The Columbia Bank • FNB Bank, N.A. • Fulton Bank, N.A.
Fulton Bank of New Jersey • Lafayette Ambassador Bank • Swineford National Bank
Lorem ipsum
The Columbia Bank • FNB Bank, N.A. • Fulton Bank, N.A.
Fulton Bank of New Jersey • Lafayette Ambassador Bank • Swineford National Bank
The Columbia Bank • FNB Bank, N.A. • Fulton Bank, N.A.
Fulton Bank of New Jersey • Lafayette Ambassador Bank • Swineford National Bank
334851_CVR.indd 1-3
FFC_2017_AnnualReport_Cover_PRINT.indd 1
3/19/18 4:58 PM
3/19/18 5:03 PM
334851_CVR.indd 4-6
3/19/18 5:03 PM
Dear Shareholder:
It was another solid year for our company, as
we achieved record levels in revenue and net
income, excluding the impact of the tax charge1
resulting from the Tax Cuts and Jobs Act enacted
in December 2017. Our financial results in 2017
reflected continued progress in executing our
growth strategies, and the benefit of multiple
interest rate increases by the Federal Reserve. We
generated meaningful positive operating leverage,
a goal that we set out to achieve at the beginning
of the year. For the year ended December 31, 2017,
we reported diluted earnings per share of $0.98,
an increase of 5.4% compared to 2016. Excluding
the impact of the tax charge, we reported diluted
earnings per share of $1.07, an increase of 15.0%
from 2016.
On the regulatory front, the Office of the
Comptroller of the Currency (“OCC”) terminated
the consent orders that it issued to three of our
bank subsidiaries - Fulton Bank, N.A.; FNB Bank,
N.A.; and Swineford National Bank - relating to
deficiencies in the Bank Secrecy Act and Anti-
Money Laundering (“BSA/AML”) compliance
programs at those banks. We are pleased with
this acknowledgement of the significant progress
we have made in strengthening our BSA/AML
compliance programs and remediating the
deficiencies identified in the OCC consent orders.
We are working diligently to achieve a similar
resolution with respect to the remaining BSA/AML
consent orders.
In the meantime, we continue to prepare for the
consolidation of our affiliate banks into a single
bank, and move the organization forward in
other ways by focusing on growth, efficiency, and
profitability to drive shareholder value.
Loan and Deposit Growth
Loans grew 7.3% in 2017, and was driven by
growth in most of our loan portfolios. Growth in
our commercial loan portfolio was concentrated
primarily in our Pennsylvania market, while
growth in our residential mortgage portfolio
was concentrated primarily in our Maryland and
Virginia markets. Asset quality continued to be
stable, and delinquencies and net charge-offs
remained near historically low levels.
Turning to deposits, we were pleased with our
deposit growth for 2017. Fulton funds its loans
primarily with consumer and commercial deposits.
Over the last several years, we have decreased our
reliance on higher-cost time deposits in favor of less
expensive demand and savings deposits. Demand
and savings deposits increased 6.4% in 2017, while
higher-cost time deposits decreased by 3.2% for the
same period. The growth in demand and savings
deposits was driven primarily by our consumer
business.
Non-interest Income and Expenses
Excluding securities gains, non-interest income
increased by 6.0% in 2017. Non-interest income
growth was lower than expected due, in large part,
to mortgage banking. While mortgage originations
increased 9.0%, 2017 saw a shift in production
with 50% of all originations being retained in the
portfolio versus being sold. Although the growth
in the portfolio contributed to an increase in net
interest income, the shift had a negative impact
to gain on sale income in 2017. Investment
management and trust services income grew at
a strong pace in 2017, and our commercial loan
interest rate swap, treasury services and Small
Business Administration lending businesses all
made notable contributions, as did debit and credit
card income.
Turning to expenses, our non-interest expenses
increased 7.4% in 2017. The efficiency ratio2
for 2017 improved to 64.5%, within our goal of
60.0% - 65.0%. In 2018, we will continue to invest
in upgrading our systems and optimizing our
customer delivery channels while preparing for
bank charter consolidation. In addition, we plan
on sharing some of the benefits from the new tax
legislation with our employees, and increasing
our investment in the communities we serve
through our Fulton Forward™ initiative. Expense
management is a top priority. We continually look
for ways to make our organization more efficient
while continuing to invest in our company to
support a larger organization that can benefit from
economies of scale.
Capital Management and Deployment/Enhancing
Shareholder Value
In 2017, we increased our quarterly common
dividend by $0.01 to $0.11 per share, and paid
a $0.03 special dividend in the 4th quarter. We
did not repurchase any common stock in 2017,
but have approximately $31.5 million left in our
current share repurchase program authorization
that continues through December 31, 2018.
Our Board of Directors and management team
look forward to meeting with shareholders at
Fulton’s Annual Shareholders Meeting in Lancaster,
Pennsylvania on Monday, May 21st at 10 a.m.
Meeting registration materials have been mailed
with hard copies of this report; they are also
available online.
In closing, I want to again extend my gratitude
for your continued confidence in Fulton. Please be
assured that every member of our team is working
hard to enhance the value of your investment.
Looking Ahead
Very truly yours,
Our mission is to increase shareholder value
and enrich the communities we serve by caring,
listening, understanding and delivering a
consistently superior customer experience. Our
strategic plan and related goals and objectives
are guided by this mission. As a shareholder, it is
important that you know the goals and objectives
that your senior management team seeks to
accomplish in 2018. They are:
• Investing in talent for targeted business
units and markets;
• Investing in digital capabilities and broader
technology initiatives to enhance the
customer experience and gain efficiencies;
• Optimizing our customer delivery channels,
including the process of redesigning of our
branch network;
• Promoting home ownership to low- and
moderate-income and minority individuals
through our Fulton Forward™ initiative;
• Preparing for the planned consolidation of
our affiliate banks;
• Continuing our disciplined expense control;
• Establishing the sustainability of the
framework and processes we put in place
to emerge from the remaining regulatory
enforcement orders concerning our BSA/AML
compliance program;
• Focusing on growth, efficiency and
profitability to drive shareholder value.
E. Philip Wenger
Chairman and CEO
1During the fourth quarter of 2017, an estimated $15.6 million charge to income
taxes was recorded related to the re-measurement of net deferred tax assets as
a result of the enactment of the Tax Cuts and Jobs Act.
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statements. These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties, some of which are
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described in the forward-looking statements, can be found in the sections
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(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)(cid:16)(cid:46)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:79)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:87)(cid:68)(cid:78)(cid:72)(cid:3)
(cid:81)(cid:82)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:68)(cid:90)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:86)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)
(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)
otherwise.
SENIOR MANAGEMENT, DIRECTORS
& ADVISORY BOARD MEMBERS
FULTON FINANCIAL CORP.
SENIOR MANAGEMENT
SUBSIDIARY BANK BOARDS
OF DIRECTORS
HAMPTON ROADS DIVISION
David Durham, Chair
E. Philip Wenger
Chairman and Chief Executive Officer
Curtis J. Myers
President and Chief Operating Officer - Fulton
Financial Corporation and Fulton Bank
David M. Campbell
Senior Executive Vice President/Strategic Initiatives
and Operations
Beth Ann L. Chivinski
Senior Executive Vice President/Chief Risk Officer
Mark R. McCollom
Senior Executive Vice President/Chief Financial
Officer
Meg R. Mueller
Senior Executive Vice President/Head of Commercial
Banking
Craig A. Roda, Retiring May 2018
Senior Executive Vice President/Community Banking
of Fulton Financial Corporation and Chairman and
XChief Executive Officer of Fulton Bank
Angela M. Sargent
Senior Executive Vice President/Chief Information
Officer
Angela M. Snyder
Senior Executive Vice President/Head of Consumer
Banking of Fulton Financial Corporation and
Chairwoman, President and Chief Executive Officer of
Fulton Bank of New Jersey
Daniel R. Stolzer
Senior Executive Vice President/Chief Legal Officer
and Corporate Secretary
Bernadette M. Taylor
Senior Executive Vice President/Chief Human
Resources Officer
FULTON FINANCIAL CORP.
BOARD OF DIRECTORS
E. Philip Wenger, Chair
Lisa Crutchfield
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morrison, III
James R. Moxley, III
R. Scott Smith, Jr.
Scott A. Snyder
Ronald H. Spair
Mark F. Strauss, Esq.
Ernest J. Waters
FULTON BANK, N.A.
Craig A. Roda, Chair, Retiring May 2018
Jennifer Craighead Carey
Steven S. Etter
Carlos E. Graupera
George W. Hodges
George Keith Martin
Curtis J. Myers
Ivy E. Silver
Ernest J. Waters
FULTON BANK, N.A
DIVISIONAL BOARDS
BRANDYWINE DIVISION
Michael Reese, Chair
Dallas Krapf
James D. McLeod, Jr.
Michael J. O’Rourke
Kathryn V. Snyder
CAPITAL DIVISION
Joseph F. Rilatt, Chair
James C. Byerly
Samuel T. Cooper III, Esq.
Beth A. Peiffer
Steven C. Wilds
CENTRAL VIRGINIA DIVISION
Karen Frye, Chair
Robert H. Keiter, C.P.A.
George Keith Martin
J. Keith Middleton
Lloyd M. Poe
Robert E. Porter, Jr.
DELAWARE DIVISION
Katherine Wilkinson, Chair
Jeffrey M. Fried
Terry A. Megee
Ralph W. Simpers
David T. Wilgus
GREATER BERKS DIVISION
Michele Richards, Chair
Eric G. Burkey
Marcelino Colon
William P. Gage
William G. Koch, Sr., C.P.A.
Chris G. Kraras
Diane Smith
Joanna Brumsey
William L. Stauffer, Jr.
Joseph D. Taylor, II
LANCASTER DIVISION
Philip N. Smith, Chair
Galen Eby
Dean A. Hoover
Robert A. Hostetter
Louis G. Hurst
Cinthia M. Kettering
Tony Legenstein
Kent M. Martin
Jessica H. May
Edward W. Monborne
Lori Pickell
David W. Sweigart, III
Harold W. Welk, Jr.
John D. Yoder
J. David Young, Jr., Esq.
LEBANON DIVISION
Kristen K. Watts, Chair
Barry E. Ansel
Jonathan R. Beers
Donald H. Dreibelbis
Robert J. Funk
Robert P. Hoffman
Wendie DiMatteo Holsinger
Kenneth C. Sandoe
NORTHERN VIRGINIA DIVISION
Karen Frye, Chair
Thomas M. Crutchfield, C.P.A.
Manuel A. Ojeda
PREMIER DIVISION
Lou Lombardi, Chair
Anthony D. Cino
Rosemary Espanol
Robert Walton
STATE COLLEGE DIVISION
Leslie P. Temple, Chair
Elizabeth A. Dupuis
Thomas J. Kearney
Jeffrey M. Krauss
Thomas F. Songer, III
YORK DIVISION
Krista Snyder Darr, Chair
Vernon L. Bracey
Jevon L. Holland
Jeffrey L. Rehmeyer, II
Gary A. Stewart, Jr.
Christine R. Wardrop
Constance L. Wolf
AGRICULTURAL ADVISORY BOARD
James A. Angelucci
Harry H. Bachman
Robert Barley
Phoebe R. Bitler
Andrew S. Bollinger
Geoffrey Finch
Dennis L. Grumbine
William Hostetter
Aldus R. King
William D. Robinson
Scott I. Sechler
SWINEFORD NATIONAL BANK
Bryan L. Holmes, Chair
Arthur F. Bowen
Thomas C. Clark, Esq.
Michael N. O’Keefe
Joseph F. Rilatt
William D. Robinson
LAFAYETTE AMBASSADOR BANK
Meg Mueller, Chair
Joseph A. Bubba
Gary A. Clewell
Thomas Daub
Joseph R. Feilmeier
Robert E. Gadomski
Dolores Laputka
Jamie P. Musselman
FNB BANK, N.A.
Bryan L. Holmes, Chair
Robert O. Booth
James D. Hawkins
Kenneth A. Holdren
Joseph F. Rilatt
Wendy S. Tripoli
FULTON BANK OF NEW JERSEY
Angela M. Snyder, Chair
Christopher S. Bateman
Dennis N. DeSimone
Stephen R. Miller
Antoinette Pergolin
Anthony J. Santye, Jr.
Paul V. Stahlin
Mark F. Strauss, Esq.
Norman Worth
FULTON BANK OF NEW JERSEY
DIVISIONAL BOARD
CENTRAL REGION
Sean Murray, Chair
Priscilla Luppke
George Robostello
Leonard Smith
Rachel Lilienthal Stark
Allen Weiss
THE COLUMBIA BANK
John A. Scaldara, Jr., Chair
Robert R. Bowie, Jr.
Donald R. Harsh
James R. Moxley, III
Mark A. Mullican
Gregory Snook
David K. Williams, Jr.
Elizabeth M. Wright
THE COLUMBIA BANK
DIVISIONAL BOARDS
HAGERSTOWN DIVISION
Donald R. Harsh, Jr., Chair
Paul N. Crampton, Jr.
Joseph C. Durham
Louis J. Giustini
Doris E. Lehman
Paul C. Mellott, Jr.
Mark A. Mullican
Gregory Snook
Michael S. Zampelli
ELKTON DIVISION
Katherine Wilkinson, Chair
Harry C. Brown
Donald S. Hicks
Mark A. Mullican
Nancy R. Simpers
David K. Williams, Jr.
P.O. Box 4887
One Penn Square
Lancaster, Pennsylvania 17604
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
MONDAY, MAY 21, 2018 AT 10:00 A.M.
TO THE SHAREHOLDERS OF FULTON FINANCIAL CORPORATION:
NOTICE IS HEREBY GIVEN that, pursuant to the call of its Board of Directors, the Annual Meeting of
the shareholders of FULTON FINANCIAL CORPORATION (“Fulton”) will be held on Monday, May 21, 2018,
at 10:00 a.m., at the Lancaster Marriott at Penn Square, 25 South Queen Street, Lancaster, Pennsylvania, for the
purpose of considering and voting upon the following matters:
1.
2.
3.
4.
ELECTION OF DIRECTORS. The election of twelve (12) director nominees to serve for one-year
terms;
EXECUTIVE COMPENSATION PROPOSAL. A non-binding say on pay (“Say-on-Pay”) resolution
to approve the compensation of the named executive officers for 2017;
RATIFICATION OF INDEPENDENT AUDITOR. The ratification of the appointment of KPMG
LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2018; and
OTHER BUSINESS. Such other business as may properly be brought before the meeting and any
adjournments thereof.
Only those shareholders of record at the close of business on February 28, 2018, shall be entitled to be given
notice of, to attend and to vote at the meeting. Please take a moment now to cast your vote over the Internet or by
telephone in accordance with the instructions set forth on the enclosed proxy card, or, alternatively, if you received
paper copies of the Proxy Statement and proxy card, to complete, sign and date the enclosed proxy card and return
it in the postage-paid envelope provided. Shareholders attending the Annual Meeting in person may vote in person,
even if they have previously voted by proxy.
Voting via the Internet or by telephone is fast and convenient, and your vote is immediately tabulated and
confirmed. Your Proxy is revocable and may be withdrawn at any time before it is voted at the meeting. You are
cordially invited to attend the meeting. If you plan on attending, please RSVP that you will attend by returning
the Annual Meeting Reservation Form enclosed or print and return the form posted at www.proxyvote.com.
A copy of Fulton’s Annual Report on Form 10-K accompanies this Proxy Statement.
Sincerely,
Daniel R. Stolzer
Corporate Secretary
Enclosures
April 3, 2018
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
[This Page Intentionally Left Blank] PROXY STATEMENT
Dated and To Be Mailed on or about: April 3, 2018
P.O. Box 4887, One Penn Square
Lancaster, Pennsylvania 17604
(717) 291-2411
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 21, 2018 AT 10:00 A.M.
TABLE OF CONTENTS
PAGE
ANNUAL MEETING SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RSVP, Date, Time and Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Shareholders Entitled to Vote and Attend Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Purpose of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Revocability and Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Voting Shares Held in Street Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Voting of Shares and Principal Holders Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Internet Availability of Proxy Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Contacting the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Corporate Governance Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Majority Vote Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Procedure for Shareholder Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Director Qualifications and Board Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ELECTION OF DIRECTORS – Proposal One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2018 Director Nominees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Information about Nominees, Directors and Independence Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Director Nominee Biographical Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Security Ownership of Directors, Nominees, Management and Certain Beneficial Owners . . . . . . . . . . . . . . 16
INFORMATION CONCERNING THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Meetings and Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Human Resources Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Other Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Board’s Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Lead Director and Fulton’s Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Executive Sessions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
i
Annual Meeting Attendance .................................................................................................................................. 21
Director Education and Board of Directors Development ................................................................................... 21
Legal Proceedings .................................................................................................................................................. 21
Related Person Transactions .................................................................................................................................. 22
Section 16(a) Beneficial Ownership Reporting Compliance ............................................................................... 23
Board of Directors and Committee Evaluations ................................................................................................... 23
Compensation of Directors .................................................................................................................................... 23
Director Compensation Table ................................................................................................................................. 25
INFORMATION CONCERNING COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page
1. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. Shareholder Say-on-Pay Proposal Historical Results . . . . . . . . . . . . . . . . . . . 29
3. Pay for Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5. HR Committee Membership and Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6. Role of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7. Use of Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. Use of a Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9. Elements of Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10. Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11. Compensation Plan Risk Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. Other Compensation Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Human Resources Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Grants of Plan-Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Outstanding Equity Awards at Fiscal Year-End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Option Exercises and Stock Vested Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Pension Benefits Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Nonqualified Deferred Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Potential Payments Upon Termination and Golden Parachute Compensation Table . . . . . . . . . . . . . . . . . . . . 52
CEO Pay Ratio Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
NON-BINDING SAY-ON-PAY RESOLUTION TO APPROVE THE COMPENSATION OF THE
NAMED EXECUTIVE OFFICERS – Proposal Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
RATIFICATION OF INDEPENDENT AUDITOR – Proposal Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Annual Report on Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Householding of Proxy Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Sign Up for Electronic Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
EXHIBITS
Report of Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit A
ii
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
ANNUAL MEETING SUMMARY
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The Annual Meeting of the shareholders of Fulton (the “Annual Meeting”) will be held on
Monday, May 21, 2018, at 10:00 a.m., at the Lancaster Marriott at Penn Square, 25 South
Queen Street, Lancaster, Pennsylvania. The Board of Directors has approved an agenda
consisting of four proposals for the Annual Meeting, as described in the meeting notice
and in more detail in this document.
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Proposal 1 (Page 9)
Proposal 2 (Page 57)
The election of the twelve (12) director
nominees identified in this Proxy
Statement.
The approval of the non-binding Say-on-
Pay resolution to approve the compensation
of the named executive officers for 2017.
Proposal 3 (Page 59)
The ratification of the appointment of KPMG LLP as Fulton’s independent auditor for
the fiscal year ending December 31, 2018.
The Board of Directors recommends that shareholders vote FOR the election of each of the
twelve (12) director nominees identified in this Proxy Statement, FOR the approval of the
non-binding Say-on-Pay resolution to approve the compensation of the named executive
officers for 2017, and FOR the ratification of the appointment of KPMG LLP as Fulton’s
independent auditor for the fiscal year ending December 31, 2018.
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Shares Held in Street
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If you would like to save paper and reduce the costs incurred by Fulton in
printing and mailing proxy materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports electronically via e-mail or
the Internet. To sign up for electronic delivery, please go to www.proxyvote.com and
have your proxy card and control number in hand when you access the website, then
follow the instructions at www.proxyvote.com to obtain your records and to create an
electronic voting instruction form. Follow the instructions for voting by Internet and,
when prompted, indicate that you agree to receive or access shareholder communications
electronically in future years.
1
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
GENERAL INFORMATION
Introduction
Fulton, a Pennsylvania business corporation and registered financial holding company, was organized
pursuant to a plan of reorganization adopted by Fulton Bank and implemented on June 30, 1982. On that date,
Fulton Bank became a wholly owned subsidiary of Fulton, and the shareholders of Fulton Bank became shareholders
of Fulton. Since that time, Fulton has acquired other banks (some of which have since been merged together),
Fulton Bank adopted a national charter, and today Fulton owns the following community banks: FNB Bank, N.A.,
Fulton Bank, N.A., Fulton Bank of New Jersey, Lafayette Ambassador Bank, Swineford National Bank and The
Columbia Bank.
In addition, Fulton has several other direct subsidiaries, including: Fulton Insurance Services Group, Inc.
(which engages in the sale of various life insurance products); Fulton Financial Realty Company (which owns or
leases certain properties on which branch and operational facilities are located); Central Pennsylvania Financial Corp.
(which owns, directly or indirectly, certain limited partnership and limited liability company interests, principally
in low- to moderate-income housing developments); and FFC Management, Inc. (which holds certain investment
securities and other passive investments).
RSVP, Date, Time and Place of Meeting
The Annual Meeting will be held on Monday, May 21, 2018, at 10:00 a.m., at the Lancaster Marriott
at Penn Square, 25 South Queen Street, Lancaster, Pennsylvania.
You are cordially invited to attend the Annual Meeting. In order for Fulton to plan and prepare for the proper
number of shareholders, if you plan on attending, please RSVP and confirm that you will attend by completing
and returning the Annual Meeting Reservation Form enclosed. If you received a Notice of Internet Availability
of Proxy Materials, or if you requested proxy materials by email, please print and return the Annual Meeting
Reservation Form posted at www.proxyvote.com if you plan to attend the Annual Meeting. Light refreshments
will be available starting at 9:00 a.m., and the business meeting will start promptly at 10:00 a.m.
Shareholders are encouraged to arrive early. Public parking is available in downtown Lancaster. For a list
of parking locations, please consult the Lancaster Parking Authority website at www.lancasterparkingauthority.com,
or consult the information in the Annual Meeting Invitation and Reservation Form. Each shareholder may be asked
to present valid photo identification, such as a driver’s license, and proof of share ownership, as of February 28,
2018, such as a copy of a brokerage statement or a copy of your ballot. Large bags, cameras, cell phones, recording
devices and other electronic devices will not be permitted at the Annual Meeting, and individuals not complying
with this request are subject to dismissal from the Annual Meeting. In the event of an adjournment, postponement or
emergency that may change the Annual Meeting’s time, date, or location, Fulton will make an announcement, issue a
press release or post information at www.fult.com to notify shareholders, as appropriate. The contents of our website
are not incorporated into this Proxy Statement and should not be considered part of this document.
Shareholders Entitled to Vote and Attend Meeting
Attendance at the Annual Meeting will be limited to shareholders of record at the close of business on
February 28, 2018 (the “Record Date”), their authorized representatives and guests of Fulton. Only those shareholders
of record as of the Record Date shall be entitled to receive notice of, attend and vote at the Annual Meeting.
Purpose of Meeting
Fulton shareholders will be asked to consider and vote upon the following matters at the Annual Meeting:
(i) the election of twelve (12) director nominees to serve for one-year terms; (ii) the non-binding Say-on-Pay resolution
to approve the compensation of the named executive officers for 2017; (iii) the ratification of the appointment of
KPMG LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2018; and (iv) such other business
as may be properly brought before the Annual Meeting and any adjournments thereof.
2
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Solicitation of Proxies
This Proxy Statement is furnished in connection with the solicitation of proxies, in the accompanying form,
by the Board of Directors of Fulton for use at the Annual Meeting to be held at 10:00 a.m. on Monday, May 21, 2018,
and any adjournments or postponements thereof. Fulton is making this solicitation and will pay the entire cost of
preparing, assembling, printing, mailing and distributing the notices and these proxy materials and soliciting votes.
In addition to the mailing of the notices and these proxy materials, the solicitation of proxies or votes may be made
in person, by mail, telephone or by electronic communication by Fulton’s directors, officers and employees, who will
not receive any additional compensation for such solicitation activities. Fulton has engaged Laurel Hill Advisory
Group, LLC to aid in the solicitation of proxies in order to assure a sufficient return of votes on the proposals to be
presented at the Annual Meeting. The fee for such services is estimated at $7,500, plus reimbursement for reasonable
research, distribution and mailing costs.
Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and Fulton will
reimburse them for reasonable out-of-pocket expenses incurred by them in connection with such activities.
Revocability and Voting of Proxies
The execution and return of the enclosed proxy card, or voting by another method, will not affect
a shareholder’s right to attend the Annual Meeting and to vote in person. A shareholder may revoke any proxy
given pursuant to this solicitation by delivering written notice of revocation to the Corporate Secretary or Assistant
Corporate Secretary of Fulton, sending a new proxy card at any time before the shares are voted by the proxy at the
Annual Meeting, or by voting by another method at any time before the applicable deadline for voting set forth on
the proxy card. Unless revoked, any proxy given pursuant to this solicitation will be voted at the Annual Meeting,
including any adjournment or postponement thereof, in accordance with the written instructions of the shareholder
giving the proxy. In the absence of specific voting instructions, all proxies will be voted FOR the election of each of
the twelve (12) director nominees identified in this Proxy Statement, FOR the approval of the non-binding Say-on-
Pay resolution to approve the compensation of the named executive officers for 2017, and FOR the ratification of the
appointment of KPMG LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2018. Although
the Board of Directors knows of no other business to be presented, in the event that any other matters are properly
brought before the Annual Meeting, any proxy given pursuant to this solicitation will be voted in the discretion of the
proxyholders named on the Proxy Card, as permitted by Rule 14a-4(c) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). If you are a registered shareholder of record who holds stock in certificates or book
entry with Fulton’s transfer agent and you do not cast your vote, no votes will be cast on your behalf on any of the
items of business at the Annual Meeting.
Shares held for the account of shareholders who participate in the Dividend Reinvestment and Stock Purchase
Plan and for the account of employees, and former employees, who participate in the Employee Stock Purchase Plan
(the “ESPP”) will be voted in accordance with the instructions of each shareholder as set forth in his or her proxy. If
a shareholder who participates in these plans does not return a proxy, the shares held for the shareholder’s account
will not be voted.
Shares held for the account of employees, and former employees, of Fulton and its subsidiaries who
participate in the Fulton Financial Common Stock Fund of the Fulton Financial Corporation 401(k) Retirement Plan
(the “401(k) Plan”), will be voted by Fulton Financial Advisors (“FFA”), a division of Fulton Bank, N.A., as plan
trustee (“Plan Trustee”) in accordance with the instructions of each participant as set forth in the proxy card sent to
the participant with respect to such shares. To allow sufficient time for the Plan Trustee to vote, participants’ voting
instructions must be received by May 16, 2018.
Each participant in the 401(k) Plan (or the beneficiary of a deceased participant) is entitled to direct the Plan
Trustee how to vote shares of common stock of Fulton which are allocated to his or her account under the 401(k)
Plan on any matter on which other holders of Fulton’s common stock are entitled to vote. If no direction is given,
then the 401(k) Plan shares will not be voted by the Plan Trustee. The Plan Trustee has established procedures that are
designed to safeguard the confidentiality of information about each 401(k) Plan participant’s purchase, holding, sale and
voting of the common stock. If a 401(k) Plan participant has questions about these procedures or concerns about the
confidentiality of this information, please contact the Retirement Plan Administrative Committee and direct the inquiry
to Fulton Financial Corporation, Attn: RPAC – Benefits, P.O. Box 4887, One Penn Square, Lancaster, PA 17604.
3
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Voting Shares Held in Street Name
If you hold shares in street name with a bank or broker, it is important that you instruct your bank or
broker how to vote your shares if you want your shares to be voted on the election of directors (Proposal 1 of this
Proxy Statement) and on the non-binding Say-on-Pay resolution to approve the compensation of the named executive
officers for 2017 (Proposal 2 of this Proxy Statement). If you hold your shares in street name and you do not instruct
your bank or broker how to vote your shares in the election of directors or any non-routine matters, such as Proposal
2 of this Proxy Statement, no votes will be cast on your behalf for the election of directors or Proposal 2. Your
bank or broker will, however, continue to have discretion to vote any uninstructed shares on the ratification of the
appointment of Fulton’s independent auditor (Proposal 3 of this Proxy Statement) and other matters that your bank
or broker considers routine. If you hold shares in street name with a bank or broker and you wish to vote your shares
in person at the Annual Meeting, you will need to obtain a “legal proxy” from your bank or broker authorizing you
to vote the shares at the Annual Meeting.
Voting of Shares and Principal Holders Thereof
At the close of business on the Record Date, Fulton had 175,342,465 shares of common stock outstanding
and entitled to vote. There is no other class of capital stock outstanding. As of the Record Date, 3,792,896 shares of
Fulton common stock were held by FFA, as the Plan Trustee, or in a fiduciary capacity for fiduciary accounts. The
shares held in this manner, in the aggregate, represent approximately 2.16% of the total shares outstanding. Shares
that are held in the applicable plan are voted by the beneficiaries. Shares for which FFA serves as a co-fiduciary will
be voted by the co-fiduciary, unless the co-fiduciary declines to accept voting responsibility, in which case, FFA will
vote to abstain on all proposals. Shares for which FFA serves as sole trustee of a revocable trust, shares for which
FFA acts as agent for an investment management account, and shares for which FFA acts as custodian for a custodial
account, are voted by the settlor of the revocable trust and the principal of the agency or custodial account unless the
governing document provides for FFA to vote the shares, in which case FFA will vote to abstain on all proposals.
Shares for which FFA is acting as sole trustee of an irrevocable trust or as guardian of the estate of a minor or an
incompetent person are voted by FFA, and in such cases, FFA will vote to abstain on all proposals.
The holders of a majority of the outstanding common stock present in person or by proxy at the Annual
Meeting constitute a quorum for the conduct of business. The judge of election will treat shares of Fulton common
stock represented by a properly signed and returned proxy which casts a vote on any matter, other than a procedural
matter, as present at the Annual Meeting for purposes of determining a quorum, without regard to whether the proxy
is marked or designated as casting a vote or abstaining on a particular matter. Likewise, the judge of election will
treat shares of common stock represented by broker non-votes as present for purposes of determining a quorum if
such shares have been voted on any matter other than a procedural matter. 1
Each share is entitled to one vote on all matters submitted to a vote of the shareholders. A majority of the
votes cast at a meeting at which a quorum is present is required in order to approve any matter submitted to a vote
of the shareholders, except for the election of directors, or in cases where the vote of a greater number of shares is
required by law or under Fulton’s Articles of Incorporation or Bylaws.
In the case of the election of directors, the twelve (12) candidates receiving the highest number of votes cast
at the Annual Meeting shall be elected to the Board of Directors for terms of one (1) year. Assuming the presence
of a quorum, the affirmative vote of a majority of the votes cast is required for approval of the non-binding Say-on-
Pay resolution to approve the compensation of the named executive officers for 2017 and the ratification of Fulton’s
independent auditor.
1 Broker non-votes are shares of common stock held in record name by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote; and (ii) the broker or nominee does not have discretionary
voting power to vote such shares on a particular proposal.
4
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Abstentions and broker non-votes (provided, in the case of broker non-votes, such non-votes represent shares
that have been voted on any matter other than a procedural matter) will be counted as shares that are present at the
Annual Meeting for determining the presence of a quorum, but will not be counted as votes cast on the election of
directors, the non-binding Say-on-Pay resolution to approve the compensation of the named executive officers for
2017, or the ratification of Fulton’s independent auditor. Because abstentions and broker non-votes are not counted
as votes cast, they will have no effect on the election of directors, the non-binding Say-on-Pay resolution concerning
executive compensation or the ratification of Fulton’s independent auditor.
To the knowledge of Fulton, on the Record Date, no person or entity owned of record, or beneficially, more
than 5% of the outstanding common stock of Fulton, except those listed on Page 16 under “Security Ownership of
Directors, Nominees, Management and Certain Beneficial Owners.”
Internet Availability of Proxy Materials
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting to be Held on May 21, 2018
In accordance with the rules of the Securities and Exchange Commission (the “SEC”), Fulton is advising
its shareholders that Fulton is furnishing proxy materials (i.e., this Proxy Statement, 2017 Annual Report on Form
10-K and proxy card) to some of Fulton’s shareholders on the Internet at www.proxyvote.com rather than mailing
paper copies of the materials to those shareholders. As a result, some shareholders will receive a Notice of Internet
Availability of Proxy Materials and other shareholders will receive paper copies of this Proxy Statement, the 2017
Annual Report on Form 10-K and proxy card. The Notice of Internet Availability of Proxy Materials contains
instructions on how to access this Proxy Statement, the 2017 Annual Report on Form 10-K and proxy card over
the Internet, instructions on how to vote shares, as well as instructions on how to request a paper copy of the proxy
materials, if shareholders so desire. Fulton believes electronic delivery should expedite the receipt of materials,
significantly lower costs and help to conserve natural resources.
Whether shareholders receive the Notice of Internet Availability of Proxy Materials or paper copies
of the proxy materials, the Proxy Statement, the 2017 Annual Report on Form 10-K, the proxy card and any
amendments to the foregoing materials that are required to be furnished to shareholders, are available for review
online at www.proxyvote.com.
This Proxy Statement and our 2017 Annual Report on Form 10-K also are available in the Investor Relations
section of Fulton’s website at www.fult.com. Shareholders may access this material by choosing the “Investor
Relations” tab at the top of the page, and then “SEC Filings” from the items listed in the Investor Relations section.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote FOR the election of each of the twelve
(12) director nominees identified in this Proxy Statement, FOR the approval of the non-binding Say-on-Pay
resolution to approve the compensation of the named executive officers for 2017, and FOR the ratification of
the appointment of KPMG LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2018.
Shareholder Proposals
Under SEC rules, shareholder proposals intended to be considered for inclusion in Fulton’s Proxy Statement
and form of proxy for the 2019 Annual Meeting must be received at the principal executive offices of Fulton at One
Penn Square, Lancaster, Pennsylvania no later than December 4, 2018. In addition, any shareholder proposal not
received at Fulton’s principal executive offices by February 17, 2019, which is forty-five (45) calendar days before
the one (1) year anniversary of the date Fulton released the previous year’s annual meeting Proxy Statement to
shareholders, will be considered untimely and, if presented at the 2019 Annual Meeting, the proxy holders will be
able to exercise discretionary authority in voting on any such proposal to the extent authorized by Rule 14a-4(c)
under the Exchange Act. All shareholder proposals must comply with Rule 14a-8 under the Exchange Act, as well as
Fulton’s Bylaws.
5
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Generally, under applicable SEC rules, a shareholder may not submit more than one proposal, and the
proposal, including any accompanying supporting statement, may not exceed 500 words. In order to be eligible to
submit a proposal, a shareholder must have continuously held at least $2,000 in market value of Fulton common stock
for at least one year before the date the proposal is submitted. Any shareholder submitting a shareholder proposal
to Fulton must also provide Fulton with a written statement verifying ownership of stock and confirming the
shareholder’s intention to continue to hold the stock through the date of the 2019 Annual Meeting. The shareholder,
or a qualified representative, must attend the 2019 Annual Meeting in person to present the proposal. The shareholder
must also continue to hold the applicable amount of Fulton common stock through the date of the 2019 Annual
Meeting.
Contacting the Board of Directors
Any shareholder of Fulton who desires to contact the Board of Directors may do so by writing to:
Board of Directors, Fulton Financial Corporation, P.O. Box 4887, One Penn Square, Lancaster, PA 17604. These
written communications will be provided to the Chair of the Executive Committee of the Board of Directors who
will determine further distribution based on the nature of the information in the communication. For example,
communications concerning accounting, internal accounting controls or auditing matters will be shared with the
Chair of the Audit Committee of the Board of Directors.
Code of Conduct
Fulton’s Code of Conduct (the “Code of Conduct”) governs the conduct of its directors, officers and employees.
Fulton provides the Code of Conduct to each director, officer and employee when starting their position, and they
are required to annually acknowledge their review of the Code of Conduct. The Code of Conduct was last updated in
2016, after a review by the Nominating and Corporate Governance Committee. Fulton’s employees and directors are
expected to recognize and avoid conflicts of interest situations in which personal interest or relationships interfere
with, might interfere with, or appear to interfere with, their responsibilities to Fulton. A current copy of the Code
of Conduct can be obtained, without cost, by writing to the Corporate Secretary at: Fulton Financial Corporation,
P.O. Box 4887, One Penn Square, Lancaster, PA 17604. The current Code of Conduct, future amendments and any
waivers are also posted and available on Fulton’s website at www.fult.com.
Corporate Governance Guidelines
Fulton has adopted Corporate Governance Guidelines (the “Governance Guidelines”) that include guidelines
and Fulton’s policy regarding the following topics: (1) the size of the Board of Directors; (2) director qualifications;
(3) a majority vote standard; (4) service on other boards and director change in status; (5) meeting attendance and
review of meeting materials; (6) director access to management and independent advisors; (7) designation of a Lead
Director; (8) executive sessions; (9) Chief Executive Officer (“CEO”) evaluation and succession planning; (10) Board
of Directors and committee evaluations; (11) stock ownership guidelines; (12) communications by interested parties;
(13) Board of Directors and committee minutes; (14) Codes of Conduct; and (15) disclosure and update of the
Governance Guidelines.
On December 19, 2017, Fulton amended the Governance Guidelines to increase the stock ownership
guidelines for Fulton’s Chief Executive Officer from a multiple of two times to three times the Chief Executive
Officer’s annual base salary. A copy of the current Governance Guidelines can be obtained, without cost, by writing
to the Corporate Secretary at: Fulton Financial Corporation, P.O. Box 4887, One Penn Square, Lancaster, PA 17604.
The Governance Guidelines are also posted and available on Fulton’s website at www.fult.com.
6
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT SELECTION OF DIRECTORS
General Information
The Bylaws of Fulton provide that the Board of Directors shall consist of at least five (5) but not more than
thirty-five (35) persons, and that the Board of Directors shall, from time to time, determine the number of directors.
The Board of Directors has, by resolution, fixed the number of the Board of Directors at twelve (12). Pursuant to
Fulton’s Bylaws, as amended, all nominees elected to the Board of Directors are elected for one-year terms.
A majority of the Board of Directors may increase or decrease the number of directors between meetings
of the shareholders. Any vacancy occurring in the Board of Directors, whether due to an increase in the number of
directors, resignation, retirement, death or any other reason may be filled by appointment by the remaining directors.
Any director who is appointed to fill a vacancy shall hold office until the next Annual Meeting of the shareholders
and until a successor is elected and shall have qualified.
Fulton’s Bylaws limit the age of director nominees, and no person may be nominated for election as a
director who will attain the age of seventy-two (72) years on or before the date of the Annual Meeting at which he or
she is to be elected. In addition, Fulton has adopted a Voluntary Resignation Policy, last amended in January 2014,
for directors that generally requires a director to tender his or her resignation when the director’s effectiveness as
a member of the Board of Directors may be substantially impaired. Circumstances that require a resignation to be
submitted include, but are not limited to: (i) a director failing to attend at least 62.5% of meetings of the Board of
Directors or its committees without a valid excuse; (ii) unless such an event is promptly cured to the satisfaction
of Fulton, any extension of credit by any of Fulton’s subsidiary banks for which the director or a related interest
of the director is an obligor or guarantor is: a) classified by Fulton as nonaccrual, sixty (60) or more days past due,
or restructured; b) assigned a risk rating of “substandard” or less; or c) not in material compliance with Board of
Governors of the Federal Reserve System’s Regulation O (12 C.F.R. Part 215) (“Regulation O”); or (iii) a nominee for
director does not receive a majority of the votes cast in an uncontested election for the Board of Directors. While the
policy sets forth events which might cause a director to tender his or her resignation, it also directs Fulton’s Board
of Directors to consider carefully, on a case-by-case basis, whether or not Fulton should accept such a resignation.
Majority Vote Standard
In January 2014, Fulton’s Nominating and Corporate Governance Committee recommended, and the
Board of Directors adopted, a majority vote standard for uncontested director elections by revising the Governance
Guidelines and the Voluntary Resignation Policy for directors. In an uncontested election for the Board of Directors
at a Fulton annual meeting of shareholders, any nominee for director who does not receive a majority of the votes
cast is required to promptly tender his or her resignation following certification of the shareholder vote. As further
described in the Governance Guidelines, the Nominating and Corporate Governance Committee shall consider the
resignation tendered and recommend to the Board of Directors whether to accept it.
Procedure for Shareholder Nominations
Section 3 of Article II of Fulton’s Bylaws requires shareholder nominations of director candidates to be
made in writing and delivered or mailed to the Chairman of the Board or the Corporate Secretary not less than the
earlier of (a) one hundred twenty (120) days prior to any meeting of shareholders called for the election of directors
or (b) the deadline for submitting shareholder proposals for inclusion in a Proxy Statement and form of proxy as
calculated under Rule 14a-8(e) promulgated by the SEC under the Exchange Act. For the 2019 Annual Meeting, this
deadline date is December 4, 2018. Further, the notice to the Chairman of the Board or the Corporate Secretary
of a shareholder nomination shall set forth: (i) the name and address of the shareholder who intends to make the
nomination and a representation that the shareholder is a holder of record of stock of Fulton entitled to vote at such
meeting and intends to be present in person or by proxy at such meeting to nominate the person or persons to be
nominated; (ii) the name, age, business address and residence address of each nominee proposed in such notice; (iii)
the principal occupation or employment of each such nominee; (iv) the number of shares of capital stock of Fulton that
7
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT are beneficially owned by each such nominee; (v) a statement of qualifications of the proposed nominee and a letter
from the nominee affirming that he or she will agree to serve as a director of Fulton, if elected by the shareholders;
(vi) a description of all arrangements or understandings between the shareholder submitting the notice and each
nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; and (vii) such other information regarding each nominee proposed by
the shareholder as would have been required to be included in the Proxy Statement filed pursuant to the proxy rules
of the SEC had each nominee been nominated by or at the direction of the Board of Directors. The chairman of the
meeting shall determine whether nominations have been made in accordance with the requirements of the Bylaws
and, if the chairman determines that a nomination is defective, the nomination and any votes cast for the nominee
shall be disregarded. Shareholder nominees are subject to the same standard of review as nominees of Fulton’s Board
of Directors or its Nominating and Corporate Governance Committee.
Director Qualifications and Board Diversity
In considering any individual nominated for membership on the Board of Directors, including those
nominated by a shareholder, Fulton considers a variety of factors, including whether the candidate is recommended
by executive management, the individual’s professional and personal qualifications, including business experience,
education and community and charitable activities, the individual’s familiarity with one or more of the communities
in which Fulton is located or is seeking to locate, and the diversity the individual may provide to the Board of Directors
and its committees. Fulton does not have a separate written policy regarding how diversity is to be considered in
the director nominating process. Generally, however, Fulton takes into account diversity in business experience,
community service, skills, professional background and other qualifications, as well as diversity in race, national
origin and gender, in considering individual candidates. Fulton’s Governance Guidelines provide that Fulton’s Board
of Directors should be sufficient in size to achieve diversity in business experience, community service and other
qualifications among non-employee directors while still facilitating substantive discussions in which each director
can participate meaningfully. In 2004, the Board of Directors formed the Nominating and Corporate Governance
Committee of the Board of Directors, whose members are independent in accordance with the NASDAQ listing
standards. The charter for the Nominating and Corporate Governance Committee is posted and available on Fulton’s
website at www.fult.com. The Nominating and Corporate Governance Committee is responsible for the Governance
Guidelines and for recommending director nominees to the Board of Directors. The Nominating and Corporate
Governance Committee also considers nominees for director that are recommended by various persons or entities,
including, but not limited to, non-management directors, Fulton’s Chief Executive Officer, other senior officers
and third parties. Information on the experience, qualifications, attributes or skills of Fulton’s director nominees is
described under “Director Nominee Biographical Information” below.
8
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT ELECTION OF DIRECTORS – PROPOSAL ONE
General Information
For the 2018 Annual Meeting, the Board of Directors has fixed the number of directors at twelve (12).
Pursuant to Fulton’s Bylaws, as amended, nominees to the Board of Directors are elected for one-year terms. The
Board of Directors has nominated the following twelve (12) persons for election to the Board of Directors for a term
of one year:
2018 Director Nominees
Lisa Crutchfield
George W. Hodges
R. Scott Smith, Jr.
Mark F. Strauss
Denise L. Devine
Albert Morrison III
Scott A. Snyder
Ernest J. Waters
Patrick J. Freer
James R. Moxley III
Ronald H. Spair
E. Philip Wenger
Each of the above director nominees is presently a director of Fulton. Following the recommendation of the
Nominating and Corporate Governance Committee, the Board of Directors approved the nomination of the above
individuals. However, in the event that any of the foregoing 2018 director nominees are unable to accept nomination
or election, any proxy given pursuant to this solicitation will be voted in favor of such other persons as the Board of
Directors may recommend. The Board of Directors has no reason to believe that any of its director nominees will be
unable to accept nomination or to serve as a director, if elected at the Annual Meeting.
Vote Required
The twelve (12) candidates receiving the highest number of votes cast at the Annual Meeting shall be elected
to the Board of Directors. Abstentions and broker non-votes will be counted as shares that are present at the Annual
Meeting, but will not be counted as votes cast in the election of directors. As described under Majority Vote Standard
on Page 7, in an uncontested election of directors, the Governance Guidelines require any nominee for director who
does not receive a majority of the votes cast to promptly tender his or her resignation following certification of the
shareholder vote.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote FOR the election of each of the twelve
(12) director nominees identified in this Proxy Statement to serve for one-year terms.
Information about Nominees, Directors and Independence Standards
Information concerning the experience, qualifications, attributes or skills of the twelve (12) persons
nominated by Fulton for election to the Board of Directors at the 2018 Annual Meeting is set forth below, including
whether they were determined by the Board of Directors to be independent for purposes of the NASDAQ listing
standards.
Fulton is a NASDAQ listed company and follows the NASDAQ listing standards for Board of Directors
and committee independence. The Board of Directors determined that eleven (11) of Fulton’s twelve (12) director
nominees are independent, as defined in the applicable NASDAQ listing standards. Specifically, the Board of
Directors found that Directors Crutchfield, Devine, Freer, Hodges, Morrison, Moxley, Smith, Snyder, Spair, Strauss
and Waters met the definition of independent director in the NASDAQ listing standards and that each of these
directors is free of any relationships that would interfere with his or her individual exercise of independent judgment.
In addition, members of the Audit Committee and the Human Resources Committee (the “HR Committee”) of the
Board of Directors meet the requirements for independence under the NASDAQ listing standards, and the rules and
regulations of the SEC for service on the Audit Committee or the HR Committee, as applicable. In reviewing director
independence, the Board of Directors considered the relationships and other arrangements, if any, of each director.
The other types of relationships and transactions that were reviewed and considered are more fully described in
“Related Person Transactions” on Page 22.
9
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Director Nominee Biographical Information
The following information regarding each director nominee’s background, experience, qualifications,
attributes or skills represents the information that led Fulton to conclude that these persons should be nominated to
serve as a director of Fulton.
LISA CRUTCHFIELD (Independent Director)
Ms. Crutchfield has been the managing principal of Hudson Strategic Advisers
LLC, an economic analysis and strategic advisory firm to energy companies,
financial services companies and governmental agencies, since 2016. From
September of 2013 to August 2016, Ms. Crutchfield led the CEO Council for
Growth. Prior to her role at the CEO Council, she served as executive vice
president, chief regulatory and compliance officer for National Grid USA from
2008 to 2011. In this role, Ms. Crutchfield also served as a non-independent
director on the board of National Grid USA. Additionally, she has held leadership
roles with PECO Energy Company, TIAA-CREF and Duke Energy. From 1993
to 1997, she was appointed to serve as vice chairman of the Pennsylvania Public
Utility Commission. Ms. Crutchfield has been a director of Unitil Corporation
(NYSE:UTL) from 2012 to present. In 2017 she also joined the board of The
Main Street America Group, a national property and casualty mutual insurance
company. Ms. Crutchfield is a graduate of Yale University with a B.A. in economics
and political science. She is also a graduate of the Harvard School of Business and
holds a M.A. of Business Administration, with distinction in finance.
Ms. Crutchfield brings more than 20 years of experience leading corporate
teams and has extensive knowledge of the financial industry and business
practices with expertise in risk mitigation, compliance and regulatory matters.
Age: 55
Fulton Director since: 2014
Committees:
•
•
•
Executive - Member
Nominating and Corporate
Governance - Chair
Risk - Member
DENISE L. DEVINE (Independent Director)
Age: 62
Fulton Director since: 2012
Committees:
•
•
•
Audit - Member and
financial expert
Executive - Member
Human Resources - Chair
Ms. Devine is the founder and since 2014 has served as the Chief Executive
Officer of FNB Holdings, LLC, a company dedicated to initiatives in the health
and wellness space. Ms. Devine was also founder and Chief Executive Officer of
Nutripharm, Inc., a company that has generated a portfolio of composition and
process patents to create innovative natural food, beverage, pharmaceutical and
nutraceutical products that facilitate nutrition and lifelong health. Ms. Devine,
a certified public accountant, also previously served as Chief Financial Officer
for Energy Solutions International and in financial management positions for
Campbell Soup Company. Ms. Devine has served as Chair of the Pennsylvania
State Board of Accountancy and on the Board of the American Institute of CPAs.
Ms. Devine was a member of the Board of Trustees of Villanova University
from 2005 to 2015, where she was the Chair of the Audit and Risk Committee.
She has also served as a member of the Board of Trustees of Lourdes Health
System since 2010 and was appointed to the Board of Ben Franklin Technology
Partners of Southeastern Pennsylvania in 2016. In February 2018, Ms. Devine
became a director of AgroFresh Solutions, Inc. (NASDAQ: AGFS).
Ms. Devine has substantial management, business and finance experience,
which adds valuable outside experience to Fulton’s Board of Directors and its
committees. She has completed courses and was recognized by the National
Association of Corporate Directors (“NACD”) as a Board Leadership Fellow
since 2015. She received an MBA from the Wharton School of the University
of Pennsylvania, an M.S. in Taxation from Villanova Law School, and a B.S. in
Accounting from Villanova University, where she graduated first in her class.
10
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT PATRICK J. FREER (Independent Director)
Mr. Freer was a director of Lebanon Valley Farmers Bank, formerly known
as Farmers Trust Bank, from 1980 until it was combined with Fulton Bank in
2007. He has been employed by Strickler Insurance Agency, Inc. (insurance
broker) since 1974 and has been the President, since 1998, and is currently the
Chairman. Mr. Freer is a Certified Insurance Counselor.
Mr. Freer brings to the Fulton Board of Directors an extensive knowledge of
insurance, investments, finance and risk management, as well as valuable
knowledge of Fulton through his tenure of more than twenty one (21) years on
its Board of Directors and as a bank director from 1980 to 2007. Mr. Freer has
long been an active member in his community, helping with numerous capital
campaigns and community projects. Mr. Freer has been a board member of the
American Cancer Society, Lebanon County Economic Development Authority,
Center of Lebanon Association and the Lebanon County Mental Health
Association and has served as past president of the Lebanon County Christian
Ministries and the Lebanon Valley Sertoma Club.
Age: 68
Fulton Director since: 1996
Committees:
•
•
Human Resources -
Member
Nominating and
Corporate Governance
Committee - Vice Chair
GEORGE W. HODGES (Independent Director and Lead Director)
Mr. Hodges currently serves as Lead Director of Fulton and was a director of
Drovers & Mechanics Bank, until it was merged into Fulton Bank in 2001, and
has served on the Board of Directors of Fulton Bank since 2012. He has been
a director of York Water Company (NASDAQ:YORW) from 2000 to present
and served as Chairman since 2011, director of The Wolf Organization, Inc.
from 2008 to 2015 (regional distributor and sourcing company of kitchen and
bath products and specialty building products), a director of Burnham Holdings,
Inc. from 2006 to present, the parent company of fourteen subsidiaries that are
leading domestic manufacturers of boilers and related HVAC products and
accessories (including furnaces, radiators and air conditioning systems), for
residential, commercial and industrial applications, and has served on the boards
of various for profit, non-profit and community organizations. Mr. Hodges
served as non-executive Chairman of the Board of The Wolf Organization from
2008 to 2009. Prior to being Chairman, Mr. Hodges was a member of the Office
of the President of The Wolf Organization from 1986 to 2008.
Mr. Hodges brings considerable financial expertise and business knowledge to
the Fulton Board of Directors, both through his business experience and his
service on other boards, and has completed the requirements for the NACD
Board Leadership Fellow Program since 2012.
Age: 67
Fulton Director since: 2001
Committees:
•
•
•
Audit - Member and
financial expert
Executive - Chair
Human Resources -
Member
11
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT ALBERT MORRISON III (Independent Director)
Since 2002, Mr. Morrison has served as the Chairman of the Board of Burnham
Holdings, Inc., the parent company of fourteen subsidiaries that are leading
domestic manufacturers of boilers and related HVAC products and accessories
(including furnaces, radiators and air conditioning systems), for residential,
commercial and industrial applications. Mr. Morrison was elected as a director
of Burnham in 1986 and became President and Chief Executive Officer of
Burnham in 1988. Mr. Morrison retired as Chief Executive Officer, effective in
April 2012, after thirty-eight years of service with Burnham Holdings, Inc. He
will also retire from the Burnham Holdings, Inc. board at the conclusion of his
current three year term in April 2018.
As a long-time Chief Executive Officer and director of a manufacturing
company, Mr. Morrison brings extensive business, financial, acquisition and
human resources skills to Fulton’s Board of Directors.
Age: 71
Fulton Director since: 2012
Committees:
•
•
•
Audit - Vice Chair and
financial expert
Risk Committee - Member
Special Joint Board
Compliance - Member
JAMES R. MOXLEY III (Independent Director)
In addition to being a director of Fulton, Mr. Moxley has been a director of
The Columbia Bank since 1999. He is admitted and licensed to practice law in
Maryland and a former real estate attorney with Venable, Baetjer and Howard,
now known as Venable LLP (law firm). Since 1992, Mr. Moxley has served as
a Principal of Security Development Corporation (a Washington-Baltimore real
estate land development company engaged primarily in retail and multifamily
projects). He serves as Board Chair and has been a trustee of Glenelg Country
School from 1996 to present. He has also served as a trustee of the Howard
Hospital Foundation from 2014 to present, as a Founding Director of the Real
Estate Charitable Foundation of Maryland from 2015 to present, and is active
on numerous civic boards and committees in Maryland. Mr. Moxley received a
J.D. degree and A.B. in Economics (magna cum laude) from Duke University.
Mr. Moxley brings banking expertise to Fulton’s Board of Directors that he
gained as a director of The Columbia Bank. He also has extensive business, tax,
and legal experience related to the acquisition, financing, and development of
commercial and residential real estate. Mr. Moxley’s longstanding board service
at Fulton’s affiliate bank in Maryland also imparts corporate governance and
supervisory skills.
Age: 57
Fulton Director since: 2015
Committees:
•
•
•
•
Executive - Vice Chair
Nominating and
Corporate Governance -
Member
Risk - Chair
Special Joint Board
Compliance - Vice Chair
12
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT R. SCOTT SMITH, JR. (Independent Director)
Mr. Smith is the retired Chairman of the Board and Chief Executive Officer of
Fulton. He served as Chairman of the Board and CEO from January 2006 to
December 2012 and also served as a director of Fulton Bank from 1993 to 2002.
He was a director of The Federal Reserve Bank of Philadelphia from 2010 to
2013 and a member of the Federal Advisory Council to the Board of Governors
of the Federal Reserve System from 2008 to 2010. Mr. Smith was a director
of the American Bankers Association from 2006 to 2009, was employed by
Fulton from 1978 to 2012 in various positions and worked in financial services
since 1969. Since 2014, he served on the boards of IREX Corp. (a specialty
contracting organization), and Herr Foods, Inc. (snack food manufacturer), and
he continues to be active in the Lancaster community.
Mr. Smith’s various management roles during his over thirty years of service
in banking give him a broad understanding of the financial services industry,
Fulton’s operations, corporate governance matters and leadership experience
qualifying him to serve on Fulton’s Board of Directors.
Age: 71
Fulton Director since: 2001
Committees:
•
Risk - Member
SCOTT A. SNYDER, PhD (Independent Director)
Age: 52
Fulton Director since: 2016
Committees:
•
•
Nominating and Corporate
Governance - Member
Risk - Vice Chair
Dr. Snyder is currently a Partner at Heidrick Consulting leading the Digital
Transformation and Innovation Offerings for the firm. He recently served as
Senior Vice President, Managing Director, and Chief Technology and Innovation
Officer from August 2016 until March 2018 for Safeguard Scientifics, Inc.
(NYSE:SFE), a provider of capital and relevant expertise to fuel the growth
of technology-driven businesses in healthcare, financial services and digital
media. From 2011 until August of 2016, he served as the president and chief
strategy officer of the Boston- and Philadelphia-based Mobiquity, Inc., a
mobile tech company that focuses on digital strategy and engineering enhanced
mobile experiences. Since 2016, he has served as the Chair of the Mobiquity
advisory board. In addition, Dr. Snyder is a senior fellow in the Management
Department at the Wharton School and an adjunct faculty member in the
School of Engineering and Applied Science at the University of Pennsylvania.
Dr. Snyder earned his B.S., M.S. and Ph.D. in Systems Engineering from the
University of Pennsylvania, and an Executive Certificate from the University
of Southern California.
Dr. Snyder brings business acumen, experience in the technology sector and
leadership in digital innovation to the Fulton Board of Directors. Dr. Snyder
has extensive expertise in the development of digital solutions, mobile business
strategy and mobile security. In 2017, Dr. Snyder also successfully completed
the NACD Cyber-Risk Oversight Program and earned a CERT Certificate
in Cybersecurity Oversight, issued by the Software Engineering Institute at
Carnegie Mellon University.
13
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT RONALD H. SPAIR (Independent Director)
Mr. Spair has served as the Chief Financial Officer, Chief Operating Officer
and a member of the Board of Directors of OraSure Technologies, Inc.
(NASDAQ:OSUR), a diagnostic and medical device company headquartered
in Bethlehem, Pennsylvania, since September 2006, and as Executive Vice
President and Chief Financial Officer since November 2001, and plans to retire
from OraSure Technologies, Inc. in 2018. Since 2013, Mr. Spair has also served
on the board of Life Science – PA, which was formerly known as Pennsylvania
Biotechnology Association, a state trade association for the life sciences
community in the Commonwealth of Pennsylvania. He is a certified public
accountant, a chartered global management accountant and holds an MBA from
Rider College.
Mr. Spair brings his public company executive experience and financial
expertise to Fulton’s Board of Directors. Mr. Spair has also had extensive
experience negotiating mergers and acquisitions, development and licensing
transactions and corporate financings.
Age: 62
Fulton Director since: 2015
Committees:
•
•
•
Audit - Chair and
financial expert
Executive - Member
Human Resources -
Member
MARK F. STRAUSS (Independent Director)
Mr. Strauss has served as director of Fulton Bank of New Jersey since 2011,
and as a director of Skylands Community Bank prior to its merger with Fulton
Bank of New Jersey in 2011. From October 2010 to his retirement in December
2017, he served as Senior Vice President of Corporate Strategy and Business
Development at American Water Works Company, Inc. (NYSE: AWK),
the largest and most geographically diverse publicly traded U.S. water and
wastewater utility company. Mr. Strauss was responsible for working with the
senior management team to link overall strategy and major growth efforts for
American Water’s regulated and competitive operations.
From December 2006 to September 2010, Mr. Strauss served as President of
American Water Enterprises, which owns and operates several of American
Water’s market-based businesses. In this role, Mr. Strauss oversaw American
Water’s non-regulated business units that offer operations and maintenance
contract services across the United States and Canada, including water and
wastewater management for military bases, service-line protection programs,
design, construction and operation of community onsite water and wastewater
systems, and other innovative solutions that address a variety of challenges
facing the industry.
Mr. Strauss has legal and executive skills and is admitted and licensed to
practice law in New Jersey.
Age: 66
Fulton Director since: 2016
Committees:
•
•
•
Human Resources - Vice
Chair
Nominating and
Corporate Governance -
Member
Special Joint Board
Compliance - Member
14
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT ERNEST J. WATERS (Independent Director)
In addition to serving as a director of Fulton, Mr. Waters has also been a director
of Fulton Bank, N.A. since 2011. Mr. Waters retired from Metropolitan Edison,
a FirstEnergy company, in 2009, where he served as the Area Vice President
and Area Manager. Mr. Waters joined the FirstEnergy companies (an investor-
owned utility) in 1976 and held various positions in Auditing and Marketing
during his tenure. He also served as an expert accounting witness in setting
rates before the Pennsylvania Public Utility Commission. Prior to joining the
FirstEnergy companies, Mr. Waters was a public accountant and business
consultant in Philadelphia. He is a former certified public accountant and holds
an MBA from the University of Pittsburgh. Since 2007, Mr. Waters has served
on the Board of Directors of the York Water Company (NASDAQ: YORW)
where he chairs their Compensation Committee and is a member of the Audit
Committee. In addition, Mr. Waters has served at leadership and committee
levels with numerous community and nonprofit organizations. He is a past
Chairman of the Board of York Hospital and recently completed a nine year
tenure as member of the Board, and chair of the Audit Committee for Wellspan
Health, York Hospital’s parent company.
Mr. Waters has business, regulatory, leadership, board service and accounting
expertise that brings valuable perspectives to Fulton’s Board of Directors.
He has also completed the requirements for the NACD Board Leadership
Fellow Program since 2014. In 2017, Mr. Waters also successfully completed
the NACD Cyber-Risk Oversight Program and earned a CERT Certificate
in Cybersecurity Oversight, issued by the Software Engineering Institute at
Carnegie Mellon University.
Age: 68
Fulton Director since: 2012
Committees:
•
•
•
•
Audit - Member and
financial expert
Executive - Member
Risk - Member
Special Joint Board
Compliance - Chair
E. PHILIP WENGER (Chairman of the Board and CEO)
Age: 60
Fulton Director since: 2009
Committees:
•
•
Executive - Member
Special Joint Board
Compliance - Member
Mr. Wenger became Chairman of the Board and Chief Executive Officer of
Fulton effective on January 1, 2013. He also served as President from 2008 to
2017, and Chief Operating Officer of Fulton from 2008 to 2012. Mr. Wenger
was a director of Fulton Bank from 2003 to 2009, Chairman of Fulton Bank
from 2006 to 2009 and has been employed by Fulton in a number of positions
since 1979.
In addition, Mr. Wenger currently serves on the Board of Directors for the
Pennsylvania Chamber of Commerce, as well as the Lancaster County YMCA
Foundation and Crispus Attucks Community Center. He is Chair of the
Advisory Board of Stonier Graduate School of Banking, and of the Economic
Development Company of Lancaster County, as well as a member of the Penn
State Harrisburg Board of Advisers. Mr. Wenger is also a member of the American
Bankers Association board of directors and the Operation HOPE Global board
of directors, a global financial dignity and economic empowerment nonprofit.
He is a past chair of the Lancaster Chamber of Commerce.
Mr. Wenger possesses an extensive knowledge of the many aspects of banking
operations through more than thirty years of experience in the financial services
industry. He has gained valuable insight through his experience in different
banking areas, including retail banking, commercial banking, bank operations
and systems.
15
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Security Ownership of Directors, Nominees, Management and Certain Beneficial Owners
The following table sets forth the number of shares of common stock beneficially owned1 as of the Record
Date, the latest practicable date, by each director nominee, and the named executive officers, Messrs. Wenger,
Rohrbaugh, McCollom, Roda, Myers and Ms. Chivinski, (collectively the “Named Executive Officers” or the
“Executives;” and individually, a “Named Executive Officer” or an “Executive”) and those persons known to be the
beneficial owner of more than 5% of Fulton’s common stock. Except as to the beneficial owners and other principal
holders listed below, to the knowledge of Fulton, no person or entity owned, of record or beneficially, on the Record
Date more than 5% of the outstanding common stock of Fulton. Unless otherwise indicated in a footnote, shares
shown as beneficially owned by each director nominee and each Executive are held individually by the person. The
director nominees and the Executives of Fulton, as a group, owned of record and beneficially 1,477,545 shares of
Fulton common stock, representing 0.84% of such shares then outstanding. Shares representing less than one percent
of the outstanding shares are shown with a “*” below.
Title
Number of
Common Shares
Beneficially Owned 2 3 4
Percent of
Class
Name of
Beneficial Owner
Lisa Crutchfield
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morrison III
James R. Moxley III
R. Scott Smith, Jr.
Scott A. Snyder
Ronald H. Spair
Mark F. Strauss
Ernest J. Waters
E. Philip Wenger
Mark R. McCollom 13
Beth Ann L. Chivinski
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee
Director Nominee, Chairman of the Board
and Chief Executive Officer
Senior Executive Vice President
Senior Executive Vice President and Chief
Risk Officer
President and Chief Operating Officer
Senior Executive Vice President
Curtis J. Myers
Craig A. Roda 16
Philmer H. Rohrbaugh 17 Senior Executive Vice President and Chief
Total Ownership
Financial Officer
Director Nominees, Named Executive
Officers and executive officers as a Group
(23 Persons)
Beneficial Owners
Holding More than 5%
BlackRock, Inc. 19
55 East 52nd Street New
York, NY 10055
The Vanguard Group 20
100 Vanguard Blvd.
Malvern, PA 19355
Dimensional Fund
Advisors LP 21
Building One
6300 Bee Cave Road
Austin, TX 78746
N/A
N/A
N/A
16
8,948
15,498 5
113,449 6
43,758 7
33,467
125,954 8
281,958 9
3,550
6,082
20,701 10
20,848 11
287,494 12
0
54,792 14
124,803 15
90,818
74,717 18
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
1,477,545
0.84%
18,973,800
10.8%
15,418,001
8.80%
14,254,652
8.14%
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 1 Beneficial ownership is determined in accordance with SEC Rule 13d-3, which provides that a person is deemed to own any
stock for which that person has or shares: (i) voting power, which includes the power to vote or to direct the voting of the stock;
or (ii) investment power, which includes the power to dispose or direct the disposition of the stock; or (iii) the right to acquire
beneficial ownership within 60 days after the Record Date.
2 Includes 130,768 shares issuable upon the exercise of vested stock options, which have been treated as outstanding shares for
purposes of calculating the percentage of outstanding shares owned by each individual as a group.
3 As of the Record Date, none of the listed individuals had pledged Fulton stock.
4 Fulton has established stock ownership guidelines for Fulton directors and certain officers. See a description of the ownership
requirements on Page 43.
5 Ms. Devine’s ownership includes 1,000 shares held jointly with her spouse.
6 Mr. Freer’s ownership includes 97,040 shares held jointly with his spouse.
7 Mr. Hodges’ ownership includes 21,430 shares held in a 401(k) plan, 200 shares held in Irrevocable Trust for children and
4,466 shares held by The Hodges Family Foundation, Inc. Mr. Hodges disclaims beneficial ownership of the shares held by The
Hodges Family Foundation, Inc.
8 Mr. Moxley’s ownership includes 39,115 shares held by The Moxley Family Trust, 1,076 shares held solely by his spouse,
16,127 shares held by Mr. Moxley as custodian for his children and 20,000 shares held in a 401(k) plan.
9 Mr. Smith’s ownership includes 263,444 shares held jointly with his spouse.
10 Mr. Strauss’ ownership includes 977 shares held jointly with his spouse and 6,427 shares held in an IRA.
11 Mr. Waters’ ownership includes 6,276 shares held in an IRA.
12 Mr. Wenger’s ownership includes 144,297 shares held jointly with his spouse and 79,792 shares held in Fulton’s 401(k) Plan. Also
includes 3,064 shares held in Fulton’s 401(k) Plan by his spouse and 341 shares held by Mr. Wenger as custodian for his children.
13 Mr. McCollom joined Fulton as a member of Fulton’s senior management on November 20, 2017 and replaced Mr. Rohrbaugh
as Fulton’s Chief Financial Officer effective March 2, 2018.
14 Ms. Chivinski’s ownership includes 8,608 shares held in Fulton’s 401(k) Plan.
15 Mr. Myers’ ownership includes 45,283 shares held in Fulton’s 401(k) Plan, 47,173 shares which may be acquired pursuant to
the exercise of vested stock options and 11,980 shares held jointly with his spouse.
16 Mr. Roda has announced he will retire as a member of Fulton’s senior management effective May 1, 2018.
17 Mr. Rohrbaugh served as Fulton’s Chief Financial Officer from December 6, 2016 through March 1, 2018, and he retired as a
member of Fulton’s senior management effective March 30, 2018.
18 Mr. Rohrbaugh’s ownership includes 27,000 shares held in an IRA, 274 shares in Fulton’s ESPP and 47,442 shares held jointly
with his spouse.
19 This information is based solely on a Schedule 13G filed with the SEC on January 19, 2018 by BlackRock, Inc., which reported
sole voting power as to 18,606,201 shares and sole dispositive power as to 18,973,800 shares, as of December 31, 2017.
20 This information is based solely on a Schedule 13G filed with the SEC on February 9, 2018 by The Vanguard Group, which
reported sole voting power as to 190,445 shares and sole dispositive power as to 15,225,666 shares, shared voting power as to
18,414 shares and shared dispositive power as to 192,335 shares, as of December 31, 2017.
21 This information is based solely on a Schedule 13G filed with the SEC on February 9, 2018 by Dimensional Fund Advisors LP, which
reported sole voting power as to 13,941,583 shares and sole dispositive power as to 14,254,652 shares, as of December 31, 2017.
17
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT INFORMATION CONCERNING THE BOARD OF DIRECTORS
Meetings and Committees of the Board of Directors
There were nine (9) regular and special meetings of the Board of Directors of Fulton and fifty-three (53)
meetings of the committees of the Board of Directors of Fulton during 2017. No director attended fewer than 75%
of (i) all meetings of the Board of Directors, (ii) all of the meetings of the committees of the Board of Directors on
which a director served, or (iii) the aggregate number of meetings of the Board of Directors and of the committees of
the Board of Directors on which he or she served in 2017.
The Board of Directors of Fulton has the following five regular standing committees: Audit, Executive,
Human Resources, Nominating and Corporate Governance and Risk. Fulton also established the Special Joint Board
Compliance Committee (the “Compliance Committee”) as further described below. The following table represents
the membership on each Fulton committee as of the date of this Proxy Statement:
Lisa Crutchfield
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morrison III
James R. Moxley III
R. Scott Smith, Jr.
Scott A. Snyder
Ronald H. Spair
Mark F. Strauss
Ernest J. Waters
E. Philip Wenger
Audit
Member
Member
Vice Chair
Executive
Member
Member
Chair
Vice Chair
Chair
Member
Member
Member
Member
* Ex-officio member per bylaws
Human
Resources
Chair
Member
Member
Member
Vice Chair
Nominating
and Corporate
Governance
Chair
Vice Chair
Member
Member
Member
Risk
Member
Compliance
Member
Chair
Member
Vice Chair
Member
Member*
Member
Vice Chair
Member
Chair
Member
Human Resources Committee Interlocks and Insider Participation
HR Committee. Fulton maintains a Human Resources Committee (defined above as the “HR Committee”),
and all members of the HR Committee meet the independence requirements of the NASDAQ listing standards
for membership on compensation committees. More information regarding the HR Committee can be found in
the “Compensation Discussion and Analysis” section of this Proxy Statement beginning on Page 26. There are
no interlocking relationships, as defined in applicable SEC regulations, involving members of the HR Committee.
Certain directors may have indirect relationships described in “Related Person Transactions” beginning on Page 22.
The HR Committee is responsible for approving or recommending to the Board of Directors the compensation for the
Executives, oversight of Fulton’s cash and equity-based incentive compensation plans, the ESPP and the 401(k) Plan,
approving employment agreements for the Executives and other officers of Fulton and fulfilling other broad-based
human resources duties. The HR Committee met a total of ten (10) times in 2017. The HR Committee is governed by
a formal charter, which was last amended in July 2017, and which is available on Fulton’s website at www.fult.com.
Other Board Committees
Audit Committee. All members of the Audit Committee meet the independence requirements of the
NASDAQ listing standards, and the rules and regulations of the SEC for membership on audit committees. Each of
the members of the Audit Committee have been determined to qualify, been designated by the Board of Directors,
and agreed to serve, as an Audit Committee “financial expert” as defined by SEC regulations. The Audit Committee
met thirteen (13) times during 2017.
The Audit Committee is governed by a formal charter, which was last amended in July 2017, and which is
available on Fulton’s website at www.fult.com. The Audit Committee’s pre-approval policy and procedure for audit and
non-audit services is set forth in its charter. The functions of the Audit Committee include: sole authority to appoint,
evaluate, retain, or terminate the independent auditor; direct responsibility for the compensation and oversight of
the work of the independent auditor; oversight of the overall relationship with the independent auditor; meeting with
18
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT the independent auditor to review the scope of audit services; reviewing and discussing with management and the
independent auditor annual and quarterly financial statements and related disclosures; overseeing the internal audit
function, including hiring and replacing the chief audit executive; reviewing related person transactions; establishing
procedures and handling complaints concerning accounting, internal accounting controls, or auditing matters; and
those risk management matters outlined in the Audit Committee Charter. In addition, with respect to any bank
subsidiary of Fulton that has not established its own independent audit committee, it is intended that Fulton’s Audit
Committee, in carrying out its responsibilities, will also satisfy the obligations imposed on such bank subsidiary of
Fulton relating to the establishment and duties of an independent audit committee as set forth in Section 36 of the
Federal Deposit Insurance Act and its implementing regulations.
Based on its review and discussion of the audited 2017 financial statements of Fulton with management and
KPMG LLP the independent auditor of the Fulton’s financial statements, the Audit Committee recommended to the
Board of Directors that the financial statements be included in the Annual Report on Form 10-K for filing with the
SEC. A copy of the report of the Audit Committee of its findings that resulted from its financial reporting oversight
responsibilities is attached as Exhibit A.
Nominating and Corporate Governance Committee. All members of the Nominating and Corporate
Governance Committee meet the independence requirements of the NASDAQ listing standards. The Nominating
and Corporate Governance Committee met eight (8) times during 2017.
The Nominating and Corporate Governance Committee is responsible for, among other things, recommending
to the Board of Directors nominees for election to the Board of Directors and assisting the Board of Directors with
corporate governance matters, including the review and approval of all changes to the Code of Conduct, Governance
Guidelines and the responsibility for guidelines and procedures to be used by directors in completing Board of
Directors evaluations used in monitoring and evaluating the performance of the Board of Directors and committees.
The Nominating and Corporate Governance Committee is also responsible for determining whether Fulton’s
directors and Executives are in compliance with Fulton’s stock ownership guidelines. The Nominating and Corporate
Governance Committee is governed by a formal charter, which was last amended in July 2017, and is available on
Fulton’s website at www.fult.com.
Executive Committee. The Executive Committee met one (1) time during 2017. Except for the powers
expressly excluded in Section 5 of Article III of the Bylaws, the Executive Committee exercises the powers of the
Board of Directors between board meetings.
Risk Committee. Fulton’s Risk Committee met nine (9) times during 2017. The Risk Committee is responsible
for providing oversight of the risk management functions and practices of Fulton, including assisting the Board of
Directors with its oversight of Fulton’s policies, procedures and practices relating to assessment and management
of Fulton’s enterprise-wide risks, including those risks identified in Fulton’s Enterprise Risk Management Policy,
which currently include strategic risk, credit risk, market risk, liquidity risk, operational risk, legal risk, compliance
and regulatory risk and reputational risk. Fulton’s Board of Directors considered the qualifications and experience
of each Risk Committee member under Regulation YY (12 C.F.R Part 252) (“Regulation YY”) promulgated by the
Board of Governors of the Federal Reserve System and applicable to board risk committees of publicly traded bank
holding companies with assets of $10 billion or more and less than $50 billion. The Risk Committee Chair is an
independent director, and each of the members of the Risk Committee was found by Fulton’s Board of Directors to
possess the requisite experience in identifying, assessing and managing risk exposures at large, complex firms. The
Risk Committee is governed by a formal charter, which was last amended in July 2017, and is available on Fulton’s
website at www.fult.com.
Compliance Committee. The Special Joint Board Compliance Committee (defined above as the “Compliance
Committee”) was established to assist the Board of Directors and the Boards of Fulton’s subsidiary banks, in fulfilling
their respective responsibilities to oversee compliance with the enforcement orders relating to Bank Secrecy Act and
anti-money laundering (“BSA/AML”) compliance matters at Fulton and its subsidiary banks and to oversee Fulton’s
management of certain other compliance risks See “Legal Proceedings” within “Note 17 – Commitments and
Contingencies” in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary
Data in Fulton’s Annual Report on Form 10-K, for the year ended December 31, 2017, for additional information
regarding the enforcement orders issued to Fulton and three of its subsidiary banks. The Compliance Committee
is comprised of five (5) Fulton directors and directors from each of Fulton’s subsidiary banks, and it met twelve
(12) times during 2017.
19
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Board’s Role in Risk Oversight
While each of Fulton’s committees are responsible for overseeing the management of certain risks, Fulton’s
Risk Committee is primarily responsible for overseeing the management of such risks for Fulton, and the entire
Board of Directors is regularly informed through committee reports and review of committee meeting minutes about
such risks. Fulton’s Risk Committee is primarily responsible for overseeing the management of Fulton’s enterprise-
wide risks, and the Board of Directors continues to regularly review information regarding Fulton’s exposure to
strategic risk, credit risk, market risk, liquidity risk, operational risk, compliance and regulatory risk, legal risk
and reputational risk, as well as Fulton’s strategies to monitor, control and mitigate its exposure to these risks.
In addition, the HR Committee is responsible for overseeing the management of risks relating to all of Fulton’s
compensation plans. The Audit Committee shares with the Risk Committee a general oversight role in Fulton’s risk
management process in the context of the Audit Committee’s responsibility for financial reporting and its evaluation
and assessment of the adequacy of Fulton’s internal control structure. The Nominating and Corporate Governance
Committee manages risks associated with the independence of the Board of Directors, potential conflicts of interest
and governance matters. The Compliance Committee is responsible for overseeing management of certain risks
related to compliance and regulatory matters.
The Board of Directors also relies upon Fulton’s Chief Risk Officer and other members of Fulton’s Enterprise
Risk Management Committee, which is Fulton’s officer-level risk management committee, to oversee and manage
existing and emerging risks and serve as a primary review forum prior to escalation to the Risk Committee and the
Board of Directors. This officer-level risk management committee provides management-level oversight for Fulton’s
risk management and compliance programs. In addition, annually, Fulton’s Board of Directors adopts a formal Risk
Appetite Statement which sets forth both the qualitative and quantitative parameters within which Fulton executes
its business strategies. This document also outlines the general framework within which Fulton manages risk in the
context of Fulton’s core values and its management philosophy, which seeks to balance the risk it assumes in serving
its customers and communities with the return it earns for its shareholders.
Fulton’s framework for enterprise risk management consists of three “lines of defense:” 1) business
units, bank operations, shared services and corporate staff office functions (collectively known as front line units)
have primary responsibility for risk management and compliance, and they each drive process deployment, risk
identification and management, policies and procedures, training and communication/reporting; 2) independent risk
management units (consisting of risk management, compliance, loan review, vendor risk management, fraud risk
management, Bank Secrecy Act compliance, corporate information security office and other risk management units)
have oversight responsibility and define governance requirements for risk management and compliance, and these
units educate, advise and monitor front line unit risk and compliance activities in discrete areas; and 3) Fulton’s
Internal Audit function independently validates the effectiveness of internal controls and risk management activities
within front line units and independent risk management units in those areas, and periodically reports results to
management and the Board of Directors.
Fulton’s risk appetite is centered on Fulton’s objective to consistently increase and enhance shareholder
value, while managing risk at an acceptable level. Fulton’s Board of Directors, and the committees that monitor risk,
assess and oversee the management of risk, including the establishment, tracking and reporting of key risk indicators
within the primary risk categories of strategic, credit, market, liquidity, operational, legal, compliance and regulatory
and reputational risk. Fulton’s key risk indicator thresholds reflect Fulton’s objective to consistently increase and
enhance shareholder value and maintain capital at a level and quality that supports Fulton’s long-term strategic
objectives as well as comply with regulatory guidelines. Finally, Fulton engages in ongoing risk assessments, capital
management and stress testing to ensure that Fulton has adequate capital to absorb potential losses under various
stress scenarios.
Cybersecurity risk is a key consideration in the operational risk management capabilities at Fulton. Under
the direction of its Chief Information Security Officer, Fulton maintains a formal information security management
program, which is subject to oversight by, and reporting to, the Risk Committee of the Board of Directors. Given
the nature of Fulton’s operations and business, including Fulton’s reliance on relationships with various third-party
providers in the delivery of financial services, cybersecurity risk may manifest itself through various business activities
and channels, and it is thus considered an enterprise-wide risk and subject to control and monitoring at various levels
of management throughout the business. In accordance with its charter, the Risk Committee of the Board of Directors
oversees and reviews reports on significant matters of actual, threatened or potential breaches of corporate security,
including cybersecurity. Fulton also maintains specific cyber insurance through its corporate insurance program, the
adequacy of which is subject to review and oversight by the Risk Committee of the Board of Directors as well.
20
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Lead Director and Fulton’s Leadership Structure
Director Hodges currently serves as Fulton’s Lead Director and is the independent Chair of the Executive
Committee. He is also a member of the Audit Committee and Human Resources Committee. The Board of Directors
has made a determination that a structure which includes a Lead Director and a combined Chairman/CEO is
appropriate for Fulton. Pursuant to the Governance Guidelines, the Board of Directors designates for a term of
at least one (1) year, and publicly discloses in Fulton’s Proxy Statement, the independent non-employee director
who will lead the non-employee directors’ executive sessions and preside at all meetings of the Board of Directors
at which the Chairman is not present. The Governance Guidelines also require that the Lead Director shall, as
appropriate: serve as a liaison between the Chairman and the independent directors; approve information sent to
the Board of Directors; approve meeting schedules to assure that there is sufficient time for discussion of all agenda
items; and have the authority to call meetings of the independent directors.
Similar to many public companies, the leadership structure of Fulton combines the positions of Chairman
and CEO. This structure permits the CEO to manage Fulton’s daily operations and provides a single voice for Fulton
when needed. Fulton believes that separation of these roles is not necessary because the Lead Director acts to
counterbalance the combined Chairman and CEO positions. In addition, approximately 92% of Fulton’s directors (11
out of 12) are independent under applicable NASDAQ standards, which provides an appropriate level of independent
oversight at Board of Directors meetings and executive sessions. Finally, Fulton’s HR Committee, Nominating and
Corporate Governance Committee and Audit Committee are all currently, and will continue to be, comprised solely
of independent directors.
Executive Sessions
The independent directors of the Fulton Board of Directors met three (3) times in executive session at which
only independent directors were present in 2017. The Chair of the Executive Committee, George W. Hodges, who
also served as the Lead Director, conducted these executive sessions of the independent directors.
Annual Meeting Attendance
Pursuant to Fulton’s Governance Guidelines, Fulton expects directors to attend the Annual Meeting in
person unless their absence is excused. All members of the Board of Directors attended the 2017 Annual Meeting,
except for Director Scott Snyder, whose attendance at the 2017 Annual Meeting of Shareholders was excused.
Director Education and Board of Directors Development
Fulton encourages its directors to attend outside seminars and educational programs as part of its corporate
governance and general board education process. These educational opportunities are in addition to the education and
development presentations that are provided during Fulton Board of Directors meetings and seminars. For example,
third parties are periodically asked to provide the Board of Directors with presentations on governance, the economy,
regulatory, compliance and a variety of other topics of interest. In addition, Directors Devine, Hodges and Waters
have each completed the requirements for the NACD Board Leadership Fellow Program for 2017 and prior years. In
order to become NACD Fellows, individuals must demonstrate their knowledge of the leading trends and practices
that define exemplary corporate governance, and commit to developing professional insights through a sophisticated
course of ongoing study. In 2017, Dr. Snyder and Mr. Waters also successfully completed the NACD Cyber-Risk
Oversight Program and earned a CERT Certificate in Cybersecurity Oversight, issued by the Software Engineering
Institute at Carnegie Mellon University. With the oversight of the Nominating and Corporate Governance Committee,
Fulton will continue to promote board development and ensure directors are kept current in a selection of topics via
onsite programs sponsored by Fulton, and external and remote learning opportunities.
Legal Proceedings
There are no material legal proceedings to which any director, officer, nominee, affiliate or principal
shareholder, or any associate thereof, is a party adverse to Fulton, or in which any such person has a material interest
adverse to Fulton.
21
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Related Person Transactions
Financial Products and Services: Some of the current directors and executive officers of Fulton, including
the Executives, their family members and the companies with which they are associated, were customers of, and/ or
had banking transactions with, Fulton’s subsidiaries during 2017. These transactions included deposit accounts, trust
relationships, loans and other financial products and services provided in the ordinary course of business by Fulton’s
bank subsidiaries. All loans and commitments to lend made to such persons and to the companies with which they
are associated were made in the ordinary course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable loans with persons not related to the lender, and did not
involve more than a normal risk of collectability or present other unfavorable features. It is anticipated that similar
transactions will be entered into in the future. By using Fulton’s products and services, directors and executive
officers have the opportunity to become familiar with the wide array of products and services offered by Fulton’s
subsidiaries to customers.
Other Transactions : Applicable SEC regulations require Fulton to disclose transactions with certain related
persons where the annual amount involved exceeds $120,000. However, a person who has a position or relationship
with a firm, corporation, or other entity that engages in a transaction with Fulton is not deemed to have a material
interest in a transaction where the interest arises only from such person’s position as a director of the firm, corporation
or other entity and/or arises only from the ownership by such person in the firm, corporation or other entity if that
ownership is under 10%, excluding partnerships. Amounts paid to entities in which a related person does not have
a material interest or were obtained by a low bid pursuant to a formal request for proposal to provide services are
not required to be disclosed. During 2017, Fulton did not have any related person transactions in excess of $120,000
requiring specific disclosure.
Fulton considered the transactions between Fulton and members of the Board of Directors and executive
officers that do not require specific disclosure, when it made the determinations that eleven (11) of Fulton’s twelve
(12) director nominees, or approximately 92% of its director nominees who are standing for election at the 2018
Annual Meeting, are independent in accordance with the NASDAQ listing standards. See “Information about
Nominees, Directors and Independence Standards” on Page 9 for more information.
Family Relationships : SEC regulations generally require disclosure of any employment relationship or
transaction with a related person where the amount involved exceeds $120,000. In fiscal year 2017, there were no
family relationships among any of the members of the Board of Directors and executive officers of Fulton, except
for Messrs. Wenger and Roda, who are related by marriage and are brothers-in-law. In addition, as of December 31,
2017, other family relationships existed among executive officers and some of the approximately 3,700 employees of
Fulton and its subsidiaries. These Fulton employees participate in compensation, benefit and incentive plans on the
same basis as other similarly situated employees.
Related Person Transaction Policy and Procedures : Fulton does not have a separate policy specific to
related person transactions. Under the Code of Conduct, however, employees and directors are expected to recognize
and avoid those situations where personal interest or relationships might interfere, or appear to interfere, with their
responsibilities to Fulton. The Code of Conduct also requires thoughtful attention to the problem of conflicts and the
exercise of the highest degree of good judgment. Under the Code of Conduct, directors must provide prompt notice
to Fulton of all new or changed business activities, related person relationships and board directorships as they arise.
In addition, Fulton and its subsidiary banks are subject to Regulation O, which governs loans by federally
regulated banks to certain insiders, including an executive officer, director or 10% controlling shareholder of the
applicable bank or bank holding company, or an entity controlled by such executive officer, director or controlling
shareholder (an “Insider”). Each Fulton subsidiary bank is required to follow a Regulation O policy that prohibits the
affiliate bank from making loans to an Insider unless the loan (i) is made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the
lender; and (ii) does not involve more than the normal risk of repayment or present other unfavorable features. Fulton
and its subsidiary banks are examined periodically by bank regulators and Fulton’s Internal Audit Department for
compliance with Regulation O to ensure that internal controls exist within Fulton and its subsidiary banks to monitor
Fulton’s compliance with Regulation O.
22
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT In accordance with Fulton’s Audit Committee Charter and NASDAQ listing standards, the Audit Committee
is charged with the responsibility to conduct, at least annually, an appropriate review and oversight of all transactions
with related persons as defined in applicable SEC regulations. This responsibility includes reviewing an annual report
regarding the related person transactions, if any, with each member of Fulton’s Board of Directors, the Executives
and Fulton’s other executive officers during the prior year. At a meeting in February 2018, the Audit Committee
reviewed and approved a report of all existing related person transactions in 2017 involving Fulton’s directors, the
Executives and Fulton’s other executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires Fulton’s executive officers, including the Executives, its principal
accounting officer, its directors, and any persons owning 10% or more of Fulton’s common stock, to file with the SEC,
in their personal capacities, initial statements of beneficial ownership on Form 3, statements of changes in beneficial
ownership on Form 4 and annual statements of beneficial ownership on Form 5. Persons filing such beneficial
ownership statements are required by SEC regulation to furnish Fulton with copies of all such statements filed with
the SEC. The rules of the SEC regarding the filing of such statements require that “late filings” of such statements
be disclosed in Fulton’s Proxy Statement. Based solely on Fulton’s review of Forms 3 and 4 and amendments thereto
furnished to Fulton during the 2017 fiscal year, including Forms 5 and amendments thereto furnished to Fulton,
and on written representations from Fulton’s directors, the Executives and Fulton’s other executive officers, Fulton
believes that all such statements were timely filed in 2017.
Board of Directors and Committee Evaluations
Pursuant to its charter, the Nominating and Corporate Governance Committee reviews and recommends
to the Board of Directors guidelines and procedures to be used by directors in monitoring and evaluating the
performance of the Board of Directors and its committees. The Board of Directors and its committees, except
the Executive Committee, conduct an annual self-evaluation of the performance of the Board of Directors and
committees. Anonymous board and committee evaluation questionnaires were last completed in the fourth quarter
of 2017. The results were compiled by Fulton’s in-house corporate counsel and presented to the Nominating and
Corporate Governance Committee in December 2017, and the members of each committee also received a summary
report of the results of that committee’s questionnaire. The Nominating and Corporate Governance Committee
reported the results to the Board of Directors at its December 2017 regular meeting, and the Board of Directors and
each of the committees discussed the summary of its respective annual evaluations.
Compensation of Directors
Non-employee directors serving on the Board of Directors currently receive a combination of cash and
equity compensation paid by Fulton for service on the Board of Directors and its committees. Fulton directors do not
receive compensation from any third party for their Fulton board service. Equity compensation paid to non-employee
directors is granted pursuant to the 2011 Directors’ Equity Participation Plan (the “2011 Director Plan”). The equity
compensation paid to non-employee directors during 2017 was in the form of shares of Fulton common stock that
had no restriction or vesting requirements. The 2011 Director Plan provides that the maximum number of shares, in
the aggregate, under all types of awards granted to any one participant in any one calendar year, excluding elections
to receive cash fees in the form of Fulton shares, shall not exceed the greater of 10,000 shares, or a number of shares
with a fair market value on the date of the grant of $100,000.00.
Salaried officers of Fulton do not receive additional compensation for service on the Board of Directors.
Thus, Mr. Wenger did not receive any director fees or additional compensation in 2017 for serving as a member of
the Board of Directors.
23
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The Board of Directors reviews non-employee director compensation annually, with the assistance of the
HR Committee and a report from the HR Committee’s independent compensation consultant, with any adjustments
to director compensation made as part of its organizational meeting activities. The Board of Directors last revised
the structure and amounts of cash and equity compensation paid to non-employee members of the Board of Directors
in 2013, and in 2017 increased the annual equity retainer paid. The structure and amounts of compensation paid to
non-employee directors for service on the Board of Directors and its committees during 2017 was as follows:
Non-employee Director Fees
Quarterly Retainer
Additional quarterly retainer paid to the Lead Director
Additional quarterly retainer paid to committee chairs 1
Board meeting attendance fee
Committee meeting attendance fee 2
Special Joint Board Compliance Committee meeting
attendance fee
Annual equity retainer 3
Educational and seminar attendance fee 5
Amount
$8,750 in cash
$7,500 in cash
$3,125 in cash
$2,000 in cash per meeting attended
$1,000 in cash per meeting attended
$1,000 in cash per meeting attended
Fulton common stock equivalent to $50,000 4
$1,000 in cash per day
1 An additional quarterly retainer is not paid to the chair of the Executive Committee.
2 Committee meeting attendance fees are not paid to a non-employee director for attending committee meetings held in
conjunction with a regularly scheduled meeting of the Board of Directors that the director attended.
3 Stock awards granted to non-employee directors elected at the Annual Meeting of shareholders and granted to non-employee
directors serving on the date of grant on November 1. Stock awards were granted on June 1, 2017 in the amount of $17,500 and
November 1, 2017 in the amount of $25,000.
4 The number of shares granted to each director was determined based on the closing price of Fulton common stock on the date
of grant, rounded up to the next whole share. In 2017, the HR Committee approved an increase in the value of stock awards from
$35,000 to $50,000, paid in two $25,000 installments per year. The November 1, 2017 stock award reflects this increase.
5 Paid for attendance at approved educational meetings or seminars. Since attendance at these meetings and seminars is voluntary,
attendance at these meetings and seminars is not considered for purposes of calculating director attendance for Board of Directors
and committee meetings.
Fulton also reimburses directors for Board of Directors service-related expenses incurred in serving as
directors of Fulton and provides non-employee directors with a $50,000 term life insurance policy while they are
directors. Certain directors have elected to participate in the Fulton Deferred Compensation Plan, under which a
director may elect to defer a portion of his or her cash director’s fees as those fees are earned and to receive those
fees, together with any returns earned on investments selected by the participating director, in a lump sum or in
installments over a period of up to twenty (20) years following retirement. The current non-employee directors of
Fulton who have established accounts to defer a portion of the fees paid to them in cash are Directors Devine, Freer,
Smith, Spair and Waters. Certain directors of Fulton also serve on the boards of certain Fulton subsidiary banks, and
these directors are compensated with a retainer, meeting fees, or both for their service on each of those individual
boards, and amounts paid are reflected in footnote 4 in the following Director Compensation Table.
24
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The following table summarizes all of the compensation paid to each non-employee Fulton director who
served during 2017:
DIRECTOR COMPENSATION TABLE
Name 1
Lisa Crutchfield
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morison III
James R. Moxley III
R. Scott Smith, Jr.
Scott A. Snyder
Ronald H. Spair
Mark F. Strauss
Ernest J. Waters
Fees
Earned or
Paid in
Cash
($)
65,500
72,500
62,250
90,000
75,250
71,250
53,000
53,000
65,250
66,000
82,500
Stock
Awards 2
($)
42,525
42,525
42,525
42,525
42,525
42,525
42,525
42,525
42,525
42,525
42,525
Option
Awards
($)
0
0
0
0
0
0
0
0
0
0
0
Non-Equity
Incentive Plan
Compensation
($)
0
0
0
0
0
0
0
0
0
0
0
Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
0
0
0
0
0
0
0
0
0
0
0
All Other
Compensation 3 4
($)
0
0
0
0
0
0
12,778 5
0
0
0
0
Total
($)
108,025
115,025
104,775
132,525
117,775
113,775
108,303
95,525
107,775
108,525
125,025
1 Directors listed represent all the non-employee directors of Fulton serving during 2017.
2 Fulton’s non-employee directors were granted Fulton common stock (rounded to next whole share) as part of their 2017
compensation pursuant to the 2011 Director Plan. The amounts in this column consist of a $17,511 stock award granted on June 1, 2017
consisting of 981 shares having a grant date fair value of $17.85 per share (the closing price of Fulton common stock on June 1, 2017),
and a $25,014 stock award granted on November 1, 2017 consisting of 1,382 shares having a grant date fair value of $18.10 per share
(the closing price of Fulton common stock on November 1, 2017). The stock awards were granted without restriction or vesting
requirements, and the amount shown does not reflect the value of any dividends paid on these shares during 2017.
3 Unless otherwise noted, the amount excludes perquisites and other personal benefits with an aggregate value of less than
$10,000. Fulton’s methodology to calculate the aggregate incremental cost of perquisites and other personal benefits was to use
the amount disbursed for the item. Where a benefit involved assets owned by Fulton, an estimate of the incremental cost was used.
4 Some of Fulton’s directors also serve on boards of Fulton’s subsidiary banks and received director fees for bank board service.
The fees paid for this subsidiary board service are excluded from the amounts listed in the table. During 2017, Director Hodges
received $26,500 in fees from Fulton Bank, N.A., Director Moxley received $17,150 in fees from The Columbia Bank, Director
Strauss received $16,500 in fees from Fulton Bank of New Jersey, and Director Waters received $27,250 in fees from Fulton
Bank, N.A.
5 This amount includes club membership fees, plus office use, parking and other perquisites received by Director Smith during 2017.
25
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT INFORMATION CONCERNING COMPENSATION
Compensation Discussion and Analysis
This section of the Proxy Statement explains the design and operation of our executive compensation program
with respect to the compensation paid to our named executive officers (“Named Executive Officers”) or (“Executives”)
for 2017. There were a number of changes and new Named Executive Officers based on role changes within Fulton,
including the November 2017 hiring of Mark R. McCollom, who became Fulton’s Chief Financial Officer on
March 2, 2018. Mr. McCollom replaced Philmer H. Rohrbaugh, who served as Fulton’s Chief Financial Officer
through March 1, 2018 and has retired as a member of Fulton’s senior management effective as of March 30, 2018.
Mr. Rohrbaugh held a number of executive positions with Fulton, including Chief Risk Officer, Chief Operating
Officer, and became Chief Financial Officer on December 6, 2016. Craig A. Roda, Senior Executive Vice President,
has announced he will retire as a member of Fulton’s senior management effective May 1, 2018. Beth Ann L. Chivinski
also became a Named Executive Officer in her role as Chief Risk Officer, a position she has held since June 1, 2016.
Fulton’s Named Executive Officers in this Proxy Statement are:
Executive
E. Philip Wenger
Philmer H. Rohrbaugh
Mark R. McCollom
Craig A. Roda
Curtis J. Myers
Beth Ann L. Chivinski
Fulton Officer Title
Chairman and Chief Executive Officer
Senior Executive Vice President and Chief Financial Officer, through March 1, 2018
Senior Executive Vice President and Chief Financial Officer, effective March 2, 2018
Senior Executive Vice President
Senior Executive Vice President, President and Chief Operating Officer
Senior Executive Vice President and Chief Risk Officer
Table of Contents for the Compensation Discussion and Analysis
1.
2.
3.
4.
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Shareholder Say-on-Pay Proposal Historical Results . . . . . . . . . . . . . . . . 29
Pay for Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5. HR Committee Membership and Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.
Role of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7. Use of Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. Use of a Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.
Elements of Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.
Compensation Plan Risk Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12. Other Compensation Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
26
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 1.
Executive Summary
Fulton believes that the compensation of the Named Executive Officers should reflect Fulton’s overall
performance and the contributions of the Executives to that performance. Variable compensation awards (“VCP
Awards”) and long-term equity awards (“LTI Awards”) earned by the Executives under Fulton’s Amended and
Restated Equity and Cash Incentive Compensation Plan (the “2013 Plan”) are determined based on predetermined
performance goals and the HR Committee’s assessment, in the exercise of its discretion, of Fulton’s and each
Executive’s performance in the preceding year.
Fulton’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in
Fulton’s Annual Report on Form 10-K for the year ended December 31, 2017, which is being made available to
shareholders together with this Proxy Statement, contains an overview of Fulton’s 2017 performance. Following is a
brief summary of some of the financial highlights identified therein for the year ended December 31, 2017:
•
•
•
Net Income Per Share Growth: Diluted net income per share increased $0.05, or 5.4%, to $0.98 per
diluted share for 2017, compared to $0.93 in 2016.
Net Interest Income and Net Interest Margin: Net interest income increased $54.6 million, or 10.5%,
compared to 2016, while the fully taxable-equivalent net interest margin increased 10 basis points to
3.28%.
Loan Growth: Average loans increased $1.1 billion, or 7.8%, compared to 2016.
• Deposit Growth: Average deposits increased $895.7 million, or 6.1%, compared to 2016.
•
•
Non-Interest Income: Non-interest income, excluding investment securities gains, increased $11.3 million,
or 6.0%, compared to 2016.
Non-Interest Expense: Non-interest expense increased $36.1 million, or 7.4%, compared to 2016.
27
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The HR Committee took a number of actions relating to compensation for the Executives during 2017, as
summarized in the table below:
Element
Salaries
VCP
Awards
LTI
Awards
Actual VCP Awards
(% of salary)
89.9%
Ranged from 52.9% to 56.1%
HR Committee Actions
• Annual base salary increases were approved effective April 1, 2017.
• Increases of 2.5% for Messrs. Wenger, Rohrbaugh, Roda and Ms. Chivinski, and 8.3% for
Mr. Myers.
• Set target VCP Award amounts for each of the Executives and approved scorecards with a series of
performance criteria that would be used to determine the amount of the VCP Awards, if any, that
would be paid to each of the Executives.
• Conditioned the payment of VCP Awards for 2017 performance on Fulton having a return on
average equity (“ROE”) of 6.24% and positive net income for 2017.
• Evaluated Fulton’s and each Executive’s performance relative to the performance criteria and
determined that the Executives should receive VCP Awards for 2017 performance as follows:
Executive
Target VCP Awards
(% of salary)
Mr. Wenger
Other Executives
• Approved LTI Award grants in 2017, in the form of performance-based restricted stock units
85%
50%
(“Performance Shares”).
• The number of Performance Shares awarded to each of the Executives was based on a target dollar
amount equal to 125% of base salary for the CEO, and 75% of base salary for the other Executives,
as of January 1, 2017, which was then converted to a number of Performance Shares on the grant
date by dividing the target dollar amount by the closing price of Fulton’s common stock on the
grant date.
• The actual number of shares of Fulton common stock, if any, that the Executives may receive
upon vesting on May 1, 2020 following the end of the performance period and determination of
the achievement of the Performance Shares by the HR Committee may be higher or lower than
the target number granted.
• The Performance Shares were allocated by the HR Committee among three components, each
having different vesting terms, as summarized below:
Component A, representing 37.5% of the target dollar amount for the Executives:
• Component A Performance Shares will vest only if Fulton has net income during calendar year
2019 at least equal to the dividends declared on Fulton common stock during the four calendar
quarters immediately preceding the grant date (the “Profit Trigger”).
• The number of shares that may be received upon vesting of Component A Performance Shares is
determined based on Fulton’s 2017 return on average assets (“ROA”) measured relative to a peer group.
• Fulton’s 2017 ROA percentile rank relative to the Peer Group was 39.7%, and the number of shares
of stock that may be received upon vesting of the Component A Performance Shares was reduced
to 58.73% of the original target number of Component A Performance Shares. The vesting of these
Component A Performance Shares remains subject to the Profit Trigger requirement.
Component B, representing 37.5% of the target dollar amount for the Executives:
• The number of shares that may be received upon vesting of Component B Performance Shares
is determined based on Fulton’s total shareholder return (“TSR”) during the period from May 1,
2017 through March 31, 2020 measured relative to a peer group.
Component C, representing between 25% and 37.5% of the target dollar amount for the Executives:
• Component C Performance Shares were awarded at the following percentages of the target dollar
amount: Messrs. Wenger, Roda and Myers, 25%; Mr. Rohrbaugh, 37.5%; and Ms. Chivinski, 34.6%.
• The number of shares that may be received upon vesting of the Component C Performance Shares
will not vary based on performance or other factors, but the vesting of Component C Performance
Shares is subject to the Profit Trigger requirement.
28
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 2.
Shareholder Say-on-Pay Proposal Historical Results
Since 2011, Fulton has annually submitted a non-binding Say-on-Pay Proposal to its shareholders for approval.
At the 2017 Annual Meeting, 73.72% of Fulton’s shareholders, excluding abstentions, voted in favor of a one year
frequency of conducting future non-binding Say-on-Pay votes for shareholders to approve the compensation of the
Named Executive Officers. The 2018 non-binding Say-on-Pay Proposal is set forth on Page 57.
Fulton views the results of past Say-on-Pay Proposals as support for its previous compensation policies
and decisions, and the Board of Directors and its HR Committee will consider the vote on the 2018 non-binding
proposal as a barometer of shareholder support for the current compensation programs for the Executives. Since first
implemented and presented to shareholders in 2011, Fulton’s shareholders have consistently approved its Say-on-Pay
Proposals with an average of 94.49% of shares voted “FOR” the Say-on-Pay Proposals. Following are the results of
the vote on Fulton’s prior Say-on-Pay Proposals:
Shares Voted FOR (excluding abstentions) as a Percentage of total vote FOR and AGAINST
Fulton’s Say-on-Pay Proposal
Year
% Voted FOR
2017
97.63%
2016
96.56%
2015
96.15%
2014
96.49%
2013
93.87%
2012
92.63%
2011
90.98%
The HR Committee, which is composed exclusively of independent directors, believes that the prior votes
of Fulton’s shareholders confirms the philosophy and objective of linking Fulton’s executive compensation to its
operating objectives and the enhancement of shareholder value. Fulton views this continued level of shareholder
support as an affirmation of Fulton’s current pay practices and, as a result, no significant changes were made to
Fulton’s executive compensation pay practices for 2017. The HR Committee will continue to consider the outcome of
the Fulton’s say-on-pay votes when making future compensation decisions for the Named Executive Officers.
3.
Pay for Performance
The core of Fulton’s compensation philosophy is to link “pay to performance” on both a short-term and
long-term basis. VCP Awards are “at-risk” performance-based awards because if the ROE threshold is not met or
scorecard performance factors are not achieved, when adjusted, if applicable, for positive or negative corporate
performance results using a corporate modifier, then the amount of the VCP Award may be reduced or the Executive
may not receive the award. The 2017 Performance Share awards, like the prior year awards, are “at-risk” because, in
addition to the amount of annual awards being linked to Fulton’s performance, these awards are subject to vesting and
possible forfeiture dependent upon Fulton achieving specified levels of financial performance, thereby maintaining
alignment with shareholders regardless of stock price movement. In addition, the Performance Shares only increase
in value if Fulton’s share price increases over the term of the award. The HR Committee believes that the VCP
Awards and Performance Shares awarded under the 2013 Plan further Fulton’s business plan and further the HR
Committee’s objective to ensure that the interests of the Executives, both short-term and long-term, are aligned with
the interests of Fulton’s shareholders.
29
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The following charts show the compensation mix for Mr. Wenger and the other Executives with the 2017
VCP Awards at target, the 2017 Performance Shares at target, plus base salary and all other compensation the
Executives received in 2017. For 2017, Mr. Wenger’s “performance pay” was 65% of total compensation and the
average “performance pay” for the other Executives was 53% of total compensation.
2017 Compensation Mix Chart – Performance Based Pay at Target
CEO and Average for Other Executives
Other
4%
Salary
31%
Total
65%
Performance
Shares
38%
VCP Award
27%
Mr. Wenger
P
e
r
f
o
r
m
a
n
c
e
-
B
a
s
e
d
P
a
y
a
t
T
a
r
g
e
t
Total
53%
30
Other
4%
Performance
Shares
31%
VCP Award
22%
Salary
43%
Average for other Executives
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
4.
Compensation Philosophy
Objectives: Fulton’s executive compensation philosophy and programs are intended to achieve three
objectives:
Align interests of
the Executives with
shareholder interests
Fulton believes that the interests of the Named Executive Officers should be closely
aligned with those of its shareholders. Fulton attempts to align these interests by
evaluating the Executives’ performance in relation to key financial measures, which
it believes correlate with consistent long-term shareholder value and increasing
profitability, without compromising Fulton’s culture and overall risk profile.
Link “pay to
performance”
Fulton believes in a close link between pay to the Executives and the overall
performance of Fulton on both a short-term and long-term basis. It seeks to reward
the Executives for their contributions to Fulton’s financial and non-financial
achievements and to differentiate rewards to the Executives based on their individual
contributions.
Attract, motivate and
retain talent
Fulton believes its long-term success is closely tied to the attraction, motivation
and retention of highly talented employees and a strong management team. While
a competitive compensation package is essential in competing for and retaining
talented employees in a competitive market, Fulton also believes that non-monetary
factors, such as a desirable work environment and successful working relationships
between employees and managers, are critical to providing a rewarding employee
experience.
To achieve these three objectives, Fulton provides the following elements of Executive compensation:
Base Salary
Fulton generally sets Executive base salaries near the market median at comparable
peer companies and to reflect individual job responsibilities, experience and tenure.
Annual Cash
Incentive Awards
Annual cash incentive awards, in the form of VCP Awards, are designed to focus
the attention of the Executives on the achievement of annual business goals. Under
Fulton’s 2013 Plan, awards at the target level of performance are designed to position
total cash compensation near the market median. The 2013 Plan provides the
Executives with the opportunity to earn cash compensation above the median for
superior performance.
Equity Awards
Benefits
Perquisites
Fulton believes in providing long-term incentive awards consisting of equity in the
form of Performance Shares, in order to focus the Executives on delivering long-term
performance and shareholder value. The equity award program is also designed to
provide the Executives with a long-term wealth-building opportunity that acts as a
balance to short-term incentives, ensures a focus on the long-term stability of the
organization and incorporates vesting terms that encourage executive retention.
Fulton believes in equity award levels that are fair and market competitive, both in
isolation and in the context of total compensation.
Fulton believes in providing benefits that are competitive in the marketplace and that
encourage the Executives to remain with Fulton. Retirement benefits are designed to
provide reasonable long-term financial security.
Fulton believes in providing the Executives and other officers with basic perquisites
that are necessary for conducting Fulton’s business.
31
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 5.
HR Committee Membership and Role
The HR Committee is currently comprised of five (5) independent directors, all of whom are appointed to
serve annually by the Board of Directors. Each member of the HR Committee qualifies as an independent director
under the NASDAQ listing standards and meets the additional NASDAQ independence requirements specific to
compensation committee members. No member of the HR Committee is a party to a related person transaction as
more fully described in “Related Person Transactions” on Page 22 of this Proxy Statement. There are no interlocking
relationships, as defined in the regulations of the SEC, involving members of the HR Committee. For a further
discussion on director independence, see the “Information about Nominees, Directors and Independence Standards”
section on Page 9 of this Proxy Statement.
Pursuant to its charter, which is available on Fulton’s website at www.fult.com, and consistent with NASDAQ
rules, the role of the HR Committee is, among other things, to review and approve, or make recommendations to
the Board of Directors with respect to, the base salaries and other compensation paid or granted to the Executives,
to administer Fulton’s equity and other compensation plans and to take such other actions, within the scope of its
charter, as the HR Committee deems necessary or appropriate. The HR Committee relies upon such performance
data, statistical information and other data regarding executive compensation programs, including information
provided by Fulton’s Human Resources Department, Fulton’s officers and outside advisors, as it deems appropriate.
The HR Committee has unrestricted access to individual members of management and employees and may ask them
to attend any HR Committee meeting or to meet with any member of the HR Committee. The HR Committee also
has the power and discretion to retain, at Fulton’s expense, such independent counsel and other advisors or experts
as it deems necessary or appropriate to carry out its duties.
Fulton’s executive compensation process consists of establishing targeted overall compensation for each
Executive and then allocating that targeted total compensation among base salary, cash incentive compensation
and equity awards. Fulton does not have a policy or an exact formula with regard to the allocation of compensation
between cash and non-cash elements, except that the HR Committee has established a methodology and an award
matrix for cash incentive compensation payments and equity awards under the 2013 Plan, as described in more detail
below. Consistent with Fulton’s compensation philosophy, however, the HR Committee determines the amount of
each type of compensation for the Executives by: reviewing publicly available executive compensation information
of peer group companies (as defined and listed below); consulting with outside advisors and experts; considering the
complexity, scope and responsibilities of the individual’s position; consulting with the CEO with respect to the other
Executives; assessing possible demand for the Executives by competitors and other companies; and evaluating the
compensation appropriate to attract executives to Fulton’s headquarters in Lancaster, Pennsylvania.
6.
Role of Management
Management assists the HR Committee in recommending agenda items for its meetings and by gathering
and producing information for these meetings. As requested by the HR Committee, the CEO, other Executives and
other officers, including members of Fulton’s in-house corporate counsel, participate in HR Committee meetings to
provide background information, compensation recommendations for other officers, performance evaluations and
other items requested by the HR Committee. As part of the performance evaluation process, all the Executives meet
with the CEO to discuss their overall performance. The CEO reviews the performance of the other Executives and
shares his comments and recommendations with respect to the performance of the other Executives with the HR
Committee. The HR Committee, without the CEO present, reviews the CEO’s overall performance and routinely has
executive sessions without management present. The Executives are not present for the HR Committee’s discussions,
deliberations and decisions with respect to their individual compensation. The HR Committee Charter, last amended
in 2017, provides that the CEO may not be present during HR Committee voting or HR Committee deliberations
regarding the CEO’s compensation. The Board of Directors, in executive session, with only the independent directors
present, has historically made all final determinations regarding the compensation of the Executives, after considering
recommendations made by the HR Committee.
32
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 7.
Use of Consultants
The HR Committee retained McLagan, an Aon Hewitt Company, as independent compensation consultant
for 2017. McLagan served as the independent compensation consultant for the HR Committee from June 2010 until
October 2017. McLagan was originally retained by Fulton in 2009 for a compensation plan risk review project
and performed a variety of assignments during 2017 at the direction of the HR Committee, including conducting
a compensation market analysis related to Fulton’s Executives, scorecard review, an overall compensation policy
review, work related to the design of Fulton’s incentive compensation plans, and providing general compensation
advice regarding Fulton’s Executives.
During 2017, McLagan was instructed by the HR Committee to compare Fulton’s current compensation
practices and executive compensation programs with those of Fulton’s peers, evolving industry best practices and
regulatory guidance. Based on that comparison, McLagan was asked to recommend changes in Fulton’s executive
compensation practices that were consistent with Fulton’s executive compensation philosophy and objectives as
described above. The specific instructions given to the consultant and fees to be paid were generally outlined in
engagement letters that described the scope and performance of duties under each project. Fulton does not have
a policy that limits the other services that an executive compensation consultant may perform. McLagan and its
affiliates did not provide additional services to Fulton or its affiliates in 2017 with associated fees in excess of the
$120,000 threshold established under SEC rules and regulations requiring disclosure in this Proxy Statement.
At its February 21, 2017 meeting, the HR Committee considered the independence of McLagan in light of
the SEC rules and NASDAQ listing standards related to compensation committee consultants. The HR Committee
requested and received a report from McLagan addressing its independence as a compensation consultant to the
HR Committee, including the following factors: (1) other services provided to Fulton by McLagan; (2) fees paid by
Fulton as a percentage of McLagan’s and Aon’s total revenue; (3) policies or procedures maintained by McLagan
that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual
consultants performing work for the HR Committee and a member of the HR Committee; (5) any Fulton stock owned
by the individual consultants performing work for the HR Committee; and (6) any business or personal relationships
between Fulton’s executive officers and the individual consultants performing work for the HR Committee. The HR
Committee discussed these considerations and concluded that the work performed by McLagan and its consultants
involved in the engagements did not raise any conflict of interest, and further concluded that McLagan continues to
satisfy the applicable rules and standards related to the independence of compensation committee consultants.
Since McLagan had served as the HR Committee consultant since 2010, in the interest of good governance,
in 2017 the HR Committee considered a number of compensation consultants, including McLagan, as part of a request
for proposal for the 2018 consultant engagement. After reviewing responses and conducting in-person interviews of
several consultants, the HR Committee approved the replacement of McLagan with Frederic W. Cook & Co., Inc. in
late 2017.
8.
Use of a Peer Group
In evaluating the market competitiveness of the compensation paid to the Executives, the HR Committee,
with the assistance of its compensation consultant, regularly reviews the compensation paid to the Executives in
comparison with the compensation paid to executives with similar responsibilities within a defined peer group of
similar financial institutions. The HR Committee, with the assistance of McLagan, reviewed the composition of
Fulton’s peer group. Based on a review of the peer group in late 2016, the HR Committee, consistent with the
recommendation of McLagan, approved the peer group appearing in the table below as the peer group for 2017 (the
“2017 Peer Group”).
The 2017 Peer Group was evaluated and selected based on a range of factors, including asset size, revenue
composition, the number of employees, market capitalization, geographic focus, business model, and ownership
profile. McLagan recommended that Fulton continue with the prior year peer group, except that FirstMerit Corporation
be removed because it was acquired in 2016 and was no longer deemed appropriate for inclusion.
Aggregate statistical analysis of the executive compensation practices of the companies in the 2017 Peer
Group was used by the HR Committee in the review of overall compensation and in setting 2017 base salaries for
the Executives. During 2017, the 2017 Peer Group was also used as the peer group for the Performance Shares, as
discussed below.
33
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The following table provides the nineteen (19) members of the 2017 Peer Group, their stock trading symbols
and the location of their principal executive offices:
2017 Peer Group
BancorpSouth, Inc.1
Commerce Bancshares, Inc.
F.N.B. Corporation
Hancock Holding Company
IBERIABANK Corporation
MB Financial Inc.
Northwest Bancshares, Inc.
Old National Bancorp
PrivateBancorp, Inc.2
Prosperity Bancshares, Inc.
TCF Financial Corporation
Trustmark Corporation
UMB Financial Corporation
Umpqua Holdings Corporation
United Bankshares Inc.
Valley National Bancorp
Webster Financial Corporation
Western Alliance Bancorp
Wintrust Financial Corporation
Ticker
BXS
CBSH
FNB
HBHC
IBKC
MBFI
NWBI
ONB
PVTB
PB
TCB
TRMK
UMBF
UMPQ
UBSI
VLY
WBS
WAL
WTFC
City State
Tupelo MS
Kansas City MO
Pittsburgh PA
Gulfport MS
Lafayette LA
Chicago IL
Warren PA
Evansville IN
Chicago IL
Houston TX
Wayzata MN
Jackson MS
Kansas City MO
Portland OR
Charleston WV
Wayne NJ
Waterbury CT
Phoenix AZ
Rosemont IL
1 On October 31, 2017, as part of a corporate reorganization, BancorpSouth, Inc. merged with and into BancorpSouth
Bank, with BancorpSouth Bank continuing as the surviving entity.
2 This Peer Group member was acquired, and, as provided for within the incentive plans and LTI Awards, was excluded
from certain metrics and market comparisons during 2017.
9.
Elements of Executive Compensation
Fulton’s executive compensation program currently provides a mix of base salary, cash incentive and
equity-based components, as well as retirement benefits, health plans and other benefits as follows:
Base Salary: Consistent with its compensation philosophy, Fulton generally seeks to set base salary for the
Executives in line with the market median. Fulton sets salaries on an individual basis and seeks to provide base salary
appropriate for the person’s position, experience, responsibilities and performance.
In making recommendations to the Board of Directors regarding the appropriate base salaries for 2017,
the HR Committee received a recommendation from its compensation consultant, which considered base salaries
paid by members of the 2017 Peer Group to peer officers who held similar roles and who were positioned similarly
to the Executives in their respective organizations. At its meeting in March 2017, after a review of the Executives’
competitive positioning to market using 2017 Peer Group, analysis of internal pay equity data, the salary increases
paid to other Fulton officers, recommendations from the CEO and an internal equity comparison report provided
by McLagan, the HR Committee recommended, and the Board of Directors approved, base salary adjustments for
the Executives effective with the payroll period including April 1, 2017, as set forth in the table below. Mr. Myers
received a more substantial increase than that awarded to the other Executives based upon the recommendation
of the HR Committee’s consultant reflecting his increased responsibilities. Mr. McCollom’s salary was similarly
considered by the HR Committee and its consultant at the time of his hiring as Fulton’s CFO designee to succeed
Mr. Rohrbaugh as Fulton’s Chief Financial Officer.
34
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The base salaries for each of the Executives in 2016 and 2017, along with the annual percent increases for
each Executive, were:
Executive
Wenger
Rohrbaugh
McCollom
Roda
Myers
Chivinski
2016 Base Salary
$973,936
$518,347
-
$411,406
$392,425
$345,857
2017 Base Salary
$998,284
$531,306
$425,000
$421,691
$424,996
$354,503
Annual % Increase
2.50%
2.50%
-
2.50%
8.30%
2.50%
VCP Awards: Fulton’s VCP Awards are designed so that no annual cash incentive is paid unless Fulton
achieves a predetermined ROE performance threshold and a net income goal. Once those thresholds are achieved,
individual scorecards are utilized, which rely on a series of financial, business and risk metrics in several categories,
with potential adjustment for positive or negative performance not reflected in the scorecards, in order to provide
balance in the overall approach to determining annual cash incentives. The HR Committee set the 2017 ROE threshold
at 6.264%, equivalent to 80% of Fulton’s budgeted ROE for 2017 of 7.83%, which was viewed as an attainable goal,
but not a level which guaranteed payment of an annual cash incentive, to ensure that the Executives are paid for
performance. For the 2017 VCP Awards, in addition to the ROE goal, the HR Committee included a positive net
income trigger for the year intended to qualify the awards as performance-based compensation.
At its February 2018 meeting, the HR Committee determined that:
• The 2017 ROE threshold of 6.264% had been achieved, as Fulton had an actual 2017 ROE of
7.829%; and
• The 2017 positive net income trigger had been achieved, as Fulton had 2017 actual positive net
income of $171.8 million.
The VCP Awards were designed by the HR Committee to be substantially based on formulaic scorecard
results with the HR Committee retaining discretion to adjust any VCP Award, as appropriate. The 2017 VCP Awards
were determined pursuant to the terms and provisions of the 2013 Plan, and the HR Committee approved these
awards as a Performance Compensation Award under Article 10 of the 2013 Plan.
In early 2017, the HR Committee reviewed and approved updated scorecards to be used for 2017 performance,
which are outlined in the tables below. McLagan presented the initial design concept below to help simplify the
VCP awards and to better align pay with performance. The 2017 scorecards recommended by the compensation
consultant reduced the number of subcategories from nine to six, which were allocated among Financial Results,
Risk Management and Business Objectives categories. McLagan also recommended increasing the weight of the
Business Objectives to 15%, reducing the weight of the Risk Management category to 35%, using linear interpolation
and removing the step-weighted measures that assess performance in discrete segments for actual performance,
permitting a maximum payout for all factors, and continuing to allow for up to a 35% modifier as structured discretion
whereby the scorecard sets the overall pool and then, to make adjustments up or down to align with performance
and events not otherwise captured by the actual metrics. The following is a summary of the 2017 scorecard the HR
Committee approved.
All the scorecards for 2017 contained the same financial performance metrics and similar risk management
performance categories for each Named Executive Officer, including the CEO. Each Executive had Employee
Engagement as his or her Business Objective. This objective was based on certain employee survey results from all of
the employees that reported to each Executive. The CEO had a higher payout opportunity than the other Executives.
The 2017 scorecard was assessed with possible scores ranging from 0 to 5 for each factor. Where scorecard results
fall in between the scores for threshold, target and maximum award levels, the VCP Award is interpolated on a
straight-line basis.
35
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The VCP Awards were calculated based on scorecard results, with payouts to be made in accordance with
the following matrix.
2017 Award Level
Threshold
Target
Maximum
2017 VCP Award Matrix
Scorecard
Result
2.00
3.00
4.50
% of
Target Award
25.0%
100.0%
150.0%
CEO
Payout as a %
of Salary 1
21.3%
85.0%
127.5%
Other Executive
Payout as a %
of Salary 1
12.5%
50.0%
75.0%
1 For purposes of determining VCP Awards, salary is the actual base salary paid to each Executive during 2017 and listed in the
Summary Compensation Table on Page 45.
At its March 2018 meeting, the HR Committee reviewed the Executives’ overall 2017 performance and
scorecard results, and determined that each of the Executives achieved a level of performance in 2017 that qualified
for a VCP Award above target based on total scorecard results. The HR Committee reviewed the results for each
of the scorecard performance subcategories and particular attention was paid to the Financial Results. The HR
Committee considered several notable events that impacted Fulton and its performance in 2017 and the Executives’
2017 scorecard. The HR Committee evaluated Fulton’s 2017 as reported earnings per share (“EPS”) of $0.976, ROA
of 0.877% and ROE of 7.829% and considered the impact on those measures of the enactment of the Tax Cuts
and Jobs Act, which resulted in Fulton recording an estimated $15.6 million charge to income taxes for the re-
measurement of net deferred tax assets (the “2017 Tax Charge”), and net gains of $9.1 million realized on the sale
of investment securities (the “2017 Securities Gains”), which arose primarily from the sale of substantially all of
Fulton’s investments in financial institution common stocks. As permitted under the 2013 Plan, the Committee
determined that for purposes of evaluating the Financial Results category of the Executives’ scorecards, the EPS and
ROE for 2017 would be adjusted by excluding the 2017 Tax Charge and the 2017 Securities Gains. After excluding
these amounts, the Committee used adjusted measures for EPS of $1.032, ROA of 0.927% and ROE of 8.273% for
purposes of assessing the Executives’ scorecard performance for 2017.
The following is a summary of the 2017 Executive scorecards and results used for the 2017 VCP Awards.
Performance Categories
Performance Sub-categories
2017 Executive Scorecard 1
Financial Results
(50% Weight)
Risk Management
(35% Weight)
Business Objectives
(15% Weight)
Score
Rating
• EPS
• ROE
0
1
2
Threshold
3
Target
4
5
Maximum Weight
< $0.883 $0.883
$0.932
$0.981
$1.030
> $1.079
< 7.043% 7.043% 7.435%
7.826% 8.217% > 8.609%
30%
20%
Final
Score
4.03
4.14
• Capital Ratings. Liquidity and Market Risk
• Asset Quality: Non-performing Assets to Total Assets
• Corporate Rollup-Regulatory Exams (Compliance)
• Employee Engagement Index
Weight Final Score
15%
15%
5%
3.00
3.00
2.00
Weight Final Score 2
15%
2.80
1 Mr. McCollom did not have a scorecard since he was hired in late-2017.
This score is the average of the employee engagement index scores for all the Executives with scorecards in 2017.
2
36
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The HR Committee has authority to exercise its discretion to increase or decrease the calculated VCP
Awards and has previously applied this discretion to help maintain proper alignment between scorecard results and
incentive awards by taking other factors into account. Using the modifier feature adopted for the 2017 VCP Awards,
the HR Committee may increase or decrease an Executive’s VCP Award by up to 35% on an individual basis, provided
that it does not cause an Executive’s VCP Award to exceed 150% of that Executive’s VCP Award target. The HR
Committee adopted the modifier feature to help ensure that VCP Awards appropriately reflect risk and unexpected
circumstances that arise during the year, to account for the possibility of unintended outcomes determined solely by
a formula, and to more appropriately align pay with performance in cases where formulaic scores do not fully reflect
all aspects of Fulton’s and individual performance results for the year.
For 2017, the initial calculated VCP Awards averaged approximately 114% of target for the CEO and the
other Executives. The HR Committee reviewed these calculated scores and resulting award levels based on the 2017
scorecard results in the context of Fulton’s and the Executives’ performance during 2017, and then determined that a
downward adjustment to the initial calculated award level was appropriate. The HR Committee therefore exercised
its discretion under the modifier feature for the 2017 VCP Awards and decreased calculated awards by 5.00% for the
CEO, and up to 7.5% for the other Executives. In reducing 2017 VCP Awards the HR Committee considered, among
other factors, adjustments it made as a result of the 2017 Tax Charge and the 2017 Securities Gains that increased the
EPS and ROE financial results in the scorecards.
The following is a tabular summary of the 2017 scorecard Target VCP Awards, the actual 2017 VCP paid,
and the VCP Award’s percent to target for each Executive.
Executive1
Target VCP
Wenger
Rohrbaugh
Roda
Myers
Chivinski
Total
$843,765
$264,158
$209,659
$208,740
$176,254
VCP Paid2
$892,422
$279,391
$226,831
$225,836
$197,816
$1,702,576
$1,822,296
% of Target
105.8%
105.8%
108.2%
108.9%
112.2%
107.0%
1 Mr. McCollom was awarded a discretionary 2017 cash bonus consistent with the terms of his employment agreement.
2 VCP Awards paid to each Executive for 2017 are listed in the Summary Compensation Table on Page 45.
37
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
Equity Awards: For 2017, the number of Performance Shares granted to each of the Executives generally
represents a target dollar amount of Performance Shares established by the HR Committee, based on recommendations
from McLagan, equal to 125% of base salary, as of January 1, 2017, for the CEO and 75% of base salary, as of January
1, 2017, for the other Executives, and assuming a value for each Performance Share equal to the closing price of
Fulton’s common stock on the grant date. For 2017, the HR Committee awarded Performance Shares above target
dollar amount to Mr. Rohrbaugh and Ms. Chivinski, as described below. The Performance Shares were granted to
the Executives on May 1, 2017. The actual number of shares of Fulton common stock, if any, that the Executives
may receive upon vesting of the Performance Shares on the third anniversary of the date of grant may be higher or
lower than the number of Performance Shares granted to the Executives. The aggregate number of Performance
Shares granted to each of the Executives was allocated by the HR Committee among three components, each having
different performance criteria and vesting terms, as summarized below:
2017 Equity Award Structure
2017 (Year of grant)
2018
2019
2020
37.5% Allocation
A – ROA with
Profit Trigger
Component A
Grant
Performance Period
January 1, 2017 to December 31,2017
Vesting
Relative ROA to Peer Group for one year, then two additional years
of vesting based on Performance Shares earned for 2017 conditioned
on achievement of the Profit Trigger
Component B
Grant
37.5% Allocation
B – TSR
Performance Period
May 1, 2017 to March 31, 2020
Vesting
Relative TSR to Peer Group determines the number of Performance
Shares earned for the performance period in 2020 (no Profit Trigger)
0% to 37.5%
Allocation
C – Time-Based
with Profit
Trigger
Component C
Grant
Vesting
3-year Time-Based cliff vesting of Performance Shares conditioned on
achievement of the Profit Trigger
The performance goals and potential payouts for ROA and TSR Components A and B for 2017 were:
Category
Threshold
Target
Maximum
Component A
Performance Criteria
25th Percentile ROA
50th Percentile ROA
80th Percentile ROA
Component A
Payout Potential
(% of target)
0%
100%
150%
Component B
Performance
Criteria
25th Percentile TSR
50th Percentile TSR
80th Percentile TSR
Component B
Payout Potential
(% of target)
0%
100%
150%
38
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The following provides more detail related to the 2017 Components:
Component A
(ROA with
Profit Trigger)
37.5% Target
• Component A, representing 37.5% of the target dollar amount of Performance Shares
granted, for which the number of shares of Fulton common stock that may be received upon
vesting is based on Fulton’s 2017 ROA measured relative to the 2017 Peer Group and further
conditioned upon Fulton achieving the Profit Trigger.
• Based on Fulton’s relative 2017 ROA performance, the number of Performance Shares that
may vest was reduced to 58.73% of the original number of Component A Performance Shares
granted to the Executives to reflect performance between the threshold and target levels,
interpolated on a straight-line basis. The potential number of Component A Performance
Shares that may vest, if the Profit Trigger is achieved, will not further change during
the remainder of the three-year performance period, except for the accrual of dividend
equivalents on the Component A Performance Shares that actually vest.
Component B
(TSR)
37.5% Target
• Component B, representing 37.5% of the target dollar amount of Performance Shares
granted, for which the number of shares of Fulton common stock that may be received upon
vesting of the Performance Shares will be determined based on Fulton’s TSR during the
period from May 1, 2017 through March 31, 2020 relative to that of the 2017 Peer Group.
Component C
(Time-Based
with Profit
Trigger)
25% Target
• Component C, representing 25% of target dollar amount for the Executives, unless the HR
Committee has exercised discretion to vary the award (from 0 to 37.5% of the targeted
amount of Performance Shares).
• All the Named Executive Officers received a Component C award at 25 % of target, except
Mr. Rohrbaugh and Ms. Chivinski, who received 37.5% and 34.6% of target dollar amount,
respectively. The Executives will receive all or none of these Performance Shares, subject
to achievement of the Profit Trigger. For Mr. Rohrbaugh, the HR Committee awarded
Component C Performance Shares greater than the target dollar amount in recognition of
his efforts as interim CFO and other contributions to the Corporation in 2016 as Chief
Operating Officer. For Ms. Chivinski, her award of Component C Performance Shares was
greater than the target dollar amount because of her efforts as the new Chief Risk Officer,
and the fact that her 2016 LTI award was granted based on her position prior to assuming the
role of Chief Risk Officer, as well as her other contributions to Fulton in 2016.
Performance Shares that actually vest, together with dividend equivalents accrued during the performance
period on those Performance Shares, are settled in shares of Fulton common stock on a 1-for-1 basis after the
expiration of the three-year performance period and satisfaction of vesting criteria under the 2013 Plan. Further,
Components A and B are adjusted after their respective one- and three-year performance periods, but are forfeited
if the corresponding threshold performance level for TSR or ROA is not achieved. Components A and C are also
forfeited if the Profit Trigger is not achieved. Finally, if the Executive does not satisfy the continuous service
requirement in the 2013 Plan, all Performance Shares are forfeited.
Based on the level of Fulton’s achievement of ROA in 2017, only 58.73% of the Component A Performance
Shares originally granted to the Executives in 2017, subject to the Profit Trigger, were earned. This reduction was
after giving effect to Fulton’s reported ROA of 0.877%, and as adjusted by the HR Committee to 0.927%, due to the
2017 Tax Charge and the 2017 Securities Gains as described above, for the year ended December 31, 2017. Fulton’s
as adjusted 2017 ROA performance was measured relative to the 2017 Peer Group at the 39.7 percentile, which fell
between threshold and target levels.
39
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT The following table depicts the grant date fair value of the Performance Shares, the total number of
Performance Shares at target performance, and the allocation of the Performance Shares among Components A, B
and C granted to each of the Executives on May 1, 2017.
Executive
Wenger
Rohrbaugh
Roda
Myers
Chivinski
Grant Date
Fair Value
of Performance
Shares 1
$1,182,002
$426,051
$299,598
$285,757
$276,860
Total
Performance
Shares
Awarded 2
65,102
23,387
16,500
15,738
15,208
Component A
(ROA Goal)
Shares
Awarded 3
24,413
7,796
6,188
5,902
5,202
Component B
(TSR Goal)
Shares
Awarded
24,413
7,796
6,188
5,902
5,202
Component C
Shares
Awarded 4
16,276
7,795
4,124
3,934
4,804
1 See note 4 to the Summary Compensation Table on Page 45 for additional information regarding the grant date fair value of the
Performance Shares. Mr. McCollom, who was hired in November 2017, did not receive a Performance Share Award in 2017.
2 Shares listed do not include accrued dividend equivalents.
3 Based on Fulton’s ROA for the year ended December 31, 2017, the number of Component A Performance Shares that may vest,
subject to the achievement of the Profit Trigger, has been reduced to: 14,337 for Mr. Wenger; 4,578 for Mr. Rohrbaugh; 3,634 for
Mr. Roda; 3,466 for Mr. Myers and 3,055 for Ms. Chivinski. Such shares may be further reduced to zero if the Profit Trigger is
not met at the end of the performance period.
4 The HR Committee awarded shares above the 25% target amount for Mr. Rohrbaugh and Ms. Chivinski.
Employee Stock Purchase Plan: The Employee Stock Purchase Plan (“ESPP”) was designed to advance the
interests of Fulton and its shareholders by encouraging Fulton’s employees and the employees of its subsidiary banks
and other subsidiaries to acquire a stake in the future of Fulton by purchasing shares of the common stock of Fulton.
Currently, Fulton limits payroll deduction and annual employee participation in the ESPP to $7,500. The Executives
participating in the ESPP are eligible to purchase shares through the ESPP at a discount, currently 15%, on the same
basis as other Fulton employees participating in the ESPP.
Defined Contribution Plan – 401(k) Plan: Fulton provides a qualified defined contribution plan, in the
form of a 401(k) Plan, to the Executives and other employees and provides for employer matching contributions that
satisfy a non-discrimination “safe-harbor” available to 401(k) retirement plans. This safe-harbor employer matching
contribution is equal to 100% of each dollar a participant elects to contribute to the 401(k) Plan, but the amount of
contributions that are matched by Fulton is limited to 5% of eligible compensation. The Executives participating in the
401(k) Plan are eligible to receive the same employer matching contribution as other Fulton employees participating
in the 401(k) Plan.
Deferred Compensation Plan: Fulton’s nonqualified deferred compensation plan permits directors and
advisory board members to elect to defer receipt of cash director fees and certain eligible senior officers can elect to
defer receipt of cash compensation. It also enables Fulton to credit certain senior officers, including the Executives,
with full employer matching contributions each year equal to the contributions they would have otherwise been
eligible to receive under the 401(k) Plan, if not for the limits imposed by the Internal Revenue Code, as amended (the
“Tax Code”) on the amount of compensation that can be taken into account under a tax-qualified retirement plan.
Fulton’s deferred compensation contributions for the Executives in 2017 are stated in footnote 8 of the “Summary
Compensation Table” on Page 45. The deferred compensation plan accounts of each participant are held and invested
under the Fulton Nonqualified Deferred Compensation Benefits Trust, with FFA, serving as trustee. The participants
are permitted to individually direct the investment of the deferred amounts into various investment options under the
Nonqualified Deferred Compensation Benefits Trust.
Death Benefits: The estates of each of the Executives are eligible for a payment equal to two (2) times base salary
(plus an amount equal to applicable individual income taxes due on such amounts) from Fulton pursuant to individual
Death Benefit Agreements between Fulton and each Executive, should the Executive die while actively employed by
Fulton. Upon the Executive’s retirement, the post retirement benefit payable upon the individual’s death is reduced
to $5,000 for Mr. Wenger, Mr. Roda, and Ms. Chivinski in their Death Benefit Agreements, while the Death Benefit
Agreements for the other Executives do not provide for any retiree death benefit payment. Fulton does not provide retiree
death benefits for its full-time employees unless specifically provided for in an employee’s Death Benefit Agreement.
40
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Health, Dental and Vision Benefits: Fulton offers a comprehensive benefits package for health, dental and
vision insurance coverage to all full-time employees, including the Executives, and their eligible spouses and children.
Fulton pays a portion of the premiums for the coverage selected, and the amount paid varies with each health, dental
and vision plan. All of the Executives have elected one of the standard employee coverage plans available.
Other Executive Benefits: Fulton provides the Executives with a variety of perquisites and other personal
benefits that the HR Committee believes are necessary to facilitate the conduct of Fulton’s business by the Executives
and are reasonable and consistent with the overall compensation program for the CEO and the other Executives. In
addition, these benefits enable Fulton to attract and retain talented senior officers for key positions, as well as provide
the Executives and other senior officers with opportunities to be involved in their communities and directly interact
with current and prospective customers of Fulton. The 2017 amounts are included in the “All Other Income” column
of the “Summary Compensation Table” on Page 45 of this Proxy Statement. The Executives are provided with
company-owned automobiles or a car allowance, club memberships and other executive benefits consistent with their
positions. Fulton does not have a direct or indirect interest in any corporate aircraft. Generally, the Executives travel
on commercial aircraft, by train or in vehicles provided by Fulton. In addition, if spouses accompany an Executive
when traveling on business or attending a corporate event, Fulton pays the travel and other expenses associated with
certain spousal travel for the Executive. Fulton also includes spousal travel and personal vehicle use as part of the
Executive’s reported W-2 income.
10.
Employment Agreements
Fulton believes that a company should provide reasonable severance benefits to employees. For most
employees, Fulton has a policy that, in general, provides for severance benefits to be paid upon a reduction in force or
position elimination. These severance arrangements are intended to provide the employees with a sense of security in
making the commitment to dedicate their professional careers to the success of Fulton. With respect to the Executives
and certain other employees, the severance benefits provided reflect the fact that it may be difficult for them to find
comparable employment within a reasonable period of time. The levels of these benefits for the Executives in the
event of a change in control of Fulton are discussed in footnote 6 in the “Potential Payments Upon Termination and
Golden Parachute Compensation Table” on Page 52 under “Termination Without Cause or for Good Reason – Upon
or After a Change in Control”.
Fulton has entered into employment agreements with certain of its key employees, including each of the
Executives. Fulton’s employment agreement with Mr. Wenger was entered into on June 1, 2006, and amended on
November 12, 2008. Fulton’s employment agreements with Messrs. Roda and Rohrbaugh were entered into on August
1, 2011 and November 1, 2012, respectively. In addition, Fulton entered into separate employment agreements and
change in control agreements with Mr. McCollom, Mr. Myers and Ms. Chivinski, all effective as of January 1, 2018.
The employment agreements and change in control agreements with the Executives (individually, an “Employment
Agreement,” and collectively, the “Employment Agreements”), continue until terminated, and each provides that
the Executive is to receive a base salary, which is set annually, is entitled to participate in Fulton’s incentive bonus
programs as in effect from time to time, and will participate in Fulton’s retirement plans, welfare benefit plans and
other benefit programs.
The Employment Agreements with the Executives contain restrictions on the sharing of confidential
information, as well as non-competition and non-solicitation covenants that continue for one year following
termination of employment. The non-competition and non-solicitation covenants will not apply if the Executive
terminates employment for good reason or if the Executive’s employment is terminated without cause, as defined in
the Employment Agreements. These provisions of the Employment Agreements are further outlined in the “Potential
Payments Upon Termination and Golden Parachute Compensation Table” section on Page 52. The Employment
Agreements Fulton executed with Messrs. Rohrbaugh, McCollom, Roda and Myers and Ms. Chivinski do not contain
an excise tax gross-up for taxes applicable to termination payments as a result of the Executive’s termination, but the
Employment Agreement executed with Mr. Wenger, the only legacy agreement, provides for an excise tax gross up.
The Employment Agreements with Messrs. Rohrbaugh, McCollom, Roda, Myers and Ms. Chivinski provide that, in
the event a payment to be made in connection with their termination of employment would result in the imposition
of an excise tax under Section 4999 of the Tax Code, such payment would be retroactively reduced, if necessary,
to the extent required to avoid such excise tax imposition and, if any portion of the amount payable the Executive
is determined to be non-deductible pursuant to the regulations promulgated under Section 280G of the Tax Code,
Fulton would be required to pay to the Executive only the amount determined to be deductible under Section 280G.
41
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 11.
Compensation Plan Risk Review
At its February 2018 meeting, the HR Committee conducted its annual risk review of all compensation plans
in effect as of December 31, 2017. At this meeting, Ms. Chivinski, Fulton’s Chief Risk Officer (“CRO”), discussed her
review of Fulton’s compensation plans. The CRO informed the HR Committee that based on her review, the design
of Fulton’s compensation plans do not promote undue risk-taking. The HR Committee has reviewed and considered
all of such plans and practices and does not believe that Fulton’s compensation policies and practices create risks that
are reasonably likely to have a material adverse effect on Fulton.
The HR Committee considered various factors that have the effect of mitigating risk and, with the assistance
of Fulton’s CRO, Legal and Human Resources staff members, reviewed Fulton’s compensation policies to determine
whether any portion of such compensation encourages excessive risk-taking. To assist in the annual review, Fulton
retained Pearl Meyer & Partners (“PM&P”) to conduct an independent third-party risk assessment of the design,
operation and oversight of Fulton’s primary incentive plans, including all plans in which the Executives and other
employees identified by Fulton as potential material risk takers participated. Fulton initially retained PM&P for this
purpose in 2013, and engaged PM&P to update its risk assessment annually from 2014 through 2017.
12.
Other Compensation Elements
162(m) and Tax Consequences: Section 162(m) of the Tax Code disallows the deductibility by Fulton of
any compensation over $1 million per year paid to certain employees and the Executives. Although Fulton takes
into account its ability to deduct compensation expense in determining its taxable income, tax deductibility is not a
primary objective of its compensation programs and Fulton does not have policy requiring that all compensation be
deductible. Further, the 2017 Tax Cuts and Jobs Act impacted the deductibility under the Tax Code of compensation
paid to the Executives.
409A Changes: Section 409A of the Tax Code, effective January 1, 2005, defines what constitutes a
“nonqualified deferred compensation plan”, conditions income tax deferrals under such plans on their compliance
with certain distribution, acceleration, election and funding restrictions, and also imposes excise tax and interest
penalties for noncompliance. In order to preserve intended tax deferrals and to avoid the imposition of excise taxes
and interest penalties, Fulton has identified all such nonqualified deferred compensation plans it maintains and to the
extent necessary, timely amended each to meet the Section 409A requirements to alter the administration of each,
where necessary, to comply with Section 409A.
Discussion of Equity Award Process: Fulton does not have a formal written policy as to when equity awards
are granted during the year. In March 2017, Fulton awarded Performance Shares and time-based restricted stock
units to eligible participants under the 2013 Plan with a grant date of May 1, 2017, so that the equity awards could
be considered by the HR Committee at the same time as the cash incentive awards under the 2013 Plan. Fulton does
not backdate options or grant options retroactively, and does not coordinate option grants with the release of positive
or negative corporate news. The 2013 Plan, which amended and restated the 2004 Stock Option and Compensation
Plan, does not permit the award of discounted options, the reload of stock options, or the re-pricing of stock options.
Pursuant to the terms of the 2013 Plan, option prices are determined based on the closing price on the grant date.
Under the 2013 Plan, an option exercise price may not be less than 100% of the fair market value of Fulton’s stock on
the date of grant. The 2013 Plan defines fair market value to be the closing price on the date of grant, or if no sales of
shares were reported on any stock exchange or quoted on any interdealer quotation system on that day, the price on
the next preceding trading day on which such price was quoted.
Stock Hedging Policy and Stock Trading Procedures: Fulton has adopted an Insider Trading Policy and
Compliance Procedures to facilitate securities law compliance in a number of areas. Pursuant to this policy, Fulton
requires that all directors, officers, and employees of Fulton and its affiliates adhere to certain procedures when
trading in Fulton common stock or any other security issued by Fulton or its subsidiaries. Among other requirements,
directors, officers and employees of Fulton and its subsidiaries that know of material, non-public information about
Fulton may not (i) buy or sell Fulton stock while the information remains non-public, or (ii) disclose the information
to relatives, friends or any other person. In addition, the Executives and directors of Fulton and Fulton’s banking
subsidiaries and certain other officers are prohibited from engaging in speculative transactions involving Fulton’s
securities. This prohibition encompasses “short sales” and “puts,” along with other trading that anticipates a decline
in price. These instruments can involve “a bet against Fulton,” raise issues about the insider knowledge of the person
involved or create a conflict of interest and are therefore prohibited by Fulton’s policy. In 2014, Fulton updated the
42
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Insider Trading Policy and Compliance Procedures to prohibit the pledging of shares, but grandfathered any pledges
made prior to the amendment. None of the Fulton’s current directors or the Named Executive Officers currently
pledge any shares of Fulton common stock.
Stock Ownership Guidelines: Fulton believes that broad-based stock ownership by directors, officers and
employees is an effective method to align the interests of its directors, officers and employees with the interests of
its shareholders. In 2009, Fulton first adopted Governance Guidelines that included a formal Fulton common stock
ownership guideline for directors and the Executives. The director ownership guidelines were updated in September
2013, and each director is presently required to own at least $175,000 of Fulton common stock, which is five (5) times
the annual director cash retainer of $35,000, within the later of five (5) full calendar years of first becoming a
director, or five (5) full calendar years after the guideline was changed.
A similar stock ownership requirement exists for the Executives. The guidelines for the Executives were
last updated and approved in 2017, with the recommended ownership guidelines calculated as a multiple of the
Executive’s annual base salary, depending upon the position of the Executive as follows:
Executive Position
CEO
President
CFO
Other
Executives
Fulton Common Stock Ownership Guideline
as a Multiple of Annual Base Salary
3.0
1.5
1.5
1.0
Compliance with the stock ownership guidelines is determined annually based on stock ownership and
Fulton’s closing stock price as of December 31 of the prior year. Ownership excludes stock options and other unvested
restricted stock or Performance Share Awards, but includes all other shares beneficially owned and reported on an
individual’s Form 3, Form 4 or Form 5 filed with the SEC, including shares held in retirement accounts, indirect
ownership and jointly held shares. Once an Executive or director has achieved the ownership guideline, he or she
remains in compliance with the ownership guideline regardless of changes in base salary or the price of Fulton’s
common stock, as long as he or she retains the same number of shares or a higher amount. However, if an Executive
is promoted to CEO, President or CFO with a base salary increase, he or she would be permitted to satisfy the new
stock ownership requirement for the new position and base salary over a period of five (5) full calendar years.
Except for Mr. McCollom, all of the Executives have satisfied the stock ownership guidelines for 2017.
Mr. McCollom is required to achieve his targeted stock ownership by December 31, 2022, to satisfy the stock
ownership guidelines for his position. As of December 31, 2017, all of Fulton’s directors have satisfied the stock
ownership guidelines, except Directors Crutchfield, Snyder and Spair. Under the stock ownership guidelines, Directors
Crutchfield, Snyder and Spair are each required to achieve the targeted stock ownership level by December 31, 2019,
December 31, 2021 and December 31, 2020, respectively.
Management Succession: The topic of management succession is discussed and reviewed at least annually
at Fulton. At the December 2017 meeting of the Board of Directors, during an executive session of the Board of
Directors, senior officers in Fulton’s Human Resources Department discussed and reviewed the succession planning
processes used by management to identify successors for each Executive at Fulton.
Clawback Policies: In 2016, the HR Committee amended Fulton’s Compensation Recovery Clawback
Policy (“Clawback Policy”) to govern clawback provisions for all participants, including the Executives, in the 2013
Plan, and subject to limited exceptions, other incentive compensation plans. The Clawback Policy identifies the
events, such as: 1) a restatement of Fulton’s, or any affiliate’s, financial statements (other than a restatement caused
by a change in applicable accounting rules or interpretations), the result of which is that any performance-based
compensation paid would have been lower, had it been calculated based on such restated results; 2) the discovery
that a performance metric or calculation used in determining performance-based compensation was materially
inaccurate; 3) a violation of Fulton’s Code of Conduct, the result of which creates a significant financial or reputational
impact for Fulton; and 4) a departing or departed employee has allegedly violated the non-solicitation restrictions set
forth in Fulton’s employment policies or such employee’s employment agreement.
In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the SEC adopt
rules that require publicly traded companies to adopt a formal clawback policy. Pending final clawback rules from
the SEC, the HR Committee will continue to monitor and consider the use of clawbacks and update the Clawback
Policy for any new or amended compensation agreements and plans with the Executives and other employees. During
2017, the HR Committee was not asked to consider any instance or situation where a clawback may have been
required or attempted for a Named Executive Officer or other officer of Fulton.
43
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Human Resources Committee Report
The HR Committee reviewed and discussed the foregoing Compensation Discussion and Analysis with
management and, based on the review and discussions, the HR Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis above be incorporated in Fulton’s Annual Report on Form 10-K for
the year ended December 31, 2017, and the 2018 Proxy Statement, as applicable.
As described above in the Compensation Discussion and Analysis section, in performing its compensation
risk evaluation, the HR Committee met with the CRO regarding the material risks facing Fulton, and consulted with
Legal and Human Resources personnel about Fulton’s various compensation plans. Based on the foregoing review,
the HR Committee concluded that Fulton’s compensation policies and practices in 2017 did not create risks that are
reasonably likely to have a material adverse effect on Fulton.
Human Resources Committee
Denise L. Devine, Chair
Mark F. Strauss, Vice Chair
Patrick J. Freer
George W. Hodges
Ronald H. Spair
44
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT SUMMARY COMPENSATION TABLE
Year Salary 2 Bonus 3
($)
($)
Stock
Awards 4
($)
Option
Awards 5
($)
Non-Equity
Incentive Plan
Compensation 6
($)
Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings 7
($)
All Other
Compensation 8
($)
Total
($)
Name and Principal
Position 1
E. Philip Wenger
Chairman and Chief
Executive Officer of
Fulton
2017 992,665
0 1,182,002
2016 968,454
0 1,202,927
2015 944,103
0
0
0
0
952,117
426,051
374,185
289,550
Philmer H. Rohrbaugh 9
2017 528,316
Senior Executive Vice
President and Chief
Financial Officer of
Fulton
2016 506,075
2015 478,543
Mark R. McCollom 10
2017
49,038
125,000
249,984
Senior Executive Vice
President and Chief
Financial Officer of
Fulton
2016
2015
-
-
Craig A. Roda 11
Senior Executive Vice
President of Fulton
Curtis J. Myers
President and Chief
Operating Officer of
Fulton
Beth Ann L. Chivinski 12
Senior Executive Vice
President and Chief Risk
Officer of Fulton
2017 419,318
2016 409,091
2015 398,805
2017 417,480
2016 388,113
2015 371,347
2017 352,508
2016
2015
-
-
-
-
0
0
0
0
0
0
0
-
-
-
-
299,598
278,758
241,310
285,757
259,561
224,687
276,860
-
-
0
0
0
0
0
0
0
-
-
0
0
0
0
0
0
0
-
-
892,422
700,119
353,094
279,391
225,457
112,458
0
-
-
226,831
120,119
92,722
225,836
184,354
144,825
197,816
-
-
0
0
0
0
0
0
0
-
-
0
0
0
0
0
0
0
-
-
107,889
3,174,978
88,680
2,960,180
116,656
2,365,970
16,336
1,250,094
16,299
1,122,016
13,314
893,865
1,325
425,422
-
-
-
-
48,449
994,196
42,116
850,084
41,578
774,415
50,261
979,334
55,107
887,135
51,224
792,083
31,753
858,937
-
-
-
-
1 Titles and positions listed are as of Fulton’s fiscal year-end of December 31, 2017, except for Mr. McCollom, who became
Fulton’s Chief Financial Officer on March 2, 2018. Mr. Rohrbaugh served as Fulton’s interim Chief Financial Officer from
December 6, 2016 to March, 1, 2018. Mr. Myers was promoted to serve as Fulton’s President and Chief Operating Officer
effective January 1, 2018. Prior to January 1, 2018, Mr. Wenger held the additional title of President of Fulton.
2 This represents the base salary amounts paid to and earned by each of the Executives named in this table for the years indicated.
On March 21, 2018, upon the recommendation of the HR Committee, the Board of Directors approved 2018 annual base salaries
for Mr. Wenger and Ms. Chivinski to $1,023,241, and $381,091, respectively, and changes to annual base salaries were effective
with the biweekly pay period that includes April 1, 2018. Mr. Myers also received an increase to $510,000, effective January 1,
2018, with his promotion to President and Chief Operating Officer of Fulton.
3 The HR Committee did not award any bonus payments in 2015, 2016 or 2017 to the Executives, except Mr. McCollom received
a cash bonus upon his acceptance of employment with Fulton and a discretionary 2017 bonus approved by the HR Committee.
45
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 4 Amounts represent the grant date fair values of Performance Shares, except that for Mr. McCollom, the amount listed represents
the grant date fair value, based on $18.00 per share, of a time-based restricted stock unit award of 13,888 shares, which will vest
three years from the date of grant. There were no forfeitures of Performance Shares during 2014, 2015 and 2016 by any of the
Executives.
The following is a summary of the grant date fair values of the Performance Shares granted to the Executives in 2017, 2016
and 2015.
Name
Grant Date
E. Philip Wenger
Philmer H. Rohrbaugh
Craig A. Roda
Curtis J. Myers
Beth Ann L. Chivinski
5/1/2017
5/1/2016
4/1/2015
5/1/2017
5/1/2016
4/1/2015
5/1/2017
5/1/2016
4/1/2015
5/1/2017
5/1/2016
4/1/2015
5/1/2017
Performance Share
Grant Date Fair
Value Assuming
Highest
Performance
Level Achieved
($)
1,620,832
1,604,382
1,501,569
566,166
496,279
456,661
410,807
380,502
380,568
391,831
354,307
354,357
370,353
Number of
Performance
Shares Granted
Granted
Executive
(#)
65,102
92,265
93,788
23,387
28,657
28,523
16,500
21,517
23,770
15,738
20,036
22,133
15,208
Per Share
Grant Date
Fair Value
With
Non-Market
Conditions
($)
18.70
13.99
12.325
18.70
13.99
12.325
18.70
13.99
12.325
18.70
13.99
12.325
18.70
Per Share
Grant Date
Fair Value
With
Market
Conditions
($)
17.25
11.23
10.66
17.25
11.23
10.66
17.25
11.23
10.66
17.25
11.23
10.66
17.25
Weighted
Average Per
Share Grant
Date
Fair Value
($)
18.17
13.01
11.73
18.17
13.01
11.73
18.17
13.01
11.73
18.17
13.01
11.73
18.17
In the table above, the per share grant date fair value for Performance Shares with non-market-based performance conditions was
equal to the closing price of Fulton common stock on the date the shares were granted. The per-share grant date fair value for
Performance Shares granted with market-based performance conditions is estimated based on the use of a Monte Carlo valuation
methodology. For additional information concerning the valuation of Performance Shares with market-based performance
conditions granted in 2015, 2016 and 2017, including the assumptions made in determining those valuations, see Fulton’s Annual
Report on Form 10-K for the years ended December 31, 2015, December 31, 2016 and December 31, 2017, respectively, under
Item 8 – Financial Statements and Supplementary Data, “Note 15 – Stock-Based Compensation Plans.”
5 Fulton did not grant options in 2015, 2016 or 2017 to the Executives and there were no forfeitures of options during 2015, 2016
or 2017 by any of the Executives. The 2005 grants expired unexercised in 2015, including the following number of options by
Executive: Mr. Wenger – 40,687; Mr. Myers – 6,037; and Mr. Roda – 21,000. The 2006 grants expired unexercised in 2016,
including the following number of options by Executive: Mr. Wenger – 24,000; Mr. Roda – 16,000; and Mr. Myers – 5,500.
6 The VCP Awards reported in this column are substantially based performance goal achievement and on individual scorecard
results as described further beginning on Page 35.
7 Fulton has determined that the Executives did not receive above-market earnings on their nonqualified deferred compensation
plan accounts, and therefore, such earnings are not required to be reported in this column for 2015, 2016 or 2017. All participants
in the nonqualified deferred compensation plan, which also includes senior officers other than the Executives, are permitted to
select various investment options listed in footnote 2 of the “Nonqualified Deferred Compensation Table” on Page 51. The rate
of return for an individual participant’s account is based on the performance of the various investment options selected by each
participant.
46
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 8 All Other Compensation includes Fulton’s payments for qualified employer matching contributions, nonqualified employer
matching contributions, club membership fees, automobile perquisites, plus other personal benefits received by each of the
Executives. The methodology used to calculate the aggregate incremental cost of perquisites and other personal benefits was to
use the amount disbursed for the items. Where a benefit involved assets owned by Fulton, an estimate of the incremental cost was
used. The automobile perquisite amounts include the financial benefit that the Executive received, such as the personal use value
of a company award automobile or the taxable auto allowance, as reported on their W-2. The “Other Perquisites” column in the
table below includes personal travel, and other small benefits that individually are less than the greater of $25,000, or ten percent
of all perquisites received by the Executive.
Qualified
Retirement
Plan
Company
Contribution
($)
13,500
13,250
13,250
0
0
0
0
-
-
13,451
13,027
12,977
13,500
13,042
12,879
13,500
-
-
Nonqualified
Deferred
Compensation
Plan
Company
Contribution
($)
71,139
52,827
51,277
0
0
0
0
-
-
13,785
11,841
10,114
16,592
13,681
9,284
11,753
-
-
Year
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
Club
Memberships
($)
17,547
16,303
16,287
14,664
13,832
13,314
0
-
-
14,094
14,782
14,382
15,985
17,078
16,992
0
-
-
Automobile
Perquisites
($)
3,600
3,510
3,543
150
1,567
0
1,250
-
-
316
290
3,147
3,284
3,306
3,251
5,600
-
-
Other
Perquisites
($)
2,103
2,790
32,299
1,522
900
0
75
-
-
6,803
2,176
958
900
8,000
8,818
900
-
-
Total All Other
Compensation
($)
107,889
88,680
116,656
16,336
16,299
13,314
1,325
-
-
48,449
42,116
41,578
50,261
55,107
51,224
31,753
-
-
Name
E. Philip Wenger
Philmer H. Rohrbaugh
Mark R. McCollom
Craig A. Roda
Curtis J. Myers
Beth Ann L. Chivinski
9 Mr. Rohrbaugh retired as a member of Fulton’s senior management effective March 30, 2018.
10 Mr. McCollom was hired November 20, 2018. He became Fulton’s Chief Financial Officer effective March, 2, 2018 and became
a Named Executive Officer of Fulton for the first time in 2017.
11 Mr. Roda announced that he will be retiring as a member of Fulton’s senior management effective May 1, 2018.
12 Ms. Chivinski became a Named Executive Officer of Fulton for the first time in 2017. Pursuant to SEC rules, Ms. Chivinski’s
compensation for 2016 and 2015 is not included.
47
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT GRANTS OF PLAN-BASED AWARDS TABLE
Name
Grant
Date
Approval
Date 1
Estimated Future or Possible
Payouts Under Non-Equity
Incentive Plan Awards 2
Target
($)
Maximum
($)
Threshold
($)
Estimated Future or Possible
Payouts Under Equity
Incentive
Plan Awards 3
Target
(#)
Maximum
(#)
Threshold
(#)
E. Philip Wenger
5/1/2017 3/20/2017
-
-
-
16,276 65,102
89,515
E. Philip Wenger
-
3/20/2017 210,941 843,765 1,265,648
-
-
-
Philmer H. Rohrbaugh
5/1/2017 3/20/2017
-
-
-
7,795 23,387
31,183
Philmer H. Rohrbaugh
-
3/20/2017
66,040 264,158
396,237
Mark R. McCollom
11/27/2017 10/20/2017
5/1/2017 3/20/2017
-
-
-
-
-
-
-
-
-
-
-
-
4,124 16,500
22,688
-
3/20/2017
52,415
209,659
314,489
-
-
-
Curtis J. Myers
5/1/2017 3/20/2017
-
-
-
3,934 15,738
21,610
Curtis J. Myers
-
3/20/2017
52,185
208,740
313,110
-
-
-
Beth Ann L. Chivinski 5/1/2017 3/20/2017
-
-
-
4,804 15,208
20,410
Beth Ann L. Chivinski
-
3/20/2017
44,063 176,254
264,380
-
-
-
Craig A. Roda
Craig A. Roda
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
Closing
Price on
Grant
Date
($/Sh)
Grant
Date Fair
Value of
Stock and
Option
Awards 4
($)
-
-
-
-
13,888
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18.70 1,217,407
-
-
18.70
437,337
-
-
18.00
249,984
18.70
308,550
-
-
18.70
294,301
-
-
18.70
284,390
-
-
1 The grants of Performance Shares were approved at the March 2017 HR Committee and Board of Directors meetings, pursuant
to the 2013 Plan, with a grant date of May 1, 2017. Based on the recommendation of the HR Committee, the Independent
Directors of the Board also approved the non-equity incentive plan award under the 2013 Plan on March 21, 2017.
2 The Executives were eligible to receive a VCP Award for 2017 pursuant to the 2013 Plan that is discussed beginning on Page 35.
3 The amounts in this column represent the number of Performance Shares granted to the Executives on May 1, 2017 based on the
closing price of $18.70 for Fulton’s common stock on that date. The Performance Shares were allocated among three components,
Component A, Component B and Component C for each of the Executives, as set forth in the table on Page 39. Performance
Shares may become earned and vested based on the actual performance level achieved, over various performance periods with
respect to the following performance measures: (i) Component A Performance Shares may be earned and vested based on the
actual performance level achieved with respect to ROA relative to the 2017 Peer Group for the period of January 1, 2017 through
December 31, 2017 and subject to satisfaction of the Profit Trigger; (ii) Component B Performance Shares may be become earned
and vested based on the actual performance level achieved with respect to the relative TSR for the period of May 1, 2017 through
March 31, 2020; and (iii) Component C Performance Shares may be earned and vested if the Profit Trigger is achieved. With
respect to Component A Performance Shares and Component B Performance Shares, the actual number of Performance Shares
earned and vested will be based on the actual performance level and will be interpolated on a straight-line basis for pro-rata
achievement of the performance goals, if applicable, rounded down to the nearest whole number. Performance Shares also accrue
dividend equivalents, which will be added to the award upon vesting on May 1, 2020.
4 See Note 4 to the Summary Compensation Table on Page 45 for additional information regarding the grant date fair value of
the Performance Shares.
48
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option Awards 1
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
Option
Exercise
Price
($)
Option
Expiration
Date
-
-
-
-
-
-
-
-
-
-
5,158
7,500
12,375
11,263
10,877
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0
0
0
0
0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0
0
0
0
0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5.270 6/30/2019
9.475 6/30/2020
10.880 6/30/2021
10.475 3/31/2022
11.580 3/31/2023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,911
249,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,431 3
19,429 4
16,720 5
-
-
-
-
-
19,955 3
18,093 4
15,948 5
8,358 3
6,963 4
15,411 5
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
84,562 3
84,331 4
65,969 5
25,717 3
26,268 4
23,698 5
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($) 2
1,513,662
1,509,532
1,180,847
460,337
470,206
424,203
-
383,619
347,784
299,284
-
-
-
-
-
357,202
323,861
285,462
149,603
124,637
275,849
Name
E. Philip Wenger
E. Philip Wenger
E. Philip Wenger
Philmer H. Rohrbaugh
Philmer H. Rohrbaugh
Philmer H. Rohrbaugh
Mark R. McCollom
Craig A. Roda
Craig A. Roda
Craig A. Roda
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Beth Ann L. Chivinski
Beth Ann L. Chivinski
Beth Ann L. Chivinski
1 The number of securities underlying the options and the option exercise price has been adjusted for stock dividends and stock
splits, if any, which have occurred since the option grant date.
2 Market value of Performance Shares shown is based on the closing price of Fulton common stock of $17.90 on December 29,
2017, the last trading day of 2017.
The Performance Shares are allocated among three components, Component A, Component B and Component C, for each of
the Executives. Performance Shares allocated to Component A are presented based on actual ROA performance during the first
year of the performance period; Performance Shares allocated to Component B are presented assuming the maximum level
of performance for 2015, and the target level of performance for 2016 and 2017, based on relative TSR performance through
December 31, 2017; and Performance Shares allocated to Component C are presented using the actual number of shares granted,
since the number of shares that may vest upon completion of the performance period will not change. All such Performance
Shares are subject to the achievement of the applicable performance criteria for the designated performance period, and continued
service with Fulton on the vesting date. The actual earning and vesting of these Performance Shares could vary materially from
the amounts in the table at the end of the performance period. Dividend equivalents accrued during the performance period,
which may be earned and vest on the Performance Shares, are included in the number of Performance Shares.
3 Performance Shares granted on April 1, 2015. If the performance criteria is achieved and other requirements under the 2013
Plan are satisfied, these Performance Shares will vest on April 1, 2018.
4 Performance Shares granted on May 1, 2016. If the performance criteria are achieved and other requirements under the 2013
Plan are satisfied, these Performance Shares will vest on May 1, 2019.
5 Performance Shares granted on May 1, 2017. If the performance criteria are achieved and other requirements under the 2013
Plan are satisfied, these Performance Shares will vest on May 1, 2017.
49
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT OPTION EXERCISES AND STOCK VESTED TABLE 1
Option Awards
Stock Awards
Name
E. Philip Wenger
Philmer H. Rohrbaugh
Mark R. McCollom
Craig A. Roda
Curtis J. Myers
Beth Ann L. Chivinski
Number of
Shares
Acquired
on Exercise
(#)
0
0
0
0
9,285
0
Value Realized
on Exercise
($)
0
0
0
0
69,460
0
Number of
Shares
Acquired
on Vesting
(#)
111,777
33,993
0
28,329
26,378
9,352
Value Realized
on Vesting 2
($)
1,995,214
606,768
0
505,675
470,840
166,938
1 Except for Mr. McCollom, all of the Executives had Performance Shares that vested during 2016.
2 Shares that vested on April 1, 2017 for Messrs. Wenger, Rohrbaugh, Roda and Myers and Ms. Chivinski were valued at
$17.85 per share, the closing price of Fulton’s common stock on March 31, 2017, the preceding trading day because April 1, 2017
was not a trading day.
PENSION BENEFITS TABLE 3
Name
Plan Name
E. Philip Wenger
Philmer H. Rohrbaugh
Mark R. McCollom
Craig A. Roda
Curtis J. Myers
Beth Ann L. Chivinski
NA
NA
NA
NA
NA
NA
Number of Years
Credited Service
(#)
-
-
-
-
-
-
Present
Value of
Accumulated
Benefit
($)
-
-
-
-
-
-
Payments During
Last Fiscal Year
($)
-
-
-
-
-
-
3 During 2017, none of the Executives participated in or had an account balance in any qualified or nonqualified defined benefit
plans sponsored by Fulton or any Fulton subsidiary bank.
50
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT NONQUALIFIED DEFERRED COMPENSATION TABLE
Name
E. Philip Wenger
Philmer H. Rohrbaugh
Mark R. McCollom
Craig A. Roda
Curtis J. Myers
Beth Ann L. Chivinski
Executive
Contributions in
Last FY
($)
146,803
0
0
19,094
32,692
10,569
Registrant
Contributions in
Last FY 1
($)
71,139
0
0
13,785
16,592
11,753
Aggregate
Earnings in
Last FY 2
($)
250,077
0
0
31,390
39,650
449
Aggregate
Withdrawals/
Distributions
($)
0
0
0
0
0
0
Aggregate Balance
at Last FYE 3
($)
1,437,326
0
0
380,815
300,824
77,297
1 Fulton’s contributions toward nonqualified deferred compensation for each of the Executives are listed in this column. The
Executives’ contributions are matched at the same 100% of the first 5% of compensation deferred as provided in the 401(k) Plan.
However, while the Executives were permitted to contribute up to 100% of their eligible salary and cash bonus during 2017, these
matching contributions are made based on an Executive’s eligible salary and bonus that exceeds the federal limit of $270,000
for 2017. See the table contained in footnote 8 of the “Summary Compensation Table” on Page 45. Amounts listed as Registrant
Contributions in this Nonqualified Deferred Compensation Table are also included as part of the Executives’ “Total All Other
Compensation” in the Summary Compensation Table. 2017 contributions were credited to each of the Executive’s accounts in
early 2018.
2 The Executives direct the investment of their Nonqualified Deferred Compensation contributions into various standard
investment options offered from a set menu of investment funds. In 2016, the available investment funds included Federated Total
Return Bond Fund (FTRBX), Fidelity Advisory Diversified International Fund (FDVIX), FMI International (FMIJX), Goldman
Sachs Core Fixed Income Fund (GSFIX), Janus Enterprises (JAENX), Vanguard Mid Cap Value Index Fund (VMVAX), Goldman
Sachs Financial Square Government Fund (FGTXX), MFS Value Fund+ (MEIIX), Vanguard Inflation Protected Securities
Fund (VAIPX) 8/10/16, T. Rowe Price Growth Stock Fund (PRGFX), T. Rowe Price Retirement 2010 (TRRAX), T. Rowe Price
Retirement 2020 ( TRRBX), T. Rowe Price Retirement 2030 (TRRCX), T. Rowe Price Retirement 2040 (TRRDX), T. Rowe
Price Retirement 2050 (TRRMX), T. Rowe Price Retirement 2060 (TRRLX),Vanguard 500 Index Fund (VFIAX), Vanguard
Mid-Cap Index Fund (VIMAX), Vanguard Short-Term Bond Index Fund (VBIRX), Vanguard Small-Cap Growth Index Fund
(VSGAX), Vanguard Small-Cap Index Fund (VSMAX), Vanguard Small-Cap Value Index Fund (VSIAX), Vanguard STAR
Fund (VGSTX) and Vanguard Windsor Fund (VWNAX). The Executives may change their individual elections by completing
a new election form. Accumulated balances in the Deferred Compensation Plan become payable upon the later of a participant
attaining age 62, or the participant’s separation of service from Fulton. Participants in the Deferred Compensation Plan, including
the Executives, may elect to receive benefits either in a single, lump sum payment, or in equal monthly or annual installments
over a period of not more than twenty (20) years. Participants are permitted to request withdrawals from contributions credited
prior to January 1, 2005 and earnings thereon, to defray certain medical expenses or prevent eviction or foreclosure from the
participant’s principal residence, and from contributions credited on or after January 1, 2005 and earnings thereon, to alleviate
a severe financial hardship due to injury or illness of the participant or the participant’s spouse or dependents, a casualty loss to
the participant’s property, imminent foreclosure or eviction from the participant’s primary residence or unpaid funeral expenses
for the participant’s spouse or dependents. A discussion of the Deferred Compensation Plan is included on Page 40.
3 Balances include the 2017 contributions made by Fulton and credited to the Executives’ accounts in early 2018. The aggregate
amounts shown in this column include the following amounts that were reported as compensation to the Executives in the
Summary Compensation Tables in Fulton’s previous proxy statements:
- For Mr. Wenger, a total of $809,438 was reported (2007 to 2017);
- For Mr. Roda, a total of $186,691 was reported (2012 to 2017); and
- For Mr. Myers, a total of $25,876 was reported (2016 to 2017).
- For Ms. Chivinski, a total of $11,753 was reported (2017).
51
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT POTENTIAL PAYMENTS UPON TERMINATION AND GOLDEN PARACHUTE
COMPENSATION TABLE
Executive
E. Philip Wenger
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Philmer H. Rohrbaugh
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Mark R. McCollom
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Craig A. Roda
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Curtis J. Myers
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Beth Ann L. Chivinski
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Potential Payments as of December 31, 2017 1
Voluntary
Termination 2
or Termination
for Cause 3
Termination
Without Cause
or for Good
Reason – Before
a Change in
Control 4 5
Termination
Without Cause or
for Good Reason
– Upon or After
a Change in
Control 6 7 8
Termination
Due to
Retirement 9
Termination
Due to
Disability 10 11
Termination
Due to
Death 12 13
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
367,576
0
0
0
367,576
0
0
0
0
0
0
998,284
0
0
12,000
0
1,010,284
531,306
0
0
12,000
0
543,306
550,000
0
0
12,000
0
562,000
421,691
0
0
12,000
0
433,691
650,832
367,576
0
12,000
0
1,030,408
552,319
0
0
12,000
0
564,319
3,781,412
3,977,398
189,071
74,000
1,114,642
9,136,523
1,605,491
1,285,811
81,070
74,000
0
3,046,372
0
249,007
0
34,000
0
283,007
1,297,044
973,241
64,852
74,000
0
2,409,137
990,319
1,280,619
65,083
34,000
0
2,360,021
964,843
543,104
55,232
34,000
0
1,597,179
52
0
0
0
0
0
0
0
0
0
0
0
0
0
249,007
0
0
0
249,007
0
0
0
0
0
0
0
367,576
0
0
0
367,576
0
0
0
0
0
0
1,098,112
3,977,398
0
18,000
0
5,093,510
584,437
1,285,811
0
18,000
0
1,888,248
467,500
249,007
0
18,000
0
734,507
463,860
973,241
0
18,000
0
1,455,101
467,496
1,280,619
0
18,000
0
1,766,115
389,953
543,104
0
18,000
0
951,057
1,996,568
3,977,398
0
0
1,260,125
7,234,091
1,062,612
1,285,811
0
0
670,663
3,019,086
850,000
249,007
0
0
536,474
1,635,481
843,382
973,241
0
0
532,297
2,348,920
849,992
1,280,619
0
0
536,469
2,667,080
709,006
543,104
0
0
447,486
1,699,596
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 1 All amounts listed under Equity in this table are the value of the Executive’s Performance Shares or time-based restricted
stock units and vested and “in the money” stock options valued based on the closing price of Fulton’s common stock of $17.90 on
December 29, 2017, the last trading day of 2017.
2 Voluntary Termination: In the event an Executive’s employment is voluntarily terminated by the Executive other than for
“Good Reason,” which is defined in the Employment Agreement and described in footnote 5 below, Fulton’s obligations are
limited to the payment of the Executive’s base salary through the effective date of the Executive’s termination, together with any
applicable expense reimbursements and all accrued and unpaid benefits and vested benefits in accordance with the applicable
employee benefit plans. No other payments are required, and under the 2013 Plan, unexercised stock options and Performance
Shares are forfeited by the Executive as a result of voluntary termination. The amount listed under Equity is the value of the
Executive’s vested and “in the money” stock options.
3 Termination for Cause: If an Executive’s employment is terminated for “Cause,” Fulton is not obligated to make any further
payments to the Executive under the Employment Agreement, other than amounts (including salary, expense reimbursement, etc.)
accrued under the Employment Agreements as of the date of such termination. Under the 2013 Plan, unexercised stock options
and Performance Shares are forfeited by an Executive terminated for Cause, which is generally defined in the Employment
Agreement to include the commission of certain felonies or misdemeanors, use of alcohol or other drugs which interferes with
the performance by the Executive of the Executive’s duties, intentional refusal or failure by the Executive to perform duties,
or conduct that brings public discredit on, or injures the reputation of, Fulton. The value listed under Equity is the value of the
Executive’s vested and “in the money” stock options.
4 Termination Without Cause or for Good Reason – Before a Change in Control: If an Executive terminates the Executive’s
employment for “Good Reason” or the Executive’s employment is terminated by Fulton “Without Cause,” the Executive is
entitled to receive the Executive’s base salary for a period of 1 year and a cash bonus for the fiscal year in which the termination
date occurs at the target payout level, pro-rated to the date of termination, except that for Messrs. Wenger, Rohrbaugh and Roda,
both the payment and the amount of the cash bonus shall be at the discretion of the HR Committee and as approved by Fulton’s
Board of Directors. The Executive also would continue to participate in employee health and other benefit plans for which the
Executive is eligible during the 1 year period. If the Executive is not eligible to continue to participate in any employee benefit
plan, the Executive will be compensated on an annual basis, in advance, for such plan in an amount equal to the cost Fulton would
have incurred, had the Executive been eligible to participate in such plan, plus any permitted gross-up for any taxes applicable
thereto. Under the 2013 Plan, unexercised stock options are forfeited by an Executive terminated Without Cause or for Good
Reason. Good Reason is defined in the Employment Agreement to include a breach by Fulton of its material obligations without
remedy, a significant change in the Executive’s authority, duties, compensation or benefits, or a relocation of the Executive
outside a specified distance from where the Executive previously was based. Without Cause is defined in the Employment
Agreement to include any reason other than for Cause.
5 Cash amount listed for each Executive includes a severance payment based on the Executive’s 2017 base salary. The amounts
listed under Cash assume no discretionary bonus was paid to Messrs. Wenger, Rohrbaugh and Roda, but the payments to Messrs.
McCollom and Myers and Ms. Chivinski assume the payment of their 2017 cash bonuses. Equity amounts listed are the value
of unexercised stock options. Perquisites/Benefits include a monthly estimate of $1,000 for the value of health and other benefit
expenses paid by Fulton for the 1 year severance period attributed to each Executive.
6 Termination Without Cause or for Good Reason – Upon or After a Change in Control: The Executives and other employees
have contributed to the building of Fulton into the successful enterprise it is today, and Fulton believes that it is important to
protect them in the event of a “Change in Control.” Further, Fulton believes that the interests of shareholders will be best served if
the interests of the Executives are aligned with them, and providing Change in Control benefits should eliminate or mitigate any
reluctance of the Executives to pursue potential Change in Control transactions that may be in the best interests of shareholders.
The HR Committee has determined that the potential Change in Control benefits it offers the Executives are typical for the
financial services industry and reasonable relative to the overall value of Fulton.
53
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT A Change in Control with respect to Messrs. Wenger, Rohrbaugh and Roda is defined in the Employment Agreements
to include: the acquisition of the beneficial ownership of more than 50% of the total fair market value or voting power of the
stock of Fulton by any one person or group of persons acting in concert; a change in the composition of the Board of Directors of
Fulton during any period of 12 consecutive months such that a majority of the Board of Directors is replaced by directors whose
appointment or election was not endorsed by a majority of the Board of Directors before such appointment or election; or the
acquisition by any person or group of persons acting in concert during any 12 month period of 30% or more of the total voting
power of the stock of Fulton, or of 40% or more of the total assets (on a gross fair market value basis) of Fulton.
With respect to Mr. McCollom, Mr. Myers and Ms. Chivinski, a Change in Control is defined in the Employment
Agreements to occur when: during any period of not more than 36 months, the individuals that constituted Fulton’s Board of
Directors at the beginning of such period, with certain exceptions, cease to constitute at least a majority of Fulton’s Board of
Directors; beneficial ownership of more than 30% of the outstanding voting power of the stock of Fulton is acquired by any
person, with certain exceptions; a merger or consolidation involving Fulton is consummated, unless at least 50% of the voting
power of the resulting entity is represented by Fulton voting securities outstanding prior to such merger or consolidation, no
person beneficially has the power to vote 30% or more of the voting power of the resulting entity, and at least a majority of the
members of the board of directors of the resulting entity were members of Fulton’s Board of Directors prior to the execution
of the agreement which effectuated such merger or consolidation; the sale of all or substantially all of the assets of Fulton is
consummated; or Fulton’s shareholders approve a plan of liquidation or dissolution.
If, during the period beginning 90 days before a Change in Control and ending 2 years after such Change in Control,
an Executive is terminated by Fulton Without Cause or an Executive resigns for Good Reason, Fulton would be required to pay
the Executive 2 times the sum of the Executive’s: (i) annual base salary immediately before the Change in Control; and (ii) the
highest annual cash bonus or other incentive compensation awarded to the Executive over the prior 3 years. The Executive also
would be entitled to receive: (i) an amount equal to that portion of Fulton’s retirement plan, 401(k) plan or deferred compensation
plan contributions for the Executive which were not vested, plus the amount of any federal, state or local income taxes due on
such amount; (ii) an amount equivalent to 2 years of Fulton retirement plan contributions to each tax qualified or nonqualified
retirement plan in which the Executive was a participant immediately prior to the Executive’s termination or resignation;
(iii) payment of up to $10,000 for outplacement services; and (iv) continuation of other employee welfare benefits for a period of
2 years. With respect to Messrs. Wenger, Rohrbaugh and Roda, if the Executive would not be eligible to continue to participate
in any employee welfare benefit plan, the Executive would be compensated on an annual basis, in advance, for such plan in
an amount equal to the cost Fulton would have incurred, had the Executive been eligible to participate in such plan, plus any
permitted gross-up for any taxes applicable thereto. In addition, Messrs. Wenger, Rohrbaugh and Roda would be entitled to
receive continuation of other executive perquisites, such as club memberships and employer-provided automobiles, for a period
of 2 years.
Only Mr. Wenger’s Employment Agreement provides that, in the event any payment or distribution by Fulton to or
for the benefit of an Executive would be subject to excise tax as a Golden Parachute, Mr. Wenger will be entitled to receive an
additional payment equal to the total excise tax imposed. The determination that a “gross-up” payment is required and its amount
is to be made by a tax adviser and Fulton is responsible for the adviser’s fees and expenses. Fulton’s Compensation Consultant
advised the HR Committee in 2006 that this “gross-up provision” was a typical provision in such agreements. In keeping with
Fulton’s objective to offer a competitive contract when they were offered, this provision was included in the Employment
Agreements in 2006, but more recent agreements, such as the agreements with Messrs. Rohrbaugh, McCollom, Roda and Myers
and Ms. Chivinski, do not contain a “gross-up provision.”
Generally, the 2013 Plan provides for vesting of unvested stock options and time-based restricted stock units upon
termination during the 12-month period following a Change in Control. However, with respect to Performance Shares, in the
event of a Change in Control, all incomplete performance periods with respect of such Performance Shares in effect on the date
the Change in Control occurs shall end on the date of such change, and the HR Committee shall (i) determine the extent to which
Performance Goals with respect to each such performance period have been met based upon such audited or unaudited financial
information then available as it deems relevant and (ii) cause such portion or all of the Performance Shares to vest with respect to
performance goals for each such performance period based upon the HR Committee’s determination of the degree of attainment
of performance goals or, if not determined by year end, the values assume the applicable “target” levels of performance have
been attained.
7 Cash amounts listed are 2 times 2017 base salary and highest VCP Awards paid for the last 3 years for each Executive. Except
for Mr. Wenger, the cash amounts have been reduced, pursuant to the terms of the Executive’s Employment Agreement to the
extent required to avoid a federal excise tax imposition pursuant to the regulations promulgated under Section 280G of the Tax
Code. Equity amount is the value of all “in the money” stock options and unvested Performance Shares as of December 31, 2017.
Perquisites/ Benefits include $10,000 for outplacement services, $1,000 per month during the severance period for the estimated
value of health and other benefit expenses paid by Fulton, and, with respect to Messrs. Wenger, Rohrbaugh and Roda, $20,000
per year for club memberships, vehicle and other expenses paid by Fulton, for the severance period attributed to each Executive.
54
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 8 Amount listed under Pension/NQDC represents the aggregate dollar value of Fulton’s contributions to the 401(k) Plan,
Nonqualified Deferred Compensation Plan and other retirement benefits as a result of this termination event.
9 Termination Due to Retirement: In the event an Executive terminates his employment due to retirement, Fulton is obligated
to pay the Executive’s base salary through the effective date of the Executive’s retirement, together with any applicable expense
reimbursements and all accrued and unpaid benefits and vested benefits in accordance with the applicable employee benefit
plans. In addition, pursuant to the 2013 Plan, in the event an Executive terminates employment due to retirement at the earlier
of (i) achieving age 60 with at least 10 years of service to Fulton or any affiliate or (ii) achieving age 62 with at least 5 years
of service to Fulton or any affiliate, unvested stock options and time-based restricted stock units awarded under Fulton’s plans
would automatically vest. Pursuant to the 2013 Plan, the Performance Shares do not automatically vest upon retirement, and are
not included, but subject to review by the HR Committee, performance continues to be measured and the shares may vest based
on the original vesting schedule according to the performance level actually achieved. Assuming that all the Executives attained
the earlier of (i) achieving age 60 with at least 10 years of service to Fulton or any affiliate or (ii) achieving age 62 with at least
5 years of service to Fulton or any affiliate and retired as of December 31, 2017. The Executives would have 1 or 2 years from the
date of retirement to exercise their stock options in accordance with the terms of their option awards.
10 Termination Due to Disability: Following an Executive’s “Disability”, defined in the Employment Agreements to be a
medically determinable physical or medical impairment that is expected to result in death or to last for at least 12 months, and
that either renders the Executive unable to engage in any substantial gainful activity or qualifies the Executive for benefits
under a Fulton disability plan, the employment of the Executive would terminate automatically, in which event Fulton is not
thereafter obligated to make any further payments under the Employment Agreement, other than amounts (including salary,
expense reimbursement, etc.) accrued as of the date of such termination, plus an amount equal to at least six months’ base salary
as in effect immediately prior to the date of the Disability. After this six (6) month salary continuation period, for as long as the
Executive continues to be disabled, the Executive will continue to receive at least 60% of the Executive’s base salary until the
earlier of the Executive’s death or December 31 of the calendar year in which the Executive attains age 65. To the extent it does
not duplicate benefits already being provided, an Executive will also receive those benefits customarily provided by Fulton to
disabled former employees, which benefits shall include, but are not limited to, life, medical, health, accident insurance and a
survivor’s income benefit.
11 Cash amount for all the Executives is 6 months at full salary, then 60% of salary for an assumed period of 12 months. Perquisites/
Benefits include a monthly estimate of $1,000 for the value of health and other benefit expenses paid by Fulton for an assumed
period of 18 months. Equity amount is the value of all “in the money” options and Performance Shares, which would vest as
described in the last paragraph of Footnote 6 above. In the event an Executive terminates employment due to disability, unvested
options, Performance Shares and time-based restricted stock units awarded under Fulton’s option plans would automatically vest.
The Executives would have 1 year from the date of disability to exercise stock options.
12 Termination Due to Death: In the event of a termination of employment as a result of an Executive’s death, the Executive’s
dependents, beneficiaries or estate, as the case may be, would receive such survivor’s income and other benefits as they may be
entitled to under the terms of Fulton’s benefit programs, which includes the Life Insurance benefit of twice base salary amount
plus a tax reimbursement due as a result of the payment under the Death Benefits described on Page 40.
13 In the event an Executive terminates employment due to death, unvested options, Performance Shares and time-based restricted
stock units awarded under Fulton’s option plans would automatically vest. The estate of the Executive would have 1 year from the
date of death to exercise stock options.
55
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT CEO PAY RATIO DISCLOSURE
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u)
of Regulation S-K, Fulton is providing the following information about the ratio of the annual total compensation paid to our
“median employee,” and the annual total compensation of Mr. Wenger (our “CEO”), for the year ended December 31, 2017.
Pay Ratio Summary
• For 2017, the annual total compensation of our selected median
employee was $47,397.
• The 2017 annual total compensation of our CEO, as reported in the
Summary Compensation Table on Page 45, was $3,174,978.
• Based on this information, for 2017 we reasonably estimate that the ratio
of the annual total compensation of our CEO to our median employee
was 67 to 1.
• Our pay ratio estimate has been calculated in a manner consistent
with Item 402(u) of Regulation S-K using the data and assumptions
summarized below.
As of December 31, 2017, to identify the median employee from our employee population, we compared the amount
of salary, wages, cash bonus, stock awards, employer contributions to our 401(k) Plan and all other compensation items paid to
our employee population for 2017. We identified our median employee using this consistently applied compensation measure
that excluded our CEO. In making this determination, we annualized the compensation of our permanent full-time and
part-time employees who were hired in 2017 and did not work for Fulton for the entire fiscal year, but were still employed as of
December 31, 2017.
Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2017
consistent with the requirements of Item 402(c)(2)(x) of Regulation S-K. With respect to the annual total compensation of our
CEO, we used the same process and amount reported in the “Total” column of our 2017 Summary Compensation Table included
in this Proxy Statement on Page 45.
The SEC rules for identifying the median employee and calculating the pay ratio based on that employee’s annual
total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable
estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not
be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices
and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
56
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT NON-BINDING SAY-ON-PAY RESOLUTION TO APPROVE THE COMPENSATION
OF THE NAMED EXECUTIVE OFFICERS – PROPOSAL TWO
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act,”
Fulton is providing its shareholders with the opportunity to vote on an advisory (non-binding) resolution at the 2018
Annual Meeting to approve the compensation of Fulton’s named executive officers for 2017 as described in the
Compensation Discussion and Analysis, the tabular disclosures of the Named Executive Officers’ compensation
(“Compensation Tables”) in this Proxy Statement. This proposal, commonly known as a “Say-on-Pay” Proposal,
gives shareholders the opportunity to endorse or not endorse Fulton’s Executive pay program. At Fulton’s 2017
Annual Meeting, Fulton presented a similar proposal to its shareholders, and approximately 97% of the shareholders
who cast a vote on this proposal voted in favor of, and approved, Fulton’s Say-on-Pay proposal. The HR Committee
considered the number of votes cast in favor of Fulton’s prior Say-on-Pay proposal to be a positive endorsement of
Fulton’s current pay programs and practices. Fulton will continue to monitor the level of support for each Say-on-Pay
proposal. However, because the shareholder vote is not binding, the outcome of the this year’s vote, or any future
vote, may not be construed as overruling any decision by Fulton’s Board of Directors or HR Committee regarding
executive compensation.
In 2017, Fulton submitted to shareholders a non-binding proposal, asking shareholders whether Fulton
should submit its Say-on-Pay proposal to shareholders every one (1), two (2) or three (3) years. This type of proposal
is commonly known as a “Say-When-on-Pay” proposal, and under current SEC rules, required, no less frequently
than once every six (6) years. The shareholders approved Fulton’s recommendation that the Say-on-Pay proposal
should be submitted to shareholders on an annual basis. Although Fulton believes that having an annual Say-on-
Pay vote is appropriate, Fulton’s HR Committee and Board of Directors will continue to evaluate the frequency of
the non-binding Say-on-Pay proposal and might recommend that shareholders approve a different frequency in the
future.
As further described in the “Compensation Discussion and Analysis” section of this Proxy Statement, starting
on Page 26, Fulton’s executive compensation philosophy and program are intended to achieve three (3) objectives:
(i) align interests of the Executives with shareholder interests; (ii) link the Executives’ pay to performance; and (iii)
attract, motivate and retain executive talent. Fulton’s Executive compensation program currently includes a mix of
base salary, incentive bonus, equity-based plans, retirement plans, health plans and other benefits. Fulton believes
that its compensation program, policies and procedures are reasonable and appropriate and compare favorably with
the compensation programs, policies and procedures of its peers.
The Board of Directors recommends that shareholders, in a non-binding proposal, vote “FOR” the following
resolution:
“RESOLVED, that the compensation paid to Fulton’s Named Executive Officers for 2017,
as disclosed in this Proxy Statement pursuant to Item 402 of SEC Regulation S-K, including the
Compensation Discussion and Analysis and the Compensation Tables contained in this Proxy
Statement, is hereby APPROVED.”
Approval of the non-binding resolution regarding the compensation of the Named Executive Officers would
require that the number of votes cast in favor of the proposal exceed the number of votes cast against it. Abstentions
and broker non-votes will not be counted as votes cast and, therefore, will not affect the determination as to whether
the proposal is approved.
Because your vote is advisory, it will not be binding upon Fulton. However, Fulton’s HR Committee and
Board of Directors will take into account the outcome of the vote when considering future Executive compensation
arrangements, but no determination has been made as to what action, if any, the HR Committee or Board of Directors
might take if shareholders do not approve this advisory proposal.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the non-binding resolution to
approve the compensation of the Named Executive Officers for 2017.
57
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
For the years ended December 31, 2017 and December 31, 2016, Fulton engaged KPMG LLP (“KPMG”),
independent registered public accountants, to audit Fulton’s financial statements. The fees incurred for services
rendered by KPMG for the years ended December 31, 2017 and 2016 are summarized in the following table:
Services and Fees
Audit Fees – Annual Audit and Quarterly Reviews1
Audit Fees – Issuance of Comfort Letters and Consents
Audit Fees – Statutory Audit
Audit Fees Subtotal
Audit Related Fees2
Tax Fees3
All Other Fees
TOTAL
2017
$ 1,986,000
344,000
53,000
2016
$1,700,000
–
53,000
2,383,000
1,753,000
126,000
66,000
–
115,000
62,000
–
$ 2,575,000
$1,930,000
1 Amounts presented for 2017 are based upon the audit engagement letter and additional fees paid. Final billings for
2017 may differ.
2 Fees paid for a required agreed-upon procedures report related to student lending and audits of financial statements
of certain employee benefits plans.
3 Fees paid for tax services relating to federal and state tax matters.
The appointment of KPMG for the fiscal year ended December 31, 2018 was approved by the Audit
Committee of the Board of Directors of Fulton at a meeting on February 22, 2018. Representatives of KPMG are
expected to be present at the 2018 Annual Meeting with the opportunity to make a statement and will be available
to respond to appropriate questions.
The Audit Committee has carefully considered whether the provision of the non-audit services described
above, which were performed by KPMG in 2017 and 2016, would be incompatible with maintaining the independence
of KPMG in performing its audit services and has determined that, in its judgment, the independence of KPMG has
not been compromised.
All fees paid to KPMG in 2017 and 2016 were pre-approved by the Audit Committee. The Audit Committee
pre-approves all auditing and permitted non-auditing services, including the fees and terms thereof, to be performed
by its independent auditor, subject to the de minimus exceptions for non-auditing services permitted by the Exchange
Act. However, these types of services are approved prior to completion of the services. The Audit Committee may
form and delegate authority to subcommittees consisting of one or more members, when appropriate, including the
authority to grant pre-approvals of audit and permitted non-audit services. Any decisions of such subcommittees to
grant pre-approvals are presented to the full Audit Committee for ratification at its next scheduled meeting.
Based on its review and discussion of the audited 2017 financial statements of Fulton with management and
KPMG, the Audit Committee recommended to the Board of Directors that the financial statements be included in the
Annual Report on Form 10-K for filing with the SEC. A copy of the report of the Audit Committee of its findings
that resulted from its financial reporting oversight responsibilities is attached as Exhibit A.
58
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
RATIFICATION OF INDEPENDENT AUDITOR – PROPOSAL THREE
Fulton’s Audit Committee has selected the firm of KPMG to continue as Fulton’s independent auditor for
the fiscal year ending December 31, 2018. Although shareholder approval of the selection of KPMG is not required
by law, the Board of Directors believes that it is advisable to give shareholders an opportunity to ratify this selection
as is a common practice among other publicly traded companies and consistent with sound corporate governance
practices. Assuming the presence of a quorum at the Annual Meeting, the affirmative vote of the majority of the
votes cast is required to ratify the appointment of KPMG as Fulton’s independent auditor for the fiscal year ending
December 31, 2018. If Fulton’s shareholders do not approve this proposal at the 2018 Annual Meeting, the Audit
Committee will consider the results of the shareholder vote on this proposal when selecting an independent auditor
for 2019. However, no determination has been made as to what other specific action, if any, the Audit Committee
would take if shareholders do not ratify the appointment of KPMG at the 2018 Annual Meeting.
KPMG has conducted the audit of the financial statements of Fulton and its subsidiaries for the years ended
December 31, 2002 through December 31, 2017. Representatives of KPMG who are expected to be present at the
meeting, will be given an opportunity to make a statement if they desire to do so, and will be available to answer
appropriate questions from shareholders.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote FOR ratification of the appointment of
KPMG LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2018.
59
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT ADDITIONAL INFORMATION
Annual Report on Form 10-K
A copy of Fulton’s Annual Report on Form 10-K for the year-ended December 31, 2017, as filed with the
SEC, including financial statements, is available without charge to shareholders upon written request addressed to the
Corporate Secretary, Fulton Financial Corporation, P.O. Box 4887, One Penn Square, Lancaster, Pennsylvania 17604.
The Fulton Annual Report on Form 10-K for year-ended December 31, 2017 and this Proxy Statement are
posted and available on Fulton’s website at www.fult.com. Copies of the current governance documents and future
updates, including but not limited to the Fulton Code of Conduct, Audit Committee Charter, HR Committee Charter,
Nominating and Corporate Governance Committee Charter, Risk Committee Charter and Fulton’s Governance
Guidelines, are also posted and available on Fulton’s website at www.fult.com. The contents of our website are not
incorporated into this Proxy Statement by provision of this link, or other links in this Proxy Statement.
Householding of Proxy Materials
Only one (1) Proxy Statement is being delivered to multiple security holders sharing an address unless
Fulton has received contrary instructions from one or more of the security holders. Fulton will promptly deliver,
upon written or oral request, a separate copy of this Proxy Statement to a security holder at a shared address to which
a single copy of the document was delivered. Such a request should be made to the Corporate Secretary, Fulton
Financial Corporation, P.O. Box 4887, One Penn Square, Lancaster, Pennsylvania 17604, (717) 291-2411. Requests to
receive a separate mailing for future Proxy Statements or to limit multiple copies to the same address should be made
orally or in writing to the Corporate Secretary at the foregoing address or phone number.
Sign Up for Electronic Delivery
If you would like to save paper and reduce the costs incurred by Fulton in printing and mailing proxy
materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically
via e-mail or the Internet. To sign up for electronic delivery, please go to www.proxyvote.com and have your proxy
card and control number in hand when you access the website, then follow the instructions at www.proxyvote.com to
obtain your records and to create an electronic voting instruction form. Follow the instructions for voting by Internet
and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future
years.
60
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT OTHER MATTERS
The Board of Directors of Fulton knows of no matters other than those discussed in this Proxy Statement,
which will be presented at the 2018 Annual Meeting. However, if any other matters are properly brought before the
meeting, any proxy given pursuant to this solicitation will be voted in accordance with the recommendations of the
Board of Directors of Fulton.
BY ORDER OF THE BOARD OF DIRECTORS
E. PHILIP WENGER
Chairman of the Board and
Chief Executive Officer
Lancaster, Pennsylvania
April 3, 2018
61
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
EXHIBIT A
REPORT OF AUDIT COMMITTEE
February 22, 2018
To the Board of Directors of Fulton Financial Corporation:
We have reviewed and discussed with management Fulton Financial Corporation’s audited financial
statements as of, and for the year ended, December 31, 2017.
We have discussed with representatives of KPMG LLP, Fulton Financial Corporation’s independent auditor,
the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees issued
by the Public Company Accounting Oversight Board (“PCAOB”).
We have received and reviewed the written disclosures and the letter from the independent auditor required by
the PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence,
as amended, by the PCAOB, and have discussed with the auditor the auditor’s independence.
Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the
financial statements referred to above be included in Fulton Financial Corporation’s Annual Report on Form 10-K
for the year ended December 31, 2017.
Ronald H. Spair, Chair
Albert Morrison III, Vice Chair
Denise L. Devine
George W. Hodges
Ernest J. Waters
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, 2017,
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
Emerging growth 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, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $3.2 billion. The number
of shares of the registrant’s Common Stock outstanding on February 15, 2018 was 175,289,000.
Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on May 21, 2018 are incorporated
by reference in Part III.
1
TABLE OF CONTENTS
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.
Item 16.
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...........................................................................................................................
Exhibits, Financial Statement Schedules..........................................................................................................................
Form 10-K Summary........................................................................................................................................................
Signatures .........................................................................................................................................................................
Exhibit Index ....................................................................................................................................................................
Page
3
19
33
33
34
34
35
38
40
69
74
75
76
77
78
79
130
131
133
134
134
134
135
135
135
135
135
136
137
138
140
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 N.A. ("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." The Corporation directly owns 100% of the common stock of six community
banks and eight non-bank entities. As of December 31, 2017, the Corporation had approximately 3,700 full-time equivalent
employees.
The common stock of the 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 2017 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 geographic 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 consolidating its subsidiary banks 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. 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 ("BSA"), as amended by the USA Patriot Act of 2001, as well as related anti-money laundering ("AML") laws and regulations.
See Item 1A. "Risk Factors - Legal, Compliance and Reputational Risks - The Corporation intends to seek regulatory approval of
the consolidation of our bank subsidiaries, which could result in significant implementation costs and impact our long-term
compliance obligations" and "Risk Factors - Legal, Compliance and Reputational Risks - The Corporation and three of its bank
subsidiaries are subject to regulatory enforcement orders requiring improvement in compliance functions and remedial actions."
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 and Credit Risks - Economic downturns and the composition of the
Corporation’s loan portfolio subject the Corporation to credit risk."
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. The subsidiary banks also offer a variety of fixed, variable and adjustable
rate products, including construction loans and jumbo residential mortgage 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
to $50.0 million as of December 31, 2017, which is below the Corporation’s regulatory lending limit. In addition, the Corporation
3
has established lower total lending limits based on the Corporation's internal risk rating of the borrower and for certain types of
lending commitments. Commercial lending products include commercial, financial, agricultural and real estate loans. Variable,
adjustable and fixed rate loans are provided, with variable 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 largest subsidiary, Fulton 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, 2017:
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
$
$
11,494
4,069
2,411
1,577
354
328
8,649
3,480
1,910
1,340
291
286
112
64
31
21
6
7
241
(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 where 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; and (v) Fulton Insurance Services Group, Inc., which engages in the sale of various life insurance
products.
The Corporation also 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, 2017:
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
4
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.
The industry is also highly competitive due to the various types of entities that now compete aggressively for customers that were
traditionally served only by the banking industry. Under the current financial services regulatory framework, banks, insurance
companies and securities firms may affiliate under a financial holding company structure, allowing their expansion into non-
banking financial services activities that had previously been 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. Moreover, the Corporation and its subsidiaries face increased competition from certain non-bank entities, such as
financial technology companies and marketplace lenders, which may or may not be subject to the same regulatory compliance
obligations as the Corporation. While the Corporation does not currently engage in many of the activities described above, further
entry into these businesses 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 five in deposit market share (based on deposits as of June 30, 2017). 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, 2017)
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......................
New Castle ........... DE
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
(2018 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
543,000 Fulton Bank, N.A.
415,000 Fulton Bank, N.A.
626,000 Fulton Bank, N.A.
163,000 Fulton Bank, N.A.
520,000 Fulton Bank, N.A.
66,000 FNB Bank, N.A.
252,000 Fulton Bank, N.A.
275,000 Fulton Bank, N.A.
564,000 Fulton Bank, N.A.
140,000 Fulton Bank, N.A.
366,000 Lafayette Ambassador Bank
114,000 FNB Bank, N.A.
826,000 Fulton Bank, N.A.
18,000 FNB Bank, N.A.
304,000 Lafayette Ambassador Bank
92,000 FNB Bank, N.A.
Swineford National Bank
142,000 Fulton Bank, N.A.
41,000 Swineford National Bank
46,000 Swineford National Bank
446,000 Fulton Bank, N.A.
561,000 Fulton Bank, N.A.
227,000 Fulton Bank, N.A.
575,000 The Columbia Bank
835,000 The Columbia Bank
610,000 The Columbia Bank
103,000 The Columbia Bank
251,000 The Columbia Bank
324,000 The Columbia Bank
1,058,000 The Columbia Bank
916,000 The Columbia Bank
151,000 The Columbia Bank
269,000 Fulton Bank of New Jersey
449,000 Fulton Bank of New Jersey
509,000 Fulton Bank of New Jersey
152,000 Fulton Bank of New Jersey
293,000 Fulton Bank of New Jersey
6
20
18
34
16
29
6
17
17
30
12
21
11
39
6
17
19
13
8
10
15
21
17
28
32
26
7
17
20
30
19
11
14
20
21
12
23
13
11
15
4
8
3
5
10
13
6
12
10
28
3
12
5
2
1
3
13
18
5
10
16
14
4
5
5
25
24
4
7
11
11
5
5
%
27.3%
3.6%
2.1%
3.2%
2.9%
4.0%
1.9%
5.2%
0.3%
31.7%
4.6%
1.0%
0.5%
22.1%
13.1%
3.9%
2.3%
4.1%
26.0%
7.1%
11.3%
1.2%
8.8%
0.6%
0.8%
0.4%
13.8%
0.9%
8.6%
0.2%
0.6%
21.3%
1.8%
1.2%
2.4%
1.9%
13.8%
1
8
14
10
13
5
12
6
27
1
7
14
22
2
3
7
13
10
2
5
3
11
3
18
21
11
2
15
4
29
21
2
11
14
11
13
2
State
Population
(2018 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
%
No. of Financial
Institutions
Deposit Market Share
(June 30, 2017)
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
VA
VA
VA
VA
VA
VA
VA
124,000 Fulton Bank of New Jersey
371,000 Fulton Bank of New Jersey
841,000 Fulton Bank of New Jersey
625,000 Fulton Bank of New Jersey
499,000 Fulton Bank of New Jersey
597,000 Fulton Bank of New Jersey
63,000 Fulton Bank of New Jersey
335,000 Fulton Bank of New Jersey
106,000 Fulton Bank of New Jersey
242,000 Fulton Bank, N.A.
1,146,000 Fulton Bank, N.A.
328,000 Fulton Bank, N.A.
42,000 Fulton Bank, N.A.
183,000 Fulton Bank, N.A.
227,000 Fulton Bank, N.A.
456,000 Fulton Bank, N.A.
17
25
45
27
35
20
7
26
12
13
37
24
12
12
16
15
7
20
26
11
16
8
4
11
3
7
29
14
4
7
10
13
9
17
27
25
14
15
1
10
5
10
42
23
10
12
15
10
2.7%
0.9%
0.3%
0.7%
1.4%
1.2%
26.9%
2.3%
7.7%
1.6%
—%
0.5%
1.9%
0.7%
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 and its subsidiaries operate 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 under the Bank Holding Company Act of 1956, as amended ("BHCA")
and is regulated, supervised and examined by the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
The Corporation's subsidiary banks are depository institutions whose deposits are insured by the FDIC. 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
Primary Regulator(s)
OCC
NJ/FDIC
MD/FDIC
PA/Federal Reserve
OCC
OCC
OCC - Office of the Comptroller of the Currency
Federal statutes that apply to the Corporation and its subsidiaries include the GLB Act, the BHCA, the Dodd-Frank Wall Street
Reform and Consumer Protection Act ("Dodd-Frank Act"), 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, cash reserve requirements, lending limitations, compliance with unfair, deceptive and
abusive acts and practices prohibitions, limitations on investments, and capital adequacy requirements, among other things.
The following discussion is general in nature and seeks to highlight some of the more significant of the regulatory requirements
to which the Corporation and its subsidiaries are subject, but does not purport to be complete or to describe all laws and regulations
that are applicable.
7
BHCA - The Corporation is subject to regulation and examination by the Federal Reserve Board, and is required to file periodic
reports and to provide additional information that the Federal Reserve Board may require. The BHCA regulates activities of bank
holding companies, including requirements and limitations relating to capital, transactions with officers, directors and affiliates,
securities issuances, dividend payments, extensions of credit, among others. The BHCA permits the Federal Reserve Board, in
certain circumstances, to issue cease and desist orders and other enforcement actions against bank holding companies (and their
non-banking affiliates) to correct or curtail unsafe or unsound banking practices. In addition, the Federal Reserve Board must
approve certain proposed changes in organizational structure or other business activities before they occur. The BHCA imposes
certain restrictions upon the Corporation regarding the acquisition of substantially all of the assets of, or direct or indirect ownership
or control of, any bank for which it is not already the majority owner. In addition, under the Dodd-Frank Act and longstanding
Federal Reserve Board policy, bank holding companies are required to act as a source of financial strength to each of their banking
subsidiaries pursuant to which such holding company may be required to commit financial resources to support such subsidiaries
in circumstances when, absent such requirements, they might not otherwise do so.
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
established increased compliance obligations across a number of areas of the banking business and created the Financial Stability
Oversight Council, with oversight authority for monitoring systemically important financial institutions ("SIFIs") and regulating
systemic risk, and the Consumer Financial Protection Bureau ("CFPB"), which has broad regulatory and enforcement powers over
consumer financial products and services. The CFPB is responsible for administering and enforcing numerous federal consumer
financial laws enumerated in the Dodd-Frank Act. The CFPB has exclusive or primary supervision, examination and enforcement
authority over banks with total assets of more than $10 billion with respect to compliance with federal consumer financial laws.
As of March 31, 2017, the Corporation's largest subsidiary bank, Fulton Bank, had $10.8 billion in total assets and had total assets
in excess of $10 billion for the previous four consecutive quarters, and accordingly, it and the Corporation's other subsidiary banks
are subject to the supervision, examination and enforcement jurisdiction of the CFPB with respect to federal consumer financial
laws.
Stress Testing - In accordance with Federal Reserve Board rules governing company-run stress testing, 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 Federal Reserve Board. 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, and to disclose summary stress test
results to the public. 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 Federal Reserve Board modified the start date of the stress test cycles so that, beginning in 2016, 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 Federal Reserve Board
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. The Corporation timely submitted its stress test report to the Federal Reserve Board before its required date of July 31, 2017,
and a summary of the results was publicly disclosed on October 18, 2017, as required by the final rules.
Under similar rules adopted by the Office of the Comptroller of the Currency ("OCC"), the primary regulator of Fulton Bank,
national banks with total consolidated assets of more than $10 billion are also required to conduct annual stress tests. A national
bank becomes subject to the annual stress testing requirement when the institution's total consolidated assets, calculated as the
average of the institution's total consolidated assets, as reported on the institution's quarterly Call Reports, for the most recent four
consecutive quarters exceeds $10 billion. As of March 31, 2017, Fulton Bank had $10.8 billion in total consolidated assets and
had maintained a level of assets in excess of $10 billion for four consecutive quarters. Accordingly, Fulton Bank is required to
conduct annual stress tests in accordance with the OCC rules and as a result, will be required to submit its first stress test report
to the OCC on or before July 31, 2018.
Consumer Financial Protection Laws and Enforcement - The CFPB and the federal banking agencies continue to focus attention
on consumer protection laws and regulations. The CFPB is responsible for promoting fairness and transparency for mortgages,
credit cards, deposit accounts and other consumer financial products and services and for interpreting and enforcing the federal
consumer financial laws that govern the provision of such products and services. Federal consumer financial laws enforced by the
CFPB include, but are not limited to, the Equal Credit Opportunity Act ("ECOA"), Truth in Lending Act ("TILA"), the Truth in
Savings Act, HMDA, Real Estate Settlement Procedures Act ("RESPA"), the Fair Debt Collection Practices Act, and the Fair
Credit Reporting Act. The CFPB is also authorized to prevent any institution under its authority from engaging in an unfair,
deceptive, or abusive act or practice in connection with consumer financial products and services. As a residential mortgage lender,
8
the Corporation and its bank subsidiaries are subject to multiple federal consumer protection statutes and regulations, including,
but not limited to, those referenced above.
In particular, fair lending laws prohibit discrimination in the provision of banking services, and the enforcement of these laws has
been an increasing focus for the CFPB, the Department of Housing and Urban Development ("HUD"), and other regulators. Fair
lending laws include ECOA and the Fair Housing Act ("FHA"), which outlaw discrimination in credit and residential real estate
transactions on the basis of prohibited factors including, among others, race, color, national origin, gender, and religion. A lender
may be liable for policies that result in a disparate treatment of, or have a disparate impact on, a protected class of applicants or
borrowers. If a pattern or practice of lending discrimination is alleged by a regulator, then that agency may refer the matter to the
U.S. Department of Justice ("DOJ") for investigation. 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.
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, 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 DOJ, the two
agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and
conducting joint investigations; however, as a result of recent leadership changes at the DOJ and CFPB, as well as changes in the
enforcement policies and priorities of each agency, the extent to which such coordination will continue to occur in the near term
is uncertain. As an independent bureau funded by the Federal Reserve Board, the CFPB may impose requirements that are more
stringent than those of the other bank regulatory agencies.
As an insured depository institution with total assets of more than $10 billion, Fulton Bank and the Corporation's other subsidiary
banks are subject to the CFPB’s supervisory and enforcement authorities. The Dodd-Frank Act also permits states to adopt stricter
consumer protection laws and state attorneys general to enforce consumer protection rules issued by the CFPB. As a result, the
Corporation's subsidiary banks operate in a stringent consumer compliance environment and may incur additional costs related
to consumer protection compliance, including but not limited to potential costs associated with CFPB examinations, regulatory
and enforcement actions and consumer-oriented litigation. The CFPB, other financial regulatory agencies, including the OCC, as
well as the DOJ, have, over the past several years, pursued a number of enforcement actions against depository institutions with
respect to compliance with fair lending laws.
Ability-to-pay rules and qualified mortgages - As required by the Dodd-Frank Act, the CFPB issued a series of final rules amending
Regulation Z, implementing TILA, which require 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. The mortgage lender may also 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 enterprise 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 revising and integrating previously separate disclosures required under RESPA and 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. The CFPB issued proposed amendments to the requirements in
July 2016, which were finalized in July 2017.
Volcker Rule - As mandated by Section 619 of the Dodd-Frank Act (the "Volcker Rule"), the federal banking agencies, the SEC
and Commodity Futures Trading Commission issued final rules in December 2013 (the "Final Rules") that prohibit banking entities
9
from (1) engaging in short-term proprietary trading for their own accounts, and (2) having certain ownership interests in, and
relationships with, hedge funds or private equity funds, which are referred to as "covered funds." The Final Rules generally treat
as a covered fund any entity that, absent the applicability of a separate exclusion, 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 Federal Reserve Board 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 in
July 2016, the Federal Reserve Board granted an additional one-year extension of the conformance period to July 21, 2017.
In addition, in August 2017, the OCC published a notice and request for comment on whether certain aspects of the Volcker Rule
should be revised to better accomplish the purposes the Dodd-Frank Act while decreasing the compliance burden on banking
organizations and fostering economic growth. The request for comment invited input on ways in which to tailor the Volcker Rule’s
requirements and clarify key provisions that define prohibited and permissible activities, as well as input on how the federal
regulatory agencies could implement the existing Volcker Rule more effectively without revising the Final Rules. Specifically,
the OCC requested comments on the scope of entities subject to the Volcker Rule, the proprietary trading prohibition, the covered
funds prohibition, and the compliance program and metrics reporting requirements. We cannot predict whether regulations that
would simplify compliance with the Final Rules will be adopted or, if such regulations were to be adopted, the extent to which
they would reduce our compliance burdens.
The Corporation does not engage in proprietary trading or in any other activities prohibited by the Final Rules, and, based on the
Corporation's evaluation of its investments, none fell within the definition of a "covered fund" and none needed to be disposed of
by July 31, 2017. The Corporation 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 Federal Reserve Board has
the authority to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon
the Federal Reserve Board’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 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'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 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 minimum Common Equity Tier 1 ("CET1") capital ratio of 4.50% of risk-weighted assets and a minimum Tier 1
capital ratio of 6.00% of risk-weighted assets;
• Continue to require a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital
ratio of 4.00% of average assets; 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, have been phased out as a
component of Tier 1 capital for institutions of the Corporation's size.
10
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. In November 2017, the federal banking agencies adopted a final rule to extend the regulatory capital
treatment applicable during 2017 under Basel III for certain items, including regulatory capital deductions, risk weights, and certain
minority interest limitations. The relief provided under the final rule applies to banking organizations that are not subject to the
capital rules’ advanced approaches, such as the Corporation. Specifically, the final rule extends the current regulatory capital
treatment of mortgage servicing assets ("MSAs"), deferred tax assets ("DTAs") arising from temporary differences that could not
be realized through net operating loss carrybacks, significant investments in the capital of unconsolidated financial institutions in
the form of common stock, non-significant investments in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions that are not in the form of common stock, and CET1 minority
interest, tier 1 minority interest, and total capital minority interest exceeding applicable minority interest limitations.
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, increasing to 1.25% on January 1, 2017, and
will continue to increase, to 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, 2017, 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.
In October 2017, the federal banking agencies issued a notice of proposed rulemaking on simplifications to Basel III, a majority
of which would apply solely to banking organizations that are not subject to the advanced approaches capital rules. Under the
proposed rulemaking, non-advanced approaches banking organizations, such as the Corporation and Fulton Bank, would apply a
simpler regulatory capital treatment for MSAs, certain DTAs, investments in the capital of unconsolidated financial institutions,
and capital issued by a consolidated subsidiary of a banking organization and held by third parties. Specifically, the proposed
rulemaking would eliminate: (i) the 10 percent CET1 capital deduction threshold that applies individually to MSAs, temporary
difference DTAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock;
(ii) the aggregate 15 percent CET1 capital deduction threshold that subsequently applies on a collective basis across such items;
(iii) the 10 percent CET1 capital deduction threshold for non-significant investments in the capital of unconsolidated financial
institutions; and (iv) the deduction treatment for significant investments in the capital of unconsolidated financial institutions not
in the form of common stock. Basel III would no longer have distinct treatments for significant and non-significant investments
in the capital of unconsolidated financial institutions, but instead would require that non-advanced approaches banking
organizations deduct from CET1 capital any amount of MSAs, temporary difference DTAs, and investments in the capital of
unconsolidated financial institutions that individually exceeds 25 percent of CET1 capital. The proposed rulemaking also includes
revisions to the treatment of certain acquisition, development, or construction exposures that are designed to address comments
regarding the current definition of high volatility commercial real estate exposure under the capital rule’s standardized approach.
In December 2017, the Basel Committee on Banking Supervision published the last version of the Basel III accord, generally
referred to as "Basel IV." The Basel Committee stated that a key objective of the revisions incorporated into the framework is to
reduce excessive variability of risk-weighted assets, which will be accomplished by enhancing the robustness and risk sensitivity
of the standardized approaches for credit risk and operational risk, which will facilitate the comparability of banks’ capital ratios;
constraining the use of internally-modeled approaches; and complementing the risk-weighted capital ratio with a finalized leverage
ratio and a revised and robust capital floor. Leadership of the Federal Reserve Board, OCC, and FDIC, who are tasked with
implementing Basel IV, supported the revisions. Although it is uncertain at this time, we anticipate some, if not all, of the Basel
IV accord may be incorporated into the capital requirements framework applicable to the Corporation and Fulton Bank.
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 Federal Reserve Board 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 ("LCR") that is designed to ensure that sufficient
11
high quality liquid resources are available for a one month period in case of a stress scenario. Impacted financial institutions were
required to be compliant with the U.S. Liquidity Coverage Ratio Rule by January 1, 2017. 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, and, as a result
of which 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. The federal banking agencies published a notice of
proposed rulemaking regarding the NSFR in May 2016. In June 2017, the U.S. Treasury Department ("UST") recommended a
delay in the implementation of the proposed NSFR out of concern that the rule could be duplicative of the liquidity requirements
discussed above and could therefore impose unnecessary compliance costs upon banking organizations. Accordingly, the prospects
for final implementation of the federal banking agencies’ proposed NSFR are uncertain at this time. 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. An insured
depository institution is treated as well capitalized if its total risk-based capital ratio is 10.00% or greater, its Tier 1 risk-based
capital ratio is 8.00% or greater, its CET1 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, 2017, each of the
Corporation’s bank subsidiaries’ capital ratios was 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, 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) and satisfy certain qualitative limitations, including that any
covered extension of credit be made on an arm’s length basis. The Dodd-Frank Act expanded these restrictions 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 Corporation’s
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. In addition, the FDIC possesses
backup enforcement authority over a depository institution holding company, such as the Corporation, if the conduct or threatened
conduct of such holding company poses a risk to the DIF, although such authority may not be used if the holding company is
generally in sound condition and does not pose a foreseeable and material risk to the DIF.
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
12
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 July 1, 2017, the Corporation’s largest subsidiary bank, Fulton Bank, became subject to 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 the cost of raising the FDIC reserve ratio to 1.35% as required by the Dodd-Frank Act.
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 2018 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 FDIC adopted the final rule, which became effective on July 1, 2016, that imposes on insured
depository institutions with $10 billion or more in total consolidated assets (such as Fulton Bank) a quarterly surcharge equal to
an annual rate of 4.5 basis points applied to the deposit insurance assessment base, after making certain adjustments. In addition,
the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), which was signed into law on December 22, 2017, disallows the deduction of
FDIC deposit insurance premium payments for banking organizations with total consolidated assets of $50 billion or more. For
banks with less than $50 billion in total consolidated assets, such as Fulton Bank, the premium deduction is phased out based on
the proportion of the bank’s assets exceeding $10 billion. See discussion under Item 1.A. "Risk Factors - The financial services
industry, as well as the broader economy, may be subject to new legislation which could result in significant changes in banking
and financial services regulation."
AML Requirements and the USA Patriot Act - Anti-terrorism legislation enacted under the USA Patriot Act of 2001 ("Patriot Act")
amended the BSA and expanded the scope of AML laws and regulations, imposing significant new compliance obligations for
financial institutions, including the Corporation’s subsidiary banks. The Patriot Act gives the federal government powers to address
terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and
broadened AML requirements. By way of amendments to the BSA, Title III of the Patriot Act takes measures intended to encourage
information sharing among bank regulatory agencies and law enforcement bodies. Further, these regulations impose affirmative
obligations on a wide range of financial institutions to maintain appropriate policies, procedures and controls to detect, prevent
and report money laundering and terrorist financing.
Among other requirements, the Patriot Act and the related regulations impose the following requirements with respect to financial
institutions:
• Establishment of AML 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 requirements of the Patriot Act and other AML laws and regulations 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. In May 2016, the regulations implementing
the BSA were amended to explicitly include risk-based procedures for conducting ongoing customer due diligence, to include
understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile. In addition,
banks must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded)
at the time a new account is opened (other than accounts that are exempted). The Corporation and its banking subsidiaries must
comply with these amendments and new requirements by May 11, 2018. 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 (including the May 2016 amendments).
13
The Corporation and three of 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 BSA, 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 - Legal, Compliance and Reputational Risks - "The
Corporation and three of its bank subsidiaries are subject to regulatory enforcement orders requiring improvement in compliance
functions and remedial actions;" and Note-17 Commitments and Contingencies - Legal Proceedings," in the Notes to Consolidated
Financial Statements in Item 8. "Financial Statements and Supplementary Data."
Commercial Real Estate Guidance - In December 2015, the federal banking 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, 2017, 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 ("Riegle-Neal Act"), 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.
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.
The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when
the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or
principal shareholder. In July 2010, the federal banking agencies issued Guidance on Sound Incentive Compensation Policies
("Guidance") that applies to all banking organizations supervised by the agencies (thereby including both the Corporation and its
banking subsidiaries). Pursuant to the Guidance, to be consistent with safety and soundness principles, a banking organization’s
incentive compensation arrangements should: (1) provide employees with incentives that appropriately balance risk and reward;
(2) be compatible with effective controls and risk management; and (3) be supported by strong corporate governance, including
active and effective oversight by the banking organization’s board of directors. Monitoring methods and processes used by a
14
banking organization should be commensurate with the size and complexity of the organization and its use of incentive
compensation.
Section 956 of the Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines
prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by
providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that
could lead to material financial loss to the entity. The federal banking agencies issued such proposed rules in April 2011 and issued
a revised proposed rule in June 2016, implementing the requirements and prohibitions set forth in Section 956. The revised proposed
rule would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets, for which it
would go beyond the existing Guidance to (i) prohibit certain types and features of incentive-based compensation arrangements
for senior executive officers, (ii) require incentive-based compensation arrangements to adhere to certain basic principles to avoid
a presumption of encouraging inappropriate risk, (iii) require appropriate board or committee oversight, (iv) establish minimum
record keeping and (v) mandate disclosures to the appropriate federal banking agency.
Privacy Protection and Cybersecurity - 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 each 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, each 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.
These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to
information technology and the use of third parties in the provision of financial services. In October 2016, the federal banking
agencies issued an advance notice of proposed rulemaking on enhanced cybersecurity risk-management and resilience standards
that would apply to large and interconnected banking organizations and to services provided by third parties to these firms. These
enhanced standards would apply only to depository institutions and depository institution holding companies with total consolidated
assets of $50 billion or more. The federal banking agencies have not yet taken further action on these proposed standards.
Federal Reserve System - Federal Reserve Board regulations require depository institutions to maintain cash reserves against their
transaction accounts (primarily NOW and demand deposit accounts). A reserve of 3% must be maintained against aggregate
transaction account balances of between $16 million and $122.3 million (subject to adjustment by the Federal Reserve Board)
plus a reserve of 10% (subject to adjustment by the Federal Reserve Board within a range of between 8% and 14%) against that
portion of total transaction account balances in excess of $122.3 million. The first $16 million of otherwise reservable balances
(subject to adjustment by the Federal Reserve Board) 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 Federal Reserve Board. 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.
Activities and Acquisitions - The BHC Act requires a bank holding company to obtain the prior approval of the Federal Reserve
Board before:
•
•
•
the company may acquire direct or indirect ownership or control of any voting shares of any bank or savings and
loan association, if after such acquisition the bank holding company will directly or indirectly own or control
more than five percent of any class of voting securities of the institution;
any of the company’s subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank
or savings and loan association; or
the company may merge or consolidate with any other bank or financial holding company.
15
The Riegle-Neal Act generally permits bank holding companies to acquire banks in any state, and preempts all state laws restricting
the ownership by a holding company of banks in more than one state. The Riegle-Neal Act also permits a bank to merge with an
out-of-state bank and convert any offices into branches of the resulting bank, acquire branches from an out-of-state bank, and
establish and operate de novo interstate branches whenever the host state permits de novo branching of its own state-chartered
banks.
Bank or financial holding companies and banks seeking to engage in mergers authorized by the Reigle-Neal Act must be at least
adequately capitalized as of the date that the application is filed, and the resulting institution must be well-capitalized and managed
upon consummation of the transaction.
The Change in Bank Control Act prohibits a person, entity or group of persons or entities acting in concert, from acquiring "control"
of a bank holding company or bank unless the Federal Reserve Board has been given prior notice and has not objected to the
transaction. Under Federal Reserve Board regulations, the acquisition of 10% or more (but less than 25%) of the voting stock of
a corporation would, under the circumstances set forth in the regulations, create a rebuttable presumption of acquisition of control
of the corporation.
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 the Sarbanes-Oxley Act of 2002
and the resulting SEC rules can be found in the "Signatures" and "Exhibits" sections.
16
Executive Officers
The executive officers of the Corporation are as follows:
Name
E. Philip Wenger
Age (1)
60
Philmer H. Rohrbaugh
65
Mark R. McCollom
53
Curtis J. Myers
49
David M. Campbell
56
Beth Ann L. Chivinski
57
Meg R. Mueller
Craig A. Roda
53
61
Office Held and Term of Office
Director of the Corporation since 2009. Chairman of the Board and Chief Executive Officer
of the Corporation since January 2013. Mr. Wenger previously served as President of the
Corporation from 2008 to 2017, 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 interim Chief Financial Officer of the Corporation
effective December 6, 2016. He joined the Corporation in November 2012 as Senior
Executive Vice President and Chief Risk Officer and became Senior Executive Vice President
and Chief Operating Officer effective June 1, 2016. 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; he joined KPMG in 2002.
He has more than 35 years of experience in public accounting with substantial audit
experience serving public and private companies, including financial institutions, and
advising companies on accounting, financial reporting matters, equity and debt offerings,
and merger and acquisition transactions. Mr. Rohrbaugh currently serves as a director of a
public manufacturing company and a national department store chain.
Senior Executive Vice President of the Corporation, and Chief Financial Officer Designee
since November 2017. Mr. McCollom was a Senior Managing Director, Chief Administrative
Officer and CEO of Griffin Financial Group, LLC prior to joining the Corporation. Prior to
his role at Griffin Financial Group, Mr. McCollom was the Chief Financial Officer of
Sovereign Bancorp, Inc. He has over 30 years of experience in the financial services industry.
President and Chief Operating Officer of the Corporation since January 1, 2018. Mr. Myers
served as Senior Executive Vice President of the Corporation from July 2013 to December
2017. President and Chief Operating Officer of Fulton Bank, N.A. since February 2009. He
served as Executive Vice President of the Corporation since August 2011. Mr. Myers has
been employed by Fulton Bank, N.A. in a number of positions since 1990.
Senior Executive Vice President, and Director of Strategic Initiatives and Operations since
December 2014. Mr. Campbell joined the Corporation as Chief Administrative Officer of
Fulton Financial Advisors, a division of Fulton Bank, N.A. in 2009, and was promoted to
President of Fulton Financial Advisors in 2010. He has more than 30 years of experience in
financial services.
Senior Executive Vice President and Chief Risk Officer of the Corporation effective June
1, 2016. She served as the Corporation’s Chief Audit Executive April 2013 - June 2016 and
was promoted to Senior Executive Vice President of the Corporation in 2014. Prior to that,
she served as the Corporation’s Executive Vice President, Controller and Chief Accounting
Officer from June 2004 to March 31, 2013. Ms. Chivinski has worked in various positions
with the Corporation since June of 1994. She is a Certified Public Accountant.
Senior Executive Vice President and Head of Commercial Business since January 1, 2018.
Ms. Mueller served as Chief Credit Officer of the Corporation from 2010 - 2017 and was
promoted to Senior Executive Vice President of the Corporation in 2013. Ms. Mueller has
been employed by the Corporation in a number of positions since 1996.
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.
Angela M. Sargent
50
Senior Executive Vice President and Chief Information Officer of the Corporation since July
2013. Ms. Sargent served as Executive Vice President and Chief Information Officer from
2002 - 2013 and has been employed by the Corporation in a number of positions since 1992.
17
Name
Angela M. Snyder
Age (1)
53
Daniel R. Stolzer
61
Bernadette M. Taylor
56
(1) As of December 31, 2017
Office Held and Term of Office
Senior Executive Vice President and Head of Consumer Banking since January 1, 2018.
Ms. Snyder also serves as Chairwoman, CEO and President of Fulton Bank of New Jersey.
In 2002, Angela Snyder began her career with the Corporation as President of Woodstown
National Bank, now Fulton Bank of New Jersey. Ms. Snyder served as the Chairwoman of
the New Jersey Bankers Association in 2017. She has more than 30 years of experience in
the financial services industry.
Senior Executive Vice President, Chief Legal Officer and Corporate Secretary since
January 1, 2018. Mr. Stolzer joined the Corporation in 2013 as Executive Vice President,
General Counsel and Corporate Secretary. Mr. Stolzer began his career with a large New
York law firm and then served as deputy general counsel and chief counsel at several
large regional bank holding companies. He has more than 30 years of experience working
in financial services law.
Senior Executive Vice President, and Chief Human Resource Officer since May 2015. In
2001, she was promoted to Senior Vice President of employee services. She served as
Executive Vice President of employee services, employment, and director of human
resources before her promotion in 2015 to Chief Human Resources Officer. Ms. Taylor
joined the Corporation in 1994 as Corporate Training Director at Fulton Financial
Corporation.
18
Item 1A. Risk Factors
An investment in the Corporation's securities 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 economy and the capital markets
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, acts
of war or terrorism, global economic conditions and geopolitical factors, 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, 2017 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 loans
evaluated for impairment; proper measurement of allowance needs for pools of loans evaluated 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 agencies could have a material adverse effect on the Corporation’s financial condition and results of
operations. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial
Condition-Provision and Allowance for Credit Losses."
19
The composition of the Corporation’s loan portfolio and competition subject the Corporation to credit risk.
Approximately 74.0% of the Corporation’s loan portfolio was in commercial loans, commercial mortgage loans, and construction
loans at December 31, 2017. 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 likely
to be more sensitive to broader economic factors and conditions. 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.
In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures
have contributed significantly to historically low capitalization rates and rising property values. Commercial real estate prices,
according to many U.S. commercial real estate indices, are currently above the 2007 peak levels that contributed to the financial
crisis. Accordingly, the federal bank regulatory agencies have expressed concerns about weaknesses in the current commercial
real estate market and the extent to which prevailing underwriting standards have been eased by lenders. The Corporation’s failure
to adequately implement enhanced risk management policies, procedures and controls could adversely affect its ability to increase
this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio.
Furthermore, intense competition among both bank and non-bank 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 Item 7. "Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Financial Condition-Loans."
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 Federal Reserve Board, 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 2017. In recent years, 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.
Comparatively 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. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations-
Net Interest Income."
Changes in interest rates may also affect the average life of loans and certain investment securities, most notably mortgage-backed
securities. Decreases in interest rates can result in increased prepayments of loans and certain investment securities, as borrowers
or issuers refinance to reduce their borrowing costs. Under those circumstances, the Corporation would be subject to reinvestment
risk to the extent that it is not able to reinvest the cash received from such prepayments at rates that are comparable to the rates
on the loans and investment securities which are prepaid. Conversely, increases in interest rates may extend the average life of
fixed rate assets, which could restrict the Corporation’s ability to reinvest in higher yielding alternatives, and may result in customers
withdrawing certificates of deposit early so long as the early withdrawal penalty is less than the interest they could receive as a
result of the higher interest rates. The Federal Open Market Committee ("FOMC") of the Federal Reserve Board increased the
federal funds rate three times during 2017, and recent statements from the FOMC have caused research analysts and economists
to expect additional increases in 2018. In addition, the bond markets have experienced rate increases for medium- and longer-
term instruments.
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Changes in interest rates also affect the fair value of interest-earning investment securities. Generally, the value of interest-earning
investment securities moves inversely with changes in interest rates. In the event that the fair value of an investment security
declines below its amortized cost, the Corporation is required to determine whether the decline constitutes an other-than-temporary
impairment. The determination of whether a decline in fair value is other-than-temporary depends on a number of factors, including
whether the Corporation has the intent and ability to retain the investment security for a period of time sufficient to allow for any
anticipated recovery in fair value.
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
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 mortgage-backed securities, state and municipal
securities, auction rate securities, and corporate debt securities, 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.
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 policies and practices emphasize 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 Federal Home Loan Bank ("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. Further, deposits from state and
municipal entities, primarily in non-maturing, interest-bearing accounts, are a significant source of deposit funding for the
Corporation, representing approximately 13% of total deposits at December 31, 2017. State and municipal customers frequently
maintain large deposit account balances substantially in excess of the per depositor limit of FDIC insurance. Should interest rates
continue to rise, customers, including state and municipal entities, may become more sensitive to interest rates when making
21
deposit decisions and considering alternative opportunities. This increased sensitivity to interest rates could cause customers to
move funds into higher-yielding deposit accounts or into alternative investments. 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 Item 7A. "Quantitative and
Qualitative Disclosures About Market Risk-Interest Rate Risk, Asset/Liability Management and Liquidity."
LEGAL, COMPLIANCE AND REPUTATIONAL RISKS.
The Corporation and its bank subsidiaries are subject to extensive regulation and supervision and may be adversely affected
by changes in laws and regulations or any failure to comply with laws and regulations.
Virtually every aspect of the Corporation's and its bank subsidiaries’ operations is subject to extensive regulation and supervision
by federal and state regulatory agencies, including the Federal Reserve Board, OCC, FDIC, CFPB, DOJ, UST, SEC, HUD, state
attorneys general and state banking, financial services, securities and insurance regulators. Under this regulatory framework,
regulatory agencies have broad authority in carrying out their supervisory, examination and enforcement responsibilities to address
compliance with applicable laws and regulations, including laws and regulations relating to capital adequacy, asset quality, liquidity,
risk management and financial accounting and reporting, as well as laws and regulations governing consumer protection, fair
lending, privacy, information security and cybersecurity risk management, third-party vendor risk management, and AML and
anti-terrorism laws, among other aspects of the Corporation’s business. 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 can also 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.
Compliance with banking and financial services statutes and regulations is also important to the Corporation’s ability to engage
in new activities or to expand upon existing activities. Regulators continue to scrutinize banks through longer and more intensive
examinations. Federal and state banking agencies 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 three of its bank
subsidiaries are subject impose certain restrictions on the expansion activities of the Corporation and those bank subsidiaries.
The Corporation intends to seek regulatory approval of the consolidation of our bank subsidiaries, which could result in
significant implementation costs and impact our long-term compliance obligations.
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 and expectations. 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
with more extensive resources.
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
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the Corporation and its bank subsidiaries making necessary progress in enhancing a largely centralized compliance program
designed to comply with the requirements of the BSA, the Patriot Act and related anti-money laundering regulations (collectively,
the "BSA/AML Requirements") and the corresponding requirements of the regulatory enforcement orders described below. 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.
The Corporation and three of 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 three 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 BSA 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 (the
"Consent Orders"), generally require, among other things, that the Corporation and the affected 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, such as growth through acquisition or branching
to supplement organic growth of the Corporation and the affected bank subsidiaries. Further, any failure to comply with the
requirements of any of the Consent Orders involving the Corporation or those bank subsidiaries could result in further enforcement
actions, the imposition of additional 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 made 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 those undertaken 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.
While the Corporation believes that it has made significant progress in improving its BSA/AML Compliance Program, there is
no assurance as to when the Consent Orders will be terminated.
The Corporation's largest subsidiary, Fulton Bank, has total assets of more than $10 billion and is subject 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, has total assets of more than $10 billion and, as of March 31, 2017, became subject to the
following:
Supervision, examination and enforcement jurisdiction by the CFPB with respect to consumer financial protection laws;
•
• Additional stress testing requirements;
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• 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 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;
• Enhanced bank regulatory supervision as a larger financial institution; and
• Electronic fund transfer interchange fee standards.
In addition, the Corporation’s other bank subsidiaries also became subject to the supervision, examination and enforcement
jurisdiction by the CFPB with respect to consumer financial protection laws. See Item 1. "Business-Supervision and
Regulation."
The Dodd-Frank Act continues to have a significant impact on the Corporation's business and results of operations.
The Dodd-Frank Act has had a substantial impact on many aspects of the financial services industry. The Corporation has been
impacted, and will likely continue to be impacted 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 federal consumer protection laws.
The Dodd-Frank Act established the CFPB, which 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. As an independent bureau funded by the
Federal Reserve Board, the CFPB has imposed requirements more stringent than those imposed by the bank regulatory agencies
that were previously responsible for consumer financial protection. The CFPB has also been directed to write and enforce rules
identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer
financial product or service, or the offering of a consumer financial product or service.
The CFPB has initiated enforcement actions against a variety of bank and non-bank market participants with respect to a number
of consumer financial products and services that has resulted in those participants expending significant time, money and resources
to adjust to the initiatives being pursued by the CFPB. These enforcement actions may serve as precedent for how the CFPB
interprets and enforces consumer protection laws, including practices or acts that are deemed to be unfair, deceptive or abusive,
with respect to all supervised institutions, which may result in the imposition of higher standards of compliance with such laws.
In connection with such actions, the CFPB has developed a number of new enforcement theories and applications of federal
consumer financial laws. Other federal financial regulatory agencies, including the OCC, as well as state attorneys general and
state banking agencies and other state financial regulators also have been increasingly active in this area with respect to institutions
over which they have jurisdiction. See Item 1. "Business-Supervision and Regulation."
Fulton Bank and the Corporation’s other bank subsidiaries became, as of March 31, 2017, subject to supervision and examination
by the CFPB for compliance with the CFPB’s regulations and policies. The costs and limitations related to this additional regulatory
regimen have yet to be fully determined, however they could result in material adverse effects on the Corporation’s profitability.
The financial services industry, as well as the broader economy, may be subject to new legislation which could result in
significant changes in banking and financial services regulation.
The U.S. Congress and state legislatures and federal and state regulatory agencies continually review banking and other laws,
regulations and policies for possible changes. Changes in federal or state laws, regulations or governmental policies may affect
the Corporation and its business. The effects of such changes are difficult to predict and may produce unintended consequences.
New laws, regulations or changes in the regulatory environment could limit the types of financial services and products the
Corporation may offer, alter demand for existing products and services, increase the ability of non-banks to offer competing
financial services and products, increase compliance burdens, or otherwise adversely affect the Corporation’s business, results of
operations or financial condition.
It remains difficult to predict the legislative and regulatory changes that will result from the fact that both Houses of Congress
have majority memberships from the same political party as the President. Both the President and senior members of Congress
have advocated for significant reduction of financial services regulation, to include amendments to the Dodd-Frank Act and
structural changes to the CFPB. In 2017, the UST, in response to an Executive Order issued by the President, released a report on
the Administration’s Core Principles for Regulation the United States Financial System. The report detailed several findings and
recommendations, including but not limited to, that capital, liquidity and leverage rules should be simplified to promote the flow
of credit, that consumer regulation and the structure and authority of the CFPB are in need of reform, that the regulatory burden
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on community financial institutions should be eased, and that Congress should play a more significant role in overseeing the
federal banking agencies to ensure that regulations are better-tailored, more efficient and more effective.
Although significant changes to existing laws, regulations and policies may be finalized by Congress and/or the federal banking
agencies and the CFPB, it is difficult to predict with precision what changes, if any, will be implemented into law and when such
changes may occur. Accordingly, the impact of any legislative or regulatory changes on the Corporation, our competitors and on
the financial services industry as a whole cannot be determined at this time. In any event, the laws and regulations to which we
are subject are constantly under review by Congress, federal regulatory agencies, and state authorities. These laws and regulations
could be changed significantly in the future, which could affect our profitability, our ability to compete effectively, or the
composition of the financial services industry in which we compete.
The financial services industry is experiencing leadership changes at the federal banking agencies, which may impact
regulations and government policies applicable to us.
As a result of the change of Administration and the current composition and recent actions of Congress, it is possible that certain
aspects of the existing banking and financial services regulatory framework, as amended by the Dodd-Frank Act, will be repealed
or modified in the near-term. For example, the President, senior members of the Administration, and senior members of Congress
have advocated for substantial changes to the regulations implementing the Dodd-Frank Act. The federal banking agencies are
presently experiencing leadership changes which could impact the supervision, enforcement and rulemaking policies of such
agencies. In 2017 and early 2018, Congress confirmed a new Chairman of the Federal Reserve Board, a new Comptroller of the
Currency and a new Vice Chairman for Supervision at the Federal Reserve Board. In addition, the President nominated a new
Chairwoman of the FDIC and the Director of the CFPB resigned and was replaced by an interim Director. Consistent with the
views of the Administration and Congress, certain members of this new leadership group have advocated for a reduction in financial
services regulation, supervision and enforcement. Moreover, the senior staffs of these agencies charged with carrying out agency
policies and responsibilities have experienced significant turnover as a result of these changes. Consequently, certain new regulatory
initiatives may be delayed or suspended and existing regulations may be re-evaluated, modified or repealed. At this time, however,
the full impact of these and other pending leadership changes, as well as the potential impact to financial services regulation to
result from such changes, is uncertain. It is also difficult to predict the impact that any legislative or regulatory changes will have
on the Corporation, our competitors and on the financial services industry as a whole. Our results of operations also could be
adversely affected by changes in the way in which existing statutes, regulations, and laws are interpreted or applied by courts and
government agencies.
Changes in U.S. federal, state or local tax laws may negatively impact our financial performance.
We are subject to changes in tax law that could increase our effective tax rates. These law changes may be retroactive to previous
periods and as a result could negatively affect our current and future financial performance. In December 2017, the Tax Cuts and
Jobs Act (the "Tax Act") was signed into law enacting the most significant changes to the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), in more than 30 years. The full impact of the Tax Act on the Corporation is subject to further evaluation
and analysis, although it is likely to have both positive and negative effects on our financial performance. For example, the Tax
Act reduces our Federal corporate income tax rate to 21% beginning in 2018, which will have a favorable impact on our earnings
and capital generation abilities. However, the Tax Act also imposes limitations on our ability to take certain deductions, such as
the deduction for FDIC deposit insurance premiums, which will partially offset the anticipated increase in net earnings from the
lower tax rate. In addition, as a result of the lower corporate tax rate, we were required under GAAP to re-measure the value of
our deferred tax assets and liabilities utilizing the lower tax rate during the fourth quarter of 2017, and, as a result, recorded a
$15.6 million charge to income tax expense. The ultimate impact of the Tax Act may differ from the foregoing description, possibly
materially, due to changes in interpretations or in assumptions that we have made, guidance or regulations that may be promulgated,
and other actions that we may take as a result of the Tax Act.
At this early stage, it is difficult to predict how the many changes made to the Code will affect the Corporation’s business, its
customers and the broader economy. For example, the Tax Act may affect the Corporation’s customers in various ways that could
have a corresponding effect on the Corporation and the economy as a whole, including in the following ways:
• The limitation of the ability of individual taxpayers to claim an itemized deduction for interest paid on qualifying home
equity indebtedness may affect demand for, and utilization of, home equity-related credit. In addition, consumers seeking
credit may look to alternative credit products, some of which might not be offered by the Corporation, or for which there
may be significantly greater competition, or which expose the Corporation to greater credit or other risks.
• The reduction to the maximum amount of residential acquisition indebtedness as to which interest payments can be taken
as an itemized deduction from $1 million to $750,000 may affect the demand for residential mortgage loans, particularly
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in geographic areas characterized by relatively high housing costs. The reduction in the acquisition indebtedness limit
might also have an impact on housing prices in those geographic areas.
• The significant increase in the standard deduction for individual taxpayers is expected to result in a reduction in the
number of individual taxpayers that itemize deductions, including deductions for charitable contributions. It is unclear
what, if any, impact this change will have on individual charitable giving. A reduction in charitable giving to charitable
organizations that are customers of the Corporation could affect their ability to repay their loans.
• New limits on the maximum level of business interest that may be deducted as an expense in determining taxable income
may affect the demand for loans the Corporation offers to businesses.
• The reduction in the maximum corporate tax rate from 35% to 21% may affect the demand for various types of tax-free
financing if lenders increase the rates that are charged on those financings to maintain comparable taxable-equivalent
yields. This could, in turn, lead to higher interest expense for borrowers of tax-free financing, which could affect their
ability to repay those financings. Similarly, issuers of municipal debt securities held in the Corporation’s investment
portfolio could face higher interest expenses, which could affect their ability to make payments on those securities.
The foregoing description of the impact of the Tax Act and its impact on us should be read in conjunction with our Notes to
Consolidated Financial Statements. Finally, a number of the changes to the Code are set to expire in future years. There is substantial
uncertainty concerning whether those expiring provisions will be extended, or whether future legislation will further revise the
Code.
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, alleged or perceived conduct in any number of
activities, including lending practices, litigation, 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. In addition, unfavorable public opinion regarding the broader financial
services industry, or arising from the actions of individual financial institutions, can have an adverse effect on the Corporation’s
reputation. 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. Any of these or other events that impair the
Corporation’s reputation can affect the Corporation’s ability to attract and retain customers and employees, and access sources of
funding and capital, any of which could have materially adverse effect on the Corporation’s results of operations and financial
condition.
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. For example, the Corporation is
cooperating with the DOJ in an investigation regarding potential violations of the fair lending laws by Fulton Bank, Fulton Bank
of New Jersey, The Columbia Bank and Lafayette Ambassador Bank due to potential lending discrimination on the basis of race
and national origin. Like other large financial institutions, the Corporation is 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 three of 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 the outcomes of litigation and other proceedings.
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The Corporation is subject to a variety of risks in connection with origination and sale of loans.
The Corporation originates residential mortgage loans and other loans, such as loans guaranteed, in part, by the U.S. Small Business
Administration, all or portions of which are later sold in the secondary market to government sponsored enterprises or agencies,
such as the Federal National Mortgage Association (Fannie Mae), and other non-government sponsored investors. In connection
with such sales, the Corporation makes certain representations and warranties with respect to matters such as the underwriting,
origination, documentation or other characteristics of the loans sold. The Corporation may be required to repurchase a loan, or to
reimburse the purchaser of a loan for any related losses, if it is determined that the loan sold was in violation of representations
or warranties made at the time of the sale, and, in some cases, if there is evidence of borrower fraud, in the event of early payment
default by the borrower on the loan, or for other reasons. The Corporation maintains reserves for potential losses on certain loans
sold, however, it is possible that losses incurred in connection with loan repurchases and reimbursement payments may be in
excess of any applicable reserves, and the Corporation may be required to increase reserves and may sustain additional losses
associated with such loan repurchases and reimbursement payments in the future, which could have a material adverse effect on
the Corporation’s financial condition or results of operations.
In addition, the sale of residential mortgage loans and other loans in the secondary market serves as a source of non-interest income
and liquidity for the Corporation, and can reduce its exposure to risks arising from changes in interest rates. Efforts to reform
government sponsored enterprises and agencies, changes in the types of, or standards for, loans purchases by government sponsored
enterprises or agencies and other investors, or the Corporation’s failure to maintain its status as an eligible seller of such loans
may limit the Corporation’s ability to sell these loans. The inability of the Corporation to continue to sell these loans could reduce
the Corporation’s non-interest income, limit the Corporation’s ability to originate and fund these loans in the future, and make
managing interest rate risk more challenging, any of which could have a material adverse effect on the Corporation’s results of
operations and financial condition.
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 of these challenges and a desire to refine its business strategy,
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 is being implemented over a period of several 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 achieving other fundamental business objectives.
The Corporation may not be able to achieve its growth plans.
The Corporation’s business plan includes the pursuit of profitable growth. Under current economic, competitive and regulatory
conditions, profitable growth may be difficult to achieve due to one or more of the following factors:
•
In the current, prolonged low interest rate environment, the Corporation’s net interest margin has been compressed, and
it is possible that a net interest margin that is lower than historical levels could continue for some time. As a result, income
growth will likely need to come from growth in the volume of earning assets, particularly loans, and an increase in non-
interest income. However, customer demand and competition could make such income growth difficult to achieve;
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• Operating expenses, particularly in the compliance and risk management areas, have been elevated, and such expenses
may continue to increase in the future, as a result of Fulton Bank surpassing the $10 billion in assets threshold; and
• Growth through acquisition 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.
To achieve profitable growth, the Corporation may pursue new lines of business or offer new products or services, all of which
can involve significant costs, uncertainties and risks. Any new activity the Corporation pursues may require a significant
investment of time and resources, and may not generate the anticipated return on that investment. In addition, the Corporation
may not be able to effectively implement and manage any new activities. External factors, such as the need to comply with
additional regulations, the availability, or introduction, of competitive alternatives in the market, and changes in customer
preferences may also impact the successful implementation of any new activity. Any new activity could have a significant
impact on the effectiveness of the Corporation’s system of internal controls. If the Corporation is not able to adequately identify
and manage the risks associated with new activities, the Corporation’s business, results of operations and financial condition
could be materially and adversely impacted.
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. The financial services industry could become even more
competitive as a result of legislative, regulatory and technological changes and continued consolidation. In addition, technology
has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks,
such as funds transfers, payment services, residential mortgage loans, consumer loans and wealth and investment management
services.
Competition may adversely affect the rates the Corporation pays on deposits and charges on loans, and could result in the loss of
fee income, as well as the loss of customer deposits and the income generated from those deposits, thereby potentially adversely
affecting the Corporation's profitability and its ability to continue to grow. The Corporation's profitability and continued growth
depends upon its continued ability to successfully compete in the market areas it serves. See Item 1. "Business-Competition."
If the goodwill that the Corporation has recorded in connection with its acquisitions becomes impaired, it could have a negative
impact on the Corporation's results of operations.
In the past, the Corporation supplemented its internal growth with strategic acquisitions of banks, branches and other financial
services companies. If the purchase price of an acquired company exceeds the fair value of the company's net assets, the excess
is carried on the acquirer's balance sheet as goodwill. As of December 31, 2017, 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.
Changes in accounting policies, standards, and interpretations could materially affect how we report our financial condition
and results of operations.
The preparation of the Corporation’s financial statements in accordance with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the
financial statements, as well as revenues and expenses during the period. A summary of the accounting policies that the Corporation
considers to be most important to the presentation of its financial condition and results of operations, because 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, including those related to the allowance for credit losses, goodwill, income taxes, and fair value measurements, is set
forth in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies" and within "Note 1-Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements in
Item 8. "Financial Statements and Supplementary Data."
28
A variety of factors could affect the ultimate values of assets, liabilities, income and expenses recognized and reported in the
Corporation’s financial statements, and these ultimate values may differ materially from those determined based on management’s
estimates and assumptions. In addition, the Financial Accounting Standards Board ("FASB"), regulatory agencies, and other bodies
that establish accounting standards from time to time change the financial accounting and reporting standards governing the
preparation of the Corporation’s financial statements. Further, those bodies that establish and interpret the accounting standards
(such as the FASB, the Securities and Exchange Commission, and banking regulators) may change prior interpretations or positions
regarding how these standards should be applied. These changes can be difficult to predict and can materially affect how the
Corporation records and reports its financial condition and results of operations. For example, during 2016, the FASB issued a
new accounting standard, Accounting Standards Update 2016-13, that will require the recognition of credit losses on loans and
other financial assets based on an entity’s current estimate of expected losses over the lifetime of each loan or other financial asset,
referred to as the current expected credit loss ("CECL") model, as opposed to current accounting standards, which require
recognition of losses on loans and other financial assets only when those losses are "probable." The Corporation’s adoption of this
accounting standard, which is required for interim and annual reporting periods beginning after December 15, 2019, could materially
affect the Corporation’s allowance for credit losses methodology, financial condition, capital levels and results of operations,
including expenses the Corporation may incur in implementing this accounting standard. See "Note 1 - Summary of Significant
Accounting Policies - Recently Issued Accounting Standards" in the Notes to Consolidated Financial Statements in Item 8.
"Financial Statements and Supplementary Data."
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 other
third parties, intentional and inadvertent misrepresentation by loan applicants, unsatisfactory performance by employees and
vendors, clerical and record-keeping errors, computer and telecommunications systems malfunctions or failures and reliance on
data that may be faulty or incomplete. In an environment characterized by continual, rapid technological change, as discussed
below, when the Corporation introduces new products and services, or makes changes to its information technology systems and
processes, these operational risks are increased. Any of these operational risks could result in the Corporation's diminished ability
to operate one or more of its businesses, financial loss, potential liability to customers, inability to secure insurance, reputational
damage and regulatory intervention, which could materially adversely affect the Corporation.
The Corporation’s risk management framework is subject to inherent limitations, and 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. As noted above, the Corporation’s
historical decentralized banking strategy further 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.
29
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 require the payment of regulatory fines or penalties or undertaking costly remediation efforts with respect
to third parties affected by a cyber security incident, 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 to
cyber threats to its own systems before they become significant. The Corporation regularly evaluates its systems and controls and
implements upgrades as necessary. The additional cost to the Corporation of our cyber security monitoring and protection systems
and controls includes the cost of hardware and software, third party technology providers, consulting and forensic testing firms,
insurance premium costs and legal fees, in addition to the incremental cost of our personnel who focus a substantial portion of
their responsibilities on cyber security.
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 and the
probability of a successful attack cannot be predicted. 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. Further, a successful cyber security attack that results in
a significant loss of customer data or compromises our ability to function would have a material adverse effect on our business,
reputation, financial condition and results of operation.
Account data compromise events at large retailers, health insurers, a national consumer credit reporting agency and others in recent
years have 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.
30
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, credit and investment and wealth management services developed and
offered by non-bank or non-traditional competitors pose an increasing threat to the products and services traditionally provided
by financial institutions like the Corporation. 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.
In addition, advances in technology, as well as changing customer preferences favoring access to the Corporation’s products and
services through digital channels, could decrease the value of the Corporation’s branch network and other assets. If customers
increasingly choose to access the Corporation’s products and services through digital channels, the Corporation may find it necessary
to consolidate, close or sell branch locations or restructure its branch network. These actions could lead to losses on assets, expenses
to reconfigure branches and the loss of customers in affected markets. As a result, the Corporation’s business, financial condition
or results of operations may be adversely affected.
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.
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 agencies to maintain adequate levels of capital to support its operations. The Corporation
anticipates that current capital levels will satisfy regulatory requirements for the foreseeable future. The Corporation, however,
may at some point choose to raise additional capital to support future growth. The Corporation's ability to raise additional capital
will depend, in part, on conditions in the capital markets at that time, which are outside of the Corporation's control. Accordingly,
the Corporation may be unable to raise additional capital, if and when needed, on terms acceptable to the Corporation, or at all.
If the Corporation cannot raise additional capital when needed, its ability to expand operations through internal growth and
acquisitions could be materially impacted. In the event of a material decrease in the Corporation's stock price, future issuances of
equity securities could result in dilution of existing shareholder interests.
Capital planning has taken on more importance due to regulatory requirements and the Basel III capital standards.
Consistent with current regulatory guidance, the Corporation conducts an annual stress test using internal financial data and
different economic scenarios provided by the Federal Reserve Board, and reports the results of the stress test to the Federal Reserve
Board. 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.
31
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, 2017, 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 Item 1. "Business-Supervision and Regulation-
Capital Requirements."
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 Item 1. "Business-Supervision and Regulation-
Loans and Dividends from Subsidiary Banks."
In addition, as noted above, liquidity and capital planning at both the bank and holding company levels has become an area of
increased regulatory emphasis. In recent years, the Corporation has pursued a strategy of capital management under which it has
sought to deploy its capital, through stock repurchases, increased regular dividends and special dividends, in a manner that is
beneficial to the Corporation’s shareholders. This capital management strategy is subject to regulatory supervision.
A downgrade in the credit ratings of the Corporation or its bank subsidiaries could have a material adverse impact on the
Corporation.
Fitch, Inc., 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.
32
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. However, these provisions, 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, even if the accomplishment of a given transaction
may be favorable to the interests of shareholders.
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 Federal Reserve Board 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 Federal Reserve Board 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.
Item 2. Properties
The following table summarizes the Corporation’s full-service branch properties, by subsidiary bank, as of December 31, 2017.
Remote service facilities (mainly stand-alone automated teller machines) are excluded.
Owned
Leased
Total
Branches
112
64
31
21
6
7
68
29
25
17
1
2
142
241
44
35
6
4
5
5
99
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..........................................................................................................................
33
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 information presented in the "Legal Proceedings" section of "Note 17 - Commitment and Contingencies" in the Notes to
Consolidated Financial Statements is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
34
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, 2017, the Corporation had 175.2 million shares of $2.50 par value common stock outstanding held by
approximately 32,000 holders of record. The closing price per share of the Corporation’s common stock on February 15, 2018
was $18.60. 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 2017 and 2016:
Price Range
High
Low
Per
Share
Dividend
2017
First Quarter...............................................................................................................
$
19.75
$
16.90
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
19.90
19.50
19.45
16.85
16.45
17.30
2016
First Quarter...............................................................................................................
$
13.74
$
11.48
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
14.35
14.86
19.45
12.66
12.91
14.04
0.11
0.11
0.11
0.14
0.09
0.10
0.10
0.12
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 the Corporation. 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."
35
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 ("Employee Equity Plan") and the number of securities remaining available for future issuance
under the Employee Equity Plan, the 2011 Directors' Equity Participation Plan and the Employee Stock Purchase Plan as of
December 31, 2017:
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)
2,185,139
—
2,185,139
$
$
10.66
—
10.66
13,307,915
—
13,307,915
(1) The number of securities to be issued upon exercise of outstanding options, warrants and rights includes 840,358 performance-based restricted stock units
("PSUs"), which is the target number of PSUs that are payable under the Employee Equity Plan, though no shares will be issued until achievement of applicable
performance goals, and includes 466,579 time-vested restricted stock units ("RSUs") granted under the Employee Equity Plan.
(2) The weighted-average exercise price of outstanding options, warrants and rights does not take into account outstanding PSUs and RSUs granted under the
Employee Equity Plan.
(3) Consists of 11,076,430 shares that may be awarded under the Employee Equity Plan, 359,761 shares that may be awarded under the 2011 Directors' Equity
Participation Plan and 1,871,724 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, 2017 as the number of shares to be purchased is indeterminable until the time shares are issued.
36
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, 2017, 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.
Fulton Financial Corporation
Total Return Performance
Fulton Financial Corporation
S&P 500
NASDAQ Bank
240
220
200
180
160
140
120
100
e
u
l
a
V
x
e
d
n
I
80
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Index
Fulton Financial Corporation..........................
S&P 500..........................................................
NASDAQ Bank Index ....................................
2012
100.00
100.00
100.00
$
$
$
2013
139.83
132.39
136.62
$
$
$
2014
135.84
150.51
152.77
$
$
$
2015
147.31
152.59
156.15
$
$
$
2016
218.78
170.84
197.60
$
$
$
2017
213.66
208.14
233.94
$
$
$
Year Ending December 31
37
Item 6. Selected Financial Data
5-YEAR CONSOLIDATED SUMMARY OF FINANCIAL RESULTS
(dollars in thousands, except per-share data)
2017
2016
2015
2014
2013
525,579
234,454
62,701
171,753
SUMMARY OF INCOME
Interest income............................................................. $ 668,866
93,502
Interest expense ...........................................................
575,364
Net interest income ......................................................
23,305
Provision for credit losses............................................
9,071
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
198,903
—
of trust preferred securities ......................................
0.98
0.98
0.47
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 equity .............................................
Return on average tangible equity (1) ...........................
Net interest margin ......................................................
Efficiency ratio (1) ........................................................
Dividend payout ratio ..................................................
PERIOD-END BALANCES
Total assets................................................................... $ 20,036,905
2,547,956
Investment securities ...................................................
15,768,247
Loans, net of unearned income....................................
15,797,532
Deposits .......................................................................
617,524
Short-term borrowings.................................................
FHLB advances and long-term debt ............................
10.33
3.28
64.5
48.0
Shareholders’ equity ....................................................
AVERAGE BALANCES
Total assets................................................................... $ 19,580,367
2,547,914
Investment securities ...................................................
15,236,612
Loans, net of unearned income....................................
15,481,221
Deposits .......................................................................
533,564
Short-term borrowings.................................................
FHLB advances and long-term debt ............................
1,038,346
2,229,857
Shareholders’ equity ....................................................
1,034,444
2,193,863
0.88%
7.83
$
$
$
$
$
$
603,100
82,328
520,772
13,182
2,550
187,628
—
489,519
208,249
46,624
161,625
0.93
0.93
0.41
0.88%
7.69
10.30
3.18
67.2
44.1
$
$
$
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
68.6
44.7
$
$
$
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
65.7
40.5
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
63.4
38.6
$ 18,944,247
2,559,227
14,699,272
15,012,864
541,317
929,403
2,121,115
$ 18,371,173
2,469,564
14,128,064
14,585,545
395,727
959,142
2,100,634
$ 17,914,718
2,484,773
13,838,602
14,132,317
497,663
949,542
2,041,894
$ 17,406,843
2,347,810
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
2,485,292
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
2,715,546
12,578,524
12,473,184
1,196,323
889,461
2,053,821
(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.
38
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:
2017
2016
2015
2014
2013
(in thousands, except per share data and percentages)
Return on average tangible equity
Net income ...................................................................... $
171,753
Plus: Intangible amortization, net of tax .........................
—
Numerator .................................................................. $
171,753
$
$
161,625
—
161,625
$
$
149,502
161
149,663
$
$
157,894
818
158,712
$
$
161,840
1,584
163,424
Average common shareholders' equity............................ $ 2,193,863
$ 2,100,634
$ 2,026,883
$ 2,071,640
$ 2,053,821
Less: Average goodwill and intangible assets .................
(531,556)
Average tangible shareholders' equity (denominator) $ 1,662,307
(531,556)
(531,618)
(532,425)
(534,431)
$ 1,569,078
$ 1,495,265
$ 1,539,215
$ 1,519,390
Return on average tangible equity.............................
10.33%
10.30%
10.01%
10.31%
10.76%
Efficiency ratio
Non-interest expense ....................................................... $
525,579
$
489,519
$
480,160
$
459,246
$
461,433
Less: Amortization of tax credit investments..................
Less: Intangible amortization ..........................................
Less: Loss on redemption of trust preferred securities ...
(11,028)
—
—
Numerator .................................................................. $
514,551
Net interest income (fully taxable equivalent) (1) ............ $
Plus: Total Non-interest income......................................
Less: Investment securities gains, net .............................
598,565
207,974
(9,071)
—
—
—
$
$
$
$
489,519
541,271
190,178
(2,550)
—
(247)
(5,626)
474,287
518,464
181,839
(9,066)
$
$
—
(1,259)
—
457,987
532,322
167,379
$
$
—
(2,438)
—
458,995
544,474
187,664
(2,041)
(8,004)
Denominator .............................................................. $
797,468
$
728,899
$
691,237
$
697,660
$
724,134
Efficiency ratio .....................................................
64.5%
67.2%
68.6%
65.6%
63.4%
Non-performing assets to tangible equity and allowance for credit losses
Non-performing assets (numerator) ................................ $
144,582
$
144,453
$
155,913
$
150,504
$
169,329
Tangible equity................................................................ $ 1,698,301
$ 1,589,559
$ 1,510,338
$ 1,464,862
$ 1,530,111
Plus: Allowance for credit losses ....................................
Tangible equity and allowance for credit losses
176,084
171,325
171,412
185,931
204,917
(denominator) .............................................................. $ 1,874,385
Non-performing assets to tangible common
$ 1,760,884
$ 1,681,750
$ 1,650,793
$ 1,735,028
shareholders' equity and allowance for credit
losses ...................................................................
7.71%
8.20%
9.27%
9.12%
9.76%
(1) Presented on a fully taxable equivalent basis, using a 35% Federal tax rate and statutory interest expense disallowances.
39
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("Management’s Discussion")
relates to Fulton Financial Corporation (the "Corporation"), a financial holding company registered under the Bank Holding
Company Act and incorporated under the laws of the Commonwealth of Pennsylvania in 1982, and its wholly owned subsidiaries.
Management’s Discussion should be read in conjunction with the consolidated financial statements and other financial information
presented in this report.
FORWARD-LOOKING STATEMENTS
The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition
and results of operations. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the
use of words such as "may," "should," "will," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes,"
"plans," "expects," "future," "intends" and similar expressions which are intended to identify forward-looking statements.
These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, some of
which are beyond the Corporation's control and ability to predict, that could cause actual results to differ materially from those
expressed in the forward-looking statements. The Corporation undertakes no obligation, other than as required by law, to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors could
affect future financial results including, without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the impact of adverse 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 interest rate-sensitive assets to interest 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 effects of the extensive level of regulation and supervision to which the Corporation and its bank subsidiaries are
subject;
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, investigations and examinations 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 three of 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 continuing impact of the Dodd-Frank Act on the Corporation's business and results of operations;
the effects of, and uncertainty surrounding, new legislation, changes in regulation and government policy, and changes
in leadership at the federal banking agencies, which could result in significant changes in banking and financial
services regulation;
the effects of actions by the federal government, including those of the Federal Reserve Board and other government
agencies, that impact money supply and market interest rates;
the effects of changes in U.S. federal, state or local tax laws;
the effects of negative publicity on the Corporation’s reputation;
the effects of adverse outcomes in litigation and governmental or administrative proceedings;
the potential to incur losses in connection with repurchase and indemnification payments related to sold loans;
the Corporation's ability to obtain regulatory approvals to consolidate its bank subsidiaries and achieve intended
reductions in the time, expense and resources associated with regulatory compliance from such consolidations;
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;
40
•
•
•
•
•
•
•
•
•
•
•
the effects of changes in accounting policies, standards, and interpretations on the Corporation's financial condition
and results of operations;
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, including data breaches and cyber attacks;
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
The 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 and 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:
2017
Net income (in thousands) .............................................................................................................. $ 171,753
0.98
Diluted net income per share .......................................................................................................... $
0.88%
Return on average assets.................................................................................................................
7.83%
Return on average equity ................................................................................................................
Return on average tangible equity (1) ..............................................................................................
10.33%
Net interest margin (2) .....................................................................................................................
3.28%
Efficiency ratio (1) ...........................................................................................................................
64.5%
0.72%
Non-performing assets to total assets .............................................................................................
0.12%
Annualized net charge-offs to average loans ..................................................................................
$
$
2016
161,625
0.93
0.88%
7.69%
10.30%
3.18%
67.2%
0.76%
0.09%
(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.
Following is a summary of the financial highlights for the year ended December 31, 2017:
• Net Income Per Share Growth - Diluted net income per share increased $0.05, or 5.4%, to $0.98 per diluted share,
compared to $0.93 in 2016. This increase was due to an increase in net income of $10.1 million, or 6.3%, partially offset
by a $1.5 million, or 0.9%, increase in weighted average diluted shares outstanding in comparison to 2016. The increase
in net income was driven by a $54.6 million, or 10.5%, increase in net interest income and a $17.8 million, or 9.4%,
increase in non-interest income, including a $6.5 million increase in investment securities gains, which were offset by a
$10.1 million increase in the provision for credit losses, a $36.1 million, or 7.4%, increase in non-interest expense and
a $15.6 million income tax expense charge arising from tax reform legislation enacted late in the fourth quarter, as further
discussed below.
41
• Net Interest Income Growth - The $54.6 million increase in net interest income resulted from growth in interest-earning
assets and the impact of a 10 basis point increase in the net interest margin, reflecting the impact of multiple rate increases
by the Federal Reserve Bank (FRB) in 2016 and 2017.
Net Interest Margin - For the year ended December 31, 2017, the net interest margin increased 10 basis points,
or 3.1%, in comparison to 2016, driven by a 13 basis point increase in yields on interest-earning assets, partially
offset by a 3 basis point increase in the cost of funds.
Loan Growth - Average loans increased $1.1 billion, or 7.8%, in comparison to 2016, with notable increases in
commercial and residential mortgages, commercial - industrial, financial and agricultural, and construction
loans. The Corporation's loan growth occurred throughout all of its geographic markets.
Deposit Growth - Average deposits increased $895.7 million, or 6.1%, in comparison to 2016. The increase was
the result of growth in demand and savings accounts, partially offset by a decrease in time deposits. At
December 31, 2017, the loan-to-deposit ratio was to 99.8%, as compared to 97.9% at December 31, 2016.
• Provision for credit losses - The provision for credit losses increased $10.1 million to $23.3 million for the year ended
December 31, 2017, primarily driven by growth in the loan portfolio and an increase in the reserve for unfunded lending
commitments.
• Non-Interest Income - Non-interest income, excluding securities gains, increased $11.3 million, or 6.0%, in comparison
to 2016, primarily driven by a $5.1 million net gain recognized on the settlement of litigation, and increases in investment
management and trust services income, Small Business Administration ("SBA") lending income, debit and credit card
income and merchant fees.
•
Investment Securities Gains - Investment securities gains totaled $9.1 million in comparison to $2.6 million in 2016.
Gains on the sales of financial institution common stocks of $13.6 million were partially offset by approximately $4.5
million of losses on debt securities sales as a result of repositioning the investment portfolio.
• Non-Interest Expense - Non-interest expense increased $36.1 million, or 7.4%, in comparison to 2016, driven largely by
the amortization of tax credit investments, higher salaries and employee benefits expense, state taxes, other outside
services and the write-off of certain accumulated capital expenditures related to technology initiatives in commercial
banking.
•
Income Taxes - Income tax expense for 2017 resulted in an effective tax rate ("ETR") of 26.7%, as compared to 22.4%
for 2016. Included in 2017 income tax expense was a charge of $15.6 million, or 6.7%, of income before income taxes.
This amount reflects an estimated reduction in the value of the net deferred tax asset as a result of the U.S. corporate
income tax rate decrease included in the Tax Cuts and Jobs Act of 2017 ("Tax Act"). Absent the impact of the rate reduction,
income tax expense for 2017 would have been approximately $47.1 million, or 20.1%, of income before income taxes.
The decrease in the ETR, absent the $15.6 million charge, from 2016 to 2017, was related to increases in tax credit
investments and related net tax credits and the impact of the adoption of the Financial Accounting Standards Board
("FASB") Accounting Standard Update ("ASU") 2016-09, Improvements to Employee Share-based Payments
Accounting, in the first quarter of 2017. See "Note 1 - Summary of Significant Accounting Policies," in the Notes to the
Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data."
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 letters of credit and is recorded in other liabilities
on the consolidated balance sheet.
42
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
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 appraisals performed by
state certified third-party appraisers for impaired loans secured predominately by real estate every 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%.
• Proper measurement of allowance needs for pools of loans evaluated 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 in Item 8. "Financial Statements and Supplementary Data." 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.
43
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. Prior to 2017, the Corporation maintained an
unallocated allowance for credit losses 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. In 2017, enhancements
were made to allow for the impact of these factors and conditions to be quantified in the allowance allocation process.
Accordingly, an unallocated allowance for credit losses is no longer necessary.
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
each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill
through an impairment charge to non-interest expense 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.
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.
On a periodic basis, the Corporation evaluates its income tax positions based on tax laws, regulations and financial reporting
considerations, and records adjustments as appropriate. Recognition and measurement of tax positions is based upon management’s
evaluations of current taxing authorities’ examinations of the Corporation’s tax returns, recent positions taken by the taxing
authorities on similar transactions and the overall tax environment.
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.
44
The Corporation has categorized all assets and liabilities measured at fair value either on a recurring or 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 ("MSRs") as Level 3 assets measured at fair value on a nonrecurring 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 MSRs, 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.
For additional details 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."
45
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 2017 compared to 2016
and 2015. 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.
2017
2016
2015
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:
$
620,803
4.07% $14,128,064
$ 558,472
3.95% $13,330,973
$ 537,979
4.04%
Loans, net of unearned income (2)....... $15,236,612
Taxable investment securities (3).........
2,132,426
Tax-exempt investment securities (3) ..
Equity securities (3) .............................
407,157
8,331
Total investment securities ....................
2,547,914
Loans held for sale .............................
Other interest-earning assets ..............
20,008
451,015
47,029
17,794
500
65,323
876
5,066
Total interest-earning assets ..................
18,255,549
692,068
Noninterest-earning assets:
Cash and due from banks ...................
Premises and equipment.....................
Other assets (3).....................................
Less: Allowance for loan losses .........
108,523
219,960
1,168,759
(172,424)
Total Assets................................... $19,580,367
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits ................................ $ 3,831,865
Savings deposits .................................
4,468,205
Brokered deposits ...............................
49,126
Time deposits......................................
2,721,724
Total interest-bearing deposits...............
11,070,920
Short-term borrowings .......................
Long-term debt ...................................
533,564
1,034,444
Total interest-bearing liabilities.......
12,638,928
Noninterest-bearing liabilities:
Demand deposits ................................
Other...................................................
4,410,301
337,275
Total Liabilities...................................
17,386,504
Shareholders’ equity ..............................
2,193,863
Total Liabilities and Shareholders'
Equity.......................................... $19,580,367
Net interest income/net interest margin
(FTE).................................................
Tax equivalent adjustment.....................
Net interest income................................
2.21
4.37
6.00
2.56
4.38
1.12
3.79
2,128,497
327,098
13,969
2,469,564
19,697
407,471
44,975
14,865
780
60,620
728
3,779
17,024,796
623,599
2.11
4.54
5.58
2.45
3.70
0.93
3.66
2,093,829
230,633
23,348
2,347,810
19,937
447,354
45,279
12,120
1,295
58,694
801
4,785
16,146,074
602,259
2.16
5.26
5.54
2.50
4.02
1.07
3.73
104,772
227,047
1,179,437
(164,879)
$18,371,173
105,359
226,436
1,103,427
(174,453)
$17,406,843
$
12,976
0.34% $ 3,552,886
$
13,477
613
30,726
57,792
2,779
32,932
93,503
0.30
1.25
1.13
0.52
0.52
3.18
0.74
4,054,970
—
2,825,722
10,433,578
395,727
959,142
11,788,447
4,151,967
330,125
16,270,539
2,100,634
$18,371,173
4,299
5,435
—
30,748
40,482
372
42,941
83,795
0.13%
0.15
—
1.03
0.41
0.11
4.19
0.74
6,654
7,981
—
30,058
44,693
855
36,780
82,328
0.19% $ 3,255,192
$
0.20
—
1.06
0.43
0.21
3.83
0.70
3,677,079
—
2,988,648
9,920,919
323,772
1,023,972
11,268,663
3,826,194
285,103
15,379,960
2,026,883
$17,406,843
598,565
3.28%
541,271
3.18%
518,464
3.21%
(23,201)
$
575,364
(20,499)
$ 520,772
(18,470)
$ 499,994
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.
(1)
(2)
(3)
Note: The weighted average interest rate on total average interest-bearing liabilities and average non-interest bearing demand deposits (“cost of funds”) was 0.55%, 0.52% and 0.56%
for the years ended December 31, 2017, 2016 and 2015 respectively.
46
The following table summarizes the changes in FTE interest income and expense resulting from changes in average balances
(volumes) and changes in rates:
2017 vs. 2016
2016 vs. 2015
Increase (decrease) due to change in
Rate
Volume
Net
Increase (decrease) due to change in
Rate
Volume
Net
Interest income on:
Loans and leases...................................... $
Taxable investment securities .................
Tax-exempt investment securities...........
Equity securities ......................................
Loans held for sale ..................................
Other interest-earning assets ...................
Total interest income........................ $
Interest expense on:
Demand deposits ..................................... $
Savings deposits ......................................
Brokered deposits....................................
Time deposits ..........................................
Short-term borrowings ............................
Long-term debt........................................
$
$
$
44,822
83
3,268
(309)
12
433
48,309
562
884
613
(781)
379
1,732
Total interest expense....................... $
3,389
$
(in thousands)
17,509
1,971
(339)
29
136
854
20,160
5,760
4,612
—
1,449
1,545
(5,580)
7,786
$
$
$
$
62,331
2,054
2,929
(280)
148
1,287
68,469
6,322
5,496
613
668
1,924
(3,848)
11,175
$
$
$
$
31,676
743
4,551
(524)
(10)
(404)
36,032
$ (11,183) $
(1,047)
(1,806)
10
(63)
(603)
$ (14,692) $
$
423
603
—
(1,711)
106
(2,620)
(3,199) $
1,932
1,943
—
1,021
377
(3,541)
1,732
$
$
20,493
(304)
2,745
(514)
(73)
(1,007)
21,340
2,355
2,546
—
(690)
483
(6,161)
(1,467)
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 2017 to 2016
FTE net interest income increased $57.3 million, or 10.6%, to $598.6 million in 2017. Net interest margin increased 10 basis points
to 3.28% in 2017 from 3.18% in 2016.
As summarized above, FTE interest income increased $48.3 million as the result of a $1.2 billion, or 7.2%, increase in average
interest-earning assets, primarily loans. The 13 basis point increase in the yield on interest-earning assets resulted in a $20.2 million
increase in FTE interest income. The yield on the loan portfolio increased 12 basis points, to 4.07%, largely due to the 25 basis
point increases in the federal funds rate that occurred in each of December 2016 and March and June 2017.
Interest expense increased $11.2 million, with a 4 basis point increase in the rate on average interest-bearing liabilities, contributing
$7.8 million, to this increase. The increase in the cost of interest-bearing liabilities reflects a 9 basis point increase in the cost of
interest-bearing deposits primarily due to promotional campaigns and increasing interest rates for deposit balances for which the
interest rate is linked to an index, which was partially offset by lower long-term borrowing costs due to debt refinancings in 2017
and prior years. In addition, the $850.5 million, or 7.2%, increase in average interest-bearing liabilities accounted for $3.4 million
of the increase in interest expense.
47
Average loans and average FTE yields, by type, are summarized in the following table:
2017
2016
Balance
Yield
Balance
Yield
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Real estate - commercial mortgage ......................... $ 6,161,731
4,236,810
Commercial - industrial, financial and agricultural.
1,779,270
Real estate - residential mortgage............................
1,582,705
Real estate - home equity ........................................
921,879
Real estate - construction.........................................
304,162
Consumer.................................................................
250,055
Leasing and other ....................................................
Total.................................................................. $ 15,236,612
4.04% $ 5,636,696
4.01
4,080,854
3.80
1,464,744
4.38
1,651,112
4.08
824,182
4.99
276,792
5.10
193,684
4.07% $14,128,064
3.98% $ 525,035
155,956
3.78
314,526
3.77
(68,407)
4.08
97,697
3.79
27,370
5.36
5.83
56,371
3.95% $1,108,548
9.3%
3.8
21.5
(4.1)
11.9
9.9
29.1
7.8%
Average loans increased $1.1 billion, or 7.8%, which contributed $44.8 million to the increase in FTE interest income. In addition,
the average yield on the loan portfolio increased 12 basis points, contributing $17.5 million to the increase in FTE interest income.
The increase in average yields on loans was driven by the repricing of existing variable and adjustable rate loans as a result of
increases in the prime rate and the London Interbank Offered Rate ("LIBOR"), which are the indexes used to determine the interest
rates on many of the loans in the Corporation's portfolio.
The increase in average loans resulted from growth in the commercial mortgage and residential mortgage portfolios, as well as
the commercial loan, construction and leasing portfolios. The $525.0 million, or 9.3%, growth in commercial mortgages occurred
in both owner-occupied and investment property types and was realized in all geographic markets, but largely in Pennsylvania.
The $314.5 million, or 21.5%, increase in residential mortgages was also realized across all geographic markets, with the most
significant increases occurring in Maryland, Virginia and Pennsylvania. This growth was, in part, related to new product offerings
and marketing efforts focused on specific customer segments, including loans to low- to moderate-income and minority borrowers,
and loans to borrowers located in low- to moderate-income and majority-minority geographies. The $156.0 million, or 3.8%,
increase in commercial loans was spread across a broad range of industries and concentrated in Pennsylvania.
Average investment securities increased $78.4 million, or 3.2%, in comparison to 2016, which contributed $3.0 million to the
increase in FTE interest income. The average yield on investment securities increased 11 basis points, contributing $1.7 million
to the increase in FTE interest income. Other interest-earning assets increased $43.5 million, or 10.7%, and the yield increased 19
basis points in comparison to 2016. Combined, these increases contributed $1.3 million to the increase FTE interest income.
Interest-bearing deposits contributed $13.1 million to the increase in interest expense, increasing $637.3 million, or 6.1%, in
comparison to 2016 showing a 15 and 10 basis point increase, respectively, in the rate on average interest-bearing demand and
savings deposits. These increases contributed $6.3 million and $5.5 million, respectively, to the increase in interest expense.
The average cost of interest-bearing deposits increased 9 basis points to 0.52% in 2017 from 0.43% in 2016, due to increases in
the rates on all types of interest-bearing deposits.
48
Average deposits and interest rates, by type, are summarized in the following table:
2017
2016
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Noninterest-bearing demand ............................... $ 4,410,301
3,831,865
Interest-bearing demand......................................
4,468,205
Savings and money market accounts ..................
12,710,371
Total demand and savings............................
49,126
Brokered deposits................................................
2,721,724
Time deposits ......................................................
Total deposits ............................................... $ 15,481,221
—% $ 4,151,967
0.34
3,552,886
0.30
4,054,970
0.12
11,759,823
1.25
—
1.13
2,825,722
0.37% $14,585,545
—% $ 258,334
278,979
0.19
413,235
0.20
950,548
0.12
49,126
—
(103,998)
1.06
0.31% $ 895,676
6.2%
7.9
10.2
8.1
N/M
(3.7)
6.1%
N/M - Not meaningful
The $950.5 million, or 8.1%, increase in average total demand and savings account balances was primarily due to a $549.9 million,
or 10.1%, increase in personal account balances, a $242.8 million, or 5.7%, increase in business account balances, and a $147.7
million, or 7.4%, increase in state and municipal account balances.
During the third quarter of 2017, the Corporation began accepting deposits under an agreement with a non-bank third party pursuant
to which excess cash in the accounts of customers of the third party is swept on a collective basis, as frequently as every business
day, by the third party, into omnibus deposit accounts maintained by one of the Corporation’s subsidiary banks. Under the agreement
with the third party, generally, no more than $100 million of excess cash in accounts of customers of the third party may be swept
into the omnibus deposit accounts. The average balance in the omnibus accounts was $49.1 million in 2017 and is shown as
“brokered deposits” in the above table. This source of customer funding is considered to be both geographically diverse and
relatively stable, with balances in the omnibus deposit accounts bearing interest at a rate based on the federal funds rate.
Total average short-term borrowings and long-term debt increased $213.1 million, or 15.7%, while the total average cost of these
funds decreased 50 basis points to 2.28%. The net effect of these offsetting changes was a $1.9 million decrease in interest expense.
The increase in average balances reflects the need for additional funding to support average loan growth as increases in average
deposits were somewhat lower.
Average borrowings and interest rates, by type, are summarized in the following table:
2017
2016
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase 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 ................
188,769
108,649
297,418
163,102
73,044
533,564
0.12% $
0.31
0.19
0.92
0.94
0.52
184,978
72,224
257,202
127,604
10,921
395,727
0.11% $
0.03
0.09
0.45
0.43
0.21
3,791
36,425
40,216
35,498
62,123
137,837
Long-term debt:
FHLB Advances..........................................
Other long-term debt ...................................
Total long-term debt.............................
640,737
393,707
1,034,444
Total..................................... $ 1,568,008
2.31
597,211
4.61
361,931
3.18
959,142
2.28% $ 1,354,869
43,526
3.12
31,776
5.01
75,302
3.83
2.78% $ 213,139
2.0%
50.4
15.6
27.8
N/M
34.8
7.3
8.8
7.9
15.7%
N/M - Not meaningful
(1) Represents FHLB advances with an original maturity term of less than one year.
49
Total average short-term borrowings increased $137.8 million, or 34.8%, due to an increase in average short-term FHLB advances,
customer short-term promissory notes and federal funds purchased. The cost of average short-term borrowings increased 31 basis
points to 0.52% in 2017, largely due to the FRB rate increases.
Average other long-term debt increased $31.8 million due mainly to the issuance of $125.0 million of senior notes in March 2017,
partially offset by the repayment of $100.0 million of 10-year subordinated notes, which matured on May 1, 2017. The 65 basis
point, or 17.0%, decrease in the average rate on long-term debt was the result of the interest rate differential on the senior notes
and subordinated notes, and $200 million of FHLB advances that were refinanced in December of 2016, which reduced the weighted
average rate on these advances from 4.03% to 2.40%.
Comparison of 2016 to 2015
FTE net interest income increased $22.8 million, or 4.4%, to $541.3 million in 2016. Net interest margin decreased 3 basis points,
to 3.18% in 2016 from 3.21% in 2015.
As summarized above, FTE interest income increased $36.0 million as the result of an $878.7 million, or 5.4%, increase in average
interest-earning assets. This increase was partially offset by a $14.7 million decrease resulting from a 7 basis point decline in
average yields on interest earning assets.
Average loans and average FTE yields, by type, are summarized in the following table:
2016
2015
Balance
Yield
Balance
Yield
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Real estate - commercial mortgage ......................... $ 5,636,696
4,080,854
Commercial - industrial, financial and agricultural.
1,651,112
Real estate - home equity ........................................
1,464,744
Real estate - residential mortgage............................
824,182
Real estate - construction.........................................
276,792
Consumer.................................................................
193,684
Leasing and other ....................................................
Total.................................................................. $ 14,128,064
3.98% $ 5,246,054
3.78
3,882,998
4.08
1,700,851
3.77
1,371,321
3.79
726,914
5.36
265,688
5.83
137,147
3.95% $ 13,330,973
4.13% $ 390,642
197,856
3.80
(49,739)
4.10
93,423
3.81
97,268
3.88
11,104
5.57
6.76
56,537
4.04% $ 797,091
7.4%
5.1
(2.9)
6.8
13.4
4.2
41.2
6.0%
Average loans increased $797.1 million, or 6.0%, which contributed $31.7 million to the increase in FTE interest income. This
increase was partially offset by an $11.2 million decrease in FTE interest income as a result of a 9 basis point decline in the average
yield on the loan portfolio. The increase in average loans was driven largely by growth in the commercial mortgage, commercial
loan, construction, residential mortgage and leasing portfolios. The commercial mortgage growth was realized in all geographic
markets, but largely in Pennsylvania. The decrease in average yields on loans was attributable to repayments of higher-yielding
loans, refinancing activity at lower rates, and new loan production at rates lower than the overall portfolio yield.
Average investment securities increased $121.8 million, or 5.2%, in comparison to 2015. The average yield on investment securities
decreased 5 basis points to 2.45% in 2016 from 2.50% in 2015. Other interest earning assets decreased $39.9 million, or 8.9%.
Interest expense decreased $1.5 million, or 1.8%, to $82.3 million in 2016 from $83.8 million in 2015, despite an increase in total
average interest-bearing liabilities of $519.8 million, or 4.6%, compared to 2015. The impact of the increase in average balances
of interest-bearing liabilities was more than offset by a 4 basis point decrease in the average cost of these interest-bearing liabilities.
This decrease resulted from a shift in funding mix that was more concentrated in lower-cost deposits and short-term borrowings,
as well as the impact of long-term debt refinancing activities.
50
Average deposits and interest rates, by type, are summarized in the following table:
2016
2015
Balance
Rate
Balance
Rate
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Noninterest-bearing demand ............................... $ 4,151,967
3,552,886
Interest-bearing demand ......................................
4,054,970
Savings and money market accounts...................
11,759,823
Total demand and savings ............................
2,825,722
Time deposits.......................................................
Total deposits................................................ $ 14,585,545
—% $ 3,826,194
0.19
3,255,192
0.20
3,677,079
0.12
10,758,465
2,988,648
1.06
0.31% $13,747,113
—% $ 325,773
0.13
297,694
0.15
377,891
0.09
1,001,358
(162,926)
1.03
0.29% $ 838,432
8.5%
9.1
10.3
9.3
(5.5)
6.1%
The $1.0 billion, or 9.3%, increase in average total demand and savings account balances was primarily due to a $500.8 million,
or 10.1%, increase in personal account balances, a $342.1 million, or 8.7%, increase in business account balances, and a $159.4
million, or 8.6%, increase in state and municipal account balances.
The average cost of interest-bearing deposits increased 2 basis points to 0.43% in 2016 from 0.41% in 2015, primarily due to an
increase in the rates on all interest-bearing deposits.
Average borrowings and interest rates, by type, are summarized in the following table:
2016
2015
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 ..................
184,978
72,224
257,202
127,604
10,921
395,727
0.11% $
0.03
0.09
0.45
0.43
0.21
161,093
81,530
242,623
65,779
15,370
323,772
0.10% $
0.02
0.07
0.21
0.33
0.11
23,885
(9,306)
14,579
61,825
(4,449)
71,955
Long-term debt:
FHLB Advances............................................
Other long-term debt .....................................
Total long-term debt...............................
597,211
361,931
959,142
Total....................................... $ 1,354,869
622,978
3.12
400,994
5.01
3.83
1,023,972
2.78% $ 1,347,744
3.43
5.38
4.19
3.21% $
(25,767)
(39,063)
(64,830)
7,125
14.8%
(11.4)
6.0
94.0
(28.9)
22.2
(4.1)
(9.7)
(6.3)
0.5%
(1) Represents FHLB advances with an original maturity term of less than one year.
Total average short-term borrowings increased $72.0 million, or 22.2%, primarily due to an increase in Federal funds purchased.
Total long-term debt decreased $64.8 million as the result of maturing FHLB advances and the maturity of $100.0 million of
subordinated debt in April 2015.
The cost of average short-term borrowings increased 10 basis points, to 0.21% in 2016, largely due to the FRB increasing the
federal funds interest rate by 25 basis points in December 2015. The cost of average long-term debt decreased 36 basis points, to
3.83% in 2016, as the result of certain refinancing activities for FHLB advances and other long-term debt.
In June 2015, the Corporation issued $150 million of subordinated debt at an effective rate of 4.69%. The proceeds of this issuance
were used to redeem $150 million of trust preferred securities, with an effective rate of 6.52%, in July 2015.
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% which matured 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
51
agreements were executed to refinance an additional $200 million of FHLB advances which matured in December 2016. These
new advances 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 decreased interest expense on a quarterly basis by approximately $800,000 beginning in the first quarter
of 2017.
Provision for Credit Losses
The provision for credit losses was $23.3 million in 2017, an increase of $10.1 million in comparison to 2016. The provision for
credit losses for 2016 was $13.2 million, an increase of $10.9 million in comparison to 2015. The increase in the provision for
credit losses was primarily driven by loan growth and a $3.5 million increase in loss allocations for off balance sheet exposures.
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.
52
Non-Interest Income and Expense
Comparison of 2017 to 2016
Non-Interest Income
The following table presents the components of non-interest income for 2017 and 2016:
Other service charges and fees:
Merchant fees ..........................................................................
Debit card income....................................................................
Commercial loan interest rate swap fees .................................
Letter of credit fees..................................................................
Foreign exchange income........................................................
Other ........................................................................................
Total other service charges and fees ................................
Service charges on deposit accounts:
Overdraft fees .......................................................................... $
Cash management fees ............................................................
Other ........................................................................................
Total service charges on deposit accounts .......................
Investment management and trust services ..................................
Mortgage banking income:
Gain on sales of mortgage loans..............................................
Mortgage servicing income .....................................................
Total mortgage banking income.......................................
Other non-interest income:
Credit card income ..................................................................
SBA lending income................................................................
Other income ...........................................................................
Total other income............................................................
Total, excluding investment securities gains ....................
Investment securities gains...........................................................
Total........................................................................... $
N/M - Not meaningful
2017
16,845
11,905
11,694
4,403
1,759
6,253
52,859
22,569
14,444
13,993
51,006
49,249
13,036
6,892
19,928
10,920
3,511
11,430
25,861
198,903
9,071
207,974
$
$
Increase (Decrease)
%
2016
(dollars in thousands)
$
16,136
11,236
11,560
4,504
1,555
6,482
51,473
22,175
14,183
14,988
51,346
45,270
15,685
3,730
19,415
10,252
2,425
7,447
20,124
187,628
2,550
190,178
$
$
709
669
134
(101)
204
(229)
1,386
394
261
(995)
(340)
3,979
(2,649)
3,162
513
668
1,086
3,983
5,737
11,275
6,521
17,796
4.4
6.0
1.2
(2.2)
13.1
(3.5)
2.7
1.8%
1.8
(6.6)
(0.7)
8.8
(16.9)
84.8
2.6
6.5
N/M
53.5
28.5
6.0
N/M
9.4%
Excluding investment securities gains, non-interest income increased $11.3 million, or 6.0%, for the year ended December 31,
2017, as compared to the same period in 2016. In the fourth quarter of 2017, the Corporation recognized a net gain of $5.1 million
upon the settlement of litigation, included in other income in the table above. Excluding this settlement, non-interest income
increased $6.2 million, or 3.3%, in 2017.
Other service charges and fees increased $1.4 million, or 2.7%, mainly due to increases in merchant fees and debit card income,
as transaction volumes increased.
Investment management and trust services income increased $4.0 million, or 8.8%, with growth in both trust and brokerage income,
due to overall market performance and an increase in assets under management to $7.1 billion at December 31, 2017, compared
to $6.2 billion at December 31, 2016.
Gains on sales of mortgage loans decreased $2.6 million, or 16.9%, compared to the same period in 2016, as both volumes and
pricing spreads decreased. Mortgage servicing income increased $3.2 million compared to the same period in 2016 due mainly to
a $1.3 million reduction to the MSR valuation allowance in 2017, as compared to net increases to the valuation allowance of $1.3
million in 2016, recorded as reductions to servicing income. Excluding the impact of the MSR valuation allowance adjustments
53
in both periods, mortgage servicing income increased $560,000, or 11.1%, reflecting lower MSR amortization due to slowing
prepayments. For more information, see Note 7, "Mortgage Servicing Rights," in the Notes to Consolidated Financial Statements
in Item 8. "Financial Statements and Supplementary Data."
Investment securities gains totaled $9.1 million, in comparison to $2.6 million in 2016, as the Corporation recognized gains on
the sales of financial institution common stocks. These gains were partially offset by approximately $4.5 million of pre-tax net
losses as result of the Corporation repositioning its investment portfolio through the sale of certain debt securities during 2017.
See Note 4, "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 for 2017 and 2016:
2017
2016
(dollars in thousands)
$
Increase
%
Salaries and employee benefits..................................................... $
Net occupancy expense.................................................................
Data processing and software .......................................................
Other outside services...................................................................
Equipment expense.......................................................................
Professional fees ...........................................................................
FDIC insurance.............................................................................
Amortization of tax credit investments.........................................
State taxes .....................................................................................
Marketing......................................................................................
Operating risk loss ........................................................................
Other .............................................................................................
Total ....................................................................................... $
290,130
49,708
38,735
27,501
12,935
12,688
11,049
11,028
10,051
8,034
4,342
49,378
525,579
$
$
283,353
47,611
36,919
23,883
12,788
11,004
9,767
—
6,405
7,044
2,815
47,930
489,519
$
$
6,777
2,097
1,816
3,618
147
1,684
1,282
11,028
3,646
990
1,527
1,448
36,060
2.4%
4.4
4.9
15.1
1.1
15.3
13.1
N/M
56.9
14.1
54.2
3.0
7.4%
N/M - Not meaningful
The $6.8 million, or 2.4%, increase in salaries and employee benefits during the year ended December 31, 2017, in comparison
to the same period during 2016, primarily resulted from a $7.5 million, or 3.2%, increase in salaries, resulting from annual merit
increases and an increase in staffing levels. The average number of full-time equivalent employees increased 2.3%, to 3,569, in
2017, as compared to 3,490 in 2016. These increases were partially offset by decreases in incentive compensation.
The $2.1 million, or 4.4%, increase in net occupancy expense was primarily driven by increases in rent expense, property tax
expense and other occupancy expenses.
The $1.8 million, or 4.9%, 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 increased $3.6 million, or 15.1%, largely due to consulting services related to pre-bank consolidation efforts,
technology initiatives and continued investments in commercial banking technology initiatives.
Professional fees consist of legal and audit fees. Increases were realized mainly in legal fees in 2017 as a result of various legal
proceedings, including those discussed in Note 17 "Commitments and Contingencies" in the Notes to Consolidated Financial
Statements in Item 8. "Financial Statements and Supplementary Data."
FDIC insurance expense increased $1.3 million, or 13.1%, reflecting the Corporation's largest banking subsidiary exceeding $10
billion in assets and becoming subject to the higher premium assessments applicable to institutions of that size, and balance sheet
growth.
As a result of changes in the types of tax credit investments and related accounting requirements, amortization expense for certain
types of tax credit investments, totaling $11.0 million, is now classified in non-interest expense, rather than income taxes.
54
State taxes increased $3.6 million, or 56.9%, due to legislated increases in the Pennsylvania bank shares tax rate and certain sales
tax liabilities.
Marketing expense increased $990,000, or 14.1%, compared to the same period in 2016, due to an increase in the number of
marketing promotions. In 2017, many of these promotions were focused on deposit generation.
The $1.4 million increase in other expense was primarily driven by the $3.4 million write-off of certain accumulated capital
expenditures related to in-process technology initiatives in commercial banking due to a strategic shift to an alternative solution.
This compares to $1.8 million of property write-downs in 2016 related to a branch closure and the reconfiguration of a building
as part of a long-term facilities plan.
Comparison of 2016 to 2015
Non-Interest Income
The following table presents the components of non-interest income:
Other service charges and fees:
Merchant fees ..........................................................................
Commercial loan interest rate swap fees.................................
Debit card income ...................................................................
Letter of credit fees .................................................................
Foreign currency processing income ......................................
Other........................................................................................
Total other service charges and fees ...............................
Service charges on deposit accounts:
Overdraft fees.......................................................................... $
Cash management fees............................................................
Other........................................................................................
Total service charges on deposit accounts.......................
Investment management and trust services..................................
Mortgage banking income:
Gain on sales of mortgage loans .............................................
Mortgage servicing income.....................................................
Total mortgage banking income.......................................
Other non-interest income:
Credit card income.......................................................................
SBA lending income ....................................................................
Other income................................................................................
Total other income ...........................................................
Total, excluding investment securities gains....................
Investment securities gains ..........................................................
Total............................................................................. $
N/M - Not meaningful
2016
16,136
11,560
11,236
4,504
1,555
6,482
51,473
22,175
14,183
14,988
51,346
45,270
15,685
3,730
19,415
10,252
2,425
7,447
20,124
187,628
2,550
190,178
$
$
Increase (Decrease)
%
2015
(dollars in thousands)
$
15,037
5,518
10,748
4,809
1,436
6,444
43,992
21,500
13,342
15,255
50,097
44,056
13,264
4,944
18,208
9,638
100
6,682
16,420
172,773
9,066
181,839
$
$
1,099
6,042
488
(305)
119
38
7,481
675
841
(267)
1,249
1,214
2,421
(1,214)
1,207
614
2,325
765
3,704
14,855
(6,516)
8,339
7.3
109.5
4.5
(6.3)
8.3
0.6
17.0
3.1%
6.3
(1.8)
2.5
2.8
18.3
(24.6)
6.6
6.4
N/M
11.4
22.6
8.6
(71.9)
4.6%
The $675,000, or 3.1%, increase in overdraft fee income during the year ended December 31, 2016, in comparison to the same
period in 2015, consisted of a $461,000 increase in fees assessed on personal accounts and a $214,000 increase in fees assessed
on commercial accounts, due to higher volumes. Cash management fees increased $841,000, or 6.3%, compared to 2015 due to
higher transaction volumes and fee increases implemented in 2016.
55
The $1.1 million, or 7.3%, increase in merchant fee income, the $488,000, or 4.5%, increase in debit card income and the $614,000,
or 6.4%, increase in credit card income were all due to increases in the volumes of transactions in comparison to 2015.
The $6.0 million increase in commercial loan interest rate swap fees was due to growth in commercial loans and the attractiveness
of interest rate swaps in the current rate environment, whereby borrowers executed swaps to lock in fixed rates, while the Corporation
continues to earn a floating rate. See "Note 10 - Derivative Financial Instruments," in the Notes to Consolidated Financial Statements
in Item 8. "Financial Statements and Supplementary Data" for additional details.
The $1.2 million, or 2.8%, increase in investment management and trust services income reflected a $1.6 million, or 6.4%, increase
in trust commissions and money market income, partially offset by a $355,000, or 1.8%, decrease in brokerage fees. The increase
in trust commission income was driven by a 9.3% in increase assets under management, as well as improvements in market values
of existing assets.
Gains on sales of mortgage loans increased $2.4 million, or 18.3%, due to a 23.7% increase in pricing spreads compared to the
prior year, partially offset by a $43.3 million, or 4.4%, decrease in new loan volumes. Mortgage servicing income decreased $1.2
million, or 24.6%, mainly due to a $1.3 million net valuation allowance recognized in 2016. See "Note 7 - Mortgage Servicing
Rights," in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional
details regarding the impairment charge.
SBA lending income increased $1.8 million compared to 2015. Other income increased $1.3 million, or 20.2%, due mainly to an
increase in the cash surrender value of insurance contracts on directors and employees.
Gains on sales of investment securities decreased $6.5 million compared to 2015. 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 and software .......................................................
Equipment expense.......................................................................
FDIC insurance.............................................................................
Professional fees ...........................................................................
Marketing......................................................................................
Loss on redemption of trust preferred securities ..........................
Other .............................................................................................
Total ....................................................................................... $
N/M - Not meaningful
2016
283,353
47,611
23,883
36,919
12,788
9,767
11,004
7,044
—
57,150
489,519
$
$
Increase (Decrease)
%
2015
(dollars in thousands)
$
260,832
47,777
27,785
34,640
14,514
11,470
11,244
7,324
5,626
58,948
480,160
$
$
22,521
(166)
(3,902)
2,279
(1,726)
(1,703)
(240)
(280)
(5,626)
(1,798)
9,359
8.6%
(0.3)
(14.0)
6.6
(11.9)
(14.8)
(2.1)
(3.8)
N/M
(3.1)
1.9%
The $22.5 million, or 8.6%, increase in salaries and employee benefits during the year ended December 31, 2016 was primarily
driven by an $18.8 million, or 8.6%, increase in salaries, resulting from higher average salaries per full-time equivalent employee,
normal merit increases and an increase in incentive compensation. The average number of full-time equivalent employees increased
to 3,490 for the year ended December 31, 2016, compared to 3,460 for the year ended December 31, 2015. Benefits expenses
increased $3.7 million, or 8.9%, due to an increase in health care expense, employer contributions to the Corporation's 401(k)
retirement plan, defined benefit plan expense, employee education and other employee benefits.
The $3.9 million, or 14.0%, decrease in other outside services in comparison to 2015 was due to lower expenses associated with
the Corporation's BSA/AML compliance program remediation efforts, and lower costs for information technology and human
resources initiatives.
56
The $2.2 million, or 14.6%, increase in software resulted from investments in technology, which are reflected in higher amortization,
as well as increases in maintenance costs.
Equipment expense decreased $1.7 million, or 11.9%, primarily due to lower depreciation expense, as certain assets became fully
depreciated. FDIC insurance expense decreased $1.7 million, or 14.8%, due to a reduction in the assessment rate beginning in the
third quarter of 2016. Other real estate owned and repossession expense decreased $1.7 million, or 46.9%, when compared to
2015, due to lower holding costs and an increase in net gains on sales. This expense category can experience volatility from period
to period based on the timing of foreclosures and sales of properties and payments of expenses.
In July 2015, the Corporation redeemed $150.0 million of TruPS. In connection with this redemption, a loss of $5.6 million was
recognized as a component of non-interest expense with no comparable expense in 2016.
Other non-interest expense increased $1.5 million mainly as a result of $1.8 million of property write downs related to a branch
closure and the reconfiguration of a building as part of a long-term facilities plan.
Income Taxes
On December 22, 2017, the President signed the Tax Act. The Tax Act, among other things; lowers the U.S. corporate income tax
rate from a top rate of 35% to a flat rate of 21%, limits the deductibility of FDIC insurance premiums, and eliminates the exception
under prior law that permitted publicly held corporations to deduct compensation paid to certain executive officers in excess of
$1 million if that compensation was performance based. Based on the Corporation's projections for 2018, it anticipates the new
limitations on the deductibility of FDIC insurance premiums and certain compensation paid to the Corporation's executive officers
will have an immaterial impact on its effective tax rate.
Income taxes for the year ended December 31, 2017 totaled $62.7 million, an increase of $16.1 million, or 34.5%, from 2016.
This increase was primarily a result of recording in the fourth quarter of 2017 a charge of $15.6 million for the re-measurement
of the net deferred tax asset due to the reduction of the U.S. corporate income tax rate as a result of the passage of the Tax Act.
This increase in income tax was partially offset by increases in tax credit investments and related net tax credits and the adoption
of the FASB ASU 2016-09, "Improvements to Employee Share-based Payments Accounting," in the first quarter of 2017. The
Corporation’s ETR was 26.7% for the year ended December 31, 2017, as compared to 22.4% in 2016 and 25.0% in 2015. Absent
the $15.6 million charge, the ETR would have been 20.1% in 2017. The ETR is generally lower than the federal statutory rate of
35% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities, credits earned from
investments in community development projects that generate tax credits under various federal programs and excess tax benefits
realized on stock-based compensation. In 2017, amortization of certain new tax credit investments was recorded in non-interest
expense, rather than as a component of income tax expense.
The Corporation is evaluating the impact of the Tax Act on its 2018 ETR. While the ETR is expected to be lower than in 2017 as
a result of the decrease in the U.S. corporate statutory tax rate, the level of tax credit investment amortization and related tax credits
may impact the ETR.
For additional information regarding income taxes and further discussion regarding the impact of the Tax Act, see "Note 12 -
Income Taxes," in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data."
57
FINANCIAL CONDITION
The table below presents condensed consolidated ending balance sheets.
December 31,
2017
2016
(dollars in thousands)
Increase (Decrease)
%
$
Assets
Cash and due from banks .................................................... $
Other interest-earning assets................................................
Loans held for sale...............................................................
108,291
$
118,763
$
354,566
31,530
291,252
28,697
Investment securities ...........................................................
2,547,956
2,559,227
Loans, net of allowance.......................................................
15,598,337
14,530,593
Premises and equipment ......................................................
Goodwill and intangible assets............................................
222,802
531,556
Other assets..........................................................................
641,867
Total Assets................................................................... $ 20,036,905
217,806
531,556
666,353
$ 18,944,247
(10,472)
63,314
2,833
(11,271)
1,067,744
4,996
—
(24,486)
$ 1,092,658
(8.8)%
21.7
9.9
(0.4)
7.3
2.3
—
(3.7)
5.8 %
Liabilities and Shareholders’ Equity
Deposits ............................................................................... $ 15,797,532
Short-term borrowings.........................................................
617,524
Long-term debt ....................................................................
Other liabilities ....................................................................
Total Liabilities .............................................................
Total Shareholders’ Equity ............................................
2,229,857
Total Liabilities and Shareholders’ Equity ............. $ 20,036,905
$ 15,012,864
$
784,668
5.2 %
1,038,346
353,646
17,807,048
16,823,132
541,317
929,403
339,548
2,121,115
76,207
108,943
14,098
983,916
108,742
14.1
11.7
4.2
5.8
5.1
$ 18,944,247
$ 1,092,658
5.8 %
Other Interest-Earning Assets
The $63.3 million, or 21.7%, increase in other interest-earning assets was primarily due to higher balances on deposit with the
FRB and higher interest-bearing deposits with other banks.
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 sponsored agency securities .................................................................................... $
State and municipal securities ..............................................................................................................
Corporate debt securities ......................................................................................................................
Collateralized mortgage obligations.....................................................................................................
408,949
97,309
602,623
391,641
109,409
593,860
Residential mortgage-backed securities ...............................................................................................
1,120,796
1,317,838
Commercial mortgage-backed securities..............................................................................................
Auction rate securities ..........................................................................................................................
212,755
98,668
24,563
97,256
262,765
96,955
821,509
1,158,835
—
98,059
2017
2016
(in thousands)
2015
5,938
$
134
$
25,136
Total debt securities ...........................................................................................................................
2,547,038
2,534,701
2,463,259
Equity securities ...................................................................................................................................
918
Total................................................................................................................................................. $2,547,956
24,526
21,514
$2,559,227
$2,484,773
Total investment securities decreased $11.3 million, or 0.4%, to $2.5 billion at December 31, 2017. Residential mortgage-backed
securities decreased $197.0 million, or 15.0%, as the Corporation began investing in U.S. agency-backed commercial mortgage-
backed securities in order to diversify the investment portfolio. U.S. agency-backed commercial mortgage-backed securities
increased $188.2 million compared to December 31, 2016. Equity securities decreased $23.6 million as the Corporation sold
holdings in its financial institutions stocks to take advantage of increases in values. The net pre-tax unrealized loss on available
58
for sale investment securities was $27.8 million as of December 31, 2017, compared to $35.0 million as of December 31, 2016.
The improvement in the unrealized loss reflected, in part, the realized loss of $4.6 million on the sale of certain collateralized
mortgage obligations as part of repositioning investments in that sector. In addition, there was significant improvement in municipal
bond pricing at the end of 2017 due to anomalous trading activity in that sector corresponding to the impact of the Tax Act on tax-
free bond issuance, which offset the adverse pricing impact of rising rates on other components of the portfolio.
Loans
The following table presents loans outstanding, by type, as of the dates shown, and the changes in balances for the most recent
year:
December 31,
2017 vs. 2016
Increase (Decrease)
2017
2016
2015
2014
2013
$
%
(dollars in thousands)
Real estate – commercial mortgage.................... $ 6,364,804
$ 6,018,582
$ 5,462,330
$ 5,197,155
$ 5,101,922
$
346,222
5.8%
Commercial – industrial, financial and
agricultural .....................................................
Real estate – residential mortgage......................
4,300,297
4,087,486
4,088,962
3,725,567
3,628,420
1,954,711
1,601,994
1,376,160
1,377,068
1,337,380
Real estate – home equity
1,559,719
1,625,115
1,684,439
1,736,688
1,764,197
Real estate – construction...................................
1,006,935
Consumer............................................................
Leasing, other and overdrafts .............................
313,783
295,669
843,649
291,470
250,366
799,988
268,588
173,651
690,601
265,431
131,583
573,672
283,124
103,301
212,811
352,717
(65,396)
163,286
22,313
45,303
Gross loans ...................................................
15,795,918
14,718,662
13,854,118
13,124,093
12,792,016
1,077,256
Unearned income................................................
(27,671)
(19,390)
(15,516)
(12,377)
(9,796)
(8,281)
5.2
22.0
(4.0)
19.4
7.7
18.1
7.3
42.7
Loans, net of unearned income..................... $ 15,768,247
$ 14,699,272
$ 13,838,602
$ 13,111,716
$ 12,782,220
$ 1,068,975
7.3%
Total loans, net of unearned income, increased $1.1 billion, or 7.3%, as of December 31, 2017 compared to December 31, 2016,
largely as the result of improved business activity across all markets in the Corporation's footprint. Commercial mortgage loans
increased $346.2 million, or 5.8%, in comparison to December 31, 2016 across all geographic markets, but primarily in
Pennsylvania. Commercial loans increased $212.8 million, or 5.2%, primarily in Pennsylvania. Residential mortgages increased
$352.7 million, or 22.0%, across all geographic markets. Construction loans increased $163.3 million, or 19.4%, also across all
geographic markets with the largest increases recognized in Maryland and New Jersey.
The Corporation does not have a concentration of credit risk with any single borrower, industry or geographic location within its
footprint. As of December 31, 2017, approximately $7.4 billion, or 46.8%, of the loan portfolio was comprised of commercial
mortgage and construction loans. The Corporation's policies limit the maximum total lending commitment to an individual borrower
to $50.0 million as of December 31, 2017. 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, 2017, the Corporation had 140 relationships with total
borrowing commitments between $20.0 million and $50.0 million.
59
The following table summarizes the industry concentrations within the commercial loan portfolio as of December 31:
Services...........................................................................................................................................
Retail...............................................................................................................................................
Manufacturing.................................................................................................................................
Health care ......................................................................................................................................
Construction (1)................................................................................................................................
Wholesale .......................................................................................................................................
Real estate (2)...................................................................................................................................
Agriculture......................................................................................................................................
Arts and entertainment....................................................................................................................
Transportation.................................................................................................................................
Financial services............................................................................................................................
Other ...............................................................................................................................................
Total .........................................................................................................................................
2017
2016
22.9%
15.4
9.5
9.1
8.3
7.4
6.2
5.2
2.4
2.2
2.2
9.2
21.8%
15.1
9.2
10.5
9.0
7.0
6.7
5.0
2.6
2.3
2.1
8.7
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 geographic markets. Below is a summary of the Corporation's outstanding purchased shared
national credits as of December 31:
2017
2016
(in thousands)
Commercial - industrial, financial and agricultural......................................................................... $
Real estate - commercial mortgage .................................................................................................
156,277
110,658
Total ............................................................................................................................................ $
266,935
$
$
155,353
81,573
236,926
Total shared national credits increased $30.0 million, or 12.7%, in comparison to 2016. As of December 31, 2017, none of the
shared national credits were past due.
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:
2017
Delinquency
Rate
$
% of Total
$
(dollars in thousands)
2016
Delinquency
Rate
% of Total
765,816
Commercial..................................... $
163,102
Commercial - residential.................
78,017
Other ...............................................
Total Real estate - construction..... $ 1,006,935
0.1%
7.5
0.8
1.3%
76.1% $
16.2
7.7
100.0% $
644,490
142,189
56,970
843,649
0.2%
6.0
1.9
1.3%
76.4%
16.9
6.7
100.0%
60
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:
2017
2016
2015
2014
2013
(dollars in thousands)
Loans, net of unearned income outstanding at end of year....................... $ 15,768,247
$ 14,699,272
$ 13,838,602
$ 13,111,716
$ 12,782,220
Average balance of loans, net of unearned income................................... $ 15,236,612
$ 14,128,064
$ 13,330,973
$ 12,885,180
$ 12,578,524
Balance of allowance for credit losses at beginning of year..................... $
171,325
$
171,412
$
185,931
$
204,917
$
225,439
Loans charged off:
Commercial – industrial, financial and agricultural ........................
19,067
15,276
15,639
24,516
Real estate - home equity and consumer..........................................
Real estate – commercial mortgage .................................................
Real estate – construction ................................................................
Leasing, other and overdrafts...........................................................
Real estate – residential mortgage ...................................................
4,567
2,169
3,765
3,035
687
7,712
3,580
1,218
3,815
2,326
5,831
4,218
201
2,656
3,612
7,811
6,004
1,209
2,135
2,918
Total loans charged off..................................................................
33,290
33,927
32,157
44,593
Recoveries of loans previously charged off:
Commercial – industrial, financial and agricultural ........................
Real estate - home equity and consumer..........................................
Real estate – commercial mortgage .................................................
Real estate – construction ................................................................
Leasing, other and overdrafts...........................................................
Real estate – residential mortgage ...................................................
Total recoveries .............................................................................
Net loans charged off ................................................................................
Provision for credit losses.........................................................................
7,771
1,969
1,668
1,582
968
786
14,744
18,546
23,305
Balance at end of year............................................................................... $
176,084
Components of Allowance for Credit Losses:
Allowance for loan losses ......................................................................... $
Reserve for unfunded lending commitments (1) ........................................
Allowance for credit losses....................................................................... $
169,910
6,174
176,084
$
$
$
8,981
2,466
3,373
3,924
842
1,072
20,658
13,269
13,182
171,325
168,679
2,646
171,325
5,264
2,492
2,801
2,824
685
1,322
15,388
16,769
2,250
171,412
169,054
2,358
171,412
$
$
$
4,256
2,347
1,960
3,177
916
451
13,107
31,486
12,500
185,931
184,144
1,787
185,931
$
$
$
$
$
$
30,383
10,070
20,829
6,572
2,653
9,705
80,212
9,281
2,378
3,494
2,682
807
548
19,190
61,022
40,500
204,917
202,780
2,137
204,917
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................................................................
Allowance for credit losses to non-performing loans ...............................
Non-performing assets (2) to tangible equity and allowance for credit
losses (3) ................................................................................................
0.12%
1.08%
1.12%
0.72%
0.92%
0.79%
0.09%
1.15%
1.17%
0.76%
0.98%
0.82%
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%
130.67%
130.15%
118.37%
134.26%
132.82%
7.71%
8.20%
9.27%
9.12%
9.76%
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 increased $10.1 million in comparison to 2016 due mainly to loan growth and an increase in the
reserve for unfunded lending commitments. The $3.5 million increase in the reserve for unfunded lending commitments in 2017
as compared to 2016 resulted from a single relationship that experienced financial difficulty, increasing the likelihood that the
Corporation would need to fund letters of credit. Net charge-offs increased $5.3 million, or 39.8%, to $18.5 million in 2017 from
$13.3 million in 2016. This increase was primarily due to a $5.0 million, or 79.4%, increase in commercial loan net charge-offs,
61
and a $4.9 million increase in construction loan net charge-offs, partially offset by decreases in net charge-offs in consumer and
home equity loans of $2.6 million, or 50.5%, and a $1.4 million decrease in residential mortgage loan net charge-offs. The $18.5
million of net charge-offs were primarily in the Pennsylvania ($16.9 million, or 91.3% of the total), and New Jersey ($1.5 million,
or 8.2% of the total) markets, partially offset by net recoveries in the Virginia and Delaware markets.
The following table presents non-performing assets as of December 31:
2017
2016
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................................ $
124,749
10,010
134,759
9,823
144,582
$
$
120,133
11,505
131,638
12,815
144,453
2015
(in thousands)
129,523
$
15,291
144,814
11,099
155,913
$
$
$
2014
2013
121,080
17,402
138,482
12,022
150,504
$
$
133,753
20,524
154,277
15,052
169,329
(1)
In 2017, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was approximately
$6.2 million. The amount of interest income on non-accrual loans that was recognized in 2017 was approximately $4.4 million.
(2) Accrual of interest is generally discontinued when a loan becomes 90 days past due. When interest accruals are discontinued, unpaid interest previously
credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six
consecutive months or the loan is considered to be adequately secured and in the process of collection. Certain loans, primarily adequately collateralized
residential mortgage loans, may continue to accrue interest after reaching 90 days past due.
(3) Excluded from non-performing assets as of December 31, 2017 were $66.4 million of loans modified under trouble debt restructurings ("TDRs"). These
loans were evaluated for impairment under FASB ASC Section 310-10-35, but continue to accrue interest and are, therefore, not included in non-accrual
loans.
The following table presents TDRs as of December 31:
2017
2016
Real estate – residential mortgage .............................................. $ 26,016
15,558
Real estate - home equity ............................................................
13,959
Real estate – commercial mortgage ............................................
10,820
Commercial – industrial, financial and agricultural....................
26
Consumer ....................................................................................
—
Real estate – construction ...........................................................
66,379
Total accruing TDRs ..............................................................
Non-accrual TDRs (1) ..................................................................
29,051
Total TDRs ............................................................................. $ 95,430
$ 27,617
8,594
15,957
6,627
39
726
59,560
27,850
$ 87,410
(1)
Included within non-accrual loans in the preceding table.
2015
(in thousands)
$ 28,511
4,556
17,563
5,953
33
3,942
60,558
31,035
$ 91,593
2014
2013
$ 31,308
2,975
18,822
5,237
38
9,241
67,621
24,616
$ 92,237
$
$
28,815
1,365
19,758
8,045
11
10,117
68,111
30,209
98,320
Total TDRs modified during 2017 and still outstanding as of December 31, 2017 were $29.6 million. Of these loans, $5.9 million,
or 19.8%, had a payment default during 2017, which the Corporation defines as a single missed scheduled payment, subsequent
to modification. TDRs modified during 2016 and still outstanding as of December 31, 2016 totaled $12.4 million. Of these loans,
$6.0 million, or 48.4%, had a payment default subsequent to modification during 2016.
62
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, 2015......... $
Additions...........................
Payments ...........................
Charge-offs (1)....................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2016.........
Additions...........................
Payments ...........................
Charge-offs (1)....................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2017......... $
42,199
$
40,731
$
12,044
$
21,914
$
11,210
$
— $
1,425
$ 129,523
32,831
(14,328)
(15,276)
(552)
(2,525)
42,349
48,717
(19,092)
(19,067)
(3)
—
25,151
(14,682)
(3,580)
(2,992)
(5,692)
38,936
20,596
(20,164)
(2,169)
(1,464)
(913)
6,921
(6,257)
(1,218)
(1,684)
—
9,806
10,657
(4,352)
(3,765)
(149)
—
5,611
(3,532)
(2,326)
(2,925)
(311)
18,431
3,817
(2,848)
(687)
(2,729)
(293)
8,983
(2,512)
(4,912)
(1,199)
(959)
10,611
5,264
(1,518)
(2,340)
(1,895)
(987)
2,803
(1)
(2,800)
—
(2)
—
2,227
—
808
(24)
(2,209)
—
—
—
1,553
—
(2,227)
(1,553)
—
—
—
—
83,108
(41,336)
(32,321)
(9,352)
(9,489)
120,133
92,831
(47,974)
(31,808)
(6,240)
(2,193)
52,904
$
34,822
$
12,197
$
15,691
$
9,135
$
— $
— $ 124,749
(1) Excludes charge-offs of loans on accrual status.
Non-accrual loans increased $4.6 million, or 3.8%, in 2017 due mainly to an increase in non-accrual loan additions from $83.1
million in 2016 to $92.8 million in 2017. The non-accrual loan additions occurred mostly in commercial and construction loans,
and were not driven by one specific account or event. Non-accrual loan balances continued to be reduced through payments, return
to accrual status and charge-offs. Non-accrual loans to total loans decreased to 0.79% at December 31, 2017 from 0.82% in 2016.
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:
2017
2016
December 31,
2015
2014
(dollars in thousands)
2013
2017 vs. 2016
Increase (Decrease)
$
%
Commercial – industrial, financial and
Real estate – commercial mortgage .......
Real estate – residential mortgage .........
Real estate – home equity ......................
Real estate – construction ......................
Consumer ...............................................
Leasing...................................................
agricultural ......................................... $ 54,309
35,447
20,971
11,507
12,197
296
32
Total non-performing loans ............ $ 134,759
$ 43,460
$ 44,071
$ 30,388
$ 38,021
39,319
23,655
13,154
9,842
1,891
317
$ 131,638
41,170
28,484
14,683
12,460
2,440
1,506
$ 144,814
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
$ 10,849
(3,872)
(2,684)
(1,647)
2,355
(1,595)
(285)
3,121
$
25.0%
(9.8)
(11.3)
(12.5)
23.9
(84.3)
(89.9)
2.4%
Non-performing loans increased $3.1 million, or 2.4%, in comparison to December 31, 2016. As a percentage of total loans, non-
performing loans were 0.85% in 2017 and 0.90% in 2016.
Non-performing commercial loans increased $10.8 million, or 25.0%, in comparison to December 31, 2016. The increase occurred
mainly in the Pennsylvania market ($11.2 million, or 44.7%) and was partially offset by decreases in the Delaware and Maryland
markets. In comparison to December 31, 2016, non-performing construction loans increased $2.4 million, or 23.9%.
Geographically, the increase occurred mainly in the New Jersey ($2.0 million) and Virginia ($1.4 million) markets, partially offset
by decreases in the Delaware and Maryland markets.
These increases in commercial and construction non-performing loans were partially offset by decreases in commercial and
residential mortgages, home equity, consumer loans and leasing. Non-performing commercial mortgages decreased $3.9 million,
63
or 9.8%, with decreases occurring in the Maryland ($2.7 million, or 73.8%), Delaware ($1.6 million, or 23.2%) and New Jersey
($1.6 million, or 10.6%) markets, partially offset by increases in the Virginia and Pennsylvania markets.
Residential mortgage loans decreased $2.7 million, or 11.3%, in comparison to December 31, 2016. Geographically, the decrease
occurred mainly in the New Jersey ($1.9 million, or 28.8%) and Maryland ($1.2 million, or 58.1%) markets.
In comparison to December 31, 2016, non-performing home equity, consumer loans and leases decreased $3.5 million, or 23.0%.
Geographically, the decrease occurred mainly in the Pennsylvania market.
The following table summarizes OREO, by property type, as of December 31:
2017
2016
Residential properties...................................................................................................................... $
Commercial properties ....................................................................................................................
Undeveloped land ...........................................................................................................................
Total OREO ............................................................................................................................. $
$
(in thousands)
4,562
3,331
1,930
9,823
$
7,655
2,651
2,509
12,815
Total OREO as of December 31, 2017 decreased $3.0 million, or 23.3%, compared to December 31, 2016 as a result of various
factors related to general economic conditions but largely an increase in buyer activity resulting in OREO properties selling in a
shorter period of time.
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 in Item 8. "Financial
Statements and Supplementary Data." The evaluation of credit risk for residential mortgages, home equity loans, construction
loans to individuals, consumer loans and lease receivables is based on aggregate payment history, through the monitoring of
delinquency levels and trends.
Total internally risk rated loans were $11.6 billion and $10.9 billion as of December 31, 2017 and 2016, 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
2017 vs. 2016
Increase (Decrease)
Substandard or Lower
2017 vs. 2016
Increase (Decrease)
Total Criticized Loans
2017
2016
$
%
2017
2016
$
%
2017
2016
(dollars in thousands)
Real estate - commercial mortgage ..... $ 147,604
$ 132,484
$ 15,120
11.4 % $ 150,804
$ 122,976
$ 27,828
22.6% $ 298,408
$ 255,460
Commercial - secured..........................
121,842
128,873
(7,031)
Commercial -unsecured.......................
5,478
4,481
997
(5.5)
22.2
179,113
118,527
60,586
51.1
300,955
2,759
3,531
(772)
(21.9)
8,237
247,400
8,012
Total commercial - industrial,
financial and agricultural ............
127,320
133,354
(6,034)
(4.5)
181,872
122,058
59,814
49.0
309,192
255,412
Construction - commercial residential.
Construction - commercial ..................
5,259
846
15,447
3,412
(10,188)
(2,566)
(66.0)
(75.2)
14,084
3,752
13,172
5,115
912
6.9
(1,363)
(26.6)
19,343
4,598
28,619
8,527
Total real estate - construction
(excluding construction - other)..
6,105
18,859
(12,754)
(67.6)
17,836
18,287
(451)
(2.5)
23,941
37,146
Total ..................................................... $ 281,029
$ 284,697
$ (3,668)
(1.3)% $ 350,512
$ 263,321
$ 87,191
33.1% $ 631,541
$ 548,018
% of total risk rated loans ....................
2.4%
2.6%
3.0%
2.4%
5.4%
5.0%
As of December 31, 2017, total loans with risk ratings of special mention and substandard or lower were $83.5 million, or 15.2%,
higher than 2016, primarily the result of downgrades across various industries and geographic markets as part of the Corporation's
normal credit risk management processes.
64
The following table presents, by class segment, a summary of delinquency status and rates, as a percentage of total loans, for loans
that do not have internal risk ratings as of December 31:
Delinquent (1)
Non-performing (2)
Total Past Due
2017
2016
2017
2016
2017
2016
$
%
$
%
$
%
$
%
$
%
$
%
(dollars in thousands)
Real estate - home
equity................ $ 12,655
0.81% $
9,274
0.57% $ 11,507
0.74% $ 13,154
0.81% $ 24,162
1.55% $
22,428
1.38%
Real estate -
residential
mortgage ..........
Real estate -
construction -
other .................
Consumer - direct .
Consumer -
18,852
0.97
20,344
1.27
20,971
1.07
23,655
1.48
39,823
2.04
43,999
2.75
203
315
0.26
0.57
—
—
1,752
1.81
411
70
0.53
0.13
1,096
1,563
1.92
1.61
614
385
0.79
0.70
1,096
3,315
1.92
3.42
indirect .............
3,681
1.42
3,599
1.85
226
0.09
328
0.17
3,907
1.51
3,927
2.02
Total
Consumer........
Leasing, other and
Overdrafts ........
3,996
1.28
5,351
1.83
296
0.09
1,891
0.65
4,292
1.37
7,242
2.48
855
0.32
1,068
0.46
32
0.01
317
0.14
887
0.33
1,385
0.60
Total...................... $ 36,561
0.87% $ 36,037
0.95% $ 33,217
0.80% $ 40,113
1.05% $ 69,778
1.67% $
76,150
2.00%
(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 summarizes the allocation of the allowance for loan losses:
2017
2016
2015
2014
2013
% 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 ..................
58,793
40.3% $
46,842
40.9% $
47,866
39.5% $
53,493
39.6% $
55,659
39.9%
66,280
16,088
27.2
12.4
54,353
22,929
27.8
10.9
57,098
29.5
51,378
21,375
9.9
29,072
28.4
10.5
50,330
33,082
28.4
10.5
22,129
13.7
33,567
14.7
27,458
15.3
33,085
16.2
34,852
16.7
6,620
—
6.4
N/A
6,455
4,533
5.7
N/A
6,529
8,728
5.8
N/A
9,756
7,360
5.3
N/A
12,649
16,208
4.5
N/A
N/A – Not applicable
$ 169,910
100.0% $ 168,679
100.0% $ 169,054
100.0% $ 184,144
100.0% $ 202,780
100.0%
Management believes that the $169.9 million allowance for loan losses as of December 31, 2017 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.
Other Assets
Other assets decreased $24.5 million, or 3.7%, to $641.9 million as of December 31, 2017, primarily driven by a $15.6 million
decrease in net deferred tax assets resulting from the Tax Act.
65
Deposits and Borrowings
The following table summarizes the increase in ending deposits, by type:
2017
Increase (Decrease)
%
$
2016
(dollars in thousands)
Noninterest-bearing demand.......................................................... $ 4,437,294
4,018,107
Interest-bearing demand.................................................................
4,586,746
Savings and money market accounts .............................................
13,042,147
Total demand, savings and money market accounts...............
90,473
Brokered deposits...........................................................................
2,664,912
Time deposits .................................................................................
Total deposits........................................................................ $ 15,797,532
$ 4,376,137
3,703,712
4,179,773
12,259,622
—
2,753,242
$ 15,012,864
$
$
61,157
314,395
406,973
782,525
90,473
(88,330)
784,668
1.4%
8.5
9.7
6.4
N/M
(3.2)
5.2%
N/M - Not meaningful
Noninterest-bearing demand deposits increased $61.2 million, or 1.4%, primarily due to a $60.1 million increase in personal
account balances and a $56.8 million increase in business account balances, partially offset by a $63.6 million decrease in state
and municipal account balances. Interest-bearing demand accounts increased $314.4 million, or 8.5%, due to a $234.8 million, or
18.0%, increase in state and municipal account balances, a $70.8 million, or 3.4%, increase in personal account balances, and an
$8.8 million, or 2.7%, increase in business account balances. The $407.0 million, or 9.7%, increase in savings and money market
account balances was primarily due to a $478.0 million, or 17.0%, increase in personal account balances, largely driven by
promotional efforts throughout the year.
Brokered deposits totaled $90.5 million as of December 31, 2017. As previously noted, during the third quarter of 2017, the
Corporation began accepting deposits pursuant to an agreement with a non-bank third party, which are considered to be brokered
deposits. For more details, see "Net Interest Income" under "Results of Operations" above.
The following table summarizes the changes in ending borrowings, by type:
2017
Increase (Decrease)
%
$
2016
(dollars in thousands)
Short-term borrowings:
Customer repurchase agreements.............................................. $
Customer short-term promissory notes .....................................
Total short-term customer funding.....................................
Federal funds purchased............................................................
Total short-term borrowings .........................................
172,017
225,507
397,524
220,000
617,524
$
195,734
67,013
262,747
278,570
541,317
Long-term debt:
FHLB advances.........................................................................
Other long-term debt .................................................................
Total long-term debt...........................................................
652,113
261,233
913,346
Total borrowings....................................................... $ 1,530,870
567,240
362,163
929,403
$ 1,470,720
$
$
(23,717)
158,494
134,777
(58,570)
76,207
84,873
(100,930)
(16,057)
60,150
(12.1)%
N/M
51.3
(21.0)
14.1
15.0
(27.9)
(1.7)
4.1 %
N/M - Not meaningful
The $76.2 million, or 14.1%, increase in total short-term borrowings resulted from a $158.5 million increase in customer short-
term promissory notes, partially offset by a $23.7 million, or 12.1%, and a $58.6 million, or 21.0%, decrease in customer repurchase
agreements and Federal funds purchased, respectively. The $84.9 million increase in FHLB advances provided additional funding
to support loan growth. The increase in other long-term debt was primarily the result of the issuance of $125.0 million of senior
notes in March of 2017, partially offset by the repayment of the $100.0 million of 10-year subordinated notes, which matured on
May 1, 2017.
Other Liabilities
Other liabilities increased $14.1 million, or 4.2%, to $353.6 million as of December 31, 2017. The increase resulted primarily from
a $28.2 million increase in commitments to fund tax credit investments.
66
Shareholders’ Equity
Total shareholders’ equity increased $108.7 million, or 5.1%, to $2.2 billion, or 11.1%, of total assets, as of December 31, 2017.
The increase was due primarily to $171.8 million of net income, $8.5 million of common stock issued and a $5.5 million net
increase in accumulated other comprehensive income, partially offset by $82.2 million of common stock cash dividends.
In November 2017, the Corporation's board of directors approved an extension to 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, 2018. As of December 31, 2017, 1.5 million shares had been repurchased under
this program for a total cost of approximately $18.5 million, or $12.48 per share. Up to an additional $31.5 million of the
Corporation's common stock may be repurchased under this program through December 31, 2018.
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 and bank holding companies maintain minimum amounts
and ratios of total, Tier I and Common Equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and
Tier I capital to average assets (as defined).
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) ......................................
2017
13.0%
10.4%
10.4%
8.9%
2016
13.2%
10.4%
10.4%
9.0%
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 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 minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a Tier 1 capital ratio of 6.00%
of risk-weighted assets;
• Continue to require a minimum Total capital ratio of 8.00% of risk-weighted assets and a Tier 1 leverage capital ratio of
4.00% of average assets; 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 previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number
of categories, depending on the nature of the assets and off-balance sheet exposures, resulting in higher risk weights for a variety
of asset categories.
As of December 31, 2017, 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, 2017, the Corporation's capital levels also met the fully-phased in
67
minimum capital requirements, including the capital conservation buffers, as prescribed in the U.S. Basel III Capital Rules. See
"Note 11 - Regulatory Matters," in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and
Supplementary Data."
Contractual Obligations and Off-Balance Sheet Arrangements
The Corporation has various financial obligations that require future cash payments. These obligations include payments for
liabilities recorded on the Corporation’s consolidated balance sheets 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, 2017:
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) .................. $ 13,132,620
Time deposits (2)................................................
1,085,369
Short-term borrowings (3)..................................
617,524
Long-term debt (3) .............................................
99,217
Operating leases (4)............................................
17,417
Purchase obligations (5) .....................................
26,825
Uncertain tax positions (6) .................................
2,550
$
— $
— $
1,302,923
—
344,313
30,322
43,884
—
199,478
—
329,129
23,751
10,204
—
— $ 13,132,620
2,664,912
617,524
1,038,344
117,395
80,913
2,550
77,142
—
265,685
45,905
—
—
Includes demand deposits, savings accounts and brokered deposits, which can be withdrawn 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 sheets. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional
commitments issued to guarantee the financial or performance obligation of a customer to a third party. 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.
The following table presents the Corporation’s commitments to extend credit and letters of credit as of December 31, 2017 (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 ......................................................................................................................... $
3,689,700
1,422,284
1,093,045
6,205,029
326,973
41,801
368,774
68
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.
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 does it 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) as of December 31, 2017:
Rate Shock (1)
+300 bp ........................................................................................................
+200 bp ........................................................................................................
+100 bp ........................................................................................................
–100 bp.........................................................................................................
Annual change
in net interest income
+ $92.2 million
+ $63.5 million
+ $32.6 million
– $50.4 million
% Change in net
interest income
+ 14.7%
+ 10.1%
+ 5.2%
– 8.0%
(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
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
69
point shock. As of December 31, 2017, 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 interest income if rates on interest-earning assets do not
increase in proportion. Borrowing availability with the FHLB and the FRB, 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, 2017, the Corporation had $652.1 million of short- and long-term advances outstanding from the FHLB with
an additional borrowing capacity of approximately $3.6 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, 2017, the Corporation had aggregate availability under federal funds lines of $1.2 billion, with $220.0 million
borrowed against that amount. A combination of commercial real estate loans, commercial loans and securities are pledged to the
FRB of Philadelphia to provide access to FRB Discount Window borrowings. As of December 31, 2017, the Corporation had
$617.4 million of collateralized borrowing availability at the Discount Window, and no outstanding borrowings.
Liquidity must also be managed at the 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. See "Note 11 -
Regulatory Matters - Dividend and Loan Limitations" in the Notes to Consolidated Financial Statements in Item 8. "Financial
Statements and Supplementary Data" for additional information concerning limitations on the dividends that may be paid to the
Corporation, and loans that may be granted to the Corporation and its affiliates, by the Corporation's subsidiary banks. 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 2017 generated $258.8 million of cash, mainly due to net income. Cash used in investing activities was $1.2
billion, due to net increases in loans and investment securities. Net cash provided by financing activities was $897.1 million due
mainly to increases in deposits.
70
The following table presents the expected maturities of available for sale investment securities, at estimated fair value, as of
December 31, 2017 and the weighted average yields of such securities (calculated based on historical cost):
Maturing
Within One Year
After One But
Within Five Years
After Five But
Within Ten Years
After Ten Years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(dollars in thousands)
U.S. Government sponsored agency
securities .................................................... $
State and municipal (1) ...................................
Auction rate securities (2) ...............................
Corporate debt securities ...............................
1
1.29% $
3
1.91% $
5,934
2.53% $
—
—%
13,771
3.90
24,115
3.91
40,081
5.69
330,982
—
—
—
—
—
—
3,148
8.09
9,447
3.18
67,149
3.84
98,668
17,565
4.78
2.90
4.28
Total....................................................... $
Collateralized mortgage obligations (3).......... $
602,623
Residential mortgage-backed securities (3) .... $ 1,120,796
Commercial mortgage-backed securities (3) .. $
212,755
16,920
4.67% $
33,565
3.71% $ 113,164
4.41% $ 447,215
4.31%
2.18%
2.24%
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 auction rate securities are based on contractual maturities.
(3) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the
underlying loans. For the purpose of this table, all balances and weighted average rates are shown in one period. As of December 31, 2017, 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 maturities of fixed rate loans and loan types subject to changes in interest
rates as of December 31, 2017:
One Year
or Less
One
Through
Five Years
More Than
Five Years
Total
(in thousands)
Commercial - industrial, financial and agricultural
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
Real estate – mortgage (1):
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
Real estate – construction:
947,790
219,626
1,167,416
1,383,727
506,451
1,890,178
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
295,248
89,667
384,915
$
$
$
$
$
$
2,069,501
335,488
2,404,989
4,016,947
1,109,590
5,126,537
356,802
10,048
366,850
$
$
$
$
$
$
441,292
286,600
727,892
2,306,955
555,564
2,862,519
238,650
16,520
255,170
$
$
$
$
$
$
3,458,583
841,714
4,300,297
7,707,629
2,171,605
9,879,234
890,700
116,235
1,006,935
(1) Includes commercial mortgages, residential mortgages and home equity loans.
71
Contractual maturities of time deposits as of December 31, 2017 were as follows (in thousands):
Year
2018.......................................................................................................................................................................... $ 1,085,369
866,233
2019..........................................................................................................................................................................
436,690
2020..........................................................................................................................................................................
122,516
2021..........................................................................................................................................................................
76,962
2022..........................................................................................................................................................................
77,142
Thereafter .................................................................................................................................................................
$ 2,664,912
Contractual maturities of time deposits of $100,000 or more outstanding, included in the table above, as of December 31, 2017
were as follows (in thousands):
Three months or less ................................................................................................................................................ $
Over three through six months .................................................................................................................................
Over six through twelve months ..............................................................................................................................
Over twelve months .................................................................................................................................................
147,094
111,628
194,555
728,579
Total................................................................................................................................................................... $ 1,181,856
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. The Corporation's exposure to equity market price risk has been greatly reduced
over the past several years. The fair value of equity investments in the investments securities portfolio were $918,000 at
December 31, 2017.
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 the U.S. or international
securities markets in general or otherwise, the Corporation’s revenue would be negatively impacted. Total assets under management
were $7.1 billion at December 31, 2017. 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.
State and Municipal Securities
As of December 31, 2017, the Corporation owned state and municipal securities issued by various states and municipalities with
a total fair value of $408.9 million. Ongoing uncertainty with respect to the financial strength of state and municipal bond insurers
places much greater emphasis on the underlying strength of issuers. Continued pressure on local tax revenues of issuers due to
adverse economic conditions could have an adverse impact on the underlying credit quality of issuers. The Corporation evaluates
existing and potential holdings primarily based on the underlying creditworthiness of the issuing state or municipality and then,
to a lesser extent, on any credit enhancement. State and municipal securities can be supported by the general obligation of the
issuing state or municipality, allowing the securities to be repaid by any means available to the issuing state or municipality. As
of December 31, 2017, approximately 98% of state and municipal securities were supported by the general obligation of
corresponding states or municipalities. Approximately 61% of these securities were school district issuances, which are also
supported by the states of the issuing municipalities.
72
Auction Rate Securities
As of December 31, 2017, the Corporation’s investments in student loan auction rate securities, also known as auction rate
certificates ("ARCs"), had a cost basis of $107.4 million and an estimated fair value of $98.7 million. 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 that may not represent those that could 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, 2017, all of the ARCs were rated above investment grade, with approximately $5.6 million, or 6%,
"AAA" rated and $93.0 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, 2017, 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 single-issuer trust preferred securities and subordinated debt issued
by financial institutions. As of December 31, 2017, these securities had an amortized cost of $96.4 million and an estimated fair
value of $97.3 million.
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.
73
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share data)
December 31,
2017
2016
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 ...........................................................................................................................
108,291
293,805
60,761
31,530
2,547,956
15,768,247
(169,910)
15,598,337
222,802
52,910
531,556
588,957
Total Assets................................................................................................................ $ 20,036,905
$
118,763
233,763
57,489
28,697
2,559,227
14,699,272
(168,679)
14,530,593
217,806
46,294
531,556
620,059
$ 18,944,247
Liabilities
Deposits:
Noninterest-bearing........................................................................................................ $
Interest-bearing ..............................................................................................................
Total Deposits............................................................................................................
4,437,294
11,360,238
15,797,532
$
4,376,137
10,636,727
15,012,864
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, 220.9 million shares
220,000
397,524
617,524
9,317
344,329
1,038,346
17,807,048
278,570
262,747
541,317
9,632
329,916
929,403
16,823,132
issued in 2017 and 219.9 million shares issued in 2016 ................................................
552,232
1,478,389
Additional paid-in capital......................................................................................................
821,619
Retained earnings ..................................................................................................................
(32,974)
Accumulated other comprehensive loss................................................................................
Treasury stock, 45.7 million shares in 2017 and 45.8 million shares in 2016 ......................
(589,409)
2,229,857
Total Shareholders’ Equity ........................................................................................
Total Liabilities and Shareholders’ Equity................................................................ $ 20,036,905
549,707
1,467,602
732,099
(38,449)
(589,844)
2,121,115
$ 18,944,247
See Notes to Consolidated Financial Statements
74
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share data)
Interest Income
Loans, including fees ..................................................................................................................... $
Investment securities:
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
Other service charges and fees.......................................................................................................
Service charges on deposit accounts..............................................................................................
Investment management and trust services....................................................................................
Mortgage banking income .............................................................................................................
Other ..............................................................................................................................................
Non-interest income before investment securities gains .......................................................
Investment securities gains, net .....................................................................................................
Total Non-Interest Income...................................................................................
Non-Interest Expense
Salaries and employee benefits......................................................................................................
Net occupancy expense..................................................................................................................
Data processing and software ........................................................................................................
Other outside services ....................................................................................................................
Equipment expense ........................................................................................................................
Professional fees ............................................................................................................................
FDIC insurance expense ................................................................................................................
Amortization of tax credit investments..........................................................................................
State taxes ......................................................................................................................................
Marketing.......................................................................................................................................
Loss on redemption of trust preferred securities............................................................................
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
2017
2016
2015
603,961
$
543,385
$
524,060
47,028
11,566
369
876
5,066
668,866
57,791
2,779
32,932
93,502
575,364
23,305
552,059
52,859
51,006
49,249
19,928
25,861
198,903
9,071
207,974
290,130
49,708
38,735
27,501
12,935
12,688
11,049
11,028
10,051
8,034
—
53,720
525,579
234,454
62,701
171,753
0.98
0.98
0.47
$
$
44,975
9,662
571
728
3,779
603,100
44,693
855
36,780
82,328
520,772
13,182
507,590
51,473
51,346
45,270
19,415
20,124
187,628
2,550
190,178
283,353
47,611
36,919
23,883
12,788
11,004
9,767
—
6,405
7,044
—
50,745
489,519
208,249
46,624
161,625
0.93
0.93
0.41
$
$
45,279
7,879
985
801
4,785
583,789
40,482
372
42,941
83,795
499,994
2,250
497,744
43,992
50,097
44,056
18,208
16,420
172,773
9,066
181,839
260,832
47,777
34,640
27,785
14,514
11,244
11,470
—
7,297
7,324
5,626
51,651
480,160
199,423
49,921
149,502
0.85
0.85
0.38
75
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net Income..............................................................................................................................................
$ 171,753
$ 161,625
$ 149,502
2017
2016
2015
Other Comprehensive Income (Loss), net of tax:
Unrealized (losses) gains on available for sale investment securities:
Unrealized gain (loss) on securities...................................................................................................
10,432
(14,891)
Reclassification adjustment for securities gains included in net income ..........................................
(5,894)
Non-credit related unrealized gain (loss) on other-than-temporarily impaired debt securities.........
Net unrealized gains (losses) on available for sale investment securities .........................................
Unrealized gains on derivative financial instruments:
Amortization of unrealized loss 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 (cost) income .................................................................
Amortization of net unrecognized pension and postretirement income............................................
Net unrealized gains on defined benefit pension and postretirement plans ......................................
Other Comprehensive Income (Loss)...........................................................................................
185
4,723
—
—
—
(609)
1,361
752
5,475
(1,657)
(185)
(7,717)
(5,892)
239
(16,733)
(13,370)
16
—
16
(931)
1,216
285
75
2,456
2,531
4,680
1,864
6,544
(16,432)
(4,295)
Total Comprehensive Income .......................................................................................................
$ 177,228
$ 145,193
$ 145,207
See Notes to Consolidated Financial Statements
76
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, 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
Net income ....................................................................
Other comprehensive loss .............................................
161,625
(16,432)
Stock issued, including related tax benefits ..................
1,350
2,566
Stock-based compensation awards................................
Acquisition of treasury stock.........................................
(1,486)
Common stock cash dividends - $0.41 per share ..........
10,356
6,556
(71,114)
4,209
(18,545)
161,625
(16,432)
17,131
6,556
(18,545)
(71,114)
Balance at December 31, 2016.............................................
174,040
$
549,707
$ 1,467,602
$
732,099
$
(38,449)
$
(589,844)
$
2,121,115
Net income ....................................................................
Other comprehensive income........................................
Stock issued...................................................................
1,130
2,525
Stock-based compensation awards................................
Common stock cash dividends - $0.47 per share ..........
171,753
(82,233)
5,578
5,209
5,475
435
171,753
5,475
8,538
5,209
(82,233)
Balance at December 31, 2017.............................................
175,170
$
552,232
$ 1,478,389
$
821,619
$
(32,974)
$
(589,409) $
2,229,857
See Notes to Consolidated Financial Statements
77
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:
171,753
$
161,625
$
149,502
2017
2016
2015
Provision for credit losses ...................................................................................
Depreciation and amortization of premises and equipment ................................
Net amortization of investment security premiums ............................................
Deferred income tax expense ..............................................................................
Re-measurement of net deferred tax asset...........................................................
Investment securities gains, net...........................................................................
Gains on sales of mortgage loans held for sale ...................................................
Proceeds from sales of mortgage loans held for sale ..........................................
Originations of mortgage loans held for sale ......................................................
Amortization of intangible assets........................................................................
Amortization of issuance costs and discount of long-term debt .........................
Stock-based compensation ..................................................................................
Excess tax benefits from stock-based compensation ..........................................
Increase in accrued interest receivable................................................................
Loss on redemption of trust preferred securities.................................................
Decrease (increase) in other assets......................................................................
Decrease in accrued interest payable ..................................................................
(Decrease) increase 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..............................................................
(Increase) decrease 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 increase (decrease) in time deposits .............................................................
Increase in short-term borrowings.......................................................................
Additions to long-term debt ................................................................................
Repayments of long-term debt ............................................................................
Net proceeds from issuance of common stock....................................................
Excess tax benefits from stock-based compensation ..........................................
Dividends paid.....................................................................................................
Acquisition of treasury stock...............................................................................
Net cash provided by financing activities.................................................
Net (decrease) increase in Cash and Due From Banks ...............................................
Cash and Due From Banks at Beginning of Year........................................................
Cash and Due From Banks at End of Year.................................................................. $
Supplemental Disclosures of Cash Flow Information
Cash paid during period for:
23,305
28,096
10,107
24,896
15,635
(9,071)
(13,036)
644,400
(634,197)
—
845
5,209
—
(6,616)
—
29,227
(315)
(31,412)
87,073
258,826
184,734
417,673
(584,921)
(63,314)
(1,087,521)
(33,092)
(1,166,441)
782,525
2,143
76,207
223,251
(115,153)
8,538
—
(80,368)
—
897,143
(10,472)
118,763
108,291
Interest................................................................................................................. $
Income taxes........................................................................................................
93,817
6,537
See Notes to Consolidated Financial Statements
13,182
27,403
10,430
11,054
—
(2,550)
(15,685)
709,316
(705,442)
—
617
6,556
(964)
(3,527)
—
(29,940)
(1,092)
4,427
23,785
185,410
115,844
558,854
(782,765)
1,264
(873,939)
(19,674)
(1,000,416)
992,253
(111,706)
43,654
215,884
(236,640)
16,167
964
(69,382)
(18,545)
832,649
17,643
101,120
118,763
83,420
16,193
$
$
$
$
2,250
27,605
7,330
13,424
—
(9,066)
(13,264)
757,850
(743,950)
247
582
5,938
(201)
(949)
5,626
(22,987)
(7,321)
4,928
28,042
177,544
66,480
439,533
(683,839)
130,567
(743,655)
(27,113)
(818,027)
971,312
(206,501)
167,944
347,778
(540,079)
10,607
201
(65,361)
(50,000)
635,901
(4,582)
105,702
101,120
91,116
13,378
78
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, investment securities and other interest-earning assets
and fee income earned on its products and services. Its expenses consist of interest expense on deposits and borrowed funds,
provision for credit losses, other operating expenses and income taxes. The Corporation’s primary competition is other financial
services providers operating in its region. Competitors also include financial services providers located outside the Corporation’s
geographic market as a result of the growth in electronic delivery 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 ("FRB") and Federal Home Loan Bank Stock: Certain of the Corporation's wholly owned banking
subsidiaries are members of the FRB 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
79
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 other off-balance sheet credit exposures, such
as letters of credit, 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 appropriate 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,
80
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 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 evaluated 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 evaluated 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, 2017 and 2016, 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 appraisals performed by state certified third-party appraisers for impaired loans secured predominantly
by real estate every 12 months.
As of December 31, 2017 and 2016, approximately 94% and 62%, 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 appraisals
performed by state certified third-party appraisers that had been updated within the preceding 12 months.
When updated appraisals are not obtained for loans secured by real estate and evaluated for impairment under FASB ASC Section
310-10-35, 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%.
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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 for loan loss allocation needs for loans evaluated 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 an 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. Prior to 2017,
the Corporation maintained an unallocated allowance for credit losses 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. In
2017, enhancements were made to allow for the impact of these factors and conditions to be quantified in the allowance allocation
process. Accordingly, an unallocated allowance for credit losses is no longer necessary. This change did not have a material impact.
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.
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 other non-interest 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
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life is based on the contractual terms of the loans, as adjusted for prepayment projections. To the extent the amortized cost of the
MSRs exceeds their estimated fair value, a valuation allowance is established through a charge against servicing income, included
as a component of mortgage banking income on the consolidated statements of income. If subsequent valuations indicate that
impairment no longer exists, the valuation allowance is reduced through an increase to servicing income.
Derivative Financial Instruments: The Corporation manages its exposure to certain interest rate and foreign currency risks
through the use of derivatives. None of the Corporation's outstanding derivative contracts are designated as hedges and none are
entered into for speculative purposes. Derivative instruments are carried at fair value, with changes in fair value 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 and the gross fair values are
recorded in other assets and other liabilities on the consolidated balance sheets, with changes in fair value during the period recorded
in other non-interest expense on the consolidated statements of income. Fulton Bank, N.A. ("Fulton Bank"), the Corporation's
largest banking subsidiary, exceeded $10 billion in total assets as of December 31, 2016 and was required to clear all eligible
interest rate swap contracts with a central counterparty, effective January 1, 2017. As a result, Fulton Bank became subject to the
regulations of Commodity Futures Trading Commission ("CFTC") on that date.
Foreign Exchange Contracts
The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts
are commitments to buy or sell foreign currency on a specific date at a contractual price. The Corporation offsets its foreign
exchange exposure with customers by entering into contracts with correspondent financial institutions to mitigate its foreign
exchange risk. The Corporation also holds certain amounts of foreign currency with international correspondent banks ("Foreign
Currency Nostro Accounts"). The Corporation limits the total overnight net foreign currency open positions, which is defined as
an aggregate of all outstanding contracts and Foreign Currency Nostro Account balances, to $500,000. Gross fair values are
recorded in other assets and other liabilities 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 because 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. A daily settlement
occurs through a clearing agent for changes in the fair value of centrally cleared derivatives. As a result, the total fair values of
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interest rate swap derivative assets and derivative liabilities recognized on the consolidated balance sheet are not equal and
offsetting.
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."
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. The Corporation considers 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 whether it is 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, 2017 and 2016.
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.
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The fair value of stock options, restricted stock and RSUs granted to employees is recognized as compensation expense over the
vesting period for such awards. Compensation expense for PSUs is also recognized over the vesting period, however, compensation
expense for PSUs may vary based on the expectations for actual performance relative to defined performance measures.
Net Income Per Share: Basic net income per common share is calculated as net income divided by the weighted average number
of shares outstanding.
Diluted net income per share is calculated as net income divided by the weighted average number of shares outstanding plus the
incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock
method. The Corporation’s common stock equivalents consist of outstanding stock options, restricted stock, RSUs and PSUs.
PSUs are required to be included in weighted average 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)......................................
2017
174,721
1,211
175,932
2016
(in thousands)
173,325
1,093
174,418
2015
175,721
1,053
176,774
In 2016 and 2015, 534,000 and 1.7 million stock options, respectively, were excluded from the diluted earnings per share
computation as their effect would have been anti-dilutive. There were no stock options excluded from the diluted net income per
share computation in 2017.
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 geographic area. The Corporation’s non-banking
activities are immaterial and, therefore, separate information is not required to be 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 tests, the
Corporation concluded that there was no impairment in 2017, 2016 or 2015. 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
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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.
Subsidiary Trusts
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.
Tax Credit Investments
The Corporation makes investments in certain community development projects that generate tax credits under various federal
programs, including qualified affordable housing projects, New Markets Tax Credit ("NMTC") projects and historic rehabilitation
projects (collectively, "Tax Credit Investments"). These investments are made throughout the Corporation's market area as a means
of supporting the communities it serves. The Corporation typically acts as a limited partner or member of a limited liability company
in its Tax Credit Investments and does not exert control over the operating or financial policies of the partnership or limited liability
company. Tax credits earned are subject to recapture by federal taxing authorities based upon compliance requirements to be met
at the project level. As of December 31, 2017 and 2016, the Corporation’s Tax Credit Investments, included in other assets on the
consolidated balance sheets and representing total committed equity investments, totaled $205.8 million and $186.4 million,
respectively. As of December 31, 2017, the Corporation had future funding commitments, included in other liabilities on the
consolidated balance sheets, of approximately $68.8 million.
Because the Corporation owns 100% of the equity interests in its New Markets Tax Credit investments, these investments were
consolidated based on FASB ASC Topic 810 as of December 31, 2017 and 2016. Investments in affordable housing projects were
not consolidated based on management's assessment of the provisions of FASB ASC Topic 810.
Tax Credit Investments are tested for impairment when events or changes in circumstances indicate that it is more likely than not
that the carrying amount of the investment will not be realized. An impairment loss is measured as the amount by which the current
carrying value exceeds its aggregated remaining value of the tax benefits of the investment. There were no impairment losses
recognized for the Corporation’s Tax Credit Investments in 2017, 2016 or 2015.
Amortization expense for qualified affordable housing projects is recorded as a component of income taxes on the consolidated
statements of income. This expense, net of federal tax benefits, totaled $13.4 million, $11.2 million and $9.8 million in 2017, 2016
and 2015, respectively.
Amortization expense for NMTC and historical rehabilitation investments entered into prior to 2017 was recorded as a component
of income taxes on the consolidated statements of income. The expense on these prior investments, net of federal tax benefits,
totaled $2.2 million, $3.1 million and $2.6 million in 2017, 2016 and 2015, respectively. Amortization expense for these types of
investments entered into after 2016 is recorded in non-interest expense on the consolidation statement of income. This expense
totaled $11.0 million in 2017.
The income tax credits earned on Tax Credit Investments, recorded as a reduction to income taxes on the consolidated statements
of income, were $41.4 million in 2017, $31.8 million in 2016 and $26.0 million in 2015.
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.
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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 March 2016, the FASB issued ASC Update 2016-09, "Stock Compensation:
Improvements to Employee Share-Based Payment Accounting." The purpose of this standards update is to simplify several aspects
of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liability, and classification on the statement of cash flows. ASC Update 2016-09 was effective for interim and annual
reporting periods beginning after December 15, 2016, with early adoption permitted. For the Corporation, this standards update
was effective with its March 31, 2017 quarterly report on Form 10-Q. As a result of adopting ASC Update 2016-09, excess tax
benefits from stock-based compensation totaling $1.3 million were recognized in 2017 as a reduction to income taxes, rather then
as an adjustment to additional paid-in capital.
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. The FASB has issued
amendments to this standard (ASC Updates 2016-08, 2016-10, 2016-11, 2016-12 and 2017-13). These amendments provide further
clarification to the standard. For public business entities, ASC Update 2014-09 is effective for interim and annual reporting periods
beginning after December 15, 2017. For the Corporation, this standards update is effective with its March 31, 2018 quarterly report
on Form 10-Q. The Corporation evaluated the impact of the adoption of ASC Update 2014-09 on its consolidated financial
statements and did not identify any significant changes in the timing of revenue recognition as a result of this amended guidance.
The Corporation adopted this standards update on January 1, 2018, under the modified retrospective approach, and the adoption
of ASC Update 2014-09 did not 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 option
is elected. This standards update will require equity investments to be measured at fair value, with changes recorded in net income.
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 adopted this standards update on January 1, 2018 and the adoption of ASC
Update 2016-01 did not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASC Update 2016-02, "Leases." This standards update requires a lessee to 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. The
standards update also requires expanded qualitative and quantitative disclosures. In September of 2017, the FASB issued clarifying
guidance to this standard (ASC Update 2017-13). 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, which requires restatement of all comparative periods in the year of adoption. Early adoption 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. The Corporation currently
operates a number of branches that are leased, with the leases accounted for as operating leases that are not recognized on the
consolidated balance sheet. Under ASC Update 2016-02, right-of-use assets and lease liabilities will need to be recognized on the
consolidated balance sheet for these branches, which will also have an impact on regulatory capital ratios. The recognition of
operating leases on the consolidated balance sheet is expected to be the most significant impact of the adoption of this standards
update.
In June 2016, the FASB issued ASC Update 2016-13, "Financial Instruments - Credit Losses." The new impairment model
prescribed by this standards update is a single impairment model for all financial assets (i.e., loans and investments). The recognition
of credit losses would be based on an entity’s current estimate of expected losses (referred to as the Current Expected Credit Loss
model, or "CECL"), as opposed to recognition of losses only when they are probable (current practice). ASC Update 2016-13 is
effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Corporation
intends to adopt this standards update effective with its March 31, 2020 quarterly report on Form 10-Q. The Corporation is currently
evaluating the impact of the adoption of ASC Update 2016-13 on its consolidated financial statements.
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In August 2016, the FASB issued ASC Update 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and
Cash Payments." This standards update provides guidance regarding the presentation of certain cash receipts and cash payments
in the statement of cash flows, addressing eight specific cash flow classification issues, in order to reduce existing diversity in
practice. ASC Update 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early
adoption is 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 2016-15 to have a material impact on its consolidated financial
statements.
In November 2016, the FASB issued ASC Update 2016-18, "Statement of Cash Flows - Restricted Cash." This standards update
provides guidance regarding the presentation of restricted cash in the statement of cash flows. The update requires companies to
include amounts generally described as restricted cash and restricted cash equivalents, along with cash and cash equivalents, when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. It also requires an
entity to disclose the nature of the restrictions on cash and cash equivalents. ASC Update 2016-18 is effective for interim and
annual reporting periods beginning after December 15, 2017. Early adoption is 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
2016-18 to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASC Update 2017-04, "Intangibles - Goodwill and Other." This standards update eliminates
Step 2 of the goodwill impairment test which measures the impairment amount. Identifying and measuring impairment will take
place in a single quantitative step. In addition, no separate qualitative assessment for reporting units with zero or negative carrying
amount is required. Entities must disclose the existence of these reporting units and the amount of goodwill allocated to them.
This update should be applied on a prospective basis, and an entity is required to disclose the nature of and reason for the change
in accounting principle upon transition. ASC Update 2017-04 is effective for annual or interim goodwill impairment tests in
reporting periods beginning after December 15, 2019. Early adoption is permitted. The Corporation intends to adopt this standards
update effective with its 2020 goodwill impairment test and does not expect the adoption of ASC Update 2017-04 to have a material
impact on its consolidated financial statements.
In March 2017, the FASB issued ASC Update 2017-07, "Improving the Presentation of Net Periodic Pension Costs and Net Periodic
Benefit Cost." This standards update requires a company to present service cost separately from the other components of net
benefit cost. In addition, the update provides explicit guidance on how to present the service cost component and the other
components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible
for capitalization. ASC Update 2017-07 is effective for annual or interim reporting periods beginning after December 15, 2017.
Early adoption is 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 2017-07 to have a material impact on its consolidated
financial statements.
In March 2017, the FASB issued ASC Update 2017-08, "Premium Amortization on Purchased Callable Debt Securities." This
standards update requires that a company amortize the premium on callable debt securities to the earliest call date versus current
U.S. GAAP, which requires amortization over the contractual life of the securities. The amortization period for callable debt
securities purchased at a discount would not be impacted by the new accounting standards update. This amendment is to be adopted
on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of
adoption. ASC Update 2017-08 is effective for annual or interim reporting periods beginning after December 15, 2018. Early
adoption is permitted. The Corporation intends to adopt this standards update effective with its March 31, 2019 quarterly report
on Form 10-Q and does not expect the adoption of ASC Update 2017-08 to have a material impact on its consolidated financial
statements.
In February 2018, the FASB issued ASC Update 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income." This standards update permits a reclassification from accumulated other comprehensive income to
retained earnings of the stranded tax effects resulting from the application of the new federal corporate income tax rate. ASC
Update 2018-02 is effective for annual or interim reporting periods beginning after December 15, 2018. Early adoption is 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 2018-02 to have a material impact on its consolidated financial statements.
Reclassifications: Certain amounts in the 2016 and 2015 consolidated financial statements and notes have been reclassified to
conform to the 2017 presentation.
88
NOTE 2 – RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation’s subsidiary banks are required to maintain reserves against their deposit liabilities. These reserves are in the
form of cash and balances with the FRB, included in interest-bearing deposits with other banks. The amounts of such reserves as
of December 31, 2017 and 2016 were $124.4 million and $113.3 million, respectively.
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)
2017
5,962
U.S. Government sponsored agency securities ........................... $
405,860
State and municipal securities .....................................................
96,353
Corporate debt securities .............................................................
611,927
Collateralized mortgage obligations............................................
1,132,080
Residential mortgage-backed securities ......................................
215,351
Commercial mortgage-backed securities ....................................
107,410
Auction rate securities .................................................................
2,574,943
Total debt securities..................................................................
776
Equity securities ..........................................................................
Total.......................................................................................... $ 2,575,719
2016
132
U.S. Government sponsored agency securities ........................... $
405,274
State and municipal securities .....................................................
112,016
Corporate debt securities .............................................................
604,095
Collateralized mortgage obligations............................................
1,328,192
Residential mortgage-backed securities ......................................
25,100
Commercial mortgage-backed securities ....................................
107,215
Auction rate securities .................................................................
2,582,024
Total debt securities..................................................................
12,231
Equity securities ..........................................................................
Total .......................................................................................... $ 2,594,255
$
$
$
$
2
5,638
2,832
491
3,957
—
—
12,920
142
13,062
2
2,043
1,978
1,943
6,546
—
—
12,512
12,295
24,807
$
$
$
$
(26) $
5,938
408,949
97,309
602,623
1,120,796
212,755
98,668
2,547,038
918
(40,825) $ 2,547,956
(2,549)
(1,876)
(9,795)
(15,241)
(2,596)
(8,742)
(40,825)
—
— $
(15,676)
(4,585)
(12,178)
(16,900)
(537)
(9,959)
(59,835)
—
134
391,641
109,409
593,860
1,317,838
24,563
97,256
2,534,701
24,526
(59,835) $ 2,559,227
Securities carried at $1.8 billion at both December 31, 2017 and 2016 were pledged as collateral to secure public and trust deposits
and customer repurchase agreements.
89
The amortized cost and estimated fair values of debt securities as of December 31, 2017, 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 ..........................................................................................................................
16,837
33,191
112,181
453,376
615,585
1,132,080
215,351
611,927
Total debt securities ................................................................................................................. $ 2,574,943
Residential mortgage-backed securities(1) ......................................................................................
Commercial mortgage-backed securities(1) .....................................................................................
Collateralized mortgage obligations (1) ...........................................................................................
$
16,920
33,565
113,164
447,215
610,864
1,120,796
212,755
602,623
$ 2,547,038
(1) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the
underlying loans.
The following table presents information related to gross gains and losses on the sales of equity and debt securities:
Gross
Realized
Gains
Gross
Realized
Losses
(in thousands)
Net
Gains
(Losses)
2017:
Equity securities .................................................................................................... $
Debt securities.......................................................................................................
Total ............................................................................................................... $
2016:
Equity securities .................................................................................................... $
Debt securities.......................................................................................................
Total ............................................................................................................... $
2015:
Equity securities .................................................................................................... $
Debt securities.......................................................................................................
Total ............................................................................................................... $
13,558
315
13,873
2,005
581
2,586
6,496
2,571
9,067
$
$
$
$
$
$
— $
(4,802)
(4,802) $
13,558
(4,487)
9,071
(10) $
(26)
(36) $
(1) $
—
(1) $
1,995
555
2,550
6,495
2,571
9,066
90
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:
2017
2016
(in thousands)
2015
Balance of cumulative credit losses on debt securities, beginning of year ........................ $ (11,510) $ (11,510) $ (16,242)
4,730
Reductions for securities sold during the period ................................................................
Reductions for increases in cash flows expected to be collected that are recognized
—
—
over the remaining life of the security............................................................................
2
Balance of cumulative credit losses on debt securities, end of year .................................. $ (11,510) $ (11,510) $ (11,510)
—
—
The credit related other-than-temporary impairment charges for debt securities were determined based on expected cash flows
models.
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, 2017. There
were no gross unrealized losses on equity securities as of December 31, 2017.
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 ...................... $
State and municipal securities ..
Corporate debt securities ..........
Collateralized mortgage
obligations.............................
Residential mortgage-backed
securities...................................
5,830
$
(26) $
— $
— $
5,830
$
11,650
4,544
(50)
(48)
118,297
32,163
(2,499)
(1,828)
129,947
36,707
(26)
(2,549)
(1,876)
303,932
(2,408)
187,690
(7,387)
491,622
(9,795)
511,378
(4,348)
500,375
(10,893)
1,011,753
(15,241)
Commercial mortgage-backed
securities...................................
Auction rate securities ..............
—
Total................................... $ 1,028,319
190,985
(2,118)
—
21,770
98,668
$
(8,998) $
958,963
$
212,755
(478)
(8,742)
98,668
(31,827) $ 1,987,282
$
(2,596)
(8,742)
(40,825)
For comparative purposes, the following table presents gross unrealized losses and the estimated fair value of investments,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position,
at December 31, 2016.
Less Than 12 months
12 Months or Longer
Total
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
247,509
$
(15,676) $
— $
— $
247,509
$
11,922
(110)
34,629
(4,475)
46,551
(in thousands)
State and municipal securities .. $
Corporate debt securities ..........
Collateralized mortgage
obligations.............................
Mortgage-backed securities......
Auction rate securities ..............
—
Total................................... $ 1,563,846
166,905
1,137,510
(3,899)
(17,437)
—
258,237
—
97,256
$
(37,122) $
390,122
$
425,142
(8,279)
—
(9,959)
97,256
(22,713) $ 1,953,968
1,137,510
$
(15,676)
(4,585)
(12,178)
(17,437)
(9,959)
(59,835)
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
91
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, 2017.
As of December 31, 2017, all student loan auction rate certificates ("ARCs") were rated above investment grade. All of the loans
underlying the ARCs have principal payments which are guaranteed by the federal government. All of the loans were current and
making scheduled payments and, based on management’s evaluations, were not subject to any other-than-temporary impairment
charges as of December 31, 2017. 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.
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:
2017
2016
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
Single-issuer trust preferred securities ........................................ $
Subordinated debt........................................................................
Senior notes .................................................................................
Pooled trust preferred securities ..................................................
Corporate debt securities issued by financial institutions ....
Other corporate debt securities....................................................
Available for sale corporate debt securities.......................... $
31,335
49,013
12,031
—
92,379
3,974
96,353
$
$
$
(in thousands)
30,703
49,533
12,392
707
93,335
3,974
97,309
$
43,746
46,231
18,037
—
108,014
4,002
112,016
$
$
39,829
46,723
18,433
422
105,407
4,002
109,409
Single-issuer trust preferred securities had an unrealized loss of $632,000 as of December 31, 2017. Four of the 18 single-issuer
trust preferred securities held were rated below investment grade by at least one ratings agency, with an amortized cost of $4.9
million and an estimated fair value of $4.7 million as of December 31, 2017. 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 $3.8 million
and an estimated fair value of $3.1 million as of December 31, 2017 were not rated by any ratings agency.
Based on management’s evaluations, no corporate debt securities were subject to any other-than-temporary impairment charges
as of December 31, 2017. 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.
92
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:
2017
2016
(in thousands)
Real estate – commercial mortgage ............................................................................................... $ 6,364,804
4,300,297
Commercial – industrial, financial and agricultural.......................................................................
1,954,711
Real estate – residential mortgage..................................................................................................
1,559,719
Real estate – home equity...............................................................................................................
1,006,935
Real estate – construction...............................................................................................................
313,783
Consumer .......................................................................................................................................
291,556
Leasing and other ...........................................................................................................................
4,113
Overdrafts.......................................................................................................................................
15,795,918
Loans, gross of unearned income............................................................................................
(27,671)
Unearned income............................................................................................................................
Loans, net of unearned income ............................................................................................... $ 15,768,247
$ 6,018,582
4,087,486
1,601,994
1,625,115
843,649
291,470
246,704
3,662
14,718,662
(19,390)
$ 14,699,272
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 $113.6 million and $154.4 million as of December 31, 2017 and 2016,
respectively. During 2017, additions totaled $4.9 million and repayments totaled $45.8 million in related-party loans.
The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.6 billion and $4.7 billion as
of December 31, 2017 and 2016, 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 ................................................................................... $
169,910
6,174
176,084
2017
2016
(in thousands)
168,679
$
2,646
171,325
$
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 ........................................................................................... $
2017
171,325
(33,290)
14,744
(18,546)
23,305
176,084
2016
(in thousands)
171,412
$
(33,927)
20,658
(13,269)
13,182
171,325
$
2015
169,054
2,358
171,412
2015
185,931
(32,157)
15,388
(16,769)
2,250
171,412
$
$
$
$
93
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
Total
Balance at December 31, 2015..........................
$
47,866
$
57,098
$
22,405
$
21,375
$
6,529
$
2,585
$
2,468
$
8,728
$
169,054
—
—
—
(33,927)
20,658
(13,269)
—
—
—
(33,290)
14,744
(18,546)
Loans charged off..............................................
(3,580)
(15,276)
(4,912)
(2,326)
(1,218)
(2,800)
(3,815)
Recoveries of loans previously charged off ......
3,373
8,981
1,171
1,072
Net loans charged off ........................................
Provision for loan losses (1) ...............................
(207)
(817)
(6,295)
(3,741)
(1,254)
3,550
8,137
2,808
(2,780)
Balance at December 31, 2016..........................
46,842
54,353
26,801
22,929
6,455
3,924
2,706
1,295
842
(1,505)
(2,973)
2,494
3,574
3,697
3,192
(4,195)
12,894
4,533
168,679
Loans charged off..............................................
(2,169)
(19,067)
(2,340)
(687)
(3,765)
(2,227)
(3,035)
Recoveries of loans previously charged off ......
1,668
7,771
Net loans charged off ........................................
(501)
(11,296)
Provision for loan losses (1) ...............................
12,452
23,223
813
(1,527)
(7,147)
786
99
1,582
1,156
968
(2,183)
(1,071)
(2,067)
(6,940)
2,348
(458)
832
(4,533)
19,777
Balance at December 31, 2017..........................
$
58,793
$
66,280
$
18,127
$
16,088
$
6,620
$
2,045
$
1,957
$
— $
169,910
Allowance for loan losses at December 31, 2017
Evaluated for impairment under FASB ASC
Subtopic 450-20 .......................................... $
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
50,681
$
54,874
$
7,003
$
6,193
$
5,653
$
2,028
$
1,957
$
— $
128,389
8,112
11,406
11,124
9,895
967
17
—
N/A
41,521
$
58,793
$
66,280
$
18,127
$
16,088
$
6,620
$
2,045
$
1,957
$
— $
169,910
Loans, net of unearned income at December 31, 2017
Evaluated for impairment under FASB ASC
Subtopic 450-20 .......................................... $
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
6,316,023
$
4,236,572
$
1,535,026
$
1,913,004
$
994,738
$
313,757
$
267,998
N/A
$ 15,577,118
48,781
63,725
24,693
41,707
12,197
26
—
N/A
191,129
$
6,364,804
$
4,300,297
$
1,559,719
$
1,954,711
$
1,006,935
$
313,783
$
267,998
N/A
$ 15,768,247
Allowance for loan losses at December 31, 2016
Evaluated for impairment under FASB ASC
Subtopic 450-20 .......................................... $
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
36,680
$
40,700
$
17,290
$
11,032
$
4,587
$
3,548
$
3,192
$
4,533
$
121,562
10,162
13,653
9,511
11,897
1,868
26
—
N/A
47,117
$
46,842
$
54,353
$
26,801
$
22,929
$
6,455
$
3,574
$
3,192
$
4,533
$
168,679
Loans, net of unearned income at December 31, 2016
Evaluated for impairment under FASB ASC
Subtopic 450-20 .......................................... $
Evaluated for impairment under FASB ASC
Section 310-10-35 .......................................
5,963,689
$
4,038,511
$
1,605,910
$
1,555,946
$
833,117
$
291,430
$
230,976
N/A
$ 14,519,579
54,893
48,975
19,205
46,048
10,532
40
—
N/A
179,693
$
6,018,582
$
4,087,486
$
1,625,115
$
1,601,994
$
843,649
$
291,470
$
230,976
N/A
$ 14,699,272
(1)
For the year ended December 31, 2017, the provision for loan losses excluded a $3.5 million increase in the reserve for unfunded lending commitments.
The total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $23.3 million for the year ended December 31,
2017. For the year ended December 31, 2016, the provision for loan losses excluded a $288,000 increase in the reserve for unfunded lending commitments.
The total provision for credit losses was $13.2 million for the year ended December 31, 2016.
N/A – Not applicable.
94
Impaired Loans
The following table presents total impaired loans by class segment as of December 31:
2017
2016
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 ...
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 ...................................
26,728
$
22,886
$
44,936
4,575
12,477
88,716
33,710
28,819
997
28,282
42,597
6,846
45
417
11
15
39,550
4,575
8,100
75,111
25,895
23,442
733
24,693
37,132
3,667
19
411
11
15
— $
—
—
—
8,112
11,013
393
11,124
9,895
813
7
147
7
10
28,757
$
25,447
$
29,296
4,689
6,271
69,013
37,132
27,767
1,122
23,971
48,885
10,103
681
1,096
19
21
25,526
4,689
4,795
60,457
29,446
22,626
823
19,205
41,359
4,206
435
1,096
19
21
Total........................................................ $
230,455
$
191,129
$
41,521
$
219,810
$
179,693
$
141,739
116,018
41,521
150,797
119,236
—
—
—
—
10,162
13,198
455
9,511
11,897
1,300
145
423
12
14
47,117
47,117
As of December 31, 2017 and 2016, there were $75.1 million and $60.5 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.
95
The following table presents average impaired loans, by class segment, for the years ended December 31:
2017
2016
2015
Average
Recorded
Investment
Interest
Income
Recognized (1)
Average
Recorded
Investment
Interest
Income
Recognized (1)
Average
Recorded
Investment
Interest
Income
Recognized (1)
With no related allowance recorded:
Real estate - commercial mortgage ........... $
Commercial - secured ...............................
Commercial - unsecured ...........................
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, other and overdrafts....................
22,793
$
31,357
—
4,631
7,016
239
66,036
27,193
23,321
791
21,704
39,093
5,051
152
957
15
18
285
281
182
—
107
12
—
582
338
135
2
534
903
11
—
—
1
1
—
(in thousands)
$
24,232
$
19,825
—
5,598
6,285
—
55,940
31,737
25,857
887
17,912
42,191
5,295
524
682
15
18
854
294
104
—
126
48
—
572
384
130
4
285
908
41
—
—
1
1
—
$
25,345
$
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
118,580
Total........................................................... $ 184,616
1,925
125,972
1,754
134,747
$
2,507
$
181,912
$
2,326
$ 193,752
$
315
97
—
124
148
—
684
475
150
6
144
1,041
79
—
—
1
1
—
1,897
2,581
(1)
Interest income recognized for the years ended December 31, 2017, 2016 and 2015 represents amounts earned on accruing TDRs. Impaired loans consist
of loans on non-accrual status and accruing TDRs.
96
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
2017
2016
2017
2016
2017
2016
2017
2016
(dollars in thousands)
Real estate - commercial
mortgage .................................. $
6,066,396
$ 5,763,122
$
147,604
$
132,484
$
150,804
$
122,976
$
6,364,804
$ 6,018,582
Commercial - secured ...................
3,831,485
Commercial -unsecured ................
159,620
3,686,152
145,922
121,842
5,478
128,873
4,481
179,113
2,759
118,527
3,531
4,132,440
3,933,552
167,857
153,934
Total commercial - industrial,
financial and agricultural ...
Construction - commercial
residential.................................
Construction - commercial ...........
Total real estate - construction
(excluding construction -
other)..................................
3,991,105
3,832,074
127,320
133,354
181,872
122,058
4,300,297
4,087,486
143,759
761,218
113,570
635,963
5,259
846
15,447
3,412
14,084
3,752
13,172
5,115
163,102
765,816
142,189
644,490
904,977
749,533
6,105
18,859
17,836
18,287
928,918
786,679
Total .............................................. $ 10,962,478
$ 10,344,729
$
281,029
$
284,697
$
350,512
$
263,321
$ 11,594,019
$ 10,892,747
% of Total......................................
94.6%
95.0%
2.4%
2.6%
3.0%
2.4%
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
2017
2016
2017
2016
2017
2016
2017
2016
(dollars in thousands)
Real estate - home equity ............ $
1,535,557
$ 1,602,687
$
12,655
$
9,274
$
11,507
$
13,154
$
1,559,719
$ 1,625,115
Real estate - residential
mortgage ................................
1,914,888
1,557,995
18,852
20,344
20,971
23,655
1,954,711
1,601,994
Real estate - construction - other.
Consumer - direct........................
Consumer - indirect.....................
Total consumer .....................
Leasing, other and overdrafts......
77,403
54,828
254,663
309,491
267,111
55,874
93,572
190,656
284,228
229,591
203
315
3,681
3,996
855
—
1,752
3,599
5,351
1,068
411
70
226
296
32
1,096
1,563
328
1,891
317
78,017
55,213
258,570
313,783
267,998
56,970
96,887
194,583
291,470
230,976
Total ............................................ $
4,104,450
$ 3,730,375
$
36,561
$
36,037
$
33,217
$
40,113
$
4,174,228
$ 3,806,525
% of Total....................................
98.3%
98.0%
0.9%
0.9%
0.8%
1.1%
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 .................................................................................................... $
2017
2016
(in thousands)
124,749
10,010
134,759
9,823
144,582
$
$
120,133
11,505
131,638
12,815
144,453
97
The following table presents past due status and non-accrual loans, by portfolio segment and class segment, as of December 31:
2017
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.................................... $
9,456
$
4,223
$
625
$
34,822
$
35,447
$
49,126
$ 6,315,678
$ 6,364,804
Commercial - secured ........................................................
Commercial - unsecured ....................................................
Total Commercial - industrial, financial and agricultural..
Real estate - home equity...................................................
4,778
305
5,083
9,640
Real estate - residential mortgage ......................................
11,961
Construction - commercial.................................................
Construction - commercial residential ...............................
Construction - other ...........................................................
Total Real estate - construction..........................................
Consumer - direct...............................................................
Consumer - indirect............................................................
Total Consumer..................................................................
Leasing, other and overdrafts.............................................
483
—
203
686
260
3,055
3,315
568
5,254
10
5,264
3,015
6,891
—
439
—
439
55
626
681
287
1,360
45
1,405
2,372
5,280
—
—
—
—
70
226
296
32
52,255
649
52,904
9,135
15,691
19
53,615
694
54,309
11,507
20,971
19
63,647
4,068,793
4,132,440
1,009
166,848
167,857
64,656
4,235,641
4,300,297
24,162
1,535,557
1,559,719
39,823
1,914,888
1,954,711
502
765,314
765,816
11,767
11,767
12,206
150,896
163,102
411
411
614
77,403
78,017
12,197
12,197
13,322
993,613
1,006,935
—
—
—
—
70
226
296
32
385
3,907
4,292
887
54,828
55,213
254,663
258,570
309,491
313,783
267,111
267,998
$
40,709
$
20,800
$
10,010
$
124,749
$
134,759
$
196,268
$15,571,979
$15,768,247
2016
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.................................... $
6,254
$
1,622
$
383
$
38,936
$
39,319
$
47,195
$ 5,971,387
$ 6,018,582
Commercial - secured ........................................................
Commercial - unsecured ....................................................
Total Commercial - industrial, financial and agricultural..
Real estate - home equity...................................................
6,660
898
7,558
6,596
Real estate - residential mortgage ......................................
15,600
Construction - commercial.................................................
Construction - commercial residential ...............................
Construction - other ...........................................................
Total Real estate - construction..........................................
Consumer - direct...............................................................
Consumer - indirect............................................................
Total Consumer..................................................................
Leasing, other and overdrafts.............................................
743
233
—
976
1,211
3,200
4,411
543
2,616
35
2,651
2,678
4,744
—
51
—
51
541
399
940
525
959
152
1,111
2,543
5,224
—
36
—
36
1,563
328
1,891
317
41,589
760
42,349
10,611
18,431
435
8,275
1,096
9,806
—
—
—
—
42,548
912
43,460
13,154
23,655
435
8,311
1,096
9,842
1,563
328
1,891
317
51,824
3,881,728
3,933,552
1,845
152,089
153,934
53,669
4,033,817
4,087,486
22,428
1,602,687
1,625,115
43,999
1,557,995
1,601,994
1,178
8,595
1,096
643,312
644,490
133,594
142,189
55,874
56,970
10,869
832,780
843,649
3,315
3,927
7,242
1,385
93,572
96,887
190,656
194,583
284,228
291,470
229,591
230,976
$
41,938
$
13,211
$
11,505
$
120,133
$
131,638
$
186,787
$14,512,485
$14,699,272
98
The following table presents TDRs as of December 31:
2017
2016
Real-estate - residential mortgage .................................................................................................. $
Real estate - home equity ...............................................................................................................
Commercial ....................................................................................................................................
Real-estate - commercial mortgage................................................................................................
Consumer - direct ...........................................................................................................................
Construction - commercial residential ...........................................................................................
Total accruing TDRs..................................................................................................................
Non-accrual TDRs (1)......................................................................................................................
Total TDRs ................................................................................................................................ $
(1)
Included within non-accrual loans in the preceding table.
$
(in thousands)
26,016
15,558
10,820
13,959
26
—
66,379
29,051
95,430
$
27,617
8,594
6,627
15,957
39
726
59,560
27,850
87,410
As of December 31, 2017 and 2016, there were $8.6 million and $3.6 million, respectively, of commitments to lend additional
funds to borrowers whose loans were modified under TDRs.
The following table presents TDRs by class segment and type of concession for loans that were modified during the years ended
December 31, 2017, 2016 and 2015:
2017
2016
2015
Number of
Loans
Post-
Modification
Recorded
Investment
Post-
Modification
Recorded
Investment
Number of
Loans
Post-
Modification
Recorded
Investment
Number of
Loans
(dollars in thousands)
Commercial:
Extend maturity with rate concession ......................................
— $
Extend maturity without rate concession .................................
Bankruptcy ...............................................................................
Real estate - commercial mortgage:
Extend maturity with rate concession ......................................
Extend maturity without rate concession .................................
Bankruptcy ...............................................................................
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 .................................
Bankruptcy ...............................................................................
Consumer:
23
1
—
9
1
—
69
28
2
5
3
1
1
—
15,058
490
—
2,899
12
—
5,843
1,813
468
1,044
392
1,204
411
Bankruptcy ...............................................................................
—
—
— $
12
—
—
—
—
—
89
47
—
2
6
—
—
2
—
3,904
—
—
—
—
—
4,484
2,671
—
315
981
—
—
23
2
$
10
—
5
4
—
2
3
52
4
3
7
1
—
3
127
3,823
—
2,014
639
—
36
203
2,501
750
262
2,508
1,535
—
18
Total ............................................................................................
143
$
29,634
158
$
12,378
96
$
14,416
99
The following table presents TDRs, by class segment, that were modified during the years ended December 31, 2017, 2016 and
2015 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:
2017
2016
2015
Number
of Loans
Recorded
Investment
Number
of Loans
Recorded
Investment
Number
of Loans
Recorded
Investment
(dollars in thousands)
Construction - commercial residential....................................
Construction - other ................................................................
Real estate - commercial mortgage.........................................
Real estate - residential mortgage...........................................
Commercial.............................................................................
Real estate - home equity........................................................
Consumer ................................................................................
Total ........................................................................................
1
1
2
5
6
25
—
40
$
1,192
— $
411
549
577
1,571
1,575
—
—
1
8
7
28
1
—
—
118
1,500
2,523
1,836
19
$
5,875
45
$
5,996
NOTE 5 – PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
—
—
359
445
3,549
763
—
— $
—
4
4
8
13
—
29
$
5,116
Land ................................................................................................................................................ $
Buildings and improvements ..........................................................................................................
Furniture and equipment.................................................................................................................
Construction in progress .................................................................................................................
Less: Accumulated depreciation and amortization .........................................................................
$
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
2017
2016
$
(in thousands)
35,560
307,332
150,876
19,916
513,684
(290,882)
222,802
36,097
293,836
137,282
21,096
488,311
(270,505)
217,806
$
Goodwill totaled $530.6 million and non-amortizing trade name intangible assets totaled $963,000 as of both December 31, 2017
and 2016. All of the Corporation’s reporting units passed the 2017 goodwill impairment test, resulting in no goodwill impairment
charges in 2017. All reporting units, with total allocated goodwill of $530.6 million, had fair values that exceeded net book values
by approximately 75% 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
current valuation of reporting units.
100
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........................................................................................................... $
Valuation allowance:
Balance at beginning of year ................................................................................................ $
Net deductions (additions) to the valuation allowance.........................................................
Balance at end of year........................................................................................................... $
2017
2016
(in thousands)
38,822
4,968
(6,127)
37,663
$
$
(1,291) $
1,291
— $
40,944
5,485
(7,607)
38,822
—
(1,291)
(1,291)
Net MSRs at end of year....................................................................................................... $
37,663
$
37,531
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 prepayment projections. Based on its fair value analysis, the Corporation
determined that a valuation allowance was no longer necessary as of December 31, 2017 and reduced it by $1.3 million net additions
recorded in 2016. Reductions and additions to the valuation allowance are recorded as increases and decreases, respectively, to
mortgage banking income on the consolidated statements of income.
The estimated fair value of MSRs was $41.6 million and $38.2 million as of December 31, 2017 and 2016, respectively.
Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income,
was $6.1 million and $7.6 million in 2017 and 2016, respectively. Estimated MSR amortization expense for the next five years,
based on balances as of December 31, 2017 and the estimated remaining lives of the underlying loans, follows (in thousands):
Year
2018.......................................................................................................................................................................... $
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
6,342
5,905
5,423
4,893
4,311
101
NOTE 8 – DEPOSITS
Deposits consisted of the following as of December 31:
2017
2016
(in thousands)
Noninterest-bearing demand........................................................................................................... $ 4,437,294
4,018,107
Interest-bearing demand .................................................................................................................
4,586,746
Savings and money market accounts..............................................................................................
13,042,147
Total demand and savings ...........................................................................................................
90,473
Brokered deposits ...........................................................................................................................
2,664,912
Time deposits..................................................................................................................................
Total Deposits.............................................................................................................................. $ 15,797,532
$ 4,376,137
3,703,712
4,179,773
12,259,622
—
2,753,242
$ 15,012,864
Included in time deposits were certificates of deposit equal to or greater than $100,000 of $1.2 billion as of both December 31,
2017 and 2016. Time deposits of $250,000 or more were $373.9 million and $374.4 million as of December 31, 2017 and 2016,
respectively. The scheduled maturities of time deposits as of December 31, 2017 were as follows (in thousands):
Year
2018.......................................................................................................................................................................... $ 1,085,369
866,233
2019..........................................................................................................................................................................
436,690
2020..........................................................................................................................................................................
122,516
2021..........................................................................................................................................................................
76,962
2022..........................................................................................................................................................................
77,142
Thereafter .................................................................................................................................................................
$ 2,664,912
NOTE 9 – SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of December 31, 2017, 2016 and 2015 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.
2017
December 31,
2016
2015
Maximum Outstanding
2016
2017
2015
(in thousands)
Federal funds purchased.......................... $
Short-term FHLB advances (1) ................
Customer repurchase agreements............
Customer short-term promissory notes ...
$
220,000
—
172,017
225,507
617,524
$ 278,570
—
195,734
67,013
$ 541,317
$
$
197,235
110,000
111,496
78,932
497,663
$
387,110
250,000
233,274
237,298
$
449,184
—
221,989
77,887
$
266,338
200,000
212,509
93,176
(1) Represents FHLB advances with an original maturity term of less than one year.
As of December 31, 2017, the Corporation had aggregate availability under Federal funds lines of $1.2 billion, with $220.0 million
borrowed against that amount. A combination of commercial real estate loans, commercial loans and securities were pledged to
the FRB of Philadelphia to provide access to FRB Discount Window borrowings. As of December 31, 2017 and 2016, the
Corporation had $617.4 million and $1.2 billion, respectively, of collateralized borrowing availability at the Discount Window,
and no outstanding borrowings.
102
The following table presents information related to customer repurchase agreements:
2017
Amount outstanding as of December 31............................................................... $ 172,017
Weighted average interest rate as of December 31 ...............................................
Average amount outstanding during the year........................................................ $ 188,974
Weighted average interest rate during the year .....................................................
0.13%
0.12%
2016
(dollars in thousands)
$
195,734
$
2015
111,496
0.10%
0.15%
$
184,978
$
161,093
0.11%
0.10%
FHLB advances with an original maturity of one year or more and long-term debt included the following as of December 31:
2017
2016
(in thousands)
FHLB advances .............................................................................................................................. $
Subordinated debt ...........................................................................................................................
Senior notes ....................................................................................................................................
Junior subordinated deferrable interest debentures ........................................................................
Unamortized discounts and issuance costs .....................................................................................
652,113
250,000
125,000
16,496
(5,263)
$ 1,038,346
$
$
567,240
350,000
—
16,496
(4,333)
929,403
Excluded from the preceding table is the Parent Company’s revolving line of credit with one of its subsidiary banks. As of
December 31, 2017 and 2016, there were no amounts outstanding under this line of credit. This line of credit, with a total commitment
of $75.0 million, is secured by insurance investments and equity securities and bears interest at London Interbank Offered Rate
("LIBOR") for maturities of one month 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 March 2027 and carry a weighted average interest rate of 2.31%. As of December 31, 2017, the
Corporation had additional borrowing capacity of approximately $3.6 billion with the FHLB. Advances from the FHLB are secured
by FHLB stock, qualifying residential mortgages, investments and other assets.
The following table summarizes the scheduled maturities of FHLB advances with an original maturity of one year or more and
long-term debt as of December 31, 2017 (in thousands):
Year
2018 ................................................................................................................................................................ $
2019 ................................................................................................................................................................
2020 ................................................................................................................................................................
2021 ................................................................................................................................................................
2022 ................................................................................................................................................................
Thereafter........................................................................................................................................................
$
99,217
202,275
142,039
199,054
130,076
265,685
1,038,346
In March 2017, the Corporation issued $125.0 million of senior notes, with a fixed rate of 3.60% and an effective rate of 3.95%,
as a result of discounts and issuance costs, which mature on March 16, 2022. Interest is paid semi-annually in September and
March. 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.
On May 1, 2017, $100.0 million of the Corporation's outstanding ten-year subordinated notes originally issued in May 2007 with
an effective rate of approximately 5.96%, matured and were fully repaid.
During 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,
103
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.
As of December 31, 2017, 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.
The following table provides details of the debentures as of December 31, 2017 (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
3.99% $
3.48%
3.36%
6,186
4,124
6,186
$
16,496
06/30/34
03/15/35
06/15/35
03/31/18
03/31/18
03/31/18
Call
Price
100.0
100.0
100.0
104
NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the notional amounts and fair values of derivative financial instruments as of December 31:
2017
2016
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..................................
129,469
8,957
$
$
1,059
(59)
1,000
87,119
18,239
$
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(1) (3)................................................................
Negative fair values(2) (3) ..............................................................
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 .........................................
3,856
100,808
1,316,548
716,634
716,634
1,316,548
4,852
5,914
7,960
6,048
$
34
(213)
(179)
24,505
(18,978)
5,527
18,941
(19,764)
(823)
276
(119)
157
184
(255)
(71)
5,611
70,031
19,964
876,744
583,060
583,060
876,744
11,674
4,659
7,040
12,869
$
863
(227)
636
2,223
(112)
2,111
24,397
(16,998)
7,399
16,998
(24,397)
(7,399)
504
(221)
283
241
(447)
(206)
2,824
(1) Includes centrally cleared interest rate swaps with a notional amount of $24.4 million and a fair value of $0 as of December 31, 2017.
(2) Includes centrally cleared interest rate swaps with a notional amount of $377.1 million and a fair value of $0 as of December 31, 2017.
(3) The variation margin posted as collateral on centrally cleared interest rate swaps, which represents the fair value of such swaps, is legally characterized as
settlements of the outstanding derivative contracts instead of cash collateral. Accordingly, the fair values of centrally cleared interest rate swaps were offset by
variation margins totaling $4.6 million as of December 31, 2017, reducing the fair value of such swaps to $0. There were no centrally cleared interest rate swaps
as of December 31, 2016.
The following table presents the fair value gains and losses on derivative financial instruments for the years ended December 31:
2017
2016
2015
(in thousands)
Statement of Income
Classification
Interest rate locks with customers................................... $
364
$
(639) $
(110) Mortgage banking income
Forward commitments ....................................................
(2,290)
1,930
1,345 Mortgage banking income
Interest rate swaps with customers (1) .............................
(1,872)
(25,461)
13,342 Other non-interest expense
Interest rate swaps with counterparties (1).......................
6,576
25,461
(13,342) Other non-interest expense
Foreign exchange contracts with customers ...................
Foreign exchange contracts with correspondent banks ..
(126)
135
353
(487)
(439) Other service charges and fees
711 Other service charges and fees
Net fair value gains on derivative financial instruments $
2,787
$
1,157
$
1,507
(1) Not included is the $4.6 million expense related to the variation margin settlement.
105
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, 2017 and 2016:
Cost (1)
Fair Value
Balance Sheet
Classification
Fair Value
Gain (Loss)
Statement of Income
Classification
(in thousands)
31,069
$
31,530 Loans held for sale
$
472 Mortgage banking income
December 31, 2017:
Mortgage loans held for sale ... $
December 31, 2016:
Mortgage loans held for sale ...
28,708
28,697 Loans held for sale
(313) 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 and foreign exchange contracts 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
2017
Interest rate swap derivative assets.................................................. $
Foreign exchange derivative assets with correspondent banks .......
Total.............................................................................................. $
Interest rate swap derivative liabilities ............................................ $
Foreign exchange derivative liabilities with correspondent banks..
Total.............................................................................................. $
2016
Interest rate swap derivative assets.................................................. $
Foreign exchange derivative assets with correspondent banks .......
Total.............................................................................................. $
Interest rate swap derivative liabilities ............................................ $
Foreign exchange derivative liabilities with correspondent banks..
Total .............................................................................................. $
(in thousands)
(16,844) $
(184)
(17,028) $
(16,844) $
(184)
(17,028) $
— $ 26,602
—
—
— $ 26,602
(6,588) $ 15,310
71
(6,588) $ 15,381
—
(15,117) $
(241)
(15,358) $
(15,117) $
(241)
(15,358) $
— $ 26,278
—
—
— $ 26,278
(4,010) $ 22,268
—
(4,216) $ 22,268
(206)
43,446
184
43,630
38,742
255
38,997
41,395
241
41,636
41,395
447
41,842
$
$
$
$
$
$
$
$
(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 by the Corporation) or received from the counterparty on interest rate swap transactions and foreign exchange
contracts with financial institution counterparties. Interest rate swaps with customers are collateralized by the same collateral securing the underlying loans
to those borrowers. Cash and securities collateral amounts are included in the table only to the extent of the net derivative fair values.
106
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
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 revised the risk-
based capital requirements applicable to bank holding companies and depository institutions.
The 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 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 a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital
ratio of 4.00% of average assets;
• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
• 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.
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 increasing to 1.25% on January 1, 2017,
and will continue to increase to 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, 2017, the Corporation's capital levels 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, 2017 and 2016, each of the Corporation’s subsidiary banks was 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, Common Equity 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, 2017 that management believes have changed the
institutions’ categories.
107
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 with total assets in excess of $1 billion, as of December 31,
2017, under the U.S. Basel III Capital Rules:
2017
For Capital
Adequacy Purposes
Actual
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation.................................................................... $ 2,179,147
Fulton Bank, N.A. .........................................................
1,234,536
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
385,858
234,647
173,097
13.0% $ 1,338,560
8.0%
N/A
N/A
12.3
12.4
12.2
14.6
805,125
248,640
153,441
94,720
8.0
8.0
8.0
8.0
$ 1,006,406
10.0%
310,801
191,801
118,400
10.0
10.0
10.0
Tier I Capital (to Risk-Weighted Assets):
Corporation.................................................................... $ 1,737,060
Fulton Bank, N.A...........................................................
1,142,230
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
346,867
215,651
162,292
10.4% $ 1,003,920
6.0%
N/A
11.3
11.2
11.2
13.7
603,843
186,480
115,081
71,040
6.0
6.0
6.0
6.0
$
805,125
248,640
153,441
94,720
N/A
8.0%
8.0
8.0
8.0
Common Equity Tier I Capital (to Risk-weighted Assets):
Corporation.................................................................... $ 1,737,060
Fulton Bank, N.A...........................................................
1,098,230
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
346,867
215,651
162,292
10.4% $
752,940
4.5%
N/A
N/A
10.9
11.2
11.2
13.7
452,883
139,860
86,310
53,280
4.5
4.5
4.5
4.5
$
654,164
6.5%
202,020
124,671
76,960
6.5
6.5
6.5
8.9% $
778,451
4.0%
N/A
458,016
158,027
92,797
64,191
4.0
4.0
4.0
4.0
$
572,520
197,534
115,996
80,239
N/A
5.0%
5.0
5.0
5.0
Tier I Capital (to Average Assets):
Corporation.................................................................... $ 1,737,060
Fulton Bank, N.A...........................................................
1,142,230
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
346,867
215,651
10.0
8.8
9.3
Lafayette Ambassador Bank..........................................
162,292
10.1
N/A – Not applicable as "well capitalized" applies to banks only.
108
The following table presents the Total risk-based, Tier I risk-based, Common Equity Tier 1 risk-based and Tier I leverage
requirements as of December 31, 2016, under U.S. Basel III Capital Rules:
2016
For Capital
Adequacy Purposes
Actual
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation........................................................................... $ 2,074,526
1,142,326
Fulton Bank, N.A. ................................................................
385,807
Fulton Bank of New Jersey ..................................................
203,890
The Columbia Bank..............................................................
175,254
Lafayette Ambassador Bank.................................................
13.2% $ 1,255,292
747,359
12.2
234,782
13.1
133,836
12.2
96,100
14.6
Tier I Capital (to Risk-Weighted Assets):
Corporation........................................................................... $ 1,637,150
1,050,175
Fulton Bank, N.A..................................................................
348,992
Fulton Bank of New Jersey ..................................................
185,983
The Columbia Bank..............................................................
166,186
Lafayette Ambassador Bank.................................................
Common Equity Tier I Capital (to Risk-weighted Assets):
Corporation........................................................................... $ 1,637,150
1,006,175
Fulton Bank, N.A..................................................................
348,992
Fulton Bank of New Jersey ..................................................
185,983
The Columbia Bank..............................................................
166,186
Lafayette Ambassador Bank.................................................
Tier I Capital (to Average Assets):
Corporation........................................................................... $ 1,637,150
1,050,175
Fulton Bank, N.A..................................................................
348,992
Fulton Bank of New Jersey ..................................................
185,983
The Columbia Bank..............................................................
166,186
Lafayette Ambassador Bank.................................................
10.4% $
11.2
11.9
11.1
13.8
10.4% $
10.8
11.9
11.1
13.8
9.0% $
10.1
9.4
8.6
10.9
941,469
560,519
176,086
100,377
72,075
706,102
420,389
132,065
72,282
54,056
727,745
415,981
148,472
86,310
61,129
$
$
$
$
8.0%
8.0
8.0
8.0
8.0
6.0%
6.0
6.0
6.0
6.0
4.5%
4.5
4.5
4.5
4.5
4.0%
4.0
4.0
4.0
4.0
N/A
934,199
293,427
167,294
120,125
N/A
747,359
234,782
133,836
96,100
N/A
607,229
190,760
108,741
78,081
N/A
519,977
185,590
107,888
76,412
N/A
10.0%
10.0
10.0
10.0
N/A
8.0%
8.0
8.0
8.0
N/A
6.5%
6.5
6.5
6.5
N/A
5.0%
5.0
5.0
5.0
N/A – Not applicable as "well capitalized" applies to banks only.
Dividend and Loan Limitations
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 $283 million as
of December 31, 2017, 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.
109
NOTE 12 – INCOME TAXES
On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 ("Tax Act"), which among other things, lowered
the U.S. corporate income tax rate from a top rate of 35% to a flat rate of 21%. The reduction of the U.S. corporate income tax
rate required the Corporation to re-measure its deferred tax assets and liabilities utilizing the lower tax rate as of December 22,
2017. As of December 31, 2017, the Corporation had not completed its accounting for the tax effects of the Tax Act; however, the
Corporation was able to reasonably estimate the effects of the re-measurement of its deferred tax balances and recorded a charge
of $15.6 million to income tax expense.
The components of the provision for income taxes are as follows:
Current tax expense:
Federal .......................................................................................................... $
State ..............................................................................................................
Deferred tax expense:
Federal ..........................................................................................................
State ..............................................................................................................
Income tax expense.............................................................................................. $
2017
2016
(in thousands)
2015
19,553
2,617
22,170
39,885
646
40,531
62,701
$
$
33,872
1,698
35,570
7,968
3,086
11,054
46,624
$
$
34,455
2,042
36,497
12,752
672
13,424
49,921
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
2017
2016
2015
Statutory tax rate ...................................................................................................
Tax credit investments...........................................................................................
Tax-exempt income...............................................................................................
State income taxes, net of federal benefit .............................................................
Bank owned life insurance ....................................................................................
Re-measurement of net deferred tax asset due to the Tax Act ..............................
Change in valuation allowance .............................................................................
Executive compensation .......................................................................................
Other, net...............................................................................................................
Effective income tax rate ......................................................................................
35.0%
(7.8)
(6.6)
(0.5)
(0.4)
6.7
1.2
0.1
(1.0)
26.7%
35.0%
(7.0)
(6.5)
1.2
(0.6)
—
0.3
0.1
(0.1)
22.4%
35.0%
(5.2)
(6.0)
1.9
(0.6)
—
(0.9)
0.1
0.7
25.0%
110
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 ..................................................................................................... $
State loss carryforwards ..........................................................................................................
Deferred compensation............................................................................................................
Postretirement and defined benefit plans ................................................................................
Other accrued expenses ...........................................................................................................
Unrealized holding losses on securities available for sale ......................................................
Other-than-temporary impairment of investments ..................................................................
Other ........................................................................................................................................
Total gross deferred tax assets..........................................................................................
Deferred tax liabilities:
Direct leasing...........................................................................................................................
Mortgage servicing rights........................................................................................................
Acquisition premiums/discounts .............................................................................................
Premises and equipment ..........................................................................................................
Intangible assets.......................................................................................................................
Other ........................................................................................................................................
Total gross deferred tax liabilities ....................................................................................
Net deferred tax asset, before valuation allowance..........................................................
Valuation allowance .........................................................................................................
Net deferred tax asset ....................................................................................................... $
2017
2016
(in thousands)
40,554
11,855
7,663
7,274
6,977
5,830
2,045
6,742
88,940
21,917
8,204
6,030
3,099
1,155
10,420
50,825
38,115
(11,855)
26,260
$
$
62,726
9,820
12,017
12,659
9,520
12,260
5,187
8,500
132,689
27,663
13,369
9,167
5,625
1,810
12,530
70,164
62,525
(8,950)
53,575
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, 2017 and 2016, the Corporation had state net operating loss carryforwards of approximately $369 million
and $391 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2037.
The Corporation has $2.0 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. The Corporation currently believes that it 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, 2017.
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, 2017.
111
Uncertain Tax Positions
The following summarizes the changes in unrecognized tax benefits for the years ended December 31:
2017
2016
(in thousands)
2015
Balance at beginning of year .............................................................................................. $
Current period tax positions ...............................................................................................
Lapse of statute of limitations ............................................................................................
Balance at end of year ........................................................................................................ $
2,438
523
(411)
2,550
$
$
2,373
456
(391)
2,438
$
$
1,944
492
(63)
2,373
As of December 31, 2017, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate.
Not included in the table above is $540,000 of federal income tax benefit on unrecognized state tax benefits which, if recognized,
would also impact the effective tax rate. Interest accrued related to unrecognized tax benefits is recorded as a component of income
tax expense. Penalties, if incurred, would also be recognized in income tax expense. The Corporation recognized approximately
$42,000 and $43,000 in 2017 and 2016, respectively, for interest and penalties in income tax expense related to unrecognized tax
positions. As of December 31, 2017 and 2016, total accrued interest and penalties related to unrecognized tax positions were
approximately $616,000 and $574,000, 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 2014.
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 ..........................................................................................................
$
2017
8,121
4,168
12,289
2016
(in thousands)
7,418
$
4,310
11,728
$
$
$
2015
6,423
4,102
10,525
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.
112
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 ...................................................................................... $
2017
2016
(in thousands)
688
3,520
(2,318)
2,420
4,310
$
2015
579
3,405
(3,009)
3,127
4,102
$
$
— $
3,320
(1,804)
2,652
4,168
(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. Beginning January 1, 2017 the administrative costs were netted with the expected
return on assets.
The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the plan years
ended December 31:
2017
2016
Projected benefit obligation at beginning of year........................................................................... $
Service cost (1).................................................................................................................................
Interest cost.....................................................................................................................................
Benefit payments ............................................................................................................................
Change in assumptions ...................................................................................................................
Experience gain ..............................................................................................................................
Projected benefit obligation at end of year ..................................................................................... $
$
(in thousands)
85,363
—
3,320
(3,751)
5,008
(458)
89,482
$
Fair value of plan assets at beginning of year................................................................................. $
Employer contributions (2) ..............................................................................................................
Actual return on plan assets............................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year........................................................................................... $
48,684
3,816
5,312
(3,751)
54,061
$
$
84,736
688
3,520
(5,172)
1,635
(44)
85,363
46,971
5,169
1,716
(5,172)
48,684
(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. Beginning January 1, 2017 the administrative costs were netted with the expected
return on assets.
(2) The Corporation funds at least the minimum amount required by federal law and regulations. The Corporation contributed $3.8 million and $5.2 million to
the Pension Plan during 2017 and 2016, respectively.
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 .................................................................................................................................. $
(89,482) $
54,061
(35,421) $
(85,363)
48,684
(36,679)
2017
2016
(in thousands)
113
The following table summarizes the changes in the unrecognized net loss included as a component of accumulated other
comprehensive loss:
Unrecognized Net Loss
Net of tax
Before tax
Balance as of December 31, 2015 .................................................................................................. $
Recognized as a component of 2016 periodic pension cost ...........................................................
Unrecognized gains arising in 2016 ...............................................................................................
Balance as of December 31, 2016 ..................................................................................................
Recognized as a component of 2017 periodic pension cost ...........................................................
Unrecognized losses arising in 2017 ..............................................................................................
Balance as of December 31, 2017 .................................................................................................. $
$
(in thousands)
30,396
(2,420)
2,193
30,169
(2,652)
1,042
28,559
$
19,758
(1,573)
1,425
19,610
(1,724)
678
18,564
The total amount of unrecognized net loss that will be amortized as a component of net periodic pension cost in 2018 is expected
to be $2.8 million.
The following rates were used to calculate net periodic pension cost and the present value of benefit obligations as of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
3.50%
5.00%
4.00%
5.00%
4.25%
6.00%
2017
2016
2015
The discount rates used were 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 5.00% long-term rate of return on plan assets used to calculate the net periodic pension cost was based on historical returns,
adjusted for expectations of long-term asset returns based on the December 31, 2017 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:
2017
2016
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..............................................
$
19,219
9,612
28,831
5,675
11,136
2,999
249
20,059
5,171
54,061
$
53.3%
37.1%
9.6%
100.0% $
12,689
7,936
20,625
7,149
10,540
3,252
496
21,437
6,622
48,684
42.4%
44.0%
13.6%
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 balanced
objective, with target asset allocations of approximately 50% in equities, 40% in fixed income securities and cash and 10% 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.
114
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
2018.......................................................................................................................................................................... $
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
2023 – 2027..............................................................................................................................................................
$
3,773
3,858
4,220
4,424
4,530
24,571
45,376
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.
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 net (benefit) expense for postretirement benefits other than pensions are as follows:
Interest cost ........................................................................................................... $
Net amortization and deferral................................................................................
Net postretirement benefit..................................................................................... $
2017
2016
(in thousands)
85
$
(551)
(466) $
$
68
(565)
(497) $
2015
206
(258)
(52)
The following table summarizes the changes in the accumulated postretirement benefit obligation and fair value of plan assets
for the years ended December 31:
2017
2016
Accumulated postretirement benefit obligation at beginning of year ............................................ $
Interest cost.....................................................................................................................................
Benefit payments ............................................................................................................................
Experience gain ..............................................................................................................................
Change in assumptions ...................................................................................................................
Accumulated postretirement benefit obligation at end of year....................................................... $
$
(in thousands)
1,926
68
(216)
(104)
26
1,700
$
Fair value of plan assets at beginning of year................................................................................. $
Employer contributions ..................................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year........................................................................................... $
$
3
213
(216)
— $
115
2,875
85
(282)
(732)
(20)
1,926
15
270
(282)
3
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 ........................................................................................................................... $
2017
2016
(in thousands)
(1,700) $
—
(1,700) $
(1,926)
3
(1,923)
The following table summarizes the changes in items recognized as a component of accumulated other comprehensive loss:
Before tax
Unrecognized
Prior Service
Cost
Unrecognized
Net Loss
(Gain)
(in thousands)
Total
Net of tax
Balance as of December 31, 2015......................................................................................... $
Recognized as a component of 2016 postretirement benefit cost.........................................
Unrecognized gains arising in 2016......................................................................................
(5,334) $
(508) $
(5,842) $
(3,798)
465
—
86
(761)
551
(761)
358
(495)
Balance as of December 31, 2016.........................................................................................
(4,869)
(1,183)
(6,052)
(3,935)
Recognized as a component of 2017 postretirement benefit cost.........................................
Unrecognized gains arising in 2017......................................................................................
465
—
101
(77)
566
(77)
368
(50)
Balance as of December 31, 2017......................................................................................... $
(4,404) $
(1,159) $
(5,563) $
(3,617)
The following rates were used to calculate net periodic postretirement benefit cost and the present value of benefit obligations as
of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
3.50%
3.00%
4.25%
3.00%
4.25%
3.00%
2017
2016
2015
The discount rates used to calculate the accumulated postretirement benefit obligation were 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
2018.......................................................................................................................................................................... $
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
2023 – 2027..............................................................................................................................................................
$
196
184
171
159
147
574
1,431
116
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
2017:
Unrealized gain on securities .............................................................................................................. $
16,051
$
(5,619)
$
Reclassification adjustment for securities gains included in net income (1) ........................................
Non-credit related unrealized loss on other-than-temporarily impaired debt securities .....................
Unrecognized pension and postretirement cost...................................................................................
Amortization of net unrecognized pension and postretirement income (2)..........................................
(9,071)
285
(937)
2,092
3,177
(100)
328
(731)
Total Other Comprehensive Income.............................................................................................. $
8,420
$
(2,945)
$
10,432
(5,894)
185
(609)
1,361
5,475
2016:
Unrealized loss on securities ............................................................................................................... $
(22,907)
$
8,016
$
(14,891)
Reclassification adjustment for securities gains included in net income (1) ........................................
Non-credit related unrealized loss on other-than-temporarily impaired debt securities .....................
Amortization of unrealized loss on derivative financial instruments (3)..............................................
Unrecognized pension and postretirement cost...................................................................................
Amortization of net unrecognized pension and postretirement income (2)..........................................
(2,550)
(285)
25
(1,432)
1,869
893
100
(9)
501
(653)
Total Other Comprehensive Loss .................................................................................................. $
(25,280)
$
8,848
2015:
Unrealized loss on securities ............................................................................................................... $
(11,872)
$
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 ...................
Amortization of unrealized loss on derivative financial instruments (3)..............................................
Unrecognized pension and postretirement income .............................................................................
Amortization of net unrecognized pension and postretirement income (2)..........................................
(9,066)
3,778
368
115
7,200
2,869
4,155
3,174
(1,322)
(129)
(40)
(2,520)
(1,005)
$
$
(1,657)
(185)
16
(931)
1,216
(16,432)
(7,717)
(5,892)
2,456
239
75
4,680
1,864
Total Other Comprehensive Loss .................................................................................................. $
(6,608)
$
2,313
$
(4,295)
(1) Amounts reclassified out of accumulated other comprehensive income (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) Amounts reclassified out of accumulated other comprehensive income (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.
(3) Amounts reclassified out of accumulated other comprehensive income (loss). Before-tax amounts included in "Interest Expense" on the consolidated statements
of income.
117
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
(in thousands)
Unrecognized
Pension and
Postretirement
Plan Income
(Cost)
Total
Balance as of December 31, 2014..................................................................... $
5,980
$
1,349
$
(2,546) $
(22,505) $ (17,722)
Other comprehensive income (loss) before reclassifications............................
Amounts reclassified from accumulated other comprehensive income (loss)..
Reclassification adjustment for loss on derivative financial instruments.........
Balance as of December 31, 2015.....................................................................
Other comprehensive loss before reclassifications ...........................................
Amounts reclassified from accumulated other comprehensive income (loss)..
Balance as of December 31, 2016.....................................................................
Other comprehensive income before reclassifications .....................................
Amounts reclassified from accumulated other comprehensive income (loss)..
(7,717)
(4,762)
—
(6,499)
(14,891)
(1,657)
(23,047)
10,432
(5,894)
239
(1,130)
—
458
(185)
—
273
185
—
—
75
2,456
(15)
—
15
—
—
—
4,680
1,864
—
(15,961)
(931)
1,217
(2,798)
(3,953)
2,456
(22,017)
(16,007)
(425)
(15,675)
(38,449)
(609)
1,361
10,008
(4,533)
Balance as of December 31, 2017..................................................................... $
(18,509)
$
458
$
— $
(14,923) $ (32,974)
Common Stock Repurchase Plans
In November 2017, the Corporation's board of directors approved an extension to 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, 2018. 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. As of December 31, 2017, 1.5 million shares had
been repurchased under this program for a total cost of $18.5 million, or $12.48 per share. Up to an additional $31.5 million of
the Corporation's common stock may be repurchased under this program through December 31, 2018.
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.
118
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................................................................... $
5,209
(3,994)
1,215
2017
2016
(in thousands)
6,556
$
(2,679)
3,877
$
$
$
2015
5,938
(2,011)
3,927
The tax benefits as a percentage of compensation expense, as shown in the preceding table, were 76.7%, 40.9% and 33.9% in
2017, 2016 and 2015, respectively. These percentages differ from 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, RSUs and PSUs. Tax benefits less than the 35%
statutory federal tax rate resulted from incentive stock options, for which a tax benefit is not recognized during the vesting period.
Tax benefits in excess of the 35% statutory federal tax rate resulted from incentive stock option exercises that triggered a tax
deduction when they were exercised, and excess tax benefits realized on vesting RSUs and PSUs during the period.
The following table 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............................................................. $
4,922
(1,559)
3,363
2017
2016
(in thousands)
6,165
$
(2,158)
4,007
$
$
$
2015
4,646
(1,626)
3,020
The following table provides information about stock option activity for the year ended December 31, 2017:
Outstanding as of December 31, 2016 ........................................
Exercised ..............................................................................
Forfeited ...............................................................................
Expired .................................................................................
Outstanding as of December 31, 2017 ........................................
Exercisable as of December 31, 2017 .........................................
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in millions)
10.98
11.45
10.64
13.97
10.66
10.66
4.1 years
4.1 years
$
$
6.4
6.4
Stock
Options
1,330,183
(411,292)
(14,574)
(26,115)
878,202
878,202
$
$
$
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, 2017:
Nonvested Stock Options
Restricted Stock/RSUs/PSUs
Weighted
Average
Grant Date
Fair Value
Options
Nonvested as of December 31, 2016...........................................
Granted .................................................................................
Vested ...................................................................................
Forfeited ...............................................................................
Nonvested as of December 31, 2017...........................................
$
82,447
—
(81,847)
(600)
— $
3.14
—
3.14
3.14
—
Weighted
Average
Grant Date
Fair Value
$
$
12.74
15.85
12.51
14.15
13.91
Shares
1,525,715
501,664
(603,308)
(117,134)
1,306,937
119
The vested and forfeited stock option shown in the table above were granted in 2014. There were no stock options granted in 2017,
2016, or 2015. The fair value of stock options granted in 2014 was estimated on the grant date using the Black-Scholes valuation
methodology.
As of December 31, 2017, there was $7.4 million of total unrecognized compensation cost (pre-tax) related to restricted stock,
RSUs and PSUs that will be recognized as compensation expense over a weighted average period of two years. As of December 31,
2017, the Employee Equity Plan had 11.1 million shares reserved for future grants through 2023, and the Directors’ Plan had
360,000 shares reserved for future grants through 2021.
The following table presents information about stock options exercised:
Number of options exercised ................................................................................
Total intrinsic value of options exercised.............................................................. $
Cash received from options exercised .................................................................. $
Tax deduction realized from options exercised..................................................... $
411,292
2,955
4,644
2,825
$
$
$
920,924
4,619
10,240
4,328
$
$
$
490,151
1,442
4,936
1,389
2017
2016
(dollars in thousands)
2015
Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options.
The fair value of certain PSUs with market-based performance conditions granted under the Employee Equity Plan was estimated
on the grant date using the Monte Carlo valuation methodology performed by a third-party valuation expert. This valuation is
dependent upon certain assumptions, as summarized in the following table:
Risk-free interest rate ............................................................................................
Volatility of Corporation’s stock ...........................................................................
Expected life of PSUs ...........................................................................................
2017
1.43%
22.45%
3 Years
2016
0.92%
20.75%
3 Years
2015
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 with market-based performance conditions granted in 2017, 2016 and 2015 of $17.25, $11.23 and $10.66,
respectively.
Under the ESPP, eligible employees can purchase stock of the Corporation at 85% of the fair market value of the stock on the date
of purchase. The ESPP is considered to be a compensatory plan and, as such, compensation expense is recognized for the 15%
discount on shares purchased. The following table summarizes activity under the ESPP:
ESPP shares purchased..........................................................................................
Average purchase price per share (85% of market value)..................................... $
Compensation expense recognized (in thousands) ............................................... $
2017
98,000
15.28
261
$
$
2016
109,665
12.37
240
$
$
2015
121,890
10.86
234
120
NOTE 16 – LEASES
Certain branch offices and equipment are leased under agreements that expire at varying dates through 2036. Most leases contain
renewal provisions at the Corporation’s option. Total rental expense was approximately $18.7 million in 2017, $18.4 million in
2016 and $18.1 million in 2015.
Future minimum payments as of December 31, 2017 under non-cancelable operating leases with initial terms exceeding one year
are as follows (in thousands):
Year
2018.......................................................................................................................................................................... $
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
$
17,417
15,730
14,592
12,988
10,763
45,905
117,395
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.
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 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 commitments to extend credit and letters of credit. See "Note 4 -
Loans and Allowance for Credit Losses," for additional information.
The following table presents commitments to extend credit and letters of credit:
Commercial and other..................................................................................................................... $ 3,689,700
1,422,284
Home equity....................................................................................................................................
1,093,045
Commercial mortgage and construction.........................................................................................
Total commitments to extend credit ........................................................................................ $ 6,205,029
$ 3,673,815
1,368,465
1,033,287
$ 6,075,567
Standby letters of credit .................................................................................................................. $
Commercial letters of credit ...........................................................................................................
Total letters of credit................................................................................................................ $
326,973
41,801
368,774
$
$
356,359
38,901
395,260
2017
2016
(in thousands)
121
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, 2017 and 2016, total
outstanding repurchase requests totaled approximately $543,000.
From 2000 to 2011, the Corporation sold loans to the FHLB of Pittsburgh under its Mortgage Partnership Finance Program ("MPF
Program"). No loans were sold under this program since 2011. 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 FHLB of Pittsburgh based on a percentage of the outstanding
principal balance of loans sold. As of December 31, 2017, the unpaid principal balance of loans sold under the MPF Program was
approximately $84 million. As of December 31, 2017 and 2016, the reserves for estimated credit losses related to loans sold under
the MPF Program were $1.2 million and $1.7 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, 2017 and 2016, the reserve for losses on residential mortgage loans sold was $2.1 million and $2.5 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, 2017 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.
Legal Proceedings
The Corporation and its subsidiaries are involved in various legal proceedings in the ordinary course of business of the Corporation.
The Corporation periodically evaluates the possible impact of pending litigation matters based on, among other factors, the advice
of counsel, available insurance coverage and recorded liabilities and reserves for probable legal liabilities and costs. In addition,
from time to time, the Corporation is the subject of investigations or other forms of regulatory or governmental inquiry covering
a range of possible issues and, in some cases, these may be part of similar reviews of the specified activities of other industry
participants. These inquiries could lead to administrative, civil or criminal proceedings, and could possibly result in fines, penalties,
restitution or the need to alter the Corporation’s business practices, and cause the Corporation to incur additional costs. The
Corporation’s practice is to cooperate fully with regulatory and governmental investigations.
As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from
the final outcomes of pending proceedings will not have a material adverse effect on the financial 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.
BSA/AML Enforcement Orders
The Corporation and three 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 the affected 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. The Corporation and the affected bank
subsidiaries have implemented numerous enhancements to the BSA/AML Compliance Program, completed the retrospective
122
reviews required under the Consent Orders, and continue to strengthen and refine the BSA/AML Compliance Program to achieve
a sustainable program 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 the affected 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 previously disclosed, on October 27, 2017, the Office of the Comptroller of the Currency (the "OCC") terminated the Consent
Orders that it issued on July 14, 2014 to three of the Corporation's bank subsidiaries, Fulton Bank, N.A., FNB Bank, N.A. and
Swineford National Bank, relating to deficiencies in the BSA/AML Compliance Programs at those bank subsidiaries.
Fair Lending Investigation
During the second quarter of 2015, Fulton Bank, N.A., 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 (specifically, the Equal Credit Opportunity Act and the Fair Housing Act) by Fulton Bank, N.A. in certain
geographies. Fulton Bank, N.A. has been and is cooperating with the Department and responding to the Department’s requests
for information. During the third quarter of 2016, the Department informed the Corporation, Fulton Bank, N.A., and three of the
Corporation’s other bank subsidiaries, Fulton Bank of New Jersey, The Columbia Bank and Lafayette Ambassador Bank, that the
Department was expanding its investigation of potential lending discrimination on the basis of race and national origin to encompass
additional geographies that were not included in the initial letter from the Department. In addition to requesting information
concerning the lending activities of these bank subsidiaries, the Department also requested information concerning the Corporation
and the residential mortgage lending activities conducted under the Fulton Mortgage Company brand, the trade name used by all
of the Corporation’s bank subsidiaries for residential mortgage lending. The investigation relates to lending activities during the
period January 1, 2009 to the present. The Corporation and the identified bank subsidiaries are cooperating with the Department
and responding to the Department’s requests for information. The Corporation and its bank subsidiaries are not able at this time
to determine the terms on which this investigation will be resolved or the timing of such resolution, or to reliably estimate the
amounts of any settlement, fines or other penalties or the cost of any other remedial actions, if enforcement action is taken. In
addition, should the investigation result in an enforcement action against the Corporation or its bank subsidiaries, or a settlement
with the Department, the ability of the Corporation and its bank subsidiaries to engage in certain expansion or other activities may
be restricted.
Agostino, et al. Litigation
Fulton Bank, N.A. (the "Bank"), the Corporation’s largest bank subsidiary, and two unrelated, third-party defendants, Ameriprise
Financial Services, Inc. ("Ameriprise") and Riverview Bank ("Riverview"), were named as defendants in a lawsuit brought on
behalf of a group of 67 plaintiffs filed on March 31, 2016, in the Court of Common Pleas for Dauphin County, Pennsylvania
(Agostino, et al. v. Ameriprise Financial Services, Inc., et al., No. 2016-CV-2048-CV). The plaintiffs in this action were clients
of Jeffrey M. Mottern, a now-deceased attorney, who is alleged to have operated a fraud scheme over a period of years through
the sale of fictitious high-yield investments or by otherwise misappropriating funds entrusted to Mr. Mottern. The lawsuit sought
damages from the defendants, including the Bank, alleged to be in excess of $11.3 million, treble damages and attorneys’ fees
with respect to alleged violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, punitive damages,
plus interest and costs.
In October 2017, the Bank and the plaintiffs agreed to settle the lawsuit. Pursuant to the terms of the settlement agreement between
the Bank and the plaintiffs, the claims against the Bank were dismissed with prejudice on December 13, 2017, and the Bank made
the agreed-upon settlement payment. Also during December 2017, the Corporation received reimbursement from the Corporation’s
insurance carrier for the full amount of the agreed-upon settlement payment.
123
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:
Equity securities ...................................................................
U.S. Government sponsored agency securities ....................
State and municipal securities ..............................................
Corporate debt securities ......................................................
Collateralized mortgage obligations.....................................
Residential mortgage-backed securities ...............................
Commercial mortgage-backed securities .............................
Auction rate securities ..........................................................
2017
Level 1
Level 2
Level 3
Total
— $
(in thousands)
31,530
$
— $
31,530
918
—
—
—
—
—
—
—
—
5,938
408,949
93,552
602,623
1,120,796
212,755
—
—
—
—
3,757
—
—
—
98,668
102,425
—
918
5,938
408,949
97,309
602,623
1,120,796
212,755
98,668
2,547,956
63,990
Total available for sale investment securities..............................
Other assets..................................................................................
918
2,444,613
19,451
44,539
Total assets .................................................................... $
Other liabilities ............................................................................ $
20,369
$ 2,520,682
19,357
$
39,014
$
$
102,425
$ 2,643,476
— $
58,371
Mortgage loans held for sale ....................................................... $
Available for sale investment securities:
2016
Level 1
Level 2
Level 3
Total
— $
(in thousands)
28,697
$
— $
28,697
Equity securities ...................................................................
24,526
U.S. Government sponsored agency securities ....................
State and municipal securities ..............................................
Corporate debt securities ......................................................
Collateralized mortgage obligations.....................................
Residential mortgage-backed securities ...............................
Commercial mortgage-backed securities .............................
Auction rate securities ..........................................................
—
—
—
—
—
—
—
Total available for sale investment securities..............................
Other assets..................................................................................
24,526
17,111
—
134
391,641
106,537
593,860
1,317,838
24,563
—
2,434,573
44,481
—
—
—
2,872
—
—
—
97,256
100,128
—
24,526
134
391,641
109,409
593,860
1,317,838
24,563
97,256
2,559,227
61,592
Total assets .................................................................... $
Other liabilities ............................................................................ $
41,637
$ 2,507,751
17,032
$
41,734
$
$
100,128
$ 2,649,516
— $
58,766
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, 2017 and 2016 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.
124
The pricing service uses pricing models that vary based on asset class and incorporate available market information,
including quoted prices of investment securities with similar characteristics. Because many fixed income securities do
not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark
yield curves, benchmarking of like securities, sector groupings, and matrix pricing.
Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided
markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security
types, additional inputs may be used, or some of the standard market inputs may not be applicable.
Management tests the values provided by the pricing service by obtaining securities prices from an alternative third-party
source and comparing the results. This test is done for approximately 80% of the securities valued by the pricing service.
Generally, differences by security in excess of 5% are researched to reconcile the difference.
• Equity securities – Equity securities consist of stocks of financial institutions ($7,000 at December 31, 2017
and $23.5 million at December 31, 2016) and other equity investments ($911,000 at December 31, 2017 and
$1.0 million at December 31, 2016). 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/Residential mortgage-backed securities/Commercial 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 and senior debt issued by financial institutions
($61.9 million at December 31, 2017 and $65.2 million at December 31, 2016), single-issuer trust preferred
securities issued by financial institutions ($30.7 million at December 31, 2017 and $39.8 million at December 31,
2016), pooled trust preferred securities issued by financial institutions ($707,000 at December 31, 2017 and
$422,000 at December 31, 2016) and other corporate debt issued by non-financial institutions ($4.0 million at
December 31, 2017 and 2016).
Level 2 investments include subordinated debt and senior debt, other corporate debt issued by non-financial
institutions and $27.7 million and $37.3 million of single-issuer trust preferred securities held at December 31,
2017 and 2016, 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 ($707,000 at
December 31, 2017 and $422,000 at December 31, 2016) and certain single-issuer trust preferred securities
($3.1 million at December 31, 2017 and $2.5 million at December 31, 2016). 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 ($19.0
million at December 31, 2017 and $16.4 million at December 31, 2016) and the fair value of foreign currency
exchange contracts ($460,000 at December 31, 2017 and $745,000 at December 31, 2016). 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.
125
• 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 ($1.1 million at December 31, 2017 and $3.1 million at
December 31, 2016) and the fair value of interest rate swaps ($43.4 million at December 31, 2017 and $41.4
million at December 31, 2016). 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 ($19.0 million at December 31, 2017 and $16.4 million at December 31, 2016) and the fair
value of foreign currency exchange contracts ($374,000 at December 31, 2017 and $668,000 at December 31,
2016). 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 ($272,000 at December 31, 2017 and $339,000 at
December 31, 2016) and the fair value of interest rate swaps ($38.7 million at December 31, 2017 and $41.4
million at December 31, 2016). 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, 2015 .................................................................. $
Unrealized adjustments to fair value (1)..........................................................
Discount accretion (2)......................................................................................
Balance as of December 31, 2016 ..................................................................
Unrealized adjustments to fair value (1)..........................................................
Discount accretion (2)......................................................................................
Balance as of December 31, 2017 .................................................................. $
706
(286)
2
422
285
—
707
Single-issuer
Trust
Preferred
Securities
(in thousands)
2,630
$
(190)
10
2,450
588
12
3,050
$
Auction Rate
Securities
$
$
98,059
(1,246)
443
97,256
1,217
195
98,668
(1) 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.
(2)
Certain 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 assets
measured at fair value on a nonrecurring basis and reported on the consolidated balance sheets at December 31:
2017
2016
Net loans.....................................................................................................................................
OREO .........................................................................................................................................
MSRs..........................................................................................................................................
Total assets ..........................................................................................................................
$
$
$
(in thousands)
149,608
9,823
37,663
197,094
$
132,576
12,815
37,532
182,923
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.
126
• OREO – This category includes OREO ($9.8 million at December 31, 2017 and $12.8 million at December 31, 2016)
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 - This category includes MSRs ($37.7 million at December 31, 2017 and $37.5 million at December 31, 2016),
classified as Level 3 assets. 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
performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income,
the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the
loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted
average discount rate used in the December 31, 2017 valuation were 11.7% and 9.5%, respectively. Management tests
the reasonableness of the significant inputs to the third-party valuation in comparison to market data.
As required by FASB ASC Section 825-10-50, the following table details the book values and the estimated fair values of the
Corporation’s financial instruments as of December 31, 2017 and 2016. A general description of the methods and assumptions
used to estimate such fair values is also provided.
2017
2016
Book Value
Estimated
Fair Value
Book Value
Estimated
Fair Value
(in thousands)
108,291
293,805
60,761
31,530
2,547,956
15,598,337
52,910
215,464
FINANCIAL ASSETS
Cash and due from banks (1) ........................................................ $
Interest-bearing deposits with other banks (1) ..............................
FRB and FHLB stock (2) ..............................................................
Loans held for sale (3)...................................................................
Available for sale investment securities (2) ..................................
Net Loans (4).................................................................................
Accrued interest receivable (1) .....................................................
Other financial assets (1)...............................................................
FINANCIAL LIABILITIES
Demand and savings deposits (1).................................................. $ 13,042,147
Brokered deposits (1) ....................................................................
90,473
Time deposits (5) ...........................................................................
2,664,912
Short-term borrowings (1).............................................................
617,524
Accrued interest payable (1) .........................................................
9,317
Other financial liabilities (3) .........................................................
227,569
FHLB advances and long-term debt (5)........................................
1,038,346
$
108,291
293,805
60,761
31,530
2,547,956
15,380,974
52,910
215,464
$ 13,042,147
90,473
2,673,359
617,524
9,317
227,569
1,025,640
$
118,763
233,763
57,489
28,697
2,559,227
14,530,593
46,294
206,132
$ 12,259,622
—
2,753,242
541,317
9,632
216,080
929,403
$
118,763
233,763
57,489
28,697
2,559,227
14,387,454
46,294
206,132
$ 12,259,622
—
2,769,757
541,317
9,632
216,080
928,167
(1) Short-term financial instrument, defined as those with remaining maturities of 90 days or less and excluding those recorded at fair value on the
consolidated balance sheets. Book value is considered to be a reasonable estimate of fair value.
(2) Restricted investments, carried at cost on the consolidated balance sheets.
(3) These financial instruments, or certain financial instruments within these categories, are measured at fair value on the consolidated balance sheets.
Descriptions of the fair value determinations for these financial instruments are disclosed above.
(4) Fair value measured using unobservable inputs (level 3). Includes impaired loans, which are measured on a nonrecurring basis.
(5) Fair value measured using observable inputs (level 2).
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.
127
Fair values for loans were estimated by discounting future cash flows using the current rates at which similar loans would be made
to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values estimated in this
manner do not fully incorporate an exit price approach to fair value, as defined in FASB ASC Topic 820.
The fair values of time deposits and FHLB advances and long-term debt were estimated by discounting the remaining contractual
cash flows using a rate at which instruments with similar remaining maturities could be issued as of the balance sheet date. These
would be categorized within Level 2 liabilities under FASB ASC Topic 820.
NOTE 19 – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
December 31,
2017
2016
(in thousands)
ASSETS
Cash.................................................................................................................................................. $
Other assets ......................................................................................................................................
Receivable from subsidiaries ...........................................................................................................
22,857
$
5,959
53,880
8,568
5,648
46,715
Investments in:
Bank subsidiaries ......................................................................................................................
2,399,053
2,265,264
Non-bank subsidiaries...............................................................................................................
426,846
Total Assets ............................................................................................................................. $ 2,908,595
417,615
$ 2,743,810
LIABILITIES AND EQUITY
Long-term debt ................................................................................................................................. $
Payable to non-bank subsidiaries .....................................................................................................
Other liabilities.................................................................................................................................
Total Liabilities.......................................................................................................................
Shareholders’ equity .........................................................................................................................
2,229,857
Total Liabilities and Shareholders’ Equity ............................................................................. $ 2,908,595
206,766
85,871
678,738
183,152
77,538
622,695
2,121,115
$ 2,743,810
386,101
$
362,005
CONDENSED STATEMENTS OF INCOME
Income:
Dividends from subsidiaries........................................................................................ $
Other (1)........................................................................................................................
66,500
$ 115,000
$ 114,000
171,490
148,577
141,241
2017
2016
(in thousands)
2015
Expenses.............................................................................................................................
Income before income taxes and equity in undistributed net income of subsidiaries.
Income tax benefit ..............................................................................................................
237,990
199,981
38,009
(5,448)
43,457
263,577
177,835
85,742
(10,543)
96,285
255,241
176,457
78,784
(11,834)
90,618
Equity in undistributed net income (loss) of:
Bank subsidiaries ........................................................................................................
111,226
Non-bank subsidiaries.................................................................................................
17,070
Net Income .................................................................................................................. $ 171,753
58,477
6,863
$ 161,625
60,806
(1,922)
$ 149,502
(1) Consists primarily of management fees received from subsidiary banks.
128
CONDENSED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net Income ......................................................................................................................... $ 171,753
Adjustments to reconcile net income to net cash provided by operating activities:
$ 161,625
$ 149,502
2017
2016
(in thousands)
2015
Amortization of issuance costs and discount of long-term debt....................................
845
—
Stock-based compensation ............................................................................................
Excess tax benefits from stock-based compensation.....................................................
Increase in other assets ..................................................................................................
Equity in undistributed net income of subsidiaries .......................................................
Loss on redemption of trust preferred securities ...........................................................
Increase (decrease) 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:
Repayments of long-term debt ......................................................................................
Additions to long-term debt...........................................................................................
4,740
—
(17,882)
(128,298)
—
31,241
(109,354)
62,399
—
(100,000)
123,251
6,556
(964)
(16,585)
(65,340)
—
(5,928)
(82,261)
79,364
—
—
5,938
(201)
2,806
(58,884)
5,626
106,490
61,775
211,277
—
— (254,640)
— 147,779
Net proceeds from issuance of common stock ..............................................................
9,007
16,167
10,607
Excess tax benefits from stock-based compensation.....................................................
Dividends paid...............................................................................................................
Acquisition of treasury stock.........................................................................................
Net cash used in financing activities ......................................................................
Net Increase (Decrease) in Cash and Cash Equivalents ..........................................
Cash and Cash Equivalents at Beginning of Year .........................................................
8,568
Cash and Cash Equivalents at End of Year.................................................................... $ 22,857
(48,110)
14,289
—
(80,368)
964
(69,382)
— (18,545)
(70,796)
8,568
—
201
(65,361)
(50,000)
(211,414)
(137)
137
$
8,568
$
—
129
Management Report on Internal Control Over Financial Reporting
The management of Fulton Financial Corporation is responsible for establishing and maintaining adequate internal control over
financial reporting. Fulton Financial Corporation’s internal control system is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2017,
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, 2017, the Corporation’s
internal control over financial reporting is effective based on those criteria.
/s/ E. PHILIP WENGER
E. Philip Wenger
Chairman and Chief Executive Officer
/s/ PHILMER H. ROHRBAUGH
Philmer H. Rohrbaugh
Senior Executive Vice President
and Chief Financial Officer
130
Report of Independent Registered Public Accounting Firm
To the shareholders and board of directors
Fulton Financial Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Fulton Financial Corporation and subsidiaries (the “Company”)
as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively, the
“consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
131
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.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Philadelphia, Pennsylvania
March 1, 2018
132
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per-share data)
2017
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 ...........................................................
2016
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
158,487
$
163,881
$
171,511
$
174,987
20,908
137,579
4,800
46,673
122,275
57,177
13,797
43,380
0.25
0.25
0.11
$
$
22,318
141,563
6,700
52,371
132,695
54,539
9,072
45,467
0.26
0.26
0.11
$
$
24,702
146,809
5,075
51,974
132,157
61,551
12,646
48,905
0.28
0.28
0.11
$
$
25,574
149,413
6,730
56,956
138,452
61,187
27,186
34,001
0.19
0.19
0.14
149,311
$
149,309
$
151,468
$
153,012
20,257
129,054
1,530
43,137
120,413
50,248
11,991
38,257
0.22
0.22
0.09
$
$
20,393
128,916
2,511
46,137
121,637
50,905
11,155
39,750
0.23
0.23
0.10
$
$
20,903
130,565
4,141
48,149
119,848
54,725
13,257
41,468
0.24
0.24
0.10
$
$
20,775
132,237
5,000
52,755
127,621
52,371
10,221
42,150
0.24
0.24
0.12
133
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, 2017, 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.
134
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 2018 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 2018 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 2018 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 2018 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 2018 Proxy Statement.
135
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) Consolidated Balance Sheets - December 31, 2017 and 2016.
(ii) Consolidated Statements of Income - Years ended December 31, 2017, 2016 and 2015.
(iii) Consolidated Statements of Comprehensive Income - Years ended December 31, 2017, 2016 and 2015.
(iii) Consolidated Statements of Shareholders’ Equity - Years ended December 31, 2017, 2016 and 2015.
(iv) Consolidated Statements of Cash Flows - Years ended December 31, 2017, 2016 and 2015.
(v) Notes to Consolidated Financial Statements.
(vi) Report of Independent Registered Public Accounting Firm.
2. 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.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
10.4
10.4.1
10.5
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 Current Report Form 8-K filed 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 filed September 23, 2014.
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 filed November 17, 2014.
First Supplemental 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 4.2 of the Fulton Financial Corporation Current Report on Form 8-K filed November 17, 2014.
Form of Note (Included in Exhibit 4.2).
An Indenture entered into on March 16, 2017 between Fulton Financial Corporation and Wilmington Trust, National
Association as trustee, relating to the issuance by Fulton Financial Corporation of $125 million aggregate principal
amount of 3.60% senior notes due March 16, 2022 - Incorporated by reference to Exhibit 4.1 of the Fulton Financial
Corporation Current Report on Form 8-K filed March 16, 2017.
First Supplemental Indenture entered into on March 16, 2017 between Fulton Financial Corporation and
Wilmington Trust Company as trustee, relating to the issuance by Fulton Financial Corporation of $125 million
aggregate principal amount of 3.60% senior notes due March 16, 2022 - Incorporated by reference to Exhibit 4.2
of the Fulton Financial Corporation Current Report on Form 8-K filed March 16, 2017.
Form of Note (Included in Exhibit 4.2).
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 filed 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 filed
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 filed
October 22, 2012.
Form of Executive Employment Agreement between Fulton Financial Corporation and certain Executive
Officers of Fulton Financial Corporation - Incorporated by reference to Exhibit 10.1 of the Fulton Financial
Corporation Current Report on Form 8-K filed January 4, 2018.
Schedule of Executive Employment Agreements between Fulton Financial Corporation and certain Executive
Officers of Fulton Financial Corporation - filed herewith.
Form of Key Employee Change in Control Agreement between Fulton Financial Corporation and certain
Executive Officers of Fulton Financial Corporation, Incorporated by reference to Exhibit 10.2 of the Fulton
Financial Corporation Current Report on Form 8-K filed January 4, 2018.
136
10.5.1
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
12
21
23
31.1
31.2
32.1
32.2
101
Schedule of Key Employee Change in Control Agreements between Fulton Financial Corporation and certain
Executive Officers of Fulton Financial Corporation - filed herewith.
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 10-K for the fiscal year ended December 31, 2006.
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 filed May 3, 2013.
Amendment No. 1 to Fulton Financial Corporation Amended and Restated Equity and Cash Incentive Compensation
Plan - Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on Form 10-
Q for the quarterly period ended June 30, 2016.
Amendment No. 2 to Fulton Financial Corporation Amended and Restated Equity and Cash Incentive Compensation
Plan - filed herewith.
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, respectively, of the Fulton Financial Corporation
Current Report on Form 8-K filed June 19, 2013.
Amended and Restated Fulton Financial Corporation Employee Stock Purchase Plan – Incorporated by reference
to Exhibit A to Fulton Financial Corporation’s definitive proxy statement, filed March 26, 2014.
Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective December 1, 2015
– Incorporated by reference to Exhibit 10.12 of the Fulton Financial Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 2015.
Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated July 11, 2016 - Incorporated by
reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2016. 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.
Fulton Financial Corporation 2011 Directors' Equity Participation Plan – Incorporated by reference to Exhibit A to
Fulton Financial Corporation’s definitive proxy statement, filed March 24, 2011.
Amendment No. 1 to Fulton Financial Corporation 2011 Directors' Equity Participation Plan - filed herewith.
Form of Restricted Stock Award Agreement between Fulton Financial Corporation and Directors of the Corporation
as of July 1, 2011 – Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation Quarterly Report
on Form 10-Q for quarterly period ended June 30, 2011.
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, respectively, of the Fulton Financial Corporation Current
Report on Form 8-K filed March 24, 2014.
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 filed November 17,
2014.
Computation of Consolidated Ratios of Earnings to Fixed Charges - filed herewith.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Balance Sheets at December 31, 2017 and December 31, 2016; (ii) the Consolidated
Statements of Income for the years ended December 31, 2017, 2016 and 2015; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2017, 2016 and 2015;(iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2017, 2016 and 2015; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
Item 16. Form 10-K Summary
Not applicable.
137
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 1, 2018
FULTON FINANCIAL CORPORATION
(Registrant)
By:
/S/ E. PHILIP WENGER
E. Philip Wenger,
Chairman and Chief Executive Officer
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/ 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, III
Albert Morrison, III
/S/ JAMES R. MOXLEY, III
James R. Moxley, III
/S/ PHILMER H. ROHRBAUGH
Philmer H. Rohrbaugh
Director
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
Executive Vice President
and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
138
Signature
Capacity
Date
/S/ R. SCOTT SMITH, JR.
R. Scott Smith, Jr.
/S/ SCOTT A. SNYDER
Scott A. Snyder
/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
Director
Chairman and Chief Executive
Officer (Principal Executive
Officer)
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
139
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 Current Report Form 8-K filed 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/A filed September 23, 2014.
4.1 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 filed November 17, 2014.
4.2 First Supplemental 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 4.2 of
the Fulton Financial Corporation Current Report on Form 8-K filed November 17, 2014.
4.3 Form of Note (Included in Exhibit 4.2).
4.4 An Indenture entered into on March 16, 2017 between Fulton Financial Corporation and Wilmington Trust, National
Association as trustee, relating to the issuance by Fulton Financial Corporation of $125 million aggregate principal
amount of 3.60% senior notes due March 16, 2022 - Incorporated by reference to Exhibit 4.1 of the Fulton Financial
Corporation Current Report on Form 8-K filed March 16, 2017.
4.5 First Supplemental Indenture entered into on March 16, 2017 between Fulton Financial Corporation and Wilmington
Trust Company as trustee, relating to the issuance by Fulton Financial Corporation of $125 million aggregate principal
amount of 3.60% senior notes due March 16, 2022 - Incorporated by reference to Exhibit 4.2 of the Fulton Financial
Corporation Current Report on Form 8-K filed March 16, 2017.
4.6 Form of Note (Included in Exhibit 4.2).
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 filed
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 filed 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 filed October
22, 2012.
10.4 Form of Executive Employment Agreement between Fulton Financial Corporation and certain Executive Officers of
Fulton Financial Corporation - Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current
Report on Form 8-K filed January 4, 2018.
10.4.1 Schedule of Executive Employment Agreements between Fulton Financial Corporation and certain Executive Officers
of Fulton Financial Corporation - filed herewith.
10.5 Form of Key Employee Change in Control Agreement between Fulton Financial Corporation and certain Executive
Officers of Fulton Financial Corporation, Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation
Current Report on Form 8-K filed January 4, 2018.
140
10.5.1
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
12
21
23
31.1
31.2
32.1
32.2
101
Schedule of Key Employee Change in Control Agreements between Fulton Financial Corporation and certain
Executive Officers of Fulton Financial Corporation - filed herewith.
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 10-K for the fiscal year ended December 31, 2006.
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 filed May 3, 2013.
Amendment No. 1 to Fulton Financial Corporation Amended and Restated Equity and Cash Incentive Compensation
Plan - Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on Form 10-
Q for the quarterly period ended June 30, 2016.
Amendment No. 2 to Fulton Financial Corporation Amended and Restated Equity and Cash Incentive Compensation
Plan - filed herewith.
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, respectively, of the Fulton Financial Corporation
Current Report on Form 8-K filed June 19, 2013.
Amended and Restated Fulton Financial Corporation Employee Stock Purchase Plan – Incorporated by reference
to Exhibit A to Fulton Financial Corporation’s definitive proxy statement, filed March 26, 2014.
Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective December 1, 2015 –
Incorporated by reference to Exhibit 10.12 of the Fulton Financial Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 2015.
Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated July 11, 2016 - Incorporated by
reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2016. 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.
Fulton Financial Corporation 2011 Directors' Equity Participation Plan – Incorporated by reference to Exhibit A to
Fulton Financial Corporation’s definitive proxy statement, filed March 24, 2011.
Amendment No. 1 to Fulton Financial Corporation 2011 Directors' Equity Participation Plan - filed herewith.
Form of Restricted Stock Award Agreement between Fulton Financial Corporation and Directors of the Corporation
as of July 1, 2011 – Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation Quarterly Report
on Form 10-Q for quarterly period ended June 30, 2011.
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, respectively, of the Fulton Financial Corporation Current
Report on Form 8-K filed March 24, 2014.
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 filed November 17, 2014.
Computation of Consolidated Ratios of Earnings to Fixed Charges - filed herewith.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Balance Sheets at December 31, 2017 and December 31, 2016; (ii) the Consolidated
Statements of Income for the years ended December 31, 2017, 2016 and 2015; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2017, 2016 and 2015;(iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2017, 2016 and 2015; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
141
Exhibit 12
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
Earnings:
Income before income taxes
Interest expense, including interest on deposits
Estimated interest component of net rental expense (1)
Amortization of debt discount (premium) and expenses, including amounts
capitalized
Earnings
For the Year Ended December 31,
2017
2016
2015
2014
2013
$ 234,454
$ 208,249
$ 199,423
$ 210,500
$ 212,925
93,502
6,143
82,328
6,047
83,795
5,935
81,211
5,932
82,495
6,202
855
617
585
334
315
334,954
297,241
289,738
297,977
301,937
Less: Interest expense on deposits
(57,791)
(44,693)
(40,482)
(35,110)
(36,770)
Earnings, excluding interest on deposits
$ 277,163 v$ 252,548 v$ 249,256
$ 262,867
$ 265,167
Fixed Charges:
Interest expense, including capitalized interest
Interest portion of rent expense (1)
Amortization of debt discount (premium) and expenses, including amounts
capitalized
Total fixed charges
93,503
6,143
82,328
6,047
83,795
5,935
81,211
5,932
82,495
6,202
855
617
585
334
315
100,501
88,992
90,315
87,477
89,012
Less: Interest expense on deposits
(57,791)
(44,693)
(40,482)
(35,110)
(36,770)
Earnings, excluding interest on deposits
$
42,710
$
44,299
$
49,833
$
52,367
$
52,242
Earnings to fixed charges:
Including interest on deposits
Excluding interest on deposits
3.33
6.49
3.34
5.70
3.21
5.00
3.41
5.02
3.39
5.08
(1) The proportion, estimated at one-third, of rental expense deemed representative of interest.
The ratio of earnings to fixed charges is computed by dividing earnings by the aggregate of fixed charges. For purposes
of computing these ratios, earnings consist of income before income taxes, plus fixed charges. Fixed charges consist
of interest expense, the proportion, estimated at one-third, of rental expense deemed representative of interest, and
amortization of premiums, discounts and capitalized expenses related to indebtedness.
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
FNB Bank, N.A.
Fulton Financial Advisors
Clermont Wealth Strategies
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
FNB Bank, N.A.
354 Mill Street
P.O. Box 279
Danville, Pennsylvania 17821
United States of America
FNB Bank, N.A.
Fulton Mortgage Company
Central Pennsylvania Financial Corp.
Pennsylvania
Central Pennsylvania Financial Corp.
100 W. Independence Street
Shamokin, PA 17872
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
The Columbia Bank
7168 Gateway Drive
Columbia, MD 21046
Delaware
FFC Penn Square, Inc.
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 statements (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 statements (No. 333-37835, No. 333-61268, No. 333-123532, No. 333-130718, No.
333-156339, No. 333-189459, No. 333-189488, No. 333-156396, No. 333-197730 and No. 333-221393) on Form
S-3 of Fulton Financial Corporation of our report dated March 1, 2018, with respect to the consolidated balance
sheets of Fulton Financial Corporation as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively, the “consolidated financial statements”), and
the effectiveness of internal control over financial reporting as of December 31, 2017, which report appears in the
December 31, 2017 annual report on Form 10 K of Fulton Financial Corporation.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 1, 2018
Exhibit 31.1 – Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, E. Philip Wenger certify that:
1.
I have reviewed this annual report on Form 10-K of Fulton Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 1, 2018
/s/ E. Philip Wenger
E. Philip Wenger
Chairman and Chief Executive Officer
Exhibit 31.2 – Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Philmer H. Rohrbaugh, certify that:
1.
I have reviewed this annual report on Form 10-K of Fulton Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 1, 2018
/s/ Philmer H. Rohrbaugh
Philmer H. Rohrbaugh
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,
2017, fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. The information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Fulton
Financial Corporation.
Dated: March 1, 2018
/s/ E. Philip Wenger
E. Philip Wenger
Chairman and Chief Executive Officer
Exhibit 32.2 – Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Philmer H. Rohrbaugh, 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,
2017, fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. The information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Fulton
Financial Corporation.
Dated: March 1, 2018
/s/ Philmer H. Rohrbaugh
Philmer H. Rohrbaugh
Senior Executive Vice President and Chief Financial Officer
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The Columbia Bank • FNB Bank, N.A. • Fulton Bank, N.A.
Fulton Bank of New Jersey • Lafayette Ambassador Bank • Swineford National Bank
Lorem ipsum
The Columbia Bank • FNB Bank, N.A. • Fulton Bank, N.A.
Fulton Bank of New Jersey • Lafayette Ambassador Bank • Swineford National Bank
The Columbia Bank • FNB Bank, N.A. • Fulton Bank, N.A.
Fulton Bank of New Jersey • Lafayette Ambassador Bank • Swineford National Bank
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