2018
ANNUAL
REPORT
FULTON FINANCIAL CO RPORATI ON
2009-2018
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L
09 10 11 12 13 14 15 16 17 18
09 10 11 12 13 14 15 16 17 18
Dear Shareholder:
We change lives for the better. Six simple words
that convey the purpose of our organization.
During the year, we rallied our team members
around that purpose, asking them to thoughtfully
consider how their actions can impact our
customers and change their lives by helping them
achieve their financial goals while at the same time
continuing to focus on driving shareholder value.
In 2018, we were able to execute on our goals
and objectives, while fulfilling this purpose, which
translated into record levels of net income and
revenue. Net income and revenue surpassed $200
million and $800 million, respectively, for the first
time in our history.
On the corporate front, we hit two notable
milestones. First, the Bank Secrecy Act and Anti-
Money Laundering (“BSA/AML”) consent orders
issued to our subsidiary banks in Maryland and
New Jersey were terminated. This follows the
terminations in 2017 of the consent orders issued
to three of our other subsidiary banks. Second,
we consolidated two of our subsidiary banks, FNB
Bank, N.A. and Swineford National Bank, with our
largest banking subsidiary, Fulton Bank, N.A. We
have one BSA/AML consent order remaining, and
we are confident that we are progressing toward
achieving a similar resolution. Once that order
is terminated, we will fully pursue our strategic
priority of consolidating our remaining subsidiary
banks with our flagship bank, Fulton Bank, N.A.
We continue to grow in Philadelphia and Baltimore.
Both markets have a team of commercial and
consumer lenders in place to help us take
advantage of what we view as tremendous long-
term growth opportunities. In Philadelphia, we
opened a mortgage loan production office and
three full-service branches in 2018 and early
2019. In Baltimore, we opened a mortgage loan
production office in January 2019, and have plans
to open full-service branch offices in the future.
Our Investment Management and Trust
business had a strong year due to overall market
performance and our continued asset gathering
focus. Brokerage revenue grew 8.0% year-over-year,
and continues to be one of our fastest growing
segments within the business. Recently, we had
the opportunity to broaden our reach to serve
additional clients in central Pennsylvania by
purchasing a wealth management business located
in Altoona, PA, adding approximately $250 million
of assets under management and administration
to our brokerage platform. With that acquisition,
our investment management and trust services
business now has approximately $11.0 billion in
assets under management or administration, and
we continue to look at other opportunities to keep
growing that business.
We were pleased to see a decline in our efficiency
ratio year-over-year. Since 2012, we have
consolidated 37 branches1, or approximately 14%
of our branch network. We believe there will be
more opportunities to optimize our branch network
over time and gain efficiencies as we react to
changing customer preferences and behaviors. In
addition, opportunities exist for efficiencies as we
continue to upgrade our origination and servicing
platforms, consolidate our bank charters and exit
our BSA/AML order. While expense management
is a top priority, and we continually look for ways
to make our organization more efficient, we are
also investing in our company to support a larger
organization that can benefit from economies of
scale.
Changing customer behavior and preferences
has challenged the banking industry to rethink
how we do business. More customers now prefer
online and mobile to “branch banking”. Given this
change, we have made significant investments
over the past several years to enhance our digital
capabilities, in both our consumer and commercial
businesses. We launched a best-in-class commercial
online banking platform, and have plans to launch
a new commercial loan origination system in 2019.
On the consumer side, we continue to upgrade
our branch network to a new format that fosters
a greater focus on the customer experience.
The new format supports higher-value activities
geared towards advice and sales and reflects the
diminishing role of traditional teller transactions.
Our Board of Directors and management team
look forward to meeting with shareholders at
Fulton’s Annual Shareholders Meeting in Lancaster,
Pennsylvania on Tuesday, May 21st at 10 a.m. 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.
Very truly yours,
E. Philip Wenger
Chairman and CEO
Fulton Financial Corporation
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Strategically, the deployment of capital for the
enhancement of long-term shareholder value
remains one of our highest priorities. In 2018, we
increased our quarterly common dividend by $0.01
to $0.12, and paid a $0.04 special dividend in the
4th quarter. We also repurchased approximately
$95 million of our common stock during the year.
In all, we distributed nearly 90% of our net income
to shareholders in 2018.
As a shareholder, it is important that you know
the strategic goals and objectives that your
senior management team seeks to accomplish. In
2019, we will continue our focus on the following
priorities:
Growing the Company:
• Investing in talent for growth in targeted
markets and businesses
• Investing in digital and customer intelligence
capabilities to acquire new relationships and
cross-sell to existing clients
• Serving all segments of communities through
the expansion of our Fulton Forward™ initiative,
which focuses on four key areas: Affordable
Housing and Home Ownership; Job Training and
Workforce Development; Financial Education
and Economic Empowerment; and Diversity and
Inclusion
• Implementing new branch formats and
expanding in urban markets
Achieving Operational Excellence:
• Advancing business line structure and charter
consolidation
• Focusing on consistency and effectiveness across
all operations areas through enterprise process
design, improvement and automation
• Developing an enterprise technology strategy,
including defining the future state platforms and
execution roadmap
Sustaining and Scaling Effective Risk and
Compliance Activities:
• Sustaining risk management, compliance and
systems to ensure stakeholder expectations are
met
• Implementing technology enhancements to
automate controls and enable on-going monitoring
SENIOR MANAGEMENT, BOARDS OF DIRECTORS
& ADVISORY BOARD MEMBERS AS OF 12/31/2018
SENIOR MANAGEMENT
E. Philip Wenger
Chairman and Chief Executive Officer
Curtis J. Myers
President and Chief Operating Officer - Fulton
Financial Corporation and Chairman, Chief
Executive Officer, Chief Operating Officer and
President –- Fulton Bank, N.A
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
Angela M. Sargent
Senior Executive Vice President/Chief Information
Officer
Angela M. Snyder
Senior Executive Vice President/Head of Consumer
Banking 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
BOARD OF DIRECTORS
E. Philip Wenger, Chair
Lisa Crutchfield
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morrison, III, Retiring May 2019
James R. Moxley, III
R. Scott Smith, Jr., Retiring May 2019
Scott A. Snyder
Ronald H. Spair
Mark F. Strauss
Ernest J. Waters
FULTON BANK, N.A.(cid:1)
BOARD OF DIRECTORS(cid:1)
Curtis J. Myers, Chair(cid:1)
Jennifer Craighead Carey(cid:1)
Steven S. Etter
Carlos E. Graupera(cid:1)
George W. Hodges(cid:1)
George Keith Martin
Ivy E. Silver
Ernest J. Waters
FULTON BANK, N.A
DIVISIONAL ADVISORY BOARDS
BRANDYWINE ADVISORY DIVISION
Andrew Stump, Chair
Harry DiDonato
Dallas Krapf
James D. McLeod, Jr.
Michael J. O’Rourke
Kathryn V. Snyder
CAPITAL ADVISORY DIVISION
Joseph F. Rilatt, Chair
James C. Byerly
Samuel T. Cooper III, Esq.
Justin D. McClure
Beth A. Peiffer
Steven C. Wilds
CENTRAL VIRGINIA
ADVISORY DIVISION
Karen Frye, Chair
Robert H. Keiter, C.P.A.
George Keith Martin
J. Keith Middleton
Lloyd M. Poe
Robert E. Porter, Jr.
DELAWARE ADVISORY DIVISION
Katherine Wilkinson, Chair
Jeffrey M. Fried
Terry A. Megee
Ralph W. Simpers, Retiring May 2019
David T. Wilgus
GREATER BERKS
ADVISORY DIVISION
Michele Richards, Chair
Eric G. Burkey
Marcelino Colon
William P. Gage
William G. Koch, Sr., C.P.A.
Chris G. Kraras
Diane Smith
HAMPTON ROADS
Jean Galliano, Chair
ADVISORY DIVISION
Joanna Brumsey
William L. Stauffer, Jr., Esq.
LANCASTER ADVISORY DIVISION
Philip N. Smith, Chair
Galen Eby
Dean A. Hoover
Robert A. Hostetter
Louis G. Hurst
Cinthia M. Kettering
Tony Legenstein
Kent M. Martin
Edward W. Monborne
Lori Pickell
David W. Sweigart, III
Harold W. Weik, Jr.
John D. Yoder
J. David Young, Jr., Esq.
LEBANON ADVISORY 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
ADVISORY DIVISION
Joe Durham, Chair
Thomas M. Crutchfield, C.P.A.
Manuel A. Ojeda
PREMIER ADVISORY DIVISION
Lou Lombardi, Chair
Anthony D. Cino
Rosemary Espanol
Elmer F. Hansen, III
Robert Walton
STATE COLLEGE
ADVISORY DIVISION
Leslie P. Temple, Chair
Elizabeth A. Dupuis
Thomas J. Kearney
Jeffrey M. Krauss
Thomas F. Songer, III
YORK ADVISORY DIVISION
Krista Snyder Darr, Chair
Vernon L. Bracey
Kevin Eisenhart
Jevon L. Holland
Jeffrey L. Rehmeyer, II
Gary A. Stewart, Jr.
Christine R. Wardrop
PHILADELPHIA ADVISORY BOARD
Sue Lonergan, Chair
Gail Ball
James Gould
Ellis G Guiles
Stephen D. Marshall
Michael J. Mitchell
Donn G. Scott
NORTHERN PA REGIONAL
ADVISORY BOARD
Leslie Temple, Chair
Albert Alley
James D. Hawkins
Kenneth A. Holdren
William Robinson
Daniel Rogers
Wendy Tripoli
AGRICULTURAL ADVISORY BOARD
Ted Bowers, Chair
James A. Angelucci
Robert Barley
Phoebe R. Bitler
Andrew S. Bollinger
Dennis L. Grumbine
William Hostetter
Aldus R. King
Scott I. Sechler
LAFAYETTE AMBASSADOR BANK(cid:1)
BOARD OF DIRECTORS
Meg R. Mueller, Chair
Joseph A. Bubba
Gary A. Clewell
Thomas Daub
Joseph R. Feilmeier
Robert E. Gadomski
Dolores Laputka
Jamie P. Musselman
FULTON BANK OF NEW JERSEY(cid:1)
BOARD OF DIRECTORS
Angela M. Snyder, Chair(cid:1)
Christopher S. Bateman
Dennis N. DeSimone
Stephen R. Miller
Antoinette Pergolin
Anthony J. Santye, Jr.
Mark F. Strauss
Norman Worth
FULTON BANK OF NEW JERSEY
DIVISIONAL ADVISORY BOARD
CENTRAL REGION ADVISORY DIVISION
Sean Murray, Chair
Priscilla Luppke
Paul Gergel
Hetal Parikn
George Robostello
Rachel Lilienthal Stark
Allen Weiss
THE COLUMBIA BANK
BOARD OF DIRECTORS
John A. Scaldara, Jr., Chair
Robert R. Bowie, Jr.
Donald R. Harsh, Jr., Chair, Retiring March 2019(cid:1)
James R. Moxley, III
Mark A. Mullican
Gregory Snook
David K. Williams, Jr.
Elizabeth M. Wright
THE COLUMBIA BANK
DIVISIONAL ADVISORY BOARDS
HAGERSTOWN ADVISORY DIVISION
Donald R. Harsh, Jr., Chair, Retiring March 2019
Joseph C. Durham
Paul N. Crampton, Jr.
Louis J. Giustini
Doris E. Lehman
Paul C. Mellott, Jr.
Mark A. Mullican
Gregory Snook
Michael S. Zampelli
ELKTON ADVISORY DIVISION
Katherine Wilkinson, Chair
Harry C. Brown, Retiring February 2019
Donald S. Hicks
Mark A. Mullican
David K. Williams, Jr.
P.O. Box 4887
One Penn Square
Lancaster, Pennsylvania 17604
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
TUESDAY, MAY 21, 2019 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 Tuesday, May 21, 2019,
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.
5.
ELECTION OF DIRECTORS. The election of fourteen (14) director nominees to serve for one-year
terms;
DIRECTOR COMPENSATION PLAN. A resolution to approve the Amended and Restated Directors’
Equity Participation Plan;
EXECUTIVE COMPENSATION PROPOSAL. A non-binding say on pay (“Say-on-Pay”) resolution
to approve the compensation of the named executive officers for 2018;
RATIFICATION OF INDEPENDENT AUDITOR. The ratification of the appointment of KPMG LLP
as Fulton’s independent auditor for the fiscal year ending December 31, 2019; 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, 2019, shall be entitled to be given
notice of, to attend and to vote at the Annual 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 Annual 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 2, 2019
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
[This Page Intentionally Left Blank] PROXY STATEMENT
Dated and To Be Mailed on or about: April 2, 2019
P.O. Box 4887, One Penn Square
Lancaster, Pennsylvania 17604
(717) 291-2411
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 21, 2019 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
2019 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
Current Fulton Directors Retiring at the 2019 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Security Ownership of Directors, Nominees, Management and Certain Beneficial Owners . . . . . . . . . . . . . .18
INFORMATION CONCERNING THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Meetings and Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Human Resources Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Other Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Board’s Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Lead Director and Fulton’s Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Executive Sessions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Board of Directors and Committee Evaluations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Director Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
RESOLUTION TO APPROVE THE AMENDED AND RESTATED DIRECTORS’ EQUITY
PARTICIPATION PLAN – PROPOSAL TWO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Overview and Background of the Amended and Restated Directors’ Equity Participation Plan . . . . . . . . . . 29
Key Terms and Purpose of the Amended and Restated Directors’ Equity Participation Plan . . . . . . . . . . . . 29
Type of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Term, Termination and Amendment of the Amended and Restated Directors’ Equity Participation Plan . . 30
Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
New Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Current Equity Granting Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Annual Individual Award Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Number of Awards that May be Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Rights with Respect to Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Clawback of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Vote Required for Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
INFORMATION CONCERNING EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section ................................................................................................................... Page
1. Executive Summary ......................................................................................... 35
2. Shareholder Say-on-Pay Proposal Historical Results ..................................... 37
3. Pay for Performance ......................................................................................... 37
4. Compensation Philosophy ................................................................................ 39
5. HR Committee Membership and Role ............................................................ 40
6. Role of Management ........................................................................................ 40
7. Use of Consultants ............................................................................................ 41
8. Use of a Peer Group .......................................................................................... 41
9. Elements of Executive Compensation ............................................................. 42
10. Employment Agreements ................................................................................. 49
11. Compensation Plan Risk Review ..................................................................... 49
12. Other Compensation Elements ........................................................................ 50
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Grants of Plan-Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Outstanding Equity Awards at Fiscal Year-End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Option Exercises and Stock Vested Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Pension Benefits Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Nonqualified Deferred Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Potential Payments Upon Termination and Golden Parachute Compensation Table . . . . . . . . . . . . . . . . . . . 59
CEO Pay Ratio Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
NON-BINDING SAY-ON-PAY RESOLUTION TO APPROVE THE COMPENSATION
OF THE NAMED EXECUTIVE OFFICERS – Proposal Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
RATIFICATION OF INDEPENDENT AUDITOR – Proposal Four . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Annual Report on Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Householding of Proxy Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Sign Up for Electronic Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
EXHIBITS
Amended and Restated Directors’ Equity Participation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit A . . . 69
Report of Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit B . . . 83
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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
Tuesday, May 21, 2019, 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 for
the Annual Meeting consisting of four proposals, as described in the meeting notice and in
more detail in this document, and such other business as may be properly brought before the
Annual Meeting.
Proposal One (Page 9)
Proposal Two (Page_29)
The election of the fourteen (14)
director nominees identified in this
Proxy Statement.
The approval of the Amended and Restated
Directors’ Equity Participation Plan.
Proposal Three (Page 64)
Proposal Four (Page 66)
The approval of the non-binding
Say-on-Pay resolution to approve the
compensation of the named executive
officers for 2018.
The ratification of the appointment of
KPMG LLP as Fulton’s independent
auditor for the fiscal year ending
December 31, 2019.
The Board of Directors recommends that shareholders vote FOR the election of each of the
fourteen (14) director nominees identified in this Proxy Statement, FOR the approval of
the Amended and Restated Directors’ Equity Participation Plan, FOR the approval of the
non-binding Say-on-Pay resolution to approve the compensation of the named executive
officers for 2018, and FOR the ratification of the appointment of KPMG LLP as Fulton’s
independent auditor for the fiscal year ending December 31, 2019.
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the Internet by visiting
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shares by telephone
by calling
1-800-690-6903
and using your
control number.
If you
received
a paper
copy of the Proxy
Statement, you can
vote your shares by
signing and
returning your
proxy card by U.S.
mail.
You can
vote in
person at
the Annual Meeting
with your proxy card
or legal proxy if shares
are held in street
name. (See Voting
Shares Held in Street
Name on Page 4 for
more information).
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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.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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: Fulton Bank, N.A., Fulton
Bank of New Jersey, Lafayette Ambassador 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 Tuesday, May 21, 2019, 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,
2019, 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, 2019 (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 fourteen (14) director nominees to serve for one-year terms; (ii) the approval of the Amended
and Restated Directors’ Equity Participation Plan; (iii) the non-binding Say-on-Pay resolution to approve the
compensation of the named executive officers for 2018; (iv) the ratification of the appointment of KPMG LLP as
Fulton’s independent auditor for the fiscal year ending December 31, 2019; and (v) such other business as may be
properly brought before the Annual Meeting and any adjournments thereof.
2
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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 Tuesday, May 21, 2019,
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 Equiniti (US) Services
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 $6,000, plus reimbursement for reasonable research,
distribution and mailing costs.
Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and Fulton will
reimburse them for reasonable out-of-pocket expenses incurred by them in connection 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 fourteen (14) director nominees identified in this Proxy Statement, FOR the approval of the Amended and
Restated Directors’ Equity Participation Plan, FOR the approval of the non-binding Say-on-Pay resolution to approve
the compensation of the named executive officers for 2018, and FOR the ratification of the appointment of KPMG
LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2019. 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, 2019.
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 2019 ANNUAL MEETING OF SHAREHOLDERS 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), on the approval of the Amended and Restated Directors’ Equity Participation Plan (Proposal 2 of this
Proxy Statement), and on the non-binding Say-on-Pay resolution to approve the compensation of the named executive
officers for 2018 (Proposal 3 of this Proxy Statement). If you hold your shares in street name and you do not instruct
your bank or broker how to vote your shares in the election of directors or any non-routine matters, such as Proposals
2 and 3 of this Proxy Statement, no votes will be cast on your behalf for the election of directors or Proposals 2 and
3. Your bank or broker will, however, continue to have discretion to vote any uninstructed shares on the ratification
of the appointment of Fulton’s independent auditor (Proposal 4 of this Proxy Statement) and other matters that your
bank or broker considers routine. If you 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 169,886,915 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 2.23% 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 fourteen (14) 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 Amended and Restated
Directors’ Equity Participation Plan, the non-binding Say-on-Pay resolution to approve the compensation of the
named executive officers for 2018 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 2019 ANNUAL MEETING OF SHAREHOLDERS 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 approval of the Amended and Restated Directors’ Equity Participation Plan, the non-binding Say-on-
Pay resolution to approve the compensation of the named executive officers for 2018, 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 approval of the Amended and Restated Directors’ Equity Participation Plan, 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 18 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, 2019
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, 2018 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 2018
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 2018 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 2018 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 2018 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 fourteen
(14) director nominees identified in this Proxy Statement, FOR the approval of the Amended and Restated
Directors’ Equity Participation Plan, FOR the approval of the non-binding Say-on-Pay resolution to approve
the compensation of the named executive officers for 2018, and FOR the ratification of the appointment of
KPMG LLP as Fulton’s independent auditor for the fiscal year ending December 31, 2019.
Shareholder Proposals
Under SEC rules, shareholder proposals intended to be considered for inclusion in Fulton’s Proxy Statement
and form of proxy for the 2020 Annual Meeting must be received at the principal executive offices of Fulton at
One Penn Square, Lancaster, Pennsylvania no later than December 4, 2019. In addition, any shareholder proposal
not received at Fulton’s principal executive offices by February 17, 2020, 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 2019 ANNUAL MEETING OF SHAREHOLDERS 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 2020 Annual Meeting. The shareholder, or a qualified
representative, must attend the 2020 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 2020 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 last material update of Fulton’s
Code of Conduct was 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.
At a meeting in December 2018, Fulton’s Board of Directors amended the Governance Guidelines, effective
January 1, 2019, to increase the stock ownership guidelines for Fulton’s non-employee directors from $175,000 to
$300,000. See Stock Ownership Guidelines on Page 50 for additional information regarding the change and Fulton’s
stock ownership guidelines for non-employee directors and officers. 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 2019 ANNUAL MEETING OF SHAREHOLDERS 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 fourteen (14) as of Fulton’s
Annual Meeting. 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. Since Fulton’s adoption of a
majority vote standard, all directors have been elected by a majority of the votes cast at each annual meeting.
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 2020 Annual Meeting,
this deadline date is December 4, 2019. 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
7
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Fulton that are beneficially owned by each such nominee; (v) a statement of qualifications of the proposed nominee
and a letter from the nominee affirming that he or she will agree to serve as a director of Fulton, if elected by the
shareholders; (vi) a description of all arrangements or understandings between the shareholder submitting the notice
and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination
or nominations are to be made by the shareholder; and (vii) such other information regarding each nominee proposed
by the shareholder as would have been required to be included in the Proxy Statement filed pursuant to the proxy
rules of the SEC had each nominee been nominated by or at the direction of the Board of Directors. The chairman of
the meeting shall determine whether nominations have been made in accordance with the requirements of the Bylaws
and, if the chairman determines that a nomination is defective, the nomination and any votes cast for the nominee
shall be disregarded. Shareholder nominees are subject to the same standard of review as nominees of Fulton’s Board
of Directors or its Nominating and Corporate Governance Committee.
Director Qualifications and Board Diversity
In considering any individual nominated for 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 a variety of
ways, including 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.
The Nominating and Corporate Governance Committee believes there is a balance between seasoned
directors with knowledge of and insight into Fulton and its affiliate banks, and new directors who contribute fresh
ideas, perspectives and viewpoints to the Board of Directors’ deliberations. While the Board of Directors has not
established term limits for Fulton directors, Fulton has a mandatory retirement age of seventy-two (72) for directors.
The Nominating and Corporate Governance Committee reviews each director’s age and continuation of service on
the Board of Directors at the end of his or her term. The Nominating and Corporate Governance Committee members
and the Board of Directors are focused on maintaining directors that provide increasing contributions to Fulton over
time and have routinely considered candidates who first served on the board of directors of one of Fulton’s subsidiary
banks. The Nominating and Corporate Governance Committee reviews the composition of the Board of Directors at
least annually to ensure that the Board of Directors reflects the appropriate balance of knowledge, experience, skills,
expertise and diversity.
8
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT ELECTION OF DIRECTORS – PROPOSAL ONE
General Information
For the 2019 Annual Meeting, the Board of Directors has fixed the number of directors at fourteen (14).
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 fourteen (14) persons for election to the Board of Directors for a
term of one year:
2019 Director Nominees
Jennifer Craighead Carey
Steven S. Etter
George W. Hodges
Scott A. Snyder
Ernest J. Waters
Lisa Crutchfield
Patrick J. Freer
James R. Moxley III
Ronald H. Spair
E. Philip Wenger
Denise L. Devine
Carlos E. Graupera
Curtis J. Myers
Mark F. Strauss
Each of the above director nominees is presently a director of Fulton, with the exception of Ms. Craighead
Carey, Mr. Etter, Mr. Graupera and Mr. Myers, each of whom currently serves on the board of directors of Fulton
Bank, N.A. 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 2019
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 fourteen (14) 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 fourteen
(14) 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 fourteen (14) persons
nominated by Fulton for election to the Board of Directors at the 2019 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 fourteen (14) director
nominees are independent, as defined in the applicable NASDAQ listing standards. Specifically, the Board of
Directors found that director nominees Crutchfield, Devine, Etter, Freer, Graupera, Hodges, Moxley, 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, the current 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 24.
9
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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.
JENNIFER CRAIGHEAD CAREY - Age: 50
•
•
•
2019 Annual Meeting Nominee
Fulton Bank, N.A. Director since 2012
2018 – 2019 Fulton Committees: Special Joint Board Compliance – Representing Fulton Bank, N.A.
Ms. Craighead Carey has been a partner of Barley Snyder LLP since 2001, and has
chaired the firm’s Employment Law group since 2005. She concentrates her practice
in the areas of labor and employment law, as well as school law. She regularly provides
advice to employers on a myriad of employment issues and has handled numerous
labor arbitrations both in the public and in private sector.
She has handled cases at both the administrative level and routinely handles litigation
in the Federal District Courts in both the Eastern and Middle Districts of Pennsylvania.
Ms. Craighead Carey regularly practices before the Pennsylvania Human Relations
Commission (PHRC) and the Equal Employment Opportunity Commission (EEOC)
as well as administrative agencies throughout the country, handling all manner of
discrimination and retaliation claims. Ms. Craighead Carey is a graduate of Dickinson
School of Law, with a J.D., cum laude, a comment writer for the Dickinson Law
Review, a member of the Woolsack Honor Society recognizing superior academic achievement, and a member of
Minority Law Students Association. She has received the designation of being a “Pennsylvania Super Lawyer”
from 2010 through 2018.
Ms. Craighead Carey is active in the community and a board member of the Lancaster Chamber of Commerce &
Industry since 2017 and a past chair of United Way of Lancaster County. She has been a director of Fulton Bank, N.A
since 2012, a bank representative on the Special Joint Board Compliance Committee and has over 20 years of legal,
risk management, and employment experience. In addition, she is familiar with the markets in which Fulton operates.
LISA CRUTCHFIELD - Age: 56
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton Director since 2014
2018 – 2019 Fulton Committees: Executive – Member; Nominating and Corporate Governance – Chair;
and Risk - Member
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.
10
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT DENISE L. DEVINE - Age: 63
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton Director since 2012
2018 – 2019 Fulton Committees: Audit - Member and financial expert; Executive – Member;
and 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 served as a member of the Board of Trustees of Lourdes
Health System since 2010. She has served on the Board of Ben Franklin Technology Partners of Southeastern
Pennsylvania since 2016 and was appointed to the Board of Ben Franklin Technology Development Authority in
2018. 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.
STEVEN S. ETTER - Age: 65
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton Bank, N.A. Director since 2012
2018 – 2019 Fulton Committees: None
Since 2014, Mr. Etter has been the President and CEO of Harrisburg News Company,
a division of Hudson News Distributors LLC, which is a regional magazine, book and
newspaper wholesale distribution company. Prior to its consolidation with Hudson
News, Mr. Etter served from 1998 to 2014 as the President and CEO of Harrisburg
News Company.
A graduate of the University of Miami with a B.A. in finance and marketing, he is a
member of its President’s Council, which is comprised of a select advisory group of
prominent alumni. Mr. Etter also is an Emeritus Director of the Whitaker Center for
Science and the Arts, a non-profit center for the arts, education, entertainment and
cultural enrichment, located in Harrisburg, Pennsylvania. Mr. Etter has been active in
numerous business endeavors, professional associations, charitable and community
organizations during his long career, including serving as a former board member of
WITF, a public radio and television station that broadcasts in central Pennsylvania.
As a Chief Executive Officer and successful business owner, Mr. Etter brings extensive business skills, financial
expertise and regional market knowledge to Fulton’s Board of Directors. Mr. Etter has been a director of Fulton
Bank, N.A since 2012, and prior to joining the bank board, he was a long-time member of Fulton’s Harrisburg
Advisory Board.
11
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT PATRICK J. FREER - Age: 69
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton Director since 1996
2018 – 2019 Fulton Committees: Human Resources – Member; and Nominating and Corporate
Governance Committee – Vice Chair
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 extensive knowledge of insurance,
investments, finance and risk management, as well as valuable knowledge of Fulton
through his tenure 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.
CARLOS E. GRAUPERA - Age: 69
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton Bank, N.A. Director since 2006
2018 – 2019 Fulton Committees: None
Since 1973, Mr. Graupera has been the Chief Executive Officer and Executive Director
of the Spanish American Civic Association (“SACA”), a Lancaster, Pennsylvania
based non-profit. SACA is a Latino founded and managed community-based
organization whose mission is to enable the community it serves to integrate itself
into the social, economic, and political mainstream of life. Towards this end, SACA
provides case management, employment, behavioral health, services to the elderly,
continuing education, vocational training, and services to at-risk youth. SACA also
operates WLCH, a radio station, and TeleCentro, a cable television station, along with
a number of subsidiary entities to assist in SACA’s Latino community efforts.
Mr. Graupera has been a director of the La Academia Partnership Charter School
since 1999. The school is the only tuition-free charter school in Lancaster County,
and offers students in grades 6 through 12 a unique opportunity to focus on 21st
century learning. It has a five-year goal of becoming a dual-language school with a STEM focus.
Mr. Graupera is very active in the Lancaster community, and has substantial community development,
management, business and finance experience, which provides a diverse and valuable set of outside experience
and skill to Fulton’s Board of Directors and Fulton Bank, N.A. where he has served as a director since 2006.
12
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT GEORGE W. HODGES - Age: 68
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton Director since 2001 and director of Fulton Bank, N.A. since 2012
2018 – 2019 Fulton Committees: Audit - Member and financial expert; Executive – Vice Chair;
and Human Resources – Member
Mr. Hodges has been a director of Fulton since 2001, and served as Fulton’s Lead
Director from 2010 until June 2018. 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.
In addition, Mr. Hodges has served as a director of Fulton Bank N.A. since 2012 and was a director of Drovers &
Mechanics Bank, until it was merged into Fulton Bank, N.A. in 2001.
Mr. Hodges brings considerable financial expertise and business knowledge to the Fulton Board of Directors,
both through his business experience and service on other boards. In addition, Mr. Hodges has completed the
requirements for the NACD Board Leadership Fellow Program since 2012.
JAMES R. MOXLEY III (Independent Lead Director) Age: 58
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton Director since 2015 and director of The Columbia Bank since 1999
2018 – 2019 Fulton Committees: Executive – Chair; Nominating and Corporate Governance – Member;
Risk – Chair; and Special Joint Board Compliance - Member
Mr. Moxley currently serves as Fulton’s Lead 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 is a past 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. He
has completed the requirements and has been recognized by the NACD as a Board Leadership Fellow since
2018. 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.
13
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT CURTIS J. MYERS (President and COO of Fulton) Age: 50
•
•
•
2019 Annual Meeting Nominee
Fulton Bank, N.A. director since 2009
2018 – 2019 Fulton Committees: Special Joint Board Compliance – Representing Fulton Bank, N.A.
Mr. Myers has been the President and Chief Operating Officer of Fulton Financial
Corporation since January 1, 2018. He first became an executive officer of Fulton
Financial Corporation in July 2013 and has held a number of executive positions with
Fulton since 1990.
He is also the Chairman, Chief Executive Officer, Chief Operating Officer and
President of Fulton Bank, N.A. He was promoted to Chairman and Chief Executive
Officer in May 2018 and became the President and Chief Operating Officer of Fulton
Bank, N.A. in 2009. He has served as a director of Fulton Bank, N.A. since 2009, and
currently serves as a representative of Fulton Bank, N.A. on the Special Joint Board
Compliance Committee.
Mr. Myers has participated in a number of industry organizations and has been active
in the local community for many years. He has been involved with the Pennsylvania
Bankers Association, is a past chair of the American Heart Association of Lancaster County, a past board member
of the YMCA of Lancaster County, and a past board member of the United Way of Lancaster County. He has
served as the Treasurer of the Fulton Theatre Company since 2011, a director of TEC Centro since 2017, and is
the current chair of the Salvation Army (Lancaster) for which he has been a director of this local non-profit since
1995.
Mr. Myers brings a myriad of banking knowledge, executive leadership, financial expertise and other valuable
skills to Fulton’s Board of Directors. He holds a Bachelor of Science in Business Administration from Shippensburg
University and a Master’s degree in Business Administration from Saint Joseph’s University. He is also a graduate
of the Stonier Graduate School of Banking.
SCOTT A. SNYDER, PhD - Age: 53
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton director since 2016
2018 – 2019 Fulton Committees: Nominating and Corporate Governance – Member; and 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.
14
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT RONALD H. SPAIR - Age: 63
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton director since 2015
2018 – 2019 Fulton Committees: Audit – Chair and financial expert; Executive – Member;
and Human Resources – Member
Mr. Spair 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. In June 2018, he retired from the board and as an officer of
OraSure Technologies, Inc.
From 2013 to May 2018 Mr. Spair 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.
MARK F. STRAUSS - Age: 67
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton director since 2016 and director of Fulton Bank of New Jersey since 2011
2018 – 2019 Fulton Committees: Human Resources – Vice Chair; Nominating and Corporate
Governance – Member; and Special Joint Board Compliance – Vice Chair
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, prior to his retirement from American Water Works Company he
was an attorney licensed to practice law in New Jersey.
15
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT ERNEST J. WATERS - Age: 69
•
•
•
2019 Annual Meeting Nominee and Independent
Fulton director since 2012 and director of Fulton Bank, N.A. since 2011
2018 – 2019 Fulton Committees: Audit - Member and financial expert; Executive – Member;
Risk – Member; and Special Joint Board Compliance - Chair
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.
E. PHILIP WENGER (Chairman of the Board and CEO of Fulton) Age: 61
•
•
•
2019 Annual Meeting Nominee
Fulton director since 2009
2018 – 2019 Fulton Committees: Executive – Member; and Special Joint Board Compliance – Member
Mr. Wenger became Chairman of the Board and Chief Executive Officer of Fulton
Financial Corporation effective on January 1, 2013. He also served as President from
2008 to 2017, and Chief Operating Officer of Fulton Financial Corporation from
2008 to 2012. Mr. Wenger was 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 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 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 and
a former board member on the Lancaster County YMCA Foundation and Crispus Attucks Community Center.
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.
16
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Current Fulton Directors Retiring at the 2019 Annual Meeting
Directors Albert Morrison III and R. Scott Smith, Jr., will not to stand for election at the 2019 annual meeting and will
retire from Fulton’s Board of Directors upon the expiration of their 2018 – 2019 one-year terms. We thank both of them for their
many years of dedicated service to the Board of Directors and Fulton.
ALBERT MORRISON III - Age: 72
•
•
•
Independent Director retiring from the Fulton Board at the 2019 Annual Meeting
Fulton director since 2012
2018 – 2019 Fulton Committees: Audit - Vice Chair and financial expert; Risk Committee – Member; and
Special Joint Board Compliance – Member
From 2002 to April 2018, Mr. Morrison 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.
R. SCOTT SMITH, JR. - Age: 72
•
•
•
Independent Director retiring from the Fulton Board at the 2019 Annual Meeting
Fulton director since 2001
2018 – 2019 Fulton Committees: Risk – Member
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, N.A. 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. In addition,
Mr. Smith continues to be active in the Lancaster community.
17
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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, director nominee, and the named executive officers, Mr. Wenger,
Mr. McCollom, Mr. Myers, Ms. Snyder, Ms. Mueller and Mr. Rohrbaugh, (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, each director nominee and each Executive are held
individually by the person. The directors, director nominees, the Executives and other executive officers of Fulton, as
a group, owned of record and beneficially 1,726,959 shares of Fulton common stock, representing 1.02% of such shares
then outstanding. Shares representing less than one percent of the outstanding shares are shown with a “*” below.
Director, Nominee and
Management
Beneficial Owners
Title
Total Number
of Shares
Beneficially Owned 2 3 4
% of
Class
Jennifer Craighead Carey Nominee
Lisa Crutchfield
Denise L. Devine
Steven H. Etter
Patrick J. Freer
Carlos E. Graupera
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
Director and Nominee
Director and Nominee
Nominee
Director and Nominee
Nominee
Director and Nominee
Director
Director and Nominee
Director
Director and Nominee
Director and Nominee
Director and Nominee
Director and Nominee
Director, Nominee, Chairman of the Board
and Chief Executive Officer
Senior Executive Vice President and Chief
Financial Officer
Nominee, President and Chief Operating Officer
Senior Executive Vice President and Head
of Consumer Banking
Senior Executive Vice President and Head
of Commercial Business
Retired Senior Executive Vice President and
Chief Financial Officer
143
11,938
19,000 5
190,000
116,439 6
10,861
42,922 7
36,457 8
130,914 9
271,948 10
6,540
19,072 11
24,075 12
28,468 13
333,525 14
0 15
137,123 16
10,245
73,052 17
90,001 18
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Directors, Director Nominees, Named
Executive Officers and executive officers
as a Group (25 Persons)
1,726,959
1.02%
N/A
N/A
18
20,809,031
11.8%
17,109,382
10.07%
Mark R. McCollom
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
Philmer H. Rohrbaugh
Total Ownership
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
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Beneficial Owners
Holding More than 5%
Dimensional Fund
Advisors LP 21
Building One,
6300 Bee Cave Road
Austin, TX 78746
Title
N/A
Total Number
of Shares
Beneficially Owned 2 3 4
% of
Class
14,264,562
8.10%
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 127,551 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 and Fulton’s Insider Trading Policy currently
prohibits the pledging of shares by Fulton directors and Executives.
4 Fulton has established stock ownership guidelines for Fulton directors and certain officers. As of December 31, 2018, Fulton
non-employee directors were required to hold $175,000 of eligible Fulton stock for 2018, and this stock ownership guideline
amount was increased to $300,000 as of January 1, 2019. The stock ownership guidelines for officers remained unchanged
for 2019. All non-employee directors and the Executives are in compliance with Fulton’s stock ownership guidelines. See a
description of Fulton’s stock ownership guidelines on Page 50.
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 8,091
shares held by The Hodges Family Foundation, Inc. Mr. Hodges has disclaimed beneficial ownership of the shares held by The
Hodges Family Foundation, Inc.
8 Mr. Morrison will be seventy-two (72) years old as of the date of the Annual Meeting and is not eligible to be nominated for
election as a director. He will retire from the Board of Directors when his current term ends at the Annual Meeting.
9 Mr. Moxley’s ownership includes 39,115 shares held by The Moxley Family Trust, 1,110 shares held solely by his spouse, 16,642
shares held by Mr. Moxley as custodian for his children and 20,000 shares held in a 401(k) plan.
10 Mr. Smith’s ownership includes 245,444 shares held jointly with his spouse. He will be seventy-two (72) years old as of the
date of the Annual Meeting and is not eligible to be nominated for election as a director. Mr. Smith will retire from the Board of
Directors when his current term ends at the Annual Meeting.
11 Mr. Spair’s ownership includes 10,000 shares held jointly with his spouse.
12 Mr. Strauss’ ownership includes 4,800 shares held jointly with his spouse and 6,426 shares held in an IRA.
13 Mr. Waters’ ownership includes 10,395 shares held in an IRA.
14 Mr. Wenger’s ownership includes 144,297 shares held jointly with his spouse and 82,307 shares held in Fulton’s 401(k) Plan. Also
includes 3,161 shares held in Fulton’s 401(k) Plan by his spouse and 351 shares held by Mr. Wenger as custodian for his children.
15 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.
16 Mr. Myers’ ownership includes 46,710 shares held in Fulton’s 401(k) Plan, 47,173 shares which may be acquired pursuant to the
exercise of vested stock options and 13,525 shares held jointly with his spouse.
17 Ms. Mueller’s ownership includes 10 shares held jointly with her spouse.
18 Mr. Rohrbaugh’s ownership includes 47,442 shares held jointly with his spouse. Mr. Rohrbaugh retired as Chief Financial
Officer of Fulton effective as of March 2, 2018 and Senior Executive Vice President effective as of March 30, 2018.
19 This information is based solely on a Schedule 13G filed with the SEC on January 28, 2019 by BlackRock, Inc., which reported
sole voting power as to 20,384,161 shares and sole dispositive power as to 20,809,031 shares, as of December 31, 2018.
20 This information is based solely on a Schedule 13G/A filed with the SEC on March 11, 2019 by The Vanguard Group, which
reported sole voting power as to 168,673 shares and sole dispositive power as to 16,936,855 shares, shared voting power as to
20,214 shares and shared dispositive power as to 172,527 shares, as of February 28, 2019.
21 This information is based solely on a Schedule 13G filed with the SEC on February 8, 2019 by Dimensional Fund Advisors LP,
which reported sole voting power as to 13,972,108 shares and sole dispositive power as to 14,264,562 shares, as of December 31, 2018.
19
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT INFORMATION CONCERNING THE BOARD OF DIRECTORS
Meetings and Committees of the Board of Directors
There were eleven (11) regular and special meetings of the Board of Directors of Fulton and fifty-five (55)
meetings of the committees of the Board of Directors of Fulton during 2018. 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 2018.
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:
Current Directors
2018-2019 Fulton
Committee Members
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
Vice Chair
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
Member
Vice Chair
Chair
Member
** Director Nominees Mr. Myers and Ms. Craighead Carey are currently directors of Fulton Bank, N.A. and represent Fulton
Bank, N.A. on Fulton’s Compliance Committee.
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 34. 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 24.
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 nine (9) times in 2018. The HR Committee is governed by
a formal charter, which was last amended in July 2018, 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 seventeen (17) times during 2018.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The Audit Committee is governed by a formal charter, which was last amended in July 2018, 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
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 2018 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 B.
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 2018.
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 2018, and is available on
Fulton’s website at www.fult.com.
Executive Committee. The Executive Committee did not meet during 2018. 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 2018. 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. The Risk Committee Chair is an independent director and 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 2018,
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, 2018, for additional information
regarding the BSA/AML enforcement orders. The Compliance Committee is comprised of five (5) Fulton directors
and directors from each of Fulton’s subsidiary banks, including Ms. Craighead Carey and Mr. Myers as representatives
from Fulton Bank, N.A. The Compliance Committee met twelve (12) times during 2018.
21
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Board’s Role in Risk Oversight
While each of Fulton’s committees is 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.
22
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Lead Director and Fulton’s Leadership Structure
Director Hodges served as Fulton’s Lead Director and was the independent Chair of the Executive
Committee until June 2018. Director Moxley was appointed as Fulton’s Lead Director and the independent Chair
of the Executive Committee in June 2018. He is also a member of the Nominating and Corporate Governance
Committee, the Compliance Committee and Chair of the Risk 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, during 2018 approximately 92% of Fulton’s
directors (11 out of 12) were determined to be 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 eight (8) times in executive session in 2018
at which only independent directors were present. Fulton’s 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 2018 Annual Meeting,
except for Director Scott Snyder, whose attendance at the 2018 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, Moxley and
Waters have each completed the requirements for the NACD Board Leadership Fellow Program for 2018 and prior
years. In order to become NACD Board Leadership 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 available for corporate directors.
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.
23
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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 2018. 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. Fulton may have engaged in various transactions on customary terms with companies where
directors, nominees or officers and immediate family members may be directors, officers, partners, or employees and
it is possible that Fulton’s directors, nominees and executive officers may not have knowledge of those transactions.
During 2018, Fulton did not have any related person transactions in excess of $120,000 requiring specific disclosure,
except for the direct payment of fees to Barley Snyder LLP in the amount of $2.35 million. Jennifer Craighead Carey
is a director nominee for the Annual Meeting and was a partner with less than a 10% interest in the law firm of Barley
Snyder LLP during 2018. The payment to Barley Snyder LLP represents the total direct amount paid for all invoices
processed by Fulton and its subsidiaries during 2018. Ms. Craighead Carey was not directly engaged as counsel for
any Fulton matter, nor did she bill any hours on Fulton engagements during 2018. Fulton anticipates engaging Barley
Snyder LLP for legal services in the future.
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
fourteen (14) director nominees, or approximately 79% of the director nominees who are standing for election at
the 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 2018, there were no
family relationships requiring disclosure among any of the members of the Board of Directors, board nominees and
executive officers of Fulton, except for Mr. Craig A. Roda, a brother-in-law of Mr. Wenger, was employed by Fulton.
In 2018, Mr. Roda received annual compensation, consisting of base salary, equity awards and cash bonus, with a
total value of approximately $614,000, plus other benefits on the same basis as other similarly situated employees.
Mr. Roda retired as a Senior Executive Vice President of Fulton in May 2018. In addition, as of December 31, 2018,
other family relationships existed among executive officers and some of the approximately 3,500 full-time equivalent
employees of Fulton and its subsidiaries. These Fulton employees participate in compensation, benefit and incentive
plans on the same basis as other similarly situated employees.
Related Person Transaction Policy and Procedures: Fulton does not have a separate policy specific to
related person transactions. Under the Code of Conduct, however, employees and directors are expected to recognize
and avoid those situations where personal interest or relationships might interfere, or appear to interfere, with their
24
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 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.
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 2019, the Audit Committee
reviewed and approved a report of all potential related person transactions identified during 2018 involving Fulton’s
directors, nominees, 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 2018 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 2018, except for a Form 4 inadvertently filed late by Ernest J. Waters on
May 24, 2018 reporting the purchase of 2,000 shares of Fulton common stock on April 27, 2018.
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 2018. The results were compiled by Fulton’s in-house corporate counsel and presented to the Nominating and
Corporate Governance Committee in December 2018, 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 2018 regular meeting, and the Board of Directors and
each of the committees discussed the summary of its respective annual evaluations.
25
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 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 Equity Plan”).
The equity compensation paid to non-employee directors during 2018 was in the form of shares of Fulton common
stock that had no restriction or vesting requirements. During 2018, the 2011 Director Equity Plan provided 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 2018 for serving as a member of
the Board of Directors.
The Board of Directors reviews Fulton’s non-employee director compensation annually with the assistance
of the HR Committee and a report from the HR Committee’s independent compensation consultant. In 2017, the
Board of Directors increased the annual equity retainer paid to non-employee members of the Board of Directors
from $35,000 to $50,000 per year. In late 2018, the HR Committee sought recommendations and a peer group analysis
from Frederic W. Cook & Co., Inc. (“FW Cook”), the HR Committee’s independent compensation consultant, as it
evaluated the 2018 amount and structure of Fulton’s non-employee director compensation. Following this review,
the Board of Directors approved, effective January 1, 2019, the elimination of Board of Directors and standing
committee meeting attendance fees, an increase in the quarterly cash retainer from $8,750 to $17,500, and provided
non-employee directors with the ability to defer equity awards to retirement as described below. In conjunction
with the director compensation changes, the Nominating and Corporate Governance Committee increased the
non-employee director stock ownership guideline from $175,000 to $300,000, as outlined under Stock Ownership
Guidelines on Page 50.
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 during service
as 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 non-employee directors of Fulton
who have established accounts to defer a portion of the cash fees paid to them in 2018 are Directors Devine, Freer,
Smith, Spair and Waters. Certain directors of Fulton also serve on the boards of Fulton’s 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 Director Compensation Table on Page 28.
The structure and amounts of compensation paid to non-employee directors for service on the Board of
Directors and its committees during 2018 were as follows:
2018 Non-employee Director Fees
Quarterly director retainer
Additional quarterly retainer paid to the Lead Director
Additional quarterly retainer paid to committee chairs 1
Board meeting attendance fee
Standing committee meeting attendance fee 2
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
26
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Effective January 1, 2019, Fulton updated the structure and amounts of compensation to be paid to non-
employee directors for service on the Board of Directors and its committees as follows:
Non-employee Director Fees
Quarterly director retainer 6
Additional quarterly retainer paid to the Lead Director
Additional quarterly retainer paid to committee chairs 1
Compliance Committee meeting attendance fee
Annual equity retainer 7 8
Amount
$17,500 in cash
$7,500 in cash
$3,125 in cash
$1,000 in cash per Compliance Committee
meeting attended
Fulton restricted stock units equivalent to $60,000
1 An additional quarterly retainer is not paid to the chair of the Executive Committee.
2 During 2018, Committee meeting attendance fees were not paid to a non-employee director for attending standing committee
(Audit, Human Resources, Nominating and Corporate Governance and Risk Committees) meetings held in conjunction with a
regularly scheduled meeting of the Board of Directors that the director attended.
3 Stock awards granted on June 1, 2018 to non-employee directors elected at the Annual Meeting of shareholders, and granted on
November 1, 2018 to non-employee directors serving on the date of grant. Each of the stock awards granted to the non-employee
directors during 2018 was equivalent to $25,000 of Fulton’s common stock, rounded up to the next whole share.
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.
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.
6 Effective January 1, 2019, Fulton eliminated meeting attendance fees for the Board of Directors and standing committees, and
in lieu of meeting attendance fees, the director cash retainer was increased.
7 Non-employee directors who are elected by Fulton shareholders at the Annual Meeting will receive a 2019 annual equity
retainer in restricted stock units (“DSU Awards”). The DSU Awards are for Board of Directors service from May 2019 to May
2020. The HR Committee intends to grant the DSU Awards prior to the Annual Meeting with a June 1, 2019 grant date. The
number of restricted stock units comprising the DSUs Awards will be based on the closing price of Fulton’s common stock on the
grant date, or the prior trading day, if the grant date is not a trading day, rounded up to the next whole share. Until such time as
the DSU Awards are fully vested, settled and paid in Fulton common stock, the equity award will accrue “Dividend Equivalents”
that are reinvested in similar restricted stock units, with the same vesting and settlement terms applicable to the original DSU
Awards. The DSU Awards fully vest after one year of service, or, if earlier, the date of the next annual meeting of shareholders.
Directors who retire or leave the Board of Directors for other reasons prior to completing their full term may forfeit a prorated
portion of their DSU Awards for not completing a full one-year term of service. The prorated portion of a DSU Award forfeited
will be based on the remaining portion of the one-year term not served by the director, unless the HR Committee waives the
proration due to a change in control, death, disability or other reason as determined by the HR Committee. The DSU Awards will
settle in Fulton common stock and will vest and be paid on the first anniversary of the date of grant, unless a director irrevocably
elected in writing to defer settlement and payment until after the end of his or her board service as described below.
8 A director may elect to defer settlement and payment of his or her DSU Award, but must make that election by December 31
of the year prior to the grant date. A non-employee director may elect to receive payment of a vested DSU Award either as a
lump sum, or paid in equal annual installments over three years, commending on January 15 of the year following the director’s
departure from the Board of Directors. A deferred DSU Award will continue to accrue dividends as dividend equivalents, which
will be paid in Fulton common stock once the DSU Award is settled and paid.
27
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The following table summarizes all of the compensation paid to each non-employee Fulton director who
served as a director of Fulton during 2018:
DIRECTOR COMPENSATION TABLE
Name 1
Lisa Crutchfield
Denise L. Devine
Patrick J. Freer
George W. Hodges
Albert Morison III 5
James R. Moxley III
R. Scott Smith, Jr. 5
Scott A. Snyder
Ronald H. Spair
Mark F. Strauss
Ernest J. Waters
Fees
Earned or
Paid in
Cash
($)
69,500
77,500
53,000
78,500
77,000
99,000
57,000
53,000
78,500
66,000
90,500
Stock
Awards 2
($)
50,022
50,022
50,022
50,022
50,022
50,022
50,022
50,022
50,022
50,022
50,022
Option
Awards
($)
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
($)
0
0
0
0
0
0
12,822 6
0
0
0
0
Total
($)
119,522
127,522
103,022
128,522
127,022
149,022
119,844
103,022
128,522
116,022
140,522
1 Directors listed represent all the non-employee directors of Fulton serving during 2018.
2 Fulton’s non-employee directors were granted Fulton common stock (rounded to next whole share) as part of their 2018
compensation pursuant to the 2011 Director Equity Plan. The amounts in this column consist of a $25,012.50 stock award granted
on June 1, 2018 consisting of 1,450 shares having a grant date fair value of $17.50 per share (the closing price of Fulton common
stock on June 1, 2018), and a second $25,009.60 stock award granted on November 1, 2018 consisting of 1,540 shares having a
grant date fair value of $16.24 per share (the closing price of Fulton common stock on November 1, 2018). 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 2018.
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 directors 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 2018,
Director Hodges received $28,250 in fees from Fulton Bank, N.A., Director Moxley received $17,150 in fees from The Columbia
Bank, Director Strauss received $17,800 in fees from Fulton Bank of New Jersey, and Director Waters received $29,250 in fees
from Fulton Bank, N.A.
5 Mr. Morrison and Mr. Smith will retire from Fulton’s Board of Directors at the Annual Meeting.
6 This amount includes club membership fees, plus office use, parking and other perquisites received by Director Smith during 2018.
28
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT RESOLUTION TO APPROVE THE AMENDED AND RESTATED
DIRECTORS’ EQUITY PARTICIPATION PLAN – PROPOSAL TWO
Overview and Background of the Amended and Restated Directors’ Equity Participation Plan
Fulton’s shareholders are being asked to approve the Amended and Restated Directors’ Equity Participation
Plan, which is an amendment and restatement of the 2011 Director Equity Plan that Fulton shareholders previously
approved at the 2011 Annual Meeting. On March 19, 2019, upon the recommendation of the HR Committee and
its independent compensation consultant, the Board of Directors approved, subject to shareholder approval at the
Annual Meeting, the Amended and Restated Directors’ Equity Participation Plan.
The 2011 Director Equity Plan has been used to make equity-based awards to non-employee directors of
Fulton, and the Amended and Restated Directors’ Equity Participation Plan will be used in a similar fashion. The
Amended and Restated Directors’ Equity Participation Plan will enable Fulton to continue to grant a variety of
equity-based awards to eligible participants. The Amended and Restated Directors’ Equity Participation Plan will
also extend the term of the 2011 Director Equity Plan for an additional 10 years, until May 2029, and make certain
updating changes to the 2011 Director Equity Plan. In the absence of approval by the shareholders, the current 2011
Director Equity Plan will expire in 2021. The Amended and Restated Directors’ Equity Participation Plan does not
increase the number of shares of Fulton common stock that may be issued under the 2011 Director Equity Plan.
Key Terms and Purpose of the Amended and Restated Directors’ Equity Participation Plan
The Amended and Restated Directors’ Equity Participation Plan is set forth in Appendix A to this proxy
statement. The following description of the Amended and Restated Directors’ Equity Participation Plan is a summary
of the plan. You should read the Amended and Restated Directors’ Equity Participation Plan, the terms of which are
incorporated by reference into this proxy statement. The purpose of the Amended and Restated Directors’ Equity
Participation Plan is to advance the long-term success of Fulton and its subsidiaries and to increase shareholder value by:
• providing stock-based compensation to the non-employee members of the Board of Directors, the board
of directors of any subsidiary of Fulton, or any advisory board of Fulton or its subsidiaries;
•
•
•
•
encouraging director share ownership;
aligning further the interests of non-employee directors with those of Fulton’s shareholders;
ensuring that Fulton’s non-employee director compensation practices are competitive in the industry; and
assisting in the attraction and retention of non-employee directors, including directors who further
Fulton’s goal of achieving diversity on the Board of Directors through differences of view point,
professional experience, education and skills, as well as race, gender and national origin.
Type of Awards
The Amended and Restated Directors’ Equity Participation Plan provides for several types of equity awards.
Fulton may grant restricted stock, restricted stock units, stock options and stock awards, under the Amended and
Restated Directors’ Equity Participation Plan.
• Restricted Stock Awards – The HR Committee may, from time to time, grant restricted stock awards to
participants, subject to such terms and conditions as the HR Committee shall determine, provided that
each such award must be subject to a restriction period prior to vesting. In the event of a termination
of board service due to death or disability, all the restrictions’ shall lapse and all outstanding restricted
stock awards shall vest. In the event of retirement, if a participant has completed at least one year, or
such longer period established by the HR Committee, of board service since first joining Fulton, the
restricted stock shall vest, on a prorated basis, from the date of grant to the effective date of retirement.
Upon a change in control, all restrictions shall lapse and all outstanding restricted stock awards shall
vest. Upon termination of service for any other reason, the participant shall forfeit all shares subject to
restriction.
• Restricted Stock Units – The HR Committee has authority to grant restricted stock units to participants.
Restricted stock units are similar to restricted stock, but a restricted stock unit is the right to receive a
share of common stock at some point in the future; the common stock is not issued and outstanding at
29
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT the time of award. Restricted stock units are subject to forfeiture if the time-based forfeiture restrictions
imposed by the HR Committee are not met. During the restriction period, the participant is not the
owner of the shares of common stock, but is entitled to receive “dividend equivalents,” in the amount
of any dividend on Fulton’s common stock that is declared during the restriction period. Such dividend
equivalents are in the form of additional restricted stock units, subject to the same restriction period and
are credited to the participant’s account and subject to the same terms as the original restricted stock
unit award. Upon the lapse of any forfeiture restrictions, the participant will be issued shares of Fulton’s
common stock. The time-based forfeiture restrictions lapse upon the death or disability, retirement or
change in control in the same manner as restricted stock awards described above.
• Stock Option Awards – The HR Committee may, from time to time, grant stock options to participants.
Each option will entitle the participant to purchase a specified number of shares of Fulton’s common
stock at a price at least equal to the fair market value of Fulton’s common stock on the day the option is
granted. The repricing of options is prohibited under the terms of the Amended and Restated Directors’
Equity Participation Plan, unless approved by Fulton’s shareholders. Except as otherwise provided by
the HR Committee: (1) upon termination of service due to death (while in active service), disability
or retirement, the option must be exercised by the participant (or his or her estate) within one year
following the participant’s termination of board service and prior to its expiration date, and may be
exercised as to all or any portion of the option, regardless of whether or not fully exercisable under
the terms of the grant; and (2) as to any other termination event, the option must be exercised by the
participant within six months following the participant’s termination of board service and prior to its
expiration date, and all options not then exercisable shall be canceled. The HR Committee may, in its
discretion, extend the post-termination exercise period, but not beyond the original option term. All
stock options granted will expire not later than ten years from the date the stock option was granted.
Upon a change in control, as defined in the Amended and Restated Directors’ Equity Participation Plan,
all options immediately become exercisable.
• Stock Awards – The HR Committee may, from time to time, grant each non-employee director who
participates in the Amended and Restated Directors’ Equity Participation Plan stock awards in the form
of unrestricted shares of Fulton’s common stock. The HR Committee may also permit participants to
receive shares of common stock in lieu of cash for some or all of the director fees to be paid to them,
subject to the annual individual award limitations described below.
Term, Termination and Amendment of the Amended and Restated Directors’ Equity Participation Plan
If shareholders approve this proposal at the Annual Meeting, the Amended and Restated Directors’ Equity
Participation Plan shall become effective on May 21, 2019. Upon its approval by Fulton’s shareholders, the term
of the Amended and Restated Directors’ Equity Participation Plan will be extended for ten years, until May 21,
2029. The Board of Directors or the HR Committee may modify, amend, or terminate the Amended and Restated
Directors’ Equity Participation Plan at any time except that, to the extent then required by applicable law, rule,
regulation, or applicable listing requirements for the Fulton’s common stock, approval of the holders of a majority
of shares of common stock represented in person or by proxy at a meeting of the shareholders will be required to:
increase the maximum number of shares of Fulton common stock available for distribution under the Amended
and Restated Directors’ Equity Participation Plan (other than increases due to adjustments in accordance with the
Amended and Restated Directors’ Equity Participation Plan provisions); or “materially amend” the Amended and
Restated Directors’ Equity Participation Plan under applicable listing requirements for Fulton’s common stock. No
modification, amendment, or termination of the Amended and Restated Directors’ Equity Participation Plan shall
adversely affect the rights of a participant under a grant previously made to such participant without the consent of
such participant.
30
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Eligibility
All members of the Board of Directors, all members of Fulton’s subsidiary boards of directors and all
members of any advisory board established by Fulton, or any of its subsidiaries, who are not, in each case, an
employee of Fulton or of its subsidiaries, will be eligible to participate pursuant to the terms of the Amended and
Restated Directors’ Equity Participation Plan.
As of the date of this proxy statement, there were approximately one hundred (100) members of the boards of
directors and advisory boards of Fulton’s subsidiaries, in addition to the twelve (12) non-employee director nominees,
who will be non-employee directors of Fulton eligible to participate in the Amended and Restated Directors’ Equity
Participation Plan.
New Plan Benefits
Because benefits under the Amended and Restated Directors’ Equity Participation Plan will depend on
HR Committee actions and the fair market value of Fulton’s common stock at various future dates, the dollar value
and number of shares underlying awards that may be granted under the Amended and Restated Directors’ Equity
Participation Plan are not determinable. See the Director Compensation Table on Page 28 for information regarding
the awards made to non-employee members of the Board of Directors under the 2011 Director Equity Plan during
2018. No awards were made to the members of the boards of directors and advisory boards of Fulton’s subsidiaries
under the 2011 Director Equity Plan during 2018.
For 2019, the HR Committee has approved a compensation structure for the non-employee members of the
Board of Directors that would include an anticipated award of restricted stock units under the Amended and Restated
Directors’ Equity Participation Plan to the non-employee members of the Board of Directors with a grant date
fair market value of $60,000, rounded up to the next whole share. For 2019, the twelve (12) non-employee director
nominees, as a group, would receive awards with an aggregate estimated dollar value of $720,000, and representing
41,628 underlying shares of Fulton common stock, based on the closing price of Fulton’s common stock on March 1,
2019, which was $17.30.
Current Equity Granting Practices
At the present time, only non-employee members of the Board of Directors receive any of their fees for
board service in shares of Fulton common stock issued under the 2011 Director Equity Plan. During 2018, each non-
employee member of the Board of Directors received a total of approximately $50,000 in common stock awards as
part of their compensation for Board of Directors service. For 2019, Fulton has revised its non-employee director
compensation program and expects to award the non-employee directors who are elected by Fulton shareholders at
the Annual Meeting a 2019 annual equity retainer in restricted stock units (“DSU Award”) under the Amended and
Restated Directors’ Equity Participation Plan in the amount of $60,000. This DSU Award would be for Board of
Director service from May 2019 to May 2020.
In future years, the HR Committee intends to approve DSU Awards annually in conjunction with Fulton’s
Annual Meeting with a June 1 grant date. The number of restricted stock units comprising the DSUs Awards will
be based on the closing price of Fulton’s common stock on the grant date, or the prior trading day, if the grant date
is not a trading day, rounded up to the next whole share. Until such time as the DSU Awards are fully vested, settled
and paid in Fulton common stock, the equity awards will accrue “Dividend Equivalents” that are reinvested in
similar restricted stock units, with the same vesting and settlement terms applicable to the original DSU Awards. The
DSU Awards fully vest after one year of service, or, if earlier, the date of the next annual meeting of shareholders.
Directors who retire or leave the Board of Directors for other reasons prior to completing their full term may forfeit
a prorated portion of their DSU Awards for not completing their one-year term of service. The prorated portion of
a DSU Award forfeited will be based on the remainder of the one-year term not served by the director, unless the
reason for departure is death, disability, retirement or a change in control as described above. The DSU Awards
will settle in Fulton common stock and will vest and be paid on the first anniversary of the date of grant, unless a
director irrevocably elected in writing to defer settlement and payment until after the end of his or her board service
as described below.
31
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT A participant may elect to defer, his or her DSU Award, but must make that election by December 31 of the
year prior to the grant date. A non-employee director may elect to receive payment of a vested DSU Award either as
a lump sum, or paid in equal annual installments over three years, commending on January 15 of the year following
the director’s departure from the Board of Directors. A deferred DSU Award will continue to accrue dividends as
dividend equivalents, which will be paid in Fulton common stock once the DSU Award is settled and paid.
Annual Individual Award Limitations
The maximum number of shares of Fulton’s common stock, in the aggregate, under all types of awards
granted to any one eligible participant in any one calendar year under the Amended and Restated Directors’ Equity
Participation Plan may not exceed the greater of: (a) 20,000 shares; or (b) a number of shares with a fair market value
on the date of the grant of $200,000.00. This represents an increase from the limits set forth in the 2011 Director
Equity Plan. The increase reflects the changes made to non-employee director compensation program, as described
in this proposal, and is intended to provide sufficient flexibility to achieve the purposes of the Amended and Restated
Directors’ Equity Participation Plan during the ten-year period during which awards may be granted.
Number of Awards that May be Made
As of March 1, 2019, there were no shares of Fulton’s common stock underlying outstanding stock option,
restricted stock and restricted stock unit awards under the Amended and Restated Directors’ Equity Participation
Plan. As of that date, there were 311,669 shares available for future awards under the Amended and Restated Directors’
Equity Participation Plan. Fulton believes that the number of shares of common stock remaining available for future
awards under the Amended and Restated Directors’ Equity Participation Plan is sufficient to adequately provide for
participation of the non-employee directors who are eligible to receive such grants over the amended term of the plan
(i.e., ten years) and, therefore, is not seeking to increase the number of shares available for future awards under the
Amended and Restated Directors’ Equity Participation Plan.
When originally approved in 2011, shareholders authorized a maximum of 500,000 shares to be issued
under the 2011 Director Equity Plan; less than 40% of the original shares authorized have been issued under the 2011
Director Equity Plan. On March 1, 2019, the closing price of Fulton’s common stock was $17.30 per share.
Rights with Respect to Shares
The recipient of a stock award immediately has all rights of ownership with respect to such shares, including
the right to vote such shares and to receive any dividends paid thereon. The recipient of a stock option has all rights
of ownership with respect to shares upon the exercise of vested stock options and the receipt of shares issued. The
recipient of a restricted stock award or a restricted stock unit award does not have all the same rights as a holder of
common stock. For example, the recipient of a restricted stock award or a restricted stock unit award does not have
the right to receive dividends on those shares or units; instead, dividends equivalents are awarded.
Clawback of Awards
Any awards made under the Amended and Restated Directors’ Equity Participation Plan may be subject
to recovery by Fulton (typically known as a “clawback” provision) as required under any law, regulation or stock
exchange listing requirement, or any policy of Fulton that currently exists or which may be implemented in the future.
Federal Income Tax Consequences
The following is a brief description of the material United States federal income tax consequences associated
with awards under the Amended and Restated Directors’ Equity Participation Plan. It is based on existing United
States laws and regulations, and there can be no assurance that those laws and regulations will not change in the
future. Tax consequences in other countries may vary.
32
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The fair market value of stock awards of shares of Fulton common stock granted under the Amended and
Restated Directors’ Equity Participation Plan is taxable to the non-employee director in the year awarded. Fulton
would be entitled to deduct a corresponding amount as a business expense in the year the non-employee director
recognizes this income.
The recipient of a stock option granted under the Amended and Restated Directors’ Equity Participation
Plan would not pay any tax at the time of grant. When an option is exercised, any excess of the fair market value of
the affected shares over the total option price of those shares would be treated for federal tax purposes as ordinary
income. Any profit or loss realized on the sale or exchange of any share actually received would be treated as a
capital gain or loss. If the fair market value on the date of exercise of the shares with respect to which the option was
exercised exceeds the exercise price, Fulton would be entitled to deduct that amount.
With respect to restricted stock awards granted under the Amended and Restated Directors’ Equity
Participation Plan, the recipient would generally recognize ordinary income equal to the excess of the fair market
value of the shares received (determined as of the date on which the shares become transferable or not subject to
a substantial risk of forfeiture, whichever occurs first) over the amount, if any, paid for the shares. Fulton would
be entitled to a tax deduction in the same amount. A recipient may elect to accelerate the recognition of ordinary
income with respect to restricted stock awards to when the shares are granted. If an election is made to accelerate
the recognition of ordinary income, the amount of ordinary income would be determined as of the accelerated tax
date rather than as of the date when the applicable restriction expires. In such a case, Fulton’s tax deduction would be
determined at the same time. Any subsequent gain or loss resulting from the sale or other disposition of such shares
would be treated as a capital gain or loss.
A recipient normally would not realize taxable income upon the award of restricted stock units. A recipient
would be subject to tax on the earlier of the year in which the recipient receives the underlying shares of common
stock, or the year in which the award is no longer subject to a substantial risk of forfeiture. In that year, the recipient
would recognize income equal to the fair market value of the shares of Fulton’s common stock received, and Fulton
would be entitled to a deduction in the same amount.
Vote Required for Approval
The affirmative vote of a majority of the shares present at the Annual Meeting, in person or by proxy, and
entitled to vote is required to approve the Amended and Restated Directors’ Equity Participation Plan.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote FOR the Amended and Restated Directors’
Equity Participation Plan.
33
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT INFORMATION CONCERNING EXECUTIVE 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 2018 listed in the table below. There were a number of changes among our Named Executive
Officers based on role changes within Fulton, including Curtis J. Myers becoming President and Chief Operating
Officer on January 1, 2018, the addition of Mark R. McCollom, who became Fulton’s Chief Financial Officer on
March 2, 2018, replacing Philmer H. Rohrbaugh, who served as Fulton’s Chief Financial Officer through March 1,
2018. Mr. Rohrbaugh held a number of executive positions with Fulton, including Chief Risk Officer, Chief Operating
Officer and Chief Financial Officer, and retired as a member of Fulton’s senior management in 2018. In addition,
Angela M. Snyder became a Named Executive Officer with her new role as Senior Executive Vice President and
Head of Consumer Banking, and Meg R. Mueller became Senior Executive Vice President and Head of Commercial
Business. These new positions for Ms. Snyder and Ms. Mueller were both effective as of January 1, 2018.
Fulton’s Named Executive Officers in this Proxy Statement are:
2018 Named Executive
Officers
E. Philip Wenger
Mark R. McCollom
Philmer H. Rohrbaugh
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
Fulton Officer Title
Chairman and Chief Executive Officer
Senior Executive Vice President and Chief Financial Officer, effective March 2, 2018
Senior Executive Vice President and Chief Financial Officer, through March 1, 2018
President and Chief Operating Officer
Senior Executive Vice President and Head of Consumer Banking
Senior Executive Vice President and Head of Commercial Business
Table of Contents for the Compensation Discussion and Analysis
1.
2.
3.
4.
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Shareholder Say-on-Pay Proposal Historical Results . . . . . . . . . . . . . . . . 37
Pay for Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5. HR Committee Membership and Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.
Role of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7. Use of Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8. Use of a Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.
Elements of Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.
Compensation Plan Risk Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
12. Other Compensation Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
34
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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, 2018, which is being made available to
shareholders together with this Proxy Statement, contains an overview of Fulton’s 2018 performance. Following is a
brief summary of some of the financial highlights identified therein for the year ended December 31, 2018:
•
•
•
Net Income Per Share Growth: Diluted net income per share increased $0.20, or 20.4%, to $1.18 per
diluted share for 2018, compared to $0.98 in 2017.
Net Interest Income and Net Interest Margin: Net interest income increased $55.1 million, or 9.6%,
compared to 2017, while the fully taxable-equivalent net interest margin increased 12 basis points to
3.40%.
Loan Growth: Average loans increased $578.7 million, or 3.8%, compared to 2017.
• Deposit Growth: Average deposits increased $351.4 million, or 2.3%, compared to 2017.
•
•
Non-Interest Income: Non-interest income, excluding investment securities gains, decreased
$3.4 million, or 1.7%, compared to 2017.
Non-Interest Expense: Non-interest expense increased $20.5 million, or 3.9%, compared to 2017.
35
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The HR Committee took a number of actions relating to compensation for the Executives during 2018, as
summarized in the table below:
Element
Salaries
VCP
Awards
LTI
Awards
HR Committee Actions
• Mr. Wenger received a 2.5% annual base salary increase effective April 1, 2018.
• Mr. Myers, Ms. Snyder and Ms. Mueller received base salary increases effective January 1, 2018
with their new positions.
• Set target VCP Award amounts as a percentage of salary for Mr. Wenger at 85%, for Mr. McCollom
and Myers at 70%, and at 50 % for each of the other Executives.
• 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 2018 performance on Fulton having a minimum
return on average equity (“ROE”) of 7.68% and positive net income for 2018.
• Exercised negative discretion and applied a 15% downward corporate modifier to all Executive
VCP Awards.
• Evaluated Fulton’s and each Executive’s performance relative to the performance criteria and
determined that the Executives should receive VCP Awards for 2018 performance, as a percentage
of salary, and a percentage of target, as follows:
Executive
Actual VCP Awards
as a % of salary
Actual VCP Awards
as a % of target
Mr. Wenger
Other Executives
• Approved LTI Award grants in 2018, in the form of performance-based restricted stock units
55.6%
Ranged from 32.7% to 45.8%
65.5%
65.5%
(“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,
except Mr. Rohrbaugh, as of January 1, 2018, 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, 2021 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
2020 (the calendar year before potential vesting of the Performance Shares on May 1, 2021) 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 2018 return on average assets (“ROA”) measured against an absolute
ROA goal equivalent to 100% of Fulton’s budgeted ROA for 2018.
• Fulton’s actual ROA for 2018 of 1.033% reduced the number of shares of stock that may be received
upon vesting of the Component A Performance Shares to 81.44% of the original target number of
Component A Performance Shares. The vesting of these Component A Performance Shares on
May 1, 2021 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 on
May 1, 2021 is determined based on Fulton’s total shareholder return (“TSR”) during the period
from May 1, 2018 through March 31, 2021 measured relative to Fulton‘s 2018 peer group.
Component C, representing 25% of the target dollar amount for the Executives:
• 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 potential vesting of Component C
Performance Shares on May 1, 2021 is subject to the Profit Trigger requirement.
36
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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 2019 annual non-binding Say-on-Pay Proposal is set forth on Page 64.
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 2019 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 approximately 95% 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
2014
2015
96.49%
96.15%
Year
% Voted FOR 97.73%
2016
96.56%
2012
92.63%
2013
93.87%
2017
97.63%
2018
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 2018. The HR Committee will continue to consider the outcome of
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, or when adjusted by the HR Committee in their discretion, if
applicable, for corporate performance results using a corporate modifier, then the amount of the VCP Award may be
adjusted or the Executive may not receive the VCP Award. The 2018 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.
37
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The following charts show the compensation mix for Mr. Wenger and the other Executives, excluding
Mr. Rohrbaugh, who retired in early 2018, with the 2018 VCP Awards at target, the 2018 Performance Shares at target,
plus base salary and all other compensation those Executives received in 2018. For 2018, Mr. Wenger’s “performance
pay” was 65% of total compensation, and the average “performance pay” for the other Executives was 57% of total
compensation.
2018 Compensation Mix Chart – Performance Based Pay at Target
CEO and Average for Other Executives
Total
65%
Performance
Shares
38%
Other
4%
Salary
31%
Cash Incentive
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
57%
38
Other
3%
Performance
Shares
34%
Cash Incentive
23%
Salary
40%
Average for other Executives
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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.
39
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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 24 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 2018, 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.
40
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 7.
Use of Consultants
The HR Committee retained FW Cook as its independent compensation consultant for 2018. FW Cook
performed a variety of assignments during 2018 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, a comprehensive review of Fulton’s
director compensation programs and providing general compensation advice regarding Fulton’s Executives. As part
of the 2018 engagement, FW Cook 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, FW Cook 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. FW Cook reported to
the HR Committee that it and its affiliates did not provide additional services to Fulton or its affiliates in 2018.
At its February 2018 meeting, the HR Committee considered the independence of FW Cook for the 2018
engagement in light of the SEC rules and NASDAQ listing standards related to compensation committee consultants.
The HR Committee requested and received a report from FW Cook addressing its independence as a compensation
consultant to the HR Committee, including the following factors: (1) other services provided to Fulton by FW Cook;
(2) fees paid by Fulton as a percentage of FW Cook’s total revenue; (3) policies or procedures maintained by FW
Cook 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; (6) any business or personal
relationships between Fulton’s executive officers, FW Cook and the individual consultants performing work for
the HR Committee; and (7) other factors deemed relevant to FW Cook’s independence from management. The HR
Committee discussed these considerations and concluded that the work performed by FW Cook and its consultants
involved in the engagements did not raise any conflict of interest, and further concluded that FW Cook continues to
satisfy the applicable rules and standards related to the independence of compensation committee consultants.
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, has regularly reviewed 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 FW Cook, reviewed the composition
of Fulton’s peer group. This review was based on a review of the peer group in late 2017, and the HR Committee,
consistent with the recommendation of FW Cook, approved the peer group appearing in the table below as the peer
group for 2018 (the “2018 Peer Group”). The aggregate analysis of the executive compensation practices of the
companies in the 2018 Peer Group was used by the HR Committee in the review of overall compensation and in
setting 2018 base salaries for the Executives. During 2018, the 2018 Peer Group was also used as the peer group for
the Performance Shares, as discussed below.
Similar to the selection of prior peer groups, the 2018 Peer Group was evaluated and selected based on a range
of factors, including asset size, revenue composition, number of employees, market capitalization, geographic focus,
business model, and ownership profile. FW Cook recommended the removal of FirstMerit Corp. and PrivateBancorp,
Inc. because those peers were recently acquired, and the independent compensation consultant also suggested that
Western Alliance Bancorp be removed. FW Cook proposed five new peers for 2018 to create a peer group with an
appropriate number and composition of peers. The new peers for 2018 were Investors Bancorp, Inc.; First Midwest
Bancorp, Inc.; United Community Banks, Inc.; Provident Financial Services, Inc.; and Union Bankshares Corp.
Based on its analysis, FW Cook advised the HR Committee that Fulton was at the 44th percentile with respect to
market capitalization and at the 41st percentile with respect to total assets, when compared to the 2018 Peer Group.
41
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The following table provides the twenty-two (22) members of the 2018 Peer Group, their stock trading
symbols and the location of their principal executive offices:
2018 Peer Group
BancorpSouth Bank
Commerce Bancshares, Inc.
First Midwest Bancorp, Inc.
F.N.B. Corp.
Hancock Holding Co.
IBERIABANK Corp.
Investors Bancorp, Inc.
MB Financial, Inc.
Northwest Bancshares, Inc.
Old National Bancorp
Prosperity Bancshares, Inc.
Provident Financial Services, Inc.
TCF Financial Corporation
Trustmark Corp.
UMB Financial Corp.
Umpqua Holdings Corp.
Union Bankshares Corp.
United Bankshares, Inc.
United Community Banks, Inc.
Valley National Bancorp
Webster Financial Corp.
Wintrust Financial Corp.
Ticker
BXS
CBSH
FMBI *
FNB
HBHC
IBKC
ISBC *
MBFI
NWBI
ONB
PB
PFS *
TCF
TRMK
UMBF
UMPQ
UBSH *
UBSI
UCBI *
VLY
WBS
WTFC
City State
Tupelo MS
Kansas City MO
Itasca IL
Pittsburgh PA
Gulfport MS
Lafayette LA
Short Hills NJ
Chicago IL
Warren PA
Evansville IN
Houston TX
Jersey City NJ
Wayzata MN
Jackson MS
Kansas City MO
Portland OR
Richmond VA
Charleston WV
Blairsville GA
Wayne NJ
Waterbury CT
Rosemont IL
* New Peer for 2018.
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 2018, the
HR Committee received a recommendation from its compensation consultant, which considered base salaries paid
by members of the 2018 Peer Group to peer officers who held similar roles and who were positioned similarly to
the Executives in their respective organizations. Mr. Myers, Ms. Snyder and Ms. Mueller each received base salary
increases, effective January 1, 2018, with their new positions. Mr. Wenger received a 2.5% base salary increase
effective April 1, 2018. The rational for each of these increases was based on a review of the Executives’ competitive
positioning to market using the 2018 Peer Group, analysis of internal pay equity data, the salary increases paid to
other Fulton officers, and an internal equity comparison report provided by FW Cook. Fulton’s CEO also provided
his recommendations to the HR Committee for the other Executives. Mr. McCollom did not receive an increase in
2018 because he had been recently hired, and Mr. Rohrbaugh did not receive an increase because of his anticipated
retirement. The HR Committee recommended, and the Board of Directors approved, these base salary adjustments
for the Executives effective with the payroll periods, as set forth in the table below.
42
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The 2017 and 2018 base salaries for each of the Executives, along with the effective payroll date and annual
percent increases, were:
Executive
E. Philip Wenger
Mark R. McCollom 1
Philmer H. Rohrbaugh 2
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
2017 Base Salary
$998,284
$425,000
$531,306
$424,996
$350,000
$350,000
2018 Base Salary
$1,023,241
$ 425,000
$ 531,306
$ 510,000
$ 385,000
$ 385,000
Increase
2.5%
0%
0%
20%
10%
10%
Date Effective
4/1/2018
-
-
1/1/2018
1/1/2018
1/1/2018
1 Mr. McCollom did not receive an increase in 2018 because he had been recently hired in 2017.
2 Mr. Rohrbaugh did not receive an increase because of his anticipated retirement in 2018.
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 2018 ROE threshold
equivalent to 80% of Fulton’s budgeted ROE for 2018, 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 2018
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 March 2019 meeting, the HR Committee determined that:
• The 2018 ROE threshold of 7.68% had been achieved, as Fulton had an actual 2018 ROE of 9.24%;
and
• The 2018 positive net income trigger had been achieved, as Fulton had 2018 actual positive net
income of $208.4 million.
The VCP Awards were designed to be substantially based on formulaic scorecard results with the HR
Committee retaining discretion to adjust any VCP Award, as appropriate.
In early 2018, the HR Committee reviewed and approved scorecards to be used for 2018 performance,
as outlined below. FW Cook presented the initial design concept below to help simplify the VCP Awards and to
better align pay with performance. The 2018 scorecards recommended by the compensation consultant consisted
of six subcategories, which were allocated among Financial Results, Risk Management and Business Objectives
categories. FW Cook also recommended maintaining the weight of the Business Objectives at 15%, the weight of
the Risk Management category at 35%, permitting a maximum payout for all factors, and continuing to allow for up
to a 35% corporate 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 scorecard metrics.
All 2018 Executive scorecards contained the same financial performance metrics and similar risk
management performance categories for each Named Executive Officer, including the CEO. Each scorecard also had
an “Employee Engagement Index” as a Business Objective that was based on certain 2018 employee survey results.
The CEO had a higher payout opportunity than the other Executives who were placed in bands to determine their
VCP Award opportunity. The 2018 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.
43
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The VCP Awards were calculated based on scorecard results, with payouts to be made in accordance with
the following VCP Award Matrix for 2018:
2018 VCP Award Matrix
Payment as a % of Eligible 2018 Base Salary 1
VCP Threshold
(25% of Target)
Scorecard Result 2
21.25%
17.5%
VCP Target
Scorecard Result 3
85%
70%
VCP Maximum
(150% of Target)
Scorecard Result 4.5
or better
127.5%
105%
12.5%
50%
75%
VCP
Band
A
B
C
Executive
E. Philip Wenger
Mark R. McCollom and
Curtis J. Myers
Angela M. Snyder,
Meg R. Mueller and
Philmer H. Rohrbaugh
1 For purposes of determining VCP Awards, eligible salary is the actual base salary paid to each Executive during 2018 as an
Executive.
At its March 2019 meeting, the HR Committee reviewed the Executives’ overall 2018 performance and
scorecard results, and determined that each of the Executives achieved a level of performance in 2018 that qualified
for a VCP Award below the target award based on a total scorecard result of 2.77. The HR Committee reviewed the
results for each of the scorecard performance subcategories and determined a VCP Award calculation for each of the
Executives at 77% of target for 2018. The following is a summary of the 2018 Executive scorecards and results used
for the 2018 VCP Awards.
Performance Categories
Performance Sub-categories
2018 Executive Scorecard
0
Score
Rating
• EPS
$1.186
• ROE < 8.633% 8.633% 9.112%
< $1.123
$1.123
1
2 Threshold 3 Target
4
5 Maximum Weight
Weighted
Score
$1.248
$1.310
> $1.373
9.592% 10.072% > 10.551%
30%
20%
0.57
0.45
Financial Results
Risk Management
• Capital Ratings. Liquidity and Market Risk
• Asset Quality: Non-performing Assets to Total Assets
• Corporate Rollup-Regulatory Exams (Compliance)
Weight Weighted Score
15%
15%
5%
0.60
0.49
0.20
Weight Weighted Score
15%
0.46
Business Objectives
• Employee Engagement Index
44
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The HR Committee has authority to exercise its discretion to increase or decrease the calculated VCP
Awards, up to 35% on an individual basis, provided that the adjustment does not cause an Executive’s VCP Award
to exceed 150% of that Executive’s VCP Award target. In prior years, the HR Committee has applied this discretion
to help maintain proper alignment between scorecard results and incentive awards by taking other factors into
account. Fulton adopted the corporate 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 2018, the HR Committee reviewed the calculated scores and resulting VCP Award levels based on the
2018 scorecard results in the context of Fulton’s and the Executives’ performance during 2018. Based on that review,
the HR Committee applied a downward adjustment to the VCP Award levels calculated based upon 2018 scorecard
results for the Executives. The HR Committee concluded that, while Fulton’s and the Executives’ performance during
2018 warranted VCP Award payments to the Executives above the threshold level, Fulton did not accomplish the level
of growth and results expected during 2018. In addition, the HR Committee considered Fulton’s performance relative
to its peers in a number of areas, including 2018 EPS and ROE results, which fell short of both Fulton’s targets and the
levels achieved by Fulton’s peers. As a result, a 15% downward corporate modifier was applied by the HR Committee
to each Executive’s 2018 VCP Award.
The following is a tabular summary of the 2018 VCP Award target, scorecard result, the actual VCP Award
paid for 2018, and the VCP Award as a percentage of base salary for each Executive.
Executive
VCP Award
Target for 2018
E. Philip Wenger
Mark R. McCollom
Philmer H. Rohrbaugh 3
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
$864,860
$297,500
$61,305
$357,000
$192,500
$192,500
Scorecard
Result for 2018 1
$665,942
VCP Award Paid
for 2018 2
$566,051
$229,075
$47,205
$274,890
$148,225
$148,225
$194,714
$40,124
$233,657
$125,991
$125,991
% of Salary
55.6%
45.8%
32.7%
45.8%
32.7%
32.7%
1 Scorecard result for 2018 represents the VCP Award for by each Executive based on scorecard performance before the
application of a 15% downward corporate modifier applied by the HR Committee.
2 VCP Award paid for 2018 to each Executive. Each VCP Award was 65.5% of target with a 15% downward corporate
modifier applied by the HR Committee. The amounts paid are also included in the Summary Compensation Table on
Page 52.
3 Mr. Rohrbaugh retired as a member of Fulton senior management as of March 30, 2018 and his VCP Award target,
scorecard result and VCP Award paid were prorated.
45
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Equity Awards: For 2018, 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 FW Cook, equal to a percentage of base salary, as of January 1, 2018, of 125% for the
CEO, 100% for Mr. McCollom and Mr. Myers, and 75% 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. The HR Committee did
not award any Performance Shares above target dollar amount to any Executive in 2018. Mr. Rohrbaugh retired as a
member of Fulton senior management as of March 30, 2018 and did not receive any Performance Shares in 2018. The
Performance Shares were granted to the Executives on May 1, 2018. 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, as summarized below:
Equity Award Structure of 2018 Performance Shares
2018 (Year of grant)
2019
2020
2021 (Vesting)
Component A
Grant
Performance Period
January 1, 2018 to December 31, 2018
Vesting
Absolute ROA for one year, then two additional years of vesting based on service.
Performance Shares earned for 2018 conditioned on achievement of the
Profit Trigger
Component B
Grant
Performance Period
May 1, 2018 to March 31, 2021
Vesting
Relative TSR to Peer Group determines the number of Performance Shares
earned for the performance period in 2021
Component C
Grant
Vesting
3-year Time-Based cliff vesting
Performance Shares conditioned on achievement of the Profit Trigger
37.5% Allocation
A – ROA with
Profit Trigger
37.5% Allocation
B – TSR with no
Profit Trigger
0% to 37.5%
Allocation
C – Time-Based
with Profit
Trigger
The performance goals and potential payouts for ROA and TSR Components A and B for 2018 were:
Category
Threshold
Target
Maximum
Component A
Absolute ROA
Performance Criteria
80% of Budget
100% of Budget
120 % of Budget
Component A
Payout Potential
(% of target)
25%
100%
150%
Component B
TSR Performance
Relative to Peers
25th Percentile TSR
50th Percentile TSR
80th Percentile TSR
Component B
Payout Potential
(% of target)
25%
100%
150%
46
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT The following provides more detail related to the 2018 Components:
Component A
(Absolute 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 2018 ROA measured relative to a target set at 100% of Fulton’s
budgeted ROA for 2018 and further conditioned upon Fulton achieving the Profit Trigger.
• Based on Fulton’s 2018 reported ROA performance of 1.033%, which fell between threshold and
target levels, the number of Performance Shares that may vest was reduced to 81.44% 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
(Relative 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, 2018 through March 31, 2021 relative to that of the 2018 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. The
Executives will receive all or none of these Performance Shares, subject to achievement of
the Profit Trigger.
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 ROA or TSR is not achieved. In addition, Components A and C are designed to be forfeited if the
Profit Trigger is not achieved. Finally, unless waived by the HR Committee upon an eligible retirement, if the Executive
does not satisfy the continuous service requirement in the 2013 Plan, all Performance Shares awarded are forfeited.
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, 2018.
Executive
E. Philip Wenger
Mark R. McCollom
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
Grant Date
Fair Value
of Performance
Shares 1
$1,134,491
$386,381
$463,673
$262,512
$262,512
Total
Performance
Shares
Awarded 2
73,187
24,926
29,912
16,935
16,935
Component A
(ROA Goal)
Shares
Awarded 3
27,445
9,348
11,217
6,351
6,351
Component B
(TSR Goal)
Shares
Awarded
27,445
9,348
11,217
6,351
6,351
Component C
Shares
Awarded
18,297
6,230
7,478
4,233
4,233
1 See note 4 to the Summary Compensation Table on Page 52 for additional information regarding the grant date fair value of the
Performance Shares.
2 Shares listed do not include accrued dividend equivalents. Mr. Rohrbaugh did not receive a Performance Share Award in 2018.
3 Based on Fulton’s ROA for the year ended December 31, 2018, the number of Component A Performance Shares that may
vest, subject to the achievement of the Profit Trigger, has been reduced to: 22,351 shares for Mr. Wenger; 7,613 shares for
Mr. McCollom; 9,135 shares for Mr. Myers and 5,172 shares for Ms. Snyder and Ms. Mueller. Such shares may be further reduced
to zero if the Profit Trigger is not met at the end of the performance period.
47
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 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.
During 2018, Fulton limits payroll deduction and annual employee participation in the ESPP to the lessor of $7,500 or
15% of a participant’s pay. 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 2018 are stated in footnote 8 of the “Summary
Compensation Table” on Page 52. 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. Myers and Ms. Snyder 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.
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 2018 amounts are included in the “All Other Income” column
of the “Summary Compensation Table” on Page 52 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.
48
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 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 59 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 agreement with Mr. Rohrbaugh was entered into on November 1, 2012
and expired by its terms on December 31, 2017. In addition, Fulton entered into separate employment agreements
and change in control agreements with the other Executives, 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 59. The Employment
Agreements Fulton executed with the Executives do not contain an excise tax gross-up for taxes applicable to
termination payments as a result of the Executive’s termination, except that the Employment Agreement executed
with Mr. Wenger, the only legacy agreement, provides for an excise tax gross up. The Employment Agreements
with the other Executives 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.
11.
Compensation Plan Risk Review
At its February 2019 meeting, the HR Committee conducted its annual risk review of all compensation plans
in effect as of December 31, 2018. At this meeting, Beth Ann L. 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 appear to promote undue risk-taking. 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. 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.
49
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 12.
Other Compensation Elements
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 2018, Fulton awarded Performance Shares and time-based restricted stock
units to eligible participants under the 2013 Plan with a grant date of May 1, 2018, 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 and Pledging Policy and Stock Trading Procedures: Fulton has adopted an Insider Trading
Policy to facilitate securities law compliance in a number of areas. Pursuant to this policy, which was last updated
in 2018, 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. Since 2014 Fulton’s Insider Trading Policy has prohibited the pledging of shares, but grandfathered any
pledges made prior to the amendment in 2014. 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 non-employee 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 formal Fulton common
stock ownership guidelines for non-employee directors and the Executives. The director ownership guideline was
updated in September 2013, to require each director to own at least $175,000 of eligible Fulton common stock, 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.
In December 2018, Fulton updated its non-employee director stock ownership guideline, effective January 1,
2019, to require each non-employee director to own at least $300,000 of eligible Fulton equity, within the later
of five (5) full calendar years of first becoming a director, or five (5) full calendar years after the guideline was
amended. Current Fulton directors have until December 31, 2023 to achieve this new and enhanced equity ownership
.guideline. Similar stock ownership guidelines 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
the closing price of Fulton’s common stock 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 owned individually,
deferred vested stock unit awards, shares held in retirement accounts, indirect ownership and jointly held shares
of Fulton common stock. Once an Executive or director has achieved the ownership guideline, he or she remains
50
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 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 currently employed by Fulton have satisfied the stock ownership guidelines as
of December 31, 2018. Mr. McCollom is required to achieve his targeted stock ownership by December 31, 2022 to
satisfy the stock ownership guideline for his position.
As of December 31, 2018, all of Fulton’s directors have satisfied the existing $175,000 ownership guideline,
except Director Snyder. Under the current stock ownership guideline, Director Snyder was required to achieve the
targeted stock ownership level by December 31, 2021. With the enhanced director ownership guideline that became
effective January 1, 2019, the directors have until December 31, 2023 to achieve the new $300,000 stock ownership
guideline.
Management Succession: The topic of management succession is discussed and reviewed at least annually
at Fulton. At the December 2018 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
2018, 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.
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, 2018, and the 2019 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 2018 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
51
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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
($)
Name and Principal
Position 1
E. Philip Wenger
Chairman and Chief
Executive Officer of
Fulton
2018 1,017,482
0 1,134,491
2017
992,665
0 1,182,002
2016
968,454
0 1,202,927
Mark R. McCollom 9
2018
425,000
0
386,381
Senior Executive Vice
President and Chief
Financial Officer of
Fulton
2016
-
2017
49,038 125,000
249,984
Philmer H. Rohrbaugh 10
2018
164,578
Senior Executive Vice
President and Chief
Financial Officer of
Fulton
Curtis J. Myers
President and Chief
Operating Officer of
Fulton
Angela M. Snyder 11
Senior Executive Vice
President and Head of
Consumer Banking
Meg R. Mueller
Senior Executive Vice
President and Head of
Commercial Business
2017
528,316
2016
506,075
2018
510,000
2017
417,480
2016
388,113
2018
385,000
2017
2016
-
-
2018
385,000
2017
344,884
2016
317,945
-
0
0
0
0
0
0
0
-
-
0
0
0
-
0
426,051
374,185
463,673
285,757
259,561
262,512
-
-
262,512
238,699
197,979
0
0
0
0
0
-
0
0
0
0
0
0
0
-
-
0
0
0
566,051
892,422
700,119
194,714
0
-
40,124
279,391
225,457
233,657
225,836
184,354
125,991
-
-
125,991
186,565
143,791
0
0
0
0
0
-
0
0
0
0
0
0
0
-
-
0
0
0
All Other
Compensation 8
($)
Total
($)
118,936
2,836,960
107,889
3,174,978
88,680
2,960,180
29,229
1,035,324
1,325
425,422
-
-
23,095
227,797
16,336
1,250,094
16,299
1,122,016
65,477
1,272,807
50,261
979,334
55,107
887,135
42,861
816,364
-
-
-
-
11,516
785,019
7,843
777,991
3,634
663,349
1 Titles and positions listed are as of Fulton’s fiscal year-end of December 31, 2018, except for Mr. Rohrbaugh who ceased to serve as
Fulton’s Chief Financial Officer effective March 1, 2018 and retired as a member of Fulton’s senior management effective
March 30, 2018.
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 19, 2019, upon the recommendation of the HR Committee, the Board of Directors approved 2019 annual base salaries
for Mr. Wenger, Mr. McCollom, Mr. Myers, Ms. Snyder and Ms. Mueller to $1,048,822, $435,625, $561,000, $394,625 and
$394,625, respectively, with the changes to the annual base salaries to be effective with the biweekly pay period that includes
April 1, 2019.
3 The HR Committee did not award any bonus payments in 2018, 2017 or 2016 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.
52
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 4 Amounts represent the grant date fair values of Performance Shares, except that the amount listed for Mr. McCollom under 2017
represents the grant date fair value, based on $18.00 per share, of a time-based restricted stock unit award of 13,888 shares, which
will vest three years from the date of grant. There were no forfeitures of Performance Shares during 2018, 2017 and 2016 by any
of the Executives.
The following is a summary of the grant date fair values of the Performance Shares granted to the Executives in 2018, 2017
and 2016.
Name
Grant Date
E. Philip Wenger
Mark R. McCollom 9
Philmer H. Rohrbaugh 10
Curtis J. Myers
Angela M. Snyder 11
Meg R. Mueller
5/1/2018
5/1/2017
5/1/2016
5/1/2018
5/1/2017
4/1/2016
5/1/2018
5/1/2017
4/1/2016
5/1/2018
5/1/2017
5/1/2016
5/1/2018
5/1/2017
5/1/2016
5/1/2018
5/1/2017
4/1/2016
Performance Share
Grant Date Fair
Value Assuming
Highest
Performance
Level Achieved
($)
1,545,754
1,620,832
1,604,382
526,461
-
-
0
566,166
496,279
631,760
391,831
354,307
357,682
-
-
357,682
327,317
270,232
Number of
Performance
Shares Granted
to Executive
(#)
73,187
65,102
92,265
24,926
-
-
0
23,387
28,657
29,912
15,738
20,036
16,935
-
-
16,935
13,147
15,281
Per Share
Grant Date
Fair Value
With
Non-Market
Conditions
($)
17.05
18.70
13.99
17.05
-
-
-
18.70
13.99
17.05
18.70
13.99
17.05
-
-
17.05
18.70
13.99
Per Share
Grant Date
Fair Value
With
Market
Conditions
($)
12.92
17.25
11.23
12.92
-
-
-
17.25
11.23
12.92
17.25
11.23
12.92
-
-
12.92
17.25
11.23
Weighted
Average Per
Share Grant
Date
Fair Value
($)
15.36
18.17
13.01
15.36
-
-
-
18.17
13.01
15.36
18.17
13.01
15.36
-
-
15.36
18.17
13.01
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 2018, 2017 and 2016, including the assumptions made in determining those valuations, see Fulton’s Annual
Report on Form 10-K for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, respectively, under Item
8 – Financial Statements and Supplementary Data, “Note 15 – Stock-Based Compensation Plans.”
5 Fulton did not grant options in 2018, 2017 or 2016 to the Executives and there were no forfeitures of options during those periods
by any of the Executives. Options granted in 2006 expired unexercised in 2016, including the following number of option held by
the Executives: Mr. Wenger – 24,000; Mr. Myers – 5,500; Ms. Snyder – 9,000; and Ms. Mueller – 4,710.
6 The VCP Awards reported in this column are substantially based on performance goal achievement and on individual scorecard
results as described further beginning on Page 43.
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 2018, 2017 or 2016. 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 58. The rate
of return for an individual participant’s account is based on the performance of the various investment options selected by each
participant.
53
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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-owned automobile or the taxable automobile allowance, as reported on the Executive’s 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. For a short period following Mr. Rohrbaugh’s retirement in
2018, he was engaged as an independent contractor and paid $150.00 per hour and reimbursed for expenses related to projects for
Fulton. Mr. Rohrbaugh was paid a total of $17,550 during 2018 under this arrangement and this amount has been included under
Other Compensation and Perquisites in the table below.
Qualified
Retirement
Plan
Company
Contribution
($)
13,750
13,500
13,250
0
0
-
0
0
0
13,750
13,500
13,042
13,315
-
-
0
0
0
Nonqualified
Deferred
Compensation
Plan
Company
Contribution
($)
81,745
71,139
52,827
0
0
-
0
0
0
23,368
16,592
13,681
11,951
-
-
0
0
0
Club
Memberships
($)
16,988
17,547
16,303
12,200
0
-
5,545
14,664
13,832
16,753
15,985
17,078
8,589
-
-
4,168
3,587
0
Automobile
Perquisites
($)
3,426
3,600
3,510
15,000
1,250
-
0
150
1,567
2,919
3,284
3,306
1,569
-
-
833
3,356
3,342
Other
Compensation
and
Perquisites
($)
3,027
2,103
2,790
2,029
75
-
17,550
1,522
900
8,687
900
8,000
7,437
-
-
6,515
900
292
Total All Other
Compensation
($)
118,936
107,889
88,680
29,229
1,325
-
23,095
16,336
16,299
65,477
50,261
55,107
42,861
-
-
11,516
7,843
3,634
Name
E. Philip Wenger
Mark R. McCollom 9
Philmer H. Rohrbaugh 10
Curtis J. Myers
Angela M. Snyder 11
Meg R. Mueller
Year
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
9 Mr. McCollom was hired on November 20, 2017 and he became Fulton’s Chief Financial Officer effective March, 2, 2018.
10 Mr. Rohrbaugh ceased to serve as Fulton’s Chief Financial Officer March 1, 2018 and retired as a member of Fulton’s senior
management effective March 30, 2018. Effective April 1, 2018 his annual base salary was reduced to $125,000 once he ceased to be
a member of Fulton’s senior management. He continued as an employee of Fulton until June 2, 2018, after which Mr. Rohrbaugh
provided services to Fulton as an independent contractor until June 30, 2018. The additional compensation he received as an
independent contractor has been included under All Other Compensation.
11 Ms. Snyder became a Named Executive Officer of Fulton for the first time in 2018. Pursuant to SEC rules, Ms. Snyder’s
compensation for 2017 and 2016 is not included.
54
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT GRANTS OF PLAN-BASED AWARDS TABLE
Name
Grant
Date
Approval
Date 1
Estimated Future or Possible
Payouts Under Non-Equity
Incentive Plan Awards 2
Target
($)
Maximum
($)
Threshold
($)
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
($)
Estimated Future or Possible
Payouts Under Equity
Incentive
Plan Awards 3
Target
(#)
Maximum
(#)
Threshold
(#)
E. Philip Wenger
5/1/2018 3/20/2018
-
-
-
32,019 73,187
100,632
E. Philip Wenger
-
3/20/2018 216,215 864,860 1,297,290
-
-
-
Mark R. McCollom
5/1/2018 3/20/2018
-
-
-
10,904 24,926
34,274
Mark R. McCollom
-
3/20/2018
74,375 297,500
446,250
Philmer H. Rohrbaugh
- 3/20/2018
15,326
61,305
91,957
-
-
-
-
-
-
Curtis J. Myers
5/1/2018 3/20/2018
-
-
-
13,086 29,912
41,129
Curtis J. Myers
-
3/20/2018
89,250
357,000
535,500
-
-
-
Angela M. Snyder
5/1/2018 3/20/2018
-
-
-
7,409 16,935
23,286
Angela M. Snyder
-
3/20/2018
48,125
192,500
288,750
-
-
-
Meg R. Mueller
5/1/2018 3/20/2018
-
-
-
7,409 16,935
23,286
Meg R. Mueller
-
3/20/2018
48,125 192,500
288,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17.05 1,134,491
-
-
17.05
386,381
-
-
-
-
17.05
463,673
-
-
17.05
262,512
-
-
17.05
262,512
-
-
1 The grants of Performance Shares were approved at the March 2018 HR Committee and Board of Directors meetings, pursuant
to the 2013 Plan, with a grant date of May 1, 2018. Based on the recommendation of the HR Committee, the independent directors
of the Board of Directors also approved the non-equity incentive plan awards under the 2013 Plan on March 21, 2018.
2 The Executives were eligible to receive VCP Awards for 2018 pursuant to the 2013 Plan that is discussed beginning on Page 43.
Amounts are calculated based on 2018 base salary paid while employed as an Executive.
3 The amounts in this column represent the number of Performance Shares granted to the Executives on May 1, 2018 based on the
closing price of $17.05 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 46. 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 an absolute ROA target for 2018 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, 2018 through March 31, 2021; 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, 2021.
4 See Note 4 to the Summary Compensation Table on Page 52 for additional information regarding the grant date fair value of
the Performance Shares. The grant date fair value of each equity award is computed in accordance with FASB ASC Topic 718.
55
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option 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
(#)
-
-
-
-
-
-
-
5,158
7,500
12,375
11,263
10,877
-
-
-
-
-
-
11,250
11,400
11,554
-
-
-
-
-
-
-
0
0
0
0
0
-
-
-
-
-
-
0
0
0
-
-
-
-
-
-
-
0
0
0
0
0
-
-
-
-
-
-
0
0
0
Option
Exercise
Price
($)
Option
Expiration
Date
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
-
-
-
-
-
-
-
-
-
-
-
-
10.880 6/30/2021
10.475 3/31/2022
11.580 3/31/2023
Name
E. Philip Wenger
E. Philip Wenger
E. Philip Wenger
Mark R. McCollom
Mark R. McCollom
Philmer H. Rohrbaugh
Philmer H. Rohrbaugh
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Curtis J. Myers
Angela M. Snyder
Angela M. Snyder
Angela M. Snyder
Meg R. Mueller
Meg R. Mueller
Meg R. Mueller
Stock Awards
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
86,901 2
-
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
-
-
-
57,458 3
69,373 4
23,627 4
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
-
-
-
-
14,335
221,904
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,069 2
21,060 3
-
-
-
-
-
18,644 2
13,889 3
28,353 4
5,911 2
4,074 3
16,052 4
14,219 2
11,603 3
16,052 4
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($) 1
1,345,232
889,454
1,073,895
365,745
-
419,028
326,014
-
-
-
-
-
288,611
215,007
438,907
91,501
63,059
248,488
220,112
179,618
248,488
1 Market value of Performance Shares shown is based on the closing price of Fulton common stock of $15.48 on December 31,
2018, the last trading day of 2018. The number of Performance Shares includes dividend equivalents for all dividends that have
been paid by Fulton from the Performance Share grant date through December 31, 2018.
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 target level of
performance for 2016, 2017 and 2018, based on relative TSR performance through December 31, 2018; 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.
2 Performance Shares granted on May 1, 2016. If the performance criteria is achieved and other requirements under the 2013 Plan
are satisfied, these Performance Shares will vest on May 1, 2019.
3 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, 2020.
4 Performance Shares granted on May 1, 2018. If the performance criteria are achieved and other requirements under the 2013
Plan are satisfied, these Performance Shares will vest on May 1, 2021.
56
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT OPTION EXERCISES AND STOCK VESTED TABLE 1
Option Awards
Stock Awards
Name
E. Philip Wenger
Mark R. McCollom
Philmer H. Rohrbaugh
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
Number of
Shares
Acquired
on Exercise
(#)
Value Realized
on Exercise
($)
0
0
0
0
0
0
0
0
0
0
0
0
Number of
Shares
Acquired
on Vesting
(#)
77,940
0
23,703
18,392
7,241
14,028
Value Realized
on Vesting 2
($)
1,383,426
0
420,726
326,458
128,526
248,997
1 Except for Mr. McCollom, all of the Executives had Performance Shares that vested during 2018.
2 Shares that vested on April 1, 2018 for Messrs. Wenger, Rohrbaugh, Myers and Ms. Snyder and Ms. Mueller were valued at
$17.75 per share, the closing price of Fulton’s common stock on March 29, 2018, the preceding trading day because April 1, 2018
was not a trading day.
PENSION BENEFITS TABLE 3
Name
Plan Name
E. Philip Wenger
Mark R. McCollom
Philmer H. Rohrbaugh
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
NA
NA
NA
NA
NA
NA
Number of Years
Credited Service
(#)
-
-
-
-
-
-
Present
Value of
Accumulated
Benefit
($)
-
-
-
-
-
-
Payments During
Last Fiscal Year
($)
-
-
-
-
-
-
3 During 2018, none of the Executives participated in or had an account balance in any qualified or nonqualified defined benefit
plans sponsored by Fulton or any Fulton subsidiary bank.
57
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT NONQUALIFIED DEFERRED COMPENSATION TABLE
Name
E. Philip Wenger
Mark R. McCollom
Philmer H. Rohrbaugh
Curtis J. Myers
Angela M. Snyder
Meg R. Mueller
Executive
Contributions in
Last FY
($)
167,953
0
0
39,231
70,369
0
Registrant
Contributions in
Last FY 1
($)
81,745
0
0
23,368
11,951
0
Aggregate
Earnings in
Last FY 2
($)
(97,816)
0
0
(21,613)
(25,289)
45
Aggregate
Withdrawals/
Distributions
($)
0
0
0
0
0
0
Aggregate Balance
at Last FYE 3
($)
1,589,208
0
0
341,810
362,290
2,651
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 2018, these
matching contributions are made based on an Executive’s eligible salary and bonus that exceeds the federal limit of $275,000
for 2018. See the table contained in footnote 8 of the “Summary Compensation Table” on Page 52. 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. 2018 contributions were credited to each of the Executive’s accounts in
early 2019.
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 2018, the available investment funds included Federated
Total Return Bond Fund (FTRBX), Fidelity Advisory Diversified International Fund (FZABX), FMI International Institutional
(FMIYX), Goldman Sachs Core Fixed Income Fund (GSFIX), Janus Henderson Enterprise I (JMGRX), Vanguard Mid Cap
Value Index Fund (VMVAX), Goldman Sachs Financial Square Government Fund (FGTXX), MFS Value Fund I (MEIIX),
Vanguard Inflation Protected Securities Fund (VAIPX), T. Rowe Price Growth Stock Fund (PRGFX), T. Rowe Price Retirement
2010 (TRPAX), T. Rowe Price Retirement 2020 (TRBRX), T. Rowe Price Retirement 2030 (TRPCX), T. Rowe Price Retirement
2040 (TRPDX), T. Rowe Price Retirement 2050 (TRPMX), T. Rowe Price Retirement 2060 (TRPLX), 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 II 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 48.
3 Balances include the 2018 contributions made by Fulton and credited to the Executives’ accounts in early 2019. 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 $891,183 was reported (2007 to 2018);
- For Mr. Myers, a total of $49,244 was reported (2016 to 2018).
- For Ms. Snyder, a total of $11,951 was reported (2018).
58
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT POTENTIAL PAYMENTS UPON TERMINATION AND GOLDEN PARACHUTE
COMPENSATION TABLE
Executive
E. Philip Wenger
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Mark R. McCollom
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Curtis J. Myers
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Angela M. Snyder
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Meg R. Mueller
Cash ($)
Equity ($)
Pension/NQDC($)
Perquisites/Benefits($)
Tax Reimbursement($)
TOTAL ($)
Potential Payments as of December 31, 2018 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
253,417
0
0
0
253,417
0
0
0
0
0
0
0
153,868
0
0
0
153,868
1,023,241
0
0
12,000
0
1,035,241
619,714
0
0
12,000
0
631,714
743,657
253,417
0
12,000
0
1,009,074
510,991
0
0
12,000
0
522,991
571,565
153,868
0
12,000
0
737,433
3,831,326
3,308,581
191,566
74,000
0
7,405,474
1,239,428
587,649
61,971
34,000
0
1,923,049
1,468,118
1,195,943
74,366
34,000
0
2,772,427
1,021,982
403,048
51,099
34,000
0
1,510,129
1,143,130
802,085
57,157
34,000
0
2,036,372
0
0
0
0
0
0
0
221,904
0
0
0
221,904
0
253,417
0
0
0
253,417
0
0
0
0
0
0
0
153,868
0
0
0
153,868
1,125,565
3,308,581
0
18,000
0
4,452,146
467,500
587,649
0
18,000
0
1,073,149
561,000
1,195,943
0
18,000
0
1,774,943
423,500
403,048
0
18,000
0
844,548
423,500
802,085
0
18,000
0
1,243,585
2,046,482
3,308,581
0
0
1,291,628
6,646,691
850,000
587,649
0
0
536,474
1,974,123
1,020,000
1,195,943
0
0
643,769
2,859,712
770,000
403,048
0
0
485,982
1,659,030
770,000
802,085
0
0
485,982
2,058,067
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 $15.48
on December 31, 2018, the last trading day of 2018. Mr. Rohrbaugh was not included since he was not employed by Fulton as of
December 31, 2018.
59
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 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 4 below, Fulton’s obligations are
limited to the payment of the Executive’s base salary through the effective date of the Executive’s termination, 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 one 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 Mr. Wenger, 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 one-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 2018 base salary. The amounts
listed under Cash assume no discretionary bonus was paid to Mr. Wenger, but the payments to the other Executives in the table
assume the payment of their 2018 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 one-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.
A Change in Control with respect to Mr. Wenger is defined in his Employment Agreement 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.
60
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT With respect to the other Executives in the table, 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 two 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 two 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 three 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 two 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 two years. With respect to Mr. Wenger, if he would not be eligible to continue to participate in any employee welfare
benefit plan, he would be compensated on an annual basis, in advance, for such plan in an amount equal to the cost Fulton would
have incurred, had he been eligible to participate in such plan, plus any permitted gross-up for any taxes applicable thereto. In
addition, Mr. Wenger would be entitled to receive continuation of other executive perquisites, such as club memberships and an
employer-provided automobile, for a period of two years. The other Executives are not entitled to receive continuation of other
executive perquisites, such as club memberships and employer-provided automobiles, however, the other Executives have the
ability to purchase, at book value, any employer-provided automobile used by the Executive at the time of the their termination.
Mr. Wenger’s Employment Agreement provides that, in the event any payment or distribution by Fulton to or for the
benefit of Mr. Wenger would be subject to excise tax as a Golden Parachute, Mr. Wenger would 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 the other Executives do not contain a “gross-up provision.”
Further, pursuant to the terms of the Employment Agreements for the other Executives, their total payments are reduced to the
extent required to avoid a federal excise tax imposed under Section 280G of the Tax Code.
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 determinable, the values assume the applicable “target” levels of performance have been attained.
7 Cash amounts listed are two times 2018 base salary as of year-end and the highest VCP Awards paid for the last three years
for each Executive. Mr. Myers’ cash amount has been reduced by $19,196 pursuant to the terms of the Executive’s Employment
Agreement, which represents the reduction required to avoid a federal excise tax imposition pursuant to the regulations
promulgated under Section 280G of the Tax Code.
61
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT Equity amount is the value of all “in the money” stock options, unvested time-based stock unit awards and unvested
Performance Shares, which would vest as described in the last paragraph of Footnote 6 above, as of December 31, 2018. 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 attributed to each Executive, and, with respect to Mr. Wenger, an additional
$20,000 per year for club memberships, vehicle and other expenses paid by Fulton, for his severance period.
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 five 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, but,
subject to review and approval 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
five years of service to Fulton or any affiliate and retired as of December 31, 2018. The Executives would generally have one or
two years from the date of retirement, but not beyond the original option expiration date, to exercise their stock options.
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 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 six 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, time-based restricted stock units 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 one year from the date of disability, but not beyond the original option expiration date, 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 48.
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, with Performance Shares vesting as described in the
last paragraph of Footnote 6 above. The estate of the Executive would have one year from the date of death to, but not beyond the
original option expiration date, exercise stock options.
62
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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, 2018.
Pay Ratio Summary
• For 2018, the annual total compensation of our selected median
employee was $48,800.
• The 2018 annual total compensation of our CEO, as reported in the
Summary Compensation Table on Page 52, was $2,836,960.
• Based on this information, for 2018 we reasonably estimate that the ratio
of the annual total compensation of our CEO to our median employee
was 58 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.
For 2018, the median employee that was used for purposes of calculating the 2018 ratio of the annual total compensation
of our CEO to the median of the annual total compensation of all employees is the same employee that was identified for purposes
of our 2017 disclosure. There has been no change in our employee population or employee compensation arrangements since that
median employee was identified for 2017 that we believe would significantly impact our pay ratio disclosure. As of December 31,
2017, to identify the median employee from our employee population at that time, 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.
For the 2018 pay ratio, once we identified our median employee, we combined all of the elements of such employee’s
compensation for 2018 consistent with the requirements of Item 402(c)(2)(x) of Regulation S-K. With respect to the annual total
compensation of our CEO, the same process and amount reported in the “Total” column of our 2018 Summary Compensation
Table included in this Proxy Statement on Page 52 was used.
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.
63
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT NON-BINDING SAY-ON-PAY RESOLUTION TO APPROVE THE COMPENSATION
OF THE NAMED EXECUTIVE OFFICERS – PROPOSAL THREE
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 2019
Annual Meeting to approve the compensation of Fulton’s named executive officers for 2018 as described in the
Compensation Discussion and Analysis, and 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 2018
Annual Meeting, Fulton presented a similar proposal to its shareholders, and approximately 98% 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, is required to be presented to
shareholders 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 34, 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 2018,
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 2018.
64
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
For the years ended December 31, 2018 and December 31, 2017, 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, 2018 and 2017 are summarized in the following table:
Services and Fees
Audit Fees – Annual Audit and Quarterly Reviews 1
Audit Fees – Issuance of Comfort Letters and Consents
Audit Fees – Statutory Audit
Audit Fees Subtotal
Audit Related Fees 2
Tax Fees 3
All Other Fees
TOTAL
2018
$ 2,049,000
–
53,000
2017
$2,066,000
344,000
50,000
2,102,000
2,460,000
–
66,000
–
137,000
71,000
–
$ 2,168,000
$2,668,000
1 Amounts presented for 2018 are based upon the audit engagement letter and additional fees paid. Final billings for
2018 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, 2019 was approved by the Audit
Committee of the Board of Directors of Fulton at a meeting on February 21, 2019. Representatives of KPMG are
expected to be present at the 2019 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 2018 and 2017, 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 2018 and 2017 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 2018 financial statements of Fulton with management and
KPMG, the Audit Committee recommended to the Board of Directors that the financial statements be included in the
Annual Report on Form 10-K for filing with the SEC. A copy of the report of the Audit Committee of its findings
that resulted from its financial reporting oversight responsibilities is attached as Exhibit B.
65
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
RATIFICATION OF INDEPENDENT AUDITOR – PROPOSAL FOUR
Fulton’s Audit Committee has selected the firm of KPMG to continue as Fulton’s independent auditor for
the fiscal year ending December 31, 2019. 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 it 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, 2019.
If Fulton’s shareholders do not approve this proposal at the 2019 Annual Meeting, the Audit Committee
will consider the results of the shareholder vote on this proposal when selecting an independent auditor for 2020.
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 2019 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, 2018. 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, 2019.
66
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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, 2018, 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, 2018 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.
67
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS 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 2019 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 2, 2019
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
EXHIBIT A
FULTON FINANCIAL CORPORATION
AMENDED AND RESTATED
DIRECTORS’ EQUITY PARTICIPATION PLAN
TABLE OF CONTENTS
ARTICLE I. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
1.1 - PURPOSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
1.2 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
1.3 - ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
1.4 - TYPES OF GRANTS UNDER THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
1.5 - SHARES SUBJECT TO THE PLAN AND INDIVIDUAL AWARD LIMITATION. . . . . . . . . . . . . . . . . 74
1.6 - ELIGIBILITY AND PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE II. STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
2.1 - AWARD OF STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2.2 - STOCK AWARD AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2.3 - AWARDS AND CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2.4 - DIRECTORS FEES PAID IN THE FORM OF STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE III. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
3.1 - GRANT OF STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
3.2 - OPTION DOCUMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
3.3 - EXERCISE PRICE; OPTION REPRICING PROHIBITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
3.4 - EXERCISE OF STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
3.5 - METHOD OF EXERCISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE IV. RESTRICTED STOCK AND RSU AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.1 - RESTRICTED STOCK AND RSU AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.2 - RESTRICTED STOCK AND RSU AWARD AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.3 - AWARDS AND CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.4 - RESTRICTION PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.5 - OTHER TERMS AND CONDITIONS OF RESTRICTED STOCK OR RSU AWARDS . . . . . . . . . . . . . . . 78
4.6 - TERMINATION OF BOARD SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
4.7 - CHANGE IN CONTROL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE V. TAX WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
5.1 - TAX WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
5.2 - ELECTIVE DEFERRAL OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE VI. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.1 - ADJUSTMENT IN NUMBER OF SHARES AND OPTION PRICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.2 - NO RIGHT TO CONTINUED BOARD SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.3 - NONTRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.4 - COMPLIANCE WITH GOVERNMENT REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.5 - RIGHTS AS A SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
6.6 - UNFUNDED PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
6.7 - FOREIGN JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
6.8 - OTHER COMPENSATION PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
6.9 - TERMINATION OF BOARD SERVICE--CERTAIN FORFEITURES; CLAW-BACK. . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE VII. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7.1 - AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
ARTICLE VIII. EFFECTIVE DATE AND DURATION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
8.1 - EFFECTIVE DATE AND DURATION OF PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
[This Page Intentionally Left Blank] FULTON FINANCIAL CORPORATION
AMENDED AND RESTATED
DIRECTORS’ EQUITY PARTICIPATION PLAN
ARTICLE I.
GENERAL PROVISIONS
1.1 - PURPOSES
The purposes of the Amended and Restated Directors’ Equity Participation Plan (the “Plan”) are to advance
the long term-success of Fulton Financial Corporation (the “Company” or “Fulton”) and its subsidiaries and to
increase shareholder value by providing long-term stock-based compensation to non-employee members of the Board
of Directors of the Company, of the boards of directors of the Company’s subsidiaries and of any advisory boards
established by the Company or any of its subsidiaries.
The Plan amends and restates the Company’s 2011 Directors’ Equity Participation Plan that was previously
approved by Fulton’s shareholders at the 2011 Annual Meeting. All outstanding awards granted under the Plan prior
to its amendment and restatement shall remain subject to the terms of the Plan; provided, that no Awards granted
or awarded prior to the effectiveness of this Amended and Restated Plan that are materially adversely affected by
any provision of this amended and restated Plan shall be subject to such provision without the prior consent of the
applicable Participant.
The Plan is designed to: (1) encourage Company stock ownership by Participants (defined below) to further
align their interests with the interests of shareholders of the Company; (2) ensure that the Company’s Non-Employee
Director (defined below) compensation practices are competitive in the banking and financial services industry;
and (3) assist in the attraction and retention of Non-Employee Directors including Non-Employee Directors who
contribute to further the Company’s goal of achieving diversity on the Company’s Board through differences of
viewpoints, professional background, business experience, community service, education and skills, as well as race,
gender and national origin.
As stated in the Company’s Corporate Governance Guidelines (as amended from time to time, the
“Governance Guidelines”), the Board of Directors of the Company believes that directors of the Company should
be shareholders and have a financial interest in the Company to more closely align the interests of directors with
those of shareholders. Thus, in the Governance Guidelines, the Board has adopted stock ownership guidelines (as
amended from time to time, the “Ownership Guidelines”) that require the directors to acquire and continue to own
a minimum amount of the Company’s Common Stock.
In addition to open market purchases, the Company recognizes that, in some cases, the attraction and
retention of Non-Employee Directors may require additional methods under which Non-Employee Directors may
achieve compliance with the Ownership Guidelines. Thus, for example, the Company may elect to require Non-
Employee Directors who have yet to achieve compliance with the Ownership Guidelines to accept a portion of their
directors’ fees in the form of Stock Awards granted under the Plan.
1.2 - DEFINITIONS
For the purpose of the Plan, the following terms shall have the meanings indicated:
(a)
“Affiliate” shall mean a parent or subsidiary corporation as defined in Section 424 of the Code
(substituting “Company” for “employer corporation”), including a parent or subsidiary which becomes
such after the adoption of the Plan.
(b)
“Award” means any compensatory grant made under the terms of the Plan of a type listed under
Section 1.4.
(c)
“Board” means the Board of Directors of the Company.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT (d)
“Change in Control” of the Company shall be deemed to have occurred when:
(i)
(ii)
(iii)
during any period of not more than thirty-six (36) months, individuals who constitute the Board
as of the beginning of the period (the “Incumbent Directors”) cease for any reason to constitute
at least a majority of the Board, provided that (1) any person becoming a director subsequent to
the beginning of the period, whose nomination for election or appointment was approved by a
vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote
or by approval of the Company’s proxy statement in which such person is named as a nominee
for director, without written objection to such nomination) shall be an Incumbent Director; and
(2) no individual initially nominated or appointed as a result of an actual or publicly threatened
election contest or pursuant to a negotiated agreement with respect to directors or as a result of
any other actual or publicly threatened solicitation of proxies by or on behalf of any person other
than the Board shall be deemed to be an Incumbent Director;
the acquisition by any person (as such term is defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended from time to time, or any successor thereto, and the applicable rules
and regulations thereunder (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act) of beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), of the Company’s capital stock entitled to thirty percent (30%) or more of the
outstanding voting power of all capital stock of the Company eligible to vote for the election of
the Board (“Voting Securities”); provided, however, that the event described in this paragraph
(b) will not be deemed to be a Change in Control by virtue of the ownership, or acquisition, of
Voting Securities: (1) by the Company or an Affiliate, including purchases pursuant to a stock
repurchase plan, (2) by any employee benefit plan (or related trust) sponsored or maintained by
the Company or an Affiliate, (3) by any underwriter temporarily holding securities pursuant to
an offering of such securities, or (4) pursuant to a Non-Qualifying Transaction (as defined in
paragraph (iii) of this definition);
the consummation of a merger, consolidation, division, statutory share exchange, or any
other transaction or a series of transactions outside the ordinary course of business involving
the Company (a “Business Combination”), unless immediately following such Business
Combination: (1) more than fifty percent (50%) of the total voting power of (x) the entity resulting
from such Business Combination, or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of at least ninety-five percent (95%) of the voting
power of such resulting entity (either, as applicable, the “Surviving Entity”), is represented
by Voting Securities that were outstanding immediately prior to such Business Combination
(or, if applicable, is represented by shares into which such Voting Securities were converted
pursuant to such Business Combination), and such voting power among the holders thereof is
in substantially the same proportion as the voting power of such Voting Securities among the
holders thereof immediately prior to the Business Combination, (2) no person (other than any
employee benefit plan (or related trust) sponsored or maintained by the Surviving Entity), is or
becomes the beneficial owner, directly or indirectly, of thirty percent (30%) or more of the total
voting power of the outstanding voting securities eligible to elect directors of the Surviving
Entity and (3) at least a majority of the members of the board of directors of the Surviving Entity
following the consummation of the Business Combination were Incumbent Directors at the time
of the Board’s approval of the execution of the initial agreement providing for such Business
Combination (any Business Combination which satisfies all of the criteria specified in (1), (2)
and (3) of this paragraph (iii) will be deemed to be a “Non-Qualifying Transaction”);
(iv)
(v)
the consummation of a sale of all or substantially all of the assets of the Company (other than to
a wholly owned subsidiary of the Company); or
the Company’s shareholders approve a plan of complete liquidation or dissolution of the
Company.
Actions taken by the Company to merge, consolidate, liquidate or otherwise reorganize one
or more of its subsidiaries or affiliates shall not constitute a Change in Control for purposes of
this Agreement.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT (e)
(f)
“Code” means the Internal Revenue Code of 1986, as amended, including any successor law thereto.
“Committee” means the Human Resources Committee of the Board (or any successor committee
thereof) or the full Board, as the case may be.
(g)
“Common Stock” means the Common Stock of the Company, par value $2.50 per share.
(h)
(i)
(j)
“Company,” means Fulton Financial Corporation. For purposes of this Plan, the terms “Company”
and “Fulton” shall include any successor to Fulton Financial Corporation.
“Disability” means total and permanent disability within the meaning of Section 22(e)(3) of the Code.
“Dividend Equivalent” means, with respect to a share of a Restricted Stock Award or shares of
Common Stock underlying RSUs, an amount equal to the cash dividend paid on one share of Common
Stock during the Restriction Period applicable to the Restricted Stock or RSU Award. All Dividend
Equivalents shall be reinvested in the Restricted Stock or RSU Award, as applicable, at a purchase
price equal to the Fair Market Value on the dividend date.
(k)
“Fair Market Value” means as of any date the last reported sales price of the Common Stock on such
date as reported by the principal national securities exchange on which such stock is listed and traded
or, if there is no trading on such date, on the first previous date on which there is such trading.
(l)
“Governance Guidelines” shall have the meaning given to that term in Section 1.1.
(m) “Non-Employee Director” means a member of the Board, a member of the board of directors of a
Company subsidiary or a member of any advisory board established by the Company or any Company
subsidiary, who, in any such case, is not a common-law employee of the Company or a Company
subsidiary.
(n)
(o)
“Ownership Guidelines” shall have the meaning given to that term in Section 1.1.
“Participant” means an individual who has met the eligibility requirements set forth in Section 1.6
hereof and to whom a grant of an Award has been made and is outstanding under the Plan.
(p)
“Plan” means this Amended and Restated 2011 Directors’ Equity Participation Plan.
(q)
“Repricing” shall have the meaning given to that term in Section 3.3(b).
(r)
(s)
(t)
(u)
“Restricted Stock Award” means an Award of Common Stock granted to a Participant pursuant to
Article IV that is subject to a Restriction Period.
“Restricted Stock Units” or “RSU” means an Award of units to acquire one share of Common Stock
per unit, granted to a Participant pursuant to Article IV that is subject to a Restriction Period.
“Restriction Period” means, (i) in relation to Stock Options, the period of time (if any) prior to which
such Stock Options may not be exercised and (ii) in relation to Restricted Stock or RSU Awards,
the period of time (if any) during which (1) such shares are subject to forfeiture pursuant to the Plan
and (2) such shares may not be sold, assigned, transferred, pledged or otherwise disposed of by the
Participant.
“Retirement” means termination from service as a Non-Employee Director with the Company,
a Company subsidiary or as a member of any advisory board established by the Company or any
Company subsidiary, as applicable (i) after the Participant has completed a minimum number of years
of service (as established by the Committee from time to time) on the Board, a Company subsidiary
board of directors or a Company or Company subsidiary advisory board, or (ii) because the Participant
has reached a mandatory board retirement age (if any) implemented for the Company, a Company
subsidiary board or a Company or Company subsidiary advisory board. Notwithstanding anything in
the Plan to the contrary, if the Committee has not established a minimum number of years for service,
then the minimum Non-Employee Director service requirement shall be one year of service measured
from when the Participant first joined the Board.
(v)
“Stock Award” means an award of Common Stock granted to a Participant pursuant to Article II that
is not subject to a Restriction Period.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT (w)
(x)
“Stock Option” means a right granted to a Participant pursuant to Article III to purchase, before a
specified date and at a specified price, a specified number of shares of Common Stock.
“Vest” or “Vesting” means, (i) in relation to Stock Options, that the Restriction Period relating
to such Stock Options has expired and that such Stock Options may be exercised (subject to any
other applicable terms and conditions) and (ii) in relation to Restricted Stock or RSU Award, that
the Restriction Period relating to such Restricted Stock or RSU Award has expired and that such
Restricted Stock Award or shares of Common Stock underlying a Restricted Stock Units Award is
earned and eligible to be paid to the Participant (subject to any other applicable terms and conditions).
1.3 - ADMINISTRATION
The Plan shall be administered by the Committee; provided, however, that the full Board shall administer
the Plan as it relates to the terms, conditions and grant of Awards to Non-Employee Directors who serve on the
Committee. Accordingly, for purposes of the Plan, the term Committee shall refer to the full Board for purposes
of Awards granted to specific Committee members, and otherwise shall refer to the Human Resources Committee
of the Board. Subject to the provisions of the Plan and to directions by the Board, the Committee is authorized to
interpret the Plan, to adopt administrative rules, regulations, and guidelines for the Plan, and to impose such terms,
conditions, and restrictions on Awards as it deems appropriate.
1.4 - TYPES OF GRANTS UNDER THE PLAN
Awards under the Plan may be in the form of any one or more of the following:
(a)
Stock Awards;
(b) Stock Options;
(c) Restricted Stock Awards; and
(d) Restricted Stock Unit Awards
1.5 - SHARES SUBJECT TO THE PLAN AND INDIVIDUAL AWARD LIMITATION
(a) A maximum of 500,000 shares of Common Stock may be issued under the Plan. All such shares may
be granted in the form of any Awards authorized for issuance under Section 1.4. As of March 1, 2019,
Awards for 188,331 Shares have been issued under the Plan and the number of Shares available for
future Awards under this Plan is 311,669 Shares. During the term of each Award, the Company shall
keep reserved at all times the number of shares of Common Stock required to satisfy all such Awards.
The total number of shares authorized is subject to adjustment as provided in Section 6.1 hereof.
Shares of Common Stock issued under the Plan may be treasury shares or authorized but unissued
shares. In the discretion of the Committee, fractional shares may be issued under the Plan or Awards
may be rounded up to next whole share of Common Stock.
(b)
If any Award granted under the Plan expires, terminates, is forfeited, is not exercised, or for any other
reason is not payable under the Plan, shares of Common Stock subject to the Award may again be
made available for the purposes of the Plan.
(c) The maximum number of shares of Common Stock, in the aggregate, under all types of Awards
granted to any one Participant in any one calendar year shall not exceed the greater of (i) 20,000 shares
or (ii) a number of shares with an aggregate Fair Market Value on the date of the Award(s) of $200,000.
1.6 - ELIGIBILITY AND PARTICIPATION
Participation in the Plan shall be limited to Non-Employee Directors.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT ARTICLE II.
STOCK AWARDS
2.1 - AWARD OF STOCK AWARDS
The Committee may grant unrestricted Stock Awards to Participants subject to such terms and conditions
as the Committee shall determine.
2.2 - STOCK AWARD AGREEMENTS
Stock Awards subject to any terms and conditions shall be evidenced by a written agreement between the
Company and the Participant to whom such Award is granted. The agreement shall specify the number of shares
awarded and the terms and conditions of the Award.
2.3 - AWARDS AND CERTIFICATES
Shares of Common Stock awarded pursuant to a Stock Award shall be registered in the name of the
Participant, and evidenced either by the issuance of certificates or by book entry on the stock transfer records of the
Company showing the applicable restrictions, if any.
2.4 - DIRECTORS FEES PAID IN THE FORM OF STOCK AWARDS
A Participant may elect to receive all or a portion of fees payable to such Participant for service as a Non-
Employee Director in the form of a Stock Award grant pursuant to a process approved by the Board or the Committee;
provided, however, that the annual limitation set forth in Section 1.5(c) shall apply. The number of shares to be issued
will be determined using the Fair Market Value of the date of issuance of the Stock Award.
ARTICLE III.
STOCK OPTIONS
3.1 - GRANT OF STOCK OPTIONS
The Committee may from time to time, subject to the provisions of the Plan, grant Stock Options
to Participants. The Committee shall determine the number of shares of Common Stock to be covered by each
Stock Option.
3.2 - OPTION DOCUMENTATION
Each Stock Option shall be evidenced by a written Stock Option agreement between the Company and the
Participant to whom such option is granted, specifying the number of shares of Common Stock that may be acquired
by its exercise and containing such terms, the option period and other conditions consistent with the Plan as the
Committee shall determine.
3.3 - EXERCISE PRICE; OPTION REPRICING PROHIBITIONS
(a) The price at which each share covered by a Stock Option may be acquired shall be determined by the
Committee at the time the option is granted and shall not be less than the Fair Market Value of the
underlying shares of Common Stock on the day the Stock Option is granted.
(b) Other than a change in the exercise price made in accordance with the provisions of Section 6.1 of
the Plan, notwithstanding anything in the Plan to the contrary, neither the Board nor the Committee
shall have the authority, without shareholder approval, (a) to accept the surrender of any outstanding
Stock Option when the Fair Market Value of a share of Common Stock is less than the exercise
price of such outstanding Stock Option and grant new Stock Options or other Awards in substitution
for such surrendered Stock Option or pay cash in connection with such surrender, (b) to reduce the
exercise price of any outstanding Stock Option, or (c) to take any other action that would be treated
as a repricing of Stock Options under the rules of the primary stock exchange on which the Common
Stock is listed.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 3.4 - EXERCISE OF STOCK OPTIONS
(a) Exercisability. Stock Options shall become exercisable at such times, in such installments, and upon
the satisfaction of such conditions as the Committee may provide at the time of grant in the Stock
Option agreement referred to in Section 3.2, which may include a Restriction Period prior to Vesting.
(b) Option Period. For each Stock Option granted, the Committee shall specify in the Stock Option
agreement referred to in Section 3.2 the period during which the Stock Option may be exercised,
provided that no Stock Option shall be exercisable after the expiration of ten years from the date the
Stock Option was granted.
(c) Exercise in the Event of Termination of Board Service.
(i) Death: Unless otherwise provided by the Committee at the time of grant, in the event of the
death of the Participant while actively serving on the Board, the Stock Option must be exercised
by the Participant’s estate or beneficiaries within one year following the death of the Participant
and prior to its expiration. In the event of the death of the Participant, each unexpired Stock
Option held by the Participant at the date of death may be exercised as to all or any portion
thereof regardless of whether or not fully exercisable under the terms of the grant.
(ii) Disability: Unless otherwise provided by the Committee at the time of grant, in the event of
the termination of the Participant’s board service due to Disability, the Stock Option must be
exercised within one year following the Participant’s termination of board service and prior to
its expiration. In the event of the termination of the Participant’s board service due to Disability,
each Stock Option then held by the disabled Participant may be exercised as to all or any portion
thereof, regardless of whether or not fully exercisable under the terms of the grant.
(iii) Retirement: Unless otherwise provided by the Committee at the time of grant, in the event
of the Retirement of the Participant, Vested Stock Option must be exercised within one year
following the Participant’s Retirement and prior to its expiration. In the event of the Retirement
of the Participant, only Vested Stock Option then held by the retired Participant may be exercised
as to all or any portion thereof, regardless of whether or not fully exercisable under the terms of
the grant.
(iv) Other Terminations: Unless otherwise provided by the Committee at the time of grant, in the
event a Participant ceases to serve on the Board for any reason other than death, Disability or
Retirement, Stock Options which are exercisable on the date of termination must be exercised
within six months after termination and prior to the expiration date of any such Stock Option.
All Stock Options which are not then exercisable shall be canceled.
(v) Extension of Exercise Period: Notwithstanding all other provisions under this Section 2.4(c), in
the event a Participant’s Board service terminates, the Committee may, in its sole discretion,
extend the post-termination period during which the Stock Option may be exercised, provided
however that such period may not extend beyond the original option period.
(d) Exercise In the Event of Change in Control. In the event of consummation of a Change in Control, all
Stock Options shall immediately become exercisable without regard to the exercise period set forth
in Section 3.4(a) or in a Stock Option agreement. In the event such Stock Options are not exercised in
connection with the Change in Control and are underwater, such Stock Options shall be terminated
without payment of consideration.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 3.5 - METHOD OF EXERCISE
The Stock Option may be exercised in whole or in part from time to time by written request delivered to the
Corporate Secretary or another designated officer of the Company. The option price of each share acquired pursuant
to a Stock Option shall be paid in full at the time of each exercise of the Stock Option through a method outlined
in the Stock Option agreement, or one of the following methods: (i) in cash; (ii) by delivering to the Company
previously-owned shares of Common Stock with a Fair Market Value as of the date determined by the Committee
sufficient to pay the exercise price; (iii) in the discretion of the Committee, by delivering to the Corporate Secretary
or another designated officer of the Company a notice of exercise with an irrevocable direction to a broker-dealer
registered under the Exchange Act to sell a sufficient portion of the shares acquired upon exercise and deliver the sale
proceeds directly to the Company to pay the exercise price; or (iv) in the discretion of the Committee, through any
combination of the payment procedures set forth in (i) through (iii) above.
ARTICLE IV.
RESTRICTED STOCK AND RSU AWARDS
4.1 - RESTRICTED STOCK AND RSU AWARDS
The Committee may grant Restricted Stock or RSU Awards to Participants subject to such terms and
conditions as the Committee shall determine, as set forth in the Restricted Stock or RSU Award agreement referenced
in Section 4.2, provided that each Restricted Stock or RSU Award shall be subject to a Restriction Period prior to
Vesting.
4.2 - RESTRICTED STOCK AND RSU AWARD AGREEMENTS
Each Restricted Stock or RSU Award shall be evidenced by a written agreement between the Company and
the Participant to whom such Award is granted. The agreement shall specify the number of shares or units awarded,
and the terms and conditions of the Award including the Restriction Period.
4.3 - AWARDS AND CERTIFICATES
Shares of Common Stock awarded pursuant to a Restricted Stock Award shall be registered in the name of
the Participant, and evidenced either by the issuance of certificates or by book entry on the stock transfer records of
the Company showing the applicable restrictions, if any. Certificates evidencing Restricted Stock Awards, bearing
appropriate restrictive legends, shall be held in custody by the Company until the restrictions thereon are no longer
in effect. After the lapse or waiver of the restrictions imposed upon the Restricted Stock Award, the Company shall
deliver in the Participant’s name one or more stock certificates, free of restrictions, evidencing the shares of Common
Stock subject to the Restricted Stock Award with respect to which the restrictions have lapsed or been waived, or
shall reregister the shares of Common Stock on the stock transfer records of the Company free of the applicable
restrictions.
Restricted Stock Units awarded shall be evidenced by the RSU Award agreement until the applicable
Restriction Period ends. After the lapse or waiver of the restrictions imposed upon the RSU Award, the Company
shall deliver in the Participant’s name one or more stock certificates, free of restrictions, evidencing the shares of
Common Stock underlying the RSU Award with respect to which the restrictions have lapsed or been waived, or
shall reregister the shares of Common Stock on the stock transfer records of the Company free of the applicable
restrictions; provided, however, if the Participant has properly elected to defer receipt of the underlying shares of
Common Stock under a Board-approved deferred compensation plan or program, the provisions of such plan or
program shall control with respect to payment of the RSU Award,.
4.4 - RESTRICTION PERIOD
At the time a Restricted Stock or RSU Award is made, the Committee shall establish a Restriction Period
applicable to such Award and, upon expiration or lapse of a Restriction Period, the Restricted Stock or RSU Award shall
Vest and the shares subject to the Restricted Stock Award shall become the unrestricted property of the Participant,
or issuable under the RSU Award shall become Vested and eligible to be paid. The Committee may provide for the
lapse of such restrictions in installments or all at one time and may accelerate or waive such restrictions, in whole or
in part, based on service and such other factors as the Committee may determine.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 4.5 - OTHER TERMS AND CONDITIONS OF RESTRICTED STOCK OR RSU AWARDS
Shares of Common Stock subject to Restricted Stock Awards or underlying RSU Awards shall be subject to
the following terms and conditions:
(a) Except as otherwise provided in the Plan or in the RSU Award agreement, the Participant shall not
have all the rights of a shareholder of the Company, including the right to vote the shares;
(b) Cash dividends paid with respect to Common Stock subject to a Restricted Stock or RSU Award
shall entitle a Participant to Dividend Equivalents that are reinvested to purchase additional shares
of Common Stock subject to the same terms, conditions, and restrictions that apply to the Restricted
Stock or RSU Award with respect to which such Dividend Equivalents were credited;
(c) Any other terms and conditions as the Committee may elect to include in the Award agreement as
described in Section 4.2.
4.6 - TERMINATION OF BOARD SERVICE
(a)
(b)
In the event a Participant’s Board service terminates during the Restriction Period by reason of death
or Disability, all restrictions shall lapse on the full number of shares or units subject to restriction.
In the event a Participant’s Board service terminates during the Restriction Period by reason of
Retirement, all restrictions shall lapse on a prorated number of shares or units subject to restriction
based on the time from date of the Award to the Participant’s Retirement date.
(c)
If a Participant’s Board service is terminated during the Restriction Period for any reason other than
one listed in (a) or (b) above, the Participant shall forfeit all shares or units subject to restriction.
4.7 - CHANGE IN CONTROL PROVISIONS
In the event of any Change in Control, all restrictions applicable to any outstanding Restricted Stock or
RSU Awards shall lapse, and all outstanding Restricted Stock or RSU Awards shall Vest, as of the date of such
Change in Control.
ARTICLE V.
TAX WITHHOLDING
5.1 - TAX WITHHOLDING
As a non-employee Director, each Participants will be providing services to the Company as a self-employed
individual and will be individually responsible for his or her own tax payments and deposits relating to income
attributable to Awards made hereunder. In addition, any Participant receiving an award under the Plan that qualifies
as restricted property taxable under Code Section 83(a) may make an election under Section 83 of the Code if desired.
The Company provides no advice with respect to such election.
5.2 - ELECTIVE DEFERRAL OF PAYMENT
The Board has approved a deferred compensation program for Directors. Such program, if properly followed,
represents the sole method of deferring payment of Vested Awards granted under this Plan. Notwithstanding the
foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the
assessment of any excise tax or penalty on any Participant under Section 409A of the Code and neither the Company
nor the Committee will have any liability to any Participant for such tax or penalty.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT ARTICLE VI.
OTHER PROVISIONS
6.1 - ADJUSTMENT IN NUMBER OF SHARES AND OPTION PRICES
In the event of any change in the Common Stock through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend or other change in the corporate structure of the Company,
the Committee shall appropriately adjust the maximum number of Shares subject to the Plan, all Awards then
currently outstanding, the maximum number of Shares with respect to which any one person may be granted Awards
during any period as set forth in Section 1.5(c) of the Plan, and the exercise price of Options, so that upon Exercise,
the Participant shall receive, in effect, the same number of Shares in exchange for the same aggregate exercise price
he or she would have received had he or she been the holder of all Shares subject to his or her outstanding Options
immediately before the effective date of such change in the capital structure of the Company, and the benefits, rights
and features relating to Shares underlying Restricted Awards shall be appropriately adjusted consistent with such
change in such manner as the Committee may deem equitable to prevent substantial dilution or enlargement of the
rights granted to, or available for, Participants in the Plan. Any such adjustment shall not result in the issuance of
fractional shares, and the Committee shall round down the number of shares subject to any outstanding Award unless
the transaction that resulted in the capital structure change specifically authorizes a rounding up of the shares. Each
such adjustment shall be made in such manner so as not to constitute a “modification” within the meaning of Section
409A of the Code. Further, any adjustments made under this Section 6.1 shall be made in a manner which does not
adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act.
6.2 - NO RIGHT TO CONTINUED BOARD SERVICE
Nothing contained in the Plan, nor in any grant of an Award pursuant to the Plan, shall confer upon any
Participant any right with respect to continuance of board service with the Company or its subsidiaries, nor interfere
in any way with the rights of the Company, its subsidiaries or its shareholders, pursuant to applicable articles, by-
laws, state law or otherwise, to terminate the Participant’s Board service or change the Non-Employee Director
compensation of any Participant at any time.
6.3 - NONTRANSFERABILITY
A Participant’s rights under the Plan, including the right to any shares or amounts payable may not be
assigned, pledged, or otherwise transferred except, in the event of a Participant’s death, to the Participant’s designated
beneficiary or, in the absence of such a designation, by will or by the laws of descent and distribution; provided,
however, that the Committee may, in its discretion, at the time of grant of a Stock Option or by amendment of an option
agreement for a Stock Option, provide that Stock Options granted to or held by a Participant may be transferred,
in whole or in part, to one or more transferees and exercised by any such transferee, provided further that (a) any
such transfer must be without consideration, (b) each transferee must be a member of such Participant’s “immediate
family” or a trust, family limited partnership or other estate planning vehicle established for the exclusive benefit
of one or more members of the Participant’s immediate family; and (c) such transfer is specifically approved by
the Committee following the receipt of a written request for approval of the transfer. In the event a Stock Option is
transferred as contemplated in this Section, such transfer shall become effective when approved by the Committee
and such Stock Option may not be subsequently transferred by the transferee other than by will or the laws of
descent and distribution. Any transferred Stock Option shall continue to be governed by and subject to the terms and
conditions of this Plan and the relevant option agreement, and the transferee shall be entitled to the same rights as the
Participant as if no transfer had taken place. As used in this Section, “immediate family” shall mean, with respect
to any person, any spouse, child, stepchild or grandchild, and shall include relationships arising from legal adoption.
6.4 - COMPLIANCE WITH GOVERNMENT REGULATIONS
(a) The Company shall not be required to issue or deliver shares or make payment upon any right granted
under the Plan prior to complying with the requirements of any governmental authority in connection
with the authorization, issuance, or sale of such shares.
(b) The Plan shall be construed and its provisions enforced and administered in accordance with the laws
of the Commonwealth of Pennsylvania applicable to contracts entered into and performed entirely in
such State.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT (c) Awards under the Plan are intended to comply with, or be exempt from, the applicable requirements
of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such
intent. Although the Company does not guarantee any particular tax treatment, to the extent that any
Award is subject to Section 409A of the Code, it shall be paid in a manner that is intended to comply
with Section 409A of the Code, including regulations and any other guidance issued by the Secretary
of the Treasury and the Internal Revenue Service with respect thereto. In no event whatsoever shall the
Company be liable for any additional tax, interest or penalties that may be imposed on the Participant
by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code.
6.5 - RIGHTS AS A SHAREHOLDER
The recipient of any grant under the Plan shall have no rights as a shareholder with respect thereto unless
and until certificates for shares of Common Stock are issued, or book entry on the stock transfer records of the
Company have been made, in the name of such recipient and are no longer subject to restriction.
6.6 - UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be
construed to create) a trust or separate funds. With respect to any payment not yet made to a Participant, nothing
contained herein shall give any Participant any rights that are greater than those of a general creditor of the Company.
6.7 - FOREIGN JURISDICTION
The Committee shall have the authority to adopt, amend, or terminate such arrangements, not inconsistent
with the intent of the Plan, as it may deem necessary or desirable to make available tax or other benefits of the laws
of foreign countries in order to promote achievement of the purposes of the Plan.
6.8 - OTHER COMPENSATION PLANS
Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required.
6.9 - TERMINATION OF BOARD SERVICE--CERTAIN FORFEITURES; CLAW-BACK
Notwithstanding any other provision of the Plan (other than provisions regarding Change in Control,
including without limitation Sections 3.4(d) and 4.7, which shall apply in all events), a Participant shall have no
right to exercise any Stock Option or receive payment of any or Restricted Stock or RSU Award if the Participant is
discharged from Board service for willful, deliberate, or gross misconduct as determined by the Committee in its
sole discretion. Furthermore, in any such case and notwithstanding any other provision of the Plan to the contrary, in
the event that a Participant received or is entitled to cash or the delivery or Vesting of Common Stock pursuant to an
Award during the 12 month period prior to the Participant’s discharge from Board service, the Committee, in its sole
discretion, may require the Participant to return or forfeit the cash and/or Common Stock received with respect to an
Award (or its economic value as of: (a) the date of the exercise of Stock Options; (b) the date immediately following
the end of the Restriction Period for Restricted Stock or RSU Awards or (c) the date of grant or payment with respect
to Stock Awards, as the case may be). The Committee’s right to require forfeiture under this Section 6.9 must be
exercised within 90 days after discharge from Board service.
In addition to the foregoing, the Company may subject this Plan and any Awards made hereunder to any
“claw-back policy” adopted subsequent to the date of this Plan.
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT ARTICLE VII.
AMENDMENT AND TERMINATION
7.1 - AMENDMENT AND TERMINATION
The Board of Directors or the Committee may modify, amend, or terminate the Plan at any time except that,
to the extent then required by applicable law, rule, regulation, or applicable listing requirements for the Company’s
Common Stock, approval of the holders of a majority of shares of Common Stock represented in person or by
proxy at a meeting of the shareholders will be required to increase the maximum number of shares of Common
Stock available for distribution under the Plan (other than increases due to adjustments in accordance with the Plan)
or to “materially amend” the Plan under applicable listing requirements for the Company’s Common Stock. No
modification, amendment, or termination of the Plan shall adversely affect the rights of a Participant under a grant
previously made to such Participant without the consent of such Participant.
ARTICLE VIII.
EFFECTIVE DATE AND DURATION OF PLAN
8.1 - EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective as of the date of the Plan’s approval and adoption at the 2019 Annual
Meeting of the shareholders on May 21, 2019. All Awards granted under the Plan must be granted within ten years
from its approval date by the shareholders of the Company. Any Awards outstanding ten years after the adoption of
the Plan may be exercised within the periods prescribed under or pursuant to the Plan.
81
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT [This Page Intentionally Left Blank]
EXHIBIT B
REPORT OF AUDIT COMMITTEE
February 21, 2019
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, 2018.
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, 2018.
Ronald H. Spair, Chair
Albert Morrison III, Vice Chair
Denise L. Devine
George W. Hodges
Ernest J. Waters
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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT [This Page Intentionally Left Blank]
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, 2018,
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
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2.8 billion. The number
of shares of the registrant’s Common Stock outstanding on February 15, 2019 was 169,884,000.
Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on May 21, 2019 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
33
33
34
38
40
70
75
76
77
78
79
80
134
135
137
138
138
138
139
139
139
139
139
140
142
142
144
2
PART I
Item 1. Business
General
Fulton Financial 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 this
Report, "the Corporation" refers to Fulton Financial Corporation and its subsidiaries that are consolidated for financial reporting
purposes, except that when referring to Fulton Financial Corporation as a public company, as a bank holding company or as a
financial holding company, or to the common stock or other securities issued by Fulton Financial Corporation, references to "the
Corporation" refer just to Fulton Financial Corporation. References to "the Parent Company" refer just to Fulton Financial
Corporation. 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 four community
banks and eight non-bank entities. As of December 31, 2018, the Corporation had approximately 3,500 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 2018 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 four 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 begun the process of consolidating its
bank subsidiaries, having consolidated two of its bank subsidiaries into its largest bank subsidiary, Fulton Bank, N.A., during
2018. 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 consolidate its brands and reduce the number of government agencies that regulate
the Corporation's banking operations. The completion of this consolidation process depends, in part, on Fulton Financial
Corporation and its bank subsidiary, Lafayette Ambassador Bank, demonstrating that certain deficiencies in the 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, and the corresponding requirements of the regulatory enforcement
order issued to Fulton Financial Corporation and Lafayette Ambassador Bank by the Board of Governors of the Federal Reserve
System, have been satisfactorily remediated. See Item 1A. "Risk Factors - Legal, Compliance and Reputational Risks - The
Corporation has begun the process of consolidating its bank subsidiaries, which will result in significant implementation costs in
2019" and "Risk Factors - Legal, Compliance and Reputational Risks - Failure to comply with the BSA, the Patriot Act and related
anti-money laundering requirements could subject the Corporation to enforcement actions, fines, penalties, sanctions and other
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 is 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 the Corporation. 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 - The composition of the Corporation’s loan portfolio and competition 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
3
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 $55.0 million as of December 31, 2018, which is significantly below the Corporation’s regulatory lending limit. In addition,
the Corporation 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, 2018:
Subsidiary
Fulton Bank, N.A.
Fulton Bank of New Jersey
The Columbia Bank
Lafayette Ambassador Bank
Main Office
Location
Lancaster, PA
Mt. Laurel, NJ
Columbia, MD
Bethlehem, PA
Total
Assets
Total
Deposits
(dollars in millions)
$
$
12,563
4,182
2,540
1,579
9,641
3,585
1,899
1,339
Branches (1)
122
61
31
20
234
(1) Remote service facilities (mainly stand-alone automated teller machines) are excluded. See additional information in Item 2. "Properties."
Non-Bank Subsidiaries
Fulton Financial 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.
Fulton Financial 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, 2018:
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
4
Competition
The banking and financial services industries are highly competitive. Within its geographic region, the Corporation faces direct
competition from other commercial banks, varying in size from local community banks to regional and national banks, credit
unions and non-bank entities. As a result of the wide availability of electronic delivery channels, the Corporation also faces
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 faces increased competition from certain non-bank entities, such as financial technology
companies and marketplace lenders, which in many cases are not 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
As of December 31, 2018, the Corporation’s banking subsidiaries maintained 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, 2018). The
following table summarizes information about the counties in which the Corporation has branch offices and its market position
in each county:
State
County
PA
Berks.....................
PA
Bucks....................
PA
Centre ...................
PA
Chester..................
PA
Columbia ..............
PA
Cumberland ..........
PA
Dauphin ................
PA
Delaware...............
PA
Lancaster ..............
PA
Lebanon ................
PA
Lehigh...................
PA
Lycoming..............
PA
Montgomery .........
PA
Montour................
PA
Northampton.........
PA
Northumberland ...
PA
Schuylkill .............
PA
Snyder...................
PA
Union....................
York......................
PA
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
(2019 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
%
No. of Financial
Institutions
Deposit Market Share
(June 30, 2018) (1)
17
34
16
28
6
17
17
26
22
11
21
12
38
6
18
18
13
8
9
15
21
17
26
29
24
7
16
19
28
18
11
12
21
21
11
22
17
29
6
15
4
11
13
21
14
6
18
13
43
3
18
4
7
1
5
18
31
5
14
23
28
4
7
10
28
28
4
8
22
20
7
9
7
14
10
13
5
10
6
27
1
1
7
14
28
2
3
7
10
2
4
3
12
3
19
11
18
2
15
4
20
22
2
10
14
10
13
2
3.8%
1.9%
2.8%
3.1%
4.0%
2.1%
5.3%
0.3%
26.8%
31.2%
4.6%
1.0%
0.2%
20.7%
12.8%
6.2%
4.3%
25.8%
8.1%
11.7%
1.2%
9.2%
0.7%
0.4%
0.9%
15.0%
1.0%
8.1%
0.6%
0.5%
19.9%
2.3%
1.1%
2.4%
1.9%
13.0%
420,000 Fulton Bank, N.A.
630,000 Fulton Bank, N.A.
164,000 Fulton Bank, N.A.
523,000 Fulton Bank, N.A.
66,000 Fulton Bank, N.A.
151,000 Fulton Bank, N.A.
278,000 Fulton Bank, N.A.
566,000 Fulton Bank, N.A.
548,000 Fulton Bank, N.A.
141,000 Fulton Bank, N.A.
370,000 Lafayette Ambassador Bank
113,000 Fulton Bank, N.A.
1,074,000 Fulton Bank, N.A.
18,000 Fulton Bank, N.A.
305,000 Lafayette Ambassador Bank
91,000 Fulton Bank, N.A.
141,000 Fulton Bank, N.A.
41,000 Fulton Bank, N.A.
44,000 Fulton Bank, N.A.
449,000 Fulton Bank, N.A.
564,000 Fulton Bank, N.A.
232,000 Fulton Bank, N.A.
580,000 The Columbia Bank
836,000 The Columbia Bank
607,000 The Columbia Bank
103,000 The Columbia Bank
256,000 The Columbia Bank
328,000 The Columbia Bank
832,000 The Columbia Bank
920,000 The Columbia Bank
151,000 The Columbia Bank
268,000 Fulton Bank of New Jersey
448,000 Fulton Bank of New Jersey
510,000 Fulton Bank of New Jersey
253,000 Fulton Bank of New Jersey
293,000 Fulton Bank of New Jersey
6
State
Population
(2019 Est.)
Banking Subsidiary
Banks/
Thrifts
Credit
Unions
Rank
%
No. of Financial
Institutions
Deposit Market Share
(June 30, 2018) (1)
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
NJ
VA
VA
VA
VA
VA
VA
VA
125,000 Fulton Bank of New Jersey
376,000 Fulton Bank of New Jersey
848,000 Fulton Bank of New Jersey
626,000 Fulton Bank of New Jersey
501,000 Fulton Bank of New Jersey
604,000 Fulton Bank of New Jersey
62,000 Fulton Bank of New Jersey
337,000 Fulton Bank of New Jersey
107,000 Fulton Bank of New Jersey
245,000 Fulton Bank, N.A.
1,155,000 Fulton Bank, N.A.
330,000 Fulton Bank, N.A.
42,000 Fulton Bank, N.A.
180,000 Fulton Bank, N.A.
230,000 Fulton Bank, N.A.
453,000 Fulton Bank, N.A.
16
25
43
25
35
19
6
25
12
13
36
22
12
12
15
15
8
30
44
18
31
11
5
18
7
11
35
18
4
9
15
16
10
17
30
24
14
15
1
9
5
9
40
22
8
15
14
10
2.5%
0.8%
0.3%
0.7%
1.4%
1.3%
30.6%
2.4%
7.5%
2.0%
—%
0.8%
2.2%
0.4%
0.2%
1.5%
County
Hunterdon.............
Mercer ..................
Middlesex .............
Monmouth ............
Morris ...................
Ocean....................
Salem....................
Somerset ...............
Warren ..................
Chesapeake City ...
Fairfax ..................
Henrico .................
Manassas ..............
Newport News......
Richmond City .....
Virginia Beach......
(1) Deposit market share information is compiled as of June 30 of each year by the Federal Deposit Insurance Corporation ("FDIC").
Supervision and Regulation
The Corporation operates in an industry that is subject to laws and regulations that are enforced by a number of federal and state
agencies. Changes in these laws and regulations, including interpretation and enforcement activities, could impact the cost of
operating in the financial services industry, limit or expand permissible activities or affect competition among banks and other
financial institutions.
The Corporation is a registered financial holding company 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
Primary Regulator(s)
OCC
NJ/FDIC
MD/FDIC
PA/Federal Reserve
OCC - Office of the Comptroller of the Currency
Federal statutes that apply to the Corporation and its subsidiaries include the GLB Act, the 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 is 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 and 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, exceeded the $10 billion threshold, 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.
The Economic Growth, Regulatory Relief, and Consumer Protection Act - On May 24, 2018, the President signed into law the
Economic Growth, Regulatory Relief, and Consumer Protection Act (“Economic Growth Act”), which repealed or modified several
important provisions of the Dodd-Frank Act. Among other things, the Economic Growth Act raises the total asset thresholds to
$250 billion for Dodd-Frank Act annual company-run stress testing, leverage limits, liquidity requirements, and resolution planning
requirements for bank holding companies, subject to the ability of the Federal Reserve Board to apply such requirements to
institutions with assets of $100 billion or more to address financial stability risks or safety and soundness concerns. On July 6,
2018, the Federal Reserve Board, the OCC and the FDIC issued a joint interagency statement regarding the impact of the Economic
Growth Act. As a result of this statement and the Economic Growth Act, the Corporation is no longer subject to Dodd-Frank Act
stress testing requirements. On December 18, 2018, the OCC published a notice of proposed rulemaking to amend the OCC’s
stress testing rule to implement the revised stress testing asset threshold.
The Economic Growth Act also enacted several important changes in some technical compliance areas, for which the banking
agencies issued certain corresponding proposed and interim final rules, including:
•
Prohibiting federal banking regulators from imposing higher capital standards on High Volatility Commercial Real Estate
("HVCRE") exposures unless they are for acquisition, development or construction ("ADC"), and clarifying ADC status;
• Requiring the federal banking agencies to develop a community bank leverage ratio of between 8 and 10 percent and providing
that community banking organizations that have less than $10 billion in total consolidated assets, meet risk-based qualifying
criteria, and comply with the new community bank leverage ratio framework will be deemed to have satisfied the otherwise
applicable regulatory capital requirements;
• Requiring the federal banking agencies to develop a rule to reduce regulatory reporting burden on small institutions of less
than $5 billion in total consolidated assets by expanding the number of regulated institutions eligible for streamlined reporting;
• Requiring the federal banking agencies to develop a rule to permit insured depository institutions with up to $3 billion in total
assets, and that meet certain other criteria, to qualify for an 18-month on-site examination cycle;
• Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than
•
$400,000;
Providing that reciprocal deposits are not treated as brokered deposits in the case of a "well capitalized" institution that received
a "outstanding" or "good" rating on its most recent examination to the extent the amount of such deposits does not exceed the
lesser of $5 billion or 20% of the bank’s total liabilities;
• Directing the Consumer Financial Protection Bureau to provide guidance on the applicability of the TILA-RESPA Integrated
Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which
lenders can rely on model disclosures that do not reflect recent regulatory changes; and
• Excluding community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5
percent or less of total consolidated assets from the restrictions of the Volcker Rule.
8
Given the varying asset sizes of the Corporation's subsidiary banks, only those below the applicable asset thresholds will be able
to benefit from the corresponding community bank relief provided by the Economic Growth Act. To the extent the Corporation
is successful in consolidating its subsidiary banks, the benefits afforded to community banks under the applicable asset thresholds
will no longer be available.
Stress Testing - As part of the regulatory relief provided by the Economic Growth Act, the asset threshold requiring insured
depository institutions to conduct and report to their primary federal bank regulators annual company-run stress tests was raised
from $10 billion to $250 billion in total consolidated assets and makes the requirement "periodic" rather than annual. The
amendments also provide the Federal Reserve Board with discretion to subject bank holding companies with more than $100
billion in total assets to enhanced supervision. Notwithstanding these amendments, the federal banking agencies indicated through
interagency guidance that the capital planning and risk management practices of institutions with total assets less than $100 billion
would continue to be reviewed through the regular supervisory process. Although the Corporation will continue to monitor and
stress test its capital consistent with the safety and soundness expectations of the federal regulators, the Corporation will no longer
conduct company-run stress testing as a result of the legislative amendments.
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,
the Corporation is 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. The Corporation's bank subsidiaries are cooperating with an investigation
by the DOJ regarding potential violations of fair lending laws. See "Note-17 Commitments and Contingencies - Legal Proceedings,"
in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." Failure to comply
with these and similar statutes and regulations can result in the Corporation 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.
9
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
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. 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.
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. In July 2018, the five federal financial regulatory agencies
published a joint notice of proposed rulemaking that would simplify and tailor compliance requirements relating to the Volcker
Rule. The proposed changes are intended to streamline the rule by eliminating or modifying requirements that are not necessary
to effectively implement the statute, while maintaining the core principles of the Volcker Rule as well as the safety and soundness
of banking entities. Specifically, the proposal requested comment on narrowing the definition of what is a covered fund that a
bank cannot sponsor or invest in, and broadening the "Super 23 A" exemptions to match those in the Federal Reserve Board’s
Regulation W. In addition, in December 2018 pursuant to the Economic Growth Act, the five federal financial regulatory agencies
invited public comment on a proposal that would exclude community banks with $10 billion or less in total consolidated assets
and total trading assets and liabilities of five percent or less of total consolidated assets from the restrictions of the Volcker Rule.
Due to the asset threshold under the proposal, this relief would only benefit Fulton Bank of New Jersey, The Columbia Bank, and
Lafayette Ambassador Bank. The Corporation 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 the Corporation's compliance
10
burdens. If adopted, the regulations may affect the Corporation in the future by reducing some compliance costs, and expanding
opportunities, but the Corporation may experience some costs in developing and implementing changes in conformance with the
rules once finalized.
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 were fully phased in as of 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.
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.
As fully phased in as of January 1, 2019, the Corporation and its bank subsidiaries are 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
11
Corporation to retain key personnel. As of December 31, 2018, 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, the Corporation anticipates 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
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, therefore,
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.
In addition, the Economic Growth Act provides certain capital relief. First, it requires the development a simple measure of capital
adequacy for certain community banking organizations that have less than $10 billion in total consolidated assets. In November
of 2018, the federal banking agencies issued a proposed rule that would establish the community bank leverage ratio at 9 percent.
Second, it prohibits the federal banking agencies from requiring the subsidiary banks to assign a heightened risk weight to certain
HVCRE ADC loans as previously required under the U.S. Basel III Capital Rules.
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In June 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standard update, "Financial Instruments-
Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaces the current "incurred loss"
model for recognizing credit losses with an "expected loss" model referred to as the Current Expected Credit Loss ("CECL")
model. Under the CECL model, the Corporation will be required to present certain financial assets carried at amortized cost, such
as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of
expected credit losses is to be based on information about past events, including historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount. On December 21, 2018, the federal
banking agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a period
of three years the day-one regulatory capital effects of the CECL model. The final rule also revises the agencies’ other rules to
reflect the update to the accounting standards. The final rule will take effect April 1, 2019. The new CECL standard will become
effective for the Corporation for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.
The Corporation is currently evaluating the impact the CECL model will have on its financial statements, but expects to recognize
a one-time cumulative-effect adjustment to the allowance for credit losses as of the beginning of the first reporting period in which
the new standard is adopted, or January 1, 2020 for the Corporation. The Corporation also expects to incur both transition costs
and ongoing costs in developing and implementing the CECL methodology.
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, 2018, 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 Parent Company 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 Parent Company 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.
13
On April 1, 2011, as required by the Dodd-Frank Act, the deposit insurance assessment base changed from total domestic deposits
to average total assets, minus average tangible equity. In addition, the FDIC also created a two scorecard system, one for large
depository institutions that have $10 billion or more in assets and another for highly complex institutions that have $50 billion or
more in assets. As of 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 2019 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 September 30, 2018, the DIF reserve ratio reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of
1.35 percent ahead of the September 30, 2020, deadline required under the Dodd-Frank Act. FDIC regulations provide that, upon
reaching the minimum, surcharges on insured depository institutions with total consolidated assets of $10 billion or more will
cease. The last quarterly surcharge was reflected in Fulton Bank’s December 2018 assessment invoice, which covered the assessment
period from July 1 through September 30. March 2019 assessment invoices, which covers the assessment period from October 1,
2018, through December 31, 2018, no longer will include a quarterly surcharge.
Assessment rates, which declined for all banks when the reserve ratio first surpassed 1.15 percent in the third quarter of 2016, are
expected to remain unchanged. Assessment rates are scheduled to decrease when the reserve ratio exceeds 2 percent.
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.
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, effective May 2018, 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
14
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 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).
The Parent Company and its banking subsidiary, Lafayette Ambassador Bank, are currently subject to a regulatory enforcement
order (the "Consent Order") issued by the Federal Reserve Board 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 Order requires, among other things, that the Parent
Company and Lafayette Ambassador Bank review, assess and take actions to strengthen and enhance the BSA/AML Compliance
Program, and 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 - "Failure to comply with the BSA, the Patriot Act and related anti-money laundering requirements could
subject the Corporation to enforcement actions, fines, penalties, sanctions and other 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 of 1977 ("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, 2018,
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
15
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
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 $16.3 million and $124.2 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 $124.2 million. The first $16.3 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.
16
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.
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 Riegle-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.
Pursuant to the Dodd Frank Act, national and state-chartered banks may open an initial branch in a state other than its home state
(e.g., a host state) by establishing a de novo branch at any location in such host state at which a bank chartered in such host state
could establish a branch. Applications to establish such branches must still be filed with the appropriate primary federal regulator.
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.
17
Executive Officers
The executive officers of the Corporation are as follows:
Name
E. Philip Wenger
Age (1)
61
Mark R. McCollom
54
Curtis J. Myers
50
David M. Campbell
57
Beth Ann L. Chivinski
58
Meg R. Mueller
Angela M. Sargent
Angela M. Snyder
54
51
54
Daniel R. Stolzer
62
Bernadette M. Taylor
57
(1) As of December 31, 2018
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 Chief Financial Officer of the Corporation since March
of 2018. Mr. McCollom joined the Corporation in November 2017 as Senior Executive Vice
President and Chief Financial Officer Designee. Before joining the corporation he was a
Senior Managing Director, Chief Administrative Officer and COO of Griffin Financial
Group, LLC. 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. Chairman
and Chief Executive Officer of Fulton Bank, N.A. since May 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 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.
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 later served as deputy general counsel at KeyCorp and chief counsel special projects
at PNC Financial Services Group, Inc. 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 or in interest rates; high unemployment; governmental fiscal and
monetary policies; the level of, or changes in, prices of raw materials, goods or commodities; global economic conditions and
trade policies; geopolitical events; natural disasters; acts of war or terrorism; 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, which is recorded as a reduction to loans on the consolidated
balance sheet, and the reserve for unfunded lending commitments, which is included in other liabilities on the consolidated balance
sheet. While the Corporation believes that its allowance for credit losses as of December 31, 2018 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 credit losses represents management's estimate of losses inherent in the loan portfolio as of the balance sheet
date. 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 for credit losses, 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."
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The composition of the Corporation's loan portfolio and competition subject the Corporation to credit risk.
Approximately 73% of the Corporation's loan portfolio was in commercial loans, commercial mortgage loans, and construction
loans at December 31, 2018. 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 governmental regulation.
After having risen significantly in recent years, the pace of commercial real estate price appreciation slowed during 2018.
Capitalization rates, which measure annual income relative to prices for recently transacted properties, have been falling, even as
yields on U.S. Treasury securities increased through much of 2018. As a result, the returns to commercial real estate investors
reflect a relatively low premium over very safe alternative investments, which may limit further appreciation of, or create downward
pressure on, commercial real estate prices. 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,
could 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
76% of total revenues in 2018. In recent years, as the general level of short-term interest rates has increased, the Corporation's net
interest margin, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings,
has increased, contributing to growth in the Corporation's net interest income. During this period of rising interest rates, increased
competition for deposits has caused the interest rates paid on interest-bearing deposits to increase by a larger amount than in the
recent past, for any given increase in market interest rates, causing growth in the Corporation's net interest margin to moderate.
The January 2019 statement issued by the Federal Open Market Committee (the "FOMC") of the Federal Reserve Board indicated
that the FOMC will be "patient" as it determines future adjustments to the target range for the federal funds rate, which has caused
some research analysts and economists to expect that, after increasing the target range for the federal funds rate seven times in
the past two years, the FOMC may slow or defer further increases in the federal funds rate. The federal funds rate significantly
influences the general level of short-term interest rates. The Corporation's ability to continue to expand its net interest margin may
be challenged if the general level of short-term interest rates does not increase.
In the event that the general level of interest rates declines, the net interest margin may come under pressure as interest-earning
assets, such as loans and investments, are 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, may also decline, the decline
may not occur 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
20
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.
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. If a determination is made that a decline is other-than-temporary, an other-than-temporary
impairment charge is recorded.
The planned phasing out of LIBOR as a financial benchmark presents risks to the financial instruments originated or held
by the Corporation.
The London Interbank Offered Rate ("LIBOR") is the reference rate used for many of the Corporation's transactions, including
variable and adjustable rate loans, derivative contracts, borrowings and other financial instruments. However, a reduced volume
of interbank unsecured term borrowing coupled with recent legal and regulatory proceedings related to rate manipulation by certain
financial institutions has led to international reconsideration of LIBOR as a financial benchmark. The United Kingdom Financial
Conduct Authority ("FCA"), which regulates the process for establishing LIBOR, announced in July 2017 that the sustainability
of LIBOR cannot be guaranteed. Accordingly, the FCA intends to stop persuading, or compelling, banks to submit to LIBOR after
2021. Until such time, however, FCA panel banks have agreed to continue to support LIBOR. It is impossible to predict what
benchmark rate(s) may replace LIBOR or how LIBOR will be determined for purposes of financial instruments that are currently
referencing LIBOR if, and when, it ceases to exist. The uncertainty surrounding potential reforms, including the use of alternative
reference rates and changes to the methods and processes used to calculate rates, may have an adverse effect on the trading market
for LIBOR-based securities, loan yields, and the amounts received and paid on derivative contracts and other financial instruments.
In addition, the implementation of LIBOR reform proposals may result in increased compliance and operational costs.
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. 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. 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.
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."
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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 Corporation, 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 12% of total deposits at December 31, 2018. 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
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. Advances in technology, such as online banking,
mobile banking, digital payment platforms and the acceleration of financial technology innovation, have also made it easier to
move money, potentially causing customers to switch financial institutions or switch to non-bank competitors. 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
informal or formal regulatory enforcement actions against the Corporation or its bank subsidiaries. Other negative consequences
22
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. See "The recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act did not eliminate
many of the aspects of the Dodd Frank Act that have increased the Corporation's compliance costs, and remains subject to further
rulemaking." in these Risk Factors.
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.
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 an example of such limitations, the regulatory enforcement order to which the Parent Company and its bank
subsidiary, Lafayette Ambassador Bank, are subject imposes certain restrictions on the expansion activities of the Parent Company
and Lafayette Ambassador Bank.
The Corporation has begun the process of consolidating its bank subsidiaries, which will result in significant implementation
costs in 2019.
The Corporation has four bank subsidiaries, and the Corporation and its subsidiaries are subject to regulation by multiple 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 begun the process of consolidating its bank subsidiaries, having consolidated two of its bank subsidiaries
into its largest bank subsidiary, Fulton Bank, during 2018. 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 completion of this consolidation process depends,
in part, on the Parent Company and Lafayette Ambassador Bank demonstrating that certain deficiencies in the BSA/AML
Compliance Program, and the corresponding requirements of the regulatory enforcement order described below, have been
satisfactorily remediated. The consolidation of the Corporation's bank subsidiaries will result in significant implementation costs.
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.
Failure to comply with the BSA, the Patriot Act and related anti-money laundering requirements could subject the Corporation
to enforcement actions, fines, penalties, sanctions and other remedial actions.
The BSA/AML Requirements mandate that financial institutions develop programs to prevent financial institutions from being
used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file Suspicious
Activity Reports with the U.S. Department of the Treasury's Financial Crimes Enforcement Network. These rules require financial
institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts,
as well as a customer's beneficial owners.
During 2014 and 2015, the Parent Company and each of its bank subsidiaries became subject to regulatory enforcement orders
issued by their respective Federal and state bank regulatory agencies relating to identified deficiencies in the BSA/AML Compliance
Program, which was designed to comply with the BSA/AML Requirements. While the majority of these enforcement orders have
23
since been terminated, as mentioned above, the Parent Company and Lafayette Ambassador Bank remain subject to a Cease and
Desist Order Issued Upon Consent (the "Consent Order") issued by the Federal Reserve Board. While the Consent Order remains
in effect, the Parent Company and Lafayette Ambassador Bank are subject to certain restrictions on expansion activities, such as
growth through acquisition or branching to supplement organic growth. Further, any failure to comply with the requirements of
the Consent Order could result in further enforcement action, 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 in recent years 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 Order, 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 Order, some counterparties may not be permitted to, due to their internal policies, or
may choose not to do business with the Corporation or one or more of 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 Order will be terminated, or that the BSA/AML Compliance Program will be effective in
preventing violations of the BSA/AML Requirements.
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 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 it deems to be 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 recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act did not eliminate many of the aspects
of the Dodd Frank Act that have increased the Corporation's compliance costs, and remains subject to further rulemaking.
The Economic Growth Act represents modest reform to the regulation of the financial services industry primarily through certain
amendments of the Dodd-Frank Act. Many of the provisions are intended to benefit community banks with assets less than $10
billion. The Corporation's subsidiary banks with asset levels below the applicable thresholds may be able to benefit from
24
corresponding community bank relief provided by the Economic Growth Act, such as the community bank leverage ratio, reducing
the regulatory reporting burden, and permitting an 18-month on-site examination cycle. However, many provisions of the Dodd-
Frank Act that have increased the Corporation's compliance costs, such as the Volcker Rule, the Durbin amendment restricting
interchange fees, and the additional supervisory authority of the CFPB, remain in place for the Corporation's largest bank subsidiary,
Fulton Bank. Further, to the extent the Corporation is successful in consolidating all of its subsidiary banks into one bank, the
benefits afforded under the Economic Growth Act to the Corporation's smaller subsidiary banks would be eliminated.
Certain of the provisions amended by the Economic Growth Act took effect immediately, while others are subject to ongoing joint
agency rulemakings. It is not possible to predict when any final rules would ultimately be issued through any such rulemakings,
and what the specific content of such rules will be. Although the Corporation expects to benefit from many aspects of this legislative
reform, the legislation and any implementing rules that are ultimately issued could have adverse implications on the financial
industry, the competitive environment, and the Corporation's ability to conduct business. In addition, the federal banking agencies
indicated through interagency guidance that the capital planning and risk management practices of institutions with total assets
less than $100 billion would continue to be reviewed through the regular supervisory process, which may offset the impact of the
Economic Growth Acts changes regarding stress testing and risk management.
The financial services industry is experiencing leadership changes at the federal banking agencies, and in Congress, which
may impact regulations and government policies applicable to the Corporation.
The federal banking agencies have experienced leadership changes, which could impact the supervision, enforcement and
rulemaking policies of those agencies. In 2017 and 2018, Congress confirmed a new Chairman of the Federal Reserve Board, a
new Vice Chairman for Supervision at the Federal Reserve Board, a new Comptroller of the Currency, a new Chairwoman of the
FDIC and a new Director of the CFPB. 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. As a result of these changes, and political
and economic trends, certain new regulatory initiatives may be delayed or suspended and existing regulations may be re-evaluated,
modified or repealed. In November 2018, the Democrats became the majority party of the U.S. House of Representatives and
assumed leadership of the House Committee on Financial Services. At this time, the full impact of these 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, its competitors and on the financial services
industry as a whole. The Corporation's 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 the Corporation's financial performance.
The Corporation is subject to changes in tax law that could increase the Corporation's effective tax rates. These law changes may
be retroactive to previous periods and as a result could negatively affect the Corporation's current and future financial performance.
In December 2017, 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 Tax Act reduced the Corporation's Federal corporate income tax rate
to 21% beginning in 2018. However, the Tax Act also imposed limitations on the Corporation's ability to take certain deductions,
such as the deduction for FDIC deposit insurance premiums, which will partially offset the anticipated increase in net income
from the lower tax rate.
In addition, the Corporation's customers are likely to experience varying effects from both the individual and business tax provisions
of the Tax Act and such effects, whether positive or negative, may have a corresponding impact on the Corporation's business and
the economy as a whole. Furthermore, 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
25
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 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 has been
named or threatened to be named as defendant in various lawsuits arising from its business activities (and in some cases from the
activities of companies that were acquired). In addition, the Corporation is regularly the subject of governmental investigations
and other forms of regulatory or governmental inquiry. For example, the Corporation is cooperating with the DOJ in an investigation
regarding potential violations of the fair lending laws by its bank subsidiaries, and is responding to an investigation by the staff
of the Division of Enforcement of the U.S. Securities and Exchange Commission regarding certain accounting determinations that
could have impacted the Corporation's reported earnings per share. 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 lawsuits, investigations, inquiries and other matters could lead to administrative, civil or criminal
proceedings, or result in adverse judgments, settlements, fines, penalties, restitution, injunctions or other types of sanctions, or
the need for the Corporation to undertake remedial actions, or to alter its business, financial or accounting practices. Substantial
legal liability or significant regulatory actions against the Corporation could materially adversely affect the Corporation's business,
financial condition or results of operations and/or cause significant reputational harm. The Corporation establishes reserves for
legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. For matters
where a loss is not probable, or the amount of the loss cannot be reasonably estimated by the Corporation, no loss reserve is
established. However, the Corporation may still incur legal costs for a matter, even if a reserve has not been established.
Currently, the Parent Company and Lafayette Ambassador Bank are subject of a regulatory proceeding in the form of the Consent
Order described above. The Corporation can provide no assurance as to the outcome or resolution of legal or administrative actions
or investigations, and such actions and investigations may result in judgments against the Corporation for significant damages or
the imposition of regulatory restrictions on the Corporation's 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.
STRATEGIC AND EXTERNAL RISKS.
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 interest rate environment, it may become more difficult for the Corporation to further increase its net interest
margin or its net interest margin may come under downward pressure. 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; and
• The Corporation may seek to supplement organic growth through acquisitions, but may not be able to identify suitable
acquisition opportunities, obtain the required regulatory approvals or successfully integrate acquired businesses.
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. Sustainable growth requires that the
Corporation manage risks by balancing loan and deposit growth at acceptable levels of risk, maintaining adequate liquidity and
capital, hiring and retaining qualified employees, successfully managing the costs and implementation risks with respect to strategic
projects and initiatives, and integrating acquisition targets while managing costs. 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.
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The Corporation faces a variety of risks in connection with completed and potential acquisitions.
The Corporation may seek to supplement organic growth through acquisitions of banks or branches, or other financial businesses
or assets. Acquiring other banks, branches, financial businesses or assets involves a variety of risks commonly associated with
acquisitions, including, among other things:
• The possible loss of key employees and customers of the acquired business;
Potential disruption of the acquired business and the Corporation's business;
•
Potential changes in banking or tax laws or regulations that may affect the acquired business including, without limitation,
•
liabilities for regulatory and compliance issues;
• Exposure to potential asset quality issues of the acquired business;
•
•
Potential exposure to unknown or contingent liabilities of the acquired business; and
Potential difficulties in integrating the acquired business, resulting in the diversion of resources from the operation of
the Corporation's existing businesses.
Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of the
Corporation's tangible book value and net income per common share may occur in connection with any future transaction. Failure
to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits
from an acquisition could have a material adverse effect on the Corporation's business, financial condition and results of operations.
In addition, the Corporation faces significant competition from other financial services institutions, some of which may have
greater financial resources than the Corporation, when considering acquisition opportunities. Accordingly, attractive opportunities
may not be available and there can be no assurance that the Corporation will be successful in identifying, completing or integrating
future acquisitions.
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 or records in the future 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. In the future, the Corporation may seek to supplement organic growth through additional acquisitions. 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, 2018, 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.
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Changes in accounting policies, standards, and interpretations could materially affect how the Corporation reports its 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."
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." On December 21, 2018, the bank regulatory agencies approved a final rule modifying the agencies' regulatory capital
rules and providing an option to phase in over a period of three years the day-one regulatory capital effects of adoption of the
CECL model. The final rule also revises the agencies' other rules to reflect the update to the accounting standards. The final rule
will take effect April 1, 2019. The new CECL standard will become effective for the Corporation for fiscal years beginning after
December 15, 2019 and for interim periods within those fiscal years. The Corporation is currently evaluating the impact the CECL
model will have on its financial statements, but expects to recognize a one-time cumulative-effect adjustment to the allowance
for credit losses as of the beginning of the first reporting period in which the new standard is adopted, or January 1, 2020 for the
Corporation. The Corporation also expects to incur both transition costs and ongoing costs in developing and implementing the
CECL methodology. The Corporation cannot yet determine the magnitude of any such one-time cumulative adjustment or of the
overall impact of the new standard on its financial condition or results of operations. 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, borrowers or guarantors, 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.
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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 or results of operations, and damage its reputation. Further, third-
party vendor risk management has become a point of regulatory emphasis recently. A failure of the Corporation to follow applicable
regulatory guidance in this area could expose the Corporation to regulatory sanctions.
The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, execution of
transactions or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one
institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This risk is
sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing
houses, banks, securities firms and exchanges, with which the Corporation interacts on a daily basis, and therefore could adversely
affect the Corporation.
Any of these operational or other risks could result in the Corporation's diminished ability to operate one or more of its businesses,
financial loss, potential liability to customers, inability to secure insurance, reputational damage and regulatory intervention, which
could materially adversely affect the Corporation.
The Corporation's internal controls may be ineffective.
One critical component of the Corporation's risk management framework is its system of internal controls. Management regularly
reviews and updates the Corporation's internal controls, disclosure controls and procedures, and corporate governance policies
and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can
provide reasonable, but not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of the
Corporation's controls and procedures or failure to comply with regulations related to controls and procedures could have a material
adverse effect on the Corporation's business, results of operations, financial condition and reputation. See Item 9A. "Controls and
Procedures."
Loss of, or failure to adequately safeguard, confidential or proprietary information may adversely affect the Corporation's
operations, net income or reputation.
The Corporation's business is highly dependent on information systems and technology and the ability to collect, process, transmit
and store significant amounts of confidential information regarding customers, employees and others on a daily basis. While the
Corporation performs some of the functions required to operate its business directly, it also outsources significant business functions,
such as processing customer transactions, maintenance of customer-facing websites, including its online and mobile banking
functions, 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 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 personnel who focus a substantial portion of their
responsibilities on cyber security.
29
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 other negative consequences, such as the loss of, or inability to access, data,
degradation or denial of service and introduction of computer viruses. 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 the Corporation's ability to function would have a material adverse effect on the Corporation's
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.
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.
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
30
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.
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 became 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, 2018, 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."
In addition, although Fulton Bank of New Jersey, The Columbia Bank, and Lafayette Ambassador Bank may benefit from the
proposed community bank leverage ratio, such benefit would not be available to the Corporation or Fulton Bank. 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 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.
Fulton Financial 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. The Federal
Reserve Board recently has expressed its position that all stock repurchase programs by a bank holding company require the prior
approval of the Federal Reserve Board. To the extent the Federal Reserve Board maintains this position, the Corporation may not
be able to enter the market for stock repurchases on a timely basis when the Corporation's board of directors and management
believe such repurchases to be most opportune, or at all.
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 the Corporation's access to or increase its cost of capital.
Anti-takeover provisions could negatively impact the Corporation's shareholders.
Provisions of banking laws, Pennsylvania corporate law and of the Corporation's Amended and Restated Articles of Incorporation
and Bylaws could make it more difficult for a third party to acquire control of the Corporation or have the effect of discouraging
a third party from attempting to acquire control of the Corporation. To the extent that these provisions discourage such a transaction,
holders of the Corporation's common stock may not have an opportunity to dispose of part or all of their stock at a higher price
than that prevailing in the market. These provisions may also adversely affect the market price of the Corporation's stock. In
addition, some of these provisions make it more difficult to remove, and thereby may serve to entrench, the Corporation's incumbent
directors and officers, even if their removal would be regarded by some shareholders as desirable.
Certain provisions of Pennsylvania corporate law applicable to the Corporation and the Corporation's Amended and Restated
Articles of Incorporation and Bylaws include provisions which may be considered to be "anti-takeover" in nature because they
may have the effect of discouraging or making more difficult the acquisition of control of the Corporation by means of a hostile
tender offer, exchange offer, proxy contest or similar transaction. These provisions are intended to protect the Corporation's
shareholders by providing a measure of assurance that the Corporation's shareholders will be treated fairly in the event of an
unsolicited takeover bid and by preventing a successful takeover bidder from exercising its voting control to the detriment of the
other shareholders. However, these provisions, taken as a whole, may also discourage a hostile tender offer, exchange offer, proxy
32
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, 2018.
Remote service facilities (mainly stand-alone automated teller machines) are excluded.
Subsidiary Bank
Fulton Bank, N.A. ...........................................................................................................
Fulton Bank of New Jersey .............................................................................................
The Columbia Bank.........................................................................................................
Lafayette Ambassador Bank............................................................................................
Total..........................................................................................................................
Owned
Leased
54
34
6
4
98
68
27
25
16
136
Total
Branches
122
61
31
20
234
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 - Commitments and Contingencies" in the Notes to
Consolidated Financial Statements is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
33
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, 2018, the Corporation had 170.2 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, 2019
was $16.91. 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 2018 and 2017:
Price Range
High
Low
Per
Share
Dividend
2018
First Quarter...............................................................................................................
$
19.55
$
17.05
$
Second Quarter ..........................................................................................................
Third Quarter .............................................................................................................
Fourth Quarter ...........................................................................................................
18.02
18.45
17.60
16.50
15.05
14.38
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
0.12
0.12
0.12
0.16
0.11
0.11
0.11
0.14
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."
34
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, 2018:
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)
2,027,261
—
2,027,261
$
$
10.75
—
10.75
12,615,906
—
12,615,906
(1) The number of securities to be issued upon exercise of outstanding options, warrants and rights includes 854,022 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 514,471 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 10,542,693 shares that may be awarded under the Employee Equity Plan, 311,669 shares that may be awarded under the 2011 Directors' Equity
Participation Plan and 1,761,544 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, 2018 as the number of shares to be purchased is indeterminable until the shares are issued.
35
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, 2018, 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
e
u
l
a
V
x
e
d
n
I
200
180
160
140
120
100
80
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
Fulton Financial Corporation
S&P 500
NASDAQ Bank Index
Index
Fulton Financial Corporation..........................
S&P 500..........................................................
NASDAQ Bank Index ....................................
2013
100.00
100.00
100.00
$
$
$
2014
97.14
113.69
111.83
$
$
$
2015
105.34
115.26
114.30
$
$
$
2016
156.46
129.05
144.63
$
$
$
2017
152.80
157.22
171.24
$
$
$
2018
136.33
150.33
143.15
$
$
$
Year Ending December 31
36
Issuer Purchases of Equity Securities
The following table presents the Corporation's monthly repurchases of its common stock during the fourth quarter of 2018:
Period
Total Number of
Shares
Purchased
Average Price
Paid per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
October 1, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018
December 1, 2018 to December 31, 2018
— $
1,884,406
4,111,813
—
16.71
15.49
— $
1,884,406
4,111,813
31,491,674
75,000,000
11,322,254
In November 2017, the Corporation's board of directors approved an extension to 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, 2018. During 2018, the Corporation repurchased approximately 1.9 million
shares under this program for a total cost of approximately $31.5 million, or $16.71 per share, completing this program.
In November 2018, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation
is authorized to repurchase up to $75.0 million of its outstanding shares of common stock, or approximately 2.7% of its outstanding
shares, through December 31, 2019. During 2018, the Corporation repurchased approximately 4.1 million shares under this program
for a total cost of $63.7 million or $15.49 per share. Up to an additional $11.3 million of the Corporation's common stock may be
repurchased under this program through December 31, 2019.
Total commissions and fees paid on stock repurchases in 2018 were $139,000. Under both repurchase programs, repurchased
shares were 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.
37
Item 6. Selected Financial Data
5-YEAR CONSOLIDATED SUMMARY OF FINANCIAL RESULTS
(dollars in thousands, except per-share data)
2018
2017
2016
2015
2014
758,514
128,058
630,456
46,907
37
195,488
—
546,104
232,970
24,577
208,393
SUMMARY OF INCOME
Interest income............................................................. $
Interest expense ...........................................................
Net interest income ......................................................
Provision for credit losses............................................
Investment securities gains, net ...................................
Non-interest income, excluding investment securities
gains.........................................................................
Loss on redemption of trust preferred securities .........
Non-interest expense, excluding loss on redemption
of trust preferred securities ......................................
1.03%
9.24
1.19
1.18
0.52
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................................................................... $ 20,682,152
2,686,973
Investment securities ...................................................
16,165,800
Loans, net of unearned income....................................
16,376,159
Deposits .......................................................................
754,777
Short-term borrowings.................................................
FHLB advances and long-term debt ............................
12.09
3.40
63.8
44.1
Shareholders’ equity ....................................................
AVERAGE BALANCES
Total assets................................................................... $ 20,183,202
2,662,800
Investment securities ...................................................
15,815,263
Loans, net of unearned income....................................
15,832,606
Deposits .......................................................................
785,923
Short-term borrowings.................................................
FHLB advances and long-term debt ............................
992,279
2,247,573
Shareholders’ equity ....................................................
977,573
2,255,764
$
$
$
$
$
$
668,866
93,502
575,364
23,305
9,071
198,903
—
525,579
234,454
62,701
171,753
0.98
0.98
0.47
0.88%
7.83
10.33
3.28
64.5
48.0
$
$
$
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
$ 20,036,905
2,547,956
15,768,247
15,797,532
617,524
1,038,346
2,229,857
$ 19,580,367
2,547,914
15,236,612
15,481,221
533,564
1,034,444
2,193,863
$ 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
(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:
2018
2017
2016
2015
2014
(in thousands, except per share data and percentages)
Return on average tangible equity
Net income ...................................................................... $
208,393
Plus: Intangible amortization, net of tax .........................
—
Numerator .................................................................. $
208,393
$
$
171,753
—
171,753
$
$
161,625
—
161,625
$
$
149,502
161
149,663
$
$
157,894
818
158,712
Average common shareholders' equity............................ $ 2,255,764
$ 2,193,863
$ 2,100,634
$ 2,026,883
$ 2,071,640
Less: Average goodwill and intangible assets.................
(531,556)
Average tangible shareholders' equity (denominator) $ 1,724,208
(531,556)
(531,556)
(531,618)
(532,425)
$ 1,662,307
$ 1,569,078
$ 1,495,265
$ 1,539,215
Return on average tangible equity.............................
12.09%
10.33%
10.30%
10.01%
10.31%
Efficiency ratio
Non-interest expense ....................................................... $
546,104
$
525,579
$
489,519
$
480,160
$
459,246
Less: Amortization of tax credit investments..................
Less: Intangible amortization ..........................................
Less: Loss on redemption of trust preferred securities ...
(11,449)
(11,028)
—
—
—
—
—
—
—
Numerator .................................................................. $
534,655
Net interest income (fully taxable equivalent) (1) ............ $
Plus: Total Non-interest income......................................
642,577
195,525
$
$
514,551
598,565
207,974
$
$
489,519
541,271
190,178
$
$
Less: Investment securities gains, net .............................
(37)
(9,071)
(2,550)
—
(247)
(5,626)
474,287
518,464
181,839
(9,066)
$
$
—
(1,259)
—
457,987
532,322
167,379
(2,041)
Denominator .............................................................. $
838,065
$
797,468
$
728,899
$
691,237
$
697,660
Efficiency ratio .....................................................
63.8%
64.5%
67.2%
68.6%
65.6%
Non-performing assets to tangible equity and allowance for credit losses ("Texas Ratio")
Non-performing assets (numerator) ................................ $
150,196
$
144,582
$
144,453
$
155,913
$
150,504
Tangible equity................................................................ $ 1,716,017
$ 1,698,301
$ 1,589,559
$ 1,510,338
$ 1,464,862
Plus: Allowance for credit losses ....................................
Tangible equity and allowance for credit losses
169,410
176,084
171,325
171,412
185,931
(denominator) .............................................................. $ 1,885,427
Texas Ratio ................................................................
7.97%
$ 1,874,385
$ 1,760,884
$ 1,681,750
$ 1,650,793
7.71%
8.20%
9.27%
9.12%
(1) Presented on a fully taxable equivalent basis, using a 21% federal tax rate for 2018 and 35% for 2014 through 2017.
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 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,
results of operations and business. 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," "projects," the negative of these terms and other comparable terminology. These
forward looking statements may include projections of, or guidance on, the Corporation's future financial performance, expected
levels of future expenses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in the
Corporation’s business or financial results.
Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, they are based on current
beliefs, expectations and assumptions regarding the future of the Corporation's business, future plans and strategies, projections,
anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future,
they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are
outside of the Corporation's control, and actual results and financial condition may differ materially from those indicated in the
forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Any forward-
looking statement is based only on information currently available and speaks only as of the date when made. 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 planned phasing out of LIBOR as a benchmark reference rate;
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, the assessment of fines and penalties, the imposition sanctions and the need to undertake
remedial actions;
the additional time, expense and investment required to comply with, and the restrictions on potential growth and
investment activities resulting from, the existing enforcement order applicable to the Parent Company and its bank
subsidiary, Lafayette Ambassador Bank, issued by the Federal Reserve Board 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 and in Congress, 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;
40
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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, and the
impact of the significant implementation costs the Corporation expects to incur in connection with those
consolidations;
the Corporation’s ability to achieve its growth plans;
completed and potential acquisitions may affect costs and the Corporation may not be able to successfully integrate
the acquired business or realize the anticipated benefits from such acquisitions;
the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;
the Corporation’s ability to manage the level of non-interest expenses, including salaries and employee benefits
expenses, operating risk losses and goodwill impairment;
the 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 four wholly owned banking subsidiaries as of December 31, 2018
that provide a full range of retail and commercial financial services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia.
During 2018, the Corporation consolidated two of its wholly owned banking subsidiaries into its lead bank, Fulton Bank N.A.
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 and off-balance sheet credit risks, non-interest expenses
and income taxes.
41
The following table presents a summary of the Corporation’s earnings and selected performance ratios:
2018
Net income (in thousands) .............................................................................................................. $ 208,393
1.18
Diluted net income per share .......................................................................................................... $
1.03%
Return on average assets.................................................................................................................
9.24%
Return on average equity ................................................................................................................
Return on average tangible equity (1) ..............................................................................................
12.09%
Net interest margin (2) .....................................................................................................................
3.40%
Efficiency ratio (1) ...........................................................................................................................
63.8%
0.73%
Non-performing assets to total assets .............................................................................................
0.34%
Annualized net charge-offs to average loans ..................................................................................
$
$
2017
171,753
0.98
0.88%
7.83%
10.33%
3.28%
64.5%
0.72%
0.12%
(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 21% and 35% Federal tax rate and statutory interest expense disallowances for 2018 and 2017, respectively. 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, 2018:
• Net Income Per Share Growth - Diluted net income per share increased $0.20, or 20.4%, to $1.18 in 2018 compared to
$0.98 in 2017. This increase was due to an increase in net income of $36.6 million, or 21.3%, partially offset by the
impact of a 611,000, or 0.3%, increase in weighted average diluted shares outstanding in comparison to 2017. The increase
in net income was driven by a $55.1 million, or 9.6%, increase in net interest income and a $38.1 million decrease in
income tax expense, mainly as a result of tax reform legislation, partially offset by a $23.6 million increase in the provision
for credit losses, a $3.4 million decrease in non-interest income, a $9.0 million decrease in investment securities gains,
and a $20.5 million, or 3.9%, increase in non-interest expense.
• Net Interest Income Growth - The $55.1 million increase in net interest income resulted from a 12 basis point increase
in the net interest margin, reflecting the impact of multiple increases to the federal funds target rate ("Fed Funds Rate")
by the Federal Reserve Board in 2017 and 2018, and growth in interest-earning assets.
Net Interest Margin - For the year ended December 31, 2018, the net interest margin increased 12 basis points,
or 3.7%, in comparison to 2017, driven by a 29 basis point increase in yields on interest-earning assets, partially
offset by a 22 basis point increase in the cost of interest-bearing liabilities.
Loan Growth - Average loans increased $578.7 million, or 3.8%, in comparison to 2017, with notable increases
in residential and commercial mortgages. The Corporation's loan growth occurred throughout all of its geographic
markets.
Deposit Growth - Average deposits increased $351.4 million, or 2.3%, in comparison to 2017. The increase was
the result of growth in interest-bearing demand and savings accounts, partially offset by decreases in noninterest-
bearing demand and time deposits. At December 31, 2018, the loan-to-deposit ratio was to 98.7%, as compared
to 99.8% at December 31, 2017.
• Provision for Credit Losses - The provision for credit losses increased $23.6 million, to $46.9 million, for the year ended
December 31, 2018. Included in the provision for credit losses for the year ended December 31, 2018 was a $36.8 million
provision related to fraud committed by a single, large commercial relationship ("Commercial Relationship"). Excluding
this loss, the provision for credit losses would have been $10.1 million, or $13.2 million, lower than 2017.
• Non-Interest Income - Non-interest income, excluding securities gains, decreased $3.4 million, or 1.7%, in comparison
to 2017. Non-interest income in 2017 included a $5.1 million litigation settlement gain. In addition, 2018 saw lower
commercial loan interest rate swaps, overdraft fees and small business administration ("SBA") lending income. These
decreases were partially offset by increases in investment management and trust services and merchant fees.
•
Investment Securities Gains - Investment securities gains totaled $37,000 in 2018, as compared to $9.1 million in 2017.
In 2017, gains on the sales of financial institution common stocks of $13.6 million were partially offset by approximately
42
$4.5 million of losses on debt securities sales as a result of repositioning the investment portfolio. The Corporation no
longer holds equity securities in its investment portfolio.
• Non-Interest Expense - Non-interest expense increased $20.5 million, or 3.9%, in comparison to 2017, driven largely by
higher salaries and employee benefits expense, other outside services and data processing and software expenses. Partially
offsetting these increases was a reduction in other expenses, which included a $4.8 million write-off of accumulated
capital expenditures related to in-process technology initiatives in commercial banking in 2017.
•
Income Taxes - Income tax expense for 2018 resulted in an effective tax rate ("ETR") of 10.5%, as compared to 26.7%
for 2017. The decrease in the ETR was primarily a result of the reduction of the U.S. corporate income tax rate following
the passage of the Tax Cuts and Jobs Act of 2017 ("Tax Act"), which lowered the U.S. corporate income tax rate from a
top rate of 35% to a flat rate of 21%. Income tax expense for 2017 also included additional expense of $15.6 million from
the remeasurement of net deferred tax assets as a result of the Tax Act.
The ETR is generally lower than the federal statutory rate for each respective year due to tax-exempt interest income
earned on loans, investments in tax-free municipal securities and investments in community development projects that
generate tax credits under various federal programs.
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, 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. 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.
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 losses 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,
43
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.
• Proper measurement of allowance needs for pools of loans 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, home equity loans and indirect automobile loans.
Commercial loans, commercial mortgages and construction loans to commercial borrowers are further segmented into
separate pools based on internally assigned risk ratings. Residential mortgages, home equity loans, consumer loans, and
lease receivables are further segmented into separate pools based on delinquency status.
A loss rate is calculated for each pool through a migration analysis based on historical losses as loans migrate through
the various risk rating or delinquency categories. Estimated loss rates are based on a probability of default and a loss
given default. The loss rate is adjusted to consider qualitative factors, such as economic conditions and trends.
• Overall assessment of the risk profile of the loan portfolio. The allocation of the allowance for credit losses is reviewed
to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Corporation considers risk
factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of
borrower industry types; and the composition of the portfolio by loan type. 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 in October of each year. The Corporation tests for impairment by first allocating
its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for each
reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is necessary.
If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper carrying value
of the goodwill.
Reporting unit valuation is inherently subjective, with a number of factors based on assumptions and management judgments.
Among these are future growth rates for the reporting units, selection of comparable market transactions, discount rates and
earnings capitalization rates. Changes in assumptions and results due to economic conditions, industry factors and reporting unit
performance and cash flow projections could result in different assessments of the fair values of reporting units and could result
in impairment charges.
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."
44
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.
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 2018 compared
to 2017 and 2016. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate for 2018 and 35% for
2017 and 2016, as well as statutory interest expense disallowances. The discussion following this table is based on these tax-
equivalent amounts.
2018
2017
2016
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:
$
691,954
4.38% $15,236,612
$ 620,803
4.07% $14,128,064
$ 558,472
3.95%
Loans, net of unearned income (2) ...... $15,815,263
Taxable investment securities (3) ........
2,246,555
Tax-exempt investment securities (3)..
Equity securities (3).............................
416,119
126
Total investment securities....................
2,662,800
Loans held for sale .............................
Other interest-earning assets ..............
22,970
382,569
56,039
15,285
5
71,329
1,159
6,193
Total interest-earning assets..................
18,883,602
770,635
Noninterest-earning assets:
Cash and due from banks...................
Premises and equipment ....................
Other assets (3) ....................................
Less: Allowance for loan losses.........
104,595
231,762
1,123,857
(160,614)
Total Assets .................................. $20,183,202
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits................................ $ 4,063,929
Savings deposits.................................
4,684,023
Brokered deposits...............................
Time deposits .....................................
121,863
2,675,670
Total interest-bearing deposits ..............
11,545,485
Short-term borrowings .......................
Long-term debt...................................
785,923
977,573
Noninterest-bearing liabilities:
Demand deposits................................
Other ..................................................
4,287,121
331,336
Total Liabilities ..................................
17,927,438
Shareholders’ equity..............................
2,255,764
Total Liabilities and Shareholders'
Equity ......................................... $20,183,202
Net interest income/net interest margin
(FTE) ................................................
Tax equivalent adjustment ....................
Net interest income ...............................
Total interest-bearing liabilities ......
13,308,981
128,058
2.49
3.65
3.97
2.68
5.05
1.62
4.08
2,132,426
407,157
8,331
2,547,914
20,008
451,015
47,029
17,794
500
65,323
876
5,066
18,255,549
692,068
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
108,523
219,960
1,168,759
(172,424)
$19,580,367
104,772
227,047
1,179,437
(164,879)
$18,371,173
$
22,789
0.56% $ 3,831,865
$
12,976
0.34% $ 3,552,886
$
27,226
2,480
35,217
87,712
8,489
31,857
0.58
2.04
1.32
0.76
1.07
3.26
0.96
4,468,205
49,126
2,721,724
11,070,920
533,564
1,034,444
12,638,928
4,410,301
337,275
17,386,504
2,193,863
$19,580,367
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
6,654
7,981
—
30,058
44,693
855
36,780
82,328
0.19%
0.20
—
1.06
0.43
0.21
3.83
0.70
642,577
3.40%
598,565
3.28%
541,271
3.18%
(12,121)
$
630,456
(23,201)
$ 575,364
(20,499)
$ 520,772
Includes dividends earned on equity securities.
Average balance includes non-performing loans.
Average balance 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 0.73%, 0.55% and 0.52%
for the years ended December 31, 2018, 2017 and 2016 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:
2018 vs. 2017
Increase (decrease) due to change in
Rate
Volume
Net
2017 vs. 2016
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........................................
$
$
$
24,166
2,622
395
(368)
139
(854)
26,100
842
683
1,311
(527)
1,746
(1,839)
$
$
$
46,985
6,388
(2,904)
(127)
144
1,981
52,467
8,971
13,066
556
5,018
3,964
764
Total interest expense ....................... $
2,216
$
32,339
$
(in thousands)
71,151
9,010
(2,509)
(495)
283
1,127
78,567
9,813
13,749
1,867
4,491
5,710
(1,075)
34,555
$
$
$
$
44,822
83
3,268
(309)
12
433
48,309
562
884
613
(781)
379
1,732
3,389
$
$
$
$
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
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 2018 to 2017
FTE net interest income increased $44.0 million, or 7.4%, to $642.6 million in 2018. Net interest margin increased 12 basis points
to 3.40% in 2018 from 3.28% in 2017. Interest rate increases on both interest-earning assets and interest-bearing liabilities and
the corresponding increases in FTE interest income and interest expense were largely the result of 25 basis point rate increases to
the Fed Funds Rate in December of 2017 and March, June and September of 2018. The additional 25 basis point increase to the
Fed Funds Rate in December of 2018 did not have a significant impact on the Corporation's financial results for the year ended
December 31, 2018. The increases in the Fed Funds Rate resulted in corresponding increases to the index rates for the Corporation's
variable and adjustable rate loans, primarily the prime rate and the London Interbank Offered Rate ("LIBOR").
As summarized above, FTE interest income increased $52.5 million as the result of a 29 basis point increase in the yield on interest-
earning assets, and increased $26.1 million as the result of a $628.1 million, or 3.4%, increase in average interest-earning assets,
primarily loans. The average yield on the loan portfolio increased 31 basis points, to 4.38%, largely due to the aforementioned
increases in the Fed Funds Rate and corresponding increases to loan index rates. All variable and certain adjustable rate loans
repriced to higher rates during 2018, and yields on new loan originations exceeded the average yield on the loan portfolio. Adjustable
rate loans reprice on dates specified in the loan agreements, which may be later than the date the Fed Funds Rate and related loan
index rates increase or decrease. Therefore, the benefit of increases in index rates on adjustable rate loans may not be fully realized
until future periods.
Interest expense increased $34.6 million, with a 22 basis point increase in the rate on average interest-bearing liabilities contributing
$32.3 million to this increase. The rates on average interest-bearing demand deposits and savings accounts increased 22 basis
points and 28 basis points, respectively. These rate increases contributed $9.0 million and $13.1 million to the increase in interest
expense, respectively. In addition, the 19 basis point and 55 basis point increases in the rates on time deposits and short-term
borrowings contributed $5.0 million and $4.0 million, respectively, to the increase in interest expense.
47
Average loans and average FTE yields, by type, are summarized in the following table:
2018
2017
Balance
Yield
Balance
Yield
(dollars in thousands)
Increase (Decrease) in
Balance
$
%
Real estate - commercial mortgage ......................... $ 6,314,349
4,314,584
Commercial - industrial, financial and agricultural.
2,085,258
Real estate - residential mortgage............................
1,493,620
Real estate - home equity ........................................
965,835
Real estate - construction.........................................
361,186
Consumer.................................................................
270,967
Leasing ....................................................................
9,464
Other ........................................................................
Total.................................................................. $ 15,815,263
4.38% $ 6,161,731
4.32
4,236,810
3.93
1,779,270
4.91
1,582,705
4.45
921,879
4.54
304,162
4.60
244,740
N/A
5,315
4.38% $15,236,612
4.04% $ 152,618
77,774
4.01
305,988
3.80
(89,085)
4.38
43,956
4.08
57,024
4.99
26,227
4.45
4,149
N/A
4.07% $ 578,651
2.5%
1.8
17.2
(5.6)
4.8
18.7
10.7
78.1
3.8%
N/A - Not applicable
Average loans increased $578.7 million, or 3.8%, which contributed $24.2 million to the increase in FTE interest income. In
addition, the average yield on the loan portfolio increased 31 basis points, contributing $47.0 million to the increase in FTE interest
income. As mentioned above, 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 LIBOR.
The increase in average loan balances was across most loan categories, driven largely by growth in the residential mortgage and
commercial mortgage portfolios. The $306.0 million, or 17.2%, increase in residential mortgages was realized across all geographic
markets, with the most significant increases occurring in Maryland and Virginia. This growth was, in part, related to new product
offerings and marketing efforts targeting specific customer segments. The $152.6 million, or 2.5%, growth in commercial mortgages
occurred in both owner-occupied and investment property types and was realized in most geographic markets. The growth in
commercial, consumer and leasing balances occurred across most geographic markets.
Average investment securities increased $114.9 million, or 4.5%, in comparison to 2017, which contributed $2.6 million to the
increase in FTE interest income. The average yield on investment securities increased 12 basis points, contributing $3.4 million
to the increase in FTE interest income. Other interest-earning assets decreased $68.4 million, or 15.2%, reflecting lower balances
on deposit with the Federal Reserve Bank ("FRB"). The yield on other interest-earning assets increased 50 basis points in comparison
to 2017, as a result of the Fed Funds Rate increases, resulting in a $1.1 million increase in FTE interest income.
Average deposits and interest rates, by type, are summarized in the following table:
2018
2017
Balance
Rate
Balance
Rate
(dollars in thousands)
(Decrease) Increase in
Balance
$
%
Noninterest-bearing demand ............................... $ 4,287,121
4,063,929
Interest-bearing demand......................................
4,684,023
Savings and money market accounts ..................
13,035,073
Total demand and savings............................
121,863
Brokered deposits................................................
2,675,670
Time deposits ......................................................
Total deposits ............................................... $ 15,832,606
—% $ 4,410,301
0.56
3,831,865
0.58
4,468,205
0.38
12,710,371
2.04
49,126
1.32
2,721,724
0.55% $15,481,221
—% $ (123,180)
232,064
0.34
215,818
0.30
324,702
0.12
72,737
1.25
(46,054)
1.13
0.37% $ 351,385
(2.8)%
6.1
4.8
2.6
148.1
(1.7)
2.3 %
Average interest-bearing deposits contributed $29.9 million to the increase in interest expense, increasing $474.6 million, or 4.3%,
in comparison to 2017. The average cost of interest-bearing deposits increased 24 basis points to 0.76% in 2018 from 0.52% in
2017, due to increases in the rates on all types of interest-bearing deposits.
The $324.7 million, or 2.6%, increase in average total demand and savings account balances was primarily due to a $388.4 million,
or 6.5%, increase in personal account balances, a $147.0 million increase in other account balances partially offset by decreases
48
of $173.9 million, or 3.9%, and $36.8 million, or 1.9%, in business account balances and state and municipal account balances,
respectively.
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 ("Third-Party
Deposit Sweep Arrangement"). The average balance in the omnibus accounts increased $72.7 million, to $121.9 million and is
shown as “brokered deposits” in the above table. This source of funding is considered to be both geographically diverse and
considered to be a stable source of funding, with balances in the omnibus deposit accounts bearing interest at a rate based on the
Fed Funds Rate.
Total average borrowings increased $195.5 million, or 12.5%, while the total average cost of these funds increased one basis point
to 2.29%. The increase in average short-term borrowings reflects the need for additional funding to support average loan growth,
which outpaced increases in average deposits. Average borrowings and interest rates, by type, are summarized in the following
table:
2018
2017
Balance
Rate
Balance
Rate
(dollars in thousands)
(Decrease) 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 ................
137,198
309,470
446,668
229,715
109,540
785,923
0.20% $
0.60
0.48
1.70
2.20
1.07
188,769
108,649
297,418
163,102
73,044
533,564
0.12% $ (51,571)
200,821
0.31
149,250
0.19
66,613
0.92
36,496
0.94
252,359
0.52
Long-term debt:
FHLB advances...........................................
Other long-term debt ...................................
Total long-term debt.............................
590,948
386,625
977,573
Total..................................... $ 1,763,496
2.46
640,737
4.47
393,707
3.26
1,034,444
2.29% $ 1,568,008
(49,789)
2.31
(7,082)
4.61
(56,871)
3.18
2.28% $ 195,488
(1) Represents Federal Home Loan Bank ("FHLB") advances with an original maturity term of less than one year.
(27.3)%
184.8
50.2
40.8
50.0
47.3
(7.8)
(1.8)
(5.5)
12.5 %
Total average short-term borrowings increased $252.4 million, or 47.3%, due to an increase in average customer short-term
promissory notes, federal funds purchased and short-term FHLB advances. The cost of average short-term borrowings increased
55 basis points to 1.07% in 2018, largely due to the Fed Funds Rate increases.
Average long-term debt decreased $56.9 million due mainly to the $49.8 million decrease in FHLB advances. The average rate
on long-term debt increased 8 basis points, the net result of a 15 basis point increase on the rate of the FHLB advances, largely
due to the Fed Funds Rate increases, and a 14 basis point decrease in other long-term debt.
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 previously, 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 Fed 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
49
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.
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.
1,582,705
Real estate - home equity ........................................
1,779,270
Real estate - residential mortgage............................
921,879
Real estate - construction.........................................
304,162
Consumer.................................................................
244,740
Leasing ....................................................................
5,315
Leasing and other ....................................................
Total.................................................................. $ 15,236,612
4.04% $ 5,636,696
4.01
4,080,854
4.38
1,651,112
3.80
1,464,744
4.08
824,182
4.99
276,792
4.45
190,675
N/A
3,009
4.07% $ 14,128,064
3.98% $ 525,035
155,956
3.78
(68,407)
4.08
314,526
3.77
97,697
3.79
27,370
5.36
54,065
4.73
N/A
2,306
3.95% $1,108,548
9.3%
3.8
(4.1)
21.5
11.9
9.9
28.4
76.6
7.8%
N/A - Not applicable
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 in 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 and 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.
50
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
3,552,886
0.34
4,054,970
0.30
11,759,823
0.12
—
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 Fed 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 borrowings...................... $ 1,568,008
597,211
2.31
361,931
4.61
3.18
959,142
2.28% $ 1,354,869
43,526
3.12
31,776
5.01
3.83
75,302
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.
51
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 Fed Funds 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%.
Provision for Credit Losses
The provision for credit losses was $46.9 million in 2018, an increase of $23.6 million in comparison to 2017. The increase in the
provision for credit losses in 2018 compared to 2017 was primarily driven by the $36.8 million provision for credit losses for the
customer fraud-related Commercial Relationship. See additional details under "Provision and Allowance for Credit Losses" in the
"Financial Condition" section below. The provision for credit losses for 2017 was $23.3 million, an increase of $10.1 million in
comparison to 2016. In 2017 the increase 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 2018 to 2017
Non-Interest Income
The following table presents the components of non-interest income:
2018
Increase (Decrease)
%
2017
(dollars in thousands)
$
Investment management and trust services .................................. $
Other service charges and fees:
52,148
$
49,249
$
2,899
5.9 %
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 .......................
Mortgage banking income:
Gain on sales of mortgage loans..............................................
Mortgage servicing income .....................................................
Total mortgage banking income.......................................
Other income:
18,407
12,712
9,831
3,932
2,150
6,745
53,777
20,836
17,581
10,472
48,889
13,021
6,005
19,026
16,845
11,905
11,694
4,403
1,759
6,253
52,859
22,569
14,444
13,993
51,006
13,036
6,892
19,928
1,562
807
(1,863)
(471)
391
492
918
(1,733)
3,137
(3,521)
(2,117)
(15)
(887)
(902)
Credit card income ..................................................................
SBA lending income................................................................
Other income ...........................................................................
Total other income............................................................
Total, excluding investment securities gains ....................
Investment securities gains...........................................................
Total........................................................................... $
11,803
2,474
7,371
21,648
195,488
37
195,525
$
10,920
3,511
11,430
25,861
198,903
9,071
207,974
$
883
(1,037)
(4,059)
(4,213)
(3,415)
(9,034)
(12,449)
N/M - Not meaningful
9.3
6.8
(15.9)
(10.7)
22.2
7.9
1.7
(7.7)
21.7
(25.2)
(4.2)
(0.1)
(12.9)
(4.5)
8.1
(29.5)
(35.5)
(16.3)
(1.7)
N/M
(6.0)%
Excluding investment securities gains, non-interest income decreased $3.4 million, or 1.7%, for the year ended December 31,
2018, as compared to the same period in 2017.
Investment management and trust services income increased $2.9 million, or 5.9%, with growth in both trust commissions and
brokerage income, due to overall market performance and continued focus on asset gathering.
Other service charges and fees increased $918,000, or 1.7%, primarily due to increases in merchant fees and debit card income,
partially offset by a decrease in commercial loan interest rate swap fees, resulting from lower new commercial loan originations
in 2018, and lower letter of credit fees.
Service charges on deposit accounts decreased $2.1 million, or 4.2%, with decreases in overdraft fees and other service charges
being partially offset by an increase in cash management fees. The increase in cash management fees and the decrease in other
service charges largely reflects a classification change, effective in the first quarter of 2018, of certain types of deposit service
charges. The decrease in overdraft fees reflects a processing change related to point-of-sale debit card transactions, which had the
effect of decreasing the overall volume of overdraft charges to customers.
53
Mortgage servicing income decreased $887,000, or 12.9%, because 2017 included a $1.3 million reduction to the MSR valuation
allowance, recorded as an increase to mortgage servicing income. See Note 6, "Mortgage Servicing Rights," in the Notes to
Consolidated Financial Statements for additional details. This increase was partially offset by lower MSR amortization expense
in 2018 because prepayments slowed as mortgage rates increased.
Other income decreased $4.2 million, or 16.3%, due to a $1.0 million, or 29.5%, decrease in SBA lending income and a $4.1
million, or 35.5%, decrease in other income, as 2017 included a $5.1 million litigation settlement gain. Partially offsetting these
decreases was an $883,000, or 8.1%, increase in credit card income as a result of higher transaction volumes.
Investment securities gains decreased $9.0 million, as 2017 included gains on sales of financial institution common stocks. 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.................................................................
Data processing and software .......................................................
Other outside services...................................................................
Professional fees ...........................................................................
Equipment expense.......................................................................
Amortization of tax credit investments.........................................
FDIC insurance expense ...............................................................
State taxes .....................................................................................
Other .............................................................................................
Total ....................................................................................... $
2018
303,202
51,678
41,286
33,758
14,161
13,243
11,449
10,993
9,590
56,744
546,104
$
$
Increase (Decrease)
%
2017
(dollars in thousands)
$
290,130
49,708
38,735
27,501
12,688
12,935
11,028
11,049
10,051
61,754
525,579
$
$
13,072
1,970
2,551
6,257
1,473
308
421
(56)
(461)
(5,010)
20,525
4.5%
4.0
6.6
22.8
11.6
2.4
3.8
(0.5)
(4.6)
(8.1)
3.9%
The $13.1 million, or 4.5%, increase in salaries and employee benefits expense was driven by a $13.3 million, or 5.4%, increase
in salaries, reflecting annual merit increases and higher incentive and stock compensation. In addition, expenses for stock
compensation and certain incentive compensation plans were higher in 2018. Benefits expenses decreased slightly, as severance
costs were more than offset by lower defined benefit pension expense, as a result of interest rate increases, and lower health
insurance costs, as a result of more favorable claims experience.
Net occupancy expenses increased $2.0 million, or 4.0%, primarily due to higher snow removal and utilities costs in the first half
of 2018, and additional depreciation and amortization related to branch renovations.
Data processing and software expense increased $2.6 million, or 6.6%, reflecting higher transaction volumes, new processing
platforms and contractual increases in fees and charges. In addition, 2017 expense was lower as a result of renegotiated contracts.
Other outside services increased $6.3 million, or 22.8%, largely due to consulting services related to various banking and technology
initiatives, as well as costs associated with merging subsidiary bank charters.
Professional fees increased $1.5 million, or 11.6%, driven by higher legal expenses. The Corporation incurs fees related to various
legal matters in the normal course of business. These fees can fluctuate based on the timing and extent of these matters.
Other expenses decreased $5.0 million, or 8.1%, due to a $2.3 million decrease in write-offs of accumulated capital expenditures
related to in-process technology initiatives in commercial banking as well as a decrease in operating risk loss and other real estate
expenses.
54
Comparison of 2017 to 2016
Non-Interest Income
The following table presents the components of non-interest income:
2017
Increase (Decrease)
%
$
2016
(dollars in thousands)
Investment management and trust services.................................. $
Other service charges and fees:
49,249
$
45,270
$
3,979
8.8%
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.......................
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
16,845
11,694
11,905
4,403
1,759
6,253
52,859
22,569
14,444
13,993
51,006
13,036
6,892
19,928
16,136
11,560
11,236
4,504
1,555
6,482
51,473
22,175
14,183
14,988
51,346
15,685
3,730
19,415
10,920
3,511
11,430
25,861
198,903
9,071
207,974
$
10,252
2,425
7,447
20,124
187,628
2,550
190,178
$
709
134
669
(101)
204
(229)
1,386
394
261
(995)
(340)
(2,649)
3,162
513
668
1,086
3,983
5,737
11,275
6,521
17,796
4.4
1.2
6.0
(2.2)
13.1
(3.5)
2.7
1.8
1.8
(6.6)
(0.7)
(16.9)
84.8
2.6
6.5
44.8
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.
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.
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.
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, recorded as an increase to mortgage servicing income, as
compared to net increases to the valuation allowance of $1.3 million in 2016, recorded as a reduction to servicing income. Excluding
the impact of the MSR valuation allowance adjustments in both periods, mortgage servicing income increased $560,000, or 11.1%,
55
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:
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 expense ...............................................................
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, was classified in non-interest expense in 2017, rather than income taxes.
56
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.
Income Taxes
Income tax expense for the year ended December 31, 2018 was $24.6 million, a $38.1 million, or 60.8%, decrease from $62.7
million for the same period in 2017. This decrease was primarily a result of the reduction of the U.S. corporate income tax rate
following the passage of the Tax Act, which lowered the U.S. corporate income tax rate from a top rate of 35% to a flat rate of
21% starting in 2018. In addition, the Corporation recorded a $15.6 million charge to income tax expense in 2017 relating to the
revaluation of its net deferred tax assets. The Corporation’s ETR was 10.5% for the year ended December 31, 2018, as compared
to 26.7% in the same period of 2017. The decrease in the ETR was primarily a result of the reduction of the U.S. corporate income
tax rate and the recording of a $15.6 million revaluation charge in 2017 following the passage of the Tax Act as described above.
The ETR is generally lower than the federal statutory rate for each respective year due to tax-exempt interest income earned on
loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits
under various federal programs.
The ETR in any period may be positively or negatively affected by adjustments that are required to be reported in the specific
quarter of resolution or the impacts of legislated changes in Federal or state taxes.
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,
2018
2017
(dollars in thousands)
Increase (Decrease)
%
$
Assets
Cash and due from banks .................................................... $
Other interest-earning assets................................................
Loans held for sale...............................................................
103,436
$
108,291
$
421,534
27,099
354,566
31,530
Investment securities ...........................................................
2,686,973
2,547,956
Loans, net of allowance.......................................................
16,005,263
15,598,337
Premises and equipment ......................................................
Goodwill and intangible assets............................................
234,529
531,556
Other assets..........................................................................
671,762
Total Assets................................................................... $ 20,682,152
Liabilities and Shareholders’ Equity
Deposits ............................................................................... $ 16,376,159
Short-term borrowings.........................................................
754,777
Long-term debt ....................................................................
992,279
311,364
222,802
531,556
641,867
$ 20,036,905
$ 15,797,532
617,524
1,038,346
353,646
$
$
Other liabilities ....................................................................
Total Liabilities .............................................................
Total Shareholders’ Equity ............................................
2,247,573
Total Liabilities and Shareholders’ Equity ............. $ 20,682,152
18,434,579
17,807,048
2,229,857
(4,855)
66,968
(4,431)
139,017
406,926
11,727
—
29,895
645,247
578,627
137,253
(46,067)
(42,282)
627,531
17,716
(4.5)%
18.9
(14.1)
5.5
2.6
5.3
—
4.7
3.2 %
3.7 %
22.2
(4.4)
(12.0)
3.5
0.8
$ 20,036,905
$
645,247
3.2 %
Other Interest-Earning Assets
The $67.0 million, or 18.9%, 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, reflecting the Corporation's overall funding position at the end of 2018
and 2017.
58
Investment Securities
The following table presents the carrying amount of investment securities as of December 31:
Available for Sale
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.................................................................................................................................................
2018
2017
(in thousands)
31,632
$
5,938
279,095
109,533
832,080
408,949
97,309
602,623
463,344
1,120,796
261,616
102,994
212,755
98,668
Total debt securities..................................................................................................................................................
2,080,294
2,547,038
Equity securities ..........................................................................................................................................................
—
Total available for sale securities .......................................................................................................................... $ 2,080,294
918
$2,547,956
Held to Maturity
State and municipal securities ..................................................................................................................................... $ 156,134
Residential mortgage-backed securities ......................................................................................................................
450,545
Total held to maturity securities............................................................................................................................. $ 606,679
$
$
—
—
—
Total investment securities ..................................................................................................................................... $ 2,686,973
$2,547,956
Total available for sale investment securities decreased $467.7 million, or 18.4%, to $2.1 billion at December 31, 2018. On August
1, 2018, the Corporation transferred debt securities totaling $641.7 million from the available for sale classification to the held to
maturity classification. These securities consisted of $485.3 million and $156.4 million of residential mortgage-backed securities
and state and municipal securities, respectively. The transfer was accounted for at estimated fair value. These securities were
transferred as a result of the Corporation's positive intent and ability to hold these securities to maturity.
Total investment securities increased $139.0 million, or 5.5%, to $2.7 billion at December 31, 2018. U.S. Government sponsored
agency securities increased $25.7 million, collateralized mortgage obligations increased $229.5 million and commercial mortgage-
backed securities increased $48.9 million. Cash flows from maturities and repayments of residential mortgage-backed securities
were reinvested in these investment categories to diversify the portfolio into securities with lower expected term extension risk,
should rates continue to increase.
59
Loans
The following table presents ending loans outstanding, by type, as of the dates shown, and the changes in balances for the most
recent year:
December 31,
Increase (Decrease)
(2018 vs. 2017)
2018
2017
2016
2015
2014
$
%
(dollars in thousands)
Real estate – commercial mortgage.................... $ 6,434,285
$ 6,364,804
$ 6,018,582
$ 5,462,330
$ 5,197,155
$
69,481
1.1%
Commercial – industrial, financial and
agricultural .....................................................
Real estate – residential mortgage......................
4,404,548
4,300,297
4,087,486
4,088,962
3,725,567
2,251,044
1,954,711
1,601,994
1,376,160
1,377,068
104,251
296,333
Real estate – home equity
1,452,137
1,559,719
1,625,115
1,684,439
1,736,688
(107,582)
Real estate – construction...................................
Consumer............................................................
Leasing, other and overdrafts .............................
916,599
419,186
314,640
1,006,935
313,783
295,669
843,649
291,470
250,366
799,988
268,588
173,651
690,601
265,431
131,583
Loans, gross of unearned income .................
16,192,439
15,795,918
14,718,662
13,854,118
13,124,093
Unearned income................................................
(26,639)
(27,671)
(19,390)
(15,516)
(12,377)
(90,336)
105,403
18,971
396,521
1,032
Loans, net of unearned income..................... $ 16,165,800
$ 15,768,247
$ 14,699,272
$ 13,838,602
$ 13,111,716
$
397,553
2.4
15.2
(6.9)
(9.0)
33.6
6.4
2.5
(3.7)
2.5%
Total loans, net of unearned income, increased $397.6 million, or 2.5%, as of December 31, 2018 compared to December 31, 2017.
During 2018, several items partially offset loan growth, particularly in the commercial loan portfolios, including a decline in line
borrowings and certain criticized and classified credits being repaid. In addition, there were higher than expected prepayments,
primarily as a result of intensified competition and pricing pressure during 2018 in many of the markets in which the Corporation
operates.
Residential mortgages increased $296.3 million, or 15.2%, across all geographic markets, but primarily in Virginia and New Jersey.
Consumer loans increased $105.4 million, or 33.6%, largely in Pennsylvania and New Jersey. Commercial loans increased a net
total of $104.3 million, or 2.4%, across all markets, while commercial mortgage loans increased $69.5 million, or 1.1%, primarily
in Maryland. Home equity loans decreased $107.6 million, or 6.9%, across all geographic markets and construction loans decreased
$90.3 million, or 9.0%, also across all geographic markets except for Virginia.
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, 2018, approximately $7.4 billion, or 45.5%, 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 $55.0 million as of December 31, 2018. 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, 2018, the Corporation had 150 relationships with total
borrowing commitments between $20.0 million and $55.0 million.
60
The following table summarizes the industry concentrations within the commercial mortgage and industrial, financial and
agricultural loan portfolios as of December 31:
Real estate (1)...................................................................................................................................
Health care ......................................................................................................................................
Agriculture......................................................................................................................................
Construction (2)................................................................................................................................
Manufacturing.................................................................................................................................
Educational services .......................................................................................................................
Retail...............................................................................................................................................
Other services (except public administration) ................................................................................
Accommodation and food services.................................................................................................
Wholesale Trade .............................................................................................................................
Professional, scientific, and technical services...............................................................................
Public administration ......................................................................................................................
Arts, entertainment, and recreation.................................................................................................
Transportation and warehousing.....................................................................................................
Other ...............................................................................................................................................
Total .........................................................................................................................................
2018
2017
35.9%
35.7%
7.8
7.3
5.7
5.5
4.6
4.6
4.5
3.7
3.5
2.8
2.3
2.3
1.3
8.2
7.8
7.4
6.0
5.2
4.5
5.9
4.1
3.7
3.4
2.9
2.4
2.0
1.1
7.9
100.0%
100.0%
(1) 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.
(2) Includes commercial loans to borrowers engaged in the construction industry.
Commercial loans and commercial mortgage loans also include shared national credits, which are participations in loans or loan
commitments of at least $100 million that are shared by three or more banks. Effective January 1, 2018, the federal banking agencies
increased the threshold for defining a shared national credit to $100 million from $20 million. The Corporation only participates
in shared national credits to borrowers located in its geographic markets and these are subject to the Corporation's standard
underwriting policies. Below is a summary of the Corporation's outstanding purchased shared national credits as of December 31:
2018
2017
Commercial - industrial, financial and agricultural......................................................................... $
Real estate - commercial mortgage .................................................................................................
(in thousands)
67,493
$
156,277
—
110,658
Total ............................................................................................................................................ $
67,493
$
266,935
Total shared national credits decreased $199.4 million, or 74.7%, in comparison to 2017 as a result of the new threshold. As of
December 31, 2018, none of the shared national credits were past due.
61
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 credit loss experience follows:
2018
2017
2016
2015
2014
(dollars in thousands)
Loans, net of unearned income outstanding at end of year....................... $ 16,165,800
$ 15,768,247
$ 14,699,272
$ 13,838,602
$ 13,111,716
Average balance of loans, net of unearned income................................... $ 15,815,263
$ 15,236,612
$ 14,128,064
$ 13,330,973
$ 12,885,180
Balance of allowance for credit losses at beginning of year..................... $
176,084
$
171,325
$
171,412
$
185,931
$
204,917
Loans charged off:
Commercial – industrial, financial and agricultural ........................
52,441
19,067
15,276
15,639
24,516
Real estate - home equity and consumer..........................................
Leasing, other and overdrafts...........................................................
Real estate – commercial mortgage .................................................
Real estate – residential mortgage ...................................................
Real estate – construction ................................................................
6,127
2,521
2,045
1,574
1,368
4,567
3,035
2,169
687
3,765
7,712
3,815
3,580
2,326
1,218
5,831
2,656
4,218
3,612
201
7,811
2,135
6,004
2,918
1,209
Total loans charged off..................................................................
66,076
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 – construction ................................................................
Real estate – commercial mortgage .................................................
Leasing, other and overdrafts...........................................................
Real estate – residential mortgage ...................................................
Total recoveries .............................................................................
Net loans charged off ................................................................................
Provision for credit losses.........................................................................
4,994
2,393
1,829
1,622
1,037
620
12,495
53,581
46,907
Balance at end of year............................................................................... $
169,410
Components of Allowance for Credit Losses:
Allowance for loan losses ......................................................................... $
Reserve for unfunded lending commitments (1) ........................................
Allowance for credit losses....................................................................... $
160,537
8,873
169,410
$
$
$
7,771
1,969
1,582
1,668
968
786
14,744
18,546
23,305
176,084
169,910
6,174
176,084
8,981
2,466
3,924
3,373
842
1,072
20,658
13,269
13,182
171,325
168,679
2,646
171,325
5,264
2,492
2,824
2,801
685
1,322
15,388
16,769
2,250
171,412
169,054
2,358
171,412
4,256
2,347
3,177
1,960
916
451
13,107
31,486
12,500
185,931
184,144
1,787
185,931
$
$
$
$
$
$
$
$
$
Selected Asset Quality Ratios:
Net charge-offs to average loans...............................................................
Allowance for loan losses to total loans ...................................................
Allowance for credit losses to total loans .................................................
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) ("Texas Ratio").......................................................................
0.34%
0.99%
1.05%
0.73%
0.93%
0.80%
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%
121.29%
130.67%
130.15%
118.37%
134.26%
7.97%
7.71%
8.20%
9.27%
9.12%
Includes accruing loans past due 90 days or more.
(1) Reserve for unfunded lending commitments is 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 $23.6 million in comparison to 2017 due mainly to a $36.8 million provision related to
the customer fraud-related Commercial Relationship. Net charge-offs increased $35.0 million to $53.6 million in 2018 from $18.5
million in 2017. This increase was primarily the result of a $33.9 million charge-off related to the customer fraud-related Commercial
Relationship during 2018.
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, 2016......... $
Additions...........................
Payments ...........................
Charge-offs (1)....................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2017.........
Additions...........................
Payments ...........................
Charge-offs (1)....................
Transfers to OREO............
Transfers to accrual status.
Balance of non-accrual loans
at December 31, 2018......... $
42,349
$
38,936
$
9,806
$
18,431
$
10,611
$
— $
— $ 120,133
48,717
(19,092)
(19,067)
(3)
—
52,904
91,057
(39,887)
(52,441)
(1,027)
(457)
20,596
(20,164)
(2,169)
(1,464)
(913)
34,822
19,507
(15,961)
(2,045)
(3,206)
(2,728)
10,657
(4,352)
(3,765)
(149)
—
12,197
1,433
(4,872)
(1,368)
—
—
3,817
(2,848)
(687)
(2,729)
(293)
15,691
3,707
(1,120)
(1,574)
(1,999)
(37)
5,264
(1,518)
(2,340)
(1,895)
(987)
9,135
5,252
(1,951)
(3,087)
(1,982)
(660)
2,227
—
1,553
—
(2,227)
(1,553)
—
—
—
3,040
—
(3,040)
—
—
—
—
—
20,243
—
(974)
—
—
92,831
(47,974)
(31,808)
(6,240)
(2,193)
124,749
144,239
(63,791)
(64,529)
(8,214)
(3,882)
50,149
$
30,389
$
7,390
$
14,668
$
6,707
$
— $
19,269
$ 128,572
(1) Excludes charge-offs of loans on accrual status.
Non-accrual loans increased $3.8 million, or 3.1%, in 2018 due mainly to an increase in non-accrual loan additions from $92.8
million in 2017 to $144.2 million in 2018, partially offset by an increase in payments and charge-offs. During 2018, the customer
fraud-related Commercial Relationship resulted in a net addition of $7.3 million to non-accrual loans (a $41.2 million addition
reduced by $33.9 million of net charge-offs). In addition, another large commercial relationship, which included commercial loans
and leases totaling $35.0 million, was added to non-accrual loans during the year. This relationship was current in payments, but
showed signs of weakness. Non-accrual loan balances were reduced primarily through payments and charge-offs. Non-accrual
loans to total loans increased slightly, to 0.80% at December 31, 2018, as compared to 0.79% at December 31, 2017.
The following table presents non-performing assets as of December 31:
2018
2017
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................................ $
128,572
11,106
139,678
10,518
150,196
$
$
124,749
10,010
134,759
9,823
144,582
2016
(in thousands)
120,133
$
11,505
131,638
12,815
144,453
$
$
$
2015
2014
129,523
15,291
144,814
11,099
155,913
$
$
121,080
17,402
138,482
12,022
150,504
(1)
In 2018, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was approximately
$6.3 million. The amount of interest income on non-accrual loans that was recognized in 2018 was approximately $2.0 million.
(2) Accrual of interest is generally discontinued when a loan becomes 90 days past due. 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 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, 2018 were $61.6 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.
63
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:
2018
2017
December 31,
2016
2015
(dollars in thousands)
2014
2018 vs. 2017
(Decrease) Increase
$
%
Commercial – industrial, financial and
Real estate – commercial mortgage .......
Real estate – residential mortgage .........
Real estate – home equity ......................
Real estate – construction ......................
Consumer ...............................................
Leasing...................................................
agricultural ......................................... $ 51,269
32,153
19,101
9,769
7,390
409
19,587
Total non-performing loans ............ $ 139,678
$ 54,309
$ 43,460
$ 44,071
$ 30,388
35,447
20,971
11,507
12,197
296
32
$ 134,759
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
$ (3,040)
(3,294)
(1,870)
(1,738)
(4,807)
113
19,555
4,919
$
(5.6)%
(9.3)
(8.9)
(15.1)
(39.4)
38.2
N/M
3.7 %
N/M - Not meaningful
Non-performing loans increased $4.9 million, or 3.7%, in comparison to December 31, 2017, as a result of the $35.0 million
commercial relationship noted above, which included $15.4 million in loans and $19.6 million in leases. This increase was largely
offset by improvements in non-performing loans in the rest of the portfolio. As a percentage of total loans, non-performing loans
were 0.86% at December 31, 2018, a slight increase from 0.85% at December 31, 2017.
The following table presents TDRs as of December 31:
2018
2017
Real estate – residential mortgage .............................................. $ 24,102
16,665
Real estate – home equity ...........................................................
15,685
Real estate – commercial mortgage ............................................
5,143
Commercial – industrial, financial and agricultural....................
10
Consumer ....................................................................................
—
Real estate – construction ...........................................................
61,605
Total accruing TDRs ..............................................................
Non-accrual TDRs (1) ..................................................................
28,659
Total TDRs ............................................................................. $ 90,264
$ 26,016
15,558
13,959
10,820
26
—
66,379
29,051
$ 95,430
(1)
Included within non-accrual loans in the preceding table.
2016
(in thousands)
$ 27,617
8,594
15,957
6,627
39
726
59,560
27,850
$ 87,410
2015
2014
$ 28,511
4,556
17,563
5,953
33
3,942
60,558
31,035
$ 91,593
$
$
31,308
2,975
18,822
5,237
38
9,241
67,621
24,616
92,237
Total TDRs modified during 2018 and still outstanding as of December 31, 2018 were $18.4 million. Of these loans, $5.0 million,
or 27.0%, had a payment default during 2018, which the Corporation defines as a single missed scheduled payment, subsequent
to modification. TDRs modified during 2017 and still outstanding as of December 31, 2017 totaled $29.6 million. Of these loans,
$5.9 million, or 19.8%, had a payment default subsequent to modification during 2017.
The following table summarizes OREO, by property type, as of December 31:
2018
2017
Residential properties...................................................................................................................... $
Commercial properties ....................................................................................................................
Undeveloped land ...........................................................................................................................
Total OREO ............................................................................................................................. $
$
(in thousands)
3,665
4,127
2,726
10,518
$
4,562
3,331
1,930
9,823
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
64
"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 $11.7 billion and $11.6 billion as of December 31, 2018 and 2017, 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
2018 vs. 2017
Increase (Decrease)
Substandard or Lower
2018 vs. 2017
Increase (Decrease)
Total Criticized Loans
2018
2017
$
%
2018
2017
$
%
2018
2017
(dollars in thousands)
Real estate - commercial mortgage ..... $ 170,827
$ 147,604
$ 23,223
15.7% $ 133,995
$ 150,804
$ (16,809)
(11.1)% $ 304,822
$ 298,408
Commercial - secured..........................
193,470
121,842
71,628
58.8
129,026
179,113
(50,087)
(28.0)
322,496
Commercial -unsecured.......................
4,016
5,478
(1,462)
(26.7)
3,963
2,759
1,204
43.6
7,979
300,955
8,237
Total commercial - industrial,
financial and agricultural ............
197,486
127,320
70,166
55.1
132,989
181,872
(48,883)
(26.9)
330,475
309,192
Construction - commercial residential.
Construction - commercial ..................
Total construction (excluding
construction - other) ....................
6,912
1,163
8,075
5,259
846
1,653
317
31.4
37.5
6,881
2,533
14,084
3,752
(7,203)
(51.1)
(1,219)
(32.5)
13,793
3,696
19,343
4,598
6,105
1,970
32.3
9,414
17,836
(8,422)
(47.2)
17,489
23,941
Total ..................................................... $ 376,388
$ 281,029
$ 95,359
33.9% $ 276,398
$ 350,512
$ (74,114)
(21.1)% $ 652,786
$ 631,541
% of total risk rated loans ....................
3.2%
2.4%
2.4%
3.0%
5.6%
5.4%
As of December 31, 2018, total loans with risk ratings of special mention and substandard or lower were $21.2 million, or 3.4%
higher than 2017, primarily the result of downgrades across various industries and geographic markets as part of the Corporation's
normal credit risk management processes.
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
2018
2017
2018
2017
2018
2017
$
%
$
%
$
%
$
%
$
%
$
%
(dollars in thousands)
Real estate - home
equity................ $ 10,702
0.74% $ 12,655
0.81% $
9,769
0.67% $ 11,507
0.74% $ 20,471
1.41% $
24,162
1.55%
Real estate -
residential
mortgage ..........
Real estate -
construction -
other .................
Consumer - direct .
Consumer -
28,988
1.29
18,852
0.97
19,101
0.85
20,971
1.07
48,089
2.14
39,823
2.04
—
338
—
0.60
203
315
0.26
0.57
490
66
0.68
0.12
411
70
0.53
0.13
490
404
0.68
0.72
614
385
0.79
0.70
indirect .............
3,405
0.94
3,681
1.42
343
0.09
226
0.09
3,748
1.03
3,907
1.51
Total
Consumer........
Leasing, other and
Overdrafts ........
3,743
0.89
3,996
1.28
409
0.10
296
0.09
4,152
0.99
4,292
1.37
1,302
0.45
855
0.32
19,587
6.80
32
0.01
20,889
7.25
887
0.33
Total...................... $ 44,735
1.00% $ 36,561
0.87% $ 49,356
1.10% $ 33,217
0.80% $ 94,091
2.10% $
69,778
1.67%
(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 $19.6 million increase in non-performing leases was primarily the result of the previously mentioned commercial relationship
which included loans and leases.
65
The following table summarizes the allocation of the allowance for loan losses:
2018
2017
2016
2015
2014
% 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 ..................
—
Total ........................ $ 160,537
N/A – Not applicable
52,889
39.7% $
58,793
40.3% $
46,842
40.9% $
47,866
39.5% $
53,493
39.6%
58,868
27.2
66,280
18,921
13.9
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
24,798
13.5
22,129
13.7
33,567
14.7
27,458
15.3
33,085
16.2
5,061
5.7
N/A
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
100.0% $ 169,910
100.0% $ 168,679
100.0% $ 169,054
100.0% $ 184,144
100.0%
Management believes that the $160.5 million allowance for loan losses as of December 31, 2018 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 increased $29.9 million, or 4.7%, to $671.8 million as of December 31, 2018, primarily driven by a $21.4 million
increase in net deferred tax assets resulting from an increase in tax credit carry forwards of $27.6 million. See additional detail in
"Note 12 - Income Taxes" in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary
Data."
Deposits and Borrowings
The following table presents ending deposits, by type, as of December 31:
2018
(Decrease) Increase
%
$
2017
(dollars in thousands)
Noninterest-bearing demand.......................................................... $ 4,310,105
4,240,974
Interest-bearing demand.................................................................
4,926,937
Savings and money market accounts .............................................
13,478,016
Total demand and savings.......................................................
176,239
Brokered deposits...........................................................................
2,721,904
Time deposits .................................................................................
Total deposits........................................................................ $ 16,376,159
$ 4,437,294
4,018,107
4,586,746
13,042,147
90,473
2,664,912
$ 15,797,532
$
$
(127,189)
222,867
340,191
435,869
85,766
56,992
578,627
(2.9)%
5.5
7.4
3.3
94.8
2.1
3.7 %
Noninterest-bearing demand deposits decreased $127.2 million, or 2.9%, primarily due to a $162.8 million decrease in commercial
account balances, partially offset by a $23.3 million increase in state and municipal account balances and a $16.7 million increase
in personal account balances. Interest-bearing demand accounts increased $222.9 million, or 5.5%, due to a $222.1 million, or
14.4%, increase in state and municipal account balances. The $340.2 million, or 7.4%, increase in savings and money market
account balances was primarily due to a $323.4 million, or 9.8%, increase in personal account balances largely driven by promotional
efforts throughout the year. Brokered deposits increased $85.8 million, or 94.8%, as of December 31, 2018, primarily as a result
of a deposit gathering program which the Corporation began during the third quarter of 2017. See also the "Results of Operations"
section of Management's Discussion for more detail on brokered deposits.
66
The following table presents ending borrowings, by type as of December 31:
2018
(Decrease) Increase
%
$
2017
(dollars in thousands)
Short-term borrowings:
Customer repurchase agreements.............................................. $
Customer short-term promissory notes .....................................
Total short-term customer funding.....................................
Federal funds purchased............................................................
Short-term FHLB advances (1) ..................................................
Total short-term borrowings .........................................
43,500
326,277
369,777
—
385,000
754,777
$
172,017
225,507
397,524
220,000
—
617,524
Long-term debt:
FHLB advances.........................................................................
Other long-term debt .................................................................
Total long-term debt ......................................................
601,978
390,301
992,279
Total borrowings....................................................... $ 1,747,056
652,113
386,233
1,038,346
$ 1,655,870
$
$
(128,517)
100,770
(27,747)
(220,000)
385,000
137,253
(50,135)
4,068
(46,067)
91,186
(74.7)%
44.7
(7.0)
N/M
N/M
22.2
(7.7)
1.1
(4.4)
5.5 %
N/M - Not meaningful
(1) Represents FHLB advances with an original maturity term of less than one year.
The $137.3 million, or 22.2%, increase in total short-term borrowings resulted from $385.0 million in short-term FHLB advances
and a $100.8 million increase in customer short-term promissory notes, partially offset by no federal funds purchased at December
31, 2018 as compared to $220.0 million at December 31, 2017 and a $128.5 million, or 74.7%, decrease in customer repurchase
agreements. The increase in short-term borrowings provided additional funding to support loan growth. The decrease in other
long-term debt was the result of the $50.1 million decrease in long-term FHLB advances as a result of maturing advances that
were not replaced.
Other Liabilities
Other liabilities decreased $42.3 million, or 12.0%, to $311.4 million as of December 31, 2018. The decrease resulted primarily
from a $47.9 million decrease in new commitments to fund tax credit investments and a $16.4 million decrease in accrued salaries
and benefits, primarily a result of the $13.8 million funding of the accrued defined benefit pension obligation during 2018. See
"Note 13 - Employee Benefit Plans," in the Notes to the Consolidated Financial Statements in Item 8. "Financial Statements and
Supplementary Data." for additional information. These decreases were partially offset by changes in the fair value of derivative
financial instruments. See "Note 10 - Derivative Financial Instruments," in the Notes to the Consolidated Financial Statements in
Item 8. "Financial Statements and Supplementary Data." for additional information.
Shareholders’ Equity
Total shareholders’ equity increased $17.7 million, or 0.8%, to $2.2 billion, or 10.9%, of total assets, as of December 31, 2018.
The increase was due primarily to $208.4 million of net income, $6.7 million of common stock issued and $8.0 million of stock-
based compensation awards, largely offset by $95.3 million of common stock repurchases, $91.1 million of common stock cash
dividends and a $19.0 million net decrease in accumulated other comprehensive income.
In November 2017, the Corporation's board of directors approved an extension to 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, 2018. During 2018, the Corporation repurchased approximately 1.9 million
shares under this program for a total cost of approximately $31.5 million, or $16.71 per share, completing this program.
In November 2018, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation
is authorized to repurchase up to $75.0 million of its outstanding shares of common stock, or approximately 2.7% of its outstanding
shares, through December 31, 2019. During 2018, the Corporation repurchased approximately 4.1 million shares under this program
for a total cost of $63.7 million, or $15.49 per share. Up to an additional $11.3 million of the Corporation's common stock may
be repurchased under this program through December 31, 2019.
Total commissions and fees paid on stock repurchases in 2018 were $139,000. Under both repurchase programs, repurchased
shares were added to treasury stock, at cost. As permitted by securities laws and other legal requirements, and subject to market
67
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 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 leverage capital (to average assets) ..........................
2018
12.8%
10.2%
10.2%
9.0%
2017
13.0%
10.4%
10.4%
8.9%
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 Federal Reserve Board approved final rules (the "U.S. Basel III Capital Rules") establishing a new comprehensive
capital framework for U.S. banking organizations and implementing the Basel Committee on Banking Supervision's December
2010 framework for strengthening international capital standards. The U.S. Basel III Capital Rules substantially revise the risk-
based capital requirements applicable to bank holding companies and depository institutions.
The minimum regulatory capital requirements established by the U.S. Basel III Capital Rules became effective for the Corporation
on January 1, 2015, and were 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.
As of January 1, 2019, the Corporation and its bank subsidiaries are also 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, 2018, 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 table
above. There are no conditions or events since December 31, 2018 that management believes have changed the institutions'
categories. 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.
68
The following table summarizes the Corporation's significant contractual obligations to third parties, by type, that were fixed and
determinable as of December 31, 2018:
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) .................. $ 13,654,255
Time deposits (2)................................................
1,561,694
Short-term borrowings (3) ..................................
754,777
Long-term debt (3) .............................................
252,351
Operating leases (4)............................................
18,013
Purchase obligations (5) .....................................
19,434
Uncertain tax positions (6) .................................
501
$
— $
— $
920,579
—
341,410
32,935
43,376
973
184,677
—
130,195
25,102
10,347
652
— $ 13,654,255
2,721,904
754,777
992,279
119,357
73,157
2,726
54,954
—
268,323
43,307
—
600
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, 2018 (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 ......................................................................................................................... $
3,642,545
1,475,066
1,188,972
6,306,583
309,352
48,682
358,034
69
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, i.e. a non-parallel instantaneous shock, on
net interest income as of December 31, 2018 (due to the current level of interest rates, the 300 basis point downward shock scenario
is not shown):
Rate Shock (1)
+300 bp ........................................................................................................
+200 bp ........................................................................................................
+100 bp ........................................................................................................
–100 bp.........................................................................................................
–200 bp.........................................................................................................
Annual change
in net interest income
+ $63.0 million
+ $43.5 million
+ $22.6 million
– $37.0 million
– $88.0 million
% Change in net
interest income
+ 9.2%
+ 6.3%
+ 3.3%
– 5.4%
– 12.8%
(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
70
economic value of equity for a 100 basis point shock in interest rates, 20% for a 200 basis point shock and 30% for a 300 basis
point shock. As of December 31, 2018, 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 and the gross fair values are
recorded in other assets and 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.
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, brokered 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 experience a proportionate increase. 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, 2018, the Corporation had $987.0 million of short- and long-term advances outstanding from the FHLB with
an additional borrowing capacity of approximately $2.4 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, 2018, the Corporation had aggregate availability under federal funds lines of $1.3 billion, with nothing
borrowed against that amount. A combination of commercial real estate loans, commercial loans and securities are pledged to the
Federal Reserve Bank of Philadelphia to provide access to Federal Reserve Bank Discount Window borrowings. As of December 31,
2018, the Corporation had $505.2 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 2018 generated $296.8 million of cash, mainly due to net income. Cash used in investing activities was $740.7
million, due to net increases in loans and investment securities. Net cash provided by financing activities was $487.5 million due
mainly to increases in deposits.
71
The following table presents the expected maturities of available for sale investment securities, at estimated fair value, and held
to maturity investment securities, at amortized cost, as of December 31, 2018 and the weighted average yields on 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)
Available for sale
U.S. Government sponsored agency
securities .................................................... $
—
—% $
28,683
2.80% $
2,949
3.08% $
—
—%
State and municipal (1) ...................................
Corporate debt securities ...............................
Auction rate securities (2) ...............................
5,741
999
—
3.30
2.49
—
24,092
17,407
—
3.60
3.47
—
21,641
82,119
—
5.59
4.59
—
227,622
102,994
9,007
3.98
3.90
4.44
Total....................................................... $
6,740
3.18% $
70,182
3.24% $ 106,709
4.75% $ 339,623
3.97%
Held to maturity
State and municipal (1) ................................... $
Available for sale
Collateralized mortgage obligations (3).......... $
Residential mortgage-backed securities (3) ....
Commercial mortgage-backed securities (3) ..
Held to maturity
Residential mortgage-backed securities (3) .... $
—
—% $
—
—% $
—
—% $ 156,134
4.16%
832,080
463,344
261,616
2.75%
2.39%
2.54%
450,545
2.14%
(1) Weighted average yields on tax-exempt securities have been computed on a fully taxable-equivalent basis assuming a federal tax rate of 21% 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, 2018, 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, 2018:
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:
876,941
217,839
1,094,780
1,415,137
477,863
1,893,000
Adjustable and floating rate ...................................... $
Fixed rate...................................................................
Total ................................................................... $
262,806
82,290
345,096
$
$
$
$
$
$
2,136,919
364,662
2,501,581
4,196,186
1,091,589
5,287,775
328,465
9,638
338,103
$
$
$
$
$
$
544,728
270,503
815,231
2,348,503
608,188
2,956,691
224,737
8,663
233,400
$
$
$
$
$
$
3,558,588
853,004
4,411,592
7,959,826
2,177,640
10,137,466
816,008
100,591
916,599
(1) Includes commercial mortgages, residential mortgages and home equity loans.
72
Contractual maturities of time deposits as of December 31, 2018 were as follows (in thousands):
Year
2019.......................................................................................................................................................................... $ 1,561,694
667,265
2020..........................................................................................................................................................................
253,314
2021..........................................................................................................................................................................
153,447
2022..........................................................................................................................................................................
31,230
2023..........................................................................................................................................................................
54,954
Thereafter .................................................................................................................................................................
$ 2,721,904
Contractual maturities of time deposits of $100,000 or more outstanding, included in the table above, as of December 31, 2018
were as follows (in thousands):
Three months or less ................................................................................................................................................ $
Over three through six months .................................................................................................................................
Over six through twelve months ..............................................................................................................................
Over twelve months .................................................................................................................................................
230,906
185,930
342,036
486,665
Total................................................................................................................................................................... $ 1,245,537
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, 2018, the Corporation owned state and municipal securities issued by various states and municipalities with
a total fair value of $436.3 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, 2018, 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.
Auction Rate Securities
As of December 31, 2018, 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 $103.0 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, 2018, all of the ARCs were rated above investment grade. All of the loans underlying the ARCs have
principal payments which are guaranteed by the federal government. At December 31, 2018, all of the Corporation's ARCs were
current and making scheduled interest payments.
73
Corporate Debt Securities
The Corporation holds corporate debt securities in the form of single-issuer trust preferred securities and subordinated debt and
senior debt issued by financial institutions. As of December 31, 2018, these securities had an amortized cost of $111.5 million and
an estimated fair value of $109.5 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.
74
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share data)
Assets
Cash and due from banks ...................................................................................................... $
Interest-bearing deposits with other banks............................................................................
Total cash and cash equivalents .....................................................................................
Federal Reserve Bank and Federal Home Loan Bank stock.................................................
Loans held for sale ................................................................................................................
Investment securities:
December 31,
2018
2017
$
103,436
342,251
445,687
79,283
27,099
108,291
293,805
402,096
60,761
31,530
Available for sale, at estimated fair value......................................................................
Held to maturity, at amortized cost ................................................................................
Loans, net of unearned income .............................................................................................
Allowance for loan losses .....................................................................................................
Net Loans ..................................................................................................................
Premises and equipment........................................................................................................
Accrued interest receivable ...................................................................................................
Goodwill and intangible assets .............................................................................................
Other assets ...........................................................................................................................
2,080,294
606,679
16,165,800
(160,537)
16,005,263
234,529
58,879
531,556
612,883
Total Assets................................................................................................................ $ 20,682,152
2,547,956
—
15,768,247
(169,910)
15,598,337
222,802
52,910
531,556
588,957
$ 20,036,905
Liabilities
Deposits:
Noninterest-bearing........................................................................................................ $
Interest-bearing ..............................................................................................................
Total Deposits............................................................................................................
4,310,105
12,066,054
16,376,159
$
4,437,294
11,360,238
15,797,532
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, 221.8 million shares
—
754,777
754,777
10,529
300,835
992,279
18,434,579
220,000
397,524
617,524
9,317
344,329
1,038,346
17,807,048
issued in 2018 and 220.9 million shares issued in 2017 ................................................
554,377
1,489,703
Additional paid-in capital......................................................................................................
946,032
Retained earnings ..................................................................................................................
(59,063)
Accumulated other comprehensive loss................................................................................
Treasury stock, 51.6 million shares in 2018 and 45.7 million shares in 2017 ......................
(683,476)
2,247,573
Total Shareholders’ Equity........................................................................................
Total Liabilities and Shareholders’ Equity................................................................ $ 20,682,152
552,232
1,478,389
821,619
(32,974)
(589,409)
2,229,857
$ 20,036,905
See Notes to Consolidated Financial Statements
75
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.......................................................................................................
Investment management and trust services....................................................................................
Service charges on deposit accounts..............................................................................................
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 ....................................................................................................................
Professional fees ............................................................................................................................
Equipment expense ........................................................................................................................
Amortization of tax credit investments..........................................................................................
FDIC insurance expense ................................................................................................................
State taxes ......................................................................................................................................
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
2018
2017
2016
683,042
$
603,961
$
543,385
56,039
12,076
5
1,159
6,193
758,514
87,712
8,489
31,857
128,058
630,456
46,907
583,549
53,777
52,148
48,889
19,026
21,648
195,488
37
195,525
303,202
51,678
41,286
33,758
14,161
13,243
11,449
10,993
9,590
56,744
546,104
232,970
24,577
208,393
1.19
1.18
0.52
$
$
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
49,249
51,006
19,928
25,861
198,903
9,071
207,974
290,130
49,708
38,735
27,501
12,688
12,935
11,028
11,049
10,051
61,754
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
45,270
51,346
19,415
20,124
187,628
2,550
190,178
283,353
47,611
36,919
23,883
11,004
12,788
—
9,767
6,405
57,789
489,519
208,249
46,624
161,625
0.93
0.93
0.41
76
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net Income..............................................................................................................................................
$ 208,393
$ 171,753
$ 161,625
2018
2017
2016
Other Comprehensive (Loss) Income, net of tax:
Unrealized (losses) gains on available for sale investment securities:
Unrealized (loss) gain on securities...................................................................................................
(24,326)
10,432
(14,891)
Reclassification adjustment for securities gains included in net income ..........................................
(30)
(5,894)
(1,657)
Amortization of net unrealized losses on securities transferred to held to maturity .........................
Non-credit related unrealized gain (loss) on other-than-temporarily impaired debt securities.........
2,098
222
—
185
—
(185)
Net unrealized (losses) gains on available for sale investment securities .........................................
(22,036)
4,723
(16,733)
Unrealized gains on derivative financial instruments:
Amortization of unrealized loss on derivative financial instruments................................................
—
—
16
Defined benefit pension plan and postretirement benefits:
Unrecognized pension and postretirement income (cost) .................................................................
Amortization of net unrecognized pension and postretirement income............................................
Net unrealized gains on defined benefit pension and postretirement plans ......................................
1,400
1,648
3,048
(609)
1,361
752
(931)
1,216
285
Other Comprehensive (Loss) Income..........................................................................................
(18,988)
5,475
(16,432)
Total Comprehensive Income .......................................................................................................
$ 189,405
$ 177,228
$ 145,193
See Notes to Consolidated Financial Statements
77
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
(Loss) Income
Treasury
Stock
Total
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 ..........
5,578
5,209
171,753
(82,233)
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
Net income ....................................................................
Other comprehensive loss .............................................
Stock issued...................................................................
Stock-based compensation awards................................
Acquisition of treasury stock.........................................
Reclassification of stranded tax effects (1) .....................
Common stock cash dividends - $0.52 per share ..........
977
33
(5,996)
2,062
83
3,432
7,882
208,393
(18,988)
1,241
208,393
(18,988)
6,735
7,965
7,101
(91,081)
(7,101)
(95,308)
(95,308)
—
(91,081)
Balance at December 31, 2018.............................................
170,184
$
554,377
$ 1,489,703
$
946,032
$
(59,063)
$
(683,476)
$
2,247,573
See Notes to Consolidated Financial Statements
(1) Result of adoption of ASU 2018-02. See Note 1 to Consolidated Financial Statements for further details.
78
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:
208,393
$
171,753
$
161,625
2018
2017
2016
Provision for credit losses...............................................................................................
Depreciation and amortization of premises and equipment............................................
Amortization of tax credit investments...........................................................................
Net amortization of investment security premiums........................................................
Deferred income tax (benefit) 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 issuance costs and discounts on long-term debt...................................
Stock-based compensation..............................................................................................
Excess tax benefits from stock-based compensation......................................................
Increase in accrued interest receivable ...........................................................................
Increase in other assets ...................................................................................................
Increase (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 available for sale securities........................................................
Proceeds from paydowns and maturities of securities held to maturity .........................
Proceeds from principal repayments and maturities of available for sale securities ......
Purchases of available for sale securities........................................................................
(Purchase) redemption of Federal Reserve Bank and Federal Home Loan Bank stock.
Net increase in loans .......................................................................................................
Net purchases of premises and equipment......................................................................
Net change in tax credit investments ..............................................................................
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 Increase in Cash and Cash Equivalents ......................................................................
Cash and Cash Equivalents at Beginning of Year .............................................................
Cash and Cash Equivalents at End of Year........................................................................ $
46,907
28,156
38,606
9,297
(15,749)
(809)
(37)
(13,021)
795,756
(778,304)
813
7,965
—
(5,969)
(26,090)
1,212
(306)
88,427
296,820
54,638
35,900
290,681
(558,949)
(18,522)
(447,849)
(39,883)
(56,733)
(740,717)
435,872
142,755
137,253
50,000
(100,165)
6,735
—
(89,654)
(95,308)
487,488
43,591
402,096
445,687
Supplemental Disclosures of Cash Flow Information
Cash paid during period for:
Interest ....................................................................................................................... $
Income taxes..............................................................................................................
126,846
13,547
Supplemental schedule of certain noncash activities
23,305
28,096
37,185
10,107
24,896
15,635
(9,071)
(13,036)
644,400
(634,197)
845
5,209
—
(6,616)
(7,958)
(315)
(2,480)
116,005
287,758
13,182
27,403
23,982
10,430
11,054
—
(2,550)
(15,685)
709,316
(705,442)
617
6,556
(964)
(3,527)
(53,922)
(1,092)
45,090
64,448
226,073
184,734
—
417,673
(584,921)
(3,272)
(1,087,521)
(33,092)
(28,932)
(1,135,331)
115,844
—
558,854
(782,765)
4,727
(873,939)
(19,674)
(40,663)
(1,037,616)
782,525
2,143
76,207
223,251
(115,153)
8,538
—
(80,368)
—
897,143
49,570
352,526
402,096
93,817
6,537
$
$
992,253
(111,706)
43,654
215,884
(236,640)
16,167
964
(69,382)
(18,545)
832,649
21,106
331,420
352,526
83,420
16,193
$
$
Transfer of available for sale securities to held to maturity securities
$
641,672
$
— $
—
See Notes to Consolidated Financial Statements
79
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 four wholly owned banking subsidiaries: Fulton
Bank, N.A., Fulton Bank of New Jersey, The Columbia Bank and Lafayette Ambassador 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, most debt securities and all marketable equity securities
are classified as available for sale. Securities available for sale are carried at estimated fair value with the related unrealized holding
gains and losses reported in shareholders’ equity as a component of other comprehensive income, net of tax. Realized securities
gains and losses are computed using the specific identification method and are recorded on a trade date basis.
Securities are evaluated periodically to determine whether declines in value are other-than-temporary. 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 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.
80
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 Financing Receivables: 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 it is determined that those
borrowers are experiencing financial difficulty and the Corporation grants the borrowers concessions. 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,
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
81
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 a heightened credit risk, but not to the point of justifying a classification of substandard.
Loans in this category are currently acceptable, but are nevertheless potentially weak.
Substandard or Lower: These loans are inadequately protected by current sound worth and paying capacity of the borrower.
There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.
The Corporation 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 (“FASB”) Accounting Standards Codification ("ASC") Section 310-10-35; and 2)
allowances calculated for pools of loans evaluated for impairment under 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, 2018 and 2017, 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, 2018 and 2017, approximately 89% and 94%, 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 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. Collateral could also be in the form of 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.
82
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 ASC Section 310-10-35 are evaluated for impairment under ASC Subtopic 450-20,
using a pooled loss evaluation approach. Loans are segmented into pools with similar characteristics and a consistently developed
loss factor is then applied to all loans in these pools. Certain portfolio segments are further disaggregated and evaluated collectively
for impairment based on class segments. 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, home equity loans and indirect automobile loans.
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 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; and
• 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
on the Corporation's reserve for credit losses.
Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation and amortization. The
provision for depreciation and amortization is generally computed using the straight-line method over the estimated useful lives
of the related assets, which are a maximum of 50 years for buildings and improvements, 8 years for furniture and 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.
83
Mortgage Servicing Rights ("MSRs"): The estimated fair value of MSRs related to residential mortgage loans sold and serviced
by the Corporation is recorded as an asset upon the sale of such loans. MSRs are amortized as a reduction to servicing income
over the estimated lives of the underlying loans.
MSRs are stratified and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair
values are determined through a discounted cash flows valuation completed by a third-party valuation expert. Significant inputs
to the valuation include expected net servicing income, the discount rate and the expected lives of the underlying loans. Expected
life is based on the contractual terms of the loans, as adjusted for prepayment projections. To the extent the amortized cost of the
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, exceeds $10 billion in total assets and is required to clear all eligible interest rate swap contracts with
a central counterparty. As a result, Fulton Bank is subject to the regulations of Commodity Futures Trading Commission ("CFTC").
Foreign Exchange Contracts
The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts
are commitments to buy or sell foreign currency on a specific date at a contractual price. The Corporation limits its foreign exchange
exposure with customers by entering into contracts with institutional counterparties to mitigate its foreign exchange risk. The
Corporation also holds certain amounts of foreign currency 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.
84
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. Not all of the derivatives are required
to be cleared through a daily clearing agent. As a result, the total fair values of 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 on Interest Rate Swaps and Foreign Exchange Contracts, 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 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.
Effective January 1, 2018, the Corporation adopted ASC Update 2018-02, "Income Statement - Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This standards update
permits a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings of the stranded tax effects
resulting from the application of the Tax Cuts and Jobs Act of 2017 ("Tax Act"), which changed the federal corporate income tax
rate from a top rate of 35% to a flat rate of 21%. Upon adoption, the Corporation elected to reclassify $7.1 million of stranded tax
effects from AOCI to retained earnings at the beginning of the period of adoption. The Corporation's policy for releasing income
tax effects from accumulated other comprehensive income is to release them as investments are sold or mature and as pension
and post-retirement liabilities are extinguished.
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").
85
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 Company has not issued stock options since 2014. The fair value of restricted stock,
RSUs and a majority of PSUs are based on the trading price of the Corporation's stock on the date of grant. The fair value of certain
PSUs are estimated through the use of the Monte Carlo valuation methodology as of the date of grant.
Equity awards issued under the Employee Equity Plan are generally granted annually and become fully vested over or after a
three-year vesting period. The vesting period for non-performance-based awards represents the period during which employees
are required to provide service in exchange for such awards. Equity awards under the Directors' Plan generally vest immediately
upon grant. Certain events, as defined in the Employee Equity Plan and the Directors' Plan, result in the acceleration of the vesting
of equity awards. Restricted stock, RSUs and PSUs earn dividends during the vesting period, which are forfeitable if the awards
do not vest.
The fair value of stock options, restricted stock and RSUs granted to employees is recognized as compensation expense over the
vesting period for such awards. Compensation expense for PSUs is also recognized over the vesting period, however, compensation
expense for PSUs may vary based on the expectations for actual performance relative to defined performance measures.
Net Income Per Share: Basic net income per common share is calculated as net income divided by the weighted average number
of shares outstanding.
Diluted net income per share is calculated as net income divided by the weighted average number of shares outstanding plus the
incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock
method. The Corporation’s common stock equivalents consist of outstanding stock options, restricted stock, RSUs and PSUs.
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)......................................
2018
175,395
1,148
176,543
2017
(in thousands)
174,721
1,211
175,932
2016
173,325
1,093
174,418
In 2016, 534,000 stock options 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 2018 and 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 four 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
86
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 2018, 2017 or 2016. 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"): ASC Topic 810 provides guidance on when to consolidate certain VIEs in the financial
statements of the Corporation. VIEs are entities in which equity investors do not have a controlling financial interest or do not
have sufficient equity at risk for the entity to finance activities without additional financial support from other parties. VIEs are
assessed for consolidation under ASC Topic 810 when the Corporation holds variable interests in these entities. The Corporation
consolidates VIEs when it is deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined to be the party
that has the power to make decisions that most significantly affect the economic performance of the VIE and has the obligation
to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.
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.
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, 2018 and 2017. 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 2018, 2017 or 2016. For additional details, see "Note 12 - Income
Taxes."
Fair Value Measurements: 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.
87
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.
Effective January 1, 2018, the Corporation adopted 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 update requires equity investments to be measured at fair value, with changes recorded in net
income. It also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure
purposes. The adoption of this update did not have a material impact on the consolidated financial statements.
In 2008, the Corporation received Class B restricted shares of Visa, Inc. ("Visa") as part of Visa’s initial public offering. In
accordance with the ASC Update 2016-01, these securities are considered equity securities without readily determinable values.
As such, the approximately 133,000 Visa Class B shares remaining that the Corporation owned as of December 31, 2018 are
carried at a zero cost basis.
Revenue Recognition: Effective January 1, 2018, the Corporation adopted ASC Update 2014-09, "Revenue from Contracts with
Customers" using the modified retrospective method applied to all open contracts as of January 1, 2018 with no material impact
on its consolidated financial statements. This update established 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 sources of revenue for the Corporation are interest income from loans and investments, net of interest expense on deposits
and borrowings, and non-interest income. Non-interest income is earned from various banking and financial services that the
Corporation offers through its subsidiary banks. Revenue is recognized as earned based on contractual terms, as transactions occur,
or as services are provided. Following is further detail of the various types of revenue the Corporation earns and when it is
recognized:
Interest income: Interest income is recognized on an accrual basis according to loan agreements, securities contracts or other
such written contracts.
Investment management and trust services: Consists of trust commission income, brokerage income, money market income
and insurance commission income. Trust commission income consists of advisory fees that are based on market values of
clients' managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned.
Brokerage income includes advisory fees which are recognized as earned on a monthly basis and transaction fees that are
recognized when transactions occur. Money market income is based on the balances held in trust accounts and is recognized
monthly. Insurance commission income is earned and recognized when policies are originated. Currently, no investment
management and trust service income is based on performance or investment results.
Service charges on deposit accounts: Consists of cash management, overdraft, non-sufficient fund fees and other service charges
on deposit accounts. Revenue is primarily transactional and recognized when earned, at the time the transactions occur.
Other service charges and fees: Consists of branch fees, automated teller machine fees, debit card income and merchant services
fees. These fees are primarily transactional, and revenue is recognized when transactions occur. Also included in other service
charges and fees are letter of credit fees, foreign exchange income and commercial loan interest rate swap fees.
Mortgage banking income: Consists of gains or losses on the sale of residential mortgage loans and mortgage loan servicing
income.
Other Income: Includes credit card income, gains on sales of Small Business Association ("SBA") loans, cash surrender value
of life insurance, and other miscellaneous income.
Cash and Cash Equivalents and Restricted Cash: In 2018, the Corporation adopted 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.
88
As a result of the adoption of ASC Update 2016-18, in the fourth quarter of 2018 cash and cash equivalents, as included in the
consolidated statements of cash flows, include those amounts presented in “cash and due from banks” and “interest-bearing deposits
with other banks” on the consolidated balance sheets. All periods presented in the consolidated statements of cash flows have been
revised to conform to this presentation. This had no impact on net income, net income per share or retained earnings.
Cash and cash equivalents includes restricted cash. Restricted cash comprises cash balances required to be maintained with the
Federal Reserve Bank, based on customer transaction deposit account levels, and cash balances provided as collateral on derivative
and other contracts. See Note 2, “Restrictions on Cash and Cash Equivalents” for additional information.
The Corporation determined that the total amounts of beginning-of-period and end-of-period cash and restricted cash, and the
changes in other interest-earning assets presented in the consolidated statements of cash flows in the Form 10-Q’s filed for the
periods ended March 31, 2018, June 30, 2018 and September 30, 2018 were immaterially misstated. Total restricted cash balances
presented in the footnotes to the consolidated statements of cash flows were properly stated. The immaterial corrections of cash
and restricted cash within the consolidated statements of cash flows, as shown in the following tables, had no impact on the amounts
of “cash and due from banks” and “interest-bearing deposits with other banks” presented on the consolidated balance sheets.
Three Months Ended
March 31
Six Months Ended
June 30
Nine Months Ended
September 30
2018
2017
2018
2017
2018
2017
As Reported:
(in thousands)
Decrease (increase) in other interest-earning assets
$
86,760
$ (59,135) $ (3,480) $ (71,845) $ (49,225) $ (376,696)
Net cash provided by (used in) investing activities
36,715
(279,869)
(217,199)
(656,240)
(478,766)
(1,202,312)
Net (decrease) increase in cash and restricted cash
(8,140)
(24,919)
(1,793)
5,920
(33,465)
(41,112)
Cash and restricted cash - beginning of period
108,291
118,763
246,726
236,887
Cash and restricted cash - end of period
100,151
93,844
244,933
242,807
246,726
213,261
236,887
195,775
As Corrected:
Decrease (increase) in other interest-earning assets
$
59,034
$ (76,087) $
4,312
$ (57,819) $ (39,974) $ (341,385)
Net cash provided by (used in) investing activities
8,989
(296,821)
(209,407)
(642,214)
(469,515)
(1,167,001)
Net (decrease) increase in cash and restricted cash
(35,866)
(41,871)
5,999
19,946
(24,214)
(5,801)
Cash and restricted cash - beginning of period
159,304
144,812
159,304
144,812
Cash and restricted cash - end of period
123,438
102,941
165,303
164,758
159,304
135,090
144,812
139,011
Effective January 1, 2018 the Corporation adopted 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. The adoption of this update did not have a material impact on the consolidated financial statements.
Defined Benefit Pension: Net periodic pension costs are funded based on the requirements of federal laws and regulations. The
determination of net periodic pension costs is based on assumptions about future events that will affect the amount and timing of
required benefit payments under the plan. These assumptions include demographic assumptions such as retirement age and
mortality, a discount rate used to determine the current benefit obligation, form of payment election and a long-term expected rate
of return on plan assets. Net periodic pension expense includes interest cost, based on the assumed discount rate, an expected
return on plan assets, amortization of prior service cost or credit and amortization of net actuarial gains or losses. For the Corporation,
there is no service cost as the plan was curtailed in 2008, with no additional benefits accruing. Net periodic pension cost is
recognized in salaries and employee benefits on the consolidated statements of income.
In March 2017, the FASB issued ASC Update No. 2017-07, "Compensation - Retirement Benefits: Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement 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 allows only the
service cost component of net benefit cost to be eligible for capitalization. This update was effective for interim and annual reporting
periods beginning after December 15, 2017. The Corporation adopted this standards update effective with its March 31, 2018
quarterly report on Form 10-Q and the adoption of this update did not have a material impact on its consolidated financial statements.
89
Date of
Anticipated
Adoption
First Quarter
2019
First Quarter
of 2020
Recently Issued Accounting Standards:
Standard
ASC Update
2016-02 Leases
(Topic 842)
ASC Update
2016-13
Financial
Instruments -
Credit Losses
(Topic 326):
Measurement of
Credit Losses
on Financial
Instruments
Description
This update requires a lessee to recognize for all leases with an
initial term greater than twelve months: (1) a "right-of-use" asset,
which is an asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term; and (2) a lease
liability, which is a lessee’s obligation to make lease payments
arising from a lease, measured on a discounted basis. ASC Update
2016-02 is effective for interim and annual reporting periods
beginning after December 15, 2018. In July 2018, the FASB also
issued amendments to ASC Update 2016-02 (ASC Updates
2018-10 and 2018-11), which allow for an alternative transition
method that eliminates the requirement to restate the earliest prior
period presented in an entity’s financial statements. Entities that
elect this transition method still adopt ASC Update 2016-02 using
the modified retrospective transition method, but they recognize
a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption rather than in the earliest period
presented. In December of 2018, the FASB issued an additional
amendment to this update (ASC Update 2018-20) which narrows
the scope on sales taxes and other similar taxes collected from
lessees, certain lessor costs and recognition of variable payments
for contracts with lease and nonlease components.
This update requires lessors to classify leases as a sales-type,
direct financing or operating. Substantially all of
the
Corporation's leasing activities as lessor are under direct
financing leases and it does not expect the new standard to have
a material effect on its financial statements related to these leases.
The new impairment model prescribed by this standards update
is a single impairment model for all financial assets (i.e., loans
and held to maturity 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 under current U.S. GAAP. This update also requires
new disclosures for financial assets measured at amortized cost,
loans and available-for-sale debt securities. Entities will apply
the standard's provisions as a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period
in which the guidance is adopted. This adjustment will also be
recognized in regulatory capital. This update is effective for
interim and annual reporting periods beginning after December
15, 2019. Early adoption is permitted.
Improvements
In November 2018, the FASB issued ASC Update 2018-19,
"Codifications
to Topic 326, Financial
Instruments - Credit Losses" which clarifies that receivables
arising from operating leases are accounted for using lease
guidance and not as financial instruments.
90
Effect on Financial Statements
The Corporation is adopting this update
effective with its March 31, 2020
quarterly report on Form 10-Q using the
alternative
transition method. The
Corporation applied the package of
practical expedients permitted within the
new standard, which, among other
things, allows it to carryforward the
historical lease classification, initial
direct costs for leases that commenced
before the effective date, and the ability
to use hindsight in evaluating lessee
options to extend or terminate a lease or
to purchase the underlying asset.
Based on preliminary evaluation, the
right-of-use asset and corresponding
lease obligation
liability, are each
expected to be between $105 million to
$115 million
adoption. The
at
Corporation will continue to evaluate
other impacts of adoption but does not
anticipate these to be material.
be
the
could
by
is currently unable
The Corporation intends to adopt these
standards updates effective with its
March 31, 2020 quarterly report on Form
10-Q. The Corporation is currently
evaluating the impact of the adoption of
this update on its consolidated financial
statements and disclosures. While the
Corporation
to
reasonably estimate the impact of this
update, it expects that the impact of
significantly
adoption
influenced
composition,
characteristics and quality of its loan
portfolio as well as the prevailing
economic conditions and forecasts as of
the adoption date. The Corporation’s
steering committee and working group,
which are comprised of individuals from
various functional areas, are assessing
processes,
segmentation,
systems requirements and solutions and
resources
this new
accounting standard. Current activities
also include data gathering and building
loss models. The Corporation anticipates
it will begin full parallel runs of the new
processes and controls in mid-2019. In
addition, the Corporation has engaged a
third-party consultant to assist with these
implementation efforts.
implement
portfolio
to
Description
The FASB issued this update to simplify the subsequent
quantitative measurement of goodwill by eliminating Step 2 of
the goodwill impairment test. Instead, 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 amounts 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. This update is effective for annual or interim goodwill
impairment tests in reporting periods beginning after December
15, 2019. Early adoption is permitted.
This update changes the fair value measurement disclosure
requirements of ASC Topic 820 "Fair Value Measurement."
Among other things, the update modifies the disclosure objective
paragraphs of ASC 820 to eliminate: (1) "at a minimum" from
the phrase "an entity shall disclose at a minimum;" and (2) other
similar disclosure requirements to promote the appropriate
exercise of discretion by entities.
Date of
Anticipated
Adoption
Fourth
Quarter of
2020, in line
with its
annual
impairment
testing in
October of
each year
First Quarter
2020
This update amends ASC Topic 715-20 to add, remove, and
clarify disclosure requirements related to defined benefit pension
and other postretirement plans. This update is effective for annual
reporting periods beginning after December 15, 2020. Early
adoption is permitted.
First Quarter
2021
Effect on Financial Statements
The Corporation does not expect the
adoption of this update to have a material
impact on its consolidated financial
statements. The Corporation has not been
required to perform step 2 since its 2012
impairment testing.
standard will
The Corporation intends to adopt this
standards update effective with its March
31, 2020 quarterly report on Form 10-Q.
This
the
Corporation's Fair Value Measurement
disclosure but the Corporation does not
expect the adoption of this update to have
a material impact on its consolidated
financial statements.
impact
standard will
The Corporation intends to adopt this
standards update effective with its March
31, 2021 quarterly report on Form 10-Q.
the
This
to
Corporation's disclosure relating
employee benefit plans, but
the
Corporation does not expect the adoption
of this update to have a material impact
on its consolidated financial statements.
impact
This update requires a customer in a cloud computing
arrangement that is a service contract to follow the internal-use
software guidance in ASC Subtopic 350-40 to determine which
implementation costs to capitalize as assets. This update is
effective for annual or interim reporting periods beginning after
December 15, 2019. Early adoption is permitted.
First Quarter
2020
The Corporation intends to adopt this
standards update effective with its March
31, 2020 quarterly report on Form 10-Q
and does not expect the adoption of this
update
its
to have an
consolidated financial statements.
impact on
Standard
ASC Update
2017-04
Intangibles -
Goodwill and
Other (Topic
350):
Simplifying the
Test for
Goodwill
Impairment
ASC Update
2018-13 Fair
Value
Measurement
(Topic 820):
Disclosure
Framework -
Changes to the
Disclosure
Requirements
for Fair Value
Measurement
ASC Update
2018-14
Compensation -
Retirement
Benefits -
Defined Benefit
Plans - General
(Subtopic
715-20):
Disclosure
Framework -
Changes to the
Disclosure
Requirements
for Defined
Benefit Plans
ASC Update
2018-15
Intangibles -
Goodwill and
Other - Internal
Use Software
(Topic 350-40):
Customer’s
Accounting for
Implementation
Costs Incurred
in a Cloud
Computing
Arrangement
That is a
Service
Contract
Reclassifications: Certain amounts in the 2017 and 2016 consolidated financial statements and notes have been reclassified to
conform to the 2018 presentation. On the Consolidated Statements of Cash Flows, the net change in tax credit investments is
presented as cash flows from investing activities. Prior to 2018, these cash flows were presented as cash flows from operating
activities, included in the net increase (decrease) in other liabilities. The presentation of the cash flows for the years ended December
31, 2017 and 2016 were changed to conform to this presentation, resulting in a $28.9 million and $40.7 million decrease, respectively,
in net cash flows used in investing activities and a corresponding increase in net cash flows provided by operating activities. The
change had no impact on net income or retained earnings.
91
NOTE 2 – RESTRICTIONS ON CASH AND CASH EQUIVALENTS
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, 2018 and 2017 were $156.8 million and $124.4 million, respectively.
In addition, collateral is posted by the Corporation with counterparties to secure derivative contracts and other contracts, which
are included in "interest-bearing deposits with other banks". The amounts of such collateral as of December 31, 2018 and 2017
were $45.1 million and $14.0 million, respectively.
NOTE 3 – INVESTMENT SECURITIES
The following tables present the amortized cost and estimated fair values of investment securities, as of December 31:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(in thousands)
2018
Available for Sale
31,586
U.S. Government sponsored agency securities ........................... $
282,383
State and municipal securities .....................................................
111,454
Corporate debt securities .............................................................
841,294
Collateralized mortgage obligations............................................
476,973
Residential mortgage-backed securities ......................................
264,165
Commercial mortgage-backed securities ....................................
107,410
Auction rate securities .................................................................
Total.......................................................................................... $ 2,115,265
Held to Maturity
State and municipal securities ..................................................... $
Residential mortgage-backed securities ......................................
Total.......................................................................................... $
156,134
450,545
606,679
2017
Available for Sale
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
$
$
$
$
$
$
185
2,178
1,432
2,758
1,583
524
—
8,660
1,166
3,667
4,833
2
5,638
2,832
491
3,957
—
—
12,920
142
13,062
$
$
$
$
$
$
(139) $
31,632
(5,466)
279,095
(3,353)
109,533
(11,972)
832,080
(15,212)
463,344
(3,073)
261,616
(4,416)
102,994
(43,631) $ 2,080,294
(93) $
—
(93) $
157,207
454,212
611,419
(26) $
(2,549)
(1,876)
(9,795)
(15,241)
(2,596)
(8,742)
(40,825)
—
5,938
408,949
97,309
602,623
1,120,796
212,755
98,668
2,547,038
918
(40,825) $ 2,547,956
On August 1, 2018, the Corporation transferred debt securities with an amortized cost of $665.5 million and an estimated fair
value of $641.7 million from the available for sale classification to the held to maturity classification. These securities consisted
of residential mortgage-backed securities ($505.5 million amortized cost and $485.3 million estimated fair value) and state and
municipal securities ($160.0 million amortized cost and $156.4 million estimated fair value) and were transferred as the Corporation
has the positive intent and ability to hold these securities to maturity. The transfer of debt securities into the held to maturity
category from the available for sale category was recorded at fair value on the date of transfer. The net unrealized gains or losses
at the transfer date are included in AOCI and are being amortized over the remaining lives of the securities. This amortization is
92
expected to offset the amortization of the related premium or discount created by the investment securities transfer into the held
to maturity classification, with no expected impact on future net income.
Securities carried at $973.4 million at December 31, 2018 and $1.8 billion at December 31, 2017, were pledged as collateral to
secure public and trust deposits and customer repurchase agreements.
The amortized cost and estimated fair values of debt securities as of December 31, 2018, 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.
Available for Sale
Held to Maturity
Amortized
Cost
Estimated
Fair Value
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 .............................................................................
6,738
69,672
108,091
348,332
532,833
476,973
841,294
264,165
Total ............................................................................................ $ 2,115,265
Residential mortgage-backed securities(1)..........................................
Commercial mortgage-backed securities(1) ........................................
Collateralized mortgage obligations (1) ..............................................
$
6,740
70,182
106,709
339,623
523,254
463,344
832,080
261,616
$ 2,080,294
$
$
— $
—
—
156,134
156,134
450,545
—
—
606,679
$
—
—
—
157,207
157,207
454,212
—
—
611,419
(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)
2018:
Equity securities .................................................................................................... $
Debt securities.......................................................................................................
Total ............................................................................................................... $
2017:
Equity securities .................................................................................................... $
Debt securities.......................................................................................................
Total ............................................................................................................... $
2016:
Equity securities .................................................................................................... $
Debt securities.......................................................................................................
Total ............................................................................................................... $
9
1,656
1,665
13,558
315
13,873
2,005
581
2,586
$
$
$
$
$
$
— $
(1,628)
(1,628) $
— $
(4,802)
(4,802) $
(10) $
(26)
(36) $
9
28
37
13,558
(4,487)
9,071
1,995
555
2,550
93
The cumulative balance of credit-related other-than-temporary impairment charges, previously recognized as components of
earnings, for debt securities held by the Corporation at December 31, 2018, 2017 and 2016 was $11.5 million. There were no
other-than-temporary impairment charges recognized for the years ended December 31, 2018, 2017 and 2016.
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, 2018.
Less Than 12 months
12 Months or Longer
Total
Number of
Securities
Estimated
Fair Value
Unrealized
Losses
Number of
Securities
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
(in thousands)
1
33
8
39
17
1
—
99
$
4,961
$
(31)
72,950
24,419
136,563
18,220
9,778
—
(1,292)
(227)
(1,050)
(222)
(35)
—
$
266,891
$
(2,857)
1
38
14
89
110
25
177
454
$
5,770
$
(108) $
10,731
$
(139)
83,770
25,642
388,173
402,779
197,326
102,994
(4,174)
(3,126)
(10,922)
(14,990)
(3,038)
(4,416)
156,720
50,061
524,736
420,999
207,104
102,994
(5,466)
(3,353)
(11,972)
(15,212)
(3,073)
(4,416)
$ 1,206,454
$
(40,774) $ 1,473,345
$
(43,631)
Available for Sale
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
Held to Maturity
State and municipal securities ...............
Total held to maturity
6
6
$
$
20,601
20,601
$
$
(93)
(93)
— $
— $
— $
— $
— $
20,601
— $
20,601
$
$
(93)
(93)
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, 2017.
Less Than 12 months
12 Months or Longer
Total
Number of
Securities
Estimated
Fair Value
Unrealized
Losses
Number of
Securities
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
(in thousands)
Available for Sale
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 ...........................
2
4
1
60
116
22
—
$
5,830
$
11,650
4,544
303,932
511,378
(26)
(50)
(48)
(2,408)
(4,348)
190,985
(2,118)
—
—
Total..............................................
205
$ 1,028,319
$
(8,998)
— $
— $
— $
5,830
$
(26)
48
19
57
89
3
177
393
118,297
32,163
187,690
500,375
21,770
98,668
(2,499)
(1,828)
(7,387)
129,947
36,707
491,622
(2,549)
(1,876)
(9,795)
(10,893)
1,011,753
(15,241)
(478)
212,755
(8,742)
98,668
(2,596)
(8,742)
$ 958,963
$
(31,827) $ 1,987,282
$
(40,825)
The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do
not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the decline in fair
value of these securities is attributable to changes in interest rates and not credit quality, and because the Corporation does not
have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery
of their fair value to amortized cost, the Corporation did not consider these investments to be other-than-temporarily impaired as
of December 31, 2018.
94
As of December 31, 2018, all 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, 2018. 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.
Based on management’s evaluations, no corporate debt securities were subject to any other-than-temporary impairment charges
as of December 31, 2018. 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.
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:
2018
2017
(in thousands)
Real estate – commercial mortgage ............................................................................................... $ 6,434,285
4,404,548
Commercial – industrial, financial and agricultural.......................................................................
2,251,044
Real estate – residential mortgage..................................................................................................
1,452,137
Real estate – home equity...............................................................................................................
916,599
Real estate – construction...............................................................................................................
419,186
Consumer .......................................................................................................................................
311,866
Leasing and other ...........................................................................................................................
2,774
Overdrafts.......................................................................................................................................
16,192,439
Loans, gross of unearned income............................................................................................
(26,639)
Unearned income............................................................................................................................
Loans, net of unearned income ............................................................................................... $ 16,165,800
$ 6,364,804
4,300,297
1,954,711
1,559,719
1,006,935
313,783
291,556
4,113
15,795,918
(27,671)
$ 15,768,247
The Corporation has extended credit to officers and directors of the Corporation and to their associates. These related-party loans
are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk of collection. The aggregate dollar amount of
these loans, including unadvanced commitments, was $116.4 million and $113.6 million as of December 31, 2018 and 2017,
respectively. During 2018, additions totaled $54.6 million and repayments totaled $51.8 million in related-party loans.
The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.8 billion and $4.6 billion as
of December 31, 2018 and 2017, 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 ................................................................................... $
160,537
8,873
169,410
2018
2017
(in thousands)
169,910
$
6,174
176,084
$
2016
$
$
168,679
2,646
171,325
95
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 ........................................................................................... $
2018
176,084
(66,076)
12,495
(53,581)
46,907
169,410
2017
(in thousands)
171,325
$
(33,290)
14,744
(18,546)
23,305
176,084
$
$
$
2016
171,412
(33,927)
20,658
(13,269)
13,182
171,325
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, 2016 ................ $
46,842
$
54,353
$
26,801
$
22,929
$
6,455
$
3,574
$
3,192
$
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
813
Net loans charged off...............................
(501)
(11,296)
(1,527)
786
99
1,582
1,156
968
(2,183)
(1,071)
(2,067)
Provision for loan losses (1)......................
12,452
23,223
(7,147)
(6,940)
Balance at December 31, 2017 ................
58,793
66,280
18,127
16,088
2,348
6,620
(458)
2,045
832
1,957
Loans charged off ....................................
(2,045)
(52,441)
(3,087)
(1,574)
(1,368)
(3,040)
(2,521)
Recoveries of loans previously charged
off.............................................................
1,622
4,994
1,127
Net loans charged off...............................
(423)
(47,447)
(1,960)
620
(954)
1,829
461
1,266
1,037
(1,774)
(1,484)
Provision for loan losses (1)......................
(5,481)
40,035
2,744
3,787
(2,020)
2,946
2,197
—
—
—
(33,290)
14,744
(18,546)
(4,533)
19,777
—
—
—
—
—
169,910
(66,076)
12,495
(53,581)
44,208
Balance at December 31, 2018 ................ $
52,889
$
58,868
$
18,911
$
18,921
$
5,061
$
3,217
$
2,670
$
— $
160,537
Allowance for loan losses at December 31, 2018
Loans collectively evaluated for
impairment ....................................... $
Loans individually evaluated for
impairment .......................................
45,634
$
46,355
$
8,541
$
9,527
$
4,268
$
3,210
$
2,670
$
— $
120,205
7,255
12,513
10,370
9,394
793
7
—
N/A
40,332
$
52,889
$
58,868
$
18,911
$
18,921
$
5,061
$
3,217
$
2,670
$
— $
160,537
Loans, net of unearned income at December 31, 2018
Loans collectively evaluated for
impairment ....................................... $ 6,388,212
46,073
Loans individually evaluated for
impairment .......................................
$ 4,349,255
$1,428,764
$ 2,212,274
$
909,209
$ 419,175
$ 268,733
N/A $15,975,622
55,293
23,373
38,770
7,390
11
19,268
N/A
190,178
$ 6,434,285
$ 4,404,548
$1,452,137
$ 2,251,044
$
916,599
$ 419,186
$ 288,001
N/A $16,165,800
Allowance for loan losses at December 31, 2017
Loans collectively evaluated for
impairment ....................................... $
Loans individually evaluated for
impairment .......................................
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
Loans collectively evaluated for
impairment ....................................... $ 6,316,023
48,781
Loans individually evaluated for
impairment .......................................
$ 4,236,572
$1,535,026
$ 1,913,004
$
994,738
$ 313,757
$ 267,998
N/A $15,577,118
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
(1)
For the year ended December 31, 2018, the provision for loan losses excluded a $2.7 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 $46.9 million for the year ended December 31,
2018. 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 was $23.3 million for the year ended December 31, 2017.
N/A – Not applicable.
96
Impaired Loans
The following table presents total impaired loans by class segment as of December 31:
2018
2017
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 ............................................
Real estate - residential mortgage ..........
Construction ...........................................
Leasing ...................................................
With a related allowance recorded:
Real estate - commercial mortgage ........
Commercial ............................................
Real estate - home equity .......................
Real estate - residential mortgage ..........
Construction ...........................................
Consumer ...............................................
25,095
$
23,481
$
33,493
3,149
8,980
19,269
89,986
29,005
37,706
26,599
39,972
5,984
11
26,585
3,149
5,083
19,268
77,566
22,592
28,708
23,373
35,621
2,307
11
— $
—
—
—
—
26,728
$
22,886
$
44,936
4,575
12,477
—
39,550
4,575
8,100
—
88,716
75,111
7,255
12,513
10,370
9,394
793
7
33,710
29,816
28,282
42,597
7,308
26
25,895
24,175
24,693
37,132
4,097
26
Total........................................................ $
229,263
$
190,178
$
40,332
$
230,455
$
191,129
$
139,277
112,612
40,332
141,739
116,018
—
—
—
—
—
8,112
11,406
11,124
9,895
967
17
41,521
41,521
As of December 31, 2018 and 2017, there were $77.6 million and $75.1 million, respectively, of impaired loans that did not have
a related allowance for loan loss. The estimated fair values of the collateral securing these loans exceeded their carrying amount,
or the loans have been charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered
to be necessary.
97
The following table presents average impaired loans, by class segment, for the years ended December 31:
2018
2017
2016
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 ...............................................
Real estate - residential mortgage .............
Construction ..............................................
With a related allowance recorded:
Real estate - commercial mortgage ...........
Commercial ...............................................
Real estate - home equity ..........................
Real estate - residential mortgage .............
Construction ..............................................
Consumer ..................................................
Leasing, other and overdrafts....................
25,258
$
33,395
3,727
6,943
69,323
24,300
24,888
24,426
36,387
2,683
16
3,854
368
259
91
—
718
345
185
794
896
—
1
—
(in thousands)
$
22,793
$
31,357
4,631
7,255
66,036
27,193
24,112
21,704
39,093
6,160
33
285
281
182
107
12
582
338
137
534
903
11
2
—
$
24,232
$
19,825
5,598
6,285
55,940
31,737
26,744
17,912
42,191
6,501
33
854
116,554
Total........................................................... $ 185,877
2,221
118,580
1,925
125,972
$
2,939
$
184,616
$
2,507
$ 181,912
$
294
104
126
48
572
384
134
285
908
41
2
—
1,754
2,326
(1) All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the years ended December 31, 2018, 2017 and 2016
represents amounts earned on accruing TDRs.
98
Credit Quality Indicators and Non-performing Assets
The following table presents internal credit risk ratings for the indicated loan class segments as of December 31:
Pass
Special Mention
Substandard or Lower
Total
2018
2017
2018
2017
2018
2017
2018
2017
(dollars in thousands)
Real estate - commercial
mortgage .................................. $
6,129,463
$ 6,066,396
$
170,827
$
147,604
$
133,995
$
150,804
$
6,434,285
$ 6,364,804
Commercial - secured ...................
3,902,484
Commercial -unsecured ................
171,589
3,831,485
159,620
193,470
4,016
121,842
5,478
129,026
3,963
179,113
2,759
4,224,980
4,132,440
179,568
167,857
Total commercial - industrial,
financial and agricultural ...
Construction - commercial
residential.................................
Construction - commercial ...........
Total construction (excluding
construction - other)...........
4,074,073
3,991,105
197,486
127,320
132,989
181,872
4,404,548
4,300,297
104,079
723,030
143,759
761,218
827,109
904,977
6,912
1,163
8,075
5,259
846
6,105
6,881
2,533
9,414
14,084
3,752
117,872
726,726
163,102
765,816
17,836
844,598
928,918
Total............................................ $ 11,030,645
$ 10,962,478
$
376,388
$
281,029
$
276,398
$
350,512
$ 11,683,431
$ 11,594,019
% of Total......................................
94.4%
94.6%
3.2%
2.4%
2.4%
3.0%
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
2018
2017
2018
2017
2018
2017
2018
2017
(dollars in thousands)
Real estate - home equity ............ $
1,431,666
$ 1,535,557
$
10,702
$
12,655
$
9,769
$
11,507
$
1,452,137
$ 1,559,719
Real estate - residential
mortgage ................................
2,202,955
1,914,888
28,988
18,852
19,101
20,971
2,251,044
1,954,711
Real estate - construction - other.
Consumer - direct........................
Consumer - indirect.....................
Total consumer .....................
Leasing, other and overdrafts......
71,511
55,629
359,405
415,034
267,112
77,403
54,828
254,663
309,491
267,111
—
338
3,405
3,743
1,302
203
315
3,681
3,996
855
Total .......................................... $
4,388,278
$ 4,104,450
$
44,735
$
36,561
$
490
66
343
409
19,587
49,356
411
70
226
296
32
72,001
56,033
363,153
419,186
288,001
78,017
55,213
258,570
313,783
267,998
$
33,217
$
4,482,369
$ 4,174,228
% of Total....................................
97.9%
98.3%
1.0%
0.9%
1.1%
0.8%
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 .................................................................................................... $
2018
2017
(in thousands)
128,572
11,106
139,678
10,518
150,196
$
$
124,749
10,010
134,759
9,823
144,582
99
The following table presents past due status and non-accrual loans, by portfolio segment and class segment, as of December 31:
2018
30-59
Days Past
Due
60-89
Days Past
Due
Past Due
and
Accruing
Non-
accrual
Current
Total
(in thousands)
Real estate - commercial mortgage........................................................................................ $
12,206
$
1,500
$
1,765
$
30,388
$ 6,388,426
$ 6,434,285
Commercial - secured ............................................................................................................
Commercial - unsecured ........................................................................................................
Total Commercial - industrial, financial and agricultural.................................................
Real estate - home equity.......................................................................................................
5,227
1,598
6,825
7,144
Real estate - residential mortgage ..........................................................................................
20,796
Construction - commercial.....................................................................................................
—
Construction - commercial residential ...................................................................................
2,489
Construction - other ...............................................................................................................
Total Real estate - construction.........................................................................................
Consumer - direct...................................................................................................................
Consumer - indirect................................................................................................................
Total Consumer.................................................................................................................
Leasing, other and overdrafts.................................................................................................
—
2,489
267
2,908
3,175
1,005
938
—
938
3,558
8,192
—
—
—
—
71
497
568
297
1,068
51
1,119
3,061
4,433
—
—
—
—
66
343
409
319
49,299
4,168,448
4,224,980
851
177,068
179,568
50,150
4,345,516
4,404,548
6,708
1,431,666
1,452,137
14,668
2,202,955
2,251,044
19
726,707
726,726
6,881
490
7,390
—
—
—
108,502
117,872
71,511
72,001
906,720
916,599
55,629
56,033
359,405
363,153
415,034
419,186
19,268
267,112
288,001
Total .............................................................................................................................. $
53,640
$
15,053
$
11,106
$
128,572
$15,957,429
$16,165,800
2017
30-59
Days Past
Due
60-89
Days Past
Due
Past Due
and
Accruing
Non-
accrual
Current
Total
(in thousands)
Real estate - commercial mortgage........................................................................................ $
9,456
$
4,223
$
625
$
34,822
$ 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
4,068,793
4,132,440
649
166,848
167,857
52,904
4,235,641
4,300,297
9,135
1,535,557
1,559,719
15,691
1,914,888
1,954,711
19
765,314
765,816
11,767
150,896
163,102
411
77,403
78,017
12,197
993,613
1,006,935
—
—
—
—
54,828
55,213
254,663
258,570
309,491
313,783
267,111
267,998
Total .............................................................................................................................. $
40,709
$
20,800
$
10,010
$
124,749
$15,571,979
$15,768,247
100
The following table presents TDRs as of December 31:
2018
2017
Real-estate - residential mortgage .................................................................................................. $
Real estate - home equity ...............................................................................................................
Real-estate - commercial mortgage................................................................................................
Commercial ....................................................................................................................................
Consumer - direct ...........................................................................................................................
Total accruing TDRs..................................................................................................................
Non-accrual TDRs (1)......................................................................................................................
Total TDRs ................................................................................................................................ $
(1)
Included within non-accrual loans in the preceding table.
$
(in thousands)
24,102
16,665
15,685
5,143
10
61,605
28,659
90,264
$
26,016
15,558
13,959
10,820
26
66,379
29,051
95,430
As of December 31, 2018 and 2017, there were $41,600 and $8.6 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:
2018
2017
2016
Number
of Loans
Post-
Modification
Recorded
Investment
Number
of Loans
Post-
Modification
Recorded
Investment
Number
of Loans
Post-
Modification
Recorded
Investment
(dollars in thousands)
$
8
—
6
—
85
11
4
2
1
—
—
—
4,226
—
8,261
—
4,549
538
451
345
5
—
—
—
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
—
—
12
—
—
—
89
47
—
2
6
—
—
2
$
3,904
—
—
—
4,484
2,671
—
315
981
—
—
23
Commercial:
Extend maturity without rate concession.................
Bankruptcy...............................................................
Real estate - commercial mortgage:
Extend maturity without rate concession.................
Bankruptcy...............................................................
Real estate - home equity:
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:
Bankruptcy...............................................................
Total ...................................................................
117
$
18,375
143
$
29,634
158
$
12,378
101
The following table presents TDRs, by class segment, that were modified during the years ended December 31, 2018, 2017 and
2016 that had a post-modification payment default during their respective year of modification. The Corporation defines a payment
default as a single missed scheduled payment:
2018
2017
2016
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 ................................................................................
—
2
5
1
30
—
38
—
—
448
717
2,163
1,635
—
$
4,963
NOTE 5 – PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
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
2018
2017
Land ................................................................................................................................................ $
Buildings and improvements ..........................................................................................................
Furniture and equipment.................................................................................................................
Construction in progress .................................................................................................................
Less: Accumulated depreciation and amortization .........................................................................
Total ....................................................................................................................................... $
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
$
(in thousands)
35,160
325,831
150,566
24,993
536,550
(302,021)
234,529
35,560
307,332
150,876
19,916
513,684
(290,882)
222,802
$
Goodwill totaled $530.6 million and non-amortizing trade name intangible assets totaled $963,000 as of both December 31, 2018
and 2017. All of the Corporation’s reporting units passed the 2018 goodwill impairment test, resulting in no goodwill impairment
charges in 2018. All reporting units, with total allocated goodwill of $530.6 million, had fair values that exceeded net book values
by approximately 63% 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.
102
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 to the valuation allowance ...........................................................................
Balance at end of year.................................................................................................. $
2018
2017
(in thousands)
37,663
6,756
(5,846)
38,573
$
$
— $
—
— $
38,822
4,968
(6,127)
37,663
(1,291)
1,291
—
Net MSRs at end of year.............................................................................................. $
38,573
$
37,663
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 a valuation allowance was no longer necessary as of December 31, 2017 and remained unnecessary at December 31,
2018. 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 $50.2 million and $41.6 million as of December 31, 2018 and 2017, respectively.
Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income,
was $5.8 million and $6.1 million in 2018 and 2017, respectively. Estimated MSR amortization expense for the next five years,
based on balances as of December 31, 2018 and the estimated remaining lives of the underlying loans, follows (in thousands):
Year
2019.......................................................................................................................................................................... $
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
2023..........................................................................................................................................................................
6,477
6,037
5,549
5,010
4,419
103
NOTE 8 – DEPOSITS
Deposits consisted of the following as of December 31:
2018
2017
(in thousands)
Noninterest-bearing demand........................................................................................................... $ 4,310,105
4,240,974
Interest-bearing demand .................................................................................................................
4,926,937
Savings and money market accounts..............................................................................................
13,478,016
Total demand and savings ...........................................................................................................
176,239
Brokered deposits ...........................................................................................................................
2,721,904
Time deposits..................................................................................................................................
Total Deposits.............................................................................................................................. $ 16,376,159
$ 4,437,294
4,018,107
4,586,746
13,042,147
90,473
2,664,912
$ 15,797,532
The scheduled maturities of time deposits as of December 31, 2018 were as follows (in thousands):
Year
2019.......................................................................................................................................................................... $ 1,561,694
667,265
2020..........................................................................................................................................................................
253,314
2021..........................................................................................................................................................................
153,447
2022..........................................................................................................................................................................
31,230
2023..........................................................................................................................................................................
54,954
Thereafter .................................................................................................................................................................
$ 2,721,904
Included in time deposits were certificates of deposit equal to or greater than $100,000 of $1.2 billion as of both December 31,
2018 and 2017. Time deposits of $250,000 or more were $425.1 million and $373.9 million as of December 31, 2018 and 2017,
respectively.
NOTE 9 – SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of December 31, 2018, 2017 and 2016 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.
2018
December 31,
2017
2016
Maximum Outstanding
2017
2018
2016
(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
385,000
43,500
326,277
754,777
$
$
278,570
—
195,734
67,013
541,317
$
525,000
385,000
181,989
365,689
$
387,110
250,000
233,274
237,298
$
449,184
—
221,989
77,887
(1) Represents FHLB advances with an original maturity term of less than one year.
As of December 31, 2018, the Corporation had aggregate availability under federal funds lines of $1.3 billion. 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, 2018 and 2017, the Corporation had $505.2 million and $617.4 million,
respectively, of collateralized borrowing availability at the Discount Window, and no outstanding borrowings.
104
The following table presents information related to customer repurchase agreements:
2018
Amount outstanding as of December 31............................................................... $
Weighted average interest rate as of December 31 ...............................................
Average amount outstanding during the year........................................................ $ 138,198
Weighted average interest rate during the year .....................................................
43,500
0.21%
0.25%
2017
(dollars in thousands)
$
172,017
$
2016
195,734
0.13%
0.10%
$
188,974
$
184,978
0.12%
0.11%
FHLB advances with an original maturity of one year or more and long-term debt included the following as of December 31:
FHLB advances .............................................................................................................................. $
Subordinated debt ...........................................................................................................................
Senior notes ....................................................................................................................................
Junior subordinated deferrable interest debentures ........................................................................
Unamortized discounts and issuance costs .....................................................................................
$
2018
2017
(in thousands)
601,978
250,000
125,000
16,496
(1,195)
992,279
$
652,113
250,000
125,000
16,496
(5,263)
$ 1,038,346
Excluded from the preceding table is the Parent Company’s revolving line of credit with one of its subsidiary banks. As of
December 31, 2018 and 2017, 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 bears interest at the 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 2.42%. As of December 31, 2018, the
Corporation had additional borrowing capacity of approximately $2.4 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, 2018 (in thousands):
Year
2019 ................................................................................................................................................................ $
2020 ................................................................................................................................................................
2021 ................................................................................................................................................................
2022 ................................................................................................................................................................
2023 ................................................................................................................................................................
Thereafter........................................................................................................................................................
$
252,351
142,173
199,237
130,195
—
268,323
992,279
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.
105
As of December 31, 2018, 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, 2018 (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
5.05% $
4.68%
4.56%
6,186
4,124
6,186
$
16,496
06/30/34
03/15/35
06/15/35
03/31/19
03/15/19
03/15/19
Call
Price
100.0
100.0
100.0
106
NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the notional amounts and fair values of derivative financial instruments as of December 31:
2018
2017
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..................................
101,700
1,646
$
$
1,148
(12)
1,136
129,469
8,957
$
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) ..................................................................
Negative fair values (1).................................................................
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 .........................................
1,540
83,562
1,185,144
1,386,046
1,386,046
1,185,144
5,881
9,690
9,220
6,831
$
3
(1,066)
(1,063)
33,258
(30,769)
2,489
28,143
(16,338)
11,805
105
(251)
(146)
287
(130)
157
14,378
3,856
100,808
1,316,548
716,634
716,634
1,316,548
4,852
5,914
7,960
6,048
$
1,059
(59)
1,000
34
(213)
(179)
24,505
(18,978)
5,527
18,941
(19,764)
(823)
276
(119)
157
184
(255)
(71)
5,611
(1) 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 $14.3 million and $4.6 million at December 31, 2018 and 2017.
The following table presents the fair value gains and losses on derivative financial instruments for the years ended December 31:
2018
2017
2016
(in thousands)
Statement of Income
Classification
Interest rate locks with customers................................... $
136
$
364
$
(639) Mortgage banking income
Forward commitments ....................................................
(884)
(2,290)
1,930 Mortgage banking income
Interest rate swaps with customers (1) .............................
(3,038)
(1,872)
(25,461) Other non-interest expense
Interest rate swaps with counterparties (1).......................
12,628
6,576
25,461 Other non-interest expense
Foreign exchange contracts with customers ...................
Foreign exchange contracts with correspondent banks ..
(303)
228
(126)
135
353 Other service charges and fees
(487) Other service charges and fees
Net fair value gains on derivative financial instruments $
8,767
$
2,787
$
1,157
(1) Not included are the $9.7 million and $4.6 million of expense related to the variation margin settlements at December 31, 2018 and 2017, respectively.
107
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, 2018 and 2017:
Cost (1)
Fair Value
Balance Sheet
Classification
Fair Value
Gain
Statement of Income
Classification
(in thousands)
26,407
$
27,099 Loans held for sale
$
231 Mortgage banking income
December 31, 2018:
Mortgage loans held for sale ... $
December 31, 2017:
Mortgage loans held for sale ...
31,069
31,530 Loans held for sale
472 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
(in thousands)
2018
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.............................................................................................. $
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 .............................................................................................. $
61,401
287
61,688
47,107
130
47,237
43,446
184
43,630
38,742
255
38,997
$
$
$
$
$
$
$
$
(12,955) $
(130)
(13,085) $
(23,270) $ 25,176
157
(23,270) $ 25,333
—
(22,786) $
(130)
(22,916) $
(22,786) $ 1,535
—
(22,786) $ 1,535
—
(16,844) $
(184)
(17,028) $
(16,844) $
(184)
(17,028) $
— $ 26,602
—
—
— $ 26,602
(6,588) $ 15,310
71
(6,588) $ 15,381
—
(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.
108
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 became 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 minimum Tier 1 capital of
6.00% of risk-weighted assets;
• Meet a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of
4.00% of average assets;
• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses.
Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, are excluded as a component
of Tier 1 capital for institutions of the Corporation's size.
The 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.
Effective January 1, 2019, the Corporation and its bank subsidiaries were also required to maintain a "capital conservation buffer"
of 2.50% above the minimum risk-based capital requirements. The rules provide that the failure to maintain the "capital conservation
buffer" results in restrictions on capital distributions and discretionary cash bonus payments to executive officers. As a result,
under the 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 common stock, service its debt obligations or repurchase its common stock.
As of December 31, 2018, 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, 2018 and 2017, 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, 2018 that management believes have changed the
institutions’ categories.
109
The following tables present the Total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage
requirements under the U.S. Basel III Capital Rules, as of December 31:
2018
For Capital
Adequacy Purposes
Actual
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation.................................................................... $ 2,200,257
Fulton Bank, N.A. .........................................................
1,319,090
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
418,207
266,661
180,604
12.8% $ 1,380,905
8.0%
N/A
N/A
12.1
13.3
12.9
16.0
871,413
250,999
165,676
90,077
8.0
8.0
8.0
8.0
$ 1,089,267
10.0%
313,748
207,094
112,596
10.0
10.0
10.0
Tier I Capital (to Risk-Weighted Assets):
Corporation.................................................................... $ 1,764,847
Fulton Bank, N.A...........................................................
1,225,797
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
378,962
242,668
169,835
10.2% $ 1,035,679
6.0%
N/A
11.3
12.1
11.7
15.1
653,560
188,249
124,257
67,558
6.0
6.0
6.0
6.0
$
871,413
250,999
165,676
90,077
N/A
8.0%
8.0
8.0
8.0
Common Equity Tier I Capital (to Risk-weighted Assets):
Corporation.................................................................... $ 1,764,847
Fulton Bank, N.A...........................................................
1,181,797
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
378,962
242,668
169,835
10.2% $
776,759
4.5%
N/A
N/A
10.8
12.1
11.7
15.1
490,170
141,187
93,192
50,668
4.5
4.5
4.5
4.5
$
708,023
6.5%
203,936
134,611
73,187
6.5
6.5
6.5
Tier I Leverage Capital (to Average Assets):
Corporation.................................................................... $ 1,764,847
Fulton Bank, N.A...........................................................
1,225,797
Fulton Bank of New Jersey ...........................................
The Columbia Bank.......................................................
Lafayette Ambassador Bank..........................................
378,962
242,668
169,835
9.0% $
783,118
4.0%
N/A
10.0
9.4
10.1
10.9
487,992
162,098
96,269
62,520
4.0
4.0
4.0
4.0
$
609,989
202,623
120,336
78,150
N/A
5.0%
5.0
5.0
5.0
N/A – Not applicable as "well capitalized" applies to banks only.
110
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
1,234,536
Fulton Bank, N.A. ................................................................
385,858
Fulton Bank of New Jersey ..................................................
234,647
The Columbia Bank..............................................................
173,097
Lafayette Ambassador Bank.................................................
13.0% $ 1,338,560
805,125
12.3
248,640
12.4
153,441
12.2
94,720
14.6
Tier I Capital (to Risk-Weighted Assets):
Corporation........................................................................... $ 1,737,060
1,142,230
Fulton Bank, N.A..................................................................
346,867
Fulton Bank of New Jersey ..................................................
215,651
The Columbia Bank..............................................................
162,292
Lafayette Ambassador Bank.................................................
10.4% $ 1,003,920
603,843
11.3
186,480
11.2
115,081
11.2
71,040
13.7
Common Equity Tier I Capital (to Risk-weighted Assets):
Corporation........................................................................... $ 1,737,060
1,098,230
Fulton Bank, N.A..................................................................
346,867
Fulton Bank of New Jersey ..................................................
215,651
The Columbia Bank..............................................................
162,292
Lafayette Ambassador Bank.................................................
Tier I Leverage Capital (to Average Assets):
Corporation........................................................................... $ 1,737,060
1,142,230
Fulton Bank, N.A..................................................................
346,867
Fulton Bank of New Jersey ..................................................
215,651
The Columbia Bank..............................................................
162,292
Lafayette Ambassador Bank.................................................
10.4% $
10.9
11.2
11.2
13.7
8.9% $
10.0
8.8
9.3
10.1
752,940
452,883
139,860
86,310
53,280
778,451
458,016
158,027
92,797
64,191
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
$ 1,006,406
310,801
191,801
118,400
N/A
10.0%
10.0
10.0
10.0
$
$
$
N/A
805,125
248,640
153,441
94,720
N/A
654,164
202,020
124,671
76,960
N/A
572,520
197,534
115,996
80,239
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 to the Corporation was approximately
$324 million as of December 31, 2018, 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.
111
NOTE 12 – INCOME TAXES
The components of the provision for income taxes are as follows:
Current tax expense:
Federal .......................................................................................................... $
State ..............................................................................................................
Deferred tax (benefit) expense:
Federal ..........................................................................................................
State ..............................................................................................................
Total income tax expense..................................................................................... $
2018
2017
(in thousands)
2016
35,783
5,352
41,135
(16,841)
283
(16,558)
24,577
$
$
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
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
2018
2017
2016
Statutory tax rate ...................................................................................................
Tax credit investments...........................................................................................
Tax-exempt income...............................................................................................
Bank owned life insurance ....................................................................................
Re-measurement of net deferred tax asset due to the Tax Act ..............................
Change in valuation allowance .............................................................................
Executive compensation .......................................................................................
State income taxes, net of federal benefit .............................................................
Other, net...............................................................................................................
Effective income tax rate ......................................................................................
21.0%
(6.1)
(4.1)
(0.4)
(0.3)
(0.1)
0.1
2.0
(1.6)
10.5%
35.0%
(7.8)
(6.6)
(0.4)
6.7
1.2
0.1
(0.5)
(1.0)
26.7%
35.0%
(7.0)
(6.5)
(0.6)
—
0.3
0.1
1.2
(0.1)
22.4%
112
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 ..................................................................................................... $
Tax credit carryforward ...........................................................................................................
Unrealized holding losses on securities...................................................................................
State loss carryforwards ..........................................................................................................
Other accrued expenses ...........................................................................................................
Deferred compensation............................................................................................................
Postretirement and defined benefit plans ................................................................................
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 ....................................................................................................... $
2018
2017
(in thousands)
37,906
27,615
12,489
11,605
7,232
7,064
5,079
1,803
11,127
121,920
31,466
8,560
5,294
3,579
1,292
12,178
62,369
59,551
(11,605)
47,946
$
$
40,554
—
5,830
11,855
6,977
7,663
7,274
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
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, 2018 and 2017, the Corporation had state net operating loss carryforwards of approximately $347.3 million
and $369.1 million, respectively, which are available to offset future state taxable income, and expire at various dates through
2038.
The Corporation has $1.7 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, 2018.
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, 2018.
113
Uncertain Tax Positions
The following summarizes the changes in unrecognized tax benefits for the years ended December 31:
2018
2017
(in thousands)
2016
Balance at beginning of year .............................................................................................. $
Current period tax positions ...............................................................................................
Lapse of statute of limitations ............................................................................................
Balance at end of year ........................................................................................................ $
2,550
593
(417)
2,726
$
$
2,438
523
(411)
2,550
$
$
2,373
456
(391)
2,438
As of December 31, 2018, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate.
Not included in the table above is $589,000 of federal income tax benefits 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
$59,000 and $42,000 in 2018 and 2017, respectively, for interest and penalties in income tax expense related to unrecognized tax
positions. As of December 31, 2018 and 2017, total accrued interest and penalties related to unrecognized tax positions were
approximately $675,000 and $616,000, 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 2015.
Qualified Affordable Housing Projects and Other Tax Credit Investments
The Corporation's Tax Credit Investments are primarily related to investments promoting qualified affordable housing projects
and investments in community development entities. The majority of these tax-advantaged investments support the Corporation's
regulatory compliance with the Community Reinvestment Act ("CRA"). The Corporation's investments in these projects generate
a return primarily through the realization of federal income tax credits and deductions for operating losses over a specified time
period.
The Corporation's Tax Credit Investments are included in other assets on the consolidated balance sheets, with any unfunded equity
commitments carried in other liabilities on the consolidated balance sheets. Certain Tax Credit Investments qualify for the
proportional amortization method and are amortized over the period the Corporation expects to receive the tax credits, with the
expense included within income taxes on the consolidated statements of income. Other Tax Credit Investments are accounted for
under the equity method of accounting, with amortization included within non-interest expense on the consolidated statements of
income. This amortization includes equity in partnership losses and the systematic write-down of investments over the period in
which income tax credits are earned. All of the tax credit investments are evaluated for impairment at the end of each reporting
period.
The following table presents the balances of the Corporation's affordable housing tax credit investments, other tax credit investments
and related unfunded commitments as of December 31:
Included in other assets:
Affordable housing tax credit investments, net .........................................
Other tax credit investments, net ...............................................................
Total tax credit investments, net......................................................
Included in other liabilities:
Unfunded affordable housing tax credit commitments .............................
Other tax credit liabilities ..........................................................................
Total unfunded tax credit commitments and liabilities ...................
$
$
$
$
2018
2017
2016
(in thousands)
170,401
72,584
242,985
23,196
59,823
83,019
$
$
$
$
191,771
79,753
271,524
68,848
62,049
130,897
$
$
$
$
169,382
89,881
259,263
40,634
69,132
109,766
114
The following table presents other information relating to the Corporation's affordable housing tax credit investments and other
tax credit investments for the years ended December 31:
2018
2017
2016
(in thousands)
Components of Income Taxes:
Affordable housing tax credits and other tax benefits ...................................................
$ (30,721) $ (25,642) $ (23,571)
Other tax credit investment credits and tax benefits......................................................
(6,385)
(15,791)
(8,761)
Amortization of affordable housing investments, net of tax benefit .............................
Deferred tax expense......................................................................................................
21,569
1,341
16,958
6,201
15,574
2,177
Total reduction in income tax expense......................................................................
$ (14,196) $ (18,274) $ (14,581)
Amortization of Tax Credit Investments:
Affordable housing tax credits investment ....................................................................
$
3,355
$
— $
Other tax credit investment amortization.......................................................................
8,094
11,028
Total amortization of tax credit investments recorded in non-interest expense........
$
11,449
$
11,028
$
—
—
—
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 ..........................................................................................................
$
2018
8,482
3,435
11,917
2017
(in thousands)
8,121
$
4,168
12,289
$
$
$
2016
7,418
4,310
11,728
The 401(k) Retirement Plan is a defined contribution plan under which eligible employees may defer a portion of their pre-tax
covered compensation on an annual basis, with employer matches of up to 5% of employee compensation. Employee and employer
contributions under these features are 100% vested.
Contributions to the 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.
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 ................................................................................. $
2018
2017
(in thousands)
2016
— $
— $
3,053
(2,047)
2,429
3,435
$
3,320
(1,804)
2,652
4,168
$
688
3,520
(2,318)
2,420
4,310
(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.
115
The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the plan years
ended December 31:
2018
2017
Projected benefit obligation at beginning of year........................................................................... $
Interest cost.....................................................................................................................................
Benefit payments ............................................................................................................................
Change in assumptions ...................................................................................................................
Experience gain ..............................................................................................................................
Projected benefit obligation at end of year................................................................................... $
$
(in thousands)
89,482
3,053
(5,796)
(8,051)
738
79,426
$
Fair value of plan assets at beginning of year................................................................................. $
Employer contributions (1)...............................................................................................................
Actual return on plan assets............................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year ........................................................................................ $
54,061
13,042
(3,482)
(5,796)
57,825
$
$
85,363
3,320
(3,751)
5,008
(458)
89,482
48,684
3,816
5,312
(3,751)
54,061
(1) The Corporation funds at least the minimum amount required by federal law and regulations. The Corporation contributed $13.0 million and $3.8 million
to the Pension Plan during 2018 and 2017, 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 .................................................................................................................................. $
(79,426) $
57,825
(21,601) $
(89,482)
54,061
(35,421)
The following table summarizes the changes in the unrecognized net loss included as a component of accumulated other
comprehensive loss:
2018
2017
(in thousands)
Unrecognized Net Loss
Net of tax
Before tax
Balance as of December 31, 2016 .................................................................................................. $
Recognized as a component of 2017 periodic pension cost ...........................................................
Unrecognized gains arising in 2017 ...............................................................................................
Balance as of December 31, 2017 ..................................................................................................
Recognized as a component of 2018 periodic pension cost ...........................................................
Unrecognized losses arising in 2018 ..............................................................................................
Re-measurement adjustments for tax rate changes.........................................................................
Balance as of December 31, 2018 .................................................................................................. $
$
(in thousands)
30,169
(2,652)
1,042
28,559
(2,429)
(1,783)
—
24,347
$
19,610
(1,724)
678
18,564
(1,892)
(1,389)
3,678
18,961
The total amount of unrecognized net loss that will be amortized as a component of net periodic pension cost in 2019 is expected
to be $2.3 million.
The following rates were used to calculate net periodic pension cost and the present value of benefit obligations as of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
4.25%
5.00%
3.50%
5.00%
4.00%
5.00%
2018
2017
2016
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%.
116
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, 2018 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:
2018
2017
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..............................................
$
18,532
9,062
27,594
10,754
11,523
2,985
—
25,262
4,969
57,825
$
47.7%
43.7%
8.6%
100.0% $
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%
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.
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
2019.......................................................................................................................................................................... $
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
2023..........................................................................................................................................................................
2024 – 2028..............................................................................................................................................................
$
3,899
4,203
4,390
4,500
4,628
24,718
46,338
117
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.
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 .................................................................................. $
2018
2017
(in thousands)
68
$
(565)
(497) $
$
57
(559)
(502) $
2016
85
(551)
(466)
The following table summarizes the changes in the accumulated postretirement benefit obligation and fair value of plan assets
for the years ended December 31:
2018
2017
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)
1,700
57
(205)
35
(67)
1,520
$
Fair value of plan assets at beginning of year................................................................................. $
Employer contributions ..................................................................................................................
Benefit payments ............................................................................................................................
Fair value of plan assets at end of year ........................................................................................ $
— $
205
(205)
— $
1,926
68
(216)
(104)
26
1,700
3
213
(216)
—
The funded status of the Postretirement Plan, included in other liabilities on the consolidated balance sheets as of December 31,
2018 and 2017 was $1.5 million and $1.7 million, respectively.
The following table summarizes the changes in items recognized as a component of accumulated other comprehensive loss:
Unrecognized
Prior Service
Cost
Before tax
Unrecognized
Net Loss
(Gain)
(in thousands)
Total
Net of tax
Balance as of December 31, 2016 ...................................................... $
Recognized as a component of 2017 postretirement benefit cost.......
Unrecognized gains arising in 2017 ...................................................
Balance as of December 31, 2017 ......................................................
Recognized as a component of 2018 postretirement benefit cost.......
Unrecognized gains arising in 2018 ...................................................
Re-measurement adjustments for tax rate changes.............................
Balance as of December 31, 2018 ...................................................... $
(4,869) $
465
—
(4,404)
464
—
—
(3,940) $
(1,183) $ (6,052) $ (3,935)
368
566
(50)
(77)
(3,617)
(5,563)
435
559
(25)
(32)
(721)
—
(1,096) $ (5,036) $ (3,928)
101
(77)
(1,159)
95
(32)
—
118
The following rates were used to calculate net periodic postretirement benefit cost and the present value of benefit obligations as
of December 31:
Discount rate-projected benefit obligation............................................................
Expected long-term rate of return on plan assets ..................................................
4.25%
3.00%
3.50%
3.00%
4.25%
3.00%
2018
2017
2016
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
2019.......................................................................................................................................................................... $
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
2023..........................................................................................................................................................................
2024 – 2028..............................................................................................................................................................
$
189
176
164
151
140
534
1,354
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NOTE 14 – SHAREHOLDERS’ EQUITY
Accumulated Other Comprehensive (Loss) Income
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
2018:
Unrealized loss on available for sale securities................................................................................... $
(31,235)
$
6,909
$
(24,326)
Reclassification adjustment for available for sale securities gains included in net income (1)............
Amortization of net unrealized losses on available for sale securities transferred to held to
maturity (2) ...........................................................................................................................................
Non-credit related unrealized loss on other-than-temporarily impaired debt securities .....................
Unrecognized pension and postretirement income .............................................................................
Amortization of net unrecognized pension and postretirement income (3)..........................................
(37)
2,694
285
1,798
2,116
7
(596)
(63)
(398)
(468)
(30)
2,098
222
1,400
1,648
Total Other Comprehensive Loss .................................................................................................. $
(24,379)
$
5,391
$
(18,988)
2017:
Unrealized gain on available for sale securities .................................................................................. $
16,051
$
(5,619)
$
Reclassification adjustment for available for sale 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 (3)..........................................
(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 available for sale securities................................................................................... $
(22,907)
$
8,016
$
(14,891)
Reclassification adjustment for available for sale 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 (4)..............................................
Unrecognized pension and postretirement cost...................................................................................
Amortization of net unrecognized pension and postretirement income (3)..........................................
(2,550)
(285)
25
(1,432)
1,869
893
100
(9)
501
(653)
(1,657)
(185)
16
(931)
1,216
Total Other Comprehensive Loss .................................................................................................. $
(25,280)
$
8,848
$
(16,432)
(1) Amounts reclassified out of accumulated other comprehensive (loss) income. 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 (loss) income. Before-tax amounts as a reduction to "Interest Income" on the consolidated
statements of income. See "Note 3, - Investment Securities," for additional details.
(3) Amounts reclassified out of accumulated other comprehensive (loss) income. Before-tax amounts included in "Salaries and employee benefits" on the
consolidated statements of income. See "Note 13 - Employee Benefit Plans," for additional details.
(4) Amounts reclassified out of accumulated other comprehensive (loss) income. Before-tax amounts included in "Interest Expense" on the consolidated statements
of income.
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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, 2015..................................................................... $
(6,499)
$
458
$
(15) $
(15,961) $ (22,017)
Other comprehensive loss before reclassifications ...........................................
Amounts reclassified from accumulated other comprehensive (loss) income..
Balance as of December 31, 2016.....................................................................
Other comprehensive income before reclassifications .....................................
Amounts reclassified from accumulated other comprehensive (loss) income..
Balance as of December 31, 2017.....................................................................
Other comprehensive loss before reclassifications ...........................................
Amounts reclassified from accumulated other comprehensive (loss) income..
Amortization of net unrealized losses on available for sale securities
transferred to held to maturity...........................................................................
Reclassification of stranded tax effects.............................................................
(14,891)
(1,657)
(23,047)
10,432
(5,894)
(18,509)
(24,326)
(30)
2,098
(3,887)
(185)
—
273
185
—
458
222
—
—
—
—
15
—
—
—
—
—
—
—
—
(931)
(16,007)
1,217
(425)
(15,675)
(38,449)
(609)
1,361
(14,923)
1,400
1,648
—
(3,214)
10,008
(4,533)
(32,974)
(22,704)
1,618
2,098
(7,101)
Balance as of December 31, 2018..................................................................... $
(44,654)
$
680
$
— $
(15,089) $ (59,063)
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 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, 2018. During 2018, the Corporation repurchased approximately 1.9 million
shares under this program for a total cost of approximately $31.5 million, or $16.71 per share, completing this program.
In November 2018, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation
is authorized to repurchase up to $75.0 million of its outstanding shares of common stock, or approximately 2.7% of its outstanding
shares, through December 31, 2019. During 2018, the Corporation repurchased approximately 4.1 million shares under this program
for a total cost of $63.7 million or $15.49 per share. Up to an additional $11.3 million of the Corporation's common stock may be
repurchased under this program through December 31, 2019.
Total commissions and fees paid on stock repurchases in 2018 were $139,000. Under both repurchase programs, repurchased
shares were 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.
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................................................................... $
7,965
(2,625)
5,340
2018
2017
(in thousands)
5,209
$
(3,994)
1,215
$
$
$
2016
6,556
(2,679)
3,877
The tax benefits as a percentage of compensation expense, as shown in the preceding table, were 33.0%, 76.7% and 40.9% in
2018, 2017 and 2016, respectively. These percentages differ from the Corporation’s statutory tax rates of 21% for 2018 and 35%
for 2017 and 2016 ("Tax Rates"). Tax benefits are only recognized over the vesting period for awards that ordinarily will generate
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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 Tax Rates resulted from incentive stock options, for which a tax benefit is not recognized
during the vesting period. Tax benefits in excess of the Tax Rates 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............................................................. $
7,124
(1,585)
5,539
2018
2017
(in thousands)
4,922
$
(1,559)
3,363
$
$
$
2016
6,165
(2,158)
4,007
The following table provides information about stock option activity for the year ended December 31, 2018:
Outstanding and exercisable as of December 31, 2017...............
Exercised ..............................................................................
Forfeited ...............................................................................
Expired .................................................................................
Outstanding and exercisable as of December 31, 2018...............
Exercisable as of December 31, 2018 .........................................
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in millions)
10.66
10.29
9.84
9.78
10.75
10.75
4.1 years
4.1 years
$
$
3.0
3.0
Stock
Options
878,202
(214,845)
(1,117)
(3,472)
658,768
658,768
$
$
$
The following table provides information about nonvested restricted stock, RSUs and PSUs granted under the Employee Equity
Plan and Directors' Plan for the year ended December 31, 2018:
Nonvested as of December 31, 2017 ......................................................................................
Granted ............................................................................................................................
Vested ..............................................................................................................................
Forfeited ..........................................................................................................................
Nonvested as of December 31, 2018 ......................................................................................
(1) There were no nonvested stock options at December 31, 2018 or 2017.
Restricted Stock/RSUs/PSUs(1)
Weighted
Average
Grant Date
Fair Value
13.91
17.15
12.76
16.18
15.49
Shares
1,306,937
536,172
(438,596)
(36,020)
1,368,493
$
$
As of December 31, 2018, 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,
2018, the Employee Equity Plan had 10.5 million shares reserved for future grants through 2023, and the Directors’ Plan had
312,000 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..................................................... $
214,845
1,616
2,210
1,386
$
$
$
411,292
2,955
4,644
2,825
$
$
$
920,924
4,619
10,240
4,328
2018
2017
(dollars in thousands)
2016
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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 ...........................................................................................
2018
2.63%
23.50%
3 Years
2017
1.43%
22.45%
3 Years
2016
0.92%
20.75%
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 2018, 2017 and 2016 of $12.92, $17.25 and $11.23,
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) ............................................... $
2018
110,200
14.74
287
$
$
2017
98,000
15.28
261
$
$
2016
109,665
12.37
240
NOTE 16 – LEASES
Certain branch offices are leased under agreements that expire at varying dates through 2038. Most leases contain renewal provisions
at the Corporation’s option. Total rental expense was approximately $19.0 million in 2018, $18.7 million in 2017 and $18.4 million
in 2016.
Future minimum payments as of December 31, 2018 under non-cancelable operating leases with initial terms exceeding one year
are as follows (in thousands):
Year
2019.......................................................................................................................................................................... $
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
2023..........................................................................................................................................................................
Thereafter .................................................................................................................................................................
$
18,013
17,254
15,681
13,735
11,367
43,307
119,357
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
123
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..................................................................................................................... $ 3,642,545
1,475,066
Home equity....................................................................................................................................
1,188,972
Commercial mortgage and construction.........................................................................................
Total commitments to extend credit ........................................................................................ $ 6,306,583
$ 3,689,700
1,422,284
1,093,045
$ 6,205,029
Standby letters of credit .................................................................................................................. $
Commercial letters of credit ...........................................................................................................
Total letters of credit................................................................................................................ $
309,352
48,682
358,034
$
$
326,973
41,801
368,774
2018
2017
(in thousands)
Residential Lending
The Corporation originates and sells residential mortgages to secondary market investors. The Corporation provides customary
representations and warranties to secondary market investors that specify, among other things, that the loans have been underwritten
to the standards of the secondary market investor. The Corporation may be required to repurchase specific loans, or reimburse the
investor for a credit loss incurred on a sold loan if it is determined that the representations and warranties have not been met. Under
some agreements with secondary market investors, the Corporation may have additional credit exposure beyond customary
representations and warranties, based on the specific terms of those agreements.
The Corporation maintains a reserve for estimated credit losses related to loans sold to investors. As of December 31, 2018 and
2017, the total reserve for losses on residential mortgage loans sold was $2.1 million, including reserves for both representation
and warranty and credit loss exposures.
Legal Proceedings
The Corporation is involved in various pending and threatened claims and other legal proceedings in the ordinary course of its
business activities. The Corporation evaluates the possible impact of these matters, taking into consideration the most recent
information available. A loss reserve is established for those matters for which the Corporation believes a loss is both probable
and reasonably estimable. Once established, the reserve is adjusted as appropriate to reflect any subsequent developments. Actual
losses with respect to any such matter may be more or less than the amount estimated by the Corporation. For matters where a
loss is not probable, or the amount of the loss cannot be reasonably estimated by the Corporation, no loss reserve is established.
In addition, from time to time, the Corporation is involved in investigations or other forms of regulatory or governmental inquiry
covering a range of possible issues and, in some cases, these may be part of similar reviews of the specified activities of other
companies. These inquiries or investigations could lead to administrative, civil or criminal proceedings involving the Corporation,
and could result in fines, penalties, restitution, other types of sanctions, or the need for the Corporation to undertake remedial
actions, or to alter its business, financial or accounting practices. The Corporation’s practice is to cooperate fully with regulatory
and governmental inquiries and investigations.
124
As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from
the final outcomes of pending legal proceedings, or regulatory or governmental inquiries or investigations, will not have a material
adverse effect on the financial condition of the Corporation. However, legal proceedings, inquiries and investigations are often
unpredictable, and it is possible that the ultimate resolution of any such matters, if unfavorable, may be material to the Corporation’s
results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating
results for the applicable period, and could have a material adverse effect on the Corporation’s business. In addition, regardless
of the ultimate outcome of any such legal proceeding, inquiry or investigation, any such matter could cause the Corporation to
incur additional expenses, which could be significant, and possibly material, to the Corporation’s results of operations for any
particular period.
BSA/AML Enforcement Orders
As of December 31, 2018, the Corporation and two of its bank subsidiaries, Lafayette Ambassador Bank and The Columbia Bank,
were subject to regulatory enforcement orders issued during 2014 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 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 and the affected bank subsidiaries are subject to certain restrictions on expansion activities. 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 in a Current Report on Form 8-K filed with the SEC on January 15, 2019, the Maryland Commissioner
of Financial Regulation and the Federal Deposit Insurance Corporation terminated the Consent Orders those agencies issued on
December 23 and 24, 2014, respectively, to the Corporation’s bank subsidiary, The Columbia Bank, relating to deficiencies in the
BSA/AML Compliance Program at that bank subsidiary.
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. 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.
SEC Investigation
The Corporation is responding to an investigation by the staff of the Division of Enforcement of the SEC regarding certain
accounting determinations that could have impacted the Corporation’s reported earnings per share. The Corporation believes that
125
its financial statements filed with the SEC in Forms 10-K and 10-Q present fairly, in all material respects, its financial condition,
results of operations and cash flows as of or for the periods ending on their respective dates. The Corporation is cooperating fully
with the SEC and at this time cannot predict when or how the investigation will be resolved.
126
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:
2018
Level 1
Level 2
Level 3
Total
(in thousands)
27,099
$
— $
— $
27,099
Mortgage loans held for sale ................................................................. $
Available for sale investment 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 ....................................................................
—
—
—
—
—
—
—
31,632
279,095
106,258
832,080
463,344
261,616
—
Total available for sale investment securities........................................
Investments held in Rabbi Trust ............................................................
Derivative assets....................................................................................
— 1,974,025
18,415
392
—
62,552
—
—
3,275
—
—
—
102,994
106,269
—
—
31,632
279,095
109,533
832,080
463,344
261,616
102,994
2,080,294
18,415
62,944
Total assets .............................................................................. $
Investments held in Rabbi Trust ............................................................ $
Derivative liabilities ..............................................................................
Total liabilities ......................................................................... $
18,807
$ 2,063,676
$
106,269
$ 2,188,752
18,415
381
18,796
$
$
— $
48,185
48,185
$
— $
—
— $
18,415
48,566
66,981
Mortgage loans held for sale ................................................................. $
Available for sale investment securities:
2017
Level 1
Level 2
Level 3
Total
(in thousands)
31,530
$
— $
— $
31,530
Equity securities .............................................................................
U.S. Government sponsored agency securities ..............................
State and municipal securities ........................................................
Corporate debt securities ................................................................
Collateralized mortgage obligations...............................................
918
—
—
—
—
—
5,938
408,949
93,552
602,623
—
—
—
3,757
—
918
5,938
408,949
97,309
602,623
Residential mortgage-backed securities .........................................
— 1,120,796
— 1,120,796
Commercial mortgage-backed securities .......................................
Auction rate securities ....................................................................
—
—
212,755
—
—
98,668
212,755
98,668
Total available for sale investment securities........................................
918
2,444,613
102,425
2,547,956
Investments held in Rabbi Trust ............................................................
Derivative assets....................................................................................
Total assets .............................................................................. $
Investments held in Rabbi Trust ............................................................ $
Derivative liabilities ..............................................................................
Other liabilities ...................................................................................... $
18,982
469
20,369
18,982
375
19,357
—
—
18,982
44,539
$ 2,520,682
—
102,425
45,008
$ 2,643,476
$
$
$
— $
39,014
39,014
$
— $
—
— $
18,982
39,389
58,371
127
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, 2018 and 2017 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 – Level 2 available for sale debt securities are valued by a third-party pricing
service commonly used in the banking industry. The pricing service uses pricing models that vary based on asset class
and incorporate available market information, including quoted prices of investment securities with similar characteristics.
Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable,
through processes such as benchmark 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 95% of the securities valued by the pricing service.
Generally, differences by security in excess of 5% are researched to reconcile the difference.
• Equity securities – As of December 31, 2018, the Corporation did not hold any equity securities. Equity securities
held as of December 31, 2017 consisted of common stocks of financial institutions and other equity investments.
These Level 1 investments were 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
($86.1 million at December 31, 2018 and $61.9 million at December 31, 2017), single-issuer trust preferred
securities issued by financial institutions ($18.6 million at December 31, 2018 and $30.7 million at December 31,
2017), pooled trust preferred securities issued by financial institutions ($875,000 at December 31, 2018 and
$707,000 at December 31, 2017) and other corporate debt issued by non-financial institutions ($3.9 million at
December 31, 2018 and $4.0 million at December 31, 2017).
Level 2 investments include subordinated debt and senior debt, other corporate debt issued by non-financial
institutions and $16.3 million and $27.7 million of single-issuer trust preferred securities held at December 31,
2018 and 2017, 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 ($875,000 at
December 31, 2018 and $707,000 at December 31, 2017) and certain single-issuer trust preferred securities
($2.4 million at December 31, 2018 and $3.1 million at December 31, 2017). 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.
128
• Derivative assets - fair value of foreign currency exchange contracts classified as Level 1 assets ($392,000 at
December 31, 2018 and $460,000 at December 31, 2017). The mutual funds and foreign exchange prices used
to measure these items at fair value are based on quoted prices for identical instruments in active markets.
Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and
forward commitments with secondary market investors ($1.2 million at December 31, 2018 and $1.1 million at
December 31, 2017) and the fair value of interest rate swaps ($61.4 million at December 31, 2018 and $43.4
million at December 31, 2017). 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.
•
Investments held in Rabbi Trust - This category consists of mutual funds that are held in trust for employee
deferred compensation plans that the Corporation has elected to measure at fair value. Shares of mutual funds
are valued based on net asset value, which represent quoted market prices for the underlying shares held in the
mutual funds, and as such, are classified as Level 1 and are included in "other assets" on the consolidated balance
sheets ($18.4 million at December 31, 2018 and $19.0 million at December 31, 2017).
• Derivative liabilities - Level 1 liabilities, representing the fair value of foreign currency exchange contracts
($381,000 at December 31, 2018 and $374,000 at December 31, 2017). The fair values of these liabilities are
determined in the same manner as the related assets.
Level 2 liabilities, representing the fair value of mortgage banking derivatives in the form of interest rate locks
and forward commitments with secondary market investors ($1.1 million at December 31, 2018 and $272,000
at December 31, 2017) and the fair value of interest rate swaps ($47.1 million at December 31, 2018 and $38.7
million at December 31, 2017). 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.
•
Investments held in Rabbi Trust - fair value of amounts due to employees under deferred compensation plans
classified as Level 1 liabilities ($18.4 million at December 31, 2018 and $19.0 million at December 31, 2017).
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, 2016 .................................................................. $
Unrealized adjustments to fair value (1)..........................................................
Discount accretion (2) ......................................................................................
Balance as of December 31, 2017 ..................................................................
Realized adjustments to fair value .................................................................
Unrealized adjustments to fair value (1)..........................................................
Settlements - calls...........................................................................................
Discount accretion (2)......................................................................................
Balance as of December 31, 2018 .................................................................. $
422
285
—
707
—
168
—
—
875
Single-issuer
Trust
Preferred
Securities
(in thousands)
2,450
$
588
12
3,050
71
221
(950)
8
2,400
$
Auction Rate
Securities
$
$
97,256
1,217
195
98,668
—
4,326
—
—
102,994
(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)
129
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:
2018
2017
Net loans.....................................................................................................................................
OREO .........................................................................................................................................
MSRs..........................................................................................................................................
Total assets ..........................................................................................................................
$
$
The valuation techniques used to measure fair value for the items in the table above are as follows:
$
(in thousands)
149,846
10,518
38,573
198,937
$
149,608
9,823
37,663
197,094
• 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.
• OREO – This category includes OREO ($10.5 million at December 31, 2018 and $9.8 million at December 31, 2017)
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 ($38.6 million at December 31, 2018 and $37.7 million at December 31, 2017),
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, 2018 valuation were 8.9% and 9.0%, respectively. Management tests the
reasonableness of the significant inputs to the third-party valuation in comparison to market data.
130
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, 2018 and 2017. A general description of the methods and assumptions
used to estimate such fair values is also provided.
Amortized
Cost
Level 1
Level 3
Estimated Fair
Value
FINANCIAL ASSETS
Cash and due from banks ........................................... $
Interest-bearing deposits with other banks.................
FRB and FHLB stock .................................................
Loans held for sale .....................................................
Held to maturity investment securities.......................
Available for sale investment securities .....................
Net Loans ...................................................................
Accrued interest receivable ........................................
Other financial assets..................................................
FINANCIAL LIABILITIES
Demand and savings deposits..................................... $
Brokered deposits .......................................................
Time deposits..............................................................
Short-term borrowings ...............................................
Accrued interest payable ............................................
Other financial liabilities ............................................
FHLB advances and long-term debt...........................
$
$
103,436
342,251
79,283
27,099
606,679
2,115,265
16,005,263
58,879
235,782
13,478,016
176,239
2,721,904
754,777
10,529
218,061
992,279
2018
Level 2
(in thousands)
$
— $
—
79,283
27,099
—
1,974,025
—
—
62,552
103,436
342,251
—
—
611,419
—
—
58,879
124,138
— $
—
—
—
—
106,269
15,446,895
—
49,092
$
13,478,016
176,239
—
754,777
10,529
161,003
—
— $
—
2,712,296
—
—
48,185
970,985
— $
—
—
—
—
8,873
—
103,436
342,251
79,283
27,099
611,419
2,080,294
15,446,895
58,879
235,782
13,478,016
176,239
2,712,296
754,777
10,529
218,061
970,985
Amortized
Cost
Level 1
2017
Level 2
(in thousands)
Level 3
Estimated Fair
Value
FINANCIAL ASSETS
Cash and due from banks ........................................... $
Interest-bearing deposits with other banks.................
FRB and FHLB stock .................................................
Loans held for sale .....................................................
Held to maturity investment securities.......................
293,805
60,761
31,530
—
Available for sale investment securities .....................
2,547,956
Net Loans ...................................................................
15,598,337
293,805
—
—
—
918
—
108,291
$
108,291
$
Accrued interest receivable ........................................
Other financial assets..................................................
52,910
215,464
52,910
123,439
— $
—
60,761
31,530
—
— $
—
—
—
—
108,291
293,805
60,761
31,530
—
2,444,613
102,425
2,547,956
—
—
44,539
15,380,974
15,380,974
—
47,486
52,910
215,464
FINANCIAL LIABILITIES
Demand and savings deposits..................................... $
Brokered deposits .......................................................
13,042,147
90,473
$
13,042,147
90,473
$
— $
—
— $
—
13,042,147
90,473
Time deposits..............................................................
2,664,912
—
2,673,359
Short-term borrowings ...............................................
Accrued interest payable ............................................
Other financial liabilities ............................................
617,524
9,317
227,569
617,524
9,317
182,381
—
—
39,014
FHLB advances and long-term debt...........................
1,038,346
—
1,025,640
—
—
—
6,174
—
2,673,359
617,524
9,317
227,569
1,025,640
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.
131
For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded
at fair value on the Corporation’s consolidated balance sheets, book value was considered to be a reasonable estimate of fair value.
The following instruments are predominantly short-term:
Assets
Cash and due from banks
Interest-bearing deposits with other banks
Accrued interest receivable
Liabilities
Demand and savings deposits
Short-term borrowings
Accrued interest payable
Federal Reserve Bank and Federal Home Loan Bank ("FHLB") stock represent restricted investments and are carried at cost on
the consolidated balance sheets.
As of December 31, 2018, fair values for loans and time deposits were estimated by discounting future cash flows using the current
rates, as adjusted for liquidity considerations, at which similar loans would be made to borrowers and similar deposits would be
issued to customers for the same remaining maturities. Fair values of loans also include estimated credit losses that would be
assumed in a market transaction. Beginning in 2018, fair values estimated in this manner are considered to represent estimated
exit prices, required by ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities". As of December 31, 2017, loan fair values do not fully incorporate an exit price approach to fair value.
The fair values of FHLB advances and long-term debt were estimated by discounting the remaining contractual cash flows using
a rate at which the Corporation could issue debt with similar remaining maturities as of the balance sheet date. These borrowings
are categorized in Level 2 liabilities under FASB ASC Topic 820.
NOTE 19 – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
ASSETS
Cash.................................................................................................................................................. $
Other assets ......................................................................................................................................
Receivable from subsidiaries ...........................................................................................................
30,941
$
7,072
51,646
22,857
5,959
53,880
Investments in:
December 31,
2018
2017
(in thousands)
Bank subsidiaries ......................................................................................................................
Non-bank subsidiaries...............................................................................................................
2,451,651
425,670
Total Assets ............................................................................................................................. $ 2,966,980
2,399,053
426,846
$ 2,908,595
LIABILITIES AND EQUITY
Long-term debt ................................................................................................................................. $
Payable to non-bank subsidiaries .....................................................................................................
Other liabilities.................................................................................................................................
Total Liabilities.......................................................................................................................
Shareholders’ equity .........................................................................................................................
2,247,573
Total Liabilities and Shareholders’ Equity ............................................................................. $ 2,966,980
247,801
84,693
719,407
206,766
85,871
678,738
2,229,857
$ 2,908,595
386,913
$
386,101
132
CONDENSED STATEMENTS OF INCOME
2018
2017
(in thousands)
2016
Income:
Dividends from subsidiaries........................................................................................ $ 150,000
Other (1)........................................................................................................................
188,165
Expenses.............................................................................................................................
Income before income taxes and equity in undistributed net income of subsidiaries.
Income tax benefit ..............................................................................................................
338,165
210,333
127,832
(7,100)
134,932
$
66,500
$ 115,000
171,490
237,990
199,981
38,009
(5,448)
43,457
148,577
263,577
177,835
85,742
(10,543)
96,285
Equity in undistributed net income (loss) of:
Bank subsidiaries ........................................................................................................
74,631
Non-bank subsidiaries.................................................................................................
(1,170)
Net Income .................................................................................................................. $ 208,393
111,226
17,070
58,477
6,863
$ 171,753
$ 161,625
(1) Consists primarily of management fees received from subsidiary banks.
CONDENSED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net Income ......................................................................................................................... $ 208,393
Adjustments to reconcile net income to net cash provided by operating activities:
$ 171,753
$ 161,625
2018
2017
(in thousands)
2016
Amortization of issuance costs and discount of long-term debt....................................
813
845
Stock-based compensation ............................................................................................
Excess tax benefits from stock-based compensation.....................................................
Decrease (increase) in other assets ................................................................................
Equity in undistributed net income of subsidiaries .......................................................
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...........................................................................................
Net proceeds from issuance of common stock ..............................................................
Excess tax benefits from stock-based compensation.....................................................
Dividends paid...............................................................................................................
Acquisition of treasury stock.........................................................................................
Net cash used in financing activities ......................................................................
Net Increase in Cash and Cash Equivalents ..................................................................
Cash and Due From Banks at Beginning of Year..........................................................
22,857
Cash and Due From Banks at End of Year .................................................................... $ 30,941
133
7,967
—
6,327
(73,460)
36,273
(22,080)
186,313
—
4,740
—
(17,882)
(128,298)
31,241
(109,354)
62,399
—
— (100,000)
— 123,251
9,007
6,733
—
(89,654)
(95,308)
(178,229)
8,084
—
(80,368)
—
(48,110)
14,289
8,568
—
6,556
(964)
(16,585)
(65,340)
(5,928)
(82,261)
79,364
—
—
—
16,167
964
(69,382)
(18,545)
(70,796)
8,568
—
$ 22,857
$
8,568
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, 2018,
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, 2018, 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/ MARK R. MCCOLLOM
Mark R. McCollom
Senior Executive Vice President
and Chief Financial Officer
134
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, 2018 and 2017, 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, 2018, 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,
2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2018, 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, 2018 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.
135
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, 2019
136
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per-share data)
2018
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 ...........................................................
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 ...........................................................
March 31
June 30
September 30
December 31
Three Months Ended
177,687
$
186,170
$
194,048
$
200,609
26,369
151,318
3,970
45,875
136,661
56,562
7,082
49,480
0.28
0.28
0.12
$
$
30,103
156,067
33,117
49,094
133,345
38,699
3,502
35,197
0.20
0.20
0.12
$
$
33,921
160,127
1,620
51,033
135,413
74,127
8,494
65,633
0.37
0.37
0.12
$
$
37,665
162,944
8,200
49,523
140,685
63,582
5,499
58,083
0.33
0.33
0.16
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
137
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, 2018, 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.
138
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 2019 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 Executive
Compensation" and "Human Resources Committee Interlocks and Insider Participation" within the Corporation’s 2019 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 2019 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 2019 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 2019 Proxy Statement.
139
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, 2018 and 2017.
(ii) Consolidated Statements of Income - Years ended December 31, 2018, 2017 and 2016.
(iii) Consolidated Statements of Comprehensive Income - Years ended December 31, 2018, 2017 and 2016.
(iii) Consolidated Statements of Shareholders’ Equity - Years ended December 31, 2018, 2017 and 2016.
(iv) Consolidated Statements of Cash Flows - Years ended December 31, 2018, 2017 and 2016.
(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
10.2.1
10.3
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.
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 - Incorporated by reference to Exhibit 10.4.1 of the Fulton Financial
Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
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
10.3.1
Schedule of Key Employee Change in Control Agreements between Fulton Financial Corporation and certain
Executive Officers of Fulton Financial Corporation - Incorporated by reference to Exhibit 10.5.1 of the Fulton
Financial Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
10.4
10.5
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
21
23
31.1
31.2
32.1
32.2
101
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 - 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, 2017.
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 - Incorporated by
reference to Exhibit 10.15 of the Fulton Financial Corporation Annual Report on Form 10-K for the fiscal year
ended December 31, 2017.
Fulton Financial Corporation Non-Employee Director Compensation - filed herewith.
Form of Director Stock Unit Award Agreement under the Directors' Equity Participation Plan, as amended - 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.
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, 2018 and December 31, 2017; (ii) the Consolidated
Statements of Income for the years ended December 31, 2018, 2017 and 2016; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2018, 2017 and 2016;(iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2018, 2017 and 2016; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
141
Item 16. Form 10-K Summary
Not applicable.
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, 2019
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/ MARK R. MCCOLLOM
Mark R. McCollom
/S/ ALBERT MORRISON, III
Albert Morrison, III
/S/ JAMES R. MOXLEY, III
James R. Moxley, III
Director
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
Executive Vice President
and Controller
(Principal Accounting Officer)
Director
Director
Director
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Director
Director
142
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, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
143
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 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.
10.2.1 Schedule of Executive Employment Agreements between Fulton Financial Corporation and certain Executive Officers
of Fulton Financial Corporation - Incorporated by reference to Exhibit 10.4.1 of the Fulton Financial Corporation Annual
Report on Form 10-K for the fiscal year ended December 31, 2017.
10.3 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.
144
10.3.1
Schedule of Key Employee Change in Control Agreements between Fulton Financial Corporation and certain
Executive Officers of Fulton Financial Corporation - Incorporated by reference to Exhibit 10.5.1 of the Fulton
Financial Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
10.4
10.5
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
21
23
31.1
31.2
32.1
32.2
101
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 - 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, 2017.
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 - Incorporated by
reference to Exhibit 10.15 of the Fulton Financial Corporation Annual Report on Form 10-K for the fiscal year ended
December 31, 2017.
Fulton Financial Corporation Non-Employee Director Compensation - filed herewith.
Form of Director Stock Unit Award Agreement under the Directors' Equity Participation Plan, as amended - 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.
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, 2018 and December 31, 2017; (ii) the Consolidated
Statements of Income for the years ended December 31, 2018, 2017 and 2016; (iii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2018, 2017 and 2016;(iv) the Consolidated Statements
of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016; (v) the Consolidated Statements
of Cash Flows for the years ended December 31, 2018, 2017 and 2016; and, (iv) the Notes to Consolidated Financial
Statements – filed herewith.
145
Exhibit 21 - Subsidiaries of the Registrant
The following are the subsidiaries of Fulton Financial Corporation:
Subsidiary
Fulton Bank, N.A.
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
Lafayette Ambassador Bank
Pennsylvania
2005 City Line Road
Bethlehem, Pennsylvania 18017
State of Incorporation or
Organization
Name Under Which Business is
Conducted
United States of America
Fulton Financial Advisors
Clermont Wealth Strategies
Fulton Mortgage Company
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
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
FFC Management, Inc.
P.O. Box 609
Georgetown, DE 19947
Fulton Bank of New Jersey
Fulton Mortgage Company
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
Exhibit 21 - Subsidiaries of the Registrant (Continued)
Subsidiary
FFC Penn Square, Inc.
P.O. Box 609
Georgetown, DE 19947
The Columbia Bank
7168 Gateway Drive
Columbia, MD 21046
State of Incorporation or
Organization
Name Under Which Business is
Conducted
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, 2019, with respect to the consolidated balance
sheets of Fulton Financial Corporation as of December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the “consolidated financial statements”), and the
effectiveness of internal control over financial reporting as of December 31, 2018, which report appears in the
December 31, 2018 annual report on Form 10 K of Fulton Financial Corporation.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 1, 2019
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, 2019
/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, Mark R. McCollom, 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, 2019
/s/ Mark R. McCollom
Mark R. McCollom
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,
2018, 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, 2019
/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, Mark R. McCollom, 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,
2018, 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, 2019
/s/ Mark R. McCollom
Mark R. McCollom
Senior Executive Vice President and Chief Financial Officer
INVESTOR INFORMATION
Investor Information
Stock Listing
Common shares of Fulton Financial Corporation
are traded under the symbol “FULT” and are listed
in the NASDAQ Global Select Market.
Cash Dividends
The Fulton Financial Corporation Board of
Directors decides whether to declare a quarterly
cash dividend in the third month of each quarter
(i.e., March, June, September and December).
Dividend Reinvestment Plan
and Direct Deposit of Cash Dividends
Fulton Financial Corporation offers its shareholders
the convenience of a Dividend Reinvestment and
Stock Purchase Plan and direct deposit of cash
dividends.
Holders of stock may have their quarterly
dividends automatically reinvested in additional
shares of the Corporation’s common stock by
utilizing the Dividend Reinvestment Plan.
Shareholders participating in the Plan may also
make voluntary cash contributions not to exceed
$25,000 per month.
In addition, shareholders have the option of having
their cash dividends sent directly to their financial
institution for deposit into their checking or
savings account.
Shareholders may receive information on either the
Dividend Reinvestment Plan and Stock Purchase
Plan, including a plan prospectus, or direct deposit of
cash dividends by writing to:
Stock Transfer Department
Fulton Financial Advisors
P.O. Box 3215
Lancaster, PA 17604-3215
or by calling: 717-291-2546 or
toll-free: 1-800-626-0255.
GO GREEN!
Would you like to help your company manage
expenses? Vote your shares online or by phone as
outlined on the voter instruction form enclosed in
this proxy packet.
Would you like to receive your proxy materials
sooner? Sign up to receive your materials
electronically when you vote your shares online at
www.proxyvote.com.
Investor Information and Documents
A copy of the Corporation’s Annual Report, Form
10-K, Proxy Statement and other documents filed
with the Securities and Exchange Commision can
be viewed on the Corporation’s website at
www.fult.com. In addition, copies of the Form 10-K
and Proxy Statement may be obtained without
charge to shareholders by writing to:
Corporate Secretary
Fulton Financial Corporation
P.O. Box 4887
Lancaster, PA 17604-4887
News, stock information, Corporate presentations
and other information can be found on the
Corporation’s website at www.fult.com.
The Annual Meeting of Shareholders of Fulton
Financial Corporation will be held on Tuesday,
May 21, 2019, at 10:00 a.m. at the Lancaster
Marriott at Penn Square in downtown Lancaster, PA.
To make a reservation, please return the Annual
Meeting Reservation Form you received with your
proxy statement. Your reservation will help ensure
that we have adequate seating for all shareholders
who plan to join us that day.
Banking Subsidiaries:
Fulton Bank, N.A.
Fulton Bank of New Jersey
Lafayette Ambassador Bank
The Columbia Bank
Residential mortgage lending offered through:
Fulton Mortgage Company
Investment management and
planning services offered through:
Fulton Financial Advisors and
Clermont Wealth Strategies