning after December 15, 2014, with earlier
adoption permitted. For the Corporation, this standards update was effective with its March 31, 2015 quarterly report on Form
10-Q. The adoption of ASC Update 2014-12 did not have a material impact on the Corporation’s consolidated financial statements.
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 was effective for interim and annual reporting
periods beginning after December 15, 2014, with earlier adoption permitted. For the Corporation, this standards update was
effective with its March 31, 2015 quarterly report on Form 10-Q. The adoption of ASC Update 2014-14 did not have a material
impact on the Corporation’s consolidated financial statements.
80
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.
Recently Issued Accounting Standards: 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, 2017. Early
application is not permitted. For the Corporation, this standards update is effective with its March 31, 2018 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 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 and interim periods within those annual periods, with earlier adoption permitted. For the Corporation,
this standards update is effective with its March 31, 2016 quarterly 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 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.
In February 2015, the FASB issued ASC Update 2015-02, "Consolidation: Amendments to the Consolidation Analysis." ASC
Update 2015-02 changes the way reporting enterprises evaluate whether: (a) they should consolidate limited partnerships and
similar entities, (b) fees paid to a decision maker or service provider are variable interests in a VIE, and (c) variable interests in a
VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. ASC Update 2015-02
is effective for public business entities' annual and interim reporting periods beginning after December 15, 2015, with earlier
adoption permitted. 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 2015-02 to have a material impact on its consolidated financial
statements.
In April 2015, the FASB issued ASC Update 2015-03, "Interest - Imputation of Interest" and updated ASC Update 2015-03 with
the issuance of ASC Update 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-
of-Credit Arrangements," in August of 2015. ASC Update 2015-03 simplifies the presentation of debt issuances costs. Debt issuance
costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction to the debt liability, similar
to the presentation of debt discounts. Under current U.S. GAAP, debt issuance costs are reported on the balance sheet as assets.
81
The costs will continue to be amortized to interest expense using the effective interest method. ASC Update 2015-03 is effective
for public business entities' annual and interim reporting periods beginning after December 15, 2015, with earlier adoption
permitted. 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 2015-03 to have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASC Update 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement."
ASC Update 2015-05 provides explicit guidance to determine when a customer's fees paid in a cloud computing arrangement is
for the acquisition of software licenses, services, or both. ASC Update 2015-05 is effective for public business entities' annual and
interim reporting periods beginning after December 15, 2015, with earlier adoption permitted. 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 2015-05 to have a material impact on its consolidated financial statements.
In January 2016, the FASB issued ASC Update 2016-01, "Financial Instruments - Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities." ASC Update 2016-01 provides guidance regarding the income statement impact of
equity investments held by an entity and the recognition of changes in fair value of financial liabilities when the fair value is
elected. ASC Update 2016-01 is effective for public business entities' annual and interim reporting periods beginning after December
15, 2017, with earlier adoption permitted. The Corporation intends to adopt this standards update effective with its March 31,
2018 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2016-01 to have a material impact on its
consolidated financial statements.
In February 2016, the FASB issued ASC Update 2016-02, "Leases." This standards update states that a lessee should recognize
the assets and liabilities that arise from all leases with a term greater than 12 months. The core principle requires the lessee to
recognize a liability to make lease payments and a "right-of-use" asset. The accounting applied by the lessor is relatively unchanged
as the majority of operating leases should remain classified as operating leases and the income from them recognized, generally,
on a straight-line basis over the lease term. The standards update also requires expanded qualitative and quantitative disclosures.
For public business entities, ASC Update 2016-02 is effective for interim and annual reporting periods beginning after December
15, 2018. ASC Update 2016-02 mandates a modified retrospective transition for all entities. Early application is permitted. For
the Corporation, this standards update is effective with its March 31, 2019 quarterly report on Form 10-Q. The Corporation is
currently evaluating the impact of the adoption of ASC Update 2016-02 on its consolidated financial statements.
Reclassifications: Certain amounts in the 2014 and 2013 consolidated financial statements and notes have been reclassified to
conform to the 2015 presentation.
NOTE 2 – 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, 2015 and 2014 were $91.1 million and
$97.0 million, respectively.
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NOTE 3 – 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)
— $
2015
U.S. Government securities......................................................... $
25,154
U.S. Government sponsored agency securities ...........................
256,746
State and municipal securities .....................................................
100,336
Corporate debt securities .............................................................
835,439
Collateralized mortgage obligations............................................
1,154,935
Mortgage-backed securities.........................................................
106,772
Auction rate securities .................................................................
2,479,382
Total Debt Securities
14,677
Equity securities ..........................................................................
Total.......................................................................................... $ 2,494,059
2014
200
U.S. Government securities......................................................... $
209
U.S. Government sponsored agency securities ...........................
238,250
State and municipal securities .....................................................
99,016
Corporate debt securities .............................................................
917,395
Collateralized mortgage obligations............................................
914,797
Mortgage-backed securities.........................................................
108,751
Auction rate securities .................................................................
2,278,618
Total Debt Securities
Equity securities ..........................................................................
33,469
Total.......................................................................................... $ 2,312,087
— $
35
6,019
2,695
3,042
10,104
—
21,895
6,845
28,740
$
— $
5
7,231
5,126
5,705
16,978
—
35,045
14,167
49,212
$
— $
(53)
—
(6,076)
(16,972)
(6,204)
(8,713)
(38,018)
(8)
—
25,136
262,765
96,955
821,509
1,158,835
98,059
2,463,259
21,514
(38,026) $ 2,484,773
— $
—
(266)
(6,108)
(20,787)
(2,944)
(7,810)
(37,915)
(13)
200
214
245,215
98,034
902,313
928,831
100,941
2,275,748
47,623
(37,928) $ 2,323,371
$
$
$
Securities carried at $1.7 billion as of both December 31, 2015 and 2014 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 $20.6 million at December 31, 2015 and
$41.8 million at December 31, 2014) and other equity investments (estimated fair value of $914,000 at December 31, 2015 and
$5.8 million at December 31, 2014).
As of December 31, 2015, the financial institutions stock portfolio had a cost basis of $13.9 million and an estimated fair value
of $20.6 million, including an investment in a single financial institution with a cost basis of $7.4 million and an estimated fair
value of $10.2 million. This investment accounted for 49.5% 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
10% of the portfolio's estimated fair value.
83
The amortized cost and estimated fair values of debt securities as of December 31, 2015, 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 ..........................................................................................................................
75,458
85,840
124,190
203,520
489,008
835,439
1,154,935
Total......................................................................................................................................... $ 2,479,382
Collateralized mortgage obligations ...............................................................................................
Mortgage-backed securities ............................................................................................................
$
75,945
87,877
127,103
191,990
482,915
821,509
1,158,835
$ 2,463,259
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)
2015:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
2014:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
2013:
Equity securities .......................................................................... $
Debt securities .............................................................................
Total...................................................................................... $
6,496
2,571
9,067
335
2,058
2,393
4,391
3,787
8,178
$
$
$
$
$
$
(1) $
—
(1) $
— $
(322)
(322) $
(28) $
(22)
(50) $
— $
—
— $
(12) $
(18)
(30) $
(27) $
(97)
(124) $
6,495
2,571
9,066
323
1,718
2,041
4,336
3,668
8,004
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. There were no other-than-temporary impairment
charges recorded as decreases to investment securities gains in 2015.
Equity securities - financial institution stocks
Pooled trust preferred securities
Total other-than-temporary impairment charges
2014
2013
(in thousands)
$
$
12
18
30
$
$
27
97
124
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.
84
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 ........................ $ (16,242) $ (20,691) $ (23,079)
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
—
4,730
(18)
4,460
(97)
2,468
2015
2014
(in thousands)
2013
over the remaining life of the security............................................................................
17
Balance of cumulative credit losses on debt securities, end of year .................................. $ (11,510) $ (16,242) $ (20,691)
2
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, 2015:
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)
U.S. Government sponsored
agency securities
Corporate debt securities
Collateralized mortgage
obligations
Mortgage-backed securities
Auction rate securities
$
9,957
$
12,892
166,007
611,920
—
(53) $
(97)
— $
— $
9,957
$
33,036
(5,979)
45,928
(1,467)
(4,783)
—
467,778
63,818
98,059
(15,505)
(1,421)
(8,713)
(31,618)
(8)
633,785
675,738
98,059
1,463,467
14
(53)
(6,076)
(16,972)
(6,204)
(8,713)
(38,018)
(8)
Total debt securities
800,776
(6,400)
662,691
Equity securities
—
—
14
Total................................... $
800,776
$
(6,400) $
662,705
$
(31,626) $ 1,463,481
$
(38,026)
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 fair
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, 2015.
As of December 31, 2015, all student loan auction rate certificates (ARCs) were current and making scheduled interest payments
and were rated above investment grade, with approximately $5.6 million, or 6%, "AAA" rated and $92.5 million, or 94%, "AA"
rated. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. Based on
management’s evaluations, ARCs with a fair value of $98.1 million were not subject to any other-than-temporary impairment
charges as of December 31, 2015. 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
value, the Corporation does not consider those investments with unrealized holding losses as of December 31, 2015 to be other-
than-temporarily impaired.
85
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:
2015
2014
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.......................... $
44,648
51,653
—
96,301
4,035
100,336
$
$
$
(in thousands)
39,106
53,108
706
92,920
4,035
96,955
$
47,569
47,530
2,010
97,109
1,907
99,016
$
$
42,016
50,023
4,088
96,127
1,907
98,034
Single-issuer trust preferred securities had an unrealized loss of $5.5 million as of December 31, 2015. Seven of the 19 single-
issuer trust preferred securities held were rated below investment grade by at least one ratings agency, with an amortized cost of
$12.5 million and an estimated fair value of $10.7 million as of December 31, 2015. All of the single-issuer trust preferred securities
rated below investment grade were rated "BB" or "Ba." Two single-issuer trust preferred securities with an amortized cost of $3.7
million and an estimated fair value of $2.6 million as of December 31, 2015 were not rated by any ratings agency.
Based on management's evaluations, corporate debt securities with a fair value of $97.0 million were not subject to any additional
other-than-temporary impairment charges as of December 31, 2015. 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.
86
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans, net of unearned income
Loans, net of unearned income are summarized as follows as of December 31:
2015
2014
(in thousands)
Real estate – commercial mortgage................................................................................................ $ 5,462,330
4,088,962
Commercial – industrial, financial and agricultural .......................................................................
1,684,439
Real estate – home equity ...............................................................................................................
1,376,160
Real estate – residential mortgage ..................................................................................................
799,988
Real estate – construction ...............................................................................................................
268,588
Consumer........................................................................................................................................
170,914
Leasing and other............................................................................................................................
2,737
Overdrafts .......................................................................................................................................
13,854,118
Loans, gross of unearned income ............................................................................................
(15,516)
Unearned income ............................................................................................................................
Loans, net of unearned income................................................................................................ $ 13,838,602
$ 5,197,155
3,725,567
1,736,688
1,377,068
690,601
265,431
127,562
4,021
13,124,093
(12,377)
$ 13,111,716
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 $191.6 million and $252.6 million as of December 31, 2015 and 2014,
respectively. During 2015, additions totaled $12,000 and repayments and other changes in related-party loans totaled $61.0 million.
The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.8 billion and $4.9 billion as
of December 31, 2015 and 2014, respectively.
Allowance for Credit Losses
The following table presents the components of the allowance for credit losses as of December 31:
Allowance for loan losses ..................................................................................... $
Reserve for unfunded lending commitments ........................................................
Allowance for credit losses ................................................................................... $
169,054
2,358
171,412
2015
2014
(in thousands)
184,144
$
1,787
185,931
$
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 ........................................................................................... $
2015
185,931
(32,157)
15,388
(16,769)
2,250
171,412
2014
(in thousands)
204,917
$
(44,593)
13,107
(31,486)
12,500
185,931
$
2013
202,780
2,137
204,917
2013
225,439
(80,212)
19,190
(61,022)
40,500
204,917
$
$
$
$
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, 2013..........................
$
55,659
$
50,330
$
28,222
$
33,082
$
12,649
$
3,260
$
3,370
$
16,208
$
202,780
451
(2,467)
(1,543)
3,177
1,968
(4,861)
9,756
—
—
—
(44,593)
13,107
(31,486)
—
—
—
(32,157)
15,388
(16,769)
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)
1,322
916
(1,003)
(1,219)
Provision for loan losses (2)..............................
Balance at December 31, 2014..........................
1,878
53,493
21,308
51,378
4,510
28,271
29,072
758
3,015
(352)
(8,848)
12,850
1,799
7,360
184,144
Loans charged off..............................................
(4,218)
(15,639)
(3,604)
(3,612)
(201)
(2,227)
(2,656)
Recoveries of loans previously charged off ......
2,801
5,264
Net loans charged off ........................................
(1,417)
(10,375)
Provision for loan losses (2)..............................
(4,210)
16,095
1,362
(2,242)
(3,624)
1,322
(2,290)
(5,407)
2,824
2,623
1,130
685
(1,097)
(1,971)
(5,850)
667
2,640
1,368
1,679
Balance at December 31, 2015..........................
$
47,866
$
57,098
$
22,405
$
21,375
$
6,529
$
2,585
$
2,468
$
8,728
$
169,054
Allowance for loan losses at December 31, 2015
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, 2015
35,395
$
42,515
$
14,412
$
7,953
$
4,134
$
2,563
$
1,764
$
8,728
$
117,464
12,471
14,583
7,993
13,422
2,395
22
704
N/A
51,590
47,866
$
57,098
$
22,405
$
21,375
$
6,529
$
2,585
$
2,468
$
8,728
$
169,054
Measured for impairment under FASB ASC
Subtopic 450-20 ..........................................
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
$
5,404,036
$
4,040,810
$
1,668,673
$
1,325,735
$
784,002
$
268,555
$
156,710
N/A
$ 13,648,521
58,294
48,152
15,766
50,425
15,986
33
1,425
N/A
190,081
$
5,462,330
$
4,088,962
$
1,684,439
$
1,376,160
$
799,988
$
268,588
$
158,135
N/A
$ 13,838,602
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
(1)
(2)
The unallocated allowance, which was approximately 5% and 4% of the total allowance for credit losses as of December 31, 2015 and December 31, 2014,
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, 2015, the provision for loan losses excluded a $571,000 increase in the reserve for unfunded lending commitments. The
total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $2.3 million for the year ended December 31, 2015. 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, was $12.5 million for the year ended December 31, 2014.
N/A – Not applicable.
88
Impaired Loans
The following table presents total impaired loans by class segment as of December 31:
2015
2014
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 - 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 ...........
27,872
$
22,596
$
18,012
13,702
4,790
9,916
—
4,790
8,865
—
60,590
49,953
— $
—
—
—
—
45,189
39,659
971
20,347
55,242
9,949
820
331
14
19
35,698
33,629
821
15,766
45,635
6,290
638
193
14
19
1,658
1,425
12,471
14,085
498
7,993
13,422
2,110
217
68
8
14
704
25,802
$
23,236
$
17,599
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
—
14,582
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
—
Total........................................................ $
234,789
$
190,081
$
51,590
$
235,704
$
188,701
$
174,199
140,128
51,590
167,682
129,628
—
—
—
—
—
16,715
12,165
865
9,224
18,592
2,675
459
137
18
17
—
60,867
60,867
As of December 31, 2015 and 2014, there were $50.0 million and $59.1 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:
2015
2014
2013
Average
Recorded
Investment
Interest
Income
Recognized
(1)
Average
Recorded
Investment
Interest
Income
Recognized
(1)
Average
Recorded
Investment
Interest
Income
Recognized
(1)
(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage ...... $
Commercial - secured...........................
Commercial - unsecured.......................
Real estate - home equity .....................
Real estate - residential mortgage ........
Construction - commercial residential .
Construction - commercial ...................
With a related allowance recorded:
Real estate - commercial mortgage ......
Commercial - secured...........................
Commercial - unsecured.......................
Real estate - home equity .....................
Real estate - residential mortgage ........
Construction - commercial residential .
Construction - commercial ...................
Construction - other..............................
Consumer - indirect ..............................
Consumer - direct .................................
Leasing and other and overdrafts .........
25,345
$
315
$
23,467
$
15,654
17
—
5,389
11,685
915
59,005
39,232
25,660
1,749
13,887
46,252
6,455
931
263
16
17
285
97
—
—
124
148
—
684
475
150
6
144
1,041
79
—
—
1
1
—
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
—
$
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
Total...................................................... $
193,752
$
2,581
$
196,851
$
2,777
$
237,262
$
134,747
1,897
135,416
2,079
154,050
489
173
—
1
25
256
2
946
706
153
5
65
1,210
168
3
1
—
—
—
2,311
3,257
(1) All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the years ended December 31, 2015, 2014 and 2013
represents amounts earned on accruing TDRs.
90
Credit Quality Indicators and Non-performing Assets
The following table presents internal credit risk ratings as of December 31:
Pass
Special Mention
Substandard or Lower
Total
2015
2014
2015
2014
2015
2014
2015
2014
(dollars in thousands)
Real estate - commercial
mortgage .................................. $
5,204,263
$ 4,899,016
$
102,625
$
127,302
$
155,442
$
170,837
$
5,462,330
$ 5,197,155
Commercial - secured ...................
3,696,692
Commercial -unsecured ................
156,742
3,333,486
146,680
92,711
2,761
120,584
7,463
136,710
3,346
110,544
6,810
3,926,113
3,564,614
162,849
160,953
Total commercial - industrial,
financial and agricultural ...
Construction - commercial
residential.................................
Construction - commercial ...........
Total real estate - construction
(excluding construction -
other)..................................
3,853,434
3,480,166
95,472
128,047
140,056
117,354
4,088,962
3,725,567
140,337
552,710
136,109
409,631
17,154
3,684
27,495
12,202
21,812
3,597
40,066
5,586
179,303
559,991
203,670
427,419
693,047
545,740
20,838
39,697
25,409
45,652
739,294
631,089
Total .............................................. $
9,750,744
$ 8,924,922
$
218,935
$
295,046
$
320,907
$
333,843
$ 10,290,586
$ 9,553,811
% of Total......................................
94.8%
93.4%
2.1%
3.1%
3.1%
3.5%
100.0%
100.0%
The following table presents delinquency and non-performing status for loans that do not have internal credit risk ratings, by class
segment, as of December 31:
Performing
Delinquent (1)
Non-performing (2)
Total
2015
2014
2015
2014
2015
2014
2015
2014
(dollars in thousands)
Real estate - home equity ............ $
1,660,773
$ 1,711,017
$
8,983
$
10,931
$
14,683
$
14,740
$
1,684,439
$ 1,736,688
Real estate - residential
mortgage ................................
1,329,371
1,321,139
18,305
26,934
28,484
28,995
1,376,160
1,377,068
Real estate - construction - other.
Consumer - direct........................
Consumer - indirect.....................
Total consumer.....................
Leasing and other and overdrafts
59,997
94,262
166,823
261,085
155,870
59,180
104,018
153,358
257,376
118,550
88
2,254
2,809
5,063
759
—
2,891
2,574
5,465
523
609
2,203
237
2,440
1,506
332
2,414
176
2,590
133
60,694
98,719
169,869
268,588
158,135
59,512
109,323
156,108
265,431
119,206
Total ............................................ $
3,467,096
$ 3,467,262
$
33,198
$
43,853
$
47,722
$
46,790
$
3,548,016
$ 3,557,905
% of Total....................................
97.7%
97.5%
1.0%
1.2%
1.3%
1.3%
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 total non-performing assets as of December 31:
Non-accrual loans ........................................................................................................................... $
Loans 90 days or more past due and still accruing.........................................................................
Total non-performing loans.....................................................................................................
Other real estate owned ..................................................................................................................
Total non-performing assets .................................................................................................... $
2015
2014
(in thousands)
129,523
15,291
144,814
11,099
155,913
$
$
121,080
17,402
138,482
12,022
150,504
91
The following table presents past due status and non-accrual loans, by portfolio segment and class segment, as of December 31:
2015
30-59
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.................................... $
6,469
$
1,312
$
439
$
40,731
$
41,170
$
48,951
$ 5,413,379
$ 5,462,330
Commercial - secured ........................................................
Commercial - unsecured ....................................................
Total Commercial - industrial, financial and agricultural..
Real estate - home equity...................................................
5,654
510
6,164
6,438
Real estate - residential mortgage ......................................
15,141
Construction - commercial.................................................
50
Construction - commercial residential ...............................
1,366
Construction - other ...........................................................
Total Real estate - construction..........................................
Consumer - direct...............................................................
Consumer - indirect............................................................
Total Consumer..................................................................
Leasing and other and overdrafts.......................................
88
1,504
1,687
2,308
3,995
483
2,615
83
2,698
2,545
3,164
176
494
—
670
567
501
1,068
276
1,853
19
1,872
3,473
6,570
—
—
416
416
2,203
237
2,440
81
41,498
701
42,199
11,210
21,914
638
43,351
720
44,071
14,683
28,484
638
51,620
3,874,493
3,926,113
1,313
161,536
162,849
52,933
4,036,029
4,088,962
23,666
1,660,773
1,684,439
46,789
1,329,371
1,376,160
864
559,127
559,991
11,213
11,213
13,073
166,230
179,303
193
609
697
59,997
60,694
12,044
12,460
14,634
785,354
799,988
—
—
—
1,425
2,203
237
2,440
1,506
4,457
3,046
7,503
2,265
94,262
98,719
166,823
169,869
261,085
268,588
155,870
158,135
$
40,194
$
11,733
$
15,291
$
129,523
$
144,814
$
196,741
$13,641,861
$13,838,602
2014
30-59
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
92
The following table presents TDRs as of December 31:
2015
2014
Real-estate - residential mortgage .................................................................................................. $
Real-estate - commercial mortgage................................................................................................
Construction - commercial residential ...........................................................................................
Commercial - secured.....................................................................................................................
Real estate - home equity ...............................................................................................................
Commercial - unsecured.................................................................................................................
Consumer - direct ...........................................................................................................................
Consumer - indirect ........................................................................................................................
Total accruing TDRs..................................................................................................................
Non-accrual TDRs (1) ....................................................................................................................
Total TDRs ................................................................................................................................ $
(1)
Included within non-accrual loans in the preceding table.
$
(in thousands)
28,511
17,563
3,942
5,833
4,556
120
19
14
60,558
31,035
91,593
$
31,308
18,822
9,241
5,170
2,975
67
19
19
67,621
24,616
92,237
As of December 31, 2015 and 2014, there were $5.3 million and $3.9 million, respectively, of commitments to lend additional
funds to borrowers whose loans were modified under TDRs.
93
The following table presents TDRs by class segment and type of concession for loans that were modified during the years ended
December 31, 2015 and 2014:
2015
Post-
Modification
Recorded
Investment
Number
of Loans
(dollars in thousands)
2014
Post-
Modification
Recorded
Investment
Number
of Loans
Commercial – secured:
Extend maturity with rate concession ..................................................
Extend maturity without rate concession .............................................
Commercial – unsecured:
Extend maturity without rate concession .............................................
Real estate - commercial mortgage:
Extend maturity with rate concession ..................................................
Extend maturity without rate concession .............................................
Real estate - home equity:
Extend maturity with rate concession ..................................................
Extend maturity without rate concession .............................................
Bankruptcy ...........................................................................................
Real estate – residential mortgage:
Extend maturity with rate concession ..................................................
Extend maturity without rate concession .............................................
Bankruptcy ...........................................................................................
Construction - commercial residential:
Extend maturity without rate concession .............................................
Consumer - direct:
Bankruptcy ...........................................................................................
Consumer - indirect:
Bankruptcy ...........................................................................................
$
2
9
1
5
4
2
3
52
4
3
7
1
2
1
127
3,785
38
2,014
639
36
203
2,501
750
262
2,508
1,535
6
12
$
3
8
—
1
7
—
—
30
2
2
19
3
7
4
315
1,640
—
60
6,781
—
—
1,551
390
210
1,807
3,616
7
20
Total
96
$
14,416
86
$
16,397
The following table presents TDRs, by class segment, as of December 31, 2015 and 2014 that were modified during the years
ended December 31, 2015 and 2014 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:
2015
2014
Number
of Loans
Recorded
Investment
Number
of Loans
(dollars in thousands)
Recorded
Investment
Construction - commercial residential........................................................... —
4
Real estate - commercial mortgage ...............................................................
4
Real estate - residential mortgage..................................................................
8
Commercial - secured....................................................................................
13
Real estate - home equity ..............................................................................
Consumer - direct .......................................................................................... —
29
Total...............................................................................................................
$
$
—
359
445
3,549
763
—
5,116
2
2
11
4
11
1
31
$
$
1,803
1,660
1,430
1,208
961
1
7,063
94
NOTE 5 – PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
2015
2014
Land ................................................................................................................................................ $
Buildings and improvements ..........................................................................................................
Furniture and equipment.................................................................................................................
Construction in progress .................................................................................................................
Less: Accumulated depreciation and amortization.........................................................................
$
$
(in thousands)
37,380
297,018
136,029
16,585
487,012
(261,477)
225,535
37,667
287,271
176,808
21,055
522,801
(296,774)
226,027
$
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the changes in goodwill:
Balance at beginning of year................................................................................. $
Other goodwill deductions ....................................................................................
Balance at end of year ........................................................................................... $
530,593
—
530,593
2015
2014
(in thousands)
530,607
$
(14)
530,593
$
$
$
2013
530,656
(49)
530,607
All of the Corporation’s reporting units passed the 2015 goodwill impairment test, resulting in no goodwill impairment charges
in 2015. One reporting unit, with total allocated goodwill of $167.5 million, had a fair value that exceeded adjusted net book value
by less than 5%. The remaining six reporting units, with total allocated goodwill of $363.1 million, had fair values that exceeded
net book values by approximately 51% in the aggregate.
The estimated fair values of the Corporation’s reporting units are subject to uncertainty, including future changes in fair values of
banks in general and future operating results of reporting units, which could differ significantly from the assumptions used in the
valuation of reporting units.
The following table summarizes intangible assets as of December 31:
2015
Accumulated
Amortization
Gross
2014
Accumulated
Amortization
Net
Net
Gross
(in thousands)
Amortizing:
Core deposit .................... $
Other................................
Total amortizing .....................
Non-amortizing ......................
50,279
$
(50,279) $
9,123
59,402
963
(9,123)
(59,402)
—
$
60,365
$
(59,402) $
— $
—
—
963
963
$
50,279
$
9,123
59,402
963
60,365
$
(50,054) $
(9,101)
(59,155)
—
(59,155) $
225
22
247
963
1,210
Core deposit intangible assets are amortized using an accelerated method over the estimated remaining life of the acquired core
deposits. Other amortizing intangible assets consist 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, 2015, all amortizing intangible assets
were fully amortized. Amortization expense related to intangible assets totaled $247,000, $1.3 million and $2.4 million in 2015,
2014 and 2013, respectively. No amortization is expected in future years with respect to these intangible assets.
95
NOTE 7 – 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........................................................................................................... $
2015
2014
(in thousands)
42,148
6,166
(7,370)
40,944
$
$
42,452
5,047
(5,351)
42,148
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 accounts for
MSRs at the lower of amortized cost or fair value.
The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the
expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is
based on the contractual terms of the loans, as adjusted for estimated prepayments.
The estimated fair value of MSRs were $45.3 million and $46.0 million as of December 31, 2015 and 2014, respectively, which
exceeded their book values
Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income,
was $7.4 million and $5.4 million in 2015 and 2014, respectively. Estimated MSR amortization expense for the next five years,
based on balances as of December 31, 2015 and the estimated remaining lives of the underlying loans, follows (in thousands):
Year
2016.......................................................................................................................................................................... $
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
10,681
9,292
7,774
6,118
4,316
96
NOTE 8 – DEPOSITS
Deposits consisted of the following as of December 31:
2015
2014
(in thousands)
Noninterest-bearing demand........................................................................................................... $ 3,948,114
3,451,207
Interest-bearing demand .................................................................................................................
3,868,046
Savings and money market accounts..............................................................................................
2,864,950
Time deposits..................................................................................................................................
$ 14,132,317
$ 3,640,623
3,150,612
3,504,820
3,071,451
$ 13,367,506
Included in time deposits were certificates of deposit equal to or greater than $100,000 of $1.2 billion as of both December 31,
2015 and 2014. Time deposits of $250,000 or more were $359.9 million and $366.7 million as of December 31, 2015 and 2014,
respectively. The scheduled maturities of time deposits as of December 31, 2015 were as follows (in thousands):
Year
2016.......................................................................................................................................................................... $ 1,342,716
508,171
2017..........................................................................................................................................................................
239,480
2018..........................................................................................................................................................................
527,480
2019..........................................................................................................................................................................
163,559
2020..........................................................................................................................................................................
83,544
Thereafter .................................................................................................................................................................
$ 2,864,950
97
NOTE 9 – SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of December 31, 2015, 2014 and 2013 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.
2015
December 31,
2014
2013
Maximum Outstanding
2014
2015
2013
(in thousands)
Federal funds purchased.......................... $
Short-term FHLB advances (1)...............
Customer repurchase agreements............
Customer short-term promissory notes ...
$
197,235
110,000
111,496
78,932
497,663
$
6,219
70,000
158,394
95,106
$ 329,719
$
582,436
400,000
175,621
100,572
$ 1,258,629
$
266,338
200,000
212,509
93,176
$
577,581
600,000
244,729
95,106
$
848,179
600,000
215,305
115,129
(1) Represents FHLB advances with an original maturity term of less than one year.
As of December 31, 2015, the Corporation had aggregate availability under Federal funds lines of $1.0 billion, with $197.2 million
borrowed against that amount. A combination of commercial real estate loans, commercial loans and securities were pledged to
the Federal Reserve Bank of Philadelphia to provide access to Federal Reserve Bank Discount Window borrowings. As of
December 31, 2015 and 2014, the Corporation had $1.2 billion and $1.1 billion, respectively, of collateralized borrowing availability
at the Discount Window, and no outstanding borrowings.
The following table presents information related to customer repurchase agreements:
2015
Amount outstanding as of December 31............................................................... $ 111,496
Weighted average interest rate as of December 31...............................................
Average amount outstanding during the year........................................................ $ 161,093
Weighted average interest rate during the year.....................................................
0.10%
0.15%
2014
(dollars in thousands)
$
158,394
$
2013
175,621
0.13%
0.12%
$
197,432
$
186,851
0.10%
0.11%
FHLB advances with an original maturity of one year or more and long-term debt included the following as of December 31:
FHLB advances .............................................................................................................................. $
Subordinated debt ...........................................................................................................................
Junior subordinated deferrable interest debentures ........................................................................
Unamortized discounts and issuance costs .....................................................................................
$
2015
2014
(in thousands)
587,756
350,000
16,496
(4,710)
949,542
$
673,107
300,000
171,136
(4,830)
$ 1,139,413
Excluded from the preceding table is the Parent Company’s revolving line of credit with its subsidiary banks. As of December 31,
2015 and 2014, 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%. The amount that the Corporation is permitted to borrow under this commitment at any given time is subject to a
formula based on a percentage of the value of the collateral pledged. 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 October 2022 and carry a weighted average interest rate of 3.9%. As of December 31, 2015, 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.
98
The following table summarizes the scheduled maturities of FHLB advances with an original maturity of one year or more and
long-term debt as of December 31, 2015 (in thousands):
Year
2016 ................................................................................................................................................................ $
2017 ................................................................................................................................................................
2018 ................................................................................................................................................................
2019 ................................................................................................................................................................
2020 ................................................................................................................................................................
Thereafter........................................................................................................................................................
$
235,937
114,539
—
186,760
142,370
269,936
949,542
In June 2015, the Corporation issued $150.0 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 4.69% as a result of discounts and issuance costs. Interest is
paid semi-annually in May and November. In November 2014, the Corporation issued $100.0 million of 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 discounts and issuance costs. Interest is paid semi-annually in May and November. In May 2007, the Corporation issued
$100.0 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 discounts and issuance costs. Interest is paid semi-annually in May and November.
On April 1, 2015, $100.0 million of the Corporation's outstanding subordinated debt originally issued in March 2005, with an
effective rate of approximately 5.49%, matured and was fully repaid.
As of December 31, 2015, the Parent Company owned all of the common stock of three subsidiary trusts, which have issued TruPS
in conjunction with the Parent Company issuing junior subordinated deferrable interest debentures to the trusts. The TruPS are
redeemable on specified dates, or earlier if certain events arise. In the third quarter of 2015, $150.0 million of TruPS, with a
scheduled maturity of February 1, 2036 and an effective rate of approximately 6.52%, were redeemed. As a result of this transaction,
the Corporation recorded a $5.6 million loss on redemption, included as a component of non-interest expense. The loss on
redemption consisted of $1.8 million of unamortized issuance costs and $2.5 million, net of a $1.3 million tax effect, of unamortized
losses on a cash flow hedge recorded in accumulated other comprehensive income.
The following table provides details of the debentures as of December 31, 2015 (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
Interest
Rate
Amount
Maturity
Callable
2.88% $
2.40%
2.28%
6,186
4,124
6,186
$
16,496
06/30/34
03/15/35
06/15/35
03/31/16
03/15/16
03/15/16
Call
Price
100.0
100.0
100.0
99
NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the notional amounts and fair values of derivative financial instruments as of December 31:
2015
2014
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..................................
87,781
267
$
$
1,291
(16)
1,275
89,655
301
$
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 .........................................
69,045
16,193
846,490
8,757
8,757
846,490
4,897
8,050
9,728
6,899
$
205
(24)
181
32,915
(55)
32,860
55
(32,915)
(32,860)
114
(184)
(70)
428
(147)
281
1,667
—
93,802
468,080
25,418
25,418
468,080
11,616
5,250
5,287
13,572
$
1,391
(6)
1,385
—
(1,164)
(1,164)
19,716
(198)
19,518
198
(19,716)
(19,518)
810
(441)
369
446
(876)
(430)
160
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 gains (losses) on derivative financial
instruments .................................................................. $
2015
2014
(in thousands)
2013
Statement of Income
Classification
$
(110) $
1,345
13,342
(13,342)
(439)
711
577
(2,422)
20,406
(20,406)
688
(880)
(5,949) Mortgage banking income
1,466 Mortgage banking income
(7,978) Other non-interest expense
7,978 Other non-interest expense
(108) Other service charges and fees
507 Other service charges and fees
1,507
$
(2,037) $
(4,084)
100
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, 2015 and 2014:
Cost (1)
Fair Value
Balance Sheet
Classification
Fair Value
(Loss) Gain
Statement of Income
Classification
(in thousands)
16,584
$
16,886 Loans held for sale
$
(140) Mortgage banking income
December 31, 2015:
Mortgage loans held for sale ... $
December 31, 2014:
Mortgage loans held for sale ...
17,080
17,522 Loans held for sale
263 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 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)
2015
Interest rate swap derivative assets.................................................. $
Foreign exchange derivative assets with correspondent banks .......
Total
$
Interest rate swap liabilities ............................................................. $
Foreign exchange derivative liabilities with correspondent banks
Total
$
2014
Interest rate swap derivative assets.................................................. $
Foreign exchange derivative assets with correspondent banks
Total
$
Interest rate swap liabilities ............................................................. $
Foreign exchange derivative liabilities with correspondent banks..
Total.............................................................................................. $
32,970
428
33,398
32,970
147
33,117
19,914
446
20,360
19,914
876
20,790
$
$
$
$
$
$
$
$
(55) $
(147)
(202) $
(55) $
(147)
(202) $
(206) $
(446)
(652) $
(206) $
(446)
(652) $
— $ 32,915
—
281
— $ 33,196
(31,130) $ 1,785
—
(31,130) $ 1,785
—
— $ 19,708
—
—
— $ 19,708
(19,210) $
(310)
(19,520) $
498
120
618
(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 11 – 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
101
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.
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;
• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses.
Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, will be excluded as a
component of Tier 1 capital for institutions of the Corporation's size. In July 2015, the previously outstanding trust
preferred securities issued by Fulton Capital Trust I were redeemed.
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 previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive
number of categories, depending on the nature of the assets and off-balance sheet exposures, resulting in higher risk weights for
a variety of asset categories.
When fully phased in on January 1, 2019, the Corporation and its bank subsidiaries will also be required to maintain a "capital
conservation buffer" of 2.50% above the minimum risk-based capital requirements. The required minimum capital conservation
buffer began to be phased in incrementally, starting at 0.625%, on January 1, 2016, and will increase to 1.25% on January 1, 2017,
1.875% on January 1, 2018 and 2.50% on January 1, 2019. The 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 may make it more difficult for the Corporation to
retain key personnel.
As of December 31, 2015, the Corporation believes its current capital levels would meet the fully-phased in minimum capital
requirements, including the new capital conservation buffers, as prescribed in the U.S. Basel III Capital Rules.
As of December 31, 2015 and 2014, each of the Corporation’s subsidiary banks 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, 2015 that management believes have changed the institutions’ categories.
102
The following table presents the Total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage
requirements for the Corporation and its four significant subsidiaries, Fulton Bank, N.A., Fulton Bank of New Jersey, The Columbia
Bank and Lafayette Ambassador Bank with total assets in excess of $1 billion, as of December 31, 2015, under the U.S. Basel III
Capital Rules:
2015
For Capital
Adequacy Purposes
Actual
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation.................................................................... $ 1,997,926
Fulton Bank, N.A. .........................................................
1,088,709
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
373,465
211,355
172,345
13.2% $ 1,214,868
8.0%
N/A
N/A
12.2
12.6
13.7
14.1
714,734
236,691
123,260
97,792
8.0
8.0
8.0
8.0
$
893,418
10.0%
295,864
154,075
122,240
10.0
10.0
10.0
Tier I Capital (to Risk-Weighted Assets):
Corporation.................................................................... $ 1,544,495
Fulton Bank, N.A...........................................................
1,000,603
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
336,319
192,090
162,092
10.2% $
911,151
6.0%
N/A
11.2
11.4
12.5
13.3
536,051
177,518
92,445
73,344
6.0
6.0
6.0
6.0
$
714,734
236,691
123,260
97,792
N/A
8.0%
8.0
8.0
8.0
Common Equity Tier I Capital (to Risk-weighted Assets):
Corporation.................................................................... $ 1,541,214
Fulton Bank, N.A...........................................................
956,603
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
336,319
192,090
162,092
10.2% $
683,363
4.5%
N/A
N/A
10.7
11.4
12.5
13.3
402,038
133,139
69,334
55,008
4.5
4.5
4.5
4.5
$
580,721
6.5%
192,311
100,149
79,456
6.5
6.5
6.5
9.0% $
688,500
4.0%
N/A
391,783
141,257
79,618
59,152
4.0
4.0
4.0
4.0
$
489,729
176,572
99,523
73,940
N/A
5.0%
5.0
5.0
5.0
Tier I Capital (to Average Assets):
Corporation.................................................................... $ 1,544,495
Fulton Bank, N.A...........................................................
1,000,603
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
336,319
192,090
10.2
9.5
9.7
Lafayette Ambassador Bank..........................................
162,092
11.0
N/A – Not applicable as "well capitalized" applies to banks only.
103
The following table presents the Total risk-based, Tier I risk-based and Tier I leverage requirements as of December 31, 2014,
under the capital standards in existence prior to the U.S. Basel III Capital Rules:
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
1,065,445
Fulton Bank, N.A...............................
347,235
Fulton Bank of New Jersey................
203,109
The Columbia Bank ...........................
167,800
Lafayette Ambassador Bank ..............
Tier I Capital (to Risk-Weighted Assets):
Corporation ........................................ $ 1,655,853
977,547
Fulton Bank, N.A...............................
313,843
Fulton Bank of New Jersey................
184,331
The Columbia Bank ...........................
154,817
Lafayette Ambassador Bank ..............
Tier I Capital (to Average Assets):
Corporation ........................................ $ 1,655,853
977,547
Fulton Bank, N.A...............................
313,843
Fulton Bank of New Jersey................
184,331
The Columbia Bank ...........................
154,817
Lafayette Ambassador Bank ..............
N/A – Not applicable as "well capitalized" applies to banks only.
Dividend and Loan Limitations
14.7% $ 1,076,013
643,791
13.2
211,823
13.1
119,934
13.5
84,407
15.9
12.3
12.1
11.9
12.3
14.7
10.0
10.5
9.4
9.4
10.8
$ 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
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
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 $236 million as
of December 31, 2015, based on the subsidiary banks maintaining enough capital to be considered well capitalized under the U.S.
Basel III Capital Rules.
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.
Regulatory Enforcement Orders
The Corporation and each of its bank subsidiaries are subject to regulatory enforcement orders issued during 2014 and 2015 by
their respective Federal and state bank regulatory agencies relating to identified deficiencies in the Corporation’s 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 regulatory enforcement orders, which are in the form of consent orders or orders
to cease and desist issued upon consent (Consent Orders), generally require, among other things, that the Corporation and its bank
subsidiaries undertake a number of required 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 Consent Orders remain in effect, the Corporation is subject to certain restrictions on
expansion activities of the Corporation and its bank subsidiaries. Further, any failure to comply with the requirements of any of
104
the Consent Orders involving the Corporation or its bank subsidiaries could result in further enforcement actions, the imposition
of material restrictions on the activities of the Corporation or its bank subsidiaries, or the assessment of fines or penalties.
NOTE 12 – INCOME TAXES
The components of the provision for income taxes are as follows:
Current tax expense:
Federal .......................................................................................................... $
State ..............................................................................................................
Deferred tax expense (benefit):
Federal ..........................................................................................................
State ..............................................................................................................
Income tax expense.............................................................................................. $
2015
2014
(in thousands)
2013
34,455
2,042
36,497
12,752
672
13,424
49,921
$
$
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
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
2015
2014
2013
Statutory tax rate ...................................................................................................
Tax-exempt income...............................................................................................
Tax Credit Investments .........................................................................................
Change in valuation allowance .............................................................................
Bank owned life insurance ....................................................................................
State income taxes, net of federal benefit .............................................................
Executive compensation .......................................................................................
Other, net...............................................................................................................
Effective income tax rate ......................................................................................
35.0%
(6.0)
(5.2)
(0.9)
(0.6)
1.9
0.1
0.7
25.0%
35.0%
(5.4)
(4.9)
(0.8)
(0.5)
1.2
0.1
(0.3)
24.4%
35.0%
(5.2)
(4.9)
(2.0)
(0.5)
1.1
0.1
0.4
24.0%
105
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 ................................................................................
Deferred compensation............................................................................................................
State loss carryforwards ..........................................................................................................
Other accrued expenses ...........................................................................................................
Other-than-temporary impairment of investments ..................................................................
Unrealized holding losses on securities available for sale ......................................................
Other ........................................................................................................................................
Total gross deferred tax assets..........................................................................................
Deferred tax liabilities:
Direct leasing...........................................................................................................................
Mortgage servicing rights........................................................................................................
Acquisition premiums/discounts .............................................................................................
Premises and equipment ..........................................................................................................
Intangible assets.......................................................................................................................
Unrealized holding gains on securities available for sale .......................................................
Other ........................................................................................................................................
Total gross deferred tax liabilities ....................................................................................
Net deferred tax asset, before valuation allowance..........................................................
Valuation allowance .........................................................................................................
Net deferred tax asset ....................................................................................................... $
2015
2014
(in thousands)
62,846
13,070
11,839
11,170
7,142
5,501
3,250
10,165
124,983
20,309
14,582
8,897
5,955
1,614
—
9,593
60,950
64,033
(8,359)
55,674
$
$
68,407
16,017
12,486
12,960
7,335
8,126
—
8,433
133,764
12,399
15,004
8,200
7,897
1,382
3,949
7,960
56,791
76,973
(10,187)
66,786
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, 2015 and 2014, the Corporation had state net operating loss carryforwards of approximately $424 million
and $451 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2035.
The Corporation has $5.3 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 $3.4 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 to be necessary as of December 31, 2015.
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, 2015.
106
Uncertain Tax Positions
The following summarizes the changes in unrecognized tax benefits for the years ended December 31:
2015
2014
(in thousands)
2013
Balance at beginning of year .............................................................................................. $
Prior period tax positions ...................................................................................................
Current period tax positions ...............................................................................................
Lapse of statute of limitations ............................................................................................
Balance at end of year ........................................................................................................ $
1,944
—
492
(63)
2,373
$
$
1,651
188
269
(164)
1,944
$
$
1,453
—
318
(120)
1,651
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 $391,000
is expected to reverse in 2016 due to lapsing of the statute of limitations. Decreases can also occur through the settlement of
positions with taxing authorities.
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, 2015, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate.
Not included in the table above is $806,000 of federal income 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
$46,000 of interest and penalty expense, net of reversals, in income tax expense related to unrecognized tax positions in 2015. As
of December 31, 2015 and 2014, total accrued interest and penalties related to unrecognized tax positions were approximately
$531,000 and $485,000, 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 2012.
NOTE 13 – 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 ..........................................................................................................
$
2015
6,423
4,102
10,525
2014
(in thousands)
8,643
$
1,514
10,157
$
$
$
2013
11,807
2,477
14,284
The 401(k) Retirement Plan is a defined contribution plan under which eligible employees may defer a portion of their pre-tax
covered compensation on an annual basis, with employer matches of up to 5% of employee compensation. Employee and employer
contributions under these features are 100% vested. Prior to January 1, 2015, this plan also included a profit sharing component
whereby additional employer contributions not to exceed 5% of each eligible employee’s covered compensation, were provided
for certain employees.
Contributions to the Defined Benefit Pension Plan (Pension Plan) are actuarially determined and funded annually, if necessary.
The Corporation recognizes the funded status of its Pension Plan on the consolidated balance sheets and recognizes the changes
in that funded status through other comprehensive income. The Pension Plan has been curtailed, with no additional benefits accruing
to participants.
107
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 ...................................................................................... $
2015
579
3,405
(3,009)
3,127
4,102
2014
(in thousands)
367
$
3,413
(3,240)
974
1,514
$
$
$
2013
202
3,087
(3,194)
2,382
2,477
(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:
2015
2014
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)
93,079
579
3,405
(3,904)
(7,722)
(701)
84,736
$
Fair value of plan assets at beginning of year................................................................................. $
Actual return on assets....................................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year........................................................................................... $
51,730
(855)
(3,904)
46,971
$
$
73,362
367
3,413
(5,164)
22,055
(954)
93,079
55,448
1,446
(5,164)
51,730
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 .................................................................................................................................. $
(84,736) $
46,971
(37,765) $
(93,079)
51,730
(41,349)
The following table summarizes the changes in the unrecognized net loss included as a component of accumulated other
comprehensive loss:
2015
2014
(in thousands)
Unrecognized Net Loss
Net of tax
Gross of tax
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 ..................................................................................................
Recognized as a component of 2015 periodic pension cost ...........................................................
Unrecognized gains arising in 2015 ...............................................................................................
Balance as of December 31, 2015 .................................................................................................. $
108
$
(in thousands)
16,161
(974)
22,895
38,082
(3,127)
(4,559)
30,396
$
10,505
(633)
14,882
24,754
(2,033)
(2,963)
19,758
The total amount of unrecognized net loss that will be amortized as a component of net periodic pension cost in 2016 is expected
to be $2.4 million.
The following rates were used to calculate net periodic pension cost and the present value of benefit obligations as of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
4.25%
6.00%
3.75%
6.00%
4.75%
6.00%
2015
2014
2013
As of December 31, 2015 and 2014, the discount rate used was determined using the Citigroup Average Life discount rate table,
as adjusted based on the Pension Plan's expected benefit payments and rounded to the nearest 0.25%.
The 6.00% long-term rate of return on plan assets used to calculate the net periodic pension cost was based on historical returns,
adjusted for expectations of long-term asset returns based on the December 31, 2015 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:
2015
2014
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..............................................
$
8,269
6,350
14,619
8,196
9,578
3,749
2,881
24,404
7,948
46,971
$
31.1%
52.0%
16.9%
100.0% $
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%
Investment allocation decisions are made by a retirement plan committee. The goal of the investment allocation strategy is to
match certain benefit obligations with maturities of fixed income securities. Pension Plan assets are invested with a conservative
growth objective, with target asset allocations of approximately 25% in equities, 55% in fixed income securities and cash and
20% in alternative investments. Alternative investments may include managed futures, commodities, real estate investment trusts,
master limited partnerships, and long-short strategies with traditional stocks and bonds. All alternative investments are in the form
of mutual funds, not individual contracts, to enable daily liquidity.
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
2016.......................................................................................................................................................................... $
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
2021 – 2025..............................................................................................................................................................
$
3,125
3,367
3,727
3,838
4,227
23,903
42,187
109
Postretirement Benefits
The Corporation provides medical benefits and life insurance benefits under a postretirement benefits plan (Postretirement Plan)
to certain retired full-time employees who were employees of the Corporation prior to January 1, 1998. Prior to February 1, 2014,
certain full-time employees became eligible for these discretionary benefits if they reached retirement age while working for the
Corporation. The Corporation recognizes the funded status of the postretirement plan on the consolidated balance sheets and
recognizes the changes in that funded status through other comprehensive income.
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 expense in 2014. 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.
In 2015, the Corporation amended the postretirement plan to eliminate a death benefit provision and to fix the cost of health
insurance premiums paid for by each participant. This amendment resulted in a $2.5 million decrease in the postretirement benefit
obligation that will be amortized to income over the estimated average remaining life of plan participants, or approximately 14
years.
The components of the expense for postretirement benefits other than pensions are as follows:
2015
Service cost ........................................................................................................... $
Interest cost ...........................................................................................................
Expected return on plan assets ..............................................................................
Net amortization and deferral................................................................................
Net postretirement benefit cost ............................................................................. $
$
2014
(in thousands)
15
206
—
(347)
(126) $
— $
206
—
(258)
(52) $
2013
228
322
(1)
(363)
186
The following table summarizes the changes in the accumulated postretirement benefit obligation and fair value of plan assets
for the years ended December 31:
2015
2014
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)
5,552
—
206
(251)
189
(2,821)
—
2,875
$
Fair value of plan assets at beginning of year................................................................................. $
Employer contributions ..................................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year........................................................................................... $
8
258
(251)
15
$
$
110
8,169
15
206
(209)
(532)
1,261
(3,358)
5,552
23
194
(209)
8
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 ........................................................................................................................... $
2015
2014
(in thousands)
(2,875) $
15
(2,860) $
(5,552)
8
(5,544)
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, 2013......................................................................................... $
Recognized as a component of 2014 postretirement benefit cost, prior to 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 .........................................................
Balance as of December 31, 2014.........................................................................................
Recognized as a component of 2015 postretirement benefit cost.........................................
Unrecognized gains arising in 2015......................................................................................
(1,484) $
(1,137) $
(2,621) $
(1,704)
32
—
1,452
235
(3,358)
(3,123)
258
(2,469)
10
(313)
—
70
1,034
(336)
—
(172)
42
(313)
1,452
305
(2,324)
(3,459)
258
26
(203)
944
199
(1,511)
(2,249)
168
(2,641)
(1,717)
Balance as of December 31, 2015......................................................................................... $
(5,334) $
(508) $
(5,842) $
(3,798)
For measuring the postretirement benefit obligation, the annual increase in the per capita cost of health care benefits was assumed
to be 6.5% in year one, declining to an ultimate rate of 6.0% by year two. 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
$385,000 and the current period expense would increase by approximately $15,000. Conversely, a 1.0% decrease in the health
care cost trend rate would decrease the accumulated postretirement benefit obligation by approximately $340,000 and the current
period expense by approximately $15,000.
The following rates were used to calculate net periodic postretirement benefit cost and the present value of benefit obligations as
of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
4.25%
3.00%
3.75%
3.00%
4.75%
3.00%
2015
2014
2013
As of December 31, 2015 and 2014, 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%.
Estimated future benefit payments under the Postretirement Plan are as follows (in thousands):
Year
2016.......................................................................................................................................................................... $
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
2021 – 2025..............................................................................................................................................................
$
342
317
296
275
255
995
2,480
111
NOTE 14 – 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
2015:
Unrealized loss on securities ............................................................................................................... $
(11,872)
$
4,155
$
Reclassification adjustment for securities gains included in net income (1) ......................................
Reclassification adjustment for loss on derivative financial instruments included in net income (2)
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 (3) ........................................
(9,066)
3,778
368
115
7,200
2,869
3,174
(1,322)
(129)
(40)
(2,520)
(1,005)
(7,717)
(5,892)
2,456
239
75
4,680
1,864
Total Other Comprehensive Loss.................................................................................................. $
(6,608)
$
2,313
$
(4,295)
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 ...........................................................................
Reclass adjustment for postretirement plan gain included in net income (3) .....................................
Unrecognized pension and postretirement income .............................................................................
Amortization of net unrecognized pension and postretirement income (3) ........................................
(2,041)
1,200
209
(1,452)
(20,258)
627
714
(420)
(73)
508
7,090
(219)
33,734
(1,327)
780
136
(944)
(13,168)
408
Total Other Comprehensive Income.............................................................................................. $
30,186
$
(10,567)
$
19,619
2013:
Unrealized loss on securities ............................................................................................................... $
(76,319)
$
26,712
$
(49,607)
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 (3) ........................................ $
(8,004)
3,042
209
12,875
2,019
Total Other Comprehensive Loss.................................................................................................. $
(66,178)
2,801
(1,065)
(73)
(4,506)
(707)
23,162
$
$
(5,203)
1,977
136
8,369
1,312
(43,016)
$
$
(1) Amounts reclassified out of accumulated other comprehensive loss. Before-tax amounts included in "Investment securities gains, net" on the consolidated
statements of income. See "Note 3 - Investment Securities," for additional details.
(2) Amount reclassified out of accumulated other comprehensive loss. Before-tax amount included in "Loss on redemption of trust preferred securities" on the
consolidated statements of income. See "Note 9 - Short-Term Borrowings and Long-Term Debt," for additional details.
(3) Amounts reclassified out of accumulated other comprehensive loss. Before-tax amounts included in "Salaries and employee benefits" on the consolidated
statements of income. See "Note 13 - Employee Benefit Plans," for additional details.
112
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, 2012 .................................................................... $
26,362
$
613
$
(18,482) $
(2,818)
$
5,675
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) .
Balance as of December 31, 2014 ....................................................................
Other comprehensive income (loss) before reclassifications ...........................
Amounts reclassified from accumulated other comprehensive income (loss) .
Reclassification adjustment for loss on derivative financial instruments ........
(49,607)
(4,265)
(27,510)
33,734
(244)
5,980
(7,717)
(4,762)
—
1,977
(938)
1,652
780
(1,083)
1,349
239
(1,130)
—
8,369
1,312
(8,801)
(14,112)
408
—
136
(39,261)
(3,755)
(2,682)
(37,341)
—
136
20,402
(783)
(22,505)
(2,546)
(17,722)
4,680
1,864
—
—
75
2,456
(2,798)
(3,953)
2,456
Balance as of December 31, 2015 .................................................................... $
(6,499)
$
458
$
(15,961) $
(15)
$ (22,017)
Common Stock Repurchase Plans
In 2013 and 2014, the Corporation repurchased outstanding shares of its common stock under various repurchase programs
approved by its board of directors. In 2013, 8.0 million shares were repurchased for $90.9 million or an average cost of $11.37
per share. In 2014, 8.0 million shares were repurchased for $95.2 million, or an average cost of $11.91 per share.
In addition to the repurchases discussed above, 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. In April 2015, the third party delivered an additional 1.8 million shares of common stock pursuant to the terms of the
ASR, thereby completing the $100.0 million ASR. The Corporation repurchased a total of 8.3 million shares of common stock
under the ASR at an average price of $12.05 per share.
In April 2015, 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 $50.0 million of its outstanding shares of common stock, or approximately
2.3% of its outstanding shares, through December 31, 2015. During 2015, the Corporation repurchased approximately 4.0 million
shares under this program for a total cost of $50.0 million, or $12.57 per share, completing this program.
In October 2015, the Corporation announced that its board of directors had approved a share repurchase program pursuant to
which the Corporation is authorized to repurchase up to $50.0 million of its outstanding shares of common stock, or approximately
2.3% of its outstanding shares, through December 31, 2016. Repurchased shares will be added to treasury stock, at cost. As
permitted by securities laws and other legal requirements and subject to market conditions and other factors, purchases may be
made from time to time in open market or privately negotiated transactions, including, without limitation, through accelerated
share repurchase transactions. The share repurchase program may be discontinued at any time. No shares were repurchased under
this program as of December 31, 2015.
113
NOTE 15 – STOCK-BASED COMPENSATION PLANS
The following table presents compensation expense and related tax benefits for all equity awards recognized in the consolidated
statements of income:
Compensation expense.......................................................................................... $
Tax benefit.............................................................................................................
Stock-based compensation, net of tax................................................................... $
5,938
(2,011)
3,927
2015
2014
(in thousands)
5,865
$
(1,608)
4,257
$
$
$
2013
5,330
(1,475)
3,855
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. No non-qualified stock
options were granted in 2015 and 2014 and 50,000 non-qualified stock options were granted in 2013.
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 in the preceding table:
Compensation expense.......................................................................................... $
Tax benefit.............................................................................................................
Restricted stock compensation, net of tax............................................................. $
4,646
(1,626)
3,020
2015
2014
(in thousands)
4,345
$
(1,510)
2,835
$
$
$
2013
3,705
(1,297)
2,408
The following table provides information about stock option activity for the year ended December 31, 2015:
Outstanding as of December 31, 2014 ........................................
Exercised ..............................................................................
Forfeited ...............................................................................
Expired .................................................................................
Outstanding as of December 31, 2015 ........................................
Exercisable as of December 31, 2015 .........................................
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in millions)
12.89
10.21
14.09
16.80
12.31
12.34
4.1 years
3.6 years
$
$
4.6
4.3
Stock
Options
4,302,464
(490,151)
(83,878)
(748,348)
2,980,087
2,630,235
$
$
$
The following table provides information about nonvested stock options, restricted stock, RSUs and PSUs granted under the
Employee Equity Plan and Directors' Plan for the year ended December 31, 2015:
Nonvested Stock Options
Restricted Stock/RSUs/PSUs
Nonvested as of December 31, 2014...........................................
Granted .................................................................................
Vested...................................................................................
Forfeited ...............................................................................
Nonvested as of December 31, 2015...........................................
Options
755,964
—
(393,862)
(12,250)
349,852
Weighted
Average
Grant Date
Fair Value
2.68
—
2.56
2.77
2.82
$
$
Weighted
Average
Grant Date
Fair Value
11.83
12.04
10.48
12.05
12.16
$
$
Shares
1,063,087
581,719
(250,807)
(5,610)
1,388,389
As of December 31, 2015, there was $7.8 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, 2015, the Employee Equity Plan had 11.5 million shares reserved for future grants through 2023, and the
Directors’ Plan had 396,000 shares reserved for future grants through 2021.
114
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..................................................... $
490,151
1,442
4,936
1,389
$
$
$
215,047
568
2,068
530
$
$
$
451,102
1,612
3,650
1,416
2015
2014
(dollars in thousands)
2013
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 Equity Plan was estimated on the grant date using the Black-Scholes
valuation methodology, which is dependent upon certain assumptions, as summarized in the table below. No options were granted
in 2015 under the Employee Equity Plan.
Risk-free interest rate ..................................................................................................
Volatility of Corporation’s stock..................................................................................
Expected dividend yield ..............................................................................................
Expected life of options...............................................................................................
2014
2013
2.44%
28.05%
2.36%
7 Years
1.27%
27.64%
2.48%
7 Years
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 and $2.49 for options
granted in 2014 and 2013, respectively. The Corporation granted 288,626 options in 2014 and 617,869 options in 2013.
The fair value of certain PSUs with market-based performance conditions granted in 2015 under the Employee Equity Plan was
estimated on the grant date using the Monte Carlo valuation methodology performed by a third-party valuation expert. This
valuation is dependent upon certain assumptions, as summarized in the following table:
Risk-free interest rate ...............................................................................................................................................
Volatility of Corporation’s stock..............................................................................................................................
Expected life of PSUs ..............................................................................................................................................
0.86%
20.08%
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 2015 of $10.66.
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) ............................................... $
2015
121,890
10.86
234
$
$
2014
132,640
10.31
241
$
$
2013
141,608
10.02
251
115
NOTE 16 – 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 2015, $18.1 million in
2014 and $19.0 million in 2013.
Future minimum payments as of December 31, 2015 under non-cancelable operating leases with initial terms exceeding one year
are as follows (in thousands):
Year
2016.......................................................................................................................................................................... $
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
$
16,325
15,487
13,046
10,995
9,836
46,819
112,508
NOTE 17 – 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, if any, obtained upon extension of credit is based on management’s credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory, property, equipment and income producing commercial
properties. 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 4 - 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. Commercial letters of credit are conditional commitments issued to facilitate foreign and domestic trade transactions
for customers. The credit risk involved in issuing letters of credit is similar to that involved in extending loan facilities. These
obligations are underwritten consistently with commercial lending standards. The maximum exposure to loss for standby and
commercial letters of credit is equal to the contractual (or notional) amount of the instruments.
The following table presents commitments to extend credit and letters of credit:
2015
2014
(in thousands)
Commercial and other..................................................................................................................... $ 3,518,960
1,300,062
Home equity....................................................................................................................................
965,116
Commercial mortgage and construction.........................................................................................
Total commitments to extend credit ........................................................................................ $ 5,784,138
$ 2,972,105
1,291,596
558,662
$ 4,822,363
Standby letters of credit .................................................................................................................. $
Commercial letters of credit ...........................................................................................................
Total letters of credit................................................................................................................ $
374,729
39,529
414,258
$
$
382,465
32,304
414,769
During 2015, the Corporation began disclosing available overdraft protection limits to its depositors that are enrolled in overdraft
protection. The aggregate of these limits totaled approximately $330.6 million as of December 31, 2015 and are included in the
$5.8 billion of commitments to extend credit as of December 31, 2015.
116
During 2015, the Corporation revised the comparative December 31, 2014 disclosure for commitments to extend credit as follows:
commercial and other from $2.7 billion to $3.0 billion, commercial mortgage and construction from $351.4 million to $558.7
million and total commitments to extend credit from $4.4 billion to $4.8 billion. The Corporation assessed the materiality of these
corrections of an error and concluded, based on qualitative and quantitative considerations, that the adjustments are not material
to the financial statements as a whole.
Residential Lending
Residential mortgages are originated and sold by the Corporation and consist primarily of conforming, prime loans sold to
government sponsored agencies such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). The Corporation also sells certain residential mortgages to non-government sponsored
agency investors.
The Corporation provides customary representations and warranties to government sponsored agencies and investors that specify,
among other things, that the loans have been underwritten to the standards established by the government sponsored agency or
investor. The Corporation may be required to repurchase a loan or reimburse the government sponsored agency or 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. As of December 31, 2015 and 2014, total
outstanding repurchase requests totaled approximately $543,000.
From 2000 to 2011, the Corporation sold loans to the Federal Home Loan Bank of Pittsburgh under its Mortgage Partnership
Finance Program (MPF Program). No loans were sold under this program in 2015, 2014 or 2013. 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," or "FLA" balance, up to specified amounts. The FLA is funded by the Federal Home Loan
Bank of Pittsburgh based on a percentage of the outstanding principal balance of loans sold. As of December 31, 2015, the unpaid
principal balance of loans sold under the MPF Program was approximately $126 million. As of December 31, 2015 and 2014, the
reserves for estimated credit losses related to loans sold under the MPF Program were $1.8 million and $2.3 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, 2015 and 2014, the reserve for losses on residential mortgage loans sold was $2.6 million and $3.2 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, 2015 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. 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.
During the second quarter of 2015, Fulton Bank, N.A. (the Bank), the Corporation’s largest bank subsidiary, received a letter from
the U.S. Department of Justice (the Department) indicating that the Department had initiated an investigation regarding potential
violations of fair lending laws by the Bank in certain of its geographies. The Bank is cooperating with the Department and responding
to the Department’s requests for information. Although the Corporation is not able to predict the outcome of the Department’s
investigation, it could result in legal proceedings the resolution of which could potentially involve a settlement, fines or other
remedial actions.
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 of the
Corporation. However, legal proceedings are often unpredictable, and it is possible that the ultimate resolution of any such matters,
if unfavorable, may be material to the Corporation's results of operations for any particular period, depending, in part, upon the
size of the loss or liability imposed and the operating results for the applicable period. See also, "Note 11 - Regulatory Matters,"
under the sub-heading "Regulatory Enforcement Orders."
117
NOTE 18 – FAIR VALUE MEASUREMENTS
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 summarizes 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:
2015
Level 1
Level 2
Level 3
Total
— $
(in thousands)
16,886
$
— $
16,886
Equity securities ...................................................................
21,514
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..................................................................................
21,514
16,129
—
25,136
262,765
93,619
821,509
1,158,835
—
2,361,864
34,465
—
—
—
3,336
—
—
98,059
101,395
—
21,514
25,136
262,765
96,955
821,509
1,158,835
98,059
2,484,773
50,594
Total assets .................................................................... $
Other liabilities ............................................................................ $
37,643
$ 2,413,215
15,914
$
33,010
$
$
101,395
$ 2,552,253
— $
48,924
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 ..........................................................
Total available for sale investment securities..............................
Other assets..................................................................................
—
—
—
—
—
—
—
47,623
17,682
—
200
214
245,215
90,126
902,313
928,831
—
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
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, 2015 and December 31, 2014 were measured as the price that
secondary market investors were offering for loans with similar characteristics. See "Note 1 - Summary of Significant
Accounting Policies" for details related to the Corporation’s election to measure assets and liabilities at fair value.
• Available for sale investment securities – Included within this asset category are both equity and debt securities. Level
2 available for sale debt securities are valued by a third-party pricing service commonly used in the banking industry.
The pricing service uses pricing models that vary based on asset class and incorporate available market information,
118
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 ($20.6 million at December 31,
2015 and $41.8 million at December 31, 2014) and other equity investments ($914,000 at December 31, 2015
and $5.8 million at December 31, 2014). 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 ($53.1
million at December 31, 2015 and $50.0 million at December 31, 2014), single-issuer trust preferred securities
issued by financial institutions ($39.1 million at December 31, 2015 and $42.0 million at December 31, 2014),
pooled trust preferred securities issued by financial institutions ($706,000 at December 31, 2015 and $4.1 million
at December 31, 2014) and other corporate debt issued by non-financial institutions ($4.0 million at December 31,
2015 and $1.9 million at December 31, 2014).
Level 2 investments include subordinated debt, other corporate debt issued by non-financial institutions and
$36.5 million and $38.2 million of single-issuer trust preferred securities held at December 31, 2015 and 2014,
respectively. The fair values for these corporate debt securities are determined by a third-party pricing service,
as detailed above.
Level 3 investments include the Corporation's investments in pooled trust preferred securities ($706,000 at
December 31, 2015 and $4.1 million at December 31, 2014) and certain single-issuer trust preferred securities
($2.6 million at December 31, 2015 and $3.8 million at December 31, 2014). 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 ($15.6
million at December 31, 2015 and $16.4 million at December 31, 2014) and the fair value of foreign currency
exchange contracts ($547,000 at December 31, 2015 and $1.3 million at December 31, 2014). 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 ($1.5 million at December 31, 2015 and $1.4 million at
December 31, 2014) and the fair value of interest rate swaps ($33.0 million at December 31, 2015 and $19.9
million at December 31, 2014). The fair values of the interest rate locks, forward commitments and interest rate
swaps represent the amounts that would be required to settle the derivative financial instruments at the balance
sheet date. See "Note 10 - Derivative Financial Instruments," for additional information.
• Other liabilities – Included within this category are the following:
• Level 1 employee deferred compensation liabilities which represent amounts due to employees under deferred
compensation plans ($15.6 million at December 31, 2015 and $16.4 million at December 31, 2014) and the fair
value of foreign currency exchange contracts ($331,000 at December 31, 2015 and $1.3 million at December 31,
2014). 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 ($40,000 at December 31, 2015 and $1.2 million at
December 31, 2014) and the fair value of interest rate swaps ($33.0 million at December 31, 2015 and $19.9
million at December 31, 2014). 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, 2013 .................................................................. $
Realized adjustments to fair value (1)............................................................
Unrealized adjustments to fair value (2) ........................................................
Sales ...............................................................................................................
Settlements - calls...........................................................................................
Discount accretion (3) ....................................................................................
Balance as of December 31, 2014 ..................................................................
Sales ...............................................................................................................
Unrealized adjustments to fair value (2) ........................................................
Settlements - calls...........................................................................................
Discount accretion (3) ....................................................................................
Balance as of December 31, 2015 .................................................................. $
5,306
(18)
923
(1,888)
(239)
4
4,088
(3,633)
366
(117)
2
706
Single-issuer
Trust
Preferred
Securities
(in thousands)
3,781
$
—
32
—
—
7
3,820
—
(230)
(970)
10
2,630
$
$
$
ARCs
159,274
—
3,970
(11,912)
(51,212)
821
100,941
—
(903)
(2,446)
467
98,059
(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
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 the
Corporation's 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
2015
Net loans...................................................................................... $
Other financial assets...................................................................
Total assets ........................................................................... $
— $
—
— $
(in thousands)
— $
—
— $
138,491
52,043
190,534
Net loans...................................................................................... $
Other financial assets...................................................................
Total assets ........................................................................... $
— $
—
— $
(in thousands)
— $
—
— $
127,834
54,170
182,004
Level 1
Level 2
Level 3
2014
$
$
$
$
138,491
52,043
190,534
Total
127,834
54,170
182,004
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 4 - Loans and Allowance for Credit Losses," for additional details.
• Other financial assets – This category includes OREO ($11.1 million at December 31, 2015 and $12.0 million at
December 31, 2014) and MSRs ($40.9 million at December 31, 2015 and $42.1 million at December 31, 2014), 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,
2015 valuation were 11.2% and 9.6%, 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, 2015 and 2014. A general description of the methods and assumptions
used to estimate such fair values is also provided.
2015
2014
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...................................................... $ 11,267,367
2,864,950
Time deposits...............................................................................
497,663
Short-term borrowings.................................................................
10,724
Accrued interest payable .............................................................
190,927
Other financial liabilities (1) .......................................................
949,542
FHLB advances and long-term debt............................................
101,120
230,300
62,216
16,886
2,484,773
13,838,602
42,767
166,920
$
101,120
230,300
62,216
16,886
2,484,773
13,709,957
42,767
166,920
$
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
$ 11,267,367
2,862,868
497,663
10,724
190,927
959,315
$ 10,296,055
3,071,451
329,719
18,045
172,786
1,139,413
$ 10,296,055
3,069,883
329,719
18,045
172,786
1,142,980
(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 with other banks
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.
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:3)(cid:8)(cid:9)(cid:10)(cid:11)(cid:6)(cid:12)(cid:13)(cid:5)(cid:6)(cid:8)(cid:13)(cid:3)(cid:14)(cid:11)(cid:6)(cid:3)(cid:14)(cid:15)(cid:6)(cid:16)(cid:4)(cid:17)(cid:10)(cid:6)(cid:15)(cid:10)(cid:18)(cid:13)(cid:11)(cid:4)(cid:16)(cid:11)(cid:6)(cid:19)(cid:10)(cid:5)(cid:10)(cid:6)(cid:10)(cid:11)(cid:16)(cid:4)(cid:17)(cid:3)(cid:16)(cid:10)(cid:15)(cid:6)(cid:20)(cid:21)(cid:6)(cid:15)(cid:4)(cid:11)(cid:22)(cid:13)(cid:9)(cid:14)(cid:16)(cid:4)(cid:14)(cid:23)(cid:6)(cid:12)(cid:9)(cid:16)(cid:9)(cid:5)(cid:10)(cid:6)(cid:22)(cid:3)(cid:11)(cid:24)(cid:6)(cid:25)(cid:13)(cid:19)(cid:11)(cid:6)(cid:9)(cid:11)(cid:4)(cid:14)(cid:23)(cid:6)(cid:16)(cid:24)(cid:10)(cid:6)(cid:22)(cid:9)(cid:5)(cid:5)(cid:10)(cid:14)(cid:16)(cid:6)(cid:5)(cid:3)(cid:16)(cid:10)(cid:11)(cid:6)(cid:3)(cid:16)(cid:6)(cid:19)(cid:24)(cid:4)(cid:22)(cid:24)(cid:6)(cid:11)(cid:4)(cid:17)(cid:4)(cid:8)(cid:3)(cid:5)(cid:6)
loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair
(cid:7)(cid:3)(cid:8)(cid:9)(cid:10)(cid:11)(cid:6)(cid:10)(cid:11)(cid:16)(cid:4)(cid:17)(cid:3)(cid:16)(cid:10)(cid:15)(cid:6)(cid:4)(cid:14)(cid:6)(cid:16)(cid:24)(cid:4)(cid:11)(cid:6)(cid:17)(cid:3)(cid:14)(cid:14)(cid:10)(cid:5)(cid:6)(cid:15)(cid:13)(cid:6)(cid:14)(cid:13)(cid:16)(cid:6)(cid:12)(cid:9)(cid:8)(cid:8)(cid:21)(cid:6)(cid:4)(cid:14)(cid:22)(cid:13)(cid:5)(cid:18)(cid:13)(cid:5)(cid:3)(cid:16)(cid:10)(cid:6)(cid:3)(cid:14)(cid:6)(cid:10)(cid:26)(cid:4)(cid:16)(cid:6)(cid:18)(cid:5)(cid:4)(cid:22)(cid:10)(cid:6)(cid:3)(cid:18)(cid:18)(cid:5)(cid:13)(cid:3)(cid:22)(cid:24)(cid:6)(cid:16)(cid:13)(cid:6)(cid:12)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:3)(cid:8)(cid:9)(cid:10)(cid:27)(cid:6)(cid:3)(cid:11)(cid:6)(cid:15)(cid:10)(cid:28)(cid:14)(cid:10)(cid:15)(cid:6)(cid:4)(cid:14)(cid:6)(cid:2)(cid:29)(cid:30)(cid:31)(cid:6)(cid:29)(cid:30)!(cid:6)"(cid:13)(cid:18)(cid:4)(cid:22)(cid:6)+<=>
"(cid:24)(cid:10)(cid:6)(cid:12)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:3)(cid:8)(cid:9)(cid:10)(cid:11)(cid:6)(cid:13)(cid:12)(cid:6)(cid:2)?@(cid:31)(cid:6)(cid:3)(cid:15)(cid:7)(cid:3)(cid:14)(cid:22)(cid:10)(cid:11)(cid:6)(cid:3)(cid:14)(cid:15)(cid:6)(cid:8)(cid:13)(cid:14)(cid:23)Z(cid:16)(cid:10)(cid:5)(cid:17)(cid:6)(cid:15)(cid:10)(cid:20)(cid:16)(cid:6)(cid:19)(cid:10)(cid:5)(cid:10)(cid:6)(cid:10)(cid:11)(cid:16)(cid:4)(cid:17)(cid:3)(cid:16)(cid:10)(cid:15)(cid:6)(cid:20)(cid:21)(cid:6)(cid:15)(cid:4)(cid:11)(cid:22)(cid:13)(cid:9)(cid:14)(cid:16)(cid:4)(cid:14)(cid:23)(cid:6)(cid:16)(cid:24)(cid:10)(cid:6)(cid:5)(cid:10)(cid:17)(cid:3)(cid:4)(cid:14)(cid:4)(cid:14)(cid:23)(cid:6)(cid:22)(cid:13)(cid:14)(cid:16)(cid:5)(cid:3)(cid:22)(cid:16)(cid:9)(cid:3)(cid:8)(cid:6)(cid:22)(cid:3)(cid:11)(cid:24)(cid:6)(cid:25)(cid:13)(cid:19)(cid:11)(cid:6)(cid:9)(cid:11)(cid:4)(cid:14)(cid:23)(cid:6)
(cid:3)(cid:6)(cid:5)(cid:3)(cid:16)(cid:10)(cid:6)(cid:3)(cid:16)(cid:6)(cid:19)(cid:24)(cid:4)(cid:22)(cid:24)(cid:6)(cid:16)(cid:24)(cid:10)(cid:6)!(cid:13)(cid:5)(cid:18)(cid:13)(cid:5)(cid:3)(cid:16)(cid:4)(cid:13)(cid:14)(cid:6)(cid:22)(cid:13)(cid:9)(cid:8)(cid:15)(cid:6)(cid:4)(cid:11)(cid:11)(cid:9)(cid:10)(cid:6)(cid:15)(cid:10)(cid:20)(cid:16)(cid:6)(cid:19)(cid:4)(cid:16)(cid:24)(cid:6)(cid:11)(cid:4)(cid:17)(cid:4)(cid:8)(cid:3)(cid:5)(cid:6)(cid:5)(cid:10)(cid:17)(cid:3)(cid:4)(cid:14)(cid:4)(cid:14)(cid:23)(cid:6)(cid:17)(cid:3)(cid:16)(cid:9)(cid:5)(cid:4)(cid:16)(cid:4)(cid:10)(cid:11)(cid:6)(cid:3)(cid:11)(cid:6)(cid:13)(cid:12)(cid:6)(cid:16)(cid:24)(cid:10)(cid:6)(cid:20)(cid:3)(cid:8)(cid:3)(cid:14)(cid:22)(cid:10)(cid:6)(cid:11)(cid:24)(cid:10)(cid:10)(cid:16)(cid:6)(cid:15)(cid:3)(cid:16)(cid:10)>(cid:6)"(cid:24)(cid:10)(cid:11)(cid:10)(cid:6)(cid:20)(cid:13)(cid:5)(cid:5)(cid:13)(cid:19)(cid:4)(cid:14)(cid:23)(cid:11)(cid:6)
(cid:19)(cid:13)(cid:9)(cid:8)(cid:15)(cid:6)(cid:20)(cid:10)(cid:6)(cid:22)(cid:3)(cid:16)(cid:10)(cid:23)(cid:13)(cid:5)(cid:4)\(cid:10)(cid:15)(cid:6)(cid:19)(cid:4)(cid:16)(cid:24)(cid:4)(cid:14)(cid:6)@(cid:10)(cid:7)(cid:10)(cid:8)(cid:6)<(cid:6)(cid:8)(cid:4)(cid:3)(cid:20)(cid:4)(cid:8)(cid:4)(cid:16)(cid:4)(cid:10)(cid:11)(cid:6)(cid:9)(cid:14)(cid:15)(cid:10)(cid:5)(cid:6)(cid:2)(cid:29)(cid:30)(cid:31)(cid:6)(cid:29)(cid:30)!(cid:6)"(cid:13)(cid:18)(cid:4)(cid:22)(cid:6)+<=>
122
NOTE 19 – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
(in thousands)
December 31
2015
2014
ASSETS
Cash........................................ $
Other assets ............................
Receivable from subsidiaries .
— $
4,337
29,249
LIABILITIES AND EQUITY
137 Long-term debt ............................. $
10,053 Payable to non-bank subsidiaries .
29,120 Other liabilities.............................
Total Liabilities...................
December 31
2015
2014
$
361,504
188,087
77,263
626,854
465,936
84,676
81,682
632,294
Investments in:
Bank subsidiaries ............
Non-bank subsidiaries ....
2,226,975
408,187
2,174,786
414,863 Shareholders’ equity.....................
2,041,894
1,996,665
Total Assets................... $ 2,668,748
$ 2,628,959
Total Liabilities and
Shareholders’ Equity. $ 2,668,748
$ 2,628,959
CONDENSED STATEMENTS OF INCOME
2015
2014
(in thousands)
2013
Income:
Dividends from subsidiaries........................................................................................ $ 114,000
Other (1) ......................................................................................................................
141,241
Expenses.............................................................................................................................
Income before income taxes and equity in undistributed net income of subsidiaries.
Income tax benefit ..............................................................................................................
255,241
176,457
78,784
(11,834)
90,618
$ 139,150
$ 114,438
120,543
259,693
152,243
107,450
(10,549)
117,999
106,297
220,735
138,164
82,571
(10,744)
93,315
Equity in undistributed net income (loss) of:
Bank subsidiaries ........................................................................................................
60,806
Non-bank subsidiaries.................................................................................................
(1,922)
Net Income .................................................................................................................. $ 149,502
33,134
6,761
56,552
11,973
$ 157,894
$ 161,840
(1) Consists primarily of management fees received from subsidiary banks.
123
CONDENSED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net Income ......................................................................................................................... $ 149,502
Adjustments to reconcile net income to net cash provided by operating activities:
$ 157,894
$ 161,840
2015
2014
(in thousands)
2013
Stock-based compensation ............................................................................................
Excess tax benefits from stock-based compensation.....................................................
Decrease (increase) in other assets ................................................................................
Equity in undistributed net income of subsidiaries .......................................................
Loss on redemption of trust preferred securities ...........................................................
Increase in other liabilities and payable to non-bank subsidiaries ................................
Total adjustments....................................................................................................
Net cash provided by operating activities ..............................................................
Cash Flows From Investing Activities
Cash Flows From Financing Activities:
5,938
(201)
2,806
(58,884)
5,626
106,490
61,775
211,277
—
5,865
(81)
(7,120)
(39,895)
—
37,354
(3,877)
154,017
—
Repayments of long-term debt ......................................................................................
Additions to long-term debt...........................................................................................
Net proceeds from issuance of common stock ..............................................................
(254,640)
147,779
10,607
—
97,113
8,201
Excess tax benefits from stock-based compensation.....................................................
Dividends paid...............................................................................................................
Acquisition of treasury stock.........................................................................................
Deferred accelerated stock repurchase payment ...........................................................
201
(65,361)
(50,000)
81
(64,028)
(175,255)
— (20,000)
(153,888)
129
Net cash used in financing activities ......................................................................
Net (Decrease) Increase in Cash and Cash Equivalents ..........................................
Cash and Cash Equivalents at Beginning of Year.........................................................
Cash and Cash Equivalents at End of Year.................................................................... $
(211,414)
(137)
137
— $
8
137
$
8
5,330
(302)
1,893
(68,525)
—
26,946
(34,658)
127,182
—
—
—
9,936
302
(46,525)
(90,927)
—
(127,214)
(32)
40
124
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, 2015, 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, 2015, 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 (the Company) and subsidiaries
as of December 31, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2015, 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, 2015, based on criteria established in Internal Control - Integrated Framework
(2013) issued by COSO.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 26, 2016
126
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per-share data)
2015
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 ...........................................................
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 ...........................................................
March 31
June 30
September 30
December 31
Three Months Ended
145,772
$
144,229
$
146,228
$
147,560
22,191
123,581
(3,700)
44,737
118,478
53,540
13,504
40,036
0.22
0.22
0.09
$
$
21,309
122,920
2,200
46,489
118,354
48,855
12,175
36,680
0.21
0.21
0.09
$
$
20,534
125,694
1,000
44,774
124,889
44,579
10,328
34,251
0.20
0.20
0.09
$
$
19,761
127,799
2,750
45,839
118,439
52,449
13,914
38,535
0.22
0.22
0.11
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
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, 2015, the Corporation’s disclosure controls and
procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information
required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
The "Management Report on Internal Control over Financial Reporting" and the "Report of Independent Registered Public
Accounting Firm" may be found in Item 8, "Financial Statements and Supplementary Data" of this document.
Changes in Internal Controls
There was no change in the Corporation’s "internal control over financial reporting" (as such term is defined in Rule 13a-15(f)
under the Exchange Act) that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the Corporation’s internal control over financial reporting.
Item 9B. Other Information
Not applicable.
128
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 2016 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 2016 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 2016 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 2016 Proxy Statement, and the information
appearing in "Note 4 - 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 2016 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, 2015 and 2014.
Consolidated Statements of Income - Years ended December 31, 2015, 2014 and 2013.
Consolidated Statements of Comprehensive Income - Years ended December 31, 2015, 2014 and 2013.
Consolidated Statements of Shareholders’ Equity - Years ended December 31, 2015, 2014 and 2013.
Consolidated Statements of Cash Flows - Years ended December 31, 2015, 2014 and 2013.
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
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.
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 $250 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.
10.2
10.1 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.
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.
10.4
10.3
10.5
10.6
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.
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.
10.8
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.
130
10.9
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.
10.10 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.
10.11 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.
10.12 Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective December 1, 2015
– filed herewith.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business
Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2015 and December 31, 2014; (ii) the
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013; (iii) the Consolidated
Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013;(iv) the Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2015, 2014 and 2013; (v) the Consolidated
Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013; and, (iv) the Notes to Consolidated
Financial Statements – filed herewith.
131
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 26, 2016
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/ LISA CRUTCHFIELD
Lisa Crutchfield
/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
/S/ JAMES R. MOXLEY
James R. Moxley, III
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
February 26, 2016
Director
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
Executive Vice President
and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
132
Signature
Capacity
Date
/S/ R. SCOTT SMITH, JR.
R. Scott Smith, Jr.
/S/ RONALD H. SPAIR
Ronald H. Spair
/S/ MARK F. STRAUSS
Mark F. Strauss
/S/ ERNEST J. WATERS
Ernest J. Waters
/S/ E. PHILIP WENGER
E. Philip Wenger
Director
Director
Director
Director
Chairman, Chief Executive
Officer and President (Principal
Executive Officer)
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
133
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 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.
4.2 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 $250 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 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective December 1, 2015 – filed
herewith.
10.13 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.
134
10.14 Fulton Financial Corporation Directors' Equity Participation Plan – Incorporated by reference to Exhibit A to Fulton
Financial Corporation’s definitive proxy statement, March 24, 2011.
10.15 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.
10.16 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.
10.17 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.
21 Subsidiaries of the Registrant.
23 Consent of Independent Registered Public Accounting Firm.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Balance Sheets at December 31, 2015 and December 31, 2014; (ii) the Consolidated
Statements of Income for the years ended December 31, 2015, 2014 and 2013; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2015, 2014 and 2013;(iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2015, 2014 and 2013; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2015, 2014 and 2013; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
135
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
Fulton Financial Advisors
Fulton Mortgage Company
United States of America
Swineford National Bank
Fulton Mortgage Company
Lafayette Ambassador Bank
Pennsylvania
2005 City Line Road
Bethlehem, Pennsylvania 18017
Lafayette Ambassador Bank
Fulton Mortgage Company
Fulton Financial Realty Company
Pennsylvania
Fulton Financial Realty Company
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
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
Central Pennsylvania Financial Corp.
100 W. Independence Street
Shamokin, PA 17872
United States of America
FNB Bank, N.A.
Fulton Mortgage Company
Pennsylvania
Central Pennsylvania Financial Corp.
Fulton Bank of New Jersey
New Jersey
533 Fellowship Road
Mt. Laurel, NJ 08054
Fulton Bank of New Jersey
Fulton Mortgage Company
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
Fulton Mortgage Company
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
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. 333-156396 and No. 333-197730)
on Forms S-3 of Fulton Financial Corporation of our report dated February 26, 2016, with respect to the consolidated balance
sheets of Fulton Financial Corporation and subsidiaries as of December 31, 2015 and 2014, 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, 2015, and the effectiveness of internal control over financial reporting as of December 31, 2015, which report
appears in the December 31, 2015 annual report on Form
of Fulton Financial Corporation.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 26, 2016
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 26, 2016
/s/ E. Philip Wenger
E. Philip Wenger
Chairman, Chief Executive Officer and
President
Exhibit 31.2 – Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Patrick S. Barrett, certify that:
1.
I have reviewed this annual report on Form 10-K of Fulton Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 26, 2016
/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,
2015, 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 26, 2016
/s/ E. Philip Wenger
E. Philip Wenger
Chairman, Chief Executive Officer and
President
Exhibit 32.2 – Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Patrick S. Barrett, Chief Financial Officer of Fulton Financial Corporation, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, certify that:
The Form 10-K of Fulton Financial Corporation, containing the consolidated financial statements for the year ended December 31,
2015, 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 26, 2016
/s/ Patrick S. Barrett
Patrick S. Barrett
Senior Executive Vice President and Chief Financial Officer
INVESTOR INFORMATION
Investor Information
Stock Listing
Common shares of Fulton Financial Corporation
are traded under the symbol “FULT” and are
listed in the 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 Purchase Plan and direct
deposit of cash dividends.
GO GREEN!
Would you like to help your company manage expenses?
Vote your shares online or by phone as outlined on the voter
instruction form enclosed in this proxy packet.
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
A copy of the Corporation’s Annual Report, Form 10-K, Proxy
Holders of stock may have their quarterly
(cid:21)(cid:10)(cid:4)(cid:10)(cid:16)(cid:22)(cid:16)(cid:3)(cid:10)(cid:8)(cid:4)(cid:3)(cid:15)(cid:8)(cid:12)(cid:10)(cid:18)(cid:16)(cid:14)(cid:8)(cid:15)(cid:12)(cid:5)(cid:11)(cid:22)(cid:16)(cid:3)(cid:10)(cid:9)(cid:8)(cid:2)(cid:7)(cid:16)(cid:15)(cid:8)(cid:23)(cid:6)(cid:10)(cid:18)(cid:8)(cid:10)(cid:18)(cid:16)(cid:8)(cid:21)(cid:16)(cid:5)(cid:11)(cid:14)(cid:6)(cid:10)(cid:6)(cid:16)(cid:9)(cid:8)
dividends automatically reinvested in additional
and Exchange Commision can be viewed on the Corporation’s
shares of the Corporation’s common stock by
website at www.fult.com. In addition, copies of the Form 10-K
utilizing the Dividend Reinvestment Plan.
and Proxy Statement may be obtained without charge to
shareholders by writing to:
Shareholders participating in the Plan may also
make voluntary cash contributions not to exceed
Corporate Secretary
$25,000 per month.
In addition, shareholders have the option of
having their cash dividends sent directly to their
Fulton Financial Corporation
P.O. Box 4887
Lancaster, PA 17604-4887
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News, stock information, Corporate presentations and other
or savings account.
information can be found on the Corporation’s website at
www.fult.com.
Shareholders may receive information on either the
Dividend Reinvestment Plan and Stock Purchase
The Annual Meeting of Shareholders of Fulton Financial
Plan, including a plan prospectus, or direct deposit
Corporation will be held on Monday, May 16, 2016, at 10:00
of cash dividends by writing to:
a.m. at the Lancaster Marriott at Penn Square in downtown
Lancaster, PA.
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.
To make a reservation, please return the Annual Meeting
Reservation Form 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.
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