UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2015,2018,
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 23-2195389
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
One Penn Square, P. O. Box 4887, Lancaster, Pennsylvania 17604
(Address of principal executive offices) (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 Name of exchange on which registered
Common Stock, $2.50 par value 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  x    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  x
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  x    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  x    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 filerxAccelerated filer¨Emerging growth company¨
     
Non-accelerated filer¨Smaller reporting 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  x
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based on the average bid and asked prices on June 30, 2015,2018, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2.3$2.8 billion. The number of shares of the registrant’s Common Stock outstanding on January 31, 2016February 15, 2019 was 173,623,000.169,884,000.
Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on May 16, 201621, 2019 are incorporated by reference in Part III.

1



TABLE OF CONTENTS
 
Description Page
   
PART I  
Item 1.
Business
3
Item 1A.
Risk Factors
1519
Item 1B.
Unresolved Staff Comments
2633
Item 2.
Properties
2733
Item 3.
Legal Proceedings
2733
Item 4.
Mine Safety Disclosures
2833
   
PART II  
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
2934
Item 6.
Selected Financial Data
3138
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3340
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
6370
Item 8.
Financial Statements and Supplementary Data:
 
 
Consolidated Balance Sheets
6875
 
Consolidated Statements of Income
6976
 
Consolidated Statements of Comprehensive Income
7077
 
Consolidated Statements of Shareholders’ Equity
7178
 
Consolidated Statements of Cash Flows
7279
 
Notes to Consolidated Financial Statements
7380
 
Management Report On Internal Control Over Financial Reporting
125134
 
Report of Independent Registered Public Accounting Firm
126135
 
Quarterly Consolidated Results of Operations (unaudited)
127137
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
128138
Item 9A.
Controls and Procedures
128138
Item 9B.
Other Information
128138
   
PART III  
Item 10.
Directors, Executive Officers and Corporate Governance
129139
Item 11.
Executive Compensation
129139
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
129139
Item 13.
Certain Relationships and Related Transactions, and Director Independence
129139
Item 14.
Principal Accounting Fees and Services
129139
   
PART IV  
Item 15.
Exhibits, Financial Statement Schedules
130140
Item 16.
Form 10-K Summary
142
   
 
Signatures
132142
 
Exhibit Index
134144

2



PART I

Item 1. Business

General

Fulton Financial Corporation (the Corporation) was incorporated under the laws of Pennsylvania on February 8, 1982 and became a bank holding company through the acquisition of all of the outstanding stock of Fulton Bank N.A. ("Fulton Bank") on June 30, 1982. In 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)("GLB Act"), which gave the Corporation the ability to expand its financial services activities under its holding company structure (Seestructure. See "Competition" and "Supervision and Regulation" below).Regulation." The Corporation directly owns 100% of the common stock of sixfour community banks and eight non-bank entities. As of December 31, 2015,2018, the Corporation had approximately 3,4603,500 full-time equivalent employees.

The common stock of Fulton Financialthe 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 20152018 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)("SEC").

Bank and Financial Services Subsidiaries

The Corporation’s sixfour subsidiary banks are located primarily in suburban or semi-rural geographicalgeographic markets throughout a five-state region (Pennsylvania, Delaware, Maryland, New Jersey and Virginia). Each of these banking subsidiaries delivers financial services in a highly personalized, community-oriented style that emphasizes relationship banking. Where appropriate, operations are centralized through common platforms and back-office functions. The Corporation has announced that it is developing plans to seek regulatory approval to beginbegun the process of consolidating its sixbank subsidiaries, having consolidated two of its bank subsidiaries into its largest bank subsidiary, banks in connection with a transition to a business model that will be less oriented on geographic boundaries and will instead focus more on alignment with the customer segments the Corporation serves. The Corporation also believes that consolidation will enhance its ability to manage risk more efficiently and effectively through a centralized risk management and compliance function.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, bank. Consolidationwhich would consolidate its brands and reduce the number of government agencies that regulate the bank subsidiaries will result in a single subsidiary bank with greater than $10 billion of assets, subjecting it to more stringent regulation applicable to institutions that exceed that threshold. See Item 1A. Risk Factors - "Additional growth, particularly at the Corporation’s largest subsidiary, Fulton Bank, N.A., would subject it to additional regulation and increased supervision" under "Legal, Compliance and Reputational Risks."Corporation's banking operations. The timing of the commencementcompletion of this consolidation process will depend significantlydepends, in part, on theFulton Financial Corporation and its banking subsidiaries making necessary progressbank subsidiary, Lafayette Ambassador Bank, demonstrating that certain deficiencies in enhancing a largely centralizedthe 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 regulations, and establishing, to the satisfaction of the Corporation’s banking regulatory agencies, that those enhancements are sustainable to achieve compliance with the regulatory enforcement orders issued torequirements could subject the Corporation to enforcement actions, fines, penalties, sanctions and its subsidiary banks by their respective banking regulatory agencies relating to identified deficiencies in that compliance program. See Item 1A. Risk Factors - "The Corporation and its bank subsidiaries are subject to regulatory enforcement orders requiring improvement in compliance functions andother remedial actions" under "Legal, Compliance and Reputational Risks.actions."

The Corporation’s subsidiary banks are located in areas that are home to a wide range of manufacturing, distribution, health care and other service companies. The Corporation and its banks areis not dependent upon one or a few customers or any one industry, and the loss of any single customer or a few customers would not have a material adverse impact on any of the subsidiary banks.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"Risk Factors - "Economic downturnsEconomic and theCredit Risks - The composition of the Corporation’s loan portfolio and competition subject the Corporation to credit risk" under "Economic and Credit Risks.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. SubsidiaryThe subsidiary banks also offer a variety of fixed, variable and variable-rateadjustable rate products, including construction loans and jumbo residential mortgage loans. Residential mortgages are offered through Fulton


Mortgage Company, which operates as a division of each subsidiary bank. Consumer loan products also include automobile loans, automobile and equipment leases, personal lines of credit and checking account overdraft protection.

Commercial banking services are provided to small and medium sized businesses (generally with sales of less than $150 million) in the subsidiary banks’ market areas. The Corporation's policies limit the maximum total lending commitment to a single borrower

3


to $50.0$55.0 million as of December 31, 2015,2018, which is significantly below the Corporation’s regulatory lending limit. In addition, the Corporation has established lower total lending limits for certain types of lending commitments, and also based on the Corporation's internal risk rating of the borrower.borrower and for certain types of lending commitments. Commercial lending products include commercial, financial, agricultural and real estate loans. Floating,Variable, adjustable and fixed rate loans are provided, with floatingvariable and adjustable rate loans generally tied to an index, such as the Prime Rate or the London Interbank Offered Rate (LIBOR)("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(a division of the Corporation's largest subsidiary, Fulton Bank, N.A. subsidiary bank.Bank).

The Corporation’s subsidiary banks deliver their products and services through traditional branch banking, with a network of full service branch offices. Electronic delivery channels include a network of automated teller machines, telephone banking, mobile banking and online banking. The variety of available delivery channels allows customers to access their account information and perform certain transactions, such as depositing checks, transferring funds and paying bills, at virtually any time of the day.

The following table provides certain information for the Corporation’s banking subsidiaries as of December 31, 2015:2018:
Subsidiary Main Office
Location		 Total
Assets		 Total
Deposits		 Branches (1) Main Office
Location		 Total
Assets		 Total
Deposits		 
Branches (1)
   (dollars in millions)     (dollars in millions)  
Fulton Bank, N.A. Lancaster, PA $9,835
 $7,692
 112
 Lancaster, PA $12,563
 $9,641
 122
Fulton Bank of New Jersey Mt. Laurel, NJ 3,677
 3,100
 65
 Mt. Laurel, NJ 4,182
 3,585
 61
The Columbia Bank Columbia, MD 2,115
 1,697
 31
 Columbia, MD 2,540
 1,899
 31
Lafayette Ambassador Bank Bethlehem, PA 1,526
 1,228
 21
 Bethlehem, PA 1,579
 1,339
 20
FNB Bank, N.A. Danville, PA 363
 267
 7
Swineford National Bank Middleburg, PA 306
 259
 7
     243
     234
 

(1)Remote service facilities (mainly stand-alone automated teller machines) are excluded. See additional information in Item 2. Properties."Properties."

Non-Bank Subsidiaries
The
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 upon whichwhere Corporation branch offices and other facilities are located; (ii) Central Pennsylvania Financial Corp., which owns limited partnership interests in partnerships invested primarily in lowlow- and moderate incomemoderate-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)("TruPS") issued by a subsidiary of Fulton Bank, N.A;Bank; and (v) Fulton Insurance Services Group, Inc., which engages in the sale of various life insurance products.
The
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, 2015:2018:

SubsidiaryState of Incorporation Total AssetsState of Incorporation Total Assets
 (dollars in thousands) (in thousands)
Columbia Bancorp Statutory TrustDelaware $6,186
Delaware $6,186
Columbia Bancorp Statutory Trust IIDelaware 4,124
Delaware 4,124
Columbia Bancorp Statutory Trust IIIDelaware 6,186
Delaware 6,186




Competition

The banking and financial services industries are highly competitive. Within its geographic region, the Corporation’s subsidiaries faceCorporation faces direct competition from other commercial banks, varying in size from local community banks to larger regional and national
banks, credit unions and non-bank entities. As a result of the wide availability of electronic delivery channels, the subsidiary banksCorporation also facefaces competition from financial institutions that do not have a physical presence in the Corporation’s geographic markets.

4


The industry is also highly competitive due in part, to the GLB Act. As a result of the GLB Act, there is a great deal of competition from manyvarious types of entities that now compete aggressively for customers that were traditionally served only by the banking industry. Under the GLB Act,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 werehad 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 activities, the ability to do sobusinesses may enhance the ability of the Corporation to compete in the future.

























5


Market Share
Deposit market share information is compiled as
As of June 30 of each year byDecember 31, 2018, the Federal Deposit Insurance Corporation (FDIC). The Corporation’s banks maintainbanking subsidiaries maintained branch offices in 52 counties across five states. In 15 of these counties, the Corporation ranked in the top 5five in deposit market share (based on deposits as of June 30, 2015)2018). The following table summarizes information about the counties in which the Corporation has branch offices and its market position in each county.county:
        No. of Financial
Institutions		 Deposit Market Share
(June 30, 2015)
County State Population
(2015 Est.)		 Banking Subsidiary Banks/
Thrifts		 Credit
Unions		 Rank %
Lancaster PA 538,000
 Fulton Bank, N.A. 21
 8
 1
 25.0%
Berks PA 414,000
 Fulton Bank, N.A. 20
 15
 8
 3.2%
Bucks PA 627,000
 Fulton Bank, N.A. 38
 22
 17
 1.8%
Centre PA 161,000
 Fulton Bank, N.A. 17
 5
 11
 3.4%
Chester PA 518,000
 Fulton Bank, N.A. 32
 9
 9
 3.3%
Columbia PA 67,000
 FNB Bank, N.A. 6
 2
 5
 4.2%
Cumberland PA 247,000
 Fulton Bank, N.A. 19
 11
 13
 1.9%
Dauphin PA 273,000
 Fulton Bank, N.A. 16
 7
 6
 4.2%
Delaware PA 565,000
 Fulton Bank, N.A. 28
 13
 30
 0.3%
Lebanon PA 137,000
 Fulton Bank, N.A. 12
 1
 1
 31.4%
Lehigh PA 360,000
 Lafayette Ambassador Bank 21
 17
 7
 4.1%
Lycoming PA 116,000
 FNB Bank, N.A. 11
 12
 14
 0.8%
Montgomery PA 822,000
 Fulton Bank, N.A. 40
 27
 25
 0.4%
Montour PA 19,000
 FNB Bank, N.A. 5
 1
 2
 24.3%
Northampton PA 302,000
 Lafayette Ambassador Bank 16
 14
 4
 13.2%
Northumberland PA 94,000
 FNB Bank, N.A. 18
 3
 9
 3.7%
      Swineford National Bank     14
 1.9%
Schuylkill PA 145,000
 Fulton Bank, N.A. 14
 7
 10
 4.0%
Snyder PA 41,000
 Swineford National Bank 8
 —
 2
 26.5%
Union PA 45,000
 Swineford National Bank 8
 1
 5
 6.9%
York PA 443,000
 Fulton Bank, N.A. 15
 13
 4
 10.6%
New Castle DE 558,000
 Fulton Bank, N.A. 15
 35
 12
 0.2%
Sussex DE 216,000
 Fulton Bank, N.A. 15
 2
 3
 8.1%
Anne Arundel MD 567,000
 The Columbia Bank 29
 15
 21
 0.3%
Baltimore MD 833,000
 The Columbia Bank 37
 21
 23
 0.8%
Baltimore City MD 623,000
 The Columbia Bank 30
 19
 12
 0.3%
Cecil MD 103,000
 The Columbia Bank 7
 4
 3
 13.5%
Frederick MD 247,000
 The Columbia Bank 17
 6
 15
 0.8%
Howard MD 317,000
 The Columbia Bank 20
 5
 5
 8.7%
Montgomery MD 1,049,000
 The Columbia Bank 32
 22
 36
 0.2%
Prince George's MD 919,000
 The Columbia Bank 19
 20
 21
 0.7%
Washington MD 150,000
 The Columbia Bank 12
 3
 2
 20.4%
Atlantic NJ 275,000
 Fulton Bank of New Jersey 16
 9
 12
 1.4%
Burlington NJ 449,000
 Fulton Bank of New Jersey 20
 18
 16
 0.9%
Camden NJ 510,000
 Fulton Bank of New Jersey 21
 14
 11
 2.3%
Cumberland NJ 157,000
 Fulton Bank of New Jersey 12
 6
 13
 1.9%
Gloucester NJ 292,000
 Fulton Bank of New Jersey 23
 6
 2
 14.3%

6


        No. of Financial
Institutions		 Deposit Market Share
(June 30, 2015)
County State Population
(2015 Est.)		 Banking Subsidiary Banks/
Thrifts		 Credit
Unions		 Rank %
Hunterdon NJ 126,000
 Fulton Bank of New Jersey 16
 7
 11
 2.5%
Mercer NJ 373,000
 Fulton Bank of New Jersey 24
 26
 19
 0.9%
Middlesex NJ 845,000
 Fulton Bank of New Jersey 46
 38
 30
 0.3%
Monmouth NJ 629,000
 Fulton Bank of New Jersey 27
 12
 26
 0.5%
Morris NJ 501,000
 Fulton Bank of New Jersey 31
 27
 15
 1.3%
Ocean NJ 590,000
 Fulton Bank of New Jersey 21
 7
 18
 0.8%
Salem NJ 64,000
 Fulton Bank of New Jersey 8
 3
 1
 25.2%
Somerset NJ 335,000
 Fulton Bank of New Jersey 29
 10
 9
 2.6%
Warren NJ 107,000
 Fulton Bank of New Jersey 13
 5
 5
 8.4%
Chesapeake City VA 238,000
 Fulton Bank, N.A. 14
 10
 10
 1.6%
Fairfax VA 1,144,000
 Fulton Bank, N.A. 36
 19
 41
 0.1%
Henrico VA 325,000
 Fulton Bank, N.A. 24
 18
 18
 0.7%
Manassas VA 43,000
 Fulton Bank, N.A. 14
 1
 11
 2.0%
Newport News VA 184,000
 Fulton Bank, N.A. 12
 4
 15
 0.5%
Richmond City VA 221,000
 Fulton Bank, N.A. 18
 7
 15
 0.2%
Virginia Beach VA 455,000
 Fulton Bank, N.A. 16
 7
 10
 1.6%
        No. of Financial
Institutions		 
Deposit Market Share
(June 30, 2018) (1)
County State Population
(2019 Est.)		 Banking Subsidiary Banks/
Thrifts		 Credit
Unions		 Rank %
Berks PA 420,000
 Fulton Bank, N.A. 17
 17
 7
 3.8%
Bucks PA 630,000
 Fulton Bank, N.A. 34
 29
 14
 1.9%
Centre PA 164,000
 Fulton Bank, N.A. 16
 6
 10
 2.8%
Chester PA 523,000
 Fulton Bank, N.A. 28
 15
 13
 3.1%
Columbia PA 66,000
 Fulton Bank, N.A. 6
 4
 5
 4.0%
Cumberland PA 151,000
 Fulton Bank, N.A. 17
 11
 10
 2.1%
Dauphin PA 278,000
 Fulton Bank, N.A. 17
 13
 6
 5.3%
Delaware PA 566,000
 Fulton Bank, N.A. 26
 21
 27
 0.3%
Lancaster PA 548,000
 Fulton Bank, N.A. 22
 14
 1
 26.8%
Lebanon PA 141,000
 Fulton Bank, N.A. 11
 6
 1
 31.2%
Lehigh PA 370,000
 Lafayette Ambassador Bank 21
 18
 7
 4.6%
Lycoming PA 113,000
 Fulton Bank, N.A. 12
 13
 14
 1.0%
Montgomery PA 1,074,000
 Fulton Bank, N.A. 38
 43
 28
 0.2%
Montour PA 18,000
 Fulton Bank, N.A. 6
 3
 2
 20.7%
Northampton PA 305,000
 Lafayette Ambassador Bank 18
 18
 3
 12.8%
Northumberland PA 91,000
 Fulton Bank, N.A. 18
 4
 7
 6.2%
Schuylkill PA 141,000
 Fulton Bank, N.A. 13
 7
 10
 4.3%
Snyder PA 41,000
 Fulton Bank, N.A. 8
 1
 2
 25.8%
Union PA 44,000
 Fulton Bank, N.A. 9
 5
 4
 8.1%
York PA 449,000
 Fulton Bank, N.A. 15
 18
 3
 11.7%
New Castle DE 564,000
 Fulton Bank, N.A. 21
 31
 12
 1.2%
Sussex DE 232,000
 Fulton Bank, N.A. 17
 5
 3
 9.2%
Anne Arundel MD 580,000
 The Columbia Bank 26
 14
 19
 0.7%
Baltimore MD 836,000
 The Columbia Bank 29
 23
 11
 0.4%
Baltimore City MD 607,000
 The Columbia Bank 24
 28
 18
 0.9%
Cecil MD 103,000
 The Columbia Bank 7
 4
 2
 15.0%
Frederick MD 256,000
 The Columbia Bank 16
 7
 15
 1.0%
Howard MD 328,000
 The Columbia Bank 19
 10
 4
 8.1%
Montgomery MD 832,000
 The Columbia Bank 28
 28
 20
 0.6%
Prince George's MD 920,000
 The Columbia Bank 18
 28
 22
 0.5%
Washington MD 151,000
 The Columbia Bank 11
 4
 2
 19.9%
Atlantic NJ 268,000
 Fulton Bank of New Jersey 12
 8
 10
 2.3%
Burlington NJ 448,000
 Fulton Bank of New Jersey 21
 22
 14
 1.1%
Camden NJ 510,000
 Fulton Bank of New Jersey 21
 20
 10
 2.4%
Cumberland NJ 253,000
 Fulton Bank of New Jersey 11
 7
 13
 1.9%
Gloucester NJ 293,000
 Fulton Bank of New Jersey 22
 9
 2
 13.0%


        No. of Financial
Institutions		 
Deposit Market Share
(June 30, 2018) (1)
County State Population
(2019 Est.)		 Banking Subsidiary Banks/
Thrifts		 Credit
Unions		 Rank %
Hunterdon NJ 125,000
 Fulton Bank of New Jersey 16
 8
 10
 2.5%
Mercer NJ 376,000
 Fulton Bank of New Jersey 25
 30
 17
 0.8%
Middlesex NJ 848,000
 Fulton Bank of New Jersey 43
 44
 30
 0.3%
Monmouth NJ 626,000
 Fulton Bank of New Jersey 25
 18
 24
 0.7%
Morris NJ 501,000
 Fulton Bank of New Jersey 35
 31
 14
 1.4%
Ocean NJ 604,000
 Fulton Bank of New Jersey 19
 11
 15
 1.3%
Salem NJ 62,000
 Fulton Bank of New Jersey 6
 5
 1
 30.6%
Somerset NJ 337,000
 Fulton Bank of New Jersey 25
 18
 9
 2.4%
Warren NJ 107,000
 Fulton Bank of New Jersey 12
 7
 5
 7.5%
Chesapeake City VA 245,000
 Fulton Bank, N.A. 13
 11
 9
 2.0%
Fairfax VA 1,155,000
 Fulton Bank, N.A. 36
 35
 40
 —%
Henrico VA 330,000
 Fulton Bank, N.A. 22
 18
 22
 0.8%
Manassas VA 42,000
 Fulton Bank, N.A. 12
 4
 8
 2.2%
Newport News VA 180,000
 Fulton Bank, N.A. 12
 9
 15
 0.4%
Richmond City VA 230,000
 Fulton Bank, N.A. 15
 15
 14
 0.2%
Virginia Beach VA 453,000
 Fulton Bank, N.A. 15
 16
 10
 1.5%

(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 itsis 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 Corporation and its subsidiaries are subject to regulation and examination by regulatory authorities. The following table summarizes the charter types and primary regulators for each of the Corporation’s subsidiary banks:

SubsidiaryCharter  Primary Regulator(s)
Fulton Bank, N.A.National  OCC
Fulton Bank of New JerseyNJ  NJ/FDIC
The Columbia BankMD  MD/FDIC
Lafayette Ambassador BankPA  PA/Federal Reserve
FNB Bank, N.A.NationalOCC
Swineford National BankNationalOCC
Fulton Financial Corporation (Parent Company)N/AFederal 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 Bank Holding Company Act (BHCA)("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.



BHCA - The Corporation is subject to regulation and examination by the Federal Reserve Bank,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

7


upon the Corporation regarding the acquisition of substantially all of the assets of, or direct or indirect ownership or control of, any bank for which it is not already the majority owner. 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)("CFPB"), which has broad regulatory and enforcement powers over consumer financial products and services. Effective July 21, 2011, theThe CFPB becameis responsible for administering and enforcing numerous federal consumer financial laws enumerated in the Dodd-Frank Act. The Dodd-Frank Act also provided that, forCFPB has exclusive or primary supervision, examination and enforcement authority over banks with total assets of more than $10 billion the CFPB would have exclusive or primary authoritywith respect to examine those banks for, and enforce compliance with the federal consumer financial laws. As of DecemberMarch 31, 2015, none of the Corporation's subsidiary banks had total assets of more than $10 billion; however,2017, the Corporation's largest subsidiary bank, Fulton Bank, N. A.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”), had $9.8which 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 assets. Althoughtotal 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 subjecttreated as brokered deposits in the case of a "well capitalized" institution that received a "outstanding" or "good" rating on its most recent examination to CFPB examination,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.


Given the varying asset sizes of the Corporation's subsidiary banks, remain subjectonly those below the applicable asset thresholds will be able to benefit from the review and supervision of other applicable regulatory authorities, and such authorities may enforce compliance with regulations issuedcorresponding community bank relief provided by the CFPB. InEconomic Growth Act. To the event that Fulton Bank, N.A.'s total assets exceedextent 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 future, Fulton Bank, N.A. would become subject to supervision, examination and enforcement by the CFPB.
Stress testing - In October 2012, the Board of Governors ofrequirement "periodic" rather than annual. The amendments also provide the Federal Reserve System (FRB) issued final rules regardingBoard 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. In accordance with these rules, the Corporation is required to conduct an annual stress test in the manner specified, and using assumptions for baseline, adverse and severely adverse scenarios announced by the FRB. The stress test is designed to assess the potential impacttesting as a result of the various scenarios on the Corporation's earnings, capital levels and capital ratios over a nine-quarter time horizon. The Corporation's board of directors and its senior management are required to consider the results of the stress test in the normal course of business, including as part of the Corporation's capital planning process and the evaluation of the adequacy of its capital. Public disclosure of summary stress test results under the severely adverse scenario began in June 2015 for stress tests that commenced in the fall of 2014. The Corporation believes that both the quality and magnitude of its capital base are sufficient to support its current operations given its risk profile. The results of the annual stress testing process did not lead the Corporation to raise additional capital or alter the mix of its capital components. Pursuant to final rules published in October 2014 and December 2015, the FRB modified the start date of the stress test cycles so that, going forward, stress tests must be conducted using financial data as of December 31 of the prior year, the results of the stress test must be reported to the FRB on or before July 31 and a summary of the results of the stress test must be publicly disclosed between October 15 and October 31. Under similar rules adopted by the OCC, national banks with total consolidated assets of more than $10 billion are also required to conduct annual stress tests. Although the total consolidated assets of Fulton Bank, N.A., the Corporation's largest subsidiary bank, are less than $10 billion, if Fulton Bank, N.A.’s assets exceed $10 billion in the future, it will become subject to the OCC’s stress test rules.legislative amendments.

Residential LendingConsumer 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 and its bank subsidiaries areis 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 Truth-In-Lending Act (TILA)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"), the Home Mortgage Disclosure Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act,and other regulators. Fair lending laws include ECOA and the Fair Credit ReportingHousing Act ("FHA"), which outlaw discrimination in credit and residential real estate transactions on the Fair Debt Collection Actbasis 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 Flood Disaster Protection Act.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 and its bank subsidiaries becoming subject to formal or informal enforcement actions, the imposition of civil money penalties and consumer litigation.

The CFPB has exclusive examination and primary enforcement authority with respect to compliance with federal consumer financial protection laws and regulations by institutions under its supervision and is authorized, individually or jointly with the federal bank regulatory agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates such laws or regulations. The CFPB may bring an administrative enforcement proceeding or civil action in federal district court. In addition, in accordance with a memorandum of understanding entered into between the CFPB and the DOJ, the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations; however, as a result of recent leadership changes at the DOJ and CFPB, as well as changes in the enforcement policies and priorities of each agency, the extent to which such coordination will continue to occur in the near term is uncertain. As an independent bureau funded by the Federal Reserve Board, the CFPB may impose requirements that are more stringent than those of the other bank regulatory agencies.

As an insured depository institution with total assets of more than $10 billion, Fulton Bank and the Corporation's other subsidiary banks are subject to the CFPB’s supervisory and enforcement authorities. The Dodd-Frank Act also permits states to adopt stricter consumer protection laws and state attorneys general to enforce consumer protection rules issued by the CFPB. As a result, the Corporation's subsidiary banks operate in a stringent consumer compliance environment and may incur additional costs related to consumer protection compliance, including but not limited to potential costs associated with CFPB examinations, regulatory and enforcement actions and consumer-oriented litigation. The CFPB, other financial regulatory agencies, including the OCC, as well as the DOJ, have, over the past several years, pursued a number of enforcement actions against depository institutions with respect to compliance with fair lending laws.



Ability-to-pay rules and qualified mortgages - As required by the Dodd-Frank Act, the CFPB issued a series of final rules in January 2013 amending Regulation Z, implementing the TILA, which requiresrequire mortgage lenders to make a reasonable and good faith determination, based on verified and documented information, that a consumer applying for a residential mortgage loan has a reasonable ability to repay the loan according to its terms. These final rules prohibit creditors, such as the Corporation's bank subsidiaries, from extending residential mortgage loans without regard for the consumer's ability to repay and add restrictions and requirements to residential mortgage origination and servicing practices. In addition, these rules restrict the imposition of prepayment penalties and compensation practices relating to residential mortgage loan origination. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider eight underwriting factors when making the credit decision. Alternatively, theThe mortgage lender canmay 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 entityenterprise or a federal agency).

Integrated disclosures under the Real Estate Settlement Procedures Act and the Truth in Lending Act - As required by the Dodd-Frank Act, the CFPB issued final rules in December 2013 revising and integrating previously separate disclosures required under

8


the Real Estate Settlement Procedures Act (RESPA) RESPA and the TILA in connection with certain closed-end consumer mortgage loans. These final rules became effective August 1, 2015 and require lenders to provide a new Loan Estimate,loan estimate, combining content from the former Good Faith Estimategood 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,closing disclosure, combining content of the former HUD-1 Settlement Statement required under RESPA and the final disclosures required under TILA, at least three days prior to the loan closing.
Consumer Financial Protection Enforcement - The CFPB has exclusive examination and primary enforcement authority with respectissued proposed amendments to compliance with federal consumer financial protection laws and regulations by institutions under its supervision and is authorized, individually or jointly with the federal bank regulatory agencies (the Agencies), to conduct investigations to determine whether any person is, or has, engagedrequirements in conduct that violates such laws or regulations. The CFPB may bring an administrative enforcement proceeding or civil actionJuly 2016, which were finalized in Federal district court. In addition, in accordance with a memorandum of understanding entered into between the CFPB and the Department of Justice (DOJ), the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations. As an independent bureau within the FRB, the CFPB may impose requirements that are more severe than those of the other bank regulatory agencies. During 2015, the CFPB and the DOJ pursued a number of enforcement actions against depository institutions with respect to compliance with fair lending laws.July 2017.

Volcker Rule - As mandated by Section 619 of the Dodd-Frank Act in December 2013,(the "Volcker Rule"), the OCC, FRB, FDIC,federal banking agencies, the SEC and Commodity Futures Trading Commission issued final rulingsrules in December 2013 (the Final Rules) implementing certain prohibitions and restrictions on the ability of a"Final Rules") that prohibit banking entity and non-bank financial company supervised by the FRB to engageentities from (1) engaging in short-term proprietary trading for their own accounts, and have(2) having certain ownership interests in, orand relationships with, ahedge funds or private equity funds, which are referred to as "covered fund" (the so-called Volcker Rule).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"investment company" under the Investment Company Act of 1940 (the 1940 Act)"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 FRBFederal 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 announced its intention to grantin 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. BasedRules, and, based on the Corporation's evaluation of its investments, none fallfell within the definition of a "covered fund" and would neednone needed to be disposed of by July 21, 2016 or any further extension31, 2017.

In August 2017, the OCC published a notice and request for comment on whether certain aspects of the conformance dateVolcker 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 maybe granteddefine 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 FRB. Therefore, it does not currently expectstatute, 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 have a material effect on its business, financial conditionbe adopted or, results of operations.if such regulations were to be adopted, the extent to which they would reduce the Corporation's compliance


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 FRBFederal 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 FRB’sFederal 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)("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 FRBFederal Reserve Board approved final rules (the U.S."U.S. Basel III Capital Rules)Rules") establishing a new comprehensive capital framework for U.S. banking organizations and implementing the BASEL'sBasel's December 2010 framework for strengthening international capital standards. The U.S. Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions.

The new minimum regulatory capital requirements established by the U.S. Basel III Capital Rules became effective for the Corporation on January 1, 2015, and will bewere fully phased in onas of January 1, 2019.

The U.S. Basel III Capital Rules require the Corporation and its bank subsidiaries to:

Meet a new minimum Common Equity Tier 1 ("CET1") capital ratio of 4.50% of risk-weighted assets and a minimum Tier 1 capital ratio of 6.00% of risk-weighted assets;

9


Continue to require the currenta minimum Total capital ratio of 8.00% of risk-weighted assets and thea minimum Tier 1 leverage capital ratio of 4.00% of average assets; and
Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses. Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, are beinghave been phased out as a component of Tier 1 capital for institutions of the Corporation's size. In July 2015, the previously outstanding trust preferred securities issued by Fulton Capital Trust I were redeemed.

The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expand the risk-weightings for assets and off balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures and resulting in higher risk weights for a variety of asset categories. In November 2017, the federal banking agencies adopted a final rule to extend the regulatory capital treatment applicable during 2017 under Basel III for certain items, including regulatory capital deductions, risk weights, and certain minority interest limitations. The relief provided under the final rule applies to banking organizations that are not subject to the capital rules’ advanced approaches, such as the Corporation. Specifically, the final rule extends the current regulatory capital treatment of mortgage servicing assets ("MSAs"), deferred tax assets ("DTAs") arising from temporary differences that could not be realized through net operating loss carrybacks, significant investments in the capital of unconsolidated financial institutions in the form of common stock, non-significant investments in the capital of unconsolidated financial institutions, significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock, and CET1 minority interest, tier 1 minority interest, and total capital minority interest exceeding applicable minority interest limitations.
When
As fully phased in onas of January 1, 2019, the Corporation and its bank subsidiaries will also beare required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements. The required minimum capital conservation buffer began to be phased in incrementally, starting at 0.625%, on January 1, 2016, and will increaseincreasing to 1.25% on January 1, 2017, and will continue to increase, to 1.875% on January 1, 2018 and 2.50% on January 1, 2019. The rules provide that the failure to maintain the "capital conservation buffer" will result in restrictions on capital distributions and discretionary cash bonus payments to executive officers. As a result, under the U.S. Basel III Capital Rules, if any of the Corporation's bank subsidiaries fails to maintain the required minimum capital conservation buffer, the Corporation will be subject to limits, and possibly prohibitions, on its ability to obtain capital distributions from such subsidiaries. If the Corporation does not receive sufficient cash dividends from its bank subsidiaries, it may not have sufficient funds to pay dividends on its capital stock, service its debt obligations or repurchase its common stock. In addition, the restrictions on payments of discretionary cash bonuses to executive officers may make it more difficult for the


Corporation to retain key personnel.
As of December 31, 2015,2018, 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 FRBFederal Reserve Board approved final rules (the U.S."U.S. Liquidity Coverage Ratio Rule)Rule") implementing portions of the Basel III liquidity framework for large, internationally active banking organizations, generally those having $250 billion or more in total assets, and similar, but less stringent, rules, applicable to bank holding companies with consolidated assets of $50 billion or more. The U.S. Liquidity Coverage Ratio Rule requires banking organizations to maintain a Liquidity Coverage Ratio or LCR,("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 arewere required to be compliant with the U.S. Liquidity Coverage Ratio Rule by January 1, 2017. Because theThe 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)("NSFR"), which is designed to promote funding resiliency over longer-term time horizons by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing structural basis. This newThe 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 standard is subject to further rulemaking. To date, U.S.requirements discussed above and could therefore impose unnecessary compliance costs upon banking regulators have notorganizations. Accordingly, the prospects for final implementation of the federal banking agencies’ proposed any additional liquidity rules.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.



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)("FDICIA") established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, the federal bank regulators are required to take certain, and authorized to take other, supervisory actions against undercapitalized institutions, based upon five categories of capitalization which FDICIA created: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized," the severity of which depends upon the institution’s degree of capitalization. Generally, a capital restoration plan must be filed with the institution’s primary federal regulator within 45 days of the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized," and the plan must be guaranteed by any parent holding company. In addition, various mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion. Prior to January 1, 2015, an insured depository institution was treated as well capitalized if its total risk-based capital ratio was 10.00% or greater, its Tier 1 risk-based capital ratio was 6.00% or greater and its Tier 1 leverage capital ratio was 5.00% or greater, and it was not subject to any order or directive by its primary federal regulator to meet a specific capital level. Effective January 1, 2015, anAn insured depository institution is treated as well capitalized if its total risk-based capital ratio is 10.00% or greater, its Tier 1 risk-

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basedrisk-based capital ratio is 8.00% or greater, its Common Equity Tier 1CET1 risk-based capital ratio is 6.50% or greater and its Tier 1 leverage capital ratio is 5.00% or greater, and it is not subject to any order or directive to meet a specific capital level. As of December 31, 2015,2018, each of the Corporation’s bank subsidiaries’ capital ratios werewas 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 CorporationParent Company and its non-banking subsidiaries. In general, these restrictions require that such loans be secured by designated amounts of specified collateral, and are limited, as to any one of the CorporationParent 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 effective in July 2012, to cover securities lending, repurchase agreement and derivatives activities that the Corporation’s bank subsidiaries may have with an affiliate.

For safety and soundness reasons, banking regulations also limit the amount of cash that can be transferred from subsidiary banks to the Parent Company in the form of dividends. Dividend limitations vary, depending on the subsidiary bank’s charter and whether or not it is a member of the Federal Reserve System. Generally, subsidiaries are prohibited from paying dividends when doing so would cause them to fall below the regulatory minimum capital levels. Additionally, limits may exist on paying dividends in excess of net income for specified periods. See "Note 11 - Regulatory Matters," in the Notes to Consolidated Financial Statements in Item 8. Financial8 "Financial Statements and Supplementary DataData" 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)("DIF") of the FDIC, generally up to $250,000 per insured depositor.
The Corporation’s subsidiary banks pay deposit insurance premiums based on assessment rates established by the FDIC. The FDIC has established a risk-based assessment system under which institutions are classified and pay premiums according to their perceived risk to the DIF. An institution’s base assessment rate is generally subject to following adjustments: (1) a decrease for the institution’s long-term unsecured debt, including most senior and subordinated debt, (2) an increase for brokered deposits above a threshold amount and (3) an increase for unsecured debt held that is issued by another insured depository institution. In addition, the FDIC possesses backup enforcement authority over a depository institution holding company, such as the Corporation, if the conduct or threatened conduct of such holding company poses a risk to the DIF, although such authority may not be used if the holding company is generally in sound condition and does not pose a foreseeable and material risk to the DIF.



On April 1, 2011, as required by the Dodd-Frank Act, the deposit insurance assessment base changed from total domestic deposits to average total assets, minus average tangible equity. In addition, the FDIC also created a two scorecard system, one for large depository institutions that have $10 billion or more in assets and another for highly complex institutions that have $50 billion or more in assets. As of December 31, 2015, none ofJuly 1, 2017, the Corporation’s individuallargest subsidiary banks had assetsbank, 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 and, therefore, did not meetin assets being required to bear the classificationcost of large depository institutions.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 20162019 will remain at 2.00%, which is the same ratio that has been in effect since January 1, 2011. The FDIC is authorized to change deposit insurance assessment rates as necessary to maintain the DRR, without further notice-and-comment rulemaking, provided that: (1) no such adjustment can be greater than three basis points from one quarter to the next, (2) adjustments cannot result in rates more than three basis points above or below the base rates and (3) rates cannot be negative.

The Dodd-Frank Act increased the minimum DIF reserve ratio to 1.35% of insured deposits, which must be reached by September 30, 2020, and provides that, in setting the assessment rates necessary to meet the new requirement, the FDIC shall offset the effect of this provision on insured depository institutions with total consolidated assets of less than $10 billion, so that more of the cost of raising the reserve ratio will be borne by the institutions with more than $10 billion in assets. In October 2010, the FDIC adopted a restoration plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020.

On October 22, 2015,September 30, 2018, the FDIC issued a proposal to increase theDIF reserve ratio forreached 1.36 percent, exceeding the DIF tostatutorily 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, level of 1.35% as required by the Reform Act. The proposed rule would imposesurcharges 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, a quarterly surcharge equal to an annual rate of 4.5 basis points applied tosuch as Fulton Bank, the deposit insurance assessment base, after making certain adjustments. Ifpremium deduction is phased out based on the rule is adopted as proposed, the FDIC expects that these surcharges would commence in 2016 and continue for approximately eight quarters; however, if the reserve ratio for the DIF does not reach the required level by December 31, 2018, the FDIC would impose a shortfall assessment on March 31, 2019, which would be collected on June 30, 2019. To the extent that anyproportion of the Corporation’s subsidiary banks’bank’s assets exceedsexceeding $10 billion inbillion.

AML Requirements and the future, such rulemaking could result in an increase in the deposit insurance assessments for such banks.
USA Patriot Act - Anti-terrorism legislation enacted under the USA Patriot Act of 2001 (Patriot Act)("Patriot Act") amended the BSA and expanded the scope of anti-money launderingAML laws and regulations, and imposedimposing significant new compliance obligations for financial institutions, including the Corporation’s subsidiary banks. TheseThe 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 includeimpose 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.

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Among other requirements, the Patriot Act and the related regulations impose the following requirements with respect to financial institutions:

Establishment of anti-money launderingAML 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’s requirementsAct 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


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. changes (including the May 2016 amendments).

The CorporationParent Company and its banking subsidiariessubsidiary, Lafayette Ambassador Bank, are currently subject to a regulatory enforcement ordersorder (the Consent Orders)"Consent Order") issued by bank regulatory agenciesthe Federal Reserve Board relating to identified deficiencies in a largely centralized compliance program (the BSA/"BSA/AML Compliance Program)Program") designed to comply with the Bank Secrecy Act,BSA, the Patriot Act and related anti-money laundering regulations (the BSA/"BSA/AML Requirements)Requirements"). The Consent Orders require,Order requires, among other things, that the CorporationParent Company and its banking subsidiariesLafayette Ambassador Bank review, assess and take actions to strengthen and enhance the BSA/AML Compliance Program, and in some cases, conduct retrospective reviews of past account activity and transactions, as well as certain reports filed in accordance with the BSA/AML Requirements, to determine whether suspicious activity and certain transactions in currency were properly identified and reported in accordance with the BSA/AML Requirements. See Item 1A. Risk"Risk Factors - "The Corporation and its bank subsidiaries are subject to regulatory enforcement orders requiring improvement in compliance functions and remedial actions" under "Legal,Legal, Compliance and Reputational Risks;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;" Item 3.and "Note-17 Commitments and Contingencies - Legal Proceedings; "Regulatory Enforcement Orders," under "Overview and Outlook" in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and "Note 11 - Regulatory Matters,Proceedings," in the Notes to Consolidated Financial Statements in Item 8. Financial"Financial Statements and Supplementary Data."

Commercial Real Estate Guidance - In December 2015, the Agenciesfederal banking agencies released a statement entitled "Statement on Prudent Risk Management for Commercial Real Estate Lending" (the CRE Statement)"CRE Statement"). In the CRE Statement, the Agenciesagencies 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 Agenciesagencies previously issued guidance in December 2006, entitled "Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices," which states that an institution is potentially exposed to significant commercial real estate concentration risk, and should employ enhanced risk management practices, where (1) total commercial real estate loans represents 300% or more of its total capital and (2) the outstanding balance of such institution's commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.

Community Reinvestment - Under the Community Reinvestment Act (CRA)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 lowlow- or moderate incomemoderate-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 lowlow- and moderate incomemoderate-income areas. The CRA also requires all institutions to make public disclosure of their CRA ratings. As of December 31, 2015,2018, 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. The

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guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. An institution must submit a compliance plan to its regulator if it is notified that it is not satisfying any such safety and soundness standards. If the institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the regulator must issue an order directing corrective actions and may issue an order directing other actions of the types to which a significantly undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. If the institution fails to comply with such an order, the regulator may seek to enforce such order in judicial proceedings and to impose civil money penalties.

The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or


principal shareholder. In July 2010, the federal banking agencies issued Guidance on Sound Incentive Compensation Policies ("Guidance") that applies to all banking organizations supervised by the agencies (thereby including both the Corporation and its banking subsidiaries). Pursuant to the Guidance, to be consistent with safety and soundness principles, a banking organization’s incentive compensation arrangements should: (1) provide employees with incentives that appropriately balance risk and reward; (2) be compatible with effective controls and risk management; and (3) be supported by strong corporate governance, including active and effective oversight by the banking organization’s board of directors. Monitoring methods and processes used by a 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 theeach 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, theeach 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 - FRBFederal Reserve Board regulations require depository institutions to maintain cash reserves against their transaction accounts (primarily NOW and demand deposit accounts). A reserve of 3% is tomust be maintained against aggregate transaction accountsaccount balances of between $15.2$16.3 million and $110.2$124.2 million (subject to adjustment by the FRB)Federal Reserve Board) plus a reserve of 10% (subject to adjustment by the FRBFederal Reserve Board within a range of between 8% and 14%) against that portion of total transaction accountsaccount balances in excess of $110.2$124.2 million. The first $15.2$16.3 million of otherwise reservable balances (subject to adjustment by the FRB)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 FRB.Federal Reserve Board. Pursuant to the Emergency Economic Stabilization Act of 2008, the Federal Reserve Banks pay interest on depository institutions’ required and excess reserve balances. The interest rate paid on required reserve balances is currently the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal to the lowest target federal funds rate in effect during the reserve maintenance period.



Activities and Acquisitions - The BHC Act requires a bank holding company to obtain the prior approval of the Federal Reserve Board before:

the company may acquire direct or indirect ownership or control of any voting shares of any bank or savings and loan association, if after such acquisition the bank holding company will directly or indirectly own or control more than five percent of any class of voting securities of the institution;
any of the company’s subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank or savings and loan association; or
the company may merge or consolidate with any other bank or financial holding company.

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.


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Executive Officers
As of December 31, 2015, theThe executive officers of the Corporation are as follows:
Name 
Age(1)
 Office Held and Term of Office
E. Philip Wenger 5861 Director of the Corporation since 2009. Mr. Wenger was appointed Chairman of the Board President and Chief Executive Officer of the Corporation insince January 2013. HeMr. Wenger previously served as President andof 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.
     
Patrick S. BarrettMark R. McCollom 5254 
Senior Executive Vice President and Chief Financial Officer of the Corporation effective January 1, 2014.since March of 2018. Mr. BarrettMcCollom joined the Corporation as Senior Executive Vice President in November 2013. He held multiple roles with SunTrust Banks, Inc. in the three years prior to joining the Corporation, ending2017 as Chief Financial Officer of SunTrust Wholesale Bank from 2011 to 2013. Mr. Barrett previously held a number of senior finance and managing director roles with JPMorgan Chase & Co. from 2003 to 2010, ending as Managing Director - Investor Relations. He spent 10 years as a Certified Public Accountant with Deloitte Touche Tohmatsu from 1993 to 2003, ending as an Audit Partner, Financial Services in 2003.
Meg R. Mueller51Senior Executive Vice President and Chief CreditFinancial 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 Corporation since July 2013. Executive Vice President and Chief Credit Officer since 2010. Ms. Mueller has been employed by the Corporation in a number of positions since 1996.financial services industry.

     
Curtis J. Myers 4750 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; and President and Chief Operating Officer of Fulton Bank, N.A. sinceCorporation from July 2013. President and Chief Operating Officer of Fulton Bank, N.A. and Executive Vice President of the Corporation since August 2011.2013 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.
     
Craig A. RodaDavid M. Campbell 5957 
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.

Beth Ann L. Chivinski58
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 Community Bankingthe 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.

Meg R. Mueller54
Senior Executive Vice President and Head of Commercial Business since January 1, 2018. Ms. Mueller served as Chief Credit Officer of the Corporation since July 2011;from 2010 - 2017 and Chairman and Chiefwas promoted to Senior Executive Officer of Fulton Bank, N.A., since February 2009. Chief Executive Officer andVice President of Fulton Bank, N.A. from 2006 to 2009. Mr. Rodathe Corporation in 2013. Ms. Mueller has been employed by the Corporation in a number of positions since 1979.
Philmer H. Rohrbaugh63Senior Executive Vice President and Chief Risk Officer of the Corporation since November 2012. Mr. Rohrbaugh was a managing partner of KPMG, LLP's Chicago office from 2009 to 2012; Vice Chairman Industries and part of the U.S. Management Committee of KPMG from 2006 to 2009; and joined KPMG in 2002. He has more than 25 years of experience in various management positions. Mr. Rohrbaugh is a Certified Public Accountant and currently serves as a director of a public manufacturing company.1996.

     
Angela M. Sargent 4851 
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 since 2002. Ms. Sargentfrom 2002 - 2013 and has been employed by the Corporation in a number of positions since 1992.

Angela M. Snyder54Senior 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.
Daniel R. Stolzer62Senior 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.
Bernadette M. Taylor57Senior 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.

14(1) As of December 31, 2018



Item 1A. Risk Factors


An investment in the Corporation's common stocksecurities involves certain risks, including, among others, the risks described below. In addition to the other information contained in this report, you should carefully consider the following risk factors.

ECONOMIC AND CREDIT RISKS.

Difficult conditions in the economy and the capital markets may materially adversely affect the Corporation's business and results of operations.

The Corporation's results of operations and financial condition are affected by conditions in the capital marketseconomy and the economycapital 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 byby: declines in economic growth, business activity or investor or business confidence,confidence; limitations on the availability, or increases in the cost, of credit and capital,capital; changes in the rate of inflation or in interest rates; high unemployment; governmental fiscal and monetary policies; the level of, or changes in, interest rates, high unemployment,prices of raw materials, goods or commodities; global economic conditions and trade policies; geopolitical events; natural disastersdisasters; 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’sCorporation'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.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, 20152018 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 loancredit losses represents management’smanagement's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. Management’sdate. Management's estimate of losses inherent in the loan portfolio is dependent on the proper application of its methodology for determining its allowance needs. The most critical judgments underpinning that methodology include: the ability to identify potential problem loans in a timely manner; proper collateral valuation of impaired loans evaluated for impairment; proper measurement of allowance needs for pools of loans measuredevaluated 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’sCorporation'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’sCorporation's operating results.

If the Corporation’sCorporation'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’sCorporation'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’sCorporation's loan portfolio, underwriting procedures and allowance for credit losses. Any increase in the Corporation’sCorporation's allowance for credit losses or loan charge-offs as required by such regulatory authoritiesagencies could have a material adverse effect on the Corporation’sCorporation's financial condition and results of operations. See "Provision and Allowance for Credit Losses," under "Financial Condition" in Item 7. Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations-Financial Condition-Provision and Allowance for Credit Losses."


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Economic downturns and theThe composition of the Corporation’sCorporation's loan portfolio and competition subject the Corporation to credit risk.
Economic downturns and the composition
Approximately 73% of the Corporation’s loan portfolio subject the Corporation to credit risk. National, regional and local economic conditions can impact the Corporation’s loan portfolio. For example, an increase in unemployment, a decrease in real estate values or changes in interest rates, as well as other factors, such as a substantial decline in the stock market, could weaken the economies of the communities the Corporation serves. Weakness in the market areas served by the Corporation may depress the Corporation’s earnings and consequently its financial condition because:
borrowers may not be able to pay interest on, and repay their principal of, outstanding loans;
the value of the collateral securing the Corporation's loans to borrowers may decline; and
demand for loans, as well as and other products and services the Corporation offers, may decline.

Approximately $10.4 billion, or 74.8%, of the Corporation’s loan portfolio was in commercial loans, commercial mortgage loans, and construction loans at December 31, 2015.2018. 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 more likely to be affected by adverse conditions in the economy.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’sborrower's control, such as adverse conditions in the real estate markets, adverse economic conditions or changes in governmentgovernmental regulation. Intense

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, cancould increase pressure on the Corporation to relax its credit standards and/or underwriting criteria in order to achieve the Corporation’sCorporation'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’sCorporation's established risk appetite or target customer base. See "Loans," under "Financial Condition" in Item 7. Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations.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 FRB,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 earninginterest-earning assets and interest paid on interest-bearing liabilities. Net interest income is the most significant component of the Corporation's net income, accounting for approximately 74%76% of total revenues in 2015. The narrowing2018. In recent years, as the general level of short-term interest rate spreads,rates has increased, the Corporation's net interest margin, or the difference between interest rates earned on loans and investments and interest rates paid on deposits and borrowings, has adversely affectedincreased, contributing to growth in the Corporation's net interest income.
Low 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, have pressuredcausing 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 in recent years. Interest-earningmay come under pressure as interest-earning assets, such as loans and investments, have beenare 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, hasmay also declined,decline, the decline hasmay not always occurredoccur at the same pace as the decline in the average rate earned on interest-earning assets, resulting in a narrowing of the net interest margin.
Competition sometimes pressures the Corporation to lower rates charged on loans more than the decline in market rates would otherwise indicate. Competition may also pressure the Corporation to pay higher rates on deposits than market rates would otherwise indicate. Thus, although loan demand has improved in recent years, intense competition among lenders has contributed to downward pressure on loan yields, also narrowing the net interest margin. Further, due to historically low market interest rates, rates paid on deposits have tended to reach a natural floor below which it is difficult to further reduce such rates. See "Net Interest Income," in Item 7. Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations-Net Interest Income."

Changes in interest rates may also affect the average life of loans and certain investment securities, most notably mortgage-backed securities. Decreases in interest rates can result in increased prepayments of loans and certain investment securities, as borrowers


or issuers refinance to reduce their borrowing costs. Under those circumstances, the Corporation would be subject to reinvestment risk to the extent that it is not able to reinvest the cash received from such prepayments at rates that are comparable to the rates on the loans and investment securities which are prepaid. Conversely, increases in interest rates may extend the average life of fixed rate assets, which could restrict the Corporation's ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so long as the early withdrawal penalty is less than the interest they could receive as a result of the higher interest rates.

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’sCorporation's products and services.

Movements in interest rates can cause demand for some of the Corporation’sCorporation'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’sCorporation's reaction to these changes. For example, demand

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for residential mortgage loans has historically tended to increase during periods when interest rates were declining and to decrease during periods when interest rates were rising.
Price fluctuations in securities markets, as well as other market events, such as a disruption in credit and other markets and the abnormal functioning of markets for securities, could have an impact on the Corporation's results of operations.

The market value of the Corporation's securities investments, which include mortgage-backed securities, state and municipal securities, auction rate securities, and corporate debt securities, and equity investments, as well as the revenues the Corporation earns from its trust and investment management services business, are particularly sensitive to price fluctuations and market events. Declines in the values of the Corporation’sCorporation's securities holdings, combined with adverse changes in the expected cash flows from these investments, could result in other-than-temporary impairment charges.
As of December 31, 2015, the Corporation’s securities investments included $98.1 million of investments in student loan auction rate certificates (ARCs). Following the failures of periodic auctions for these ARCs, which began in 2008 and have continued since that time, there has not been an active market for these securities. Other than sporadic redemptions and tender offers made by the issuers of these ARCs, these securities are illiquid. Secondary market transactions involving ARCs typically represent forced liquidations or distressed sales and do not provide an accurate basis for determining their fair value. The Corporation does not have the intent to sell the ARCs and does not believe it will more likely than not be required to sell any of the ARCs prior to a recovery of their fair value to amortized cost, which may be at maturity. However, if the Corporation chose to liquidate these securities prior to their maturity, it would likely have to do so at "distressed" sale prices and would likely do so at a loss.
A portion of the Corporation's securities portfolio includes holdings of equity investments, including stocks of publicly traded financial institutions. The portfolio of publicly traded financial institutions includes shares of a single financial institution which, as of December 31, 2015, had a fair value of $10.2 million. The Corporation's holdings of this financial institution constituted approximately 49.5% of the fair value of the Corporation's aggregate holdings of publicly traded financial institutions as of that date.
The Corporation's investment management and trust services revenue, which is partially based on the value of the underlying investment portfolios, can also be impacted by fluctuations in the securities markets. If the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets, in general, or otherwise, the Corporation's revenue could be negatively impacted. In addition, the Corporation's ability to sell its brokerage services is dependent, in part, upon consumers' level of confidence in securities markets.
See Item 7A. Quantitative"Quantitative and Qualitative Disclosures About Market Risk."



LIQUIDITY RISK.

Changes in interest rates or disruption in liquidity markets may adversely affect the Corporation’sCorporation'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’sCorporation's liquidity management emphasizespolicies 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 FHLBFederal Home Loan Bank ("FHLB") advances, borrowings from the Federal Reserve Bank, proceeds from the sales of loans and use of liquidity resources of the holding company,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’sCorporation's results of operations or financial condition, downgrades in the Corporation’sCorporation'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’sCorporation'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

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sensitivity to interest rates could cause customers to move funds into higher-yielding deposit accounts offered by the Corporation’s bank subsidiaries, require the Corporation’s bank subsidiaries to offer higher interest rates on deposit accounts to retain customer deposits or cause customers to move funds into alternative investments or depositsinvestments. Advances in technology, such as online banking, mobile banking, digital payment platforms and the acceleration of other banks or non-bank providers. Technology and other factorsfinancial technology innovation, have also made it more convenient foreasier to move money, potentially causing customers to transfer low-cost deposits into higher-cost depositsswitch financial institutions or into alternative investments or deposits of other banks orswitch to non-bank providers.competitors. Movement of customer deposits into higher-yielding deposit accounts offered by the Corporation’sCorporation'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’sCorporation'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’sCorporation's ability to continue to grow may be constrained, and the Corporation’sCorporation's liquidity, operating margins, results of operations and financial condition may be materially adversely affected. See "InterestItem 7A. "Quantitative and Qualitative Disclosures About Market Risk-Interest Rate Risk, Asset/Liability Management and Liquidity,Liquidity." in Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Liquidity planning at both the bank and holding company levels has become an area of increased regulatory emphasis.
Due to regulatory limitations on the Corporation’s ability to rely on short-term borrowings, any significant movements of deposits away from traditional depository accounts which negatively impacts the Corporation’s loan-to-deposit ratio could restrict its ability to achieve growth in loans or require the Corporation to pay higher interest rates on deposit products in order to retain deposits to fund loans.
Liquidity must also be managed at the holding company level. Banking regulators carefully scrutinize liquidity at the holding company level, in addition to consolidated and bank liquidity levels. For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from bank subsidiaries to the parent company in the form of loans and dividends. Generally, these limitations are based on the bank subsidiaries' regulatory capital levels and their net income. These factors have affected some institutions' ability to pay dividends and have required some institutions to establish borrowing facilities at the holding company level.
LEGAL, COMPLIANCE AND REPUTATIONAL RISKS.
The supervision and regulation to which the Corporation is subject is increasing and can be a competitive disadvantage.
Virtually every aspect of the Corporation's operations is subject to extensive regulation and, in the current regulatory climate, theThe Corporation and its bank subsidiaries are subject to heightened regulatory scrutiny, especially givenextensive 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 size and complexity.
The Corporation has six bank subsidiaries, and the Corporation and its subsidiaries arebank subsidiaries' operations is subject to extensive regulation and supervision by a relatively large number of federal and state regulatory agencies. This corporate structure presents challenges, specifically,agencies, including the need for compliance with different, and potentially inconsistent, regulatory requirements. The time, expense and internal and external resources associated with regulatory compliance continue to increase, and balancing the need to address regulatory changes and effectively manage overall non-interest expenses has become more challenging than it has been in the past. As a result, the Corporation’scompliance obligations increase the Corporation's expense, require increasing amounts of management's attention and can be a disadvantage from a competitive standpoint with respect to non-regulated competitors and larger bank competitors.
The Corporation has announced that it is developing plans to seek regulatory approval to begin the process of consolidating its six bank subsidiaries. This multi-year consolidation process is expected to eventually result in the Corporation conducting its core banking business through a single bank subsidiary, which would reduce the number of government agencies that regulate the Corporation’s banking operations. The timing of the commencement of this consolidation process will depend significantly on the Corporation and its bank subsidiaries making necessary progress in enhancing a largely centralized compliance program designed to comply with the requirements of the Bank Secrecy Act, the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements). The Corporation will also need to establish, to the satisfaction of the Corporation’s banking regulatory agencies, that those enhancements are sustainable to achieve compliance with the regulatory enforcement orders issued to the Corporation and its bank subsidiaries by their respective banking regulatory agencies relating to identified deficiencies in that compliance program. There is no assurance that the regulatory approvals required for such consolidation can be obtained or that such consolidation would significantly reduce the time, expense and internal and external resources associated with regulatory compliance.

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The Corporation may incur negative consequences from regulatory violations, including inadvertent or unintentional violations.
Compliance with banking statutes and regulations is important to the Corporation’s ability to engage in new activities and to consummate certain transactions. Banking regulators are scrutinizing banks through longer and more intensive bank examinations. The results of such examinations could result in a delay or failure to receive required regulatory approvals for potential new activities and transactional matters. Federal Reserve Board, OCC, FDIC, CFPB, DOJ, UST, SEC, HUD, state attorneys general and state banking, regulators also possessfinancial services, securities and insurance regulators. Under this regulatory framework, regulatory agencies have broad powersauthority in carrying out their supervisory, examination and enforcement responsibilities to take supervisory actions,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 they deem appropriate. These supervisory actions may result in higher capital requirements, higher deposit insurance premiumswell as laws and limitations on the Corporation’s operationsregulations governing consumer protection, fair lending, privacy, information security and expansion activities that could have a material adverse effect on its businesscybersecurity risk management, third-party vendor risk management, and profitability. As noted belowAML and as examples of such limitations, the regulatory enforcement orders to which the Corporation and each of its bank subsidiaries are subject impose certain restrictions on the expansion activitiesanti-terrorism laws, among other aspects of the Corporation and such bank subsidiaries.
Further, failureCorporation's business. Failure to comply with these regulatory requirements, including inadvertent or unintentional violations, may result in the assessment of fines and penalties, or the commencement of further informal or formal regulatory enforcement actions against the Corporation or its bank subsidiaries. Other negative consequences


can also can result from such failures, including regulatory restrictions on the Corporation's activities, including restrictions on the Corporation’sCorporation'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 bank 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'scompliance 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 orders requiring improvementorder described below, have been satisfactorily remediated. The consolidation of the Corporation's bank subsidiaries will result in compliance functionssignificant 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 remedial actions.internal and external resources associated with regulatory compliance.
In recent years, a combination of financial reform legislation and heightened scrutiny by banking regulators have significantly increased expectations regarding what constitutes an effective risk and compliance management infrastructure. To keep pace with these expectations, the Corporation has invested considerable resources in initiatives designed to strengthen its risk management framework and regulatory compliance programs, including those designed
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.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.
Nonetheless, as mentioned above,
During 2014 and 2015, the CorporationParent Company and each of its bank subsidiaries arebecame subject to regulatory enforcement orders issued during 2014 and 2015 by their respective Federal and state bank regulatory agencies relating to identified deficiencies in the Corporation’s centralized Bank Secrecy Act and anti-money laundering compliance program (the BSA/AML Compliance Program),Program, which was designed to comply with the BSA/AML Requirements. While the majority of these enforcement orders have

The regulatory enforcement orders, which are in
since been terminated, as mentioned above, the form of consent orders or ordersParent Company and Lafayette Ambassador Bank remain subject to ceasea Cease and desistDesist Order Issued Upon Consent (the "Consent Order") issued upon consent (Consent Orders), generally require, among other things, thatby the Corporation and its bank subsidiaries undertake a number of required actions to strengthen and enhance the BSA/AML Compliance Program, and, in some cases, conduct retrospective reviews of past account activity and transactions, as well as certain reports filed in accordance with the BSA/AML Requirements, to determine whether suspicious activity and certain transactions in currency were properly identified and reported in accordance with the BSA/AML Requirements.

In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program, whileFederal Reserve Board. While the Consent Orders remainOrder remains in effect, the Corporation isParent Company and Lafayette Ambassador Bank are subject to certain restrictions on expansion activities, of the Corporation and its bank subsidiaries.such as growth through acquisition or branching to supplement organic growth. Further, any failure to comply with the requirements of any of the Consent Orders involving the Corporation or its bank subsidiariesOrder could result in further enforcement actions,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’sCorporation's broader compliance and risk management infrastructures. The expense and capital investment associated with all of these efforts, including those undertaken in connection with the Consent Orders,Order, have had an adverse effect on the Corporation’sCorporation's results of operations in recent periods and could have a material adverse effect on the Corporation’sCorporation's results of operations in one or more future periods.

Finally, due to the existence of the Consent Orders,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’sCorporation's results of operations and/or financial condition could be materially adversely effected.

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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.

Financial reform legislationThe Dodd-Frank Act continues to have a significant impact on the Corporation's business and results of operations; however, until more implementing regulations are adopted, the extent to which the legislation will impact the Corporation is uncertain.operations.

The Dodd-Frank Act was enacted in 2010. The scope of the Dodd-Frank Act impactedhas had a substantial impact on many aspects of the financial services industry, and the Act required the development and adoption of many regulations, a number of which have not yet been adopted or fully implemented. The delay in the implementation of many of the regulations mandated by the Dodd-Frank Act on the timelines contemplated by such legislation has resulted in a lack of clear regulatory guidance to banks with respect to certain matters. The resulting uncertainty can cause banks to take a cautious approach to certain business initiatives and planning. Additional uncertainty regarding the effect of the Dodd-Frank Act exists due to court decisions and the potential for additional legislative changes to the Dodd-Frank Act.

industry. The Corporation has been impacted, and will likely continue to be impacted in the future, by the so-called Durbin Amendment to the Dodd-Frank Act, which reduced debit card interchange revenue of banks, and revised FDIC deposit insurance assessments. The Corporation has also been impacted by the Dodd-Frank Act in the areas of corporate governance, capital requirements, risk management stress testing and regulation under federal consumer protection laws.

The Dodd-Frank Act established the CFPB. Among other things, 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 began exercising these oversight authorities over the largest banks during 2011. Because the CFPB remains a relatively new agency, the full impact on the Corporation, including its retail bankinghas also been directed to write and mortgage businesses, continuesenforce rules identifying practices or acts that it deems to be uncertain. However,unfair, deceptive or abusive in connection with any new regulatory requirements, or modified interpretations of existing regulations, will affect the Corporation's consumer business practices and operations, potentially resulting in increased compliance costs. Furthermore, the CFPB represents an additional source of potential enforcement or litigation against the Corporation and, as a relatively new agencytransaction with a focus on consumer protection,for a consumer financial product or service, or the CFPB may have newoffering of a consumer financial product or different enforcement or litigation strategies than those utilized by other banking regulatory agencies. Such actions could further increase the Corporation's costs.service.

PursuantThe 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


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 CFPB issued a series of final rules in January 2013 related to mortgage loan origination and mortgage loan servicing. These final rules prohibit creditors,Corporation's compliance costs, such as the Corporation's bank subsidiaries, from extending residential mortgage loans without regardVolcker Rule, the Durbin amendment restricting interchange fees, and the additional supervisory authority of the CFPB, remain in place for the consumer's ability to repay, provide certain safe harbor protections for the origination of loans that meet the requirements for a "qualified mortgage" and add restrictions and requirements to residential mortgage origination and servicing practices. In addition, these rules restrict the imposition of prepayment penalties and compensation practices relating to residential mortgage loan origination. These rules may adversely affect the volume of mortgage loans that the Corporation’s bank subsidiaries originate and may subject those subsidiaries to increased potential liability related to their residential loan origination activities, as well as increase costs. In December 2013, the CFPB issued final rules revising and integrating previously separate disclosures required under the Truth in Lending Act and the Real Estate Settlement Procedures Act in connection with closed-end consumer mortgages. These final rules, which became effective August 1, 2015, required the Corporation to adapt its systems and procedures to accommodate the use of new disclosure forms to be provided to closed-end consumer mortgage borrowers at the time of application and at the time of closing for those loans within the timeframes required under these new rules. See "Supervision and Regulation," in Item 1. Business.

Additional growth, particularly at the Corporation's largest subsidiary, Fulton Bank, N.A., would subject it to additional regulation and increased supervision.

The Dodd-Frank Act imposes additional regulatory requirements on institutions with $10 billion or more in assets. The Corporation's largest bank subsidiary, Fulton Bank, N.A., had $9.8 billionBank. Further, to the extent the Corporation is successful in assets asconsolidating all of December 31, 2015. Additional growth (orits subsidiary banks into one bank, the consolidationbenefits afforded under the Economic Growth Act to the Corporation's smaller subsidiary banks would be eliminated.

Certain of the Corporation’s bank subsidiaries as discussed above)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 resultsare 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 Fulton Bank, N.A. having assets of $10 billion or more would subject Fulton Bank, N.A.Congress, which may impact regulations and government policies applicable to the following: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 examinationat the Federal Reserve Board, a new Comptroller of the Currency, a new Chairwoman of the FDIC and enforcement jurisdiction bya new Director of the CFPBCFPB. Moreover, the senior staffs of these agencies charged with respect to consumer financial protection laws;
Additional stress testing requirements;
A modified methodology for calculating FDIC insurance assessmentscarrying out agency policies and potentially higher assessment ratesresponsibilities have experienced significant turnover as a result of institutions with $10 billionthese changes. As a result of these changes, and political and economic trends, certain new regulatory initiatives may be delayed or more in assets being required to bear a greater portionsuspended and existing regulations may be re-evaluated, modified or repealed. In November 2018, the Democrats became the majority party of the costU.S. House of raisingRepresentatives and assumed leadership of the FDIC reserve ratioHouse Committee on Financial Services. At this time, the full impact of these leadership changes, as well as the potential impact to 1.35% as required byfinancial services regulation to result from such changes, is uncertain. It is also difficult to predict the Dodd-Frank Act;
Heightened compliance standards underimpact that any legislative or regulatory changes will have on the Volcker Rule;Corporation, its competitors and
Enhanced bank regulatory supervision on the financial services industry as a larger financial institution.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.

See "SupervisionChanges 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 Regulation,"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 Item 1. Business.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.

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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’sCorporation'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 allegedperceived conduct in any number of activities, including lending practices, litigation, corporate governance, regulatory, compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government agencies and community organizations in response to that conduct. In addition, unfavorable public opinion regarding the broader financial services industry, or arising from the actions of individual financial institutions, can have an adverse effect on the Corporation's reputation. Because the Corporation conducts the majority of its businesses under the "Fulton" brand, negative public opinion about one line of business could affect the Corporation's other lines of businesses. Any of these or other events that impair the Corporation's reputation can affect the Corporation's ability to attract and retain customers and employees, and access sources of


funding and capital, any of which could have materially adverse effect on the Corporation's results of operations and financial condition.

From time to time the Corporation and its subsidiaries may be the subject of litigation and governmental or administrative proceedings. Adverse outcomes of any such litigation or proceedings may have a material adverse impact on the Corporation’sCorporation's business and results of operations as well as its reputation.

Many aspects of the Corporation’sCorporation's business involve substantial risk of legal liability. From time to time, the Corporation and its subsidiaries havehas been named or threatened to be named as defendantsdefendant in various lawsuits arising from its business activities (and in some cases from the activities of companies that were acquired). In addition, the Corporation and its bank subsidiaries areis 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, we arethe 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 relief.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 usthe Corporation could materially adversely affect ourthe Corporation's business, financial condition or results of operations and/or cause significant reputational harm to our business.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 CorporationParent Company and its bank subsidiariesLafayette Ambassador Bank are the subject of a regulatory proceedingsproceeding in the form of the Consent Orders.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 usthe Corporation for significant damages or the imposition of regulatory restrictions on ourthe 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 is in the process of transforming its business model and this transformation may not be successful.
The Corporation historically has followed a "super-community" banking strategy under which the Corporation has operated its bank subsidiaries autonomously to maximize the advantages of the community banking model in serving the needs of its customers. Reliance on this model has posed challenges to the Corporation's efforts to manage risk efficiently and effectively through a centralized risk management and compliance function. As a result, the Corporation is in the process of transitioning to a business model that is primarily focused on alignment of services with the customer segments the Corporation serves and less oriented to geographic boundaries.
The transformation of the Corporation’s business model, which will be implemented over a period of years, may have some or all of the following unintended effects:
The efficiencies sought may not be achieved;
Some customers may not receive the change in business model in a positive manner, and relationships with these customers may be jeopardized;
The changes in organizational structure and the evolution of the Corporation’s culture that will be required to support the transition to the new business model may lead to dissatisfaction among employees which could make it more difficult for the Corporation to retain key employees;
The transition to the new business model may create operational and other challenges that are disruptive to the Corporation’s business; and
Expenses will be incurred in the implementation of the new business model, and the implementation process may distract the Corporation from the achievement of other fundamental business objectives.




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The Corporation may not be able to achieve its growth plans.

The Corporation’sCorporation's business plan includes the pursuit of profitable growth. Under current economic, competitive and regulatory conditions, profitable growth may be difficult to achieve due to one or more of the following factors:

In the current prolonged low interest rate environment, it may become more difficult for the Corporation’sCorporation to further increase its net interest margin has been compressed, and it is possible that aor its net interest margin that is lower than historical levels could continue for some time.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;
In recent years, reductions in the Corporation’s provision for credit losses have had a significant favorable impact on the Corporation’s earnings, in comparison to earlier years, during which credit losses and the provision for credit losses were elevated. Significant further reductions in the provision for loan losses are not likely;
Operating expenses, particularly in the compliance and risk management areas, have been elevated, and such expenses are unlikely to be reduced in the near future; and
Growth through acquisition or branchingThe Corporation may seek to supplement organic growth is unlikelythrough acquisitions, but may not be able to occur while the Consent Orders referenced above are in place, due to an inability toidentify suitable acquisition opportunities, obtain the required regulatory approvals.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.




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.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 "Competition," in Item 1. Business."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, 2015,2018, 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.



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 outsiders,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.

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The Corporation’sCorporation's risk management framework is subject to inherent limitations, and risks may exist, or develop in the future, that the Corporation has not anticipated or identified. If the Corporation's risk management framework proves to be ineffective, the Corporation could suffer unexpected losses and could be materially adversely affected. The Corporation’s historical decentralized banking strategy challenges the Corporation's efforts to manage risk efficiently and effectively through a centralized risk management and compliance function.



The Corporation’sCorporation'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’sCorporation's bank subsidiaries. Accordingly, the Corporation’sCorporation'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’sCorporation's operations, which could have a material adverse effect on the Corporation’sCorporation's financial condition and/or results of operations.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’sCorporation's internal controls may be ineffective.

One critical component of the Corporation’sCorporation's risk management framework is its system of internal controls. Management regularly reviews and updates the Corporation’sCorporation'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’sCorporation's controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Corporation’sCorporation's business, results of operations, financial condition and reputation. See Item 9A. Controls"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’sCorporation'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 function,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 or 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’sCorporation's business, financial condition or results of operations and damage its reputation.

The Corporation attempts to reduce its exposure to its vendors’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

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to cyber threats to its own systems before they become significant. However, thereThe 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.


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.methods and the probability of a successful attack cannot be predicted. The Corporation’sCorporation's or a vendor’svendor's failure to promptly identify and counter a cyber attack may result in increased costs and other negative consequences, such as the loss of, a successful cyber attack.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.
Recent account
Account data compromise events at large retailers, hashealth 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’sCorporation'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’sCorporation's ability to provide certain products and services, which could materially and adversely affect the Corporation’sCorporation's profitability. The Corporation’sCorporation'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’sCorporation'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’sCorporation'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’sCorporation's operations. The costs of new technology, including personnel, can be high, in both absolute and relative terms. Many of the Corporation’sCorporation'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-financial institutionnon-bank or non-traditional competitors pose an increasing threat to the traditional paymentproducts and services offeredtraditionally provided by financial institutions.institutions like the Corporation. The Corporation may not be able to effectively implement new technology-driven products and services, be successful in marketing these products and services to its customers, or effectively deploy new technologies to improve the efficiency of its operations. Failure to successfully keep pace with technological change affecting the


financial services industry could have a material adverse impact on the Corporation’sCorporation's business, financial condition and results of operations.

There can be no assurance, given the past pace of change and innovation, that the Corporation’sCorporation'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’sCorporation'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’sCorporation's key personnel could have a material adverse impact on the Corporation’sCorporation's business because of their skills, knowledge of the Corporation’sCorporation's markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel.
As an example, and as noted above, the Corporation is engaged in an effort to enhance its compliance and risk management functions. Because many of the Corporation’s peers are engaged in similar efforts, the competition for personnel with skills in these areas can be significant and, to the extent that the Corporation is able to attract qualified personnel, the expense associated with hiring and retaining such personnel may be substantial.
RISKS RELATED TO AN INVESTMENT IN THE CORPORATION’SCORPORATION'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 authoritiesagencies to maintain adequate levels of capital to support its operations. In 2015, the Corporation issued subordinated debt intended to qualify as Tier 2 capital for regulatory purposes, and theThe Corporation anticipates that current capital levels will satisfy regulatory requirements for the foreseeable future. The Corporation, however, may at some point choose to raise additional capital to support future growth. The Corporation's ability to raise additional capital will depend, in part, on conditions in the capital markets at that time, which are outside of the Corporation's control. Accordingly, the Corporation

24


may be unable to raise additional capital, if and when needed, on terms acceptable to the Corporation, or at all. If the Corporation cannot raise additional capital when needed, its ability to expand operations through internal growth and acquisitions could be materially impacted. In the event of a material decrease in the Corporation's stock price, future issuances of equity securities could result in dilution of existing shareholder interests.

Capital planning has taken on more importance due to regulatory requirements and the Basel III capital standards.
Consistent with current regulatory guidance, the Corporation conducts an annual stress test using internal financial data and different economic scenarios provided by the FRB, and reports the results of the stress test to the FRB. Beginning in 2015, the Corporation is also be required to publicly disclose a summary of the results of the stress test reported to the FRB completed under the severely adverse scenario. The Corporation's board of directors and its senior management are required to consider the results of the annual stress test in the normal course of business, including as part of its capital planning process and the evaluation of the adequacy of its capital. The results of future stress testing processes may lead the Corporation to retain additional capital or alter the mix of its capital components. In addition, the implementation of certain regulations with regard to regulatory capital could disproportionately affect the Corporation's regulatory capital position relative to that of its competitors, including those who may not be subject to the same regulatory requirements.
In 2013, the federal banking regulatory agencies implemented the U.S. Basel III Capital Rules, including: (i) new minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets, (ii) increased minimum Tier 1 capital ratio (from 4.00% to 6.00% of risk-weighted assets), (iii) retention of the current minimum Total capital ratio of 8.00% of risk-weighted assets and the minimum Tier 1 leverage capital ratio at 4.00% of average assets and (iv) a new "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments. As a result of the implementation of the new capital standards, certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, are excluded as a component of Tier 1 capital for institutions of the Corporation’s size and are included in Tier 2 capital instead.
The fully phased-in capital standards under the U.S. Basel III Capital Rules require banks to maintain more capital than the minimum levels required under former regulatory capital standards. The new minimum regulatory capital requirements began to apply to the Corporation on January 1, 2015. The required minimum capital conservation buffer began to be phased in incrementally on January 1, 2016 and will bebecame fully phased in on January 1, 2019. The failure to meet the established capital requirements could result in the federal banking regulators placing limitations or conditions on the activities of the Corporation or its bank subsidiaries or restricting the commencement of new activities, and such failure could subject the Corporation or its bank subsidiaries to a variety of enforcement remedies, including limiting the ability of the Corporation or its bank subsidiaries to pay dividends, issuing a directive to increase capital and terminating FDIC deposit insurance. In addition, the failure to comply with the capital conservation buffer will result in restrictions on capital distributions and discretionary cash bonus payments to executive officers. As of December 31, 2015,2018, the Corporation's current capital levels met the fully-phased infully phased-in minimum capital requirements, including capital conservation buffers, as set forth in the U.S. Basel III Capital Rules. See "Capital Requirements," under "Supervision and Regulation" in Item 1. Business."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.



The Corporation is a holding company and relies on dividends and other payments from its subsidiaries for substantially all of its revenue and its ability to make dividend payments, distributions and other payments.
The
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’sCorporation's bank subsidiaries to pay dividends or make other payments to it. There can be no assurance that the Corporation’sCorporation'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 "LoansItem 1. "Business-Supervision and Regulation-Loans and Dividends from Subsidiary Banks,Banks." under "Supervision and Regulation" in Item 1. Business.

In addition, as noted above, liquidity and capital planning at both the bank and holding company levels has become an area of increased regulatory emphasis. In recent years, the Corporation has pursued a strategy of capital management under which it has sought to deploy its capital, through stock repurchases, increased regular dividends and special dividends, in a manner that is beneficial to the Corporation’sCorporation'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.

25


A downgrade in the credit ratings of the Corporation or its bank subsidiaries could have a material adverse impact on the Corporation.

Fitch, Inc., Moody's Investors Service, Inc. and DBRS, Inc. continuously evaluate the Corporation and its subsidiaries, and their ratings of the Corporation and its subsidiary's long-term and short-term debt are based on a number of factors, including financial strength, as well as factors not entirely within the Corporation’sCorporation'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’sCorporation'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. CertainHowever, these provisions, in the Corporation's Amended and Restated Articles of Incorporation and Bylaws, taken as a whole, may also discourage a hostile tender offer, exchange offer, proxy


solicitation or similar transaction relating to the Corporation's common stock.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 FRBFederal Reserve Board prior to acquiring more than 5% of the Corporation’sCorporation's outstanding common stock. Any person other than a bank holding company is required to obtain prior approval of the FRBFederal Reserve Board to acquire 10% or more of the Corporation’sCorporation'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’sCorporation's outstanding common stock, other than an individual, is subject to regulation as a bank holding company under the BHCA. In addition, the delays associated with obtaining necessary regulatory approvals for acquisitions of interests in bank holding companies also tend to make more difficult certain methods of effecting acquisitions. While these provisions do not prohibit an acquisition, they would likely act as deterrents to an unsolicited takeover attempt.

Item 1B. Unresolved Staff Comments
None.


26


Item 2. Properties
The following table summarizes the Corporation’s full-service branch properties, by subsidiary bank, as of December 31, 20152018. Remote service facilities (mainly stand-alone automated teller machines) are excluded.
Subsidiary Bank Owned Leased Total Branches Owned Leased Total Branches
Fulton Bank, N.A. 44
 68
 112
 54
 68
 122
Fulton Bank of New Jersey 36
 29
 65
 34
 27
 61
The Columbia Bank 8
 23
 31
 6
 25
 31
Lafayette Ambassador Bank 4
 17
 21
 4
 16
 20
FNB Bank, N.A. 5
 2
 7
Swineford National Bank 5
 2
 7
Total 102
 141
 243
 98
 136
 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  Property  Location  Owned/Leased
Fulton Bank, N.A./Fulton Financial Corporation  Corporate Headquarters  Lancaster, PA  (1)
Fulton Financial Corporation  Operations Center  East Petersburg, PA  Owned
Fulton Bank, N.A.  Operations Center  Mantua, NJ  Owned
 
(1)Includes approximately 100,000 square feet which is owned by an independent third party who financed the construction through a loan from Fulton Bank, N.A. The Corporation is leasing this space from the third party in an arrangement accounted for as a capital lease. The lease term expires in 2027. The Corporation owns the remainder of the Corporate Headquarters location. This property also includes a Fulton Bank, N.A. branch, which is included in the preceding table.

Item 3. Legal Proceedings

The Corporation and its subsidiaries are involved in various legal proceedingsinformation presented in the ordinary course"Legal Proceedings" section of business of"Note 17 - Commitments and Contingencies" in the Corporation. The Corporation periodically evaluates the possible impact of pending litigation matters based on, among other factors, the advice of counsel, available insurance coverage and recorded liabilities and reserves for probable legal liabilities and costs. In addition, from timeNotes to time, the CorporationConsolidated Financial Statements is the subject of investigations or other forms of regulatory or governmental inquiry covering a range of possible issues and, in some cases, these may be part of similar reviews of the specified activities of other industry participants. These inquiries could lead to administrative, civil or criminal proceedings, and could possibly result in fines, penalties, restitution or the need to alter the Corporation’s business practices, and cause the Corporation to incur additional costs. The Corporation’s practice is to cooperate fully with regulatory and governmental investigations.incorporated herein by reference.

During the second quarter of 2015, Fulton Bank, N.A. (the Bank), the Corporation’s largest bank subsidiary, received a letter from the U.S. Department of Justice (the Department) indicating that the Department had initiated an investigation regarding potential violations of fair lending laws by the Bank in certain of its geographies. The Bank is cooperating with the Department and responding to the Department’s requests for information. Although the Corporation is not able to predict the outcome of the Department’s investigation, it could result in legal proceedings the resolution of which could potentially involve a settlement, fines or other remedial actions.

The Corporation and each of its bank subsidiaries are subject to regulatory enforcement orders issued during 2014 and 2015 by their respective Federal and state bank regulatory agencies relating to identified deficiencies in the Corporation’s centralized Bank Secrecy Act and anti-money laundering compliance program (the BSA/AML Compliance Program), which was designed to comply with the requirements of the Bank Secrecy Act, the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements). The regulatory enforcement orders, which are in the form of consent orders or orders to cease and desist issued upon consent (Consent Orders), generally require, among other things, that the Corporation and its bank subsidiaries undertake a number of required actions to strengthen and enhance the BSA/AML Compliance Program, and, in some cases, conduct retrospective reviews of past account activity and transactions, as well as certain reports filed in accordance with the BSA/AML Requirements, to determine whether suspicious activity and certain transactions in currency were properly identified and reported in accordance with the BSA/AML Requirements. In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program, while the Consent Orders remain in effect, the Corporation is subject to certain restrictions on

27


expansion activities of the Corporation and its bank subsidiaries. Further, any failure to comply with the requirements of any of the Consent Orders involving the Corporation or its bank subsidiaries could result in further enforcement actions, the imposition of material restrictions on the activities of the Corporation or its bank subsidiaries, or the assessment of fines or penalties.

As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from the final outcomes of pending legal proceedings will not have a material adverse effect on the financial condition of the Corporation. However, legal proceedings are often unpredictable, and it is possible that the ultimate resolution of any such matters, if unfavorable, may be material to the Corporation’s results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating results for the applicable period.

Item 4. Mine Safety Disclosures

Not applicable.

28



PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock
As of December 31, 2015,2018, the Corporation had 174.2170.2 million shares of $2.50 par value common stock outstanding held byapproximately 34,00032,000 holders of record. The closing price per share of the Corporation’s common stock on December 31, 2015February 15, 2019 was $13.01.$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 20152018 and 2014:2017:
 Price Range Per
Share Dividend		 Price Range Per
Share Dividend
 High Low  High Low 
2015      
2018      
First Quarter $12.68
 $11.00
 $0.09
 $19.55
 $17.05
 $0.12
Second Quarter 13.52
 11.85
 0.09
 18.02
 16.50
 0.12
Third Quarter 13.66
 11.60
 0.09
 18.45
 15.05
 0.12
Fourth Quarter 14.59
 11.61
 0.11
 17.60
 14.38
 0.16
2014      
2017      
First Quarter $13.18
 $11.73
 $0.08
 $19.75
 $16.90
 $0.11
Second Quarter 13.16
 11.35
 0.08
 19.90
 16.85
 0.11
Third Quarter 12.71
 11.05
 0.08
 19.50
 16.45
 0.11
Fourth Quarter 12.67
 10.43
 0.10
 19.45
 17.30
 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 it.the Corporation. For additional information regarding the regulatory restrictions applicable to the Corporation and its subsidiaries, see "Supervision and Regulation," in Item 1. Business;"Business;" Item 1A. Risk"Risk Factors - "TheThe 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"Financial Statements and Supplementary Data."




















Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information about options outstanding under the Corporation’s Amended and Restated Equity and Cash Incentive Compensation Plan ("Employee Equity Plan") and the number of securities remaining available for future issuance under the Corporation's Amended and RestatedEmployee Equity and Cash Incentive Compensation Plan, the 2011 Directors' Equity Participation Plan and the Employee Stock Purchase Plan as of December 31, 2015:2018:
Plan Category 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)		 
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)
Equity compensation plans approved by security holders 3,770,889
 $12.31
 14,014,131
 2,027,261
 $10.75
 12,615,906
Equity compensation plans not approved by security holders —
 —
 —
 —
 —
 —
Total 3,770,889
 $12.31
 14,014,131
 2,027,261
 $10.75
 12,615,906

(1) The number of securities to be issued upon exercise of outstanding options, warrants and rights includes 790,802854,022 performance-based restricted stock units (PSUs)("PSUs"), which is the target number of PSUs that are payable under the Amended and RestatedEmployee Equity and Cash Incentive Compensation Plan, (Employee Equity Plan), though no shares will be issued until achievement of applicable performance goals.goals, and includes 514,471 time-vested restricted stock units ("RSUs") granted under the Employee Equity Plan.

29


(2) The weighted-average exercise price of outstanding options, warrants and rights does not take into account outstanding PSUs that may be issuedand RSUs granted under the Employee Equity Plan upon achievement of applicable performance goals.Plan.
(3) Consists of 11,538,86310,542,693 shares that may be awarded under the Amended and RestatedEmployee Equity and Cash Incentive Compensation Plan, 395,879311,669 shares that may be awarded under the 2011 Directors' Equity Participation Plan and 2,079,389 of1,761,544 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, 20152018 as the number of shares to be purchased is indeterminable until the time shares are issued.







































Performance Graph
The following graph shows cumulative total shareholder return (i.e., price change, plus reinvestment of dividends) on the common stock of Fulton Financial Corporation during the five-year period ended December 31, 2015,2018, compared with (1) the NASDAQ Bank Index and (2) the Standard and Poor's 500 index (S("S&P 500)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.
chart-3494fa45e2ba53caae4.jpg

 Year Ending December 31 Year Ending December 31
Index 2010 2011 2012 2013 2014 2015 2013 2014 2015 2016 2017 2018
Fulton Financial Corporation $100.00
 $96.85
 $97.76
 $136.69
 $132.79
 $144.00
 $100.00
 $97.14
 $105.34
 $156.46
 $152.80
 $136.33
S&P 500 $100.00
 $102.11
 $118.45
 $156.82
 $178.28
 $180.75
 $100.00
 $113.69
 $115.26
 $129.05
 $157.22
 $150.33
NASDAQ Bank Index $100.00
 $89.50
 $106.23
 $150.55
 $157.95
 $171.92
 $100.00
 $111.83
 $114.30
 $144.63
 $171.24
 $143.15







30










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 —
 $—
 —
 $31,491,674
November 1, 2018 to November 30, 2018 1,884,406
 16.71
 1,884,406
 75,000,000
December 1, 2018 to December 31, 2018 4,111,813
 15.49
 4,111,813
 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.



Item 6. Selected Financial Data
5-YEAR CONSOLIDATED SUMMARY OF FINANCIAL RESULTS
(dollars in thousands, except per-share data)
2015 2014 2013 2012 20112018 2017 2016 2015 2014
SUMMARY OF INCOME                  
Interest income$583,789
 $596,078
 $609,689
 $647,496
 $693,698
$758,514
 $668,866
 $603,100
 $583,789
 $596,078
Interest expense83,795
 81,211
 82,495
 103,168
 133,538
128,058
 93,502
 82,328
 83,795
 81,211
Net interest income499,994
 514,867
 527,194
 544,328
 560,160
630,456
 575,364
 520,772
 499,994
 514,867
Provision for credit losses2,250
 12,500
 40,500
 94,000
 135,000
46,907
 23,305
 13,182
 2,250
 12,500
Investment securities gains, net9,066
 2,041
 8,004
 3,026
 4,561
37
 9,071
 2,550
 9,066
 2,041
Non-interest income, excluding investment securities gains172,773
 165,338
 179,660
 213,386
 182,932
195,488
 198,903
 187,628
 172,773
 165,338
Loss on redemption of trust preferred securities5,626
 —
 —
 —
 —
—
 —
 —
 5,626
 —
Non-interest expense, excluding loss on redemption of trust preferred securities474,534
 459,246
 461,433
 449,294
 416,242
546,104
 525,579
 489,519
 474,534
 459,246
Income before income taxes199,423
 210,500
 212,925
 217,446
 196,411
232,970
 234,454
 208,249
 199,423
 210,500
Income taxes49,921
 52,606
 51,085
 57,601
 50,838
24,577
 62,701
 46,624
 49,921
 52,606
Net income$149,502
 $157,894
 $161,840
 $159,845
 $145,573
$208,393
 $171,753
 $161,625
 $149,502
 $157,894
PER COMMON SHARE                  
Net income (basic)$0.85
 $0.85
 $0.84
 $0.80
 $0.73
$1.19
 $0.98
 $0.93
 $0.85
 $0.85
Net income (diluted)0.85
 0.84
 0.83
 0.80
 0.73
1.18
 0.98
 0.93
 0.85
 0.84
Cash dividends0.38
 0.34
 0.32
 0.30
 0.20
0.52
 0.47
 0.41
 0.38
 0.34
RATIOS                  
Return on average assets0.86% 0.93% 0.96% 0.98% 0.90%1.03% 0.88% 0.88% 0.86% 0.93%
Return on average common shareholders’ equity7.38
 7.62
 7.88
 7.79
 7.45
Return on average tangible common shareholders’ equity (1)10.01
 10.31
 10.76
 10.73
 10.54
Return on average equity9.24
 7.83
 7.69
 7.38
 7.62
Return on average tangible equity (1)
12.09
 10.33
 10.30
 10.01
 10.31
Net interest margin3.21
 3.39
 3.50
 3.76
 3.90
3.40
 3.28
 3.18
 3.21
 3.39
Efficiency ratio (1)68.61
 65.65
 63.39
 57.61
 54.27
63.8
 64.5
 67.2
 68.6
 65.7
Dividend payout ratio44.71
 40.48
 38.55
 37.50
 27.40
44.1
 48.0
 44.1
 44.7
 40.5
Average equity to assets ratio11.64
 12.22
 12.22
 12.62
 12.12
PERIOD-END BALANCES                  
Total assets$17,914,718
 $17,124,767
 $16,934,634
 $16,533,097
 $16,375,174
$20,682,152
 $20,036,905
 $18,944,247
 $17,914,718
 $17,124,767
Investment securities2,484,773
 2,323,371
 2,568,434
 2,721,082
 2,596,347
2,686,973
 2,547,956
 2,559,227
 2,484,773
 2,323,371
Loans, net of unearned income13,838,602
 13,111,716
 12,782,220
 12,146,971
 11,971,223
16,165,800
 15,768,247
 14,699,272
 13,838,602
 13,111,716
Deposits14,132,317
 13,367,506
 12,491,186
 12,484,163
 12,535,015
16,376,159
 15,797,532
 15,012,864
 14,132,317
 13,367,506
Short-term borrowings497,663
 329,719
 1,258,629
 868,399
 597,033
754,777
 617,524
 541,317
 497,663
 329,719
FHLB advances and long-term debt949,542
 1,139,413
 883,584
 894,253
 1,040,149
992,279
 1,038,346
 929,403
 949,542
 1,139,413
Shareholders’ equity2,041,894
 1,996,665
 2,063,187
 2,081,656
 1,992,539
2,247,573
 2,229,857
 2,121,115
 2,041,894
 1,996,665
AVERAGE BALANCES                  
Total assets$17,406,843
 $16,959,507
 $16,811,337
 $16,257,776
 $16,114,343
$20,183,202
 $19,580,367
 $18,371,173
 $17,406,843
 $16,959,507
Investment securities2,359,689
 2,480,454
 2,718,174
 2,766,552
 2,637,130
2,662,800
 2,547,914
 2,469,564
 2,347,810
 2,485,292
Loans, net of unearned income13,330,973
 12,885,180
 12,578,524
 11,968,567
 11,906,447
15,815,263
 15,236,612
 14,128,064
 13,330,973
 12,885,180
Deposits13,747,113
 12,867,663
 12,473,184
 12,392,580
 12,455,065
15,832,606
 15,481,221
 14,585,545
 13,747,113
 12,867,663
Short-term borrowings323,772
 832,839
 1,196,323
 690,883
 495,791
785,923
 533,564
 395,727
 323,772
 832,839
FHLB advances and long-term debt1,023,972
 965,601
 889,461
 933,727
 1,034,475
977,573
 1,034,444
 959,142
 1,023,972
 965,601
Shareholders’ equity2,026,883
 2,071,640
 2,053,821
 2,050,994
 1,953,396
2,255,764
 2,193,863
 2,100,634
 2,026,883
 2,071,640

(1)Ratio represents a financial measure derived by methods other than Generally Accepted Accounting Principles (GAAP)("GAAP"). See reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure under the following heading, "Supplemental Reporting of Non-GAAP Based Financial Measures" below.


31



Supplemental Reporting of Non-GAAP Based Financial Measures
This Annual Report on Form 10-K contains supplemental financial information, as detailed below, which has been derived by methods other than Generally Accepted Accounting Principles ("GAAP"). The Corporation has presented these non-GAAP financial measures because it believes that these measures provide useful and comparative information to assess trends in the Corporation's results of operations. Presentation of these non-GAAP financial measures is consistent with how the Corporation evaluates its performance internally, and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Corporation's industry. Management believes that these non-GAAP financial measures, in addition to GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors should recognize that the Corporation's presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures, and the Corporation strongly encourages a review of its consolidated financial statements in their entirety. Following are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure as of and for the year ended December 31:
2015 2014 2013 2012 20112018 2017 2016 2015 2014
(in thousands, except per share data and percentages)(in thousands, except per share data and percentages)
Return on average common shareholders' equity (tangible)
Return on average tangible equityReturn on average tangible equity
Net income$149,502
 $157,894
 $161,840
 $159,845
 $145,573
$208,393
 $171,753
 $161,625
 $149,502
 $157,894
Plus: Intangible amortization, net of tax161
 818
 1,584
 1,970
 2,767
—
 —
 —
 161
 818
Numerator$149,663
 $158,712
 $163,424
 $161,815
 $148,340
$208,393
 $171,753
 $161,625
 $149,663
 $158,712
                  
Average common shareholders' equity$2,026,883
 $2,071,640
 $2,053,821
 $2,050,994
 $1,953,396
$2,255,764
 $2,193,863
 $2,100,634
 $2,026,883
 $2,071,640
Less: Average goodwill and intangible assets(531,618) (532,425) (534,431) (542,600) (545,920)(531,556) (531,556) (531,556) (531,618) (532,425)
Average tangible shareholders' equity (denominator)$1,495,265
 $1,539,215
 $1,519,390
 $1,508,394
 $1,407,476
$1,724,208
 $1,662,307
 $1,569,078
 $1,495,265
 $1,539,215
                  
Return on average common shareholders' equity (tangible), annualized10.01% 10.31% 10.76% 10.73% 10.54%
Return on average tangible equity12.09% 10.33% 10.30% 10.01% 10.31%
                  
Efficiency ratio                  
Non-interest expense$480,160
 $459,246
 $461,433
 $449,294
 $416,242
$546,104
 $525,579
 $489,519
 $480,160
 $459,246
Less: Amortization of tax credit investments(11,449) (11,028) —
 —
 —
Less: Intangible amortization(247) (1,259) (2,438) (3,031) (4,257)—
 —
 —
 (247) (1,259)
Less: Loss on redemption of trust preferred securities(5,626) —
 —
 —
 —
—
 —
 —
 (5,626) —
Numerator$474,287
 $457,987
 $458,995
 $446,263
 $411,985
$534,655
 $514,551
 $489,519
 $474,287
 $457,987
                  
Net interest income (fully taxable equivalent) (1)$518,464
 $532,322
 $544,474
 $561,190
 $576,232
$642,577
 $598,565
 $541,271
 $518,464
 $532,322
Plus: Total Non-interest income181,839
 167,379
 187,664
 216,412
 187,493
195,525
 207,974
 190,178
 181,839
 167,379
Less: Investment securities gains, net(9,066) (2,041) (8,004) (3,026) (4,561)(37) (9,071) (2,550) (9,066) (2,041)
Denominator$691,237
 $697,660
 $724,134
 $774,576
 $759,164
$838,065
 $797,468
 $728,899
 $691,237
 $697,660
                  
Efficiency ratio68.61% 65.65% 63.39% 57.61% 54.27%63.8% 64.5% 67.2% 68.6% 65.6%
                  
Non-performing assets to tangible common shareholders' equity and allowance for credit losses
Non-performing assets to tangible equity and allowance for credit losses ("Texas Ratio")Non-performing assets to tangible equity and allowance for credit losses ("Texas Ratio")
Non-performing assets (numerator)$155,913
 $150,504
 $169,329
 $237,199
 $317,331
$150,196
 $144,582
 $144,453
 $155,913
 $150,504
                  
Tangible common shareholders' equity$1,510,338
 $1,464,862
 $1,530,111
 $1,546,093
 $1,448,330
Tangible equity$1,716,017
 $1,698,301
 $1,589,559
 $1,510,338
 $1,464,862
Plus: Allowance for credit losses171,412
 185,931
 204,917
 225,439
 258,177
169,410
 176,084
 171,325
 171,412
 185,931
Tangible common shareholders' equity and allowance for credit losses (denominator)$1,681,750
 $1,650,793
 $1,735,028
 $1,771,532
 $1,706,507
Non-performing assets to tangible common shareholders' equity and allowance for credit losses9.27% 9.12% 9.76% 13.39% 18.60%
Tangible equity and allowance for credit losses (denominator)$1,885,427
 $1,874,385
 $1,760,884
 $1,681,750
 $1,650,793
Texas Ratio7.97% 7.71% 8.20% 9.27% 9.12%

(1) Presented on a fully taxable equivalent basis, using a 35% Federal21% federal tax rate for 2018 and statutory interest expense disallowances.35% for 2014 through 2017.




32



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion)("Management’s Discussion") relates to Fulton Financial Corporation (the Corporation), a financial holding company registered under the Bank Holding Company Act and incorporated under the laws of the Commonwealth of Pennsylvania in 1982, and its wholly owned subsidiaries. Management’s Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report.

FORWARD-LOOKING STATEMENTS

The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition, and results of operations.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""intends," "projects," the negative of these terms and similar expressions whichother 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 intended to identifyneither 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.  Statements relatingstatements relate to the "outlook" or "outlook for 2016" contained herein are forward-looking statements.

These forward-looking statements are not guarantees of future, performance andthey are subject to inherent uncertainties, risks and uncertainties, somechanges in circumstances that are difficult to predict and many of which are beyondoutside of the Corporation's control, and ability to predict, that could cause actual results toand financial condition may differ materially from those expressedindicated 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 Corporation’s abilityeffects of the extensive level of regulation and supervision to manage liquidity, both atwhich the holding company levelCorporation and at its bank subsidiaries;
the impact of increased regulatory scrutiny of the banking industry;subsidiaries are subject;
the effects of the increasing amounts of time and expense associated with regulatory compliance and risk management;
the potential for negative consequences from regulatory violations, investigations and examinations including potential supervisory actions, and the assessment of fines and penalties;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 ordersorder applicable to the CorporationParent Company and its bank subsidiariessubsidiary, Lafayette Ambassador Bank, issued by federal and state bank regulatory agenciesthe Federal Reserve Board requiring improvement in compliance functions and other remedial actions, or any future enforcement orders;
the Corporation’s ability to manage the uncertainty associated with the delay in implementing manycontinuing impact of the regulations mandatedDodd-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 Dodd-Frank Act;federal government, including those of the Federal Reserve Board and other government agencies, that impact money supply and market interest rates;
the effects of changes in U.S. federal, state or local tax laws;
the effects of negative publicity on the Corporation’s reputation;
the effects of adverse outcomes in litigation and governmental or administrative proceedings;


the Corporation’spotential to incur losses in connection with repurchase and indemnification payments related to sold loans;
the Corporation's ability to successfully transformobtain regulatory approvals to consolidate its business model;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;

33


the Corporation’s failure to identify and to address cyber-security risks;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 AND OUTLOOK
Fulton Financial
The Corporation is a financial holding company comprised of sixfour wholly owned banking subsidiaries whichas 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)"FTE") as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments lines of business orand properties. Offsetting these revenue sources are provisions for credit losses on loans and off-balance sheet credit risks, non-interest expenses and income taxes.



The following table presents a summary of the Corporation’s earnings and selected performance ratios:
2015 20142018 2017
Net income (in thousands)$149,502
 $157,894
$208,393
 $171,753
Diluted net income per share$0.85
 $0.84
$1.18
 $0.98
Return on average assets0.86% 0.93%1.03% 0.88%
Return on average equity7.38% 7.62%9.24% 7.83%
Return on average tangible equity (1)10.01% 10.31%12.09% 10.33%
Net interest margin (2)3.21% 3.39%3.40% 3.28%
Efficiency ratio (1)68.61% 65.65%63.8% 64.5%
Non-performing assets to total assets0.73% 0.72%
Annualized net charge-offs to average loans0.34% 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.disallowances for 2018 and 2017, respectively. See also the "Net Interest Income" section of Management’s Discussion.

The year ended December 31, 2015 marked another year of continued progress in strengthening the Corporation's banking franchise. Highlights of the year included loan and core deposit growth, consistent asset quality, strong fee income growth, consolidation of 11 branches, funding initiatives and continued strong capital levels. Following is a brief summary of the financial highlights for the year ended December 31, 2015.2018:

Net Income Per Share Growth - Diluted net income per share increased $0.01,$0.20, or 1.2%20.4%, to $0.85 per diluted share,$1.18 in 2018 compared to $0.84$0.98 in 2014.2017. This increase was due to a 10.4an increase in net income of $36.6 million, or 5.6%21.3%, decreasepartially offset by the impact of a 611,000, or 0.3%, increase in weighted average diluted shares outstanding as net income decreased $8.4 million, or 5.3%, in comparison to 2014.2017. The decreaseincrease in net income was driven by a $14.9$55.1 million, or 2.9%9.6%, decreaseincrease in net interest income and a $20.9$38.1 million or 4.6%, increasedecrease in non-interestincome tax expense, mainly as a result of tax reform legislation, partially offset by a $10.3$23.6 million decreaseincrease in the provision for credit losses, and a $14.5$3.4 million or 8.6%, increasedecrease in non-interest income, mainlya $9.0 million decrease in investment securities gains, and other service charges and fees.a $20.5 million, or 3.9%, increase in non-interest expense.

Net Interest Income and Net Interest MarginGrowth- The $14.9$55.1 million decreaseincrease in net interest income resulted from a 12 basis point increase in the net interest margin, reflecting the impact of a lower net interest margin, partially offsetmultiple increases to the federal funds target rate ("Fed Funds Rate") by the impact ofFederal 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, 2015, the net interest margin decreased 18 basis points, or 5.3%, in comparison to 2014, driven by an 18 basis point decrease in yields on interest-earning assets and a 2 basis point increase in the cost of interest-bearing liabilities.

Loan Growth- Average loans increased $445.8 million, or 3.5%, in comparison to 2014, with notable increases in commercial - industrial, financial and agricultural, commercial mortgages and construction loans. The Corporation's loan growth occurred throughout most of its markets.

Asset Quality- Overall asset quality continued to improve in 2015, with decreases in net charge-offs and overall delinquency levels driving a $10.3 million decrease2018. Included in the provision for credit losses to $2.3 million.

34



Deposit Growth - Average deposits increased $879.5 million, or 6.8%, in comparison to 2014, with the increase coming almost entirely in demand and savings accounts. Average deposit growth outpaced loan growth, which enhanced the Corporation's funding position by reducing the average loan-to-deposit ratio to 97.0% for the year ended December 31, 2015 from 100.1%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 the year ended December 31, 2014.credit losses would have been $10.1 million, or $13.2 million, lower than 2017.

Non-Interest Income - Non-interest income, increased $14.5excluding securities gains, decreased $3.4 million, or 8.6%1.7%, in comparison to 2014, primarily driven2017. 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 a $7.0increases 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 increase in 2017. In 2017, gains on the sales of financial institution common stocks of $13.6 million were partially offset by approximately


$4.5 million of losses on debt securities sales as a result of repositioning the investment portfolio. The Corporation no longer holds equity securities and a $4.1 million, or 10.3%, increase in other service charges and fee income.
its investment portfolio.

Non-Interest Expense - Non-interest expense increased $20.9$20.5 million, or 4.6%3.9%, in comparison to 2014,2017, driven largely by a $9.8 million, or 3.9%, increase inhigher salaries and employee benefits a $5.6 million loss incurred on the redemption of trust preferred securities (TruPS), a $2.7 million, or 15.9%, increase inexpense, other outside services and data processing and software expenses. Partially offsetting these increases was a $2.0reduction in other expenses, which included a $4.8 million or 15.6%, increasewrite-off of accumulated capital expenditures related to in-process technology initiatives in software. Excluding the loss incurred on the TruPS, non-interest expense increased $15.3 million, or 3.3%, compared to 2014.commercial banking in 2017.

In both 2015 and 2014, the Corporation implemented cost savings initiatives that mitigated the impact of elevated expenses related to the continued build out of its risk, compliance and information technology infrastructures, discussed below. In both periods, these initiatives included branch consolidations, changes in employee benefits and reductions in staffing. Combined, the annualized
Income Taxes - Income tax expense reductions for these actions are projected to be approximately $14.5 million.
During 2015, these initiatives included the consolidation of 11 branches, modifications to retirement benefits and the elimination of certain positions. These actions2018 resulted in implementation expensesan effective tax rate ("ETR") of $2.010.5%, 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 in 2015. Total expense reductions realized in 2015 from these 2015 initiatives, excluding implementation expenses, were $4.7 million. The annualized expense reductions from the 2015 initiatives are estimated at approximately $6.5 million.

In 2014, these initiatives included the consolidationremeasurement of 13 branches, streamlining of subsidiary bank management structures and other employee compensation and benefit reductions. These actions resulted in implementation expenses of $1.0 million and reduced non-interest expenses by $7.0 million in 2014. Annualized expense reductions from these 2014 initiatives were approximately $8.0 million.
The following table presentsnet deferred tax assets as a summaryresult of the 2015 and 2014 cost savings initiatives:
 2015 Actual 2014 Actual 2014 and 2015 Combined Estimated Future Annualized Cost Savings
 Implementation Expenses Expense Reductions Net Implementation Expenses (Gains) Expense Reductions Net 
 (in thousands)
Branch consolidations$1,570
 $(1,590) (20) $2,080
 $(2,400) $(320) $(6,250)
Subsidiary bank management reductions and other employee benefit reductions—
 —
 —
 (1,100) (4,550) (5,650) (4,700)
Modification of retirement benefits and staffing reductions450
 (3,065) (2,615) —
 —
 —
 (3,470)
Total cost savings initiatives$2,020
 $(4,655) (2,635) $980
 $(6,950) $(5,970) $(14,420)
              

Regulatory Enforcement Orders - The Corporation and each of its bank subsidiaries are subject to regulatory enforcement orders issued during 2014 and 2015 by their respective Federal and state bank regulatory agencies relating to identified deficiencies in the Corporation’s centralized Bank Secrecy Act and anti-money laundering compliance program (the BSA/AML Compliance Program), which was designed to comply with the requirements of the Bank Secrecy Act, the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements).Tax Act.

The regulatory enforcement orders, which areETR is generally lower than the federal statutory rate for each respective year due to tax-exempt interest income earned on loans, investments in the form of consent orders or orders to ceasetax-free municipal securities and desist issued upon consent (Consent Orders), generally require, among other things,investments in community development projects that the Corporation and its bank subsidiaries undertake a number of required actions to strengthen and enhance the BSA/AML Compliance Program, and, in some cases, conduct retrospective reviews of past account activity and transactions, as well as certain reports filed in accordance with the

35


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.generate tax credits under various federal programs.

In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program, while the Consent Orders remain in effect, the Corporation is subject to certain restrictions on expansion activities of the Corporation and its bank subsidiaries.  Further, any failure to comply with the requirements of any of the Consent Orders involving the Corporation or its bank subsidiaries could result in further enforcement actions, the imposition of material restrictions on the activities of the Corporation or its bank subsidiaries, or the assessment of fines or penalties.

Additional expenses and investments have been incurred as the Corporation expanded its hiring of personnel and use of outside professionals, such as consulting and legal services, and capital investments in operating systems to strengthen and support the BSA/AML Compliance Program, as well as the Corporation’s broader compliance and risk management infrastructures. The expense and capital investment associated with all of these efforts, including in connection with the Consent Orders, have had an adverse effect on the Corporation’s results of operations in recent periods and could have a material adverse effect on the Corporation’s results of operations in one or more future periods.

2016 Outlook

The Corporation's outlook for 2016:

annual mid- to high- single digit growth rate in average loans and deposits;
net interest margin expected to be stable on an annual basis (based on current interest rate environment) with modest quarterly volatility of plus or minus 0 to 3 basis points;
provision for credit losses driven primarily by loan growth;
annual mid- to high- single digit growth rate in non-interest income, excluding the impact of securities gains;
annual low- to mid- single digit growth rate in non-interest expense (excluding loss on redemption of TruPS incurred in 2015); and
focus on utilizing capital to support growth and provide appropriate returns to shareholders.

CRITICAL ACCOUNTING POLICIES
The following is a summary of those accounting policies that the Corporation considers to be most important to the presentation of its financial condition and results of operations, asbecause 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"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)("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 losslosses 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.

36


The Corporation does not assign internal risk ratings for residential mortgages, home equity loans, consumer loans, lease receivables, and construction loans to individuals secured by residential real estate, as these portfolios consist of a larger number of loans with smaller balances. Instead, these portfolios are evaluated for risk through the monitoring of delinquency status.
Proper collateral valuation of impaired loans evaluated for impairment under FASB ASC Section 310-10-35. Substantially all of the Corporation’s impaired loans to borrowers with total outstanding loan balances greater than or equal to $1.0 million are measured based on the estimated fair value of each loan’s collateral. Collateral could be in the form of real estate, in the case of impaired commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial loans. Commercial loans may also be secured by real property.
For loans secured by real estate, estimated fair values are determined primarily through appraisals performed by state certified third-party appraisers, discounted to arrive at expected net sale proceeds. For collateral-dependent loans,


estimated real estate fair values are also net of estimated selling costs. When a real estate securedestate-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 appraisalsappraisers for impaired loans secured predominately by real estate every 12 months.
When updated certified appraisals are not obtained for loans evaluated for impairment under FASB ASC Section 310-10-35 that are secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated a strongan acceptable loan-to-value position and, in the opinion of the Corporation's internal credit administration staff, there has not been a significant deterioration in the collateral value since the original appraisal was performed. Original appraisals are typically used only when the estimated collateral value, as adjusted appropriately for the age of the appraisal, results in a current loan-to-value ratio that is lower than the Corporation's loan-to-value requirements for new loans, generally less than 70%.
Proper measurement of allowance needs for pools of loans measured for impairment under FASB ASC Subtopic 450-20. For loan loss allocation purposes, loans are segmented into pools with similar characteristics. These pools are established by general loan type, or "portfolio segments," as presented in the table under the heading, "Loans, net of unearned income," within Note"Note 4 "Loans- Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements.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. AnPrior to 2017, the Corporation maintained an unallocated allowance is maintainedfor 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"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

37


completes its annual goodwill impairment test as ofin October 31st of each year. The Corporation tests for impairment by first allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is necessary. If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper carrying value of the goodwill.
Reporting unit valuation is inherently subjective, with a number of factors based on assumptions and management judgments. Among these are future growth rates for the reporting units, selection of comparable market transactions, discount rates and earnings capitalization rates. Changes in assumptions and results due to economic conditions, industry factors and reporting unit performance and cash flow projections could result in different assessments of the fair values of reporting units and could result in impairment charges.
If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, an interim impairment test is required. Such events may include adverse changes in legal factors or in the business climate, unanticipated competition, the loss of key employees, or similar events.
For additional details related to the annual goodwill impairment test, see "Note 6 - Goodwill and Intangible Assets," in the Notes to Consolidated Financial Statements in Item 8. Financial"Financial Statements and Supplementary Data."


Income Taxes – The provision for income taxes is based upon income before income taxes, adjusted for the effect of certain tax-exempt income, non-deductible expenses and credits. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

The Corporation must also evaluate the likelihood that deferred tax assets will be recovered through future taxable income. If any such assets are more likely than not to not be recovered, a valuation allowance must be recognized. The assessment of the carrying value of deferred tax assets is based on certain assumptions, changes in which could have a material impact on the Corporation’s consolidated financial statements.
The
On a periodic basis, the Corporation accounts for uncertainevaluates its income tax positions by applying a recognition thresholdbased on tax laws, regulations and measurement attribute for tax positions taken or expected to be taken in a tax return.financial reporting considerations, and records adjustments as appropriate. Recognition and measurement of tax positions is based onupon management’s evaluations of relevant tax code and appropriate industry information about audit proceedings for comparable positions at other organizations. Virtually allcurrent taxing authorities’ examinations of the Corporation’s unrecognized tax benefits relate toreturns, recent positions that are taken by the taxing authorities on an annual basis on statesimilar transactions and the overall tax returns. Increases to unrecognized tax benefits will occur as a result of accruing for the nonrecognition of the position for the current year. Decreases will occur as a result of the lapsing of the statute of limitations for the oldest outstanding year which includes the position or through settlements of positions with the tax authorities.environment.
See "Note 12 - Income Taxes," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
Fair Value Measurements – FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to measure assets and liabilities at fair value based on the following three categories (from highest to lowest priority):
Level 1 – Inputs that represent quoted prices for identical instruments in active markets.
Level 2 – Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means.
Level 3 – Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.

The Corporation has categorized all assets and liabilities measured at fair value botheither on a recurring andor 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)("OREO") and mortgage servicing rights ("MSRs") as Level 3 assets measured at fair value on a non-recurringnonrecurring basis.

The Corporation engages third-party valuation experts to assist in valuing interest rate swap derivatives and most available-for-sale investment securities, both measured at fair value on a recurring basis, and mortgage servicing rights,MSRs, which are measured at

38


fair value on a non-recurring basis. The pricing data and market quotes the Corporation obtains from outside sources are reviewed internally for reasonableness.

SeeFor additional details see "Note 18 - Fair Value Measurements," in the Notes to Consolidated Financial Statements in Item 8. Financial"Financial Statements and Supplementary DataData" 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"Financial Statements and Supplementary Data."


39



RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the most significant component of the Corporation’s net income. The Corporation manages the risk associated with changes in interest rates through the techniques described within Item 7A, "Quantitative and Qualitative Disclosures About Market Risk."
The following table provides a comparative average balance sheet and net interest income analysis for 20152018 compared to 20142017 and 2013.2016. Interest income and yields are presented on an FTE basis, using a 35%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.
2015 2014 20132018 2017 2016
Average
Balance		 Interest (1) Yield/
Rate		 Average
Balance		 Interest (1) Yield/
Rate		 Average
Balance		 Interest (1) Yield/
Rate		Average
Balance		 
Interest (1)
 Yield/
Rate		 Average
Balance		 
Interest (1)
 Yield/
Rate		 Average
Balance		 
Interest (1)
 Yield/
Rate
(dollars in thousands)(dollars in thousands)
ASSETS                                  
Interest-earning assets:                                  
Loans, net of unearned income (2)$13,330,973
 $537,979
 4.04% $12,885,180
 $542,540
 4.21% $12,578,524
 $552,427
 4.39%$15,815,263
 $691,954
 4.38% $15,236,612
 $620,803
 4.07% $14,128,064
 $558,472
 3.95%
Taxable investment securities (3)2,093,829
 45,279
 2.16
 2,189,510
 50,651
 2.31
 2,391,650
 54,321
 2.27
2,246,555
 56,039
 2.49
 2,132,426
 47,029
 2.21
 2,128,497
 44,975
 2.11
Tax-exempt investment securities (3)230,633
 12,120
 5.26
 261,825
 13,810
 5.27
 285,174
 14,577
 5.11
416,119
 15,285
 3.65
 407,157
 17,794
 4.37
 327,098
 14,865
 4.54
Equity securities (3)23,348
 1,295
 5.54
 33,957
 1,728
 5.09
 38,722
 1,829
 4.72
126
 5
 3.97
 8,331
 500
 6.00
 13,969
 780
 5.58
Total investment securities2,347,810
 58,694
 2.50
 2,485,292
 66,189
 2.66
 2,715,546
 70,727
 2.60
2,662,800
 71,329
 2.68
 2,547,914
 65,323
 2.56
 2,469,564
 60,620
 2.45
Loans held for sale19,937
 801
 4.02
 17,524
 786
 4.49
 36,561
 1,551
 4.24
22,970
 1,159
 5.05
 20,008
 876
 4.38
 19,697
 728
 3.70
Other interest-earning assets447,354
 4,785
 1.07
 314,345
 4,018
 1.28
 229,444
 2,264
 0.99
382,569
 6,193
 1.62
 451,015
 5,066
 1.12
 407,471
 3,779
 0.93
Total interest-earning assets16,146,074
 602,259
 3.73
 15,702,341
 613,533
 3.91
 15,560,075
 626,969
 4.03
18,883,602
 770,635
 4.08
 18,255,549
 692,068
 3.79
 17,024,796
 623,599
 3.66
Noninterest-earning assets:                                  
Cash and due from banks105,359
     177,664
     207,931
    104,595
     108,523
     104,772
    
Premises and equipment226,436
     224,903
     226,041
    231,762
     219,960
     227,047
    
Other assets (3)1,103,427
     1,049,765
     1,037,338
    1,123,857
     1,168,759
     1,179,437
    
Less: Allowance for loan losses(174,453)     (195,166)     (220,048)    (160,614)     (172,424)     (164,879)    
Total Assets$17,406,843
     $16,959,507
     $16,811,337
    $20,183,202
     $19,580,367
     $18,371,173
    
LIABILITIES AND EQUITY                                  
Interest-bearing liabilities:                                  
Demand deposits$3,255,192
 $4,299
 0.13% $3,013,879
 $3,793
 0.13% $2,822,583
 $3,656
 0.13%$4,063,929
 $22,789
 0.56% $3,831,865
 $12,976
 0.34% $3,552,886
 $6,654
 0.19%
Savings deposits3,677,079
 5,435
 0.15
 3,431,957
 4,298
 0.13
 3,363,943
 4,096
 0.12
4,684,023
 27,226
 0.58
 4,468,205
 13,477
 0.30
 4,054,970
 7,981
 0.20
Brokered deposits121,863
 2,480
 2.04
 49,126
 613
 1.25
 —
 —
 —
Time deposits2,988,648
 30,748
 1.03
 2,992,920
 27,019
 0.90
 3,129,162
 29,018
 0.93
2,675,670
 35,217
 1.32
 2,721,724
 30,726
 1.13
 2,825,722
 30,058
 1.06
Total interest-bearing deposits9,920,919
 40,482
 0.41
 9,438,756
 35,110
 0.37
 9,315,688
 36,770
 0.39
11,545,485
 87,712
 0.76
 11,070,920
 57,792
 0.52
 10,433,578
 44,693
 0.43
Short-term borrowings323,772
 372
 0.11
 832,839
 1,608
 0.19
 1,196,323
 2,420
 0.20
785,923
 8,489
 1.07
 533,564
 2,779
 0.52
 395,727
 855
 0.21
Long-term debt1,023,972
 42,941
 4.19
 965,601
 44,493
 4.61
 889,461
 43,305
 4.87
977,573
 31,857
 3.26
 1,034,444
 32,932
 3.18
 959,142
 36,780
 3.83
Total interest-bearing liabilities11,268,663
 83,795
 0.74
 11,237,196
 81,211
 0.72
 11,401,472
 82,495
 0.72
13,308,981
 128,058
 0.96
 12,638,928
 93,503
 0.74
 11,788,447
 82,328
 0.70
Noninterest-bearing liabilities:                                  
Demand deposits3,826,194
     3,428,907
     3,157,496
    4,287,121
     4,410,301
     4,151,967
    
Other285,103
     221,764
     198,548
    331,336
     337,275
     330,125
    
Total Liabilities15,379,960
     14,887,867
     14,757,516
    17,927,438
     17,386,504
     16,270,539
    
Shareholders’ equity2,026,883
     2,071,640
     2,053,821
    2,255,764
     2,193,863
     2,100,634
    
Total Liabilities and Shareholders' Equity$17,406,843
     $16,959,507
     $16,811,337
    $20,183,202
     $19,580,367
     $18,371,173
    
Net interest income/net interest margin (FTE)  518,464
 3.21%   532,322
 3.39%   544,474
 3.50%  642,577
 3.40%   598,565
 3.28%   541,271
 3.18%
Tax equivalent adjustment  (18,470)     (17,455)     (17,280)    (12,121)     (23,201)     (20,499)  
Net interest income  $499,994
     $514,867
     $527,194
    $630,456
     $575,364
     $520,772
  
(1)Includes dividends earned on equity securities.
(2)IncludesAverage balance includes non-performing loans.
(3)IncludesAverage balance includes amortized historical cost for available for sale securities; the related unrealized holding gains (losses) are included in other assets.

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.

40



The following table summarizes the changes in FTE interest income and expense resulting from changes in average balances (volumes) and changes in rates:
2015 vs. 2014 Increase (decrease) due to change in 2014 vs. 2013 Increase (decrease) due to change in2018 vs. 2017 Increase (decrease) due to change in 2017 vs. 2016 Increase (decrease) due to change in
Volume Rate Net Volume Rate NetVolume Rate Net Volume Rate Net
    (in thousands)        (in thousands)    
Interest income on:                      
Loans and leases$18,147
 $(22,708) $(4,561) $13,262
 $(23,149) $(9,887)$24,166
 $46,985
 $71,151
 $44,822
 $17,509
 $62,331
Taxable investment securities(2,134) (3,238) (5,372) (4,661) 991
 (3,670)2,622
 6,388
 9,010
 83
 1,971
 2,054
Tax-exempt investment securities(646) (1,044) (1,690) (1,221) 454
 (767)395
 (2,904) (2,509) 3,268
 (339) 2,929
Equity securities(577) 143
 (434) (235) 134
 (101)(368) (127) (495) (309) 29
 (280)
Loans held for sale102
 (87) 15
 (849) 84
 (765)139
 144
 283
 12
 136
 148
Other interest-earning assets1,500
 (732) 768
 975
 779
 1,754
(854) 1,981
 1,127
 433
 854
 1,287
Total interest income$16,392
 $(27,666) $(11,274) $7,271
 $(20,707) $(13,436)$26,100
 $52,467
 $78,567
 $48,309
 $20,160
 $68,469
Interest expense on:                      
Demand deposits$359
 $147
 $506
 $243
 $(106) $137
$842
 $8,971
 $9,813
 $562
 $5,760
 $6,322
Savings deposits302
 835
 1,137
 84
 118
 202
683
 13,066
 13,749
 884
 4,612
 5,496
Brokered deposits1,311
 556
 1,867
 613
 —
 613
Time deposits(39) 3,768
 3,729
 (1,242) (757) (1,999)(527) 5,018
 4,491
 (781) 1,449
 668
Short-term borrowings(725) (511) (1,236) (706) (106) (812)1,746
 3,964
 5,710
 379
 1,545
 1,924
Long-term debt2,607
 (4,159) (1,552) 3,585
 (2,397) 1,188
(1,839) 764
 (1,075) 1,732
 (5,580) (3,848)
Total interest expense$2,504
 $80
 $2,584
 $1,964
 $(3,248) $(1,284)$2,216
 $32,339
 $34,555
 $3,389
 $7,786
 $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 20152018 to 20142017

FTE net interest income decreased $13.9increased $44.0 million, or 2.6%7.4%, to $518.5$642.6 million in 2015.2018. Net interest margin decreased 18increased 12 basis points or 5.3%, to 3.21%3.40% in 20152018 from 3.39%3.28% in 2014.

FTE interest income decreased $11.3 million, or 1.8%, as average yields2017. Interest rate increases on interest earningboth interest-earning assets decreased 18 basis points. This decrease in yields resulted in a $27.7 million decreaseand interest-bearing liabilities and the corresponding increases in FTE interest income partially offset byand 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 $16.4 million increasesignificant 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 athe result of a $443.729 basis point increase in the yield on interest-earning assets, and increased $26.1 million as the result of a $628.1 million, or 2.8%3.4%, increase in average interest-earning assets.

Average loans and average FTE yields, by type, are summarized in the following table:
 2015 2014 Increase (Decrease) in Balance
 Balance Yield Balance Yield $ %
 (dollars in thousands)
Real estate - commercial mortgage$5,246,054
 4.13% $5,117,433
 4.38% $128,621
 2.5 %
Commercial - industrial, financial and agricultural3,882,998
 3.80
 3,659,059
 3.94
 223,939
 6.1
Real estate - home equity1,700,851
 4.10
 1,738,449
 4.17
 (37,598) (2.2)
Real estate - residential mortgage1,371,321
 3.81
 1,355,876
 3.95
 15,445
 1.1
Real estate - construction726,914
 3.88
 631,968
 4.04
 94,946
 15.0
Consumer265,688
 5.57
 277,853
 5.11
 (12,165) (4.4)
Leasing and other137,147
 6.76
 104,542
 8.40
 32,605
 31.2
Total$13,330,973
 4.04% $12,885,180
 4.21% $445,793
 3.5 %

Overall loan growth in 2015 resulted from an increase in business activity in the Corporation's markets. This growth was realized mainly in commercial loans and commercial mortgages, which realized a combined increase of $352.6 million, or 4.0%.




41


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 2015 of 4.04% represented a 17 basis point, or 4.0%, decrease in comparison to 2014. The decrease in average yields on loans was attributable to2018, and yields on new loans being lower than the overall portfolio yield.

Average investment securities decreased $137.5 million, or 5.5%, in comparison to 2014 as portfolio cash flows were not fully reinvested. The average yield on investment securities decreased 16 basis points, or 6.0%, to 2.50% in 2015 from 2.66% in 2014. Other interest earning assets increased $133.0 million, or 42.3%. During the fourth quarter of 2014, the Corporation changed providers for check clearing services to the Federal Reserve Bank of Philadelphia, resulting in the transfer of clearing account balances from noninterest earning assets to low-yielding interest-bearing Federal Reserve Bank accounts, which contributed to the 21 basis points, or 16.4%, decrease inloan originations exceeded the average yield on other interest-earning assets.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 $2.6$34.6 million, or 3.2%, to $83.8 million in 2015 from $81.2 million in 2014, mainly due towith a change in funding mix from lower cost short-term Federal funds purchased and short-term FHLB advances to higher cost deposits and long-term FHLB advances. As a result of these funding changes, the total cost of interest-bearing liabilities increased 222 basis points. Total interest-bearing liabilities increased $31.5 million, or 0.3%. Additional funding to support the increase in interest-earning assets was provided by a $397.3 million, or 11.6%, increase in noninterest-bearing demand deposits.

Average deposits and interest rates, by type, are summarized in the following table:
 2015 2014 Increase (Decrease) in Balance
 Balance Rate Balance Rate $ %
 (dollars in thousands)
Noninterest-bearing demand$3,826,194
 —% $3,428,907
 —% $397,287
 11.6 %
Interest-bearing demand3,255,192
 0.13
 3,013,879
 0.13
 241,313
 8.0
Savings3,677,079
 0.15
 3,431,957
 0.13
 245,122
 7.1
Total demand and savings10,758,465
 0.09
 9,874,743
 0.08
 883,722
 8.9
Time deposits2,988,648
 1.03
 2,992,920
 0.90
 (4,272) (0.1)
Total deposits$13,747,113
 0.29% $12,867,663
 0.27% $879,450
 6.8 %
The $883.7 million, or 8.9%, increase in average total demand and savings account balances was primarily due to a $410.6 million, or 11.7%, increase in business account balances, a $315.5 million, or 6.8%, increase in personal account balances, and a $157.6 million, or 9.3%, increase in municipal account balances.
The average cost of interest-bearing deposits increased 4 basis points, or 10.8%, to 0.41% in 2015 from 0.37% in 2014, primarily due to anpoint increase in the rate on timeaverage interest-bearing liabilities contributing $32.3 million to this increase.The rates on average interest-bearing demand deposits whichand savings accounts increased 22 basis points and 28 basis points, respectively. These rate increases contributed $3.8$9.0 million and $13.1 million to the increase in interest expense.

Average borrowingsexpense, respectively. In addition, the 19 basis point and interest rates, by type, are summarized55 basis point increases in the following table:
 2015 2014 Increase (Decrease) in Balance
 Balance Rate Balance Rate $ %
 (dollars in thousands)
Short-term borrowings:           
Customer repurchase agreements$161,093
 0.10% $197,432
 0.10% $(36,339) (18.4)%
Customer short-term promissory notes81,530
 0.02
 88,670
 0.06
 (7,140) (8.1)
Total short-term customer funding242,623
 0.07
 286,102
 0.08
 (43,479) (15.2)
Federal funds purchased65,779
 0.21
 285,169
 0.20
 (219,390) (76.9)
Short-term FHLB advances (1)15,370
 0.33
 261,568
 0.29
 (246,198) (94.1)
Total short-term borrowings323,772
 0.11
 832,839
 0.19
 (509,067) (61.1)
Long-term debt:           
FHLB Advances622,978
 3.43
 583,893
 3.79
 39,085
 6.7
Other long-term debt400,994
 5.38
 381,708
 5.86
 19,286
 5.1
Total long-term debt1,023,972
 4.19
 965,601
 4.61
 58,371
 6.0
Total$1,347,744
 3.21% $1,798,440
 2.56% $(450,696) (25.1)%

(1) Represents FHLB advances with an original maturity term of less than one year.

42


Totalrates on time deposits and short-term borrowings decreased $509.1contributed $5.0 million or 61.1%, dueand $4.0 million, respectively, to an improvement in the Corporation's funding position as increases in average deposits and decreases in average investments outpaced the growth in average interest-earning assets. The $58.4 million increase in long-term debt was primarily due to additional long-term FHLB advances. The average cost of total borrowings increased 65 basis points, or 25.4%, to 3.21% in 2015 from 2.56% in 2014, primarily due to the change in funding mix. While total borrowings decreased $450.7 million, or 25.1%, the percentage of lower-cost short-term borrowings decreased from 46.3% of the total in 2014 to 24.0% in 2015. This change in the funding mix resulted from the improvement in the Corporation's overall liquidity position and the shift from short-term borrowings to deposits.

In addition, in the third quarter of 2015, the Corporation executed two transactions to restructure its long-term FHLB advances. First, $200 million of FHLB advances, with a weighted average rate of 4.45% and maturing in the first quarter of 2017, were refinanced with new advances maturing from September 2019 to December 2020, at a weighted average rate of 2.95%. This transaction reduced interest expense on a quarterly basis by approximately $750,000, beginning in the fourth quarter of 2015. Second, forward agreements were executed to refinance an additional $200 million of FHLB advances when they mature in December 2016. These forward agreements have maturity dates from March 2021 to December 2021 and will reduce the weighted average rate on these advances from 4.03% to 2.40% and decrease interest expense on a quarterly basis by approximately $800,000 beginning in the first quarter of 2017.

Comparison of 2014 to 2013expense.

FTE net interest income decreased $12.2 million, or 2.2%, to $532.3 million in 2014. The net interest margin decreased 11 basis points, or 3.1%, to 3.39% in 2014 from 3.50% in 2013.

FTE interest income decreased $13.4 million, or 2.1%, as average yields on interest earning assets decreased 12 basis points. This
decrease in yields resulted in a $20.7 million decrease in FTE interest income, partially offset by a $7.3 million increase in FTE interest income as a result of a $142.3 million, or 0.9%, increase in average interest-earning assets.

Average investment securities decreased $230.3 million, or 8.5%, in comparison to 2013 as portfolio cash flows were not fully
reinvested. The average yield on investment securities increased 6 basis points, or 2.3%, to 2.66% in 2014 from 2.60% in 2013. A $5.5 million, or 45.1%, decrease in net premium amortization on mortgage-backed securities and collateralized mortgage obligations had an 18 basis point positive impact on the yield, partially offset by the impact of purchases of mortgage-backed securities and collateralized mortgage obligations at yields that were lower than the overall portfolio yield and a 3 basis point reduction in yields due to the accelerated discount accretion on the redemption of $51.2 million of student loan auction rate certificates (ARCs) during 2014.


Average loans and average FTE yields, by type, are summarized in the following table:
        Increase (Decrease) in Balance
2014 2013 Increase (Decrease) in Balance2018 2017 
Balance Yield Balance Yield $ %Balance Yield Balance Yield $ %
(dollars in thousands)(dollars in thousands)
Real estate - commercial mortgage$5,117,433
 4.38% $4,864,460
 4.65% $252,973
 5.2 %$6,314,349
 4.38% $6,161,731
 4.04% $152,618
 2.5 %
Commercial - industrial, financial and agricultural3,659,059
 3.94
 3,680,772
 4.11
 (21,713) (0.6)4,314,584
 4.32
 4,236,810
 4.01
 77,774
 1.8
Real estate - residential mortgage2,085,258
 3.93
 1,779,270
 3.80
 305,988
 17.2
Real estate - home equity1,738,449
 4.17
 1,734,622
 4.22
 3,827
 0.2
1,493,620
 4.91
 1,582,705
 4.38
 (89,085) (5.6)
Real estate - residential mortgage1,355,876
 3.95
 1,312,127
 4.13
 43,749
 3.3
Real estate - construction631,968
 4.04
 591,540
 4.11
 40,428
 6.8
965,835
 4.45
 921,879
 4.08
 43,956
 4.8
Consumer277,853
 5.11
 299,127
 4.87
 (21,274) (7.1)361,186
 4.54
 304,162
 4.99
 57,024
 18.7
Leasing and other104,542
 8.40
 95,876
 8.95
 8,666
 9.0
Leasing270,967
 4.60
 244,740
 4.45
 26,227
 10.7
Other9,464
 N/A 5,315
 N/A 4,149
 78.1
Total$12,885,180
 4.21% $12,578,524
 4.39% $306,656
 2.4 %$15,815,263
 4.38% $15,236,612
 4.07% $578,651
 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 $231.3increase 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 2.7%, increase in commercial loans and commercial mortgages was attributable to both new and existing
customers. The $43.7 million, or 3.3%17.2%, increase in residential mortgages was duerealized 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 Corporation retaining certain 15-year fixed rate residential mortgagesincrease in portfolio.

Construction loans increased $40.4 million, or 6.8%. Beginning in 2009 through 2013, the Corporation reduced its exposure in its

43


construction portfolio; however, during 2014 it experienced growth in the construction portfolio in the Pennsylvania, Maryland and Delaware markets. Average consumer loans decreased $21.3 million, or 7.1%, as a result of a $28.1 million, or 18.2%, decrease in direct consumer loans, partially offset by an increase of $6.8 million, or 4.6%, in indirect vehicle loans.

FTE interest income. The average yield on loans during 2014 of 4.21% represented an 18investment securities increased 12 basis point, or 4.1%, decreasepoints, contributing $3.4 million to the increase in comparison to 2013. The decrease in average yields on loans was attributable to repayments of higher-yielding loans, continued refinancing activity at lower rates, the renegotiation of certain existing loans to commercial borrowers to eliminateFTE interest rate floors and new loan production at rates lower than the overall portfolio yield.

Average otherincome. Other interest-earning assets increased $84.9decreased $68.4 million, or 37.0%15.2%, primarily due to a transfer of approximately $170 million in clearing accountreflecting lower balances from noninterest-earning assets to low-yieldingon deposit with the Federal Reserve Bank accounts in the fourth quarter of 2014, as a result of the Corporation changing its provider of check clearing services.("FRB"). The average yield on other interest-earning assets increased 2950 basis points or 29.3%, duein comparison to increases in dividends on Federal Home Loan Bank stock. Each2017, as a result of the Corporation’s subsidiary banks isFed Funds Rate increases, resulting in a member of the Federal Home Loan Bank for the region encompassing the headquarters of the subsidiary bank. Memberships are maintained with the Atlanta, New York and Pittsburgh regional Federal Home Loan Banks (collectively referred to as the FHLB). As of December 31, 2014, the Corporation held $45.7 million of FHLB stock. Dividends have increased in recent years as the FHLB has emerged from the effects of the economic downturn.

Interest expense decreased $1.3 million, or 1.6%, to $81.2 million in 2014 from $82.5 million in 2013. Although the total cost of
interest-bearing liabilities was unchanged at 72 basis points, interest expense decreased $3.2 million due to a change in the overall
funding mix. Total average interest-bearing liabilities decreased $164.3 million, or 1.4%; however, the shift from lower-cost, short- term borrowings to higher-cost, long-term debt and non-maturity deposits created a $2.0$1.1 million increase in FTE interest expense as aincome.
result of the Corporation's continuing efforts to lengthen maturities and lock in longer-term rates.
Average deposits and interest rates, by type, are summarized in the following table:
        (Decrease) Increase in Balance
2014 2013 Increase (Decrease) in Balance2018 2017 
Balance Rate Balance Rate $ %Balance Rate Balance Rate $ %
(dollars in thousands)(dollars in thousands)
Noninterest-bearing demand$3,428,907
 —% $3,157,496
 —% $271,411
 8.6 %$4,287,121
 —% $4,410,301
 —% $(123,180) (2.8)%
Interest-bearing demand3,013,879
 0.13
 2,822,583
 0.13
 191,296
 6.8
4,063,929
 0.56
 3,831,865
 0.34
 232,064
 6.1
Savings3,431,957
 0.13
 3,363,943
 0.12
 68,014
 2.0
Savings and money market accounts4,684,023
 0.58
 4,468,205
 0.30
 215,818
 4.8
Total demand and savings9,874,743
 0.08
 9,344,022
 0.08
 530,721
 5.7
13,035,073
 0.38
 12,710,371
 0.12
 324,702
 2.6
Brokered deposits121,863
 2.04—
49,126
 1.25
 72,737
 148.1
Time deposits2,992,920
 0.90
 3,129,162
 0.93
 (136,242) (4.4)2,675,670
 1.32 2,721,724
 1.13
 (46,054) (1.7)
Total deposits$12,867,663
 0.27% $12,473,184
 0.29% $394,479
 3.2 %$15,832,606
 0.55% $15,481,221
 0.37% $351,385
 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 $530.7$324.7 million, or 5.7%2.6%, increase in average total demand and savings account balances was primarily due to a $256.7$388.4 million, or 8.1%, increase in business account balances, a $200.2 million, or 4.5%6.5%, increase in personal account balances, a $147.0 million increase in other account balances partially offset by decreases


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:
         (Decrease) Increase in Balance
 2018 2017 
 Balance Rate Balance Rate $ %
 (dollars in thousands)
Short-term borrowings:           
Customer repurchase agreements$137,198
 0.20% $188,769
 0.12% $(51,571) (27.3)%
Customer short-term promissory notes309,470
 0.60
 108,649
 0.31
 200,821
 184.8
Total short-term customer funding446,668
 0.48
 297,418
 0.19
 149,250
 50.2
Federal funds purchased229,715
 1.70
 163,102
 0.92
 66,613
 40.8
Short-term FHLB advances (1)
109,540
 2.20
 73,044
 0.94
 36,496
 50.0
Total short-term borrowings785,923
 1.07
 533,564
 0.52
 252,359
 47.3
Long-term debt:           
FHLB advances590,948
 2.46
 640,737
 2.31
 (49,789) (7.8)
Other long-term debt386,625
 4.47
 393,707
 4.61
 (7,082) (1.8)
Total long-term debt977,573
 3.26
 1,034,444
 3.18
 (56,871) (5.5)
Total$1,763,496
 2.29% $1,568,008
 2.28% $195,488
 12.5 %
(1) Represents Federal Home Loan Bank ("FHLB") advances with an original maturity term of less than one year.

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 $93.714 basis point decrease in other long-term debt.

Comparison of 2017 to 2016

FTE net interest income increased $57.3 million, or 5.5%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 municipal account balances.average interest-earning assets, primarily loans. The $136.213 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 12basis 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


and prior years. In addition, the $850.5 million, or 4.4%7.2%, decreaseincrease in time depositsaverage 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:
         Increase (Decrease) in Balance
 2017 2016 
 Balance Yield Balance Yield $ %
 (dollars in thousands)
Real estate - commercial mortgage$6,161,731
 4.04% $5,636,696
 3.98% $525,035
 9.3 %
Commercial - industrial, financial and agricultural4,236,810
 4.01
 4,080,854
 3.78
 155,956
 3.8
Real estate - home equity1,582,705
 4.38
 1,651,112
 4.08
 (68,407) (4.1)
Real estate - residential mortgage1,779,270
 3.80
 1,464,744
 3.77
 314,526
 21.5
Real estate - construction921,879
 4.08
 824,182
 3.79
 97,697
 11.9
Consumer304,162
 4.99
 276,792
 5.36
 27,370
 9.9
Leasing244,740
 4.45
 190,675
 4.73
 54,065
 28.4
Leasing and other5,315
 N/A 3,009
 N/A 2,306
 76.6
Total$15,236,612
 4.07% $14,128,064
 3.95% $1,108,548
 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 accountsboth 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 balances less than $100,000the 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 most original maturity terms.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 decreased 2increased 9 basis points or 5.1%, to 0.37%0.52% in 20142017 from 0.39%0.43% in 2013 primarily2016, due to a decreaseincreases in higher-cost time deposits and an increase in lower-cost,the rates on all types of interest-bearing savings and demand balances.deposits.




Average deposits and interest rates, by type, are summarized in the following table:
         Increase (Decrease) in Balance
 2017 2016 
 Balance Rate Balance Rate $ %
 (dollars in thousands)
Noninterest-bearing demand$4,410,301
 —% $4,151,967
 —% $258,334
 6.2 %
Interest-bearing demand3,831,865
 0.34
 3,552,886
 0.19
 278,979
 7.9
Savings and money market accounts4,468,205
 0.30
 4,054,970
 0.20
 413,235
 10.2
Total demand and savings12,710,371
 0.12
 11,759,823
 0.12
 950,548
 8.1
Brokered deposits49,126
1.251.25
—
—
 —
 49,126
 N/M
Time deposits2,721,724
 1.13
 2,825,722
 1.06
 (103,998) (3.7)
Total deposits$15,481,221
 0.37% $14,585,545
 0.31% $895,676
 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.

44

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:
2014 2013 Increase (Decrease) in Balance2017 2016 Increase in Balance
Balance Rate Balance Rate $ %Balance Rate Balance Rate $ %
(dollars in thousands)(dollars in thousands)
Short-term borrowings:                      
Customer repurchase agreements$197,432
 0.10% $186,851
 0.11% $10,581
 5.7 %$188,769
 0.12% $184,978
 0.11% $3,791
 2.0%
Customer short-term promissory notes88,670
 0.06
 98,882
 0.05
 (10,212) (10.3)108,649
 0.31
 72,224
 0.03
 36,425
 50.4
Total short-term customer funding286,102
 0.08
 285,733
 0.09
 369
 0.1
297,418
 0.19
 257,202
 0.09
 40,216
 15.6
Federal funds purchased285,169
 0.20
 612,803
 0.23
 (327,634) (53.5)163,102
 0.92
 127,604
 0.45
 35,498
 27.8
Short-term FHLB advances (1)261,568
 0.29
 297,787
 0.24
 (36,219) (12.2)73,044
 0.94
 10,921
 0.43
 62,123
 N/M
Total short-term borrowings832,839
 0.19
 1,196,323
 0.20
 (363,484) (30.4)533,564
 0.52
 395,727
 0.21
 137,837
 34.8
Long-term debt:                      
FHLB Advances583,893
 3.79
 519,876
 4.14
 64,017
 12.3
640,737
 2.31
 597,211
 3.12
 43,526
 7.3
Other long-term debt381,708
 5.86
 369,585
 5.90
 12,123
 3.3
393,707
 4.61
 361,931
 5.01
 31,776
 8.8
Total long-term debt965,601
 4.61
 889,461
 4.87
 76,140
 8.6
1,034,444
 3.18
 959,142
 3.83
 75,302
 7.9
Total$1,798,440
 2.56% $2,085,784
 2.19% $(287,344) (13.8)%
Total borrowings$1,568,008
 2.28% $1,354,869
 2.78% $213,139
 15.7%

N/M - Not meaningful
(1) Represents FHLB advances with an original maturity term of less than one year.



Total average short-term borrowings decreased $363.5increased $137.8 million, or 30.4%34.8%, primarily in Federal funds purchased due to an improvementincrease 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 Corporation's funding position as increases in average deposits and decreases in average investments outpaced the growth in average loans. The $76.1 million increase inrate on long-term debt was due to additional long-termthe result of the interest rate differential on the senior notes and subordinated notes, and $200 million of FHLB advances as longer-term ratesthat were lockedrefinanced in and durations extendedDecember of 2016, which reduced the weighted average rate on these advances from 4.03% to manage interest rate risk. The average cost of total borrowings increased 37 basis points, or 16.9%, to 2.56% in 2014 from 2.19% in 2013, primarily due to the Corporation's continuing efforts to lengthen maturities and lock in longer-term rates.2.40%.

Provision for Credit Losses

The provision for credit losses was $2.3$46.9 million in 2015, a decrease2018, an increase of $10.3$23.6 million or 82.0%, in comparison to 2014.2017. 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 2014 decreased $28.02017 was $23.3 million, or 69.1%,an increase of $10.1 million in comparison to 2013.2016. In 2017 the increase was primarily driven by loan growthand 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.



















45


Non-Interest Income and Expense
Comparison of 20152018 to 20142017
Non-Interest Income
The following table presents the components of non-interest income for 2015 and 2014:income:
    Increase (Decrease)    Increase (Decrease)
2015 2014 $ %2018 2017 $ %
(dollars in thousands)(dollars in thousands)
Investment management and trust services$52,148
 $49,249
 $2,899
 5.9 %
Other service charges and fees:       
Merchant fees18,407
 16,845
 1,562
 9.3
Debit card income12,712
 11,905
 807
 6.8
Commercial loan interest rate swap fees9,831
 11,694
 (1,863) (15.9)
Letter of credit fees3,932
 4,403
 (471) (10.7)
Foreign exchange income2,150
 1,759
 391
 22.2
Other6,745
 6,253
 492
 7.9
Total other service charges and fees53,777
 52,859
 918
 1.7
Service charges on deposit accounts:              
Overdraft fees$21,500
 $22,145
 $(645) (2.9)%20,836
 22,569
 (1,733) (7.7)
Cash management fees13,342
 12,709
 633
 5.0
17,581
 14,444
 3,137
 21.7
Other15,255
 14,439
 816
 5.7
10,472
 13,993
 (3,521) (25.2)
Total service charges on deposit accounts50,097
 49,293
 804
 1.6
48,889
 51,006
 (2,117) (4.2)
Investment management and trust services44,056
 44,605
 (549) (1.2)
Other service charges and fees:       
Merchant fees15,037
 13,826
 1,211
 8.8
Debit card income10,748
 9,948
 800
 8.0
Commercial loan swap fees5,518
 3,615
 1,903
 52.6
Letter of credit fees4,809
 4,563
 246
 5.4
Foreign currency processing income1,436
 1,248
 188
 15.1
Other6,444
 6,696
 (252) (3.8)
Total other service charges and fees43,992
 39,896
 4,096
 10.3
Mortgage banking income:              
Gain on sales of mortgage loans13,264
 10,063
 3,201
 31.8
13,021
 13,036
 (15) (0.1)
Mortgage servicing income4,944
 7,044
 (2,100) (29.8)6,005
 6,892
 (887) (12.9)
Total mortgage banking income18,208
 17,107
 1,101
 6.4
19,026
 19,928
 (902) (4.5)
Other non-interest income:       
Other income:       
Credit card income9,638
 9,177
 461
 5.0
11,803
 10,920
 883
 8.1
SBA lending income2,474
 3,511
 (1,037) (29.5)
Other income6,782
 5,260
 1,522
 28.9
7,371
 11,430
 (4,059) (35.5)
Total other income16,420
 14,437
 1,983
 13.7
21,648
 25,861
 (4,213) (16.3)
Total, excluding investment securities gains172,773
 165,338
 7,435
 4.5
195,488
 198,903
 (3,415) (1.7)
Investment securities gains9,066
 2,041
 7,025
 344.2
37
 9,071
 (9,034) N/M
Total$181,839
 $167,379
 $14,460
 8.6 %$195,525
 $207,974
 $(12,449) (6.0)%
N/M - Not meaningful

The $549,000,Excluding investment securities gains, non-interest income decreased $3.4 million, or 1.2%1.7%, decreasefor the year ended December 31, 2018, as compared to the same period in investment2017.

Investment management and trust services income wasincreased $2.9 million, or 5.9%, with growth in both trust commissions and brokerage income, due to a $449,000,overall market performance and continued focus on asset gathering.

Other service charges and fees increased $918,000, or 2.3%1.7%, primarily due to increases in merchant fees and debit card income, partially offset by a decrease in brokerage revenuecommercial loan interest rate swap fees, resulting from lower new commercial loan originations in 2018, and a $131,000, or 0.5%, decrease in trust commissions. These decreases resulted from a downturn in market conditions which decreased the valueslower letter of existing assets under management in trust, wealth management, and brokerage managed accounts.credit fees.

Total serviceService charges on deposit accounts increased $804,000,decreased $2.1 million, or 1.6%. Improvements were seen4.2%, 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 on deposits ($816,000, or 5.7%, increase) due to growthlargely reflects a classification change, effective in balances, and cash management fees ($633,000, or 5.0%, increase) due to changes in fee structures. These increases were partially offset by a $645,000, or 2.9%,the first quarter of 2018, of certain types of deposit service charges. The decrease in overdraft fees duereflects a processing change related to lower volumes resulting from changes in customer behavior.point-of-sale debit card transactions, which had the effect of decreasing the overall volume of overdraft charges to customers.

The $1.2

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 8.8%16.3%, increasedue to a $1.0 million, or 29.5%, decrease in merchant fee income, the $800,000, or 8.0%, increase in debit cardSBA lending income and the $461,000,a $4.1 million, or 5.0%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 were largely driven byas a result of higher transaction volumes. Commercial swap fees increased $1.9 million, or 52.6%, due to higher commercial loan origination volumes.

Gains on sales of mortgage loans increased $3.2 million, or 31.8%, due to a $136.4 million, or 16.1%, increase in new loan commitments and a 13.5% increase in pricing spreads compared to 2014. The increase in new loan commitments was largely in refinancing volumes, which were $479.2 million, or 48.7%, of total new loan commitments in 2015 compared to $277.5 million, or 32.7%, in 2014. Mortgage servicing income decreased $2.1 million, or 29.8%, due to an increase in amortization of mortgage servicing rights (MSRs), as prepayments increased when compared to 2014.

46


The $1.5 million, or 28.9%, increase in other income was due to higher gains on sales of fixed assets, primarily former branch properties, in 2015. These gains were related to the cost savings initiatives discussed in the "Overview and Outlook" section of Management's Discussion.

Investment securities gains of $9.1decreased $9.0 million, in 2015 were a result of $6.5 million of net realizedas 2017 included gains on the sales of financial institution stockscommon stocks. See Note 3, "Investment Securities," in the Notes to Consolidated Financial Statements in item 8 "Financial Statements and $2.6 million of net realized gains on the sales of debt securities. Investment securities gains of $2.0 millionSupplementary Data" for 2014 were the net result of $1.7 million of net realized gains on the sales of debt securities and $335,000 of net realized gains on the sales of financial institution stocks.additional details.

Non-Interest Expense
The following table presents the components of non-interest expense for each of the past two years:expense:
     Increase (Decrease)
 2015 2014 $ %
 (dollars in thousands)
Salaries and employee benefits$260,832
 $251,021
 $9,811
 3.9 %
Net occupancy expense47,777
 48,130
 (353) (0.7)
Other outside services27,785
 28,404
 (619) (2.2)
Data processing19,894
 17,162
 2,732
 15.9
Software14,746
 12,758
 1,988
 15.6
Equipment expense14,514
 13,567
 947
 7.0
FDIC insurance11,470
 10,958
 512
 4.7
Professional fees11,244
 12,097
 (853) (7.1)
Supplies and postage10,202
 9,795
 407
 4.2
Marketing7,324
 8,133
 (809) (9.9)
Telecommunications6,350
 6,870
 (520) (7.6)
Loss on redemption of trust preferred securities5,626
 —
 5,626
 N/M
OREO and repossession expense3,630
 3,270
 360
 11.0
Operating risk loss3,624
 4,271
 (647) (15.1)
Intangible amortization247
 1,259
 (1,012) (80.4)
Other34,895
 31,551
 3,344
 10.6
Total$480,160
 $459,246
 $20,914
 4.6 %
     Increase (Decrease)
 2018 2017 $ %
 (dollars in thousands)
Salaries and employee benefits$303,202
 $290,130
 $13,072
 4.5 %
Net occupancy expense51,678
 49,708
 1,970
 4.0
Data processing and software41,286
 38,735
 2,551
 6.6
Other outside services33,758
 27,501
 6,257
 22.8
Professional fees14,161
 12,688
 1,473
 11.6
Equipment expense13,243
 12,935
 308
 2.4
Amortization of tax credit investments11,449
 11,028
 421
 3.8
FDIC insurance expense10,993
 11,049
 (56) (0.5)
State taxes9,590
 10,051
 (461) (4.6)
Other56,744
 61,754
 (5,010) (8.1)
Total$546,104
 $525,579
 $20,525
 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.






Comparison of 2017 to 2016

Non-Interest Income
The following table presents the components of non-interest income:
     Increase (Decrease)
 2017 2016 $ %
 (dollars in thousands)
Investment management and trust services$49,249
 $45,270
 $3,979
 8.8 %
Other service charges and fees:       
Merchant fees16,845
 16,136
 709
 4.4
Commercial loan interest rate swap fees11,694
 11,560
 134
 1.2
Debit card income11,905
 11,236
 669
 6.0
Letter of credit fees4,403
 4,504
 (101) (2.2)
Foreign currency processing income1,759
 1,555
 204
 13.1
Other6,253
 6,482
 (229) (3.5)
Total other service charges and fees52,859
 51,473
 1,386
 2.7
Service charges on deposit accounts:       
Overdraft fees22,569
 22,175
 394
 1.8
Cash management fees14,444
 14,183
 261
 1.8
Other13,993
 14,988
 (995) (6.6)
Total service charges on deposit accounts51,006
 51,346
 (340) (0.7)
Mortgage banking income:       
Gain on sales of mortgage loans13,036
 15,685
 (2,649) (16.9)
Mortgage servicing income6,892
 3,730
 3,162
 84.8
Total mortgage banking income19,928
 19,415
 513
 2.6
Other non-interest income:       
Credit card income10,920
 10,252
 668
 6.5
SBA lending income3,511
 2,425
 1,086
 44.8
Other income11,430
 7,447
 3,983
 53.5
Total other income25,861
 20,124
 5,737
 28.5
Total, excluding investment securities gains198,903
 187,628
 11,275
 6.0
Investment securities gains9,071
 2,550
 6,521
 N/M
Total$207,974
 $190,178
 $17,796
 9.4 %
N/M - Not meaningful
Salaries
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%,


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:
     Increase
 2017 2016 $ %
 (dollars in thousands)
Salaries and employee benefits$290,130
 $283,353
 $6,777
 2.4%
Net occupancy expense49,708
 47,611
 2,097
 4.4
Data processing and software38,735
 36,919
 1,816
 4.9
Other outside services27,501
 23,883
 3,618
 15.1
Equipment expense12,935
 12,788
 147
 1.1
Professional fees12,688
 11,004
 1,684
 15.3
FDIC insurance expense11,049
 9,767
 1,282
 13.1
Amortization of tax credit investments11,028
 —
 11,028
 N/M
State Taxes10,051
 6,405
 3,646
 56.9
Marketing8,034
 7,044
 990
 14.1
Operating risk loss4,342
 2,815
 1,527
 54.2
Other49,378
 47,930
 1,448
 3.0
Total$525,579
 $489,519
 $36,060
 7.4%

N/M - Not meaningful

The $6.8 million, or 2.4%, increase in salaries and employee benefits increased $9.8during the year ended December 31, 2017, in comparison to the same period during 2016, primarily resulted from a $7.5 million, or 3.9%3.2%, with salaries increasing $8.4 million, or 4.0%, and employee benefits increasing $1.4 million, or 3.6%. The increase in salaries, was primarily due to higher average salaries per full-time equivalent employee,resulting from annual merit increases and an increase in incentive compensation, and higher temporary employee expenses, partially offset by a decrease in thestaffing levels. The average number of full-time equivalent employees increased 2.3%, to 3,4603,569, in 2015,2017, as compared to 3,5303,490 in 2014. 2016. These increases were partially offset by decreases in incentive compensation.

The $2.1 million, or 4.4%, increase in employee benefitsnet occupancy expense was primarily due to an increasedriven by increases in defined benefit planrent expense, in 2015, while 2014 included a $1.5 million gain realized on a post-retirement plan amendment.property tax expense and other occupancy expenses.

The $4.7$1.8 million, or 15.8%4.9%, combined increase in data processing and software resulted from higher transaction volumes, contractual increases in third-party service provider costs and the implementation of additional systems.

Other outside services expenses remained elevated in 2015, decreasing a modest $619,000,increased $3.6 million, or 2.2%15.1%, from 2014. Over time,largely due to consulting services related to pre-bank consolidation efforts, technology initiatives and continued investments in third-party services to support the build-outcommercial banking technology initiatives.

Professional fees consist of risk managementlegal and compliance infrastructure are expected to decrease.
The $947,000, or 7.0%, increaseaudit fees. Increases were realized mainly in equipment expense was primarily due to an increaselegal fees in depreciation expense on new office furniture and equipment. FDIC insurance expense increased $512,000, or 4.7%,2017 as a result of balance sheet growth. Professional fees, consisting ofvarious legal proceedings, including those discussed in Note 17 "Commitments and audit fees, decreased $853,000, or 7.1%, due to a combination of lower loan workout legal costs and lower corporate legal fees. Marketing expense decreased $809,000, or 9.9%, as fewer promotional campaigns were executed in 2015.

47


The $360,000, or 11.0%, decrease in other real estate owned and repossession expense was primarily due to lower repossession expense in 2015. This expense category can experience volatility from period to period based on the timing of foreclosures and sales of properties and payments of expenses, such as real estate taxes.
The $647,000, or 15.1%, decrease in operating risk loss was due to a $1.3 million decrease in check card fraud losses, partially offset by an $817,000 increase in losses associated with previously sold residential mortgages. See "Note 17 - Commitments and Contingencies,"Contingencies" in the Notes to Consolidated Financial Statements in Item 8. Financial"Financial Statements and Supplementary Data for additional details related to repurchases of previously sold residential mortgages.
Intangible amortization decreased $1.0 million, as core deposit intangible assets recognized from previous acquisitions have been largely amortized and net book values are approaching $0.
In July 2015, the Corporation redeemed $150.0 million of TruPS. In connection with this redemption, a loss of $5.6 million, consisting of the remaining unamortized issuance and hedge costs, was recognized as a component of non-interest expense.Data."

ComparisonFDIC 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 2014 to 2013that size, and balance sheet growth.

Non-Interest Income
The following table presentsAs a result of changes in the componentstypes 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 income:
     Increase (Decrease)
 2014 2013 $ %
 (dollars in thousands)
Service charges on deposit accounts:       
Overdraft fees$22,145
 $28,222
 $(6,077) (21.5)%
Cash management fees12,709
 11,883
 826
 7.0
Other14,439
 15,365
 (926) (6.0)
Total service charges on deposit accounts49,293
 55,470
 (6,177) (11.1)
Investment management and trust services44,605
 41,706
 2,899
 7.0
Other service charges and fees:       
Merchant fees13,826
 13,783
 43
 0.3
Debit card income9,948
 9,191
 757
 8.2
Letter of credit fees4,563
 4,889
 (326) (6.7)
Commercial loan swap fees3,615
 1,159
 2,456
 211.9
Foreign currency processing income1,248
 1,245
 3
 0.2
Other6,696
 6,690
 6
 0.1
Total other service charges and fees39,896
 36,957
 2,939
 8.0
Mortgage banking income:       
Gain on sales of mortgage loans10,063
 24,609
 (14,546) (59.1)
Mortgage servicing income7,044
 6,047
 997
 16.5
Total mortgage banking income17,107
 30,656
 (13,549) (44.2)
Other non-interest income:       
Credit card income9,177
 8,706
 471
 5.4
Other income5,260
 6,165
 (905) (14.7)
Total other income14,437
 14,871
 (434) (2.9)
Total, excluding investment securities gains165,338
 179,660
 (14,322) (8.0)
Investment securities gains2,041
 8,004
 (5,963) (74.5)
Total$167,379
 $187,664
 $(20,285) (10.8)%
expense in 2017, rather than income taxes.

The $6.1
State taxes increased $3.6 million, or 21.5%, decrease in overdraft fee income consisted of a $3.8 million decrease in fees assessed on personal accounts and a $2.3 million decrease in fees assessed on commercial accounts. The overall decline in these fees resulted from a reduction in the number of overdrafts.


48


The $2.9 million, or 7.0%, increase in investment management and trust services income was due to a $2.0 million, or 11.2%, increase in brokerage revenue and an $884,000, or 3.7%, increase in trust commissions. These increases resulted from improved market conditions that increased the values of existing assets under management, additional recurring revenue generated through the brokerage business due to growth in new accounts and new trust business sales.

Commercial swap fees increased $2.5 million, or 211.9%56.9%, due to the favorable interest rate environment and the continued expansion of this product. For additional details see "Note 10 - Derivative Financial Instruments," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

Gains on sales of mortgage loans decreased $14.5 million, or 59.1%, due to a $660.8 million, or 43.8%, decrease in new loan commitments and a 27.2% decrease in pricing spreads compared to the prior year. The decline in new loan commitments was largely in refinancing volumes, which decreased $453.3 million, or 62.0%, and represented approximately 33% of new loan commitments in 2014, compared to approximately 48% during 2013. The decrease in volumes was mainly due to higher mortgage interest rates.

Investment securities gains of $2.0 million for 2014 were the net result of $1.7 million of net realized gains on the sales of debt
securities, $335,000 of net realized gains on the sales of financial institution stocks and $30,000 of other-than-temporary impairment charges for certain financial institution stocks and pooled trust preferred securities. Investment securities gains of $8.0 million for 2013 included $4.4 million of net realized gains on sales of financial institution stocks and $3.8 million of net realized gains on sales of debt securities, partially offset by $124,000 of other-than-temporary impairment charges for certain financial institution stocks and pooled trust preferred debt securities. See "Note 3 - Investment Securities," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for additional details.
Non-Interest Expense
The following table presents the components of non-interest expense:
     Increase (Decrease)
 2014 2013 $ %
 (dollars in thousands)
Salaries and employee benefits$251,021
 $253,240
 $(2,219) (0.9)%
Net occupancy expense48,130
 46,944
 1,186
 2.5
Other outside services28,404
 18,856
 9,548
 50.6
Data processing17,162
 16,555
 607
 3.7
Equipment expense13,567
 15,419
 (1,852) (12.0)
Software12,758
 11,560
 1,198
 10.4
Professional fees12,097
 13,150
 (1,053) (8.0)
FDIC insurance10,958
 11,605
 (647) (5.6)
Supplies and postage9,795
 10,210
 (415) (4.1)
Marketing8,133
 7,705
 428
 5.6
Telecommunications6,870
 7,362
 (492) (6.7)
Operating risk loss4,271
 9,290
 (5,019) (54.0)
OREO and repossession expense3,270
 7,364
 (4,094) (55.6)
Intangible amortization1,259
 2,438
 (1,179) (48.4)
Other31,551
 29,735
 1,816
 6.1
Total$459,246
 $461,433
 $(2,187) (0.5)%

Salaries and employee benefits decreased $2.2 million, or 0.9%. Salaries increased $2.2 million, or 1.1%, primarily due to normal
meritlegislated increases partially offset by a decrease in staffing levels resulting from cost savings initiatives. Average full-time equivalent
employees decreased to 3,530 in 2014 from 3,610 in 2013.

Employee benefits decreased $4.4 million, or 10.0%, primarily due to the impact of the Corporation's 2014 cost savings initiatives, which included the elimination and reduction of certain employee benefit plans, most notably a decrease in profit sharing contributions and an amendment to the Postretirement Plan, which resulted in net reductions to employee benefits, partially offset by a $2.0 million increase in healthcare expense due to an increase in claims.


49


Other outside services increased $9.5 million, or 50.6%, due to increases in consulting services related to the acceleration of risk
management and compliance efforts, including those in connection with the enhancement of the BSA/AML compliance program.
The $1.9 million, or 12.0%, decrease in equipment expense was primarily due to a decrease in depreciation expense as certain assets became fully depreciated.

Equipment expense decreased $1.9 million, or 12.0%, primarily due to lower depreciation expense as a result of certain assets being fully depreciated. Software expense increased $1.2 million, or 10.4%, largely due to a full year of expenses related to the Corporation's new core processing system, which the Corporation converted to during 2013.

The $5.0 million, or 54.0%, decrease in operating risk loss was primarily due to a $5.5 million decrease in losses associated with
previously sold residential mortgages and $1.2 million decrease in debit card fraud, partially offset by a $1.5 million increase in check fraud losses. During the first quarter of 2014, the Corporation entered into a settlement agreement with a secondary market investor. Under this agreement, the Corporation agreed to pay this investor $4.5 million to settle all outstanding and potential future repurchase requests under a series of specified loan purchase agreements with that secondary market investor. The result of this settlement was a reduction to outstanding repurchase requests of $7.5 million and a reduction to reserves for repurchases of $5.1 million. See "Note 17 - Commitments and Contingencies," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for additional details related to repurchases of previously sold residential mortgages.

OREO and repossession expense decreased $4.1 million, or 55.6%, primarily due to an increase in net gains on sales of properties
and a decrease in valuation provisions, which reflected the continued improvement in overall asset quality and a $3.0 million, or 20.1%, decrease in OREO balances. The $1.2 million, or 48.4%, decrease in intangible amortization was primarily due to core deposit intangible assets, which are amortized on an accelerated basis. The $1.8 million, or 6.1%, increase in other expenses was due mainly to an increase in the Pennsylvania bank shares tax rate and certain sales tax liabilities.

Marketing expense increased $990,000, or 14.1%, compared to the same period in 2016, due to legislative changes.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 2015the year ended December 31, 2018 was $49.9$24.6 million, a decrease of $2.7$38.1 million, or 5.1%60.8%, decrease from 2014, mainly as$62.7 million for the same period in 2017. This decrease was primarily a result of the 5.3%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 before income taxes. Income tax expense for 2014 increased $1.5 million, or 3.0%, from 2013. The Corporation’s effective tax rate (income taxesand the recording of a $15.6 million revaluation charge in 2017 following the passage of the Tax Act as a percentage of income before income taxes) was 25.0% in 2015 and 2014 and 24.0% in 2013.
described above. The Corporation’s effective tax rates areETR is generally lower than the 35% federal statutory rate for each respective year due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and federalinvestments in community development projects that generate tax credits earned from investmentsunder various federal programs.

The ETR in qualified affordable housing projects (Tax Credit Investments), partially offsetany period may be positively or negatively affected by adjustments that are required to be reported in the impactspecific quarter of resolution or the impacts of legislated changes in Federal or state income taxes. Net credits associated with Tax Credit Investments were $10.4 million in both 2015 and 2014, and $10.3 million in 2013.

For additional information regarding income taxes 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"Financial Statements and Supplementary Data."


50



FINANCIAL CONDITION

The table below presents condensed consolidated ending balance sheets.
 
December 31 Increase (decrease)December 31, Increase (Decrease)
2015 2014 $ %2018 2017 $ %
(dollars in thousands)(dollars in thousands)
Assets              
Cash and due from banks$101,120
 $105,702
 $(4,582) (4.3)%$103,436
 $108,291
 $(4,855) (4.5)%
Other interest-earning assets292,516
 423,083
 (130,567) (30.9)421,534
 354,566
 66,968
 18.9
Loans held for sale16,886
 17,522
 (636) (3.6)27,099
 31,530
 (4,431) (14.1)
Investment securities2,484,773
 2,323,371
 161,402
 6.9
2,686,973
 2,547,956
 139,017
 5.5
Loans, net of allowance13,669,548
 12,927,572
 741,976
 5.7
16,005,263
 15,598,337
 406,926
 2.6
Premises and equipment225,535
 226,027
 (492) (0.2)234,529
 222,802
 11,727
 5.3
Goodwill and intangible assets531,556
 531,803
 (247) —
531,556
 531,556
 —
 —
Other assets592,784
 569,687
 23,097
 4.1
671,762
 641,867
 29,895
 4.7
Total Assets$17,914,718
 $17,124,767
 $789,951
 4.6 %$20,682,152
 $20,036,905
 $645,247
 3.2 %
Liabilities and Shareholders’ Equity              
Deposits$14,132,317
 $13,367,506
 $764,811
 5.7 %$16,376,159
 $15,797,532
 $578,627
 3.7 %
Short-term borrowings497,663
 329,719
 167,944
 50.9
754,777
 617,524
 137,253
 22.2
Long-term debt949,542
 1,139,413
 (189,871) (16.7)992,279
 1,038,346
 (46,067) (4.4)
Other liabilities293,302
 291,464
 1,838
 0.6
311,364
 353,646
 (42,282) (12.0)
Total Liabilities15,872,824
 15,128,102
 744,722
 4.9
18,434,579
 17,807,048
 627,531
 3.5
Total Shareholders’ Equity2,041,894
 1,996,665
 45,229
 2.3
2,247,573
 2,229,857
 17,716
 0.8
Total Liabilities and Shareholders’ Equity$17,914,718
 $17,124,767
 $789,951
 4.6 %$20,682,152
 $20,036,905
 $645,247
 3.2 %

Other Interest-Earning Assets

The $130.6$67.0 million, or 30.9%18.9%, decreaseincrease in other interest-earning assets was primarily due to lowerhigher balances on deposit with the Federal Reserve BankFRB and lower interest bearinghigher interest-bearing deposits with other banks, as funds were used to support increases in investment securitiesreflecting the Corporation's overall funding position at the end of 2018 and loans.2017.
























Investment Securities
The following table presents the carrying amount of investment securities which were all classified as available for sale, as of December 31:
2015 2014 20132018 2017
(in thousands)(in thousands)
U.S. Government securities$—
 $200
 $525
Available for Sale   
U.S. Government sponsored agency securities25,136
 214
 726
$31,632
 $5,938
State and municipal262,765
 245,215
 284,849
State and municipal securities279,095
 408,949
Corporate debt securities96,955
 98,034
 98,749
109,533
 97,309
Collateralized mortgage obligations821,509
 902,313
 1,032,398
832,080
 602,623
Mortgage-backed securities1,158,835
 928,831
 945,712
Residential mortgage-backed securities463,344
 1,120,796
Commercial mortgage-backed securities261,616
 212,755
Auction rate securities98,059
 100,941
 159,274
102,994
 98,668
Total debt securities2,463,259
 2,275,748
 2,522,233
2,080,294
 2,547,038
Equity securities21,514
 47,623
 46,201
—
 918
Total$2,484,773
 $2,323,371
 $2,568,434
Total available for sale securities$2,080,294
 $2,547,956
   
Held to Maturity   
State and municipal securities$156,134
 $—
Residential mortgage-backed securities450,545
 —
Total held to maturity securities$606,679
 $—
   
Total investment securities$2,686,973
 $2,547,956
Total investment securities increased $161.4 million, or 6.9%, to $2.5 billion at December 31, 2015, mainly in mortgage-backed securities, partially offset by a decrease in collateralized mortgage obligations. Portfolio cash flows that were reinvested during 2015 were used to purchase securities with average lives of approximately five years to provide for relatively structured cash flows, thereby limiting price and extension risk in a rising interest rate environment.Collateralized mortgage obligations decreased

51


primarily due to maturities that were not fully reinvested as the Corporation sought to reduce portfolio price risk. The decrease in equity securities reflects the sales of certain financial institutions stocks. As of December 31, 2015, the weighted average remaining lives of collateralized mortgage obligations and mortgage-backed securities were four and five years, respectively.
The net pre-tax unrealized loss on available for sale investment securities was $9.3decreased $467.7 million, as ofor 18.4%, to $2.1 billion at December 31, 2015, compared2018. On August 1, 2018, the Corporation transferred debt securities totaling $641.7 million from the available for sale classification to an $11.3the held to maturity classification. These securities consisted of $485.3 million net pre-tax unrealized gainand $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, 2014. The change was due to an increase in market interest rates, which caused the fair values of2018. 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 decrease below amortized cost.diversify the portfolio into securities with lower expected term extension risk, should rates continue to increase.























Loans

The following table presents ending loans outstanding, by type, as of the dates shown, and the changechanges in loansbalances for the most recent year:
December 31 2015 vs. 2014 Increase (Decrease)December 31, Increase (Decrease) (2018 vs. 2017)
2015 2014 2013 2012 2011 $ %2018 2017 2016 2015 2014 $ %
(dollars in thousands)(dollars in thousands)
Real estate – commercial mortgage$5,462,330
 $5,197,155
 $5,101,922
 $4,664,426
 $4,602,596
 $265,175
 5.1 %$6,434,285
 $6,364,804
 $6,018,582
 $5,462,330
 $5,197,155
 $69,481
 1.1 %
Commercial – industrial, financial and agricultural4,088,962
 3,725,567
 3,628,420
 3,612,065
 3,639,368
 363,395
 9.8
4,404,548
 4,300,297
 4,087,486
 4,088,962
 3,725,567
 104,251
 2.4
Real estate – residential mortgage2,251,044
 1,954,711
 1,601,994
 1,376,160
 1,377,068
 296,333
 15.2
Real estate – home equity1,684,439
 1,736,688
 1,764,197
 1,632,390
 1,624,562
 (52,249) (3.0)1,452,137
 1,559,719
 1,625,115
 1,684,439
 1,736,688
 (107,582) (6.9)
Real estate – residential mortgage1,376,160
 1,377,068
 1,337,380
 1,257,432
 1,097,503
 (908) (0.1)
Real estate – construction799,988
 690,601
 573,672
 584,118
 615,445
 109,387
 15.8
916,599
 1,006,935
 843,649
 799,988
 690,601
 (90,336) (9.0)
Consumer268,588
 265,431
 283,124
 309,864
 318,874
 3,157
 1.2
419,186
 313,783
 291,470
 268,588
 265,431
 105,403
 33.6
Leasing and other173,651
 131,583
 103,301
 93,914
 79,869
 42,068
 32.0
Gross loans13,854,118
 13,124,093
 12,792,016
 12,154,209
 11,978,217
 730,025
 5.6
Leasing, other and overdrafts314,640
 295,669
 250,366
 173,651
 131,583
 18,971
 6.4
Loans, gross of unearned income16,192,439
 15,795,918
 14,718,662
 13,854,118
 13,124,093
 396,521
 2.5
Unearned income(15,516) (12,377) (9,796) (7,238) (6,994) (3,139) 25.4
(26,639) (27,671) (19,390) (15,516) (12,377) 1,032
 (3.7)
Loans, net of unearned income$13,838,602
 $13,111,716
 $12,782,220
 $12,146,971
 $11,971,223
 $726,886
 5.5 %$16,165,800
 $15,768,247
 $14,699,272
 $13,838,602
 $13,111,716
 $397,553
 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 geographicalgeographic location within its footprint. Approximately $6.3As of December 31, 2018, approximately $7.4 billion, or 45.3%45.5%, of the loan portfolio was incomprised of commercial mortgage and construction loans as of December 31, 2015. As of December 31, 2015, theloans. The Corporation's policies limit the maximum total lending commitment to an individual borrower to $50.0 million.$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, 2015,2018, the Corporation had 107150 relationships with total borrowing commitments between $20.0 million and $50.0$55.0 million.

Commercial mortgage loans increased $265.2 million, or 5.1%, in comparison to December 31, 2014 across all markets. Commercial loans increased $363.4 million, or 9.8%. Geographically, the increase was primarily in the Pennsylvania ($298.0 million, or 11.3%), Delaware ($33.1 million, or 34.6%), Maryland ($29.5 million, or 9.9%) and New Jersey ($9.3 million, or 1.7%) markets, partially offset by a $6.4 million, or 4.4%, decrease in the Virginia market.



















52



The following table summarizes the industry concentrations within the commercial mortgage and industrial, financial and agricultural loan portfolioportfolios as of December 31:
2015 20142018 2017
Services22.6% 19.2%
Real estate (1)
35.9% 35.7%
Health care7.8
 7.8
Agriculture7.3
 7.4
Construction (1)(2)5.7
 6.0
Manufacturing11.3
 13.1
5.5
 5.2
Health care10.6
 9.0
Construction (1)(2)9.7
 11.0
Educational services4.6
 4.5
Retail8.3
 9.6
4.6
 5.9
Wholesale8.0
 8.7
Real estate (2)7.3
 7.6
Agriculture5.1
 5.5
Arts and entertainment2.8
 3.4
Transportation2.7
 2.4
Financial services1.7
 1.9
Other services (except public administration)4.5
 4.1
Accommodation and food services3.7
 3.7
Wholesale Trade3.5
 3.4
Professional, scientific, and technical services2.8
 2.9
Public administration2.3
 2.4
Arts, entertainment, and recreation2.3
 2.0
Transportation and warehousing1.3
 1.1
Other9.9
 8.6
8.2
 7.9
Total100.0% 100.0%100.0% 100.0%
(1)Includes commercial loans to borrowers engaged in the construction industry.
(2)Includes commercial loans to borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for others; and appraising real estate.
(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 $20$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 geographical markets.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:
2015 20142018 2017
(in thousands)(in thousands)
Commercial - industrial, financial and agricultural$152,830
 $116,705
$67,493
 $156,277
Real estate - commercial mortgage96,219
 137,952
—
 110,658
Total$249,049
 $254,657
$67,493
 $266,935
Total shared national creditcredits decreased $5.6$199.4 million, or 2.2%74.7%, in comparison to 2014.2017 as a result of the new threshold. As of December 31, 2015, one2018, none of the shared national credits totaling $1.1 million, or 0.4%, of the total, waswere past due.
Home equity loans decreased $52.2 million, or 3.0%, primarily as a result of customers refinancing outstanding home equity loans into residential mortgages.

Construction loans include loans to commercial borrowers secured by residential real estate, loans to commercial borrowers secured by commercial real estate and other construction loans, which represent loans to individuals secured by residential real estate.

The following table presents outstanding construction loans and delinquency rates, by class segment, as of December 31:
 2015 2014
 $ Delinquency Rate % of Total $ Delinquency Rate % of Total
 (dollars in thousands)
Commercial$559,991
 0.2% 70.0% $427,419
 0.6% 61.9%
Commercial - residential179,303
 7.3
 22.4
 203,670
 6.6
 29.5
Other60,694
 1.1
 7.6
 59,512
 0.6
 8.6
  Total Real estate - construction$799,988
 1.8% 100.0% $690,601
 2.4% 100.0%


Construction loans increased $109.4 million, or 15.8%, as a result of growth in commercial construction loans. Geographically, the increase occurred in the Pennsylvania ($114.6 million, or 31.6%) and New Jersey ($65.6 million, or 72.2%) markets and were

53



partially offset by decreases in the Virginia ($30.9 million, or 34.2%), Maryland ($24.0 million, or 27.8%) and Delaware ($15.9 million, or 26.5%) markets.








Provision and Allowance for Credit Losses
The Corporation accounts for the credit risk associated with lending activities through the allowance for credit losses and the provision for credit losses.

A summary of the Corporation’s loancredit loss experience follows:
2015 2014 2013 2012 20112018 2017 2016 2015 2014
(dollars in thousands)(dollars in thousands)
Loans, net of unearned income outstanding at end of year$13,838,602
 $13,111,716
 $12,782,220
 $12,146,971
 $11,971,223
$16,165,800
 $15,768,247
 $14,699,272
 $13,838,602
 $13,111,716
Daily average balance of loans, net of unearned income$13,330,973
 $12,885,180
 $12,578,524
 $11,968,567
 $11,906,447
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$185,931
 $204,917
 $225,439
 $258,177
 $275,498
$176,084
 $171,325
 $171,412
 $185,931
 $204,917
Loans charged off:                  
Commercial – industrial, financial and agricultural15,639
 24,516
 30,383
 41,868
 52,301
52,441
 19,067
 15,276
 15,639
 24,516
Real estate - home equity and consumer5,831
 7,811
 10,070
 13,470
 9,686
6,127
 4,567
 7,712
 5,831
 7,811
Leasing, other and overdrafts2,521
 3,035
 3,815
 2,656
 2,135
Real estate – commercial mortgage4,218
 6,004
 20,829
 51,988
 26,032
2,045
 2,169
 3,580
 4,218
 6,004
Real estate – residential mortgage3,612
 2,918
 9,705
 4,509
 32,533
1,574
 687
 2,326
 3,612
 2,918
Real estate – construction201
 1,209
 6,572
 26,250
 38,613
1,368
 3,765
 1,218
 201
 1,209
Leasing and other2,656
 2,135
 2,653
 2,281
 2,168
Total loans charged off32,157
 44,593
 80,212
 140,366
 161,333
66,076
 33,290
 33,927
 32,157
 44,593
Recoveries of loans previously charged off:                  
Commercial – industrial, financial and agricultural5,264
 4,256
 9,281
 4,282
 2,521
4,994
 7,771
 8,981
 5,264
 4,256
Real estate - home equity and consumer2,492
 2,347
 2,378
 1,811
 1,431
2,393
 1,969
 2,466
 2,492
 2,347
Real estate – construction1,829
 1,582
 3,924
 2,824
 3,177
Real estate – commercial mortgage2,801
 1,960
 3,494
 3,371
 1,967
1,622
 1,668
 3,373
 2,801
 1,960
Leasing, other and overdrafts1,037
 968
 842
 685
 916
Real estate – residential mortgage1,322
 451
 548
 459
 325
620
 786
 1,072
 1,322
 451
Real estate – construction2,824
 3,177
 2,682
 2,814
 1,746
Leasing and other685
 916
 807
 891
 1,022
Total recoveries15,388
 13,107
 19,190
 13,628
 9,012
12,495
 14,744
 20,658
 15,388
 13,107
Net loans charged off16,769
 31,486
 61,022
 126,738
 152,321
53,581
 18,546
 13,269
 16,769
 31,486
Provision for credit losses2,250
 12,500
 40,500
 94,000
 135,000
46,907
 23,305
 13,182
 2,250
 12,500
Balance at end of year$171,412
 $185,931
 $204,917
 $225,439
 $258,177
$169,410
 $176,084
 $171,325
 $171,412
 $185,931
Components of Allowance for Credit Losses:                  
Allowance for loan losses$169,054
 $184,144
 $202,780
 $223,903
 $256,471
$160,537
 $169,910
 $168,679
 $169,054
 $184,144
Reserve for unfunded lending commitments (1)2,358
 1,787
 2,137
 1,536
 1,706
8,873
 6,174
 2,646
 2,358
 1,787
Allowance for credit losses$171,412
 $185,931
 $204,917
 $225,439
 $258,177
$169,410
 $176,084
 $171,325
 $171,412
 $185,931
Selected Asset Quality Ratios:                  
Net charge-offs to average loans0.13% 0.24% 0.49% 1.06% 1.28%0.34% 0.12% 0.09% 0.13% 0.24%
Allowance for loan losses to loans outstanding1.22% 1.40% 1.59% 1.84% 2.14%
Allowance for credit losses to loans outstanding1.24% 1.42% 1.60% 1.86% 2.16%
Allowance for loan losses to total loans0.99% 1.08% 1.15% 1.22% 1.40%
Allowance for credit losses to total loans1.05% 1.12% 1.17% 1.24% 1.42%
Non-performing assets (2) to total assets0.87% 0.88% 1.00% 1.43% 1.94%0.73% 0.72% 0.76% 0.87% 0.88%
Non-performing assets (2) to total loans and OREO1.13% 1.15% 1.32% 1.95% 2.64%0.93% 0.92% 0.98% 1.13% 1.15%
Non-accrual loans to total loans0.94% 0.92% 1.05% 1.52% 2.15%0.80% 0.79% 0.82% 0.94% 0.92%
Allowance for credit losses to non-performing loans118.37% 134.26% 132.82% 106.82% 90.11%121.29% 130.67% 130.15% 118.37% 134.26%
Non-performing assets (2) to tangible common shareholders’ equity and allowance for credit losses (3)9.27% 9.12% 9.76% 13.39% 18.60%
Non-performing assets (2) to tangible equity and allowance for credit losses (3) ("Texas Ratio")
7.97% 7.71% 8.20% 9.27% 9.12%

(1)Reserve for unfunded lending commitments is recorded within other liabilities on the consolidated balance sheets.
(2)Includes accruing loans past due 90 days or more.
(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"Selected Financial Data."

The provision for credit losses decreased $10.3increased $23.6 million or 82.0%, in comparison to 20142017 due mainly to improvements in credit quality, as shown by lower net loans charged off and delinquencies.

54


a $36.8 million provision related to the customer fraud-related Commercial Relationship. Net charge-offs decreased $14.7increased $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.


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		 Consumer Leasing Total
 (in thousands)
Balance of non-accrual loans at December 31, 2016$42,349
 $38,936
 $9,806
 $18,431
 $10,611
 $—
 $—
 $120,133
Additions48,717
 20,596
 10,657
 3,817
 5,264
 2,227
 1,553
 92,831
Payments(19,092) (20,164) (4,352) (2,848) (1,518) —
 —
 (47,974)
Charge-offs (1)
(19,067) (2,169) (3,765) (687) (2,340) (2,227) (1,553) (31,808)
Transfers to OREO(3) (1,464) (149) (2,729) (1,895) —
 —
 (6,240)
Transfers to accrual status—
 (913) —
 (293) (987) —
 —
 (2,193)
Balance of non-accrual loans at December 31, 201752,904
 34,822
 12,197
 15,691
 9,135
 —
 —
 124,749
Additions91,057
 19,507
 1,433
 3,707
 5,252
 3,040
 20,243
 144,239
Payments(39,887) (15,961) (4,872) (1,120) (1,951) —
 —
 (63,791)
Charge-offs (1)
(52,441) (2,045) (1,368) (1,574) (3,087) (3,040) (974) (64,529)
Transfers to OREO(1,027) (3,206) —
 (1,999) (1,982) —
 —
 (8,214)
Transfers to accrual status(457) (2,728) —
 (37) (660) —
 —
 (3,882)
Balance of non-accrual loans at December 31, 2018$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 46.7%3.1%, in 2018 due mainly to $16.8an increase in non-accrual loan additions from $92.8 million in 2015 from $31.52017 to $144.2 million in 2014. This decrease was primarily due2018, 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 a $9.9non-accrual loans (a $41.2 million or 48.8%, decrease in commercial loan net charge-offs, a $2.6 million, or 65.0%, decrease in commercial mortgage net charge-offs, and a $2.1 million, or 38.9%, decrease in consumer and home equity loan net charge-offs. The $16.8addition reduced by $33.9 million of net charge-offscharge-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 in the Pennsylvania ($15.5 million, or 92.7%),through payments and New Jersey ($2.6 million, or 15.8%) markets, partially offset by recoveries in the Maryland, Virginia and Delaware markets.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:
2015 2014 2013 2012 20112018 2017 2016 2015 2014
(in thousands)(in thousands)
Non-accrual loans (1) (2) (3)
$129,523
 $121,080
 $133,753
 $184,832
 $257,761
$128,572
 $124,749
 $120,133
 $129,523
 $121,080
Loans 90 days or more past due and still accruing (2)
15,291
 17,402
 20,524
 26,221
 28,767
11,106
 10,010
 11,505
 15,291
 17,402
Total non-performing loans144,814
 138,482
 154,277
 211,053
 286,528
139,678
 134,759
 131,638
 144,814
 138,482
OREO11,099
 12,022
 15,052
 26,146
 30,803
10,518
 9,823
 12,815
 11,099
 12,022
Total non-performing assets$155,913
 $150,504
 $169,329
 $237,199
 $317,331
$150,196
 $144,582
 $144,453
 $155,913
 $150,504
 
(1)In 2015,2018, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was approximately $7.0$6.3 million. The amount of interest income on non-accrual loans that was recognized in 20152018 was approximately $1.2$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, 20152018 were $60.6$61.6 million of loans modified under trouble debt restructurings (TDRs)("TDRs"). These loans were reviewedevaluated for impairment under FASB ASC Section 310-10-35, but continue to accrue interest and are, therefore, not included in non-accrual loans. All non-accrual loans as of December 31, 2015 were reviewed for impairment under FASB ASC Section 310-10-35.
The following table presents TDRs as of December 31:
 2015 2014 2013 2012 2011
 (in thousands)
Real estate – residential mortgage$28,511
 $31,308
 $28,815
 $32,993
 $32,331
Real estate – commercial mortgage17,563
 18,822
 19,758
 34,672
 22,425
Real estate – construction3,942
 9,241
 10,117
 10,564
 7,645
Commercial – industrial, financial and agricultural5,953
 5,237
 8,045
 5,745
 3,581
Real estate - home equity4,556
 2,975
 1,365
 1,518
 183
Consumer33
 38
 11
 16
 10
Total accruing TDRs60,558
 67,621
 68,111
 85,508
 66,175
Non-accrual TDRs (1)31,035
 24,616
 30,209
 31,245
 32,587
Total TDRs$91,593
 $92,237
 $98,320
 $116,753
 $98,762

(1)Included within non-accrual loans in the preceding table.

Total TDRs modified during 2015 and still outstanding as of December 31, 2015 totaled $14.4 million. Of these loans, $5.1 million, or 35.5%, had a payment default during 2015, which the Corporation defines as a single missed scheduled payment, subsequent to modification. Total TDRs modified during 2014 and still outstanding as of December 31, 2014 totaled $16.4 million. Of these loans, $7.1 million, or 43.1%, had a payment default subsequent to modification during 2014.

55


The following table presents the changes in non-accrual loans for the years ended December 31:
 Commercial -
Industrial,
Financial and
Agricultural		 Real Estate -
Commercial
Mortgage		 Real Estate -
Construction		 Real Estate -
Residential
Mortgage		 Real Estate -
Home
Equity		 Consumer Leasing Total
 (in thousands)
Balance of non-accrual loans at December 31, 2013$36,710
 $40,566
 $20,921
 $22,282
 $13,272
 $2
 $—
 $133,753
Additions38,578
 31,509
 4,627
 10,125
 10,406
 2,331
 803
 98,379
Payments(17,937) (18,603) (7,185) (2,047) (3,321) (7) —
 (49,100)
Charge-offs (1)(24,517) (6,005) (1,210) (2,918) (5,486) (2,321) (803) (43,260)
Transfers to OREO(763) (2,976) (805) (4,329) (2,199) —
 —
 (11,072)
Transfers to accrual status(2,302) (54) —
 (3,070) (2,189) (5) —
 (7,620)
Balance of non-accrual loans at December 31, 201429,769
 44,437
 16,348
 20,043
 10,483
 —
 —
 121,080
Additions51,066
 24,310
 5,150
 13,845
 8,839
 2,229
 2,835
 108,274
Payments(20,575) (19,786) (9,253) (3,810) (1,945) —
 (1) (55,370)
Charge-offs (1)(15,639) (4,218) (201) (3,612) (3,604) (2,227) (1,409) (30,910)
Transfers to OREO(2,381) (1,668) —
 (4,112) (2,039) —
 —
 (10,200)
Transfers to accrual status(41) (2,344) —
 (440) (524) (2) —
 (3,351)
Balance of non-accrual loans at December 31, 2015$42,199
 $40,731
 $12,044
 $21,914
 $11,210
 $—
 $1,425
 $129,523
(1) Excludes charge-offs of loans on accrual status.

Non-accrual loans increased $8.4 million, or 7.0%, in 2015 due mainly to an increase in non-accrual loan additions from $98.4 million in 2014 to $108.3 million in 2015. The non-accrual loan additions occurred across most loan types, and was not driven by one specific account or event. Non-accrual loan balances continued to be reduced through significant payments, as well as charge-offs.



The following table presents non-performing loans, by type, as of the dates shown, and the changes in non-performing loans for the most recent year:
December 31 2015 vs. 2014 Increase (Decrease)December 31, 2018 vs. 2017 (Decrease) Increase
2015 2014 2013 2012 2011 $ %2018 2017 2016 2015 2014 $ %
(dollars in thousands)(dollars in thousands)
Commercial – industrial, financial and agricultural$44,071
 $30,388
 $38,021
 $66,954
 $80,944
 $13,683
 45.0 %$51,269
 $54,309
 $43,460
 $44,071
 $30,388
 $(3,040) (5.6)%
Real estate – commercial mortgage41,170
 45,237
 44,068
 57,120
 113,806
 (4,067) (9.0)32,153
 35,447
 39,319
 41,170
 45,237
 (3,294) (9.3)
Real estate – residential mortgage28,484
 28,995
 31,347
 34,436
 16,336
 (511) (1.8)19,101
 20,971
 23,655
 28,484
 28,995
 (1,870) (8.9)
Real estate – home equity14,683
 14,740
 16,983
 17,204
 11,207
 (57) (0.4)9,769
 11,507
 13,154
 14,683
 14,740
 (1,738) (15.1)
Real estate – construction12,460
 16,399
 21,267
 32,005
 60,744
 (3,939) (24.0)7,390
 12,197
 9,842
 12,460
 16,399
 (4,807) (39.4)
Consumer2,440
 2,590
 2,543
 3,315
 3,384
 (150) (5.8)409
 296
 1,891
 2,440
 2,590
 113
 38.2
Leasing1,506
 133
 48
 19
 107
 1,373
 N/M
19,587
 32
 317
 1,506
 133
 19,555
 N/M
Total non-performing loans$144,814
 $138,482
 $154,277
 $211,053
 $286,528
 $6,332
 4.6 %$139,678
 $134,759
 $131,638
 $144,814
 $138,482
 $4,919
 3.7 %
N/M - Not meaningful

Non-performing commercial loans increased $13.7$4.9 million, or 45.0%3.7%, in comparison to December 31, 2014. Geographically,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 primarily occurredwas largely offset by improvements in non-performing loans in the Pennsylvania ($12.3rest 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 2016 2015 2014
 (in thousands)
Real estate – residential mortgage$24,102
 $26,016
 $27,617
 $28,511
 $31,308
Real estate – home equity16,665
 15,558
 8,594
 4,556
 2,975
Real estate – commercial mortgage15,685
 13,959
 15,957
 17,563
 18,822
Commercial – industrial, financial and agricultural5,143
 10,820
 6,627
 5,953
 5,237
Consumer10
 26
 39
 33
 38
Real estate – construction—
 —
 726
 3,942
 9,241
Total accruing TDRs61,605
 66,379
 59,560
 60,558
 67,621
Non-accrual TDRs (1)
28,659
 29,051
 27,850
 31,035
 24,616
Total TDRs$90,264
 $95,430
 $87,410
 $91,593
 $92,237

(1)Included within non-accrual loans in the preceding table.

Total TDRs modified during 2018 and still outstanding as of December 31, 2018 were $18.4 million. Of these loans, $5.0 million, or 78.4%) Virginia ($3.127.0%, 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 98.1%) and Maryland ($1.8 million, or 82.9%) markets, partially offset by19.8%, had a decrease in the New Jersey ($3.3 million, or 36.0%) market.
Non-performing commercial mortgages decreased $4.1 million, or 9.0%, in comparisonpayment default subsequent to December 31, 2014. Geographically, the decrease occurred primarily in the Pennsylvania ($3.0 million, or 16.6%) and Delaware ($1.9 million, or 78.3%) markets, partially offset by increases in the Maryland and New Jersey markets.modification during 2017.
Non-performing construction loans decreased $3.9 million, or 24.0%, in comparison to December 31, 2014. Geographically, the decrease occurred mainly in the Maryland ($1.9 million, or 59.9%) and New Jersey ($1.1 million, or 37.6%) markets.

56


The following table summarizes OREO, by property type, as of December 31:
2015 20142018 2017
(in thousands)(in thousands)
Residential properties$7,303
 $6,656
$3,665
 $4,562
Commercial properties2,167
 3,453
4,127
 3,331
Undeveloped land1,629
 1,913
2,726
 1,930
Total OREO$11,099
 $12,022
$10,518
 $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


"Note 1 "Summary- Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements.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 $10.3$11.7 billion and $9.6$11.6 billion as of December 31, 20152018 and 2014,2017, 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 2015 vs. 2014 Increase (Decrease) Substandard or Lower 2015 vs. 2014 Increase (Decrease) Total Criticized LoansSpecial Mention 2018 vs. 2017 Increase (Decrease) Substandard or Lower 2018 vs. 2017 Increase (Decrease) Total Criticized Loans
2015 2014 $ % 2015 2014 $ % 2015 20142018 2017 $ % 2018 2017 $ % 2018 2017
(dollars in thousands)(dollars in thousands)
Real estate - commercial mortgage$102,625
 $127,302
 $(24,677) (19.4)% $155,442
 $170,837
 $(15,395) (9.0)% $258,067
 $298,139
$170,827
 $147,604
 $23,223
 15.7 % $133,995
 $150,804
 $(16,809) (11.1)% $304,822
 $298,408
Commercial - secured92,711
 120,584
 (27,873) (23.1) 136,710
 110,544
 26,166
 23.7
 229,421
 231,128
193,470
 121,842
 71,628
 58.8
 129,026
 179,113
 (50,087) (28.0) 322,496
 300,955
Commercial -unsecured2,761
 7,463
 (4,702) (63.0) 3,346
 6,810
 (3,464) (50.9) 6,107
 14,273
4,016
 5,478
 (1,462) (26.7) 3,963
 2,759
 1,204
 43.6
 7,979
 8,237
Total commercial - industrial, financial and agricultural95,472
 128,047
 (32,575) (25.4) 140,056
 117,354
 22,702
 19.3
 235,528
 245,401
197,486
 127,320
 70,166
 55.1
 132,989
 181,872
 (48,883) (26.9) 330,475
 309,192
Construction - commercial residential17,154
 27,495
 (10,341) (37.6) 21,812
 40,066
 (18,254) (45.6) 38,966
 67,561
6,912
 5,259
 1,653
 31.4
 6,881
 14,084
 (7,203) (51.1) 13,793
 19,343
Construction - commercial3,684
 12,202
 (8,518) (69.8) 3,597
 5,586
 (1,989) (35.6) 7,281
 17,788
1,163
 846
 317
 37.5
 2,533
 3,752
 (1,219) (32.5) 3,696
 4,598
Total real estate - construction (excluding construction - other)20,838
 39,697
 (18,859) (47.5) 25,409
 45,652
 (20,243) (44.3) 46,247
 85,349
Total construction (excluding construction - other)8,075
 6,105
 1,970
 32.3
 9,414
 17,836
 (8,422) (47.2) 17,489
 23,941
Total$218,935
 $295,046
 $(76,111) (25.8)% $320,907
 $333,843
 $(12,936) (3.9)% $539,842
 $628,889
$376,388
 $281,029
 $95,359
 33.9 % $276,398
 $350,512
 $(74,114) (21.1)% $652,786
 $631,541
                                      
% of total risk rated loans2.1% 3.1%     3.1% 3.5%     5.2% 6.6%3.2% 2.4%     2.4% 3.0%     5.6% 5.4%

As of December 31, 2015,2018, total loans with risk ratings of special mention and substandard or lower were $89.0$21.2 million, or 14.2%, less3.4% higher than 2014. Overall reductions in criticized loans, while not2017,primarily the sole factor for measuring allocations on these loan types, contributed to a decrease in allocations for impaired loansresult of $9.3 million, or 15.2%, in 2015.downgrades across various industries and geographic markets as part of the Corporation's normal credit risk management processes.

57


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 by class segment, as of December 31:
Delinquent (1) Non-performing (2) Total Past Due
Delinquent (1)
 
Non-performing (2)
 Total
2015 2014 2015 2014 2015 20142018 2017 2018 2017 2018 2017
$ % $ % $ % $ % $ % $ %$ % $ % $ % $ % $ % $ %
(dollars in thousands)(dollars in thousands)
Real estate - home equity$8,983
 0.53% $10,931
 0.63% $14,683
 0.87% $14,740
 0.85% $23,666
 1.40% $25,671
 1.48%$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 mortgage18,305
 1.33
 26,934
 1.96
 28,484
 2.07
 28,995
 2.10
 46,789
 3.40
 55,929
 4.06
28,988
 1.29
 18,852
 0.97
 19,101
 0.85
 20,971
 1.07
 48,089
 2.14
 39,823
 2.04
Real estate - construction - other88
 0.14
 —
 —
 609
 1.01
 332
 0.56
 697
 1.15
 332
 0.56
—
 —
 203
 0.26
 490
 0.68
 411
 0.53
 490
 0.68
 614
 0.79
Consumer - direct2,254
 2.28
 2,891
 2.64
 2,203
 2.23
 2,414
 2.21
 4,457
 4.51
 5,305
 4.85
338
 0.60
 315
 0.57
 66
 0.12
 70
 0.13
 404
 0.72
 385
 0.70
Consumer - indirect2,809
 1.65
 2,574
 1.65
 237
 0.14
 176
 0.11
 3,046
 1.79
 2,750
 1.76
3,405
 0.94
 3,681
 1.42
 343
 0.09
 226
 0.09
 3,748
 1.03
 3,907
 1.51
Total Consumer5,063
 1.89
 5,465
 2.06
 2,440
 0.90
 2,590
 0.97
 7,503
 2.79
 8,055
 3.03
3,743
 0.89
 3,996
 1.28
 409
 0.10
 296
 0.09
 4,152
 0.99
 4,292
 1.37
Leasing and other and Overdrafts759
 0.48
 523
 0.44
 1,506
 0.95
 133
 0.11
 2,265
 1.43
 656
 0.55
Leasing, other and Overdrafts1,302
 0.45
 855
 0.32
 19,587
 6.80
 32
 0.01
 20,889
 7.25
 887
 0.33
Total$33,198
 0.94% $43,853
 1.23% $47,722
 1.34% $46,790
 1.32% $80,920
 2.28% $90,643
 2.55%$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)Includes all accruing loans 30 days to 89 days past due.
(2)Includes all accruing loans 90 days or more past due and all non-accrual loans.
As
The $19.6 million increase in non-performing leases was primarily the result of December 31, 2015, delinquency rates for the above class segments decreased, driven by improvements in home equitypreviously mentioned commercial relationship which included loans and residential mortgage delinquencies.leases.



The following table summarizes the allocation of the allowance for loan losses:
2015 2014 2013 2012 20112018 2017 2016 2015 2014
Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category		Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category		 Allowance % of
Loans In
Each
Category
(dollars in thousands)(dollars in thousands)
Real estate - commercial mortgage$47,866
 39.5% $53,493
 39.6% $55,659
 39.9% $62,928
 38.4% $85,112
 36.8%$52,889
 39.7% $58,793
 40.3% $46,842
 40.9% $47,866
 39.5% $53,493
 39.6%
Commercial - industrial, financial and agricultural57,098
 29.5
 51,378
 28.4
 50,330
 28.4
 60,205
 29.7
 74,896
 31.0
58,868
 27.2
 66,280
 27.2
 54,353
 27.8
 57,098
 29.5
 51,378
 28.4
Real estate - residential mortgage21,375
 9.9
 29,072
 10.5
 33,082
 10.5
 34,536
 10.4
 22,986
 8.3
18,921
 13.9
 16,088
 12.4
 22,929
 10.9
 21,375
 9.9
 29,072
 10.5
Consumer, home equity, leasing & other27,458
 15.3
 33,085
 16.2
 34,852
 16.7
 27,895
 16.7
 17,321
 17.2
24,798
 13.5
 22,129
 13.7
 33,567
 14.7
 27,458
 15.3
 33,085
 16.2
Real estate - construction6,529
 5.8
 9,756
 5.3
 12,649
 4.5
 17,287
 4.8
 30,066
 6.7
5,061
 5.7
 6,620
 6.4
 6,455
 5.7
 6,529
 5.8
 9,756
 5.3
Unallocated8,728
 N/A
 7,360
 N/A
 16,208
 N/A
 21,052
 N/A
 26,090
 N/A
—
 N/A
 —
 N/A
 4,533
 N/A
 8,728
 N/A
 7,360
 N/A
$169,054
 100.0% $184,144
 100.0% $202,780
 100.0% $223,903
 100.0% $256,471
 100.0%
Total$160,537
 100.0% $169,910
 100.0% $168,679
 100.0% $169,054
 100.0% $184,144
 100.0%
N/A – Not applicable

Management believes that the $169.1$160.5 million allowance for loan losses as of December 31, 20152018 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"Financial Statements and Supplementary Data;" and "Critical Accounting Policies" above.



58


Other Assets

Other assets increased $23.1$29.9 million, or 4.1%4.7%, to $592.8$671.8 million as of December 31, 2015. The2018, primarily driven by a $21.4 million increase resulted primarilyin net deferred tax assets resulting from a $24.5 millionan increase in tax credit investments and a $13.2 million increasecarry forwards of $27.6 million. See additional detail in "Note 12 - Income Taxes" in the fair value of commercial loan interest rate swaps. These increases were partially offset by an $11.1 million decreaseNotes to Consolidated Financial Statements in net deferred tax assets.Item 8. "Financial Statements and Supplementary Data."

Deposits and Borrowings

The following table summarizes the increase inpresents ending deposits, by type:type, as of December 31:
    Increase (Decrease)    (Decrease) Increase
2015 2014 $ %2018 2017 $ %
(dollars in thousands)(dollars in thousands)
Noninterest-bearing demand$3,948,114
 $3,640,623
 $307,491
 8.4 %$4,310,105
 $4,437,294
 $(127,189) (2.9)%
Interest-bearing demand3,451,207
 3,150,612
 300,595
 9.5
4,240,974
 4,018,107
 222,867
 5.5
Savings3,868,046
 3,504,820
 363,226
 10.4
Savings and money market accounts4,926,937
 4,586,746
 340,191
 7.4
Total demand and savings11,267,367
 10,296,055
 971,312
 9.4
13,478,016
 13,042,147
 435,869
 3.3
Brokered deposits176,239
 90,473
 85,766
 94.8
Time deposits2,864,950
 3,071,451
 (206,501) (6.7)2,721,904
 2,664,912
 56,992
 2.1
Total deposits$14,132,317
 $13,367,506
 $764,811
 5.7 %$16,376,159
 $15,797,532
 $578,627
 3.7 %

Noninterest-bearing demand deposits increased $307.5decreased $127.2 million, or 8.4%2.9%, primarily due to a $229.0$162.8 million or 8.3%,decrease in commercial account balances, partially offset by a $23.3 million increase in businessstate and municipal account balances and $78.9a $16.7 million or 10.7%, increase in personal account balances. Interest-bearing demand accounts increased $300.6$222.9 million, or 9.5%5.5%, due to a $167.0$222.1 million, or 9.1%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 a $70.2largely driven by promotional efforts throughout the year. Brokered deposits increased $85.8 million, or 31.4%94.8%, increase in business account balances and a $63.4 million, or 5.8%, increase in municipal balances. The $363.2 million, or 10.4%, increase in savings account balances was due to a $309.9 million, or 14.2%, increase in personal account balances and a $54.5 million, or 7.4%, increase in business account balances.
The $206.5 million, or 6.7%, decrease in time deposits wasas of December 31, 2018, primarily as a result of customers' migration away from certificatesa deposit gathering program which the Corporation began during the third quarter of deposit due to2017. See also the continued low interest rate environment."Results of Operations" section of Management's Discussion for more detail on brokered deposits.



The following table summarizes the changes inpresents ending borrowings, by type:type as of December 31:
    Increase (Decrease)    (Decrease) Increase
2015 2014 $ %2018 2017 $ %
(dollars in thousands)(dollars in thousands)
Short-term borrowings:              
Customer repurchase agreements$111,496
 $158,394
 $(46,898) (29.6)%$43,500
 $172,017
 $(128,517) (74.7)%
Customer short-term promissory notes78,932
 95,106
 (16,174) (17.0)326,277
 225,507
 100,770
 44.7
Total short-term customer funding190,428
 253,500
 (63,072) (24.9)369,777
 397,524
 (27,747) (7.0)
Federal funds purchased197,235
 6,219
 191,016
        N/M—
 220,000
 (220,000) N/M
Short-term FHLB Advances (1)110,000
 70,000
 40,000
 57.1
Short-term FHLB advances (1)
385,000
 —
 385,000
 N/M
Total short-term borrowings497,663
 329,719
 167,944
 50.9
754,777
 617,524
 137,253
 22.2
Long-term debt:              
FHLB Advances587,756
 673,107
 (85,351) (12.7)
FHLB advances601,978
 652,113
 (50,135) (7.7)
Other long-term debt361,786
 466,306
 (104,520) (22.4)390,301
 386,233
 4,068
 1.1
Total long-term debt949,542
 1,139,413
 (189,871) (16.7)992,279
 1,038,346
 (46,067) (4.4)
Total borrowings$1,447,205
 $1,469,132
 $(21,927) (1.5)%$1,747,056
 $1,655,870
 $91,186
 5.5 %

N/M - Not meaningful
(1) Represents FHLB advances with an original maturity term of less than one year.
N/M – Not meaningful
The $167.9$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 $191.0$13.8 million increase in federal funds purchased. The $85.4 million, or 12.7% , decrease in long-term FHLB Advances resulted from maturities that were replaced with short-term advances. Other long-term debt decreased by $104.5 million, or 22.4%, primarily as a resultfunding of the maturityaccrued 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 $100 million of subordinated debtderivative financial instruments. See "Note 10 - Derivative Financial Instruments," in April 2015. In June 2015, the Corporation issued $150 million of ten-year subordinated debt at an effective rate of 4.69%. The proceeds were usedNotes to the Consolidated Financial Statements in July 2015 to redeem $150 million of TruPS, that carried an effective rate of 6.52%.Item 8. "Financial Statements and Supplementary Data." for additional information.

59


Shareholders’ Equity

Total shareholders’ equity increased $45.2$17.7 million, or 2.3%0.8%, to $2.0$2.2 billion, or 11.4%10.9%, of total assets, as of December 31, 2015.2018. The increase was due primarily to $149.5$208.4 million of net income, and $10.8$6.7 million of common stock issued partiallyand $8.0 million of stock-based compensation awards, largely offset by $50.0$95.3 million of common stock repurchases, and $66.7$91.1 million of dividends on common shares outstanding.

In November 2014, the Corporation entered into an accelerated share repurchase agreement (ASR) with a third party to repurchase $100 million of shares of its common stock. Under the terms of the ASR, the Corporation paid $100.0 million to the third party in November 2014 and received an initial delivery of 6.5 million shares, representing 80% of the shares expected to be delivered under the ASR, based on the closing price for the Corporation’s shares on November 13, 2014. In April 2015, the third party delivered an additional 1.8 million shares of common stock pursuant to the terms of the ASR, thereby completing the $100.0cash dividends and a $19.0 million ASR. The Corporation repurchased a total of 8.3 million shares of common stock under the ASR at an average price of $12.05 per share.net decrease in accumulated other comprehensive income.

In April 2015,November 2017, the Corporation announced that itsCorporation's board of directors had 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, 2015.2018. During 2015,2018, the Corporation repurchased approximately 4.01.9 million shares were repurchased under this program for a total cost of $50.0approximately $31.5 million, or $12.57$16.71 per share, completing this program in August 2015.program.

In October 2015,November 2018, the Corporation announced that itsCorporation's board of directors had approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to $50.0$75.0 million of its outstanding shares of common stock, or approximately 2.3%2.7% of its outstanding shares, through December 31, 2016. No2019. During 2018, the Corporation repurchased approximately 4.1 million shares wereunder 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 as ofthrough December 31, 2015. Subsequent to December 31, 2015, a total of2019. 550,000

Total commissions and fees paid on stock repurchases in 2018 were $139,000. Under both repurchase programs, repurchased shares were repurchasedadded 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 January 31, 2016 at a total cost of $6.8 million.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). As of December 31, 2015, the Corporation and each of its bank subsidiaries met the minimum capital requirements. In addition, all of the Corporation’s bank subsidiaries’ capital ratios exceeded the amounts required to be considered "well capitalized" as defined in the regulations. See "Note 11 - Regulatory Matters," in the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
The following table summarizes the Corporation’s capital ratios in comparison to regulatory requirements at December 31:
 2015 2014 Regulatory
Minimum
for Capital
Adequacy		 Fully Phased-in, with Capital Conservation Buffers
Total capital (to risk-weighted assets)13.2% 14.7% 8.0% 10.5%
Tier I capital (to risk-weighted assets)10.2% 12.3% 6.0% 8.5%
Common equity tier I (to risk-weighted assets)10.2% N/A 4.5% 7.0%
Tier I capital (to average assets)9.0% 10.0% 4.0% 4.0%
N/A – Not applicable
 2018 2017 Regulatory
Minimum
for Capital
Adequacy		 Fully Phased-in, with Capital Conservation Buffers
Total capital (to risk-weighted assets)12.8% 13.0% 8.0% 10.5%
Tier I capital (to risk-weighted assets)10.2% 10.4% 6.0% 8.5%
Common equity tier I (to risk-weighted assets)10.2% 10.4% 4.5% 7.0%
Tier leverage capital (to average assets)9.0% 8.9% 4.0% 4.0%

In July 2013, the FRBFederal Reserve Board approved final rules (the U.S."U.S. Basel III Capital Rules)Rules") establishing a new comprehensive capital framework for U.S. banking organizations and implementing the Basel Committee on Banking Supervision's December 2010 framework for strengthening international capital standards. The U.S. Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions.
The new minimum regulatory capital requirements established by the U.S. Basel III Capital Rules became effective for the Corporation on January 1, 2015, and will bewere fully phased in on January 1, 2019.
The U.S. Basel III Capital Rules require the Corporation and its bank subsidiaries to:
Meet a new minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a Tier 1 capital ratio of 6.00% of risk-weighted assets;

60


Continue to require the currenta minimum Total capital ratio of 8.00% of risk-weighted assets and the minimuma Tier 1 leverage capital ratio of 4.00% of average assets; and
Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses as a result of which certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, will be excluded as a component of Tier 1 capital for institutions of the Corporation's size.

When fully phased in onAs of January 1, 2019, the Corporation and its bank subsidiaries willare also be required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus paymentspayments.

The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expand the risk-weightings for assets and off balanceoff-balance sheet exposures from the currentprevious 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures, resulting in higher risk weights for a variety of asset categories.

As of December 31, 2015, the Corporation and each of its bank subsidiaries met the minimum requirements of the U.S. Basel III Capital Rules, and2018, each of the Corporation’s bank subsidiaries’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 exceeded the amounts required to be considered "well capitalized" as definedset forth in the regulations. As oftable above. There are no conditions or events since December 31, 2015,2018 that management believes have changed the Corporation's capital levels also met the fully-phased in minimum capitalrequirements, including the capital conservation buffers, as prescribedinstitutions' categories. See "Note 11 - Regulatory Matters," in the U.S. Basel III Capital Rules.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 the payment ofpayments for liabilities recorded on the Corporation’s consolidated balance sheetsheets as well as contractual obligations for purchased services or for operating leases.



The following table summarizes the Corporation's significant contractual obligations to third parties, by type, that were fixed and determinable as of December 31, 2015:2018:
Payments Due InPayments Due In
One Year
or Less		 One to
Three Years		 Three to
Five Years		 Over Five
Years		 TotalOne Year
or Less		 One to
Three Years		 Three to
Five Years		 Over Five
Years		 Total
(in thousands)(in thousands)
Deposits with no stated maturity (1)$11,267,367
 $—
 $—
 $—
 $11,267,367
$13,654,255
 $—
 $—
 $—
 $13,654,255
Time deposits (2)1,342,715
 747,651
 691,039
 83,544
 2,864,949
1,561,694
 920,579
 184,677
 54,954
 2,721,904
Short-term borrowings (3)497,663
 —
 —
 —
 497,663
754,777
 —
 —
 —
 754,777
Long-term debt (3)235,937
 301,299
 142,370
 269,936
 949,542
252,351
 341,410
 130,195
 268,323
 992,279
Operating leases (4)16,325
 28,533
 20,831
 46,819
 112,508
18,013
 32,935
 25,102
 43,307
 119,357
Purchase obligations (5)15,262
 17,066
 325
 —
 32,653
19,434
 43,376
 10,347
 —
 73,157
Uncertain tax positions (6)2,373
 —
 —
 —
 2,373
501
 973
 652
 600
 2,726
 
(1)Includes demand deposits, and savings accounts and brokered deposits, which can be withdrawn by customers at any time.
(2)See additional information regarding time deposits in "Note 8 - Deposits," in the Notes to Consolidated Financial Statements in Item 8. Financial"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"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"Financial Statements and Supplementary Data."
(5)Includes information technology, telecommunication and data processing outsourcing contracts.
(6)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"Financial Statements and Supplementary Data."

In addition to the contractual obligations listed in the preceding table, the Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit and interest rate risk that are not recognized on the consolidated balance sheet.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.

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The following table presents the Corporation’s commitments to extend credit and letters of credit as of December 31, 20152018 (in thousands):
Commercial and other$3,518,960
$3,642,545
Home equity1,300,062
1,475,066
Commercial mortgage and construction965,116
1,188,972
Total commitments to extend credit$5,784,138
$6,306,583
  
Standby letters of credit$374,729
$309,352
Commercial letters of credit39,529
48,682
Total letters of credit$414,258
$358,034



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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)("ALCO") is responsible for reviewing the interest rate sensitivity and liquidity positions of the Corporation, approving asset and liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions. For the year ended December 31, 2015, the Corporation changed its presentation of interest rate risk to be reflective of the two complementary methods it uses to measure and manage interest rate risk, as it provides a more concise framework for understanding how the Corporation measures and manages its interest rate and market risk.

The Corporation uses two complementary methods to measure and manage interest rate risk. They are simulation of net interest income and estimates of economic value of equity. Using these measurements in tandem provides a reasonably comprehensive summary of the magnitude of the Corporation's interest rate risk, level of risk as time evolves, and exposure to changes in interest rates.

Simulation of net interest income is performed for the next 12-month period. A variety of interest rate scenarios are used to measure the effects of sudden and gradual movements upward and downward in the yield curve. These results are compared to the results obtained in a flat or unchanged interest rate scenario. Simulation of net interest income is used primarily to measure the Corporation’s short-term earnings exposure to rate movements. The Corporation’s policy limits the potential exposure of net interest income, in a non-parallel instantaneous shock, to 10% of the base case net interest income for a 100 basis point shock in interest rates, 15% for a 200 basis point shock and 20% for a 300 basis point shock. A "shock" is an immediate upward or downward movement of interest rates. The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor do theydoes 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 200 and 300 basis point downward shock scenarios arescenario is not shown):
Rate Shock(1)
Annual change
in net interest income
 % Change in net interest income
+300 bp+ $73.2$63.0 million + 14.2%9.2%
+200 bp+ $48.8$43.5 million + 9.4%6.3%
+100 bp+ $22.2$22.6 million + 4.3%3.3%
–100 bp– $15.7$37.0 million – 3.0%5.4%
–200 bp– $88.0 million– 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

63



economic value of equity for a 100 basis point shock in interest rates, 20% for a 200 basis point shock and 30% for a 300 basis point shock. As of December 31, 2015,2018, 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 thatand the gross fair values are recorded at their fair value in other assets and liabilities on the consolidated balance sheets. Changessheets, with changes in fair value during the period are recorded in other non-interest expense on the consolidated statements of income.

Liquidity

The Corporation must maintain a sufficient level of liquid assets to meet the cash needs of its customers, who, as depositors, may want to withdraw funds or who, as borrowers, need credit availability. Liquidity is provided on a continuous basis through scheduled and unscheduled principal and interest payments on investments and outstanding loans and through the availability of deposits and borrowings. The Corporation also maintains secondary sources that provide liquidity on a secured and unsecured basis to meet short-term and long-term needs.

The Corporation maintains liquidity sources in the form of demand and savings deposits, 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 Federal Reserve Bank,FRB, along with Federalfederal funds lines at various correspondent banks, provides the Corporation with additional liquidity.

Each of the Corporation’s subsidiary banks is a member of the FHLB and has access to FHLB overnight and term credit facilities.As of December 31, 2015,2018, the Corporation had $697.8$987.0 million of short- and long-term advances outstanding from the FHLB with an additional borrowing capacity of approximately $2.6$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, 2015,2018, the Corporation had aggregate availability under Federalfederal funds lines of $1.0$1.3 billion, with $197.2 millionnothing borrowed against that amount. A combination of commercial real estate loans, commercial loans and securities are pledged to the Federal Reserve Bank of Philadelphia to provide access to Federal Reserve Bank Discount Window borrowings. As of December 31, 2015,2018, the Corporation had $1.2 billion$505.2 million of collateralized borrowing availability at the Discount Window, and no outstanding borrowings.

Liquidity must also be managed at the Fulton Financial Corporation parent company level. For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from subsidiary banks to the parent company in the form of loans and dividends. Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income. 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"Net Interest Income" section of Management’s Discussion and Analysis. The consolidated statements of cash flows provide additional information. The Corporation’s operatingactivities during 20152018 generated $177.0$296.8 million of cash, mainly due to net income. Cash used in investing activities was $818.0$740.7 million, due to net increases in loans and investment securities partially offset by a decrease in short-term investments.securities. Net cash provided by financing activities was $636.5$487.5 million due mainly to increases in deposits, short-term borrowings and additions to long-term debt, partially offset by repayments of long-term debt, common stock, cash dividends and purchases of treasury stock.deposits.





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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, 20152018 and the weighted average yields ofon such securities (calculated based on historical cost):
MaturingMaturing
Within One Year After One But
Within Five Years		 After Five But
Within Ten Years		 After Ten YearsWithin One Year After One But
Within Five Years		 After Five But
Within Ten Years		 After Ten Years
Amount Yield Amount Yield Amount Yield Amount YieldAmount Yield Amount Yield Amount Yield Amount Yield
(dollars in thousands)
Available for sale(dollars in thousands)
U.S. Government sponsored agency securities$—
 —% $25,004
 1.83% $55
 2.91% $77
 3.16%$—
 —% $28,683
 2.80% $2,949
 3.08% $—
 —%
State and municipal (1)65,925
 4.02
 28,796
 5.97
 115,782
 5.21
 52,262
 5.58
5,741
 3.30
 24,092
 3.60
 21,641
 5.59
 227,622
 3.98
ARCs (2)—
 —
 —
 —
 —
 —
 98,059
 1.84
Corporate debt securities10,020
 3.00
 34,077
 4.30
 11,266
 4.23
 41,592
 2.54
999
 2.49
 17,407
 3.47
 82,119
 4.59
 102,994
 3.90
Auction rate securities (2)
—
 —
 —
 —
 —
 —
 9,007
 4.44
Total$75,945
 3.89% $87,877
 4.12% $127,103
 5.12% $191,990
 2.92%$6,740
 3.18% $70,182
 3.24% $106,709
 4.75% $339,623
 3.97%
Held to maturity               
State and municipal (1)
$—
 —% $—
 —% $—
 —% $156,134
 4.16%
Available for sale               
Collateralized mortgage obligations (3)$821,509
 1.86%            $832,080
 2.75%            
Mortgage-backed securities (3)$1,158,835
 2.34%            
Residential mortgage-backed securities (3)
463,344
 2.39%            
Commercial mortgage-backed securities (3)
261,616
 2.54%            
Held to maturity               
Residential mortgage-backed securities (3)
$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 35%21% and statutory interest expense disallowances.
(2)Maturities of ARCsauction 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, 2015,2018, 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 maturitymaturities of fixed rate loans and loan types subject to changes in interest rates as of December 31, 2015:2018:
One Year
or Less		 One
Through
Five Years		 More Than
Five Years		 TotalOne Year
or Less		 One
Through
Five Years		 More Than
Five Years		 Total
(in thousands)(in thousands)
Commercial, financial and agricultural:       
Commercial - industrial, financial and agricultural       
Adjustable and floating rate$1,041,125
 $1,831,443
 $430,556
 $3,303,124
$876,941
 $2,136,919
 $544,728
 $3,558,588
Fixed rate233,720
 319,520
 232,598
 785,838
217,839
 364,662
 270,503
 853,004
Total$1,274,845
 $2,150,963
 $663,154
 $4,088,962
$1,094,780
 $2,501,581
 $815,231
 $4,411,592
Real estate – mortgage (1):       
Real estate – mortgage (1):
       
Adjustable and floating rate$1,219,602
 $3,260,916
 $2,146,990
 $6,627,508
$1,415,137
 $4,196,186
 $2,348,503
 $7,959,826
Fixed rate451,306
 1,012,855
 431,260
 1,895,421
477,863
 1,091,589
 608,188
 2,177,640
Total$1,670,908
 $4,273,771
 $2,578,250
 $8,522,929
$1,893,000
 $5,287,775
 $2,956,691
 $10,137,466
Real estate – construction:              
Adjustable and floating rate$183,699
 $281,647
 $235,787
 $701,133
$262,806
 $328,465
 $224,737
 $816,008
Fixed rate64,766
 14,800
 19,289
 98,855
82,290
 9,638
 8,663
 100,591
Total$248,465
 $296,447
 $255,076
 $799,988
$345,096
 $338,103
 $233,400
 $916,599
(1) Includes commercial mortgages, residential mortgages and home equity loan.loans.

65




Contractual maturities of time deposits as of December 31, 20152018 were as follows (in thousands):
Year  
2016$1,342,716
2017508,171
2018239,480
2019527,480
$1,561,694
2020163,559
667,265
2021253,314
2022153,447
202331,230
Thereafter83,544
54,954
$2,864,950
$2,721,904

Contractual maturities of time deposits of $100,000 or more outstanding, included in the table above, as of December 31, 20152018 were as follows (in thousands):
Three months or less$162,192
Over three through six months141,961
Over six through twelve months231,417
Over twelve months649,845
Total$1,185,415

Equity Market Price Risk
Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial position or results of operations of the Corporation. As of December 31, 2015, the Corporation’s equity investments consisted of $20.6 million of common stocks of publicly traded financial institutions and $914,000 of other equity investments.
The equity investments most susceptible to market price risk are the financial institutions stocks, which had a cost basis of $13.9 million and a fair value of $20.6 million as of December 31, 2015, including an investment in a single financial institution with a cost basis of $7.4 million and a fair value of $10.2 million. The fair value of this investment accounted for 49.5% of the fair value of the common stocks of publicly traded financial institutions. No other investment within the financial institutions stock portfolio exceeded 10% of the portfolio's fair value. In total, net unrealized gains in this portfolio were approximately $6.8 million as of December 31, 2015.
Management continuously monitors the fair value of its equity investments and evaluates current market conditions and operating results of the issuers. Periodic sale and purchase decisions are made based on this monitoring process. None of the Corporation’s equity securities are classified as trading.
In addition to its equity portfolio, investment management and trust services income may be impacted by fluctuations in the equity markets. A portion of this revenue is based on the value of the underlying investment portfolios, many of which include equity investments. If the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets in general or otherwise, the Corporation’s revenue would be negatively impacted. In addition, the Corporation’s ability to sell its brokerage services in the future will be dependent, in part, upon consumers’ level of confidence in financial markets.
Three months or less$230,906
Over three through six months185,930
Over six through twelve months342,036
Over twelve months486,665
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, 2015,2018, the Corporation owned $262.8 million ofstate and municipal securities issued by various municipalities.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

66


the underlying creditworthiness of the issuing state or municipality and then, to a lesser extent, on any underlying credit enhancement. MunicipalState 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, 2015,2018, approximately 96%98% of state and municipal securities were supported by the general obligation of corresponding states or municipalities. Approximately 75%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, 2015,2018, the Corporation’s investments in student loan auction rate securities, also known as auction rate certificates (ARCs)("ARCs"), had a cost basis of $106.8$107.4 million and aan estimated fair value of $98.1$103.0 million.
ARCs are long-term securities that were structured to allow their sale in periodic auctions, resulting in both the treatment of ARCs as short-term instruments in normal market conditions and fair values that could be derived based on periodic auction prices. However, beginning in 2008, market auctions for these securities began to fail due to an insufficient number of buyers, resulting in an illiquid market. Therefore, as of December 31, 2015, the The fair values of the ARCs currently in the portfolio were derived using significant unobservable inputs based on an expected cash flows model which produced fair values which were materially different fromthat may not represent those that wouldcould be expected from settlement of these investments in the current market. The expected cash flows model produced fair values which assumed a return to market liquidity sometime within the next five years. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid.

The credit quality of the underlying debt associated with the ARCs is also a factor in the determination of their estimated fair value. As of December 31, 2015,2018, all of the ARCs were rated above investment grade, with approximately $5.6 million, or 6%, "AAA" rated and $92.5 million, or 94%, "AA" rated.grade. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. At December 31, 2015,2018, all of the Corporation's ARCs were current and making scheduled interest payments.



Corporate Debt Securities

The Corporation holds corporate debt securities in the form of pooled trust preferred securities, single-issuer trust preferred securities and subordinated debt and senior debt issued by financial institutions. As of December 31, 2015,2018, these securities had an amortized cost of $100.3$111.5 million and an estimated fair value of $97.0$109.5 million.

The amortized cost of pooled trust preferred securities is the purchase price of the securities, net of cumulative credit related other-than-temporary impairment charges, determined using an expected cash flow model. The most significant input to the expected cash flows model is the expected payment deferral rate for each pooled trust preferred security. The Corporation evaluates the financial metrics, such as capital ratios and non-performing asset ratios, of the individual financial institution issuers that comprise each pooled trust preferred security to estimate its expected deferral rate.

The fair values for pooled trust preferred securities and certain single-issuer trust preferred securities were based on quotes provided by third-party brokers who determined fair values based predominantly on internal valuation models which were not indicative prices or binding offers.

See "Note 3 - Investment Securities," in the Notes to Consolidated Financial Statements in Item 8. Financial"Financial Statements and Supplementary DataData" 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"Financial Statements and Supplementary DataData" for further discussion related to the fair values of debt securities.



67



Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS
 (dollars in thousands, except per-share data)
December 31,December 31,
2015 20142018 2017
Assets      
Cash and due from banks$101,120
 $105,702
$103,436
 $108,291
Interest-bearing deposits with other banks230,300
 358,130
342,251
 293,805
Total cash and cash equivalents445,687
 402,096
Federal Reserve Bank and Federal Home Loan Bank stock62,216
 64,953
79,283
 60,761
Loans held for sale16,886
 17,522
27,099
 31,530
Available for sale investment securities2,484,773
 2,323,371
Investment securities:   
Available for sale, at estimated fair value2,080,294
 2,547,956
Held to maturity, at amortized cost606,679
 —
Loans, net of unearned income13,838,602
 13,111,716
16,165,800
 15,768,247
Allowance for loan losses(169,054) (184,144)(160,537) (169,910)
Net Loans13,669,548
 12,927,572
16,005,263
 15,598,337
Premises and equipment225,535
 226,027
234,529
 222,802
Accrued interest receivable42,767
 41,818
58,879
 52,910
Goodwill and intangible assets531,556
 531,803
531,556
 531,556
Other assets550,017
 527,869
612,883
 588,957
Total Assets$17,914,718
 $17,124,767
$20,682,152
 $20,036,905
Liabilities      
Deposits:      
Noninterest-bearing$3,948,114
 $3,640,623
$4,310,105
 $4,437,294
Interest-bearing10,184,203
 9,726,883
12,066,054
 11,360,238
Total Deposits14,132,317
 13,367,506
16,376,159
 15,797,532
Short-term borrowings:      
Federal funds purchased197,235
 6,219
—
 220,000
Other short-term borrowings300,428
 323,500
754,777
 397,524
Total Short-Term Borrowings497,663
 329,719
754,777
 617,524
Accrued interest payable10,724
 18,045
10,529
 9,317
Other liabilities282,578
 273,419
300,835
 344,329
Federal Home Loan Bank advances and long-term debt949,542
 1,139,413
992,279
 1,038,346
Total Liabilities15,872,824
 15,128,102
18,434,579
 17,807,048
Shareholders’ Equity      
Common stock, $2.50 par value, 600 million shares authorized, 218.9 million shares issued in 2015 and 218.2 million shares issued in 2014547,141
 545,555
Common stock, $2.50 par value, 600 million shares authorized, 221.8 million shares issued in 2018 and 220.9 million shares issued in 2017554,377
 552,232
Additional paid-in capital1,450,690
 1,420,523
1,489,703
 1,478,389
Retained earnings641,588
 558,810
946,032
 821,619
Accumulated other comprehensive loss(22,017) (17,722)(59,063) (32,974)
Treasury stock, 44.7 million shares in 2015 and 39.3 million shares in 2014(575,508) (510,501)
Treasury stock, 51.6 million shares in 2018 and 45.7 million shares in 2017(683,476) (589,409)
Total Shareholders’ Equity2,041,894
 1,996,665
2,247,573
 2,229,857
Total Liabilities and Shareholders’ Equity$17,914,718
 $17,124,767
$20,682,152
 $20,036,905
      
See Notes to Consolidated Financial Statements      

68



CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share data)
2015 2014 20132018 2017 2016
Interest Income          
Loans, including fees$524,060
 $530,308
 $540,667
$683,042
 $603,961
 $543,385
Investment securities:          
Taxable45,279
 50,651
 54,321
56,039
 47,028
 44,975
Tax-exempt7,879
 8,977
 9,475
12,076
 11,566
 9,662
Dividends985
 1,338
 1,411
5
 369
 571
Loans held for sale801
 786
 1,551
1,159
 876
 728
Other interest income4,785
 4,018
 2,264
6,193
 5,066
 3,779
Total Interest Income583,789
 596,078
 609,689
758,514
 668,866
 603,100
Interest Expense          
Deposits40,482
 35,110
 36,770
87,712
 57,791
 44,693
Short-term borrowings372
 1,608
 2,420
8,489
 2,779
 855
Long-term debt42,941
 44,493
 43,305
31,857
 32,932
 36,780
Total Interest Expense83,795
 81,211
 82,495
128,058
 93,502
 82,328
Net Interest Income499,994
 514,867
 527,194
630,456
 575,364
 520,772
Provision for credit losses2,250
 12,500
 40,500
46,907
 23,305
 13,182
Net Interest Income After Provision for Credit Losses497,744
 502,367
 486,694
583,549
 552,059
 507,590
Non-Interest Income          
Other service charges and fees53,777
 52,859
 51,473
Investment management and trust services52,148
 49,249
 45,270
Service charges on deposit accounts50,097
 49,293
 55,470
48,889
 51,006
 51,346
Investment management and trust services44,056
 44,605
 41,706
Other service charges and fees43,992
 39,896
 36,957
Mortgage banking income18,208
 17,107
 30,656
19,026
 19,928
 19,415
Other16,420
 14,437
 14,871
21,648
 25,861
 20,124
Investment securities gains (losses):     
Net gains on sales of investment securities9,066
 2,071
 8,128
Net other-than-temporary impairment losses—
 (30) (124)
Non-interest income before investment securities gains195,488
 198,903
 187,628
Investment securities gains, net9,066
 2,041
 8,004
37
 9,071
 2,550
Total Non-Interest Income181,839
 167,379
 187,664
195,525
 207,974
 190,178
Non-Interest Expense          
Salaries and employee benefits260,832
 251,021
 253,240
303,202
 290,130
 283,353
Net occupancy expense47,777
 48,130
 46,944
51,678
 49,708
 47,611
Data processing and software41,286
 38,735
 36,919
Other outside services27,785
 28,404
 18,856
33,758
 27,501
 23,883
Data processing19,894
 17,162
 16,555
Software14,746
 12,758
 11,560
Professional fees14,161
 12,688
 11,004
Equipment expense14,514
 13,567
 15,419
13,243
 12,935
 12,788
Amortization of tax credit investments11,449
 11,028
 —
FDIC insurance expense11,470
 10,958
 11,605
10,993
 11,049
 9,767
Professional fees11,244
 12,097
 13,150
Supplies and postage10,202
 9,795
 10,210
Marketing7,324
 8,133
 7,705
Telecommunications6,350
 6,870
 7,362
Loss on redemption of trust preferred securities5,626
 —
 —
Other real estate owned and repossession expense3,630
 3,270
 7,364
Operating risk loss3,624
 4,271
 9,290
Intangible amortization247
 1,259
 2,438
State taxes9,590
 10,051
 6,405
Other34,895
 31,551
 29,735
56,744
 61,754
 57,789
Total Non-Interest Expense480,160
 459,246
 461,433
546,104
 525,579
 489,519
Income Before Income Taxes199,423
 210,500
 212,925
232,970
 234,454
 208,249
Income taxes49,921
 52,606
 51,085
24,577
 62,701
 46,624
Net Income$149,502
 $157,894
 $161,840
$208,393
 $171,753
 $161,625
          
Per Share:          
Net Income (Basic)$0.85
 $0.85
 $0.84
$1.19
 $0.98
 $0.93
Net Income (Diluted)0.85
 0.84
 0.83
1.18
 0.98
 0.93
Cash Dividends0.38
 0.34
 0.32
0.52
 0.47
 0.41
          
See Notes to Consolidated Financial Statements          

69



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 2015 2014 2013 2018 2017 2016
Net Income $149,502
 $157,894
 $161,840
 $208,393
 $171,753
 $161,625
Other Comprehensive (Loss) Income, net of tax:            
Unrealized (losses) gains on available for sale investment securities:            
Unrealized (loss) gain on securities (7,717) 33,734
 (49,607) (24,326) 10,432
 (14,891)
Reclassification adjustment for securities gains included in net income (5,892) (1,327) (5,203) (30) (5,894) (1,657)
Non-credit related unrealized gain on other-than-temporarily impaired debt securities 239
 780
 1,977
Amortization of net unrealized losses on securities transferred to held to maturity 2,098
 —
 —
Non-credit related unrealized gain (loss) on other-than-temporarily impaired debt securities 222
 185
 (185)
Net unrealized (losses) gains on available for sale investment securities (13,370) 33,187
 (52,833) (22,036) 4,723
 (16,733)
Unrealized gains on derivative financial instruments:            
Unrealized gain on derivative financial instruments 75
 136
 136
Reclassification adjustment for loss on derivative financial instruments included in net income 2,456
 —
 —
Net unrealized gains on derivative financial instruments 2,531
 136
 136
Amortization of unrealized loss on derivative financial instruments —
 —
 16
Defined benefit pension plan and postretirement benefits:            
Unrecognized pension and postretirement income (cost) 4,680
 (13,168) 8,369
 1,400
 (609) (931)
Amortization of net unrecognized pension and postretirement income 1,864
 408
 1,312
 1,648
 1,361
 1,216
Reclassification adjustment for post-retirement plan curtailment gain included in net income —
 (944) —
Net unrealized gains (losses) on pension and postretirement plans 6,544
 (13,704) 9,681
Net unrealized gains on defined benefit pension and postretirement plans 3,048
 752
 285
Other Comprehensive (Loss) Income (4,295) 19,619
 (43,016) (18,988) 5,475
 (16,432)
Total Comprehensive Income $145,207
 $177,513
 $118,824
 $189,405
 $177,228
 $145,193
            
See Notes to Consolidated Financial Statements

70



CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share data)
Common Stock Additional
Paid-in
Capital		   Accumulated
Other
Comprehensive
Income (Loss)		    Common Stock Additional
Paid-in
Capital		   Accumulated
Other
Comprehensive
(Loss) Income		    
Shares
Outstanding		 Amount Retained
Earnings		 Treasury
Stock		 TotalShares
Outstanding		 Amount Retained
Earnings		 Treasury
Stock		 Total
  
Balance at December 31, 2012199,225
 $542,093
 $1,426,267
 $363,937
 $5,675
 $(256,316) $2,081,656
Balance at December 31, 2015174,176
 $547,141
 $1,450,690
 $641,588
 $(22,017) $(575,508) $2,041,894
Net income      161,840
     161,840
      161,625
     161,625
Other comprehensive loss        (43,016)   (43,016)        (16,432)   (16,432)
Stock issued, including related tax benefits1,427
 2,475
 1,377
     6,386
 10,238
1,350
 2,566
 10,356
     4,209
 17,131
Stock-based compensation awards    5,330
       5,330
    6,556
       6,556
Acquisition of treasury stock(8,000)         (90,927) (90,927)(1,486)         (18,545) (18,545)
Common stock cash dividends - $0.32 per share      (61,934)     (61,934)
Balance at December 31, 2013192,652
 $544,568
 $1,432,974
 $463,843
 $(37,341) $(340,857) $2,063,187
Common stock cash dividends - $0.41 per share      (71,114)     (71,114)
Balance at December 31, 2016174,040
 $549,707
 $1,467,602
 $732,099
 $(38,449) $(589,844) $2,121,115
Net income      157,894
     157,894
      171,753
     171,753
Other comprehensive income        19,619
   19,619
        5,475
   5,475
Stock issued, including related tax benefits781
 987
 1,684
     5,611
 8,282
Stock issued1,130
 2,525
 5,578
     435
 8,538
Stock-based compensation awards    5,209
       5,209
Common stock cash dividends - $0.47 per share      (82,233)     (82,233)
Balance at December 31, 2017175,170
 $552,232
 $1,478,389
 $821,619
 $(32,974) $(589,409) $2,229,857
Net income      208,393
     208,393
Other comprehensive loss        (18,988)   (18,988)
Stock issued977
 2,062
 3,432
     1,241
 6,735
Stock-based compensation awards    5,865
       5,865
33
 83
 7,882
       7,965
Acquisition of treasury stock(14,509)   

     (175,255) (175,255)(5,996)         (95,308) (95,308)
Deferred accelerated stock repurchase    (20,000)       (20,000)
Common stock cash dividends - $0.34 per share      (62,927)     (62,927)
Balance at December 31, 2014178,924
 $545,555
 $1,420,523
 $558,810
 $(17,722) $(510,501) $1,996,665
Net income      149,502
     149,502
Other comprehensive loss        (4,295)   (4,295)
Stock issued, including related tax benefits1,018
 1,586
 4,229
     4,993
 10,808
Stock-based compensation awards    5,938
       5,938
Acquisition of treasury stock(3,976)         (50,000) (50,000)
Settlement of accelerated stock repurchase agreement(1,790)   20,000
     (20,000) —
Common stock cash dividends - $0.38 per share      (66,724)     (66,724)
Balance at December 31, 2015174,176
 $547,141
 $1,450,690
 $641,588
 $(22,017) $(575,508) $2,041,894
Reclassification of stranded tax effects (1)
      7,101
 (7,101)   —
Common stock cash dividends - $0.52 per share      (91,081)     (91,081)
Balance at December 31, 2018170,184
 $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.


71



CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
2015 2014 20132018 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net Income$149,502
 $157,894
 $161,840
$208,393
 $171,753
 $161,625
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for credit losses2,250
 12,500
 40,500
46,907
 23,305
 13,182
Depreciation and amortization of premises and equipment27,605
 24,555
 25,911
28,156
 28,096
 27,403
Amortization of tax credit investments38,606
 37,185
 23,982
Net amortization of investment security premiums7,330
 5,120
 10,002
9,297
 10,107
 10,430
Deferred income tax expense13,424
 18,523
 11,825
Deferred income tax (benefit) expense(15,749) 24,896
 11,054
Re-measurement of net deferred tax asset(809) 15,635
 —
Investment securities gains, net(9,066) (2,041) (8,004)(37) (9,071) (2,550)
Gains on sales of mortgage loans(13,264) (10,063) (24,609)
Gains on sales of mortgage loans held for sale(13,021) (13,036) (15,685)
Proceeds from sales of mortgage loans held for sale757,850
 654,654
 1,424,896
795,756
 644,400
 709,316
Originations of mortgage loans held for sale(743,950) (640,762) (1,353,739)(778,304) (634,197) (705,442)
Amortization of intangible assets247
 1,259
 2,438
Amortization of issuance costs and discounts on long-term debt813
 845
 617
Stock-based compensation5,938
 5,865
 5,330
7,965
 5,209
 6,556
Excess tax benefits from stock-based compensation(201) (81) (302)—
 —
 (964)
(Increase) decrease in accrued interest receivable(949) 2,219
 1,749
Loss on redemption of trust preferred securities5,626
 —
 —
Increase (decrease) in other assets(9,931) (8,803) 37,236
(Decrease) increase in accrued interest payable(7,321) 2,827
 (4,112)
Decrease in other liabilities(8,128) (13,294) (29,344)
Increase in accrued interest receivable(5,969) (6,616) (3,527)
Increase in other assets(26,090) (7,958) (53,922)
Increase (decrease) in accrued interest payable1,212
 (315) (1,092)
(Decrease) increase in other liabilities(306) (2,480) 45,090
Total adjustments27,460
 52,478
 139,777
88,427
 116,005
 64,448
Net cash provided by operating activities176,962
 210,372
 301,617
296,820
 287,758
 226,073
CASH FLOWS FROM INVESTING ACTIVITIES:          
Proceeds from sales of securities available for sale66,480
 32,227
 267,126
Proceeds from maturities and paydowns of securities available for sale439,533
 417,559
 637,851
Purchase of securities available for sale(683,839) (164,769) (776,352)
Decrease (increase) in short-term investments130,567
 (174,922) (3,202)
Proceeds from sales of available for sale securities54,638
 184,734
 115,844
Proceeds from paydowns and maturities of securities held to maturity35,900
 —
 —
Proceeds from principal repayments and maturities of available for sale securities290,681
 417,673
 558,854
Purchases of available for sale securities(558,949) (584,921) (782,765)
(Purchase) redemption of Federal Reserve Bank and Federal Home Loan Bank stock(18,522) (3,272) 4,727
Net increase in loans(743,655) (360,982) (699,961)(447,849) (1,087,521) (873,939)
Net purchases of premises and equipment(27,113) (24,561) (24,209)(39,883) (33,092) (19,674)
Net change in tax credit investments(56,733) (28,932) (40,663)
Net cash used in investing activities(818,027) (275,448) (598,747)(740,717) (1,135,331) (1,037,616)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net increase in demand and savings deposits971,312
 722,791
 472,439
435,872
 782,525
 992,253
Net (decrease) increase in time deposits(206,501) 153,529
 (465,416)
Increase (decrease) in short-term borrowings167,944
 (928,910) 390,230
Net increase (decrease) in time deposits142,755
 2,143
 (111,706)
Increase in short-term borrowings137,253
 76,207
 43,654
Additions to long-term debt347,778
 262,113
 —
50,000
 223,251
 215,884
Repayments of long-term debt(539,497) (6,284) (10,669)(100,165) (115,153) (236,640)
Net proceeds from issuance of common stock10,607
 8,201
 9,936
6,735
 8,538
 16,167
Excess tax benefits from stock-based compensation201
 81
 302
—
 —
 964
Dividends paid(65,361) (64,028) (46,525)(89,654) (80,368) (69,382)
Acquisition of treasury stock(50,000) (175,255) (90,927)(95,308) —
 (18,545)
Deferred accelerated stock repurchase payment—
 (20,000) —
Net cash provided by (used in) financing activities636,483
 (47,762) 259,370
Net Decrease in Cash and Due From Banks(4,582) (112,838) (37,760)
Cash and Due From Banks at Beginning of Year105,702
 218,540
 256,300
Cash and Due From Banks at End of Year$101,120
 $105,702
 $218,540
Net cash provided by financing activities487,488
 897,143
 832,649
Net Increase in Cash and Cash Equivalents43,591
 49,570
 21,106
Cash and Cash Equivalents at Beginning of Year402,096
 352,526
 331,420
Cash and Cash Equivalents at End of Year$445,687
 $402,096
 $352,526
Supplemental Disclosures of Cash Flow Information          
Cash paid during period for:          
Interest$91,116
 $78,384
 $86,607
$126,846
 $93,817
 $83,420
Income taxes13,378
 16,778
 32,605
13,547
 6,537
 16,193
     
Supplemental schedule of certain noncash activities     
Transfer of available for sale securities to held to maturity securities$641,672
 $—
 $—
See Notes to Consolidated Financial Statements          

72



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    
Business: Fulton Financial Corporation (Parent Company)("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 sixfour wholly owned banking subsidiaries: Fulton Bank, N.A., Fulton Bank of New Jersey, The Columbia Bank and Lafayette Ambassador Bank, FNB Bank, N.A. and Swineford National Bank. In addition, the Parent Company owns the following non-bank subsidiaries: Fulton Financial Realty Company, Central Pennsylvania Financial Corp., FFC Management, Inc., FFC Penn Square, Inc. and Fulton Insurance Services Group, Inc. Collectively, the Parent Company and its subsidiaries are referred to as the Corporation.
The Corporation’s primary sources of revenue are interest income on loans, and investment securities and 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 geographicalgeographic market as a result of the growth in electronic delivery systems. The Corporation is subject to the regulations of certain Federalfederal 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)("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)("SEC").

Federal Reserve Bank ("FRB") and Federal Home Loan Bank Stock: Certain of the Corporation's wholly owned banking subsidiaries are members of the Federal Reserve BankFRB 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)"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, allmost debt securities and all marketable equity securities are classified as available for sale. Securities available for sale are carried at estimated fair value with the related unrealized holding gains and losses reported in shareholders’ equity as a component of other comprehensive income, net of tax. Realized securities gains and losses are computed using the specific identification method and are recorded on a trade date basis.
Securities are evaluated periodically to determine whether declines in value are other-than-temporary. For its investments in equity securities, most notably its investments in stocks of financial institutions, the Corporation evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. Equity securities with fair values less than cost are considered to be other-than-temporarily impaired if the Corporation does not have the ability and intent to hold the investments for a reasonable period of time that would be sufficient for a recovery of fair value.
Impaired debt securities are determined to be other-than-temporarily impaired if the Corporation concludes at the balance sheet date that it has the intent to sell, or believes it will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. Credit losses on other-than-temporarily impaired debt securities are recorded through earnings, regardless of the intent or the requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s expected cash flows and its amortized cost. Non-credit related other-than-temporary impairment charges are recorded

73


as decreases to accumulated other comprehensive income as long as the Corporation has no intent or expected requirement to sell the impaired debt security before a recovery of its amortized cost basis.



Fair Value Option: The Corporation has elected to measure mortgage loans held for sale at fair value. Derivative financial instruments related to mortgage banking activities are also recorded at fair value, as detailed under the heading "Derivative Financial Instruments," below. The Corporation determines fair value for its mortgage loans held for sale based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Changes in fair values during the period are recorded as components of mortgage banking income on the consolidated statements of income. Interest income earned on mortgage loans held for sale is classified in interest income on the consolidated statements of income.
Loans and Revenue RecognitionFinancing 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)("TDRs"): Loans whose terms are modified are classified as TDRs if the Corporation grants the borrowers concessions and it is determined that those borrowers are experiencing financial difficulty.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 adequateappropriate 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

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indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component


of the allowance for credit loss methodology for these loans, which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Risk ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review assessments identify a deterioration or an improvement in the loan.

The following is a summary of the Corporation's internal risk rating categories:

Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.

Special Mention: These loans have an undue and unwarranteda 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 (FASB ASC)("ASC") Section 310-10-35; and 2) allowances calculated for pools of loans measuredevaluated for impairment under FASB ASC Subtopic 450-20.
A loan is considered to be impaired if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. Impaired loans consist of all loans on non-accrual status and accruing TDRs. An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. Impaired loans to borrowers with total outstanding commitments greater than or equal to $1.0 million are evaluated individually for impairment. Impaired loans to borrowers with total outstanding commitments less than $1.0 million are pooled and measuredevaluated 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, 20152018 and 20142017, 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 appraisalsappraisers for impaired loans secured predominantly by real estate every 12 months.

As of December 31, 20152018 and 2014,2017, approximately 69%89% and 81%94%, respectively, of impaired loans with principal balances greater than or equal to $1.0$1.0 million,, whose primary collateral is real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisalsappraisers that had been updated within the preceding 12 months.

When updated appraisals are not obtained for loans secured by real estate and evaluated for impairment under FASB ASC Section 310-10-35, that are secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and, in the opinion of the Corporation's internal credit administration staff, there has not been a significant deterioration in the collateral value since the original appraisal was performed. Original appraisals are typically used only whenCollateral could also be in the estimated collateral value,form of business assets, such as adjusted appropriately foraccounts receivable or inventory, in the agecase of the appraisal, results in a current loan-to-value ratio that is lower than the Corporation's loan-to-value requirements for newcommercial and industrial loans. Commercial and industrial loans generally less than 70%.may also be secured by real property.

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For impaired loans with principal balances greater than or equal to $1.0$1.0 million secured by non-real estate collateral, such as accounts receivable or inventory, estimated fair values are determined based on borrower financial statements, inventory listings, accounts receivable agings or borrowing base certificates. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. Liquidation or collection discounts are applied to these assets based upon existing loan evaluation policies.

All loans not evaluated for impairment under FASB ASC Section 310-10-35 are evaluated for impairment under FASB ASC Subtopic 450-20, using a pooled loss evaluation approach. In general,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 mortgages,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 consumer loans, and lease receivables. Accruing commercial loans, commercial mortgages and construction loans are also evaluated for impairment under FASB ASC Subtopic 450-20.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 measuredevaluated under FASB ASC Subtopic 450-20 through the following procedures:

The loans are segmented into pools with similar characteristics, as noted above. Commercial loans, commercial mortgages and construction loans to commercial borrowers are further segmented into separate pools based on internally assigned risk ratings. Residential mortgages, home equity loans, consumer loans, and lease receivables are further segmented into separate pools based on delinquency status.status;

A loss rate is calculated for each pool through a migrationan 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.forecast;

The loss rate is adjusted to consider qualitative factors, such as economic conditions and trends.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. AnPrior to 2017, the Corporation maintained an unallocated allowance is maintainedfor 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. Interest costs incurred during the construction of major bank premises are capitalized.
Other Real Estate Owned (OREO)("OREO"): Assets acquired in settlement of mortgage loan indebtedness are recorded as OREO and are included in other assets on the consolidated balance sheets, initially at the lower of the estimated fair value of the asset, less estimated selling costs, or the carrying amount of the loan. Costs to maintain the assets and subsequent gains and losses on sales are included in OREO and repossessionother non-interest expense on the consolidated statements of income.


Mortgage Servicing Rights (MSRs)("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

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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 valuesvalue 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 thatand the gross fair values are recorded at their fair value in other assets and other liabilities on the consolidated balance sheets. Changessheets, with changes in fair value during the period are 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 futurespecific date at a contractual price. The Corporation offsetslimits its foreign exchange contract exposure with customers by entering into contracts with third-party correspondent financial institutionsinstitutional counterparties to mitigate its exposure to fluctuations in foreign currency exchange rates.risk. The Corporation also holds certain amounts of foreign currency with international correspondent banks.banks ("Foreign Currency Nostro Accounts"). The Corporation's policyCorporation limits the total overnight net foreign currency open positions, which includesis defined as an aggregate of all outstanding contracts and foreign accountForeign Currency Nostro Account balances, to $500,000. Gross derivative assets and liabilitiesfair values are recorded in other assets and other liabilities respectively, on the consolidated balance sheets, with changes in fair values during the period recorded in other service charges and fees on the consolidated statements of income.

Balance Sheet Offsetting: Although certain financial assets and liabilities may be eligible for offset on the consolidated balance sheets asbecause they are subject to master netting arrangements or similar agreements, the Corporation elects to not offset such qualifying assets and liabilities.



The Corporation is a party to interest rate swap transactions with financial institution counterparties and customers. Under these agreements, the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. Cash collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the interest rate swap agreements in the event of default. A daily settlement occurs through a clearing agent for changes in the fair value of centrally cleared derivatives. 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."


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The Corporation also enters into agreements with customers in which it sells securities subject to an obligation to repurchase the same or similar securities, referred to as repurchase agreements. Under these agreements, the Corporation may transfer legal control over the assets but still maintain effective control through agreements that both entitle and obligate the Corporation to repurchase the assets. Therefore, repurchase agreements are reported as secured borrowings, classified in short-term borrowings on the consolidated balance sheets, while the securities underlying the repurchase agreements remain classified with investment securities on the consolidated balance sheets. The Corporation has no intention of setting off these amounts, therefore, these repurchase agreements are not eligible for offset.

Income Taxes: The Corporation accounts for income taxes in accordance with FASB ASC Topic 740, "Income Taxes" (ASC("ASC Topic 740)740"). Under ASC Topic 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC Topic 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. We considerThe 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 sheetssheets.

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 December 31, 2015the 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 2014.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)("RSUs") and performance-based restricted stock units (PSUs)("PSUs") under its Amended and Restated Equity and Cash Incentive Compensation Plan (Employee("Employee Equity Plan)Plan"). In addition, employees may purchase stock under the Corporation’s Employee Stock Purchase Plan (ESPP)("ESPP").



The Corporation also grants stock equity awards to non-employee members of its board of directors under the 2011 Directors’ Equity Participation Plan (Directors’ Plan)("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.

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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:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Weighted average common shares outstanding (basic)175,721
 186,219
 193,334
175,395
 174,721
 173,325
Impact of common stock equivalents1,053
 962
 1,020
1,148
 1,211
 1,093
Weighted average common shares outstanding (diluted)176,774
 187,181
 194,354
176,543
 175,932
 174,418

In 2015, 2014 and 2013, 1.7 million, 2.8 million and 3.6 million2016, 534,000 stock options respectively, were excluded from the diluted earnings per share computation as their effect would have been anti-dilutive. There were no stock options excluded from the diluted net income per share computation in 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 sixfour separate banks, each engages in similar activities, provides similar products and services, and operates in the same general geographicalgeographic area. The Corporation’s non-banking activities are immaterial and, therefore, separate information hasis not beenrequired to be disclosed.

Financial Guarantees: Financial guarantees, which consist primarily of standby and commercial letters of credit, are accounted for by recognizing a liability equal to the fair value of the guarantees and crediting the liability to income over the term of the guarantee. Fair value is estimated based on the fees currently charged to enter into similar agreements with similar terms.

Business Combinations and Intangible Assets: The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires that all assets acquired and liabilities assumed, including certain intangible assets that must be recognized, be recorded at their estimated fair values as of the acquisition date. Any purchase price exceeding the fair value of net assets acquired is recorded as goodwill.

Goodwill is not amortized to expense, but is tested for impairment at least annually. A quantitative annual impairment test is not required if, based on a qualitative analysis, the Corporation determines that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired. Write-downs of the balance, if necessary as a result of the impairment test, are charged to expense in the period in which goodwill is determined to be impaired. The Corporation performs its annual


test of goodwill impairment as of October 31st of each year. If certain events occur which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. Based on the results of its annual impairment test,tests, the Corporation concluded that there was no impairment in 2015, 20142018, 2017 or 2013.2016. 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)Entities ("VIEs"): FASB ASC Topic 810 provides guidance on when to consolidate certain VIEs in the financial statements of the Corporation. VIEs are entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance activities without additional financial support from other parties. VIEs are assessed for consolidation under ASC Topic 810 when the Corporation holds variable interests in these entities. The Corporation consolidates VIEs when it is deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has the power to make decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.

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)("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.

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Tax Credit Investments

The Corporation has mademakes investments in certain community development projects that generate tax credit investmentscredits under various Federalfederal programs, that promote investmentincluding 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 low and moderate income housing and local economic development.its Tax Credit Investments are amortized under the effective yield methodand does not exert control over the lifeoperating or financial policies of the Federal income taxpartnership or limited liability company. Tax credits generated as a resultearned 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 suchthe equity interests in its New Markets Tax Credit investments, generally seven to ten years. As of December 31, 2015 and 2014, the Corporation’s tax credit investments, included in other assets on the consolidated balance sheets, totaled $175.0 million and $155.6 million, respectively. As of December 31, 2015 and 2014, total additional equity commitments to tax credit investments, recognized in other liabilities on the consolidated balance sheets, were approximately $47.6 million, and $41.4 million, respectively. The net income tax benefit associated with these investments which consists of the amortization of the investments, net of tax benefits, and the income tax credits earned on the investments, and is recorded in income taxes on the consolidated income statements, was $10.4 million, $10.4 million and $10.3 million in 2015, 2014 and 2013, respectively.There were no impairment losses recognized for tax credit investments in 2015, 2014 or 2013. The Corporation’s tax credit investments were not consolidated based on FASB ASC Topic 810 as of December 31, 20152018 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 2014.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: FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to measure assets and liabilities at fair value using the following three categories (from highest to lowest priority):

Level 1 –- Inputs that represent quoted prices for identical instruments in active markets.
Level 2 –- Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means.
Level 3 –- Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.



The Corporation has categorized all assets and liabilities required to be measured at fair value on both a recurring and nonrecurring basis into the above three levels. See "Note 18 - Fair Value Measurements," for additional details.

Recently Adopted Accounting Standards: In April 2014,Effective January 1, 2018, the FASB issuedCorporation adopted ASC Update 2014-08, "Reporting Discontinued Operations2016-01, "Financial Instruments - Overall: Recognition and DisclosuresMeasurement of Disposals of Components of an Entity.Financial Assets and Financial Liabilities." ASC Update 2014-082016-01 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 criteriafair 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 reporting discontinued operations, including a change in the definition of what constitutes the disposal of a component and additional disclosure requirements. For public business entities, ASC Update 2014-08 was effective for disposals that occur within annual periods beginning after December 15, 2014. For the Corporation, this standards update was effective with its March 31, 2015 quarterly report on Form 10-Q.purposes. The adoption of ASC Update 2014-08this update did not have a material impact on the Corporation's consolidated financial statements.

In June 2014, the FASB issued ASC Update 2014-11, "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." In addition to new disclosure requirements, ASC Update 2014-11 requires that all repurchase-to-maturity transactions be accounted for as secured borrowings rather than as sales of financial assets. Also, all transfers of financial assets executed contemporaneously with a repurchase agreement with the same counterparty must be accounted for separately, the result of which would be the treatment of such transactions as secured borrowings. For public business entities, ASC Update 2014-11 was effective for interim and annual reporting periods beginning after December 15, 2014. For the Corporation, this standards update was effective with its March 31, 2015 quarterly report on Form 10-Q. The adoption of ASC Update 2014-11 did not have a material impact on the Corporation’s consolidated financial statements.

In June 2014,2008, the FASB issuedCorporation received Class B restricted shares of Visa, Inc. ("Visa") as part of Visa’s initial public offering. In accordance with the ASC Update 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." ASC Update 2014-12 clarifies guidance related to accounting for share-based payment awards with terms that allow an employee to vest in the award regardless of whether the employee is rendering service on the date a performance target is achieved. ASC Update 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition.2016-01, these securities are considered equity securities without readily determinable values. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. For public business entities, ASC Update 2014-12 was effective for interim and annual reporting periods beginning after December 15, 2014, with earlier adoption permitted. Forapproximately 133,000 Visa Class B shares remaining that the Corporation this standards update was effective with its Marchowned as of December 31, 2015 quarterly report on Form 10-Q. The adoption of ASC Update 2014-12 did not have2018 are carried at a material impact on the Corporation’s consolidated financial statements.

In August 2014, the FASB issued ASC Update 2014-14, "Receivables - Troubled Debt Restructuring by Creditors." ASC Update 2014-14 clarifies TDR guidance related to the classification and measurement of certain government-sponsored loan guarantee programs upon foreclosure. For public business entities, ASC Update 2014-14 was effective for interim and annual reporting periods beginning after December 15, 2014, with earlier adoption permitted. For the Corporation, this standards update was effective with its March 31, 2015 quarterly report on Form 10-Q. The adoption of ASC Update 2014-14 did not have a material impact on the Corporation’s consolidated financial statements.


80


In November 2014, the FASB issued ASC Update 2014-17, "Business Combinations: Pushdown Accounting." ASC Update 2014-17 was issued to provide guidance on whether and at what threshold an acquired entity can apply pushdown accounting in its separate financial statements. ASC Update 2014-17 applies to the separate financial statements of an acquired entity upon the occurrence of an event in which an acquirer obtains control of the acquired entity. This update was effective upon issuance and did not have an impact on the Corporation's consolidated financial statements.zero cost basis.

Recently Issued Accounting Standards: Revenue Recognition:In May 2014, Effective January 1, 2018, the FASB issuedCorporation adopted ASC Update 2014-09, "Revenue from Contracts with Customers."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 standards update establishesestablished a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle prescribed by this standards update is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The standard appliessources 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 allloan agreements, securities contracts with customers, except thoseor 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 updaterequires 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.



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 scopeconsolidated statements of other topicscash flows, as shown in the FASB ASC. The standard also requires significantly expanded disclosures about revenue recognition. For public business entities,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 activities36,715
 (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 period108,291
 118,763
 246,726
 236,887
 246,726
 236,887
 Cash and restricted cash - end of period100,151
 93,844
 244,933
 242,807
 213,261
 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 activities8,989
 (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 period159,304
 144,812
 159,304
 144,812
 159,304
 144,812
 Cash and restricted cash - end of period123,438
 102,941
 165,303
 164,758
 135,090
 139,011

Effective January 1, 2018 the Corporation adopted ASC Update 2014-092016-15, "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. Early application is not permitted. For the Corporation, this standards update is effective with its March 31, 2018 quarterly report on Form 10-Q. The Corporation is currently evaluating the impact of the adoption of ASC Update 2014-09 on its consolidated financial statements.

In August 2014, the FASB issued ASC Update 2014-15, "Presentation of Financial Statements - Going Concern." ASC Update 2014-15 provides guidance regarding management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related disclosures. The standards update describes how an entity's management should assess whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date that the financial statements are issued. For public business entities, ASC Update 2014-15 is effective for annual reporting periods ending after December 15, 2016, with earlier adoption permitted. For the Corporation, this standards update is effective with its December 31, 2016 annual report on Form 10-K. The adoption of ASC Update 2014-15 is not expected to have a material impact on the Corporation’s consolidated financial statements.
In November 2014, the FASB issued ASC Update 2014-16, "Derivatives and Hedging: Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity." ASC Update 2014-16 was issued to reduce existing diversity in the accounting for hybrid financial instruments issued in the form of a share, such as redeemable convertible preferred stock. ASC Update 2014-16 applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share, and is effective for public business entities’ annual reporting periods beginning after December 15, 2015 and interim periods within those annual periods, with earlier adoption permitted. For the Corporation, this standards update is effective with its March 31, 2016 quarterly report on Form 10-Q. The adoption of ASC Update 2014-16 is not expected to have a material impact on the Corporation’s consolidated financial statements.

In January 2015, the FASB issued ASC Update 2015-01, "Income Statement - Extraordinary and Unusual Items." ASC Update 2015-01 was issued to eliminate the concept of extraordinary items from U.S. GAAP. net of tax, after income from continuing operations. ASC Update 2015-01 amends existing extraordinary items disclosure guidance. Under the amended guidance, reporting entities will no longer separately disclose extraordinary items, net of tax, after income from continuing operations in the income statement.ASC Update 2015-01 is effective for annual reporting periods beginning after December 15, 2015, with earlier adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.The Corporation intends to adopt this standards update effective with its March 31, 2016 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2015-01 to have a material impact on its consolidated financial statements.

In February 2015, the FASB issued ASC Update 2015-02, "Consolidation: Amendments to the Consolidation Analysis." ASC Update 2015-02 changes the way reporting enterprises evaluate whether: (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a VIE, and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE.ASC Update 2015-02 is effective for public business entities' annual and interim reporting periods beginning after December 15, 2015, with earlier adoption permitted.The Corporation intends to adopt this standards update effective with its March 31, 2016 quarterly report on Form 10-Q, and does not expect the adoption of ASC Update 2015-02 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASC Update 2015-03, "Interest - Imputation of Interest" and updated ASC Update 2015-03 with the issuance of ASC Update 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements," in August of 2015. ASC Update 2015-03 simplifies the presentation of debt issuances costs. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction to the debt liability, similar to the presentation of debt discounts. Under current U.S. GAAP, debt issuance costs are reported on the balance sheet as assets.

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The costs will continue to be amortized to interest expense using the effective interest method. ASC Update 2015-03 is effective for public business entities' annual and interim reporting periods beginning after December 15, 2015, with earlier adoption permitted.The Corporation intends to adopt this standards update effective with its March 31, 2016 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2015-03 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASC Update 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." ASC Update 2015-05 provides explicit guidance to determine when a customer's fees paid in a cloud computing arrangement is for the acquisition of software licenses, services, or both. ASC Update 2015-05 is effective for public business entities' annual and interim reporting periods beginning after December 15, 2015, with earlier adoption permitted.The Corporation intends to adopt this standards update effective with its March 31, 2016 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2015-05 to have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASC Update 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." ASC Update 2016-01 provides guidance regarding the income statement impact of equity investments held by an entity and the recognition of changes in fair value of financial liabilities when the fair value is elected. ASC Update 2016-01 is effective for public business entities' annual and interim reporting periods beginning after December 15, 2017, with earlier adoption permitted.The Corporation intends to adoptadopted this standards update effective with its March 31, 2018 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2016-01 tothis update did not have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASC Update 2016-02, "Leases." This standards update states that a lessee should recognize the assets and liabilities that arise from all leases with a term greater than 12 months. The core principle requires the lessee to recognize a liability to make lease payments and a "right-of-use" asset. The accounting applied by the lessor is relatively unchanged as the majority of operating leases should remain classified as operating leases and the income from them recognized, generally, on a straight-line basis over the lease term. The standards update also requires expanded qualitative and quantitative disclosures. For public business entities, ASC Update 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. ASC Update 2016-02 mandates a modified retrospective transition for all entities. Early application is permitted. For the Corporation, this standards update is effective with its March 31, 2019 quarterly report on Form 10-Q. The Corporation is currently evaluating the impact of the adoption

Recently Issued Accounting Standards:

StandardDescriptionDate of Anticipated AdoptionEffect on Financial Statements
ASC Update 2016-02 Leases (Topic 842)
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.
First Quarter 2019
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 at adoption. The Corporation will continue to evaluate other impacts of adoption but does not anticipate these to be material.

ASC Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
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.

In November 2018, the FASB issued ASC Update 2018-19, “Codifications Improvements 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.

First Quarter of 2020The 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 is currently unable to reasonably estimate the impact of this update, it expects that the impact of adoption could be significantly influenced by the 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, portfolio segmentation, systems requirements and solutions and resources to implement 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.


StandardDescriptionDate of Anticipated AdoptionEffect on Financial Statements
ASC Update 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ImpairmentThe 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.Fourth Quarter of 2020, in line with its annual impairment testing in October of each yearThe 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.
ASC Update 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value MeasurementThis 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.First Quarter 2020The Corporation intends to adopt this standards update effective with its March 31, 2020 quarterly report on Form 10-Q. This standard will impact 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.
ASC Update 2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit PlansThis 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 2021The Corporation intends to adopt this standards update effective with its March 31, 2021 quarterly report on Form 10-Q. This standard will impact the Corporation's disclosure relating to employee benefit plans, but the Corporation does not expect the adoption of this update to have a material impact on its consolidated financial statements.
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 ContractThis 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 2020The 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 to have an impact on its consolidated financial statements.

Reclassifications: Certain amounts in the 20142017 and 20132016 consolidated financial statements and notes have been reclassified to conform to the 20152018 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.


NOTE 2 – RESTRICTIONS ON CASH AND DUE FROM BANKSCASH 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 Federal Reserve Bank, against their deposit liabilities.FRB, included in "interest-bearing deposits with other banks." The amounts of such reserves as of December 31, 20152018 and 20142017 were $91.1$156.8 million and $97.0$124.4 million,, respectively.


82In 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, which were all classified as of December 31:
 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Estimated
Fair
Value
 (in thousands)
2018       
Available for Sale       
U.S. Government sponsored agency securities$31,586
 $185
 $(139) $31,632
State and municipal securities282,383
 2,178
 (5,466) 279,095
Corporate debt securities111,454
 1,432
 (3,353) 109,533
Collateralized mortgage obligations841,294
 2,758
 (11,972) 832,080
Residential mortgage-backed securities476,973
 1,583
 (15,212) 463,344
Commercial mortgage-backed securities264,165
 524
 (3,073) 261,616
Auction rate securities107,410
 —
 (4,416) 102,994
   Total$2,115,265
 $8,660
 $(43,631) $2,080,294
        
Held to Maturity       
State and municipal securities$156,134
 $1,166
 $(93) $157,207
Residential mortgage-backed securities450,545
 3,667
 —
 454,212
   Total$606,679
 $4,833
 $(93) $611,419
        
2017       
Available for Sale       
U.S. Government sponsored agency securities$5,962
 $2
 $(26) $5,938
State and municipal securities405,860
 5,638
 (2,549) 408,949
Corporate debt securities96,353
 2,832
 (1,876) 97,309
Collateralized mortgage obligations611,927
 491
 (9,795) 602,623
Residential mortgage-backed securities1,132,080
 3,957
 (15,241) 1,120,796
Commercial mortgage-backed securities215,351
 —
 (2,596) 212,755
Auction rate securities107,410
 —
 (8,742) 98,668
   Total debt securities2,574,943
 12,920
 (40,825) 2,547,038
Equity securities776
 142
 —
 918
   Total$2,575,719
 $13,062
 $(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 December 31: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

 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Estimated
Fair
Value
 (in thousands)
2015       
U.S. Government securities$—
 $—
 $—
 $—
U.S. Government sponsored agency securities25,154
 35
 (53) 25,136
State and municipal securities256,746
 6,019
 —
 262,765
Corporate debt securities100,336
 2,695
 (6,076) 96,955
Collateralized mortgage obligations835,439
 3,042
 (16,972) 821,509
Mortgage-backed securities1,154,935
 10,104
 (6,204) 1,158,835
Auction rate securities106,772
 —
 (8,713) 98,059
   Total Debt Securities2,479,382
 21,895
 (38,018) 2,463,259
Equity securities14,677
 6,845
 (8) 21,514
   Total$2,494,059
 $28,740
 $(38,026) $2,484,773
        
2014       
U.S. Government securities$200
 $—
 $—
 $200
U.S. Government sponsored agency securities209
 5
 —
 214
State and municipal securities238,250
 7,231
 (266) 245,215
Corporate debt securities99,016
 5,126
 (6,108) 98,034
Collateralized mortgage obligations917,395
 5,705
 (20,787) 902,313
Mortgage-backed securities914,797
 16,978
 (2,944) 928,831
Auction rate securities108,751
 —
 (7,810) 100,941
   Total Debt Securities2,278,618
 35,045
 (37,915) 2,275,748
Equity securities33,469
 14,167
 (13) 47,623
   Total$2,312,087
 $49,212
 $(37,928) $2,323,371

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 $1.7 billion as of both$973.4 million at December 31, 20152018 and 2014$1.8 billion at December 31, 2017, were pledged as collateral to secure public and trust deposits and customer repurchase agreements.

Equity securities include common stocks of financial institutions (estimated fair value of $20.6 million at December 31, 2015 and $41.8 million at December 31, 2014) and other equity investments (estimated fair value of $914,000 at December 31, 2015 and $5.8 million at December 31, 2014).
As of December 31, 2015, the financial institutions stock portfolio had a cost basis of $13.9 million and an estimated fair value of $20.6 million, including an investment in a single financial institution with a cost basis of $7.4 million and an estimated fair value of $10.2 million. This investment accounted for 49.5% of the estimated fair value of the Corporation's investments in the common stocks of publicly traded financial institutions. No other investment in the financial institutions stock portfolio exceeded 10% of the portfolio's estimated fair value.

83


The amortized cost and estimated fair values of debt securities as of December 31, 2015,2018, 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		 Amortized
Cost		 Estimated
Fair Value
(in thousands)(in thousands)
      
Due in one year or less$75,458
 $75,945
$6,738
 $6,740
 $—
 $—
Due from one year to five years85,840
 87,877
69,672
 70,182
 —
 —
Due from five years to ten years124,190
 127,103
108,091
 106,709
 —
 —
Due after ten years203,520
 191,990
348,332
 339,623
 156,134
 157,207
489,008
 482,915
532,833
 523,254
 156,134
 157,207
Collateralized mortgage obligations835,439
 821,509
Mortgage-backed securities1,154,935
 1,158,835
Residential mortgage-backed securities(1)
476,973
 463,344
 450,545
 454,212
Commercial mortgage-backed securities(1)
841,294
 832,080
 —
 —
Collateralized mortgage obligations (1)
264,165
 261,616
 —
 —
Total$2,479,382
 $2,463,259
$2,115,265
 $2,080,294
 $606,679
 $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, and losses recognized for other-than-temporary impairment of investments:securities:
Gross
Realized
Gains		 Gross
Realized
Losses		 Other-
than-
temporary
Impairment
Losses		 Net
Gains		Gross
Realized
Gains		 Gross
Realized
Losses		 Net
Gains (Losses)
(in thousands)(in thousands)
2015:       
2018:     
Equity securities$6,496
 $(1) $—
 $6,495
$9
 $—
 $9
Debt securities2,571
 —
 —
 2,571
1,656
 (1,628) 28
Total$9,067
 $(1) $—
 $9,066
$1,665
 $(1,628) $37
2014:       
2017:     
Equity securities$335
 $—
 $(12) $323
$13,558
 $—
 $13,558
Debt securities2,058
 (322) (18) 1,718
315
 (4,802) (4,487)
Total$2,393
 $(322) $(30) $2,041
$13,873
 $(4,802) $9,071
2013:       
2016:     
Equity securities$4,391
 $(28) $(27) $4,336
$2,005
 $(10) $1,995
Debt securities3,787
 (22) (97) 3,668
581
 (26) 555
Total$8,178
 $(50) $(124) $8,004
$2,586
 $(36) $2,550




The following table presents a summarycumulative balance of credit-related other-than-temporary impairment charges, recorded as decreases to investment securities gains on the consolidated statements of income, by investment security type. There were no other-than-temporary impairment charges recorded as decreases to investment securities gains in 2015.
  2014 2013
 (in thousands)
Equity securities - financial institution stocks $12
 $27
Pooled trust preferred securities 18
 97
Total other-than-temporary impairment charges $30
 $124

Other-than-temporary impairment charges related to investments in common stocks of financial institutions were due to the severity and duration of the declines in fair values of certain financial institution stocks, in conjunction with management’s assessment of the near-term prospects of each specific financial institution. The credit related other-than-temporary impairment charges for debt securities were determined based on expected cash flows models.


84


The following table presents a summary of the cumulative credit related other-than-temporary impairment charges,previously recognized as components of earnings, for debt securities held by the Corporation at December 31:
 2015 2014 2013
 (in thousands)
Balance of cumulative credit losses on debt securities, beginning of year$(16,242) $(20,691) $(23,079)
Additions for credit losses recorded which were not previously recognized as components of earnings—
 (18) (97)
Reductions for securities sold during the period4,730
 4,460
 2,468
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security2
 7
 17
Balance of cumulative credit losses on debt securities, end of year$(11,510) $(16,242) $(20,691)
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, 2015:2018.

Less Than 12 months 12 Months or Longer TotalLess Than 12 months 12 Months or Longer Total
Estimated
Fair Value		 Unrealized
Losses		 Estimated
Fair Value		 Unrealized
Losses		 Estimated
Fair Value		 Unrealized
Losses		Number of Securities Estimated
Fair Value		 Unrealized
Losses		 Number of Securities Estimated
Fair Value		 Unrealized
Losses		 Estimated
Fair Value		 Unrealized
Losses
(in thousands)(in thousands)
Available for Sale               
U.S. Government sponsored agency securities$9,957
 $(53) $—
 $—
 $9,957
 $(53)1
 $4,961
 $(31) 1
 $5,770
 $(108) $10,731
 $(139)
State and municipal securities33
 72,950
 (1,292) 38
 83,770
 (4,174) 156,720
 (5,466)
Corporate debt securities12,892
 (97) 33,036
 (5,979) 45,928
 (6,076)8
 24,419
 (227) 14
 25,642
 (3,126) 50,061
 (3,353)
Collateralized mortgage obligations166,007
 (1,467) 467,778
 (15,505) 633,785
 (16,972)39
 136,563
 (1,050) 89
 388,173
 (10,922) 524,736
 (11,972)
Mortgage-backed securities611,920
 (4,783) 63,818
 (1,421) 675,738
 (6,204)
Residential mortgage-backed securities17
 18,220
 (222) 110
 402,779
 (14,990) 420,999
 (15,212)
Commercial mortgage-backed securities1
 9,778
 (35) 25
 197,326
 (3,038) 207,104
 (3,073)
Auction rate securities—
 —
 98,059
 (8,713) 98,059
 (8,713)—
 —
 —
 177
 102,994
 (4,416) 102,994
 (4,416)
Total debt securities800,776
 (6,400) 662,691
 (31,618) 1,463,467
 (38,018)
Equity securities—
 —
 14
 (8) 14
 (8)
Total$800,776
 $(6,400) $662,705
 $(31,626) $1,463,481
 $(38,026)
Total available for sale99
 $266,891
 $(2,857) 454
 $1,206,454
 $(40,774) $1,473,345
 $(43,631)
               
Held to Maturity               
State and municipal securities6
 $20,601
 $(93) —
 $—
 $—
 $20,601
 $(93)
Total held to maturity6
 $20,601
 $(93) —
 $—
 $—
 $20,601
 $(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 securities2
 $5,830
 $(26) —
 $—
 $—
 $5,830
 $(26)
State and municipal securities4
 11,650
 (50) 48
 118,297
 (2,499) 129,947
 (2,549)
Corporate debt securities1
 4,544
 (48) 19
 32,163
 (1,828) 36,707
 (1,876)
Collateralized mortgage obligations60
 303,932
 (2,408) 57
 187,690
 (7,387) 491,622
 (9,795)
Residential mortgage-backed securities116
 511,378
 (4,348) 89
 500,375
 (10,893) 1,011,753
 (15,241)
Commercial mortgage-backed securities22
 190,985
 (2,118) 3
 21,770
 (478) 212,755
 (2,596)
Auction rate securities—
 —
 —
 177
 98,668
 (8,742) 98,668
 (8,742)
Total205
 $1,028,319
 $(8,998) 393
 $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, 2015.2018.


As of December 31, 2015,2018, all student loan auction rate certificates (ARCs) were current and making scheduled interest payments and("ARCs") were rated above investment grade, with approximately $5.6 million, or 6%, "AAA" rated and $92.5 million, or 94%, "AA" rated.grade. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. BasedAll of the loans were current and making scheduled payments and, based on management’s evaluations, ARCs with a fair value of $98.1 million were not subject to any other-than-temporary impairment charges as of December 31, 2015.2018. 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.

For its investments in equity securities, particularly its investments in common stocks of financial institutions, management evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation and the Corporation’s ability and intentmanagement’s evaluations, no corporate debt securities were subject to hold those investments for a reasonable period of time sufficient for a recovery of fair value, the Corporation does not consider those investments with unrealized holding losses any other-than-temporary impairment charges
as of December 31, 2015 to be other-than-temporarily impaired.




85


The majority of the Corporation’s available for sale corporate debt securities are issued by financial institutions. The following table presents the amortized cost and estimated fair values of corporate debt securities as of December 31:
 2015 2014
 Amortized
Cost		 Estimated
Fair Value		 Amortized
Cost		 Estimated
Fair Value
 (in thousands)
Single-issuer trust preferred securities$44,648
 $39,106
 $47,569
 $42,016
Subordinated debt51,653
 53,108
 47,530
 50,023
Pooled trust preferred securities—
 706
 2,010
 4,088
Corporate debt securities issued by financial institutions96,301
 92,920
 97,109
 96,127
Other corporate debt securities4,035
 4,035
 1,907
 1,907
Available for sale corporate debt securities$100,336
 $96,955
 $99,016
 $98,034

Single-issuer trust preferred securities had an unrealized loss of $5.5 million as of December 31, 2015. Seven of the 19single-issuer trust preferred securities held were rated below investment grade by at least one ratings agency, with an amortized cost of $12.5 million and an estimated fair value of $10.7 million as of December 31, 2015. All of the single-issuer trust preferred securities rated below investment grade were rated "BB" or "Ba." Two single-issuer trust preferred securities with an amortized cost of $3.7 million and an estimated fair value of $2.6 million as of December 31, 2015 were not rated by any ratings agency.

Based on management's evaluations, corporate debt securities with a fair value of $97.0 million were not subject to any additional other-than-temporary impairment charges as of December 31, 2015.2018. 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.



86


NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans, net of unearned income
Loans, net of unearned income are summarized as follows as of December 31:
2015 20142018 2017
(in thousands)(in thousands)
Real estate – commercial mortgage$5,462,330
 $5,197,155
$6,434,285
 $6,364,804
Commercial – industrial, financial and agricultural4,088,962
 3,725,567
4,404,548
 4,300,297
Real estate – residential mortgage2,251,044
 1,954,711
Real estate – home equity1,684,439
 1,736,688
1,452,137
 1,559,719
Real estate – residential mortgage1,376,160
 1,377,068
Real estate – construction799,988
 690,601
916,599
 1,006,935
Consumer268,588
 265,431
419,186
 313,783
Leasing and other170,914
 127,562
311,866
 291,556
Overdrafts2,737
 4,021
2,774
 4,113
Loans, gross of unearned income13,854,118
 13,124,093
16,192,439
 15,795,918
Unearned income(15,516) (12,377)(26,639) (27,671)
Loans, net of unearned income$13,838,602
 $13,111,716
$16,165,800
 $15,768,247

The Corporation has extended credit to the officers and directors of the Corporation and to their associates. These related-party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collection. The aggregate dollar amount of these loans, including unadvanced commitments, was $191.6$116.4 million and $252.6$113.6 million as of December 31, 20152018 and 2014,2017, respectively. During 2015,2018, additions totaled $12,000$54.6 million and repayments and other changestotaled $51.8 million in related-party loans totaled $61.0 million.loans.
The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.8 billion and $4.9$4.6 billion as of December 31, 20152018 and 2014,2017, respectively.
Allowance for Credit Losses
The following table presents the components of the allowance for credit losses as of December 31:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Allowance for loan losses$169,054
 $184,144
 $202,780
$160,537
 $169,910
 $168,679
Reserve for unfunded lending commitments2,358
 1,787
 2,137
8,873
 6,174
 2,646
Allowance for credit losses$171,412
 $185,931
 $204,917
$169,410
 $176,084
 $171,325











The following table presents the activity in the allowance for credit losses for the years ended December 31:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Balance at beginning of year$185,931
 $204,917
 $225,439
$176,084
 $171,325
 $171,412
Loans charged off(32,157) (44,593) (80,212)(66,076) (33,290) (33,927)
Recoveries of loans previously charged off15,388
 13,107
 19,190
12,495
 14,744
 20,658
Net loans charged off(16,769) (31,486) (61,022)(53,581) (18,546) (13,269)
Provision for credit losses2,250
 12,500
 40,500
46,907
 23,305
 13,182
Balance at end of year$171,412
 $185,931
 $204,917
$169,410
 $176,084
 $171,325


87


The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended December 31 and loans, net of unearned income, and their related allowance for loan losses, by portfolio segment, as of December 31:

 Real Estate -
Commercial
Mortgage		 Commercial -
Industrial,
Financial and
Agricultural		 Real Estate -
Home
Equity		 Real Estate -
Residential
Mortgage		 Real Estate -
Construction		 Consumer Leasing
and other
and
Overdrafts		 Unallocated (1) Total
 (in thousands)
Balance at December 31, 2013$55,659
 $50,330
 $28,222
 $33,082
 $12,649
 $3,260
 $3,370
 $16,208
 $202,780
Loans charged off(6,004) (24,516) (5,486) (2,918) (1,209) (2,325) (2,135) —
 (44,593)
Recoveries of loans previously charged off1,960
 4,256
 1,025
 451
 3,177
 1,322
 916
 —
 13,107
Net loans charged off(4,044) (20,260) (4,461) (2,467) 1,968
 (1,003) (1,219) —
 (31,486)
Provision for loan losses (2)1,878
 21,308
 4,510
 (1,543) (4,861) 758
 (352) (8,848) 12,850
Balance at December 31, 201453,493
 51,378
 28,271
 29,072
 9,756
 3,015
 1,799
 7,360
 184,144
Loans charged off(4,218) (15,639) (3,604) (3,612) (201) (2,227) (2,656) —
 (32,157)
Recoveries of loans previously charged off2,801
 5,264
 1,362
 1,322
 2,824
 1,130
 685
 —
 15,388
Net loans charged off(1,417) (10,375) (2,242) (2,290) 2,623
 (1,097) (1,971) —
 (16,769)
Provision for loan losses (2)(4,210) 16,095
 (3,624) (5,407) (5,850) 667
 2,640
 1,368
 1,679
Balance at December 31, 2015$47,866
 $57,098
 $22,405
 $21,375
 $6,529
 $2,585
 $2,468
 $8,728
 $169,054
                  
Allowance for loan losses at December 31, 2015              
Measured for impairment under FASB ASC Subtopic 450-20$35,395
 $42,515
 $14,412
 $7,953
 $4,134
 $2,563
 $1,764
 $8,728
 $117,464
Evaluated for impairment under FASB ASC Section 310-10-3512,471
 14,583
 7,993
 13,422
 2,395
 22
 704
 N/A
 51,590
 $47,866
 $57,098
 $22,405
 $21,375
 $6,529
 $2,585
 $2,468
 $8,728
 $169,054
Loans, net of unearned income at December 31, 2015              
Measured for impairment under FASB ASC Subtopic 450-20$5,404,036
 $4,040,810
 $1,668,673
 $1,325,735
 $784,002
 $268,555
 $156,710
 N/A
 $13,648,521
Evaluated for impairment under FASB ASC Section 310-10-3558,294
 48,152
 15,766
 50,425
 15,986
 33
 1,425
 N/A
 190,081
 $5,462,330
 $4,088,962
 $1,684,439
 $1,376,160
 $799,988
 $268,588
 $158,135
 N/A
 $13,838,602
Allowance for loan losses at December 31, 2014              
Measured for impairment under FASB ASC Subtopic 450-20$36,778
 $38,348
 $19,047
 $10,480
 $6,485
 $2,980
 $1,799
 $7,360
 $123,277
Evaluated for impairment under FASB ASC Section 310-10-3516,715
 13,030
 9,224
 18,592
 3,271
 35
 —
 N/A
 60,867
 $53,493
 $51,378
 $28,271
 $29,072
 $9,756
 $3,015
 $1,799
 $7,360
 $184,144
Loans, net of unearned income at December 31, 2014              
Measured for impairment under FASB ASC Subtopic 450-20$5,133,896
 $3,690,561
 $1,723,230
 $1,325,717
 $665,012
 $265,393
 $119,206
 N/A
 $12,923,015
Evaluated for impairment under FASB ASC Section 310-10-3563,259
 35,006
 13,458
 51,351
 25,589
 38
 —
 N/A
 188,701
 $5,197,155
 $3,725,567
 $1,736,688
 $1,377,068
 $690,601
 $265,431
 $119,206
 N/A
 $13,111,716
 Real Estate -
Commercial
Mortgage		 Commercial -
Industrial,
Financial and
Agricultural		 Real Estate -
Home
Equity		 Real Estate -
Residential
Mortgage		 Real Estate -
Construction		 Consumer Leasing
and other
and
Overdrafts		 Unallocated Total
 (in thousands)
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) —
 (33,290)
Recoveries of loans previously charged off1,668
 7,771
 813
 786
 1,582
 1,156
 968
 —
 14,744
Net loans charged off(501) (11,296) (1,527) 99
 (2,183) (1,071) (2,067) —
 (18,546)
Provision for loan losses (1)
12,452
 23,223
 (7,147) (6,940) 2,348
 (458) 832
 (4,533) 19,777
Balance at December 31, 201758,793
 66,280
 18,127
 16,088
 6,620
 2,045
 1,957
 —
 169,910
Loans charged off(2,045) (52,441) (3,087) (1,574) (1,368) (3,040) (2,521) —
 (66,076)
Recoveries of loans previously charged off1,622
 4,994
 1,127
 620
 1,829
 1,266
 1,037
 —
 12,495
Net loans charged off(423) (47,447) (1,960) (954) 461
 (1,774) (1,484) —
 (53,581)
Provision for loan losses (1)
(5,481) 40,035
 2,744
 3,787
 (2,020) 2,946
 2,197
 —
 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$45,634
 $46,355
 $8,541
 $9,527
 $4,268
 $3,210
 $2,670
 $—
 $120,205
Loans individually evaluated for impairment7,255
 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
 $4,349,255
 $1,428,764
 $2,212,274
 $909,209
 $419,175
 $268,733
 N/A
 $15,975,622
Loans individually evaluated for impairment46,073
 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$50,681
 $54,874
 $7,003
 $6,193
 $5,653
 $2,028
 $1,957
 $—
 $128,389
Loans individually evaluated for impairment8,112
 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
 $4,236,572
 $1,535,026
 $1,913,004
 $994,738
 $313,757
 $267,998
 N/A
 $15,577,118
Loans individually evaluated for impairment48,781
 63,725
 24,693
 41,707
 12,197
 26
 —
 N/A
 191,129
 $6,364,804
 $4,300,297
 $1,559,719
 $1,954,711
 $1,006,935
 $313,783
 $267,998
 N/A
 $15,768,247

(1)The unallocated allowance, which was approximately 5% and 4% of the total allowance for credit losses as of December 31, 2015 and December 31, 2014, respectively, was, in the opinion of management, reasonable and appropriate given that the estimates used in the allocation process are inherently imprecise.
(2)For the year ended December 31, 2015,2018, the provision for loan losses excluded a $571,000$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 $2.3$46.9 million for the year ended December 31, 2015.2018. For the year ended December 31, 2014,2017, the provision for loan losses excluded a $350,000 decrease$3.5 million increase in the reserve for unfunded lending commitments. The total provision for credit losses was $12.5$23.3 million for the year ended December 31, 2014.2017.

N/A – Not applicable.










88


Impaired Loans

The following table presents total impaired loans by class segment as of December 31: 
 2015 2014
 Unpaid
Principal
Balance		 Recorded
Investment		 Related
Allowance		 Unpaid
Principal
Balance		 Recorded
Investment		 Related
Allowance
 (in thousands)
With no related allowance recorded:           
Real estate - commercial mortgage$27,872
 $22,596
 $—
 $25,802
 $23,236
 $—
Commercial - secured18,012
 13,702
 —
 17,599
 14,582
 —
Real estate - residential mortgage4,790
 4,790
 —
 4,873
 4,873
 —
Construction - commercial residential9,916
 8,865
 —
 18,041
 14,801
 —
Construction - commercial—
 —
 —
 1,707
 1,581
 —
 60,590
 49,953
   68,022
 59,073
  
With a related allowance recorded:           
Real estate - commercial mortgage45,189
 35,698
 12,471
 49,619
 40,023
 16,715
Commercial - secured39,659
 33,629
 14,085
 24,824
 19,335
 12,165
Commercial - unsecured971
 821
 498
 1,241
 1,089
 865
Real estate - home equity20,347
 15,766
 7,993
 19,392
 13,458
 9,224
Real estate - residential mortgage55,242
 45,635
 13,422
 56,607
 46,478
 18,592
Construction - commercial residential9,949
 6,290
 2,110
 14,007
 7,903
 2,675
Construction - commercial820
 638
 217
 1,501
 1,023
 459
Construction - other331
 193
 68
 452
 281
 137
Consumer - indirect14
 14
 8
 20
 19
 18
Consumer - direct19
 19
 14
 19
 19
 17
Leasing and other and overdrafts1,658
 1,425
 704
 —
 —
 —
 174,199
 140,128
 51,590
 167,682
 129,628
 60,867
Total$234,789
 $190,081
 $51,590
 $235,704
 $188,701
 $60,867
 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$25,095
 $23,481
 $—
 $26,728
 $22,886
 $—
Commercial33,493
 26,585
 —
 44,936
 39,550
 —
Real estate - residential mortgage3,149
 3,149
 —
 4,575
 4,575
 —
Construction8,980
 5,083
 —
 12,477
 8,100
 —
Leasing19,269
 19,268
 —
 —
 —
 —
 89,986
 77,566
   88,716
 75,111
  
With a related allowance recorded:           
Real estate - commercial mortgage29,005
 22,592
 7,255
 33,710
 25,895
 8,112
Commercial37,706
 28,708
 12,513
 29,816
 24,175
 11,406
Real estate - home equity26,599
 23,373
 10,370
 28,282
 24,693
 11,124
Real estate - residential mortgage39,972
 35,621
 9,394
 42,597
 37,132
 9,895
Construction5,984
 2,307
 793
 7,308
 4,097
 967
Consumer11
 11
 7
 26
 26
 17
 139,277
 112,612
 40,332
 141,739
 116,018
 41,521
Total$229,263
 $190,178
 $40,332
 $230,455
 $191,129
 $41,521

As of December 31, 20152018 and 2014,2017, there were $50.0$77.6 million and $59.1$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.

89



The following table presents average impaired loans, by class segment, for the years ended December 31:
 2015 2014 2013
 Average
Recorded
Investment		 Interest Income
Recognized (1)		 Average
Recorded
Investment		 Interest Income
Recognized (1)		 Average
Recorded
Investment		 Interest Income
Recognized (1)
 (in thousands)
With no related allowance recorded:           
Real estate - commercial mortgage$25,345
 $315
 $23,467
 $320
 $28,603
 $489
Commercial - secured15,654
 97
 18,928
 119
 30,299
 173
Commercial - unsecured17
 —
 —
 —
 26
 —
Real estate - home equity—
 —
 180
 1
 262
 1
Real estate - residential mortgage5,389
 124
 1,532
 31
 695
 25
Construction - commercial residential11,685
 148
 15,421
 227
 19,847
 256
Construction - commercial915
 —
 1,907
 —
 3,480
 2
 59,005
 684
 61,435
 698
 83,212
 946
With a related allowance recorded:           
Real estate - commercial mortgage39,232
 475
 38,240
 524
 44,136
 706
Commercial - secured25,660
 150
 20,991
 129
 27,919
 153
Commercial - unsecured1,749
 6
 895
 3
 1,411
 5
Real estate - home equity13,887
 144
 13,976
 108
 14,092
 65
Real estate - residential mortgage46,252
 1,041
 50,281
 1,178
 52,251
 1,210
Construction - commercial residential6,455
 79
 8,723
 136
 11,219
 168
Construction - commercial931
 —
 1,900
 —
 2,468
 3
Construction - other263
 —
 387
 —
 523
 1
Consumer - indirect16
 1
 7
 —
 1
 —
Consumer - direct17
 1
 16
 1
 19
 —
Leasing and other and overdrafts285
 —
 —
 —
 11
 —
 134,747
 1,897
 135,416
 2,079
 154,050
 2,311
Total$193,752
 $2,581
 $196,851
 $2,777
 $237,262
 $3,257
 2018 2017 2016
 Average
Recorded
Investment		 
Interest Income
Recognized (1)
 Average
Recorded
Investment		 
Interest Income
Recognized (1)
 Average
Recorded
Investment		 
Interest Income
Recognized (1)
 (in thousands)
With no related allowance recorded:           
Real estate - commercial mortgage$25,258
 $368
 $22,793
 $281
 $24,232
 $294
Commercial33,395
 259
 31,357
 182
 19,825
 104
Real estate - residential mortgage3,727
 91
 4,631
 107
 5,598
 126
Construction6,943
 —
 7,255
 12
 6,285
 48
 69,323
 718
 66,036
 582
 55,940
 572
With a related allowance recorded:           
Real estate - commercial mortgage24,300
 345
 27,193
 338
 31,737
 384
Commercial24,888
 185
 24,112
 137
 26,744
 134
Real estate - home equity24,426
 794
 21,704
 534
 17,912
 285
Real estate - residential mortgage36,387
 896
 39,093
 903
 42,191
 908
Construction2,683
 —
 6,160
 11
 6,501
 41
Consumer16
 1
 33
 2
 33
 2
Leasing, other and overdrafts3,854
 —
 285
 —
 854
 —
 116,554
 2,221
 118,580
 1,925
 125,972
 1,754
Total$185,877
 $2,939
 $184,616
 $2,507
 $181,912
 $2,326

(1)All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the years ended December 31, 2015, 20142018, 2017 and 20132016 represents amounts earned on accruing TDRs.


90



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 TotalPass Special Mention Substandard or Lower Total

2015 2014 2015 2014 2015 2014 2015 20142018 2017 2018 2017 2018 2017 2018 2017

(dollars in thousands)(dollars in thousands)
Real estate - commercial mortgage$5,204,263
 $4,899,016
 $102,625
 $127,302
 $155,442
 $170,837
 $5,462,330
 $5,197,155
$6,129,463
 $6,066,396
 $170,827
 $147,604
 $133,995
 $150,804
 $6,434,285
 $6,364,804
Commercial - secured3,696,692
 3,333,486
 92,711
 120,584
 136,710
 110,544
 3,926,113
 3,564,614
3,902,484
 3,831,485
 193,470
 121,842
 129,026
 179,113
 4,224,980
 4,132,440
Commercial -unsecured156,742
 146,680
 2,761
 7,463
 3,346
 6,810
 162,849
 160,953
171,589
 159,620
 4,016
 5,478
 3,963
 2,759
 179,568
 167,857
Total commercial - industrial, financial and agricultural3,853,434
 3,480,166
 95,472
 128,047
 140,056
 117,354
 4,088,962
 3,725,567
4,074,073
 3,991,105
 197,486
 127,320
 132,989
 181,872
 4,404,548
 4,300,297
Construction - commercial residential140,337
 136,109
 17,154
 27,495
 21,812
 40,066
 179,303
 203,670
104,079
 143,759
 6,912
 5,259
 6,881
 14,084
 117,872
 163,102
Construction - commercial552,710
 409,631
 3,684
 12,202
 3,597
 5,586
 559,991
 427,419
723,030
 761,218
 1,163
 846
 2,533
 3,752
 726,726
 765,816
Total real estate - construction (excluding construction - other)693,047
 545,740
 20,838
 39,697
 25,409
 45,652
 739,294
 631,089
Total construction (excluding construction - other)827,109
 904,977
 8,075
 6,105
 9,414
 17,836
 844,598
 928,918
Total$9,750,744
 $8,924,922
 $218,935
 $295,046
 $320,907
 $333,843
 $10,290,586
 $9,553,811
$11,030,645
 $10,962,478
 $376,388
 $281,029
 $276,398
 $350,512
 $11,683,431
 $11,594,019
                              
% of Total94.8% 93.4% 2.1% 3.1% 3.1% 3.5% 100.0% 100.0%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) TotalPerforming 
Delinquent (1)
 
Non-performing (2)
 Total
2015 2014 2015 2014 2015 2014 2015 20142018 2017 2018 2017 2018 2017 2018 2017
(dollars in thousands)(dollars in thousands)
Real estate - home equity$1,660,773
 $1,711,017
 $8,983
 $10,931
 $14,683
 $14,740
 $1,684,439
 $1,736,688
$1,431,666
 $1,535,557
 $10,702
 $12,655
 $9,769
 $11,507
 $1,452,137
 $1,559,719
Real estate - residential mortgage1,329,371
 1,321,139
 18,305
 26,934
 28,484
 28,995
 1,376,160
 1,377,068
2,202,955
 1,914,888
 28,988
 18,852
 19,101
 20,971
 2,251,044
 1,954,711
Real estate - construction - other59,997
 59,180
 88
 —
 609
 332
 60,694
 59,512
71,511
 77,403
 —
 203
 490
 411
 72,001
 78,017
Consumer - direct94,262
 104,018
 2,254
 2,891
 2,203
 2,414
 98,719
 109,323
55,629
 54,828
 338
 315
 66
 70
 56,033
 55,213
Consumer - indirect166,823
 153,358
 2,809
 2,574
 237
 176
 169,869
 156,108
359,405
 254,663
 3,405
 3,681
 343
 226
 363,153
 258,570
Total consumer261,085
 257,376
 5,063
 5,465
 2,440
 2,590
 268,588
 265,431
415,034
 309,491
 3,743
 3,996
 409
 296
 419,186
 313,783
Leasing and other and overdrafts155,870
 118,550
 759
 523
 1,506
 133
 158,135
 119,206
Leasing, other and overdrafts267,112
 267,111
 1,302
 855
 19,587
 32
 288,001
 267,998
Total$3,467,096
 $3,467,262
 $33,198
 $43,853
 $47,722
 $46,790
 $3,548,016
 $3,557,905
$4,388,278
 $4,104,450
 $44,735
 $36,561
 $49,356
 $33,217
 $4,482,369
 $4,174,228
                              
% of Total97.7% 97.5% 1.0% 1.2% 1.3% 1.3% 100.0% 100.0%97.9% 98.3% 1.0% 0.9% 1.1% 0.8% 100.0% 100.0%
 
(1)Includes all accruing loans 30 days to 89 days past due.
(2)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:
2015 20142018 2017
(in thousands)(in thousands)
Non-accrual loans$129,523
 $121,080
$128,572
 $124,749
Loans 90 days or more past due and still accruing15,291
 17,402
11,106
 10,010
Total non-performing loans144,814
 138,482
139,678
 134,759
Other real estate owned11,099
 12,022
10,518
 9,823
Total non-performing assets$155,913
 $150,504
$150,196
 $144,582









91


The following table presents past due status and non-accrual loans, by portfolio segment and class segment, as of December 31:

20152018
30-59
Days Past
Due		 60-89
Days Past
Due		 ≥ 90 Days
Past Due
and
Accruing		 Non-
accrual		 Total ≥ 90
Days		 Total Past
Due		 Current Total30-59
Days Past
Due		 60-89
Days Past
Due		 ≥ 90 Days Past Due and Accruing Non-
accrual		 Current Total
(in thousands)(in thousands)
Real estate - commercial mortgage$6,469
 $1,312
 $439
 $40,731
 $41,170
 $48,951
 $5,413,379
 $5,462,330
$12,206
 $1,500
 $1,765
 $30,388
 $6,388,426
 $6,434,285
Commercial - secured5,654
 2,615
 1,853
 41,498
 43,351
 51,620
 3,874,493
 3,926,113
5,227
 938
 1,068
 49,299
 4,168,448
 4,224,980
Commercial - unsecured510
 83
 19
 701
 720
 1,313
 161,536
 162,849
1,598
 —
 51
 851
 177,068
 179,568
Total Commercial - industrial, financial and agricultural6,164
 2,698
 1,872
 42,199
 44,071
 52,933
 4,036,029
 4,088,962
6,825
 938
 1,119
 50,150
 4,345,516
 4,404,548
Real estate - home equity6,438
 2,545
 3,473
 11,210
 14,683
 23,666
 1,660,773
 1,684,439
7,144
 3,558
 3,061
 6,708
 1,431,666
 1,452,137
Real estate - residential mortgage15,141
 3,164
 6,570
 21,914
 28,484
 46,789
 1,329,371
 1,376,160
20,796
 8,192
 4,433
 14,668
 2,202,955
 2,251,044
Construction - commercial50
 176
 —
 638
 638
 864
 559,127
 559,991
—
 —
 —
 19
 726,707
 726,726
Construction - commercial residential1,366
 494
 —
 11,213
 11,213
 13,073
 166,230
 179,303
2,489
 —
 —
 6,881
 108,502
 117,872
Construction - other88
 —
 416
 193
 609
 697
 59,997
 60,694
—
 —
 —
 490
 71,511
 72,001
Total Real estate - construction1,504
 670
 416
 12,044
 12,460
 14,634
 785,354
 799,988
2,489
 —
 —
 7,390
 906,720
 916,599
Consumer - direct1,687
 567
 2,203
 —
 2,203
 4,457
 94,262
 98,719
267
 71
 66
 —
 55,629
 56,033
Consumer - indirect2,308
 501
 237
 —
 237
 3,046
 166,823
 169,869
2,908
 497
 343
 —
 359,405
 363,153
Total Consumer3,995
 1,068
 2,440
 —
 2,440
 7,503
 261,085
 268,588
3,175
 568
 409
 —
 415,034
 419,186
Leasing and other and overdrafts483
 276
 81
 1,425
 1,506
 2,265
 155,870
 158,135
$40,194
 $11,733
 $15,291
 $129,523
 $144,814
 $196,741
 $13,641,861
 $13,838,602
Leasing, other and overdrafts1,005
 297
 319
 19,268
 267,112
 288,001
Total$53,640
 $15,053
 $11,106
 $128,572
 $15,957,429
 $16,165,800

20142017
30-59
Days Past
Due		 60-89
Days Past
Due		 ≥ 90 Days
Past Due
and
Accruing		 Non-
accrual		 Total ≥ 90
Days		 Total Past
Due		 Current Total30-59
Days Past
Due		 60-89
Days Past
Due		 ≥ 90 Days Past Due and Accruing Non-
accrual		 Current Total
(in thousands)(in thousands)
Real estate - commercial mortgage$14,399
 $3,677
 $800
 $44,437
 $45,237
 $63,313
 $5,133,842
 $5,197,155
$9,456
 $4,223
 $625
 $34,822
 $6,315,678
 $6,364,804
Commercial - secured4,839
 958
 610
 28,747
 29,357
 35,154
 3,529,460
 3,564,614
4,778
 5,254
 1,360
 52,255
 4,068,793
 4,132,440
Commercial - unsecured395
 65
 9
 1,022
 1,031
 1,491
 159,462
 160,953
305
 10
 45
 649
 166,848
 167,857
Total Commercial - industrial, financial and agricultural5,234
 1,023
 619
 29,769
 30,388
 36,645
 3,688,922
 3,725,567
5,083
 5,264
 1,405
 52,904
 4,235,641
 4,300,297
Real estate - home equity8,048
 2,883
 4,257
 10,483
 14,740
 25,671
 1,711,017
 1,736,688
9,640
 3,015
 2,372
 9,135
 1,535,557
 1,559,719
Real estate - residential mortgage18,789
 8,145
 8,952
 20,043
 28,995
 55,929
 1,321,139
 1,377,068
11,961
 6,891
 5,280
 15,691
 1,914,888
 1,954,711
Construction - commercial—
 —
 —
 2,604
 2,604
 2,604
 424,815
 427,419
483
 —
 —
 19
 765,314
 765,816
Construction - commercial residential160
 —
 —
 13,463
 13,463
 13,623
 190,047
 203,670
—
 439
 —
 11,767
 150,896
 163,102
Construction - other—
 —
 51
 281
 332
 332
 59,180
 59,512
203
 —
 —
 411
 77,403
 78,017
Total Real estate - construction160
 —
 51
 16,348
 16,399
 16,559
 674,042
 690,601
686
 439
 —
 12,197
 993,613
 1,006,935
Consumer - direct2,034
 857
 2,414
 —
 2,414
 5,305
 104,018
 109,323
260
 55
 70
 —
 54,828
 55,213
Consumer - indirect2,156
 418
 176
 —
 176
 2,750
 153,358
 156,108
3,055
 626
 226
 —
 254,663
 258,570
Total Consumer4,190
 1,275
 2,590
 —
 2,590
 8,055
 257,376
 265,431
3,315
 681
 296
 —
 309,491
 313,783
Leasing and other and overdrafts357
 166
 133
 —
 133
 656
 118,550
 119,206
$51,177
 $17,169
 $17,402
 $121,080
 $138,482
 $206,828
 $12,904,888
 $13,111,716
Leasing, other and overdrafts568
 287
 32
 —
 267,111
 267,998
Total$40,709
 $20,800
 $10,010
 $124,749
 $15,571,979
 $15,768,247










92



The following table presents TDRs as of December 31:
2015 20142018 2017
(in thousands)(in thousands)
Real-estate - residential mortgage$28,511
 $31,308
$24,102
 $26,016
Real estate - home equity16,665
 15,558
Real-estate - commercial mortgage17,563
 18,822
15,685
 13,959
Construction - commercial residential3,942
 9,241
Commercial - secured5,833
 5,170
Real estate - home equity4,556
 2,975
Commercial - unsecured120
 67
Commercial5,143
 10,820
Consumer - direct19
 19
10
 26
Consumer - indirect14
 19
Total accruing TDRs60,558
 67,621
61,605
 66,379
Non-accrual TDRs (1)31,035
 24,616
28,659
 29,051
Total TDRs$91,593
 $92,237
$90,264
 $95,430
 
(1)Included within non-accrual loans in the preceding table.

As of December 31, 20152018 and 2014,2017, there were $5.3 million$41,600 and $3.9$8.6 million, respectively, of commitments to lend additional funds to borrowers whose loans were modified under TDRs.


93


The following table presents TDRs by class segment and type of concession for loans that were modified during the years ended December 31, 2015 and 2014:31:

 2015 2014 2018 2017 2016
Number of Loans Post-Modification Recorded Investment Number of Loans Post-Modification Recorded InvestmentNumber of Loans Post-Modification Recorded Investment Number of Loans Post-Modification Recorded Investment Number of Loans Post-Modification Recorded Investment
(dollars in thousands) (dollars in thousands)
Commercial – secured:       
Commercial:Commercial:           
Extend maturity with rate concession2
 $127
 3
 $315
Extend maturity without rate concession8
 $4,226
 23
 $15,058
 12
 $3,904
Extend maturity without rate concession9
 3,785
 8
 1,640
Commercial – unsecured:       
Extend maturity without rate concession1
 38
 —
 —
Bankruptcy—
 —
 1
 490
 —
 —
Real estate - commercial mortgage:Real estate - commercial mortgage:       Real estate - commercial mortgage:           
Extend maturity with rate concession5
 2,014
 1
 60
Extend maturity without rate concession6
 8,261
 9
 2,899
 —
 —
Extend maturity without rate concession4
 639
 7
 6,781
Bankruptcy—
 —
 1
 12
 —
 —
Real estate - home equity:Real estate - home equity:       Real estate - home equity:           
Extend maturity with rate concession2
 36
 —
 —
Extend maturity without rate concession3
 203
 —
 —
Extend maturity without rate concession85
 4,549
 69
 5,843
 89
 4,484
Bankruptcy52
 2,501
 30
 1,551
Bankruptcy11
 538
 28
 1,813
 47
 2,671
Real estate – residential mortgage:
Real estate – residential mortgage:
       Real estate – residential mortgage:
           
Extend maturity with rate concession4
 750
 2
 390
Extend maturity with rate concession4
 451
 2
 468
 —
 —
Extend maturity without rate concession3
 262
 2
 210
Extend maturity without rate concession2
 345
 5
 1,044
 2
 315
Bankruptcy7
 2,508
 19
 1,807
Bankruptcy1
 5
 3
 392
 6
 981
Construction - commercial residential:Construction - commercial residential:       Construction - commercial residential:           
Extend maturity without rate concession1
 1,535
 3
 3,616
Extend maturity without rate concession—
 —
 1
 1,204
 —
 —
Consumer - direct:       
Bankruptcy2
 6
 7
 7
Bankruptcy—
 —
 1
 411
 —
 —
Consumer - indirect:       
Consumer:Consumer:           
Bankruptcy1
 12
 4
 20
Bankruptcy—
 —
 —
 —
 2
 23
                    
TotalTotal96
 $14,416
 86
 $16,397
 Total117
 $18,375
 143
 $29,634
 158
 $12,378



The following table presents TDRs, by class segment, as of December 31, 2015 and 2014 that were modified during the years ended December 31, 20152018, 2017 and 2014 and2016 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:
2015 20142018 2017 2016
Number of Loans Recorded Investment Number of Loans Recorded InvestmentNumber of Loans Recorded Investment Number of Loans Recorded Investment Number of Loans Recorded Investment
(dollars in thousands)(dollars in thousands)
Construction - commercial residential— $—
 2 $1,803
—
 $—
 1
 $1,192
 —
 $—
Construction - other—
 —
 1
 411
 —
 —
Real estate - commercial mortgage4 359
 2 1,660
2
 448
 2
 549
 1
 118
Real estate - residential mortgage4 445
 11 1,430
5
 717
 5
 577
 8
 1,500
Commercial - secured8 3,549
 4 1,208
Commercial1
 2,163
 6
 1,571
 7
 2,523
Real estate - home equity13 763
 11 961
30
 1,635
 25
 1,575
 28
 1,836
Consumer - direct— —
 1 1
Consumer—
 —
 —
 —
 1
 19
Total29 $5,116
 31 $7,063
38
 $4,963
 40
 $5,875
 45
 $5,996



94


NOTE 5 – PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
2015 20142018 2017
(in thousands)(in thousands)
Land$37,380
 $37,667
$35,160
 $35,560
Buildings and improvements297,018
 287,271
325,831
 307,332
Furniture and equipment136,029
 176,808
150,566
 150,876
Construction in progress16,585
 21,055
24,993
 19,916
487,012
 522,801
536,550
 513,684
Less: Accumulated depreciation and amortization(261,477) (296,774)(302,021) (290,882)
$225,535
 $226,027
Total$234,529
 $222,802

NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the changes in goodwill:
 2015 2014 2013
 (in thousands)
Balance at beginning of year$530,593
 $530,607
 $530,656
Other goodwill deductions—
 (14) (49)
Balance at end of year$530,593
 $530,593
 $530,607
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 20152018 goodwill impairment test, resulting in no goodwill impairment charges in 2015. One reporting unit, with total allocated goodwill of $167.5 million, had a fair value that exceeded adjusted net book value by less than 5%. The remaining six2018. All reporting units, with total allocated goodwill of $363.1$530.6 million,, had fair values that exceeded net book values by approximately 51%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.
The following table summarizes intangible assets as of December 31:



 2015 2014
 Gross Accumulated
Amortization		 Net Gross Accumulated
Amortization		 Net
 (in thousands)
Amortizing:           
Core deposit$50,279
 $(50,279) $—
 $50,279
 $(50,054) $225
Other9,123
 (9,123) —
 9,123
 (9,101) 22
Total amortizing59,402
 (59,402) —
 59,402
 (59,155) 247
Non-amortizing963
 —
 963
 963
 —
 963
 $60,365
 $(59,402) $963
 $60,365
 $(59,155) $1,210

Core deposit intangible assets are amortized using an accelerated method over the estimated remaining life of the acquired core deposits. Other amortizing intangible assets consist primarily of premiums paid on branch acquisitions in prior years that did not qualify for business combinations accounting under FASB ASC Topic 810. As December 31, 2015, all amortizing intangible assets were fully amortized. Amortization expense related to intangible assets totaled $247,000, $1.3 million and $2.4 million in 2015, 2014 and 2013, respectively. No amortization is expected in future years with respect to these intangible assets.


95


NOTE 7 – MORTGAGE SERVICING RIGHTS
The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance sheets:
2015 20142018 2017
(in thousands)(in thousands)
Amortized cost:      
Balance at beginning of year$42,148
 $42,452
$37,663
 $38,822
Originations of mortgage servicing rights6,166
 5,047
6,756
 4,968
Amortization expense(7,370) (5,351)(5,846) (6,127)
Balance at end of year$40,944
 $42,148
$38,573
 $37,663
   
Valuation allowance:   
Balance at beginning of year$—
 $(1,291)
Net deductions to the valuation allowance—
 1,291
Balance at end of year$—
 $—
   
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 estimated prepayments.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 were $45.3was $50.2 million and $46.0$41.6 million as of December 31, 20152018 and 2014, respectively, which exceeded their book values2017, respectively.
Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income, was $7.4$5.8 million and $5.4$6.1 million in 20152018 and 2014,2017, respectively. Estimated MSR amortization expense for the next five years, based on balances as of December 31, 20152018 and the estimated remaining lives of the underlying loans, follows (in thousands):
Year  
2016$10,681
20179,292
20187,774
20196,118
$6,477
20204,316
6,037
20215,549
20225,010
20234,419


96



NOTE 8 – DEPOSITS
Deposits consisted of the following as of December 31:
2015 20142018 2017
(in thousands)(in thousands)
Noninterest-bearing demand$3,948,114
 $3,640,623
$4,310,105
 $4,437,294
Interest-bearing demand3,451,207
 3,150,612
4,240,974
 4,018,107
Savings and money market accounts3,868,046
 3,504,820
4,926,937
 4,586,746
Total demand and savings13,478,016
 13,042,147
Brokered deposits176,239
 90,473
Time deposits2,864,950
 3,071,451
2,721,904
 2,664,912
$14,132,317
 $13,367,506
Total Deposits$16,376,159
 $15,797,532

The scheduled maturities of time deposits as of December 31, 2018 were as follows (in thousands):
Year 
2019$1,561,694
2020667,265
2021253,314
2022153,447
202331,230
Thereafter54,954
 $2,721,904

Included in time deposits were certificates of deposit equal to or greater than $100,000$100,000 of $1.2$1.2 billion as of both December 31, 20152018 and 2014.2017. Time deposits of $250,000 or more were $359.9$425.1 million and $366.7$373.9 million as of December 31, 20152018 and 2014,2017, respectively. The scheduled maturities of time deposits as of December 31, 2015 were as follows (in thousands):
Year 
2016$1,342,716
2017508,171
2018239,480
2019527,480
2020163,559
Thereafter83,544
 $2,864,950


97


NOTE 9 – SHORT-TERM BORROWINGS AND LONG-TERM DEBT 
Short-term borrowings as of December 31, 2015, 20142018, 2017 and 20132016 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.
December 31, Maximum OutstandingDecember 31, Maximum Outstanding
2015 2014 2013 2015 2014 20132018 2017 2016 2018 2017 2016
(in thousands)(in thousands)
Federal funds purchased$197,235
 $6,219
 $582,436
 $266,338
 $577,581
 $848,179
$—
 $220,000
 $278,570
 $525,000
 $387,110
 $449,184
Short-term FHLB advances (1)110,000
 70,000
 400,000
 200,000
 600,000
 600,000
385,000
 —
 —
 385,000
 250,000
 —
Customer repurchase agreements111,496
 158,394
 175,621
 212,509
 244,729
 215,305
43,500
 172,017
 195,734
 181,989
 233,274
 221,989
Customer short-term promissory notes78,932
 95,106
 100,572
 93,176
 95,106
 115,129
326,277
 225,507
 67,013
 365,689
 237,298
 77,887
$497,663
 $329,719
 $1,258,629
      $754,777
 $617,524
 $541,317
      

(1) Represents FHLB advances with an original maturity term of less than one year.

As of December 31, 2015,2018, the Corporation had aggregate availability under Federalfederal funds lines of $1.0 billion, with $197.2 million borrowed against that amount.$1.3 billion. A combination of commercial real estate loans, commercial loans and securities were pledged to the Federal Reserve BankFRB of Philadelphia to provide access to Federal Reserve BankFRB Discount Window borrowings. As of December 31, 20152018 and 2014,2017, the Corporation had $1.2 billion$505.2 million and $1.1 billion,$617.4 million, respectively, of collateralized borrowing availability at the Discount Window, and no outstanding borrowings.







The following table presents information related to customer repurchase agreements:
2015 2014 20132018 2017 2016
(dollars in thousands)(dollars in thousands)
Amount outstanding as of December 31$111,496
 $158,394
 $175,621
$43,500
 $172,017
 $195,734
Weighted average interest rate as of December 310.15% 0.13% 0.12%0.25% 0.13% 0.10%
Average amount outstanding during the year$161,093
 $197,432
 $186,851
$138,198
 $188,974
 $184,978
Weighted average interest rate during the year0.10% 0.10% 0.11%0.21% 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 31:31:
2015 20142018 2017
(in thousands)(in thousands)
FHLB advances$587,756
 $673,107
$601,978
 $652,113
Subordinated debt350,000
 300,000
250,000
 250,000
Senior notes125,000
 125,000
Junior subordinated deferrable interest debentures16,496
 171,136
16,496
 16,496
Unamortized discounts and issuance costs(4,710) (4,830)(1,195) (5,263)
$949,542
 $1,139,413
$992,279
 $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, 20152018 and 2014,2017, there were no amounts outstanding under this line of credit. This line of credit, with a total commitment of $100.0$75.0 million,, is secured by equity securities and insurance investments and bears interest at the London Interbank Offered Rate (LIBOR)("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 October 2022March 2027 and carry a weighted average interest rate of 3.9%2.42%. As of December 31, 2015,2018, the Corporation had an additional borrowing capacity of approximately $2.6$2.4 billion with the FHLB. Advances from the FHLB are secured by FHLB stock, qualifying residential mortgages, investments and other assets.



98


The following table summarizes the scheduled maturities of FHLB advances with an original maturity of one year or more and long-term debt as of December 31, 20152018 (in thousands):
Year  
2016$235,937
2017114,539
2018—
2019186,760
$252,351
2020142,370
142,173
2021199,237
2022130,195
2023—
Thereafter269,936
268,323
$949,542
$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-yearten-year subordinated notes, which mature on November 15, 2024 and carry a fixed rate of 4.50% and an effective rate of approximately 4.87% as a result of discounts and issuance costs. Interest is paid semi-annually in May and November. In May 2007, the Corporation issued $100.0 million of ten-year subordinated notes, which mature on

On May 1, 2017, and carry a fixed rate of 5.75% and an effective rate of approximately 5.96% as a result of discounts and issuance costs. Interest is paid semi-annually in May and November.

On April 1, 2015, $100.0 million of the Corporation's outstanding ten-year subordinated debtnotes originally issued in March 2005, May 2007, with an effective rate of approximately 5.49%5.96%, matured and waswere fully repaid.



As of December 31, 2015,2018, 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. In the third quarter of 2015, $150.0 million of TruPS, with a scheduled maturity of February 1, 2036 and an effective rate of approximately 6.52%, were redeemed. As a result of this transaction, the Corporation recorded a $5.6 million loss on redemption, included as a component of non-interest expense. The loss on redemption consisted of $1.8 million of unamortized issuance costs and $2.5 million, net of a $1.3 million tax effect, of unamortized losses on a cash flow hedge recorded in accumulated other comprehensive income.

The following table provides details of the debentures as of December 31, 20152018 (dollars in thousands):
Debentures Issued toFixed/
Variable		 Interest
Rate		 Amount Maturity Callable Call PriceFixed/
Variable		 Interest
Rate		 Amount Maturity Callable Call Price
Columbia Bancorp Statutory TrustVariable 2.88% $6,186
 06/30/34 03/31/16 100.0Variable 5.05% $6,186
 06/30/34 03/31/19 100.0
Columbia Bancorp Statutory Trust IIVariable 2.40% 4,124
 03/15/35 03/15/16 100.0Variable 4.68% 4,124
 03/15/35 03/15/19 100.0
Columbia Bancorp Statutory Trust IIIVariable 2.28% 6,186
 06/15/35 03/15/16 100.0Variable 4.56% 6,186
 06/15/35 03/15/19 100.0
   $16,496
    $16,496
 




99


NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS

The following table presents the notional amounts and fair values of derivative financial instruments as of December 31:31:
2015 20142018 2017
Notional
Amount		 Asset
(Liability)
Fair Value		 Notional
Amount		 Asset
(Liability)
Fair Value		Notional
Amount		 Asset
(Liability)
Fair Value		 Notional
Amount		 Asset
(Liability)
Fair Value
(in thousands)(in thousands)
Interest Rate Locks with Customers              
Positive fair values$87,781
 $1,291
 $89,655
 $1,391
$101,700
 $1,148
 $129,469
 $1,059
Negative fair values267
 (16) 301
 (6)1,646
 (12) 8,957
 (59)
Net interest rate locks with customers  1,275
   1,385
  1,136
   1,000
Forward Commitments              
Positive fair values69,045
 205
 —
 —
1,540
 3
 3,856
 34
Negative fair values16,193
 (24) 93,802
 (1,164)83,562
 (1,066) 100,808
 (213)
Net forward commitments  181
   (1,164)  (1,063)   (179)
Interest Rate Swaps with Customers              
Positive fair values846,490
 32,915
 468,080
 19,716
1,185,144
 33,258
 1,316,548
 24,505
Negative fair values8,757
 (55) 25,418
 (198)1,386,046
 (30,769) 716,634
 (18,978)
Net interest rate swaps with customers  32,860
   19,518
  2,489
   5,527
Interest Rate Swaps with Dealer Counterparties              
Positive fair values8,757
 55
 25,418
 198
Negative fair values846,490
 (32,915) 468,080
 (19,716)
Positive fair values (1)
1,386,046
 28,143
 716,634
 18,941
Negative fair values (1)
1,185,144
 (16,338) 1,316,548
 (19,764)
Net interest rate swaps with dealer counterparties  (32,860)   (19,518)  11,805
   (823)
Foreign Exchange Contracts with Customers              
Positive fair values4,897
 114
 11,616
 810
5,881
 105
 4,852
 276
Negative fair values8,050
 (184) 5,250
 (441)9,690
 (251) 5,914
 (119)
Net foreign exchange contracts with customers  (70)   369
  (146)   157
Foreign Exchange Contracts with Correspondent Banks              
Positive fair values9,728
 428
 5,287
 446
9,220
 287
 7,960
 184
Negative fair values6,899
 (147) 13,572
 (876)6,831
 (130) 6,048
 (255)
Net foreign exchange contracts with correspondent banks  281
   (430)  157
   (71)
Net derivative fair value asset  $1,667
   $160
  $14,378
   $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:
2015 2014 2013 Statement of Income Classification2018 2017 2016 Statement of Income Classification
(in thousands)  (in thousands)  
Interest rate locks with customers$(110) $577
 $(5,949) Mortgage banking income$136
 $364
 $(639) Mortgage banking income
Forward commitments1,345
 (2,422) 1,466
 Mortgage banking income(884) (2,290) 1,930
 Mortgage banking income
Interest rate swaps with customers(1)13,342
 20,406
 (7,978) Other non-interest expense(3,038) (1,872) (25,461) Other non-interest expense
Interest rate swaps with counterparties(1)(13,342) (20,406) 7,978
 Other non-interest expense12,628
 6,576
 25,461
 Other non-interest expense
Foreign exchange contracts with customers(439) 688
 (108) Other service charges and fees(303) (126) 353
 Other service charges and fees
Foreign exchange contracts with correspondent banks711
 (880) 507
 Other service charges and fees228
 135
 (487) Other service charges and fees
Net fair value gains (losses) on derivative financial instruments$1,507
 $(2,037) $(4,084) 
Net fair value gains on derivative financial instruments$8,767
 $2,787
 $1,157
 
(1) Not included are the $9.7 millionand $4.6 million of expense related to the variation margin settlements at December 31, 2018 and 2017, respectively.








100


The Corporation has elected to record mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements as of and for the years ended December 31, 20152018 and 20142017:
Cost (1) Fair Value Balance Sheet
Classification		 Fair Value (Loss) Gain Statement of Income Classification
Cost (1)
 Fair Value Balance Sheet
Classification		 Fair Value Gain Statement of Income Classification
(in thousands)(in thousands)
December 31, 2015:      
December 31, 2018:      
Mortgage loans held for sale$16,584
 $16,886
 Loans held for sale $(140) Mortgage banking income$26,407
 $27,099
 Loans held for sale $231
 Mortgage banking income
December 31, 2014:      
December 31, 2017:      
Mortgage loans held for sale17,080
 17,522
 Loans held for sale 263
 Mortgage banking income31,069
 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 Gross Amounts Not Offset  Gross Amounts Gross Amounts Not Offset  
Recognized  on the Consolidated  Recognized  on the Consolidated  
on the Balance Sheets  on the Balance Sheets  
Consolidated Financial Cash NetConsolidated Financial Cash Net
Balance Sheets Instruments (1) Collateral (2) AmountBalance Sheets 
Instruments (1)
 
Collateral (2)
 Amount
(in thousands)(in thousands)
2015       
2018       
Interest rate swap derivative assets$32,970
 $(55) $—
 $32,915
$61,401
 $(12,955) $(23,270) $25,176
Foreign exchange derivative assets with correspondent banks428
 (147) —
 281
287
 (130) —
 157
Total$33,398
 $(202) $—
 $33,196
$61,688
 $(13,085) $(23,270) $25,333
              
Interest rate swap liabilities$32,970
 $(55) $(31,130) $1,785
Interest rate swap derivative liabilities$47,107
 $(22,786) $(22,786) $1,535
Foreign exchange derivative liabilities with correspondent banks147
 (147) —
 —
130
 (130) —
 —
Total$33,117
 $(202) $(31,130) $1,785
$47,237
 $(22,916) $(22,786) $1,535
              
2014       
2017       
Interest rate swap derivative assets$19,914
 $(206) $—
 $19,708
$43,446
 $(16,844) $—
 $26,602
Foreign exchange derivative assets with correspondent banks446
 (446) —
 —
184
 (184) —
 —
Total$20,360
 $(652) $—
 $19,708
$43,630
 $(17,028) $—
 $26,602
              
Interest rate swap liabilities$19,914
 $(206) $(19,210) $498
Interest rate swap derivative liabilities$38,742
 $(16,844) $(6,588) $15,310
Foreign exchange derivative liabilities with correspondent banks876
 (446) (310) 120
255
 (184) —
 71
Total$20,790
 $(652) $(19,520) $618
$38,997
 $(17,028) $(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(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.



NOTE 11 – REGULATORY MATTERS
Regulatory Capital Requirements
The Corporation’s subsidiary banks are subject to regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can trigger certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the subsidiary banks must meet specific capital guidelines that involve quantitative measures of the subsidiary banks’ assets, liabilities, and certain off-balance sheet items as calculated under regulatory

101


accounting practices. The subsidiary banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
U.S. Basel III Capital Rules
In July 2013, the Federal Reserve Board approved final rules (the U.S."U.S. Basel III Capital Rules)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 reviserevised the risk-based capital requirements applicable to bank holding companies and depository institutions.
The new minimum regulatory capital requirements established by the U.S. Basel III Capital Rules became effective for the Corporation on January 1, 2015, and becomebecame fully phased in on January 1, 2019.
When fully phased in, the The U.S. Basel III Capital Rules will require the Corporation and its bank subsidiaries to:
Meet a new minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a minimum Tier 1 capital of 6.00% of risk-weighted assets;
Continue to require the currentMeet a minimum Total capital ratio of 8.00% of risk-weighted assets and thea minimum Tier 1 leverage capital ratio of 4.00% of average assets;
Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses. Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, will beare excluded as a component of Tier 1 capital for institutions of the Corporation's size. In July 2015, the previously outstanding trust preferred securities issued by Fulton Capital Trust I were redeemed.
The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expand the risk-weightings for assets and off-balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures, resulting in higher risk weights for a variety of asset categories.

When fully phased in onEffective January 1, 2019, the Corporation and its bank subsidiaries willwere also be required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements. The required minimum capital conservation buffer began to be phased in incrementally, starting at 0.625%, on January 1, 2016, and will increase to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.50% on January 1, 2019. The rules provide that the failure to maintain the "capital conservation buffer" will resultresults 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 capitalcommon stock, service its debt obligations or repurchase its common stock. In addition, the restrictions on payments of discretionary cash bonuses to executive officers may make it more difficult for the Corporation to retain key personnel.
As of December 31, 2015,2018, the Corporation believes its currentCorporation's capital levels would meet the fully-phased infully 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, 20152018 and 2014,2017, each of the Corporation’s subsidiary banks werewas 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, 20152018 that management believes have changed the institutions’ categories.


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The following table presentstables present the Total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage requirements for the Corporation and its four significant subsidiaries, Fulton Bank, N.A., Fulton Bank of New Jersey, The Columbia Bank and Lafayette Ambassador Bank with total assets in excess of $1 billion, as of December 31, 2015, under the U.S. Basel III Capital Rules:Rules, as of December 31:
20152018
Actual For Capital
Adequacy Purposes		 Well CapitalizedActual For Capital
Adequacy Purposes		 Well Capitalized
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
(dollars in thousands)(dollars in thousands)
Total Capital (to Risk-Weighted Assets):                      
Corporation$1,997,926
 13.2% $1,214,868
 8.0% N/A
 N/A
$2,200,257
 12.8% $1,380,905
 8.0% N/A
 N/A
Fulton Bank, N.A.1,088,709
 12.2
 714,734
 8.0
 $893,418
 10.0%1,319,090
 12.1
 871,413
 8.0
 $1,089,267
 10.0%
Fulton Bank of New Jersey373,465
 12.6
 236,691
 8.0
 295,864
 10.0
418,207
 13.3
 250,999
 8.0
 313,748
 10.0
The Columbia Bank211,355
 13.7
 123,260
 8.0
 154,075
 10.0
266,661
 12.9
 165,676
 8.0
 207,094
 10.0
Lafayette Ambassador Bank172,345
 14.1
 97,792
 8.0
 122,240
 10.0
180,604
 16.0
 90,077
 8.0
 112,596
 10.0
Tier I Capital (to Risk-Weighted Assets):                      
Corporation$1,544,495
 10.2% $911,151
 6.0% N/A
 N/A
$1,764,847
 10.2% $1,035,679
 6.0% N/A
 N/A
Fulton Bank, N.A1,000,603
 11.2
 536,051
 6.0
 $714,734
 8.0%1,225,797
 11.3
 653,560
 6.0
 $871,413
 8.0%
Fulton Bank of New Jersey336,319
 11.4
 177,518
 6.0
 236,691
 8.0
378,962
 12.1
 188,249
 6.0
 250,999
 8.0
The Columbia Bank192,090
 12.5
 92,445
 6.0
 123,260
 8.0
242,668
 11.7
 124,257
 6.0
 165,676
 8.0
Lafayette Ambassador Bank162,092
 13.3
 73,344
 6.0
 97,792
 8.0
169,835
 15.1
 67,558
 6.0
 90,077
 8.0
Common Equity Tier I Capital (to Risk-weighted Assets):                      
Corporation$1,541,214
 10.2% $683,363
 4.5% N/A N/A$1,764,847
 10.2% $776,759
 4.5% N/A
 N/A
Fulton Bank, N.A956,603
 10.7
 402,038
 4.5
 $580,721
 6.5%1,181,797
 10.8
 490,170
 4.5
 $708,023
 6.5%
Fulton Bank of New Jersey336,319
 11.4
 133,139
 4.5
 192,311
 6.5
378,962
 12.1
 141,187
 4.5
 203,936
 6.5
The Columbia Bank192,090
 12.5
 69,334
 4.5
 100,149
 6.5
242,668
 11.7
 93,192
 4.5
 134,611
 6.5
Lafayette Ambassador Bank162,092
 13.3
 55,008
 4.5
 79,456
 6.5
169,835
 15.1
 50,668
 4.5
 73,187
 6.5
Tier I Capital (to Average Assets):           
Tier I Leverage Capital (to Average Assets):           
Corporation$1,544,495
 9.0% $688,500
 4.0% N/A
 N/A
$1,764,847
 9.0% $783,118
 4.0% N/A
 N/A
Fulton Bank, N.A1,000,603
 10.2
 391,783
 4.0
 $489,729
 5.0%1,225,797
 10.0
 487,992
 4.0
 $609,989
 5.0%
Fulton Bank of New Jersey336,319
 9.5
 141,257
 4.0
 176,572
 5.0
378,962
 9.4
 162,098
 4.0
 202,623
 5.0
The Columbia Bank192,090
 9.7
 79,618
 4.0
 99,523
 5.0
242,668
 10.1
 96,269
 4.0
 120,336
 5.0
Lafayette Ambassador Bank162,092
 11.0
 59,152
 4.0
 73,940
 5.0
169,835
 10.9
 62,520
 4.0
 78,150
 5.0
N/A – Not applicable as "well capitalized" applies to banks only.


103



The following table presents the Total risk-based, Tier I risk-based and Tier I leverage requirements as of December 31, 2014, under the capital standards in existence prior to the U.S. Basel III Capital Rules:

20142017
Actual For Capital
Adequacy Purposes		 Well CapitalizedActual For Capital
Adequacy Purposes		 Well Capitalized
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
(dollars in thousands)(dollars in thousands)
Total Capital (to Risk-Weighted Assets):                      
Corporation$1,970,569
 14.7% $1,076,013
 8.0% N/A
 N/A
$2,179,147
 13.0% $1,338,560
 8.0% N/A
 N/A
Fulton Bank, N.A.1,065,445
 13.2
 643,791
 8.0
 $804,739
 10.0%1,234,536
 12.3
 805,125
 8.0
 $1,006,406
 10.0%
Fulton Bank of New Jersey347,235
 13.1
 211,823
 8.0
 264,779
 10.0
385,858
 12.4
 248,640
 8.0
 310,801
 10.0
The Columbia Bank203,109
 13.5
 119,934
 8.0
 149,917
 10.0
234,647
 12.2
 153,441
 8.0
 191,801
 10.0
Lafayette Ambassador Bank167,800
 15.9
 84,407
 8.0
 105,508
 10.0
173,097
 14.6
 94,720
 8.0
 118,400
 10.0
Tier I Capital (to Risk-Weighted Assets):                      
Corporation$1,655,853
 12.3
 $538,007
 4.0% N/A
 N/A
$1,737,060
 10.4% $1,003,920
 6.0% N/A
 N/A
Fulton Bank, N.A977,547
 12.1
 321,896
 4.0
 $482,843
 6.0%1,142,230
 11.3
 603,843
 6.0
 $805,125
 8.0%
Fulton Bank of New Jersey313,843
 11.9
 105,911
 4.0
 158,867
 6.0
346,867
 11.2
 186,480
 6.0
 248,640
 8.0
The Columbia Bank184,331
 12.3
 59,967
 4.0
 89,950
 6.0
215,651
 11.2
 115,081
 6.0
 153,441
 8.0
Lafayette Ambassador Bank154,817
 14.7
 42,203
 4.0
 63,305
 6.0
162,292
 13.7
 71,040
 6.0
 94,720
 8.0
Tier I Capital (to Average Assets):           
Common Equity Tier I Capital (to Risk-weighted Assets):           
Corporation$1,655,853
 10.0
 $663,421
 4.0% N/A
 N/A
$1,737,060
 10.4% $752,940
 4.5% N/A
 N/A
Fulton Bank, N.A977,547
 10.5
 373,288
 4.0
 $466,610
 5.0%1,098,230
 10.9
 452,883
 4.5
 $654,164
 6.5%
Fulton Bank of New Jersey313,843
 9.4
 133,580
 4.0
 166,975
 5.0
346,867
 11.2
 139,860
 4.5
 202,020
 6.5
The Columbia Bank184,331
 9.4
 78,186
 4.0
 97,733
 5.0
215,651
 11.2
 86,310
 4.5
 124,671
 6.5
Lafayette Ambassador Bank154,817
 10.8
 57,132
 4.0
 71,416
 5.0
162,292
 13.7
 53,280
 4.5
 76,960
 6.5
Tier I Leverage Capital (to Average Assets):           
Corporation$1,737,060
 8.9% $778,451
 4.0% N/A
 N/A
Fulton Bank, N.A1,142,230
 10.0
 458,016
 4.0
 $572,520
 5.0%
Fulton Bank of New Jersey346,867
 8.8
 158,027
 4.0
 197,534
 5.0
The Columbia Bank215,651
 9.3
 92,797
 4.0
 115,996
 5.0
Lafayette Ambassador Bank162,292
 10.1
 64,191
 4.0
 80,239
 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 $236$324 million as of December 31, 2015,2018, 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.

Regulatory Enforcement Orders

The Corporation and each of its bank subsidiaries are subject to regulatory enforcement orders issued during 2014 and 2015 by their respective Federal and state bank regulatory agencies relating to identified deficiencies in the Corporation’s centralized Bank Secrecy Act and anti-money laundering compliance program (the BSA/AML Compliance Program), which was designed to comply with the requirements of the Bank Secrecy Act, the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the BSA/AML Requirements). The regulatory enforcement orders, which are in the form of consent orders or orders to cease and desist issued upon consent (Consent Orders), generally require, among other things, that the Corporation and its bank subsidiaries undertake a number of required actions to strengthen and enhance the BSA/AML Compliance Program, and, in some cases, conduct retrospective reviews of past account activity and transactions, as well as certain reports filed in accordance with the BSA/AML Requirements, to determine whether suspicious activity and certain transactions in currency were properly identified and reported in accordance with the BSA/AML Requirements. In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program, while the Consent Orders remain in effect, the Corporation is subject to certain restrictions on expansion activities of the Corporation and its bank subsidiaries. Further, any failure to comply with the requirements of any of

104


the Consent Orders involving the Corporation or its bank subsidiaries could result in further enforcement actions, the imposition of material restrictions on the activities of the Corporation or its bank subsidiaries, or the assessment of fines or penalties.


NOTE 12 – INCOME TAXES
The components of the provision for income taxes are as follows:

2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Current tax expense:
 
 

 
 
Federal$34,455
 $32,957
 $38,573
$35,783
 $19,553
 $33,872
State2,042
 1,126
 687
5,352
 2,617
 1,698

36,497
 34,083
 39,260
41,135
 22,170
 35,570
Deferred tax expense (benefit):

 

 

Deferred tax (benefit) expense:

 

 

Federal12,752
 18,523
 15,357
(16,841) 39,885
 7,968
State672
 —
 (3,532)283
 646
 3,086

13,424
 18,523
 11,825
(16,558) 40,531
 11,054
Income tax expense$49,921
 $52,606
 $51,085
Total income tax expense$24,577
 $62,701
 $46,624
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
2015 2014 20132018 2017 2016
Statutory tax rate35.0 % 35.0 % 35.0 %21.0 % 35.0 % 35.0 %
Tax credit investments(6.1) (7.8) (7.0)
Tax-exempt income(6.0) (5.4) (5.2)(4.1) (6.6) (6.5)
Tax Credit Investments(5.2) (4.9) (4.9)
Bank owned life insurance(0.4) (0.4) (0.6)
Re-measurement of net deferred tax asset due to the Tax Act(0.3) 6.7
 —
Change in valuation allowance(0.9) (0.8) (2.0)(0.1) 1.2
 0.3
Bank owned life insurance(0.6) (0.5) (0.5)
Executive compensation0.1
 0.1
 0.1
State income taxes, net of federal benefit1.9
 1.2
 1.1
2.0
 (0.5) 1.2
Executive compensation0.1
 0.1
 0.1
Other, net0.7
 (0.3) 0.4
(1.6) (1.0) (0.1)
Effective income tax rate25.0 % 24.4 % 24.0 %10.5 % 26.7 % 22.4 %

105



The net deferred tax asset recorded by the Corporation is included in other assets and consists of the following tax effects of temporary differences as of December 31:
2015 20142018 2017
(in thousands)(in thousands)
Deferred tax assets:      
Allowance for credit losses$62,846
 $68,407
$37,906
 $40,554
Postretirement and defined benefit plans13,070
 16,017
Deferred compensation11,839
 12,486
Tax credit carryforward27,615
 —
Unrealized holding losses on securities12,489
 5,830
State loss carryforwards11,170
 12,960
11,605
 11,855
Other accrued expenses7,142
 7,335
7,232
 6,977
Deferred compensation7,064
 7,663
Postretirement and defined benefit plans5,079
 7,274
Other-than-temporary impairment of investments5,501
 8,126
1,803
 2,045
Unrealized holding losses on securities available for sale3,250
 —
Other10,165
 8,433
11,127
 6,742
Total gross deferred tax assets124,983
 133,764
121,920
 88,940
Deferred tax liabilities:      
Direct leasing20,309
 12,399
31,466
 21,917
Mortgage servicing rights14,582
 15,004
8,560
 8,204
Acquisition premiums/discounts8,897
 8,200
5,294
 6,030
Premises and equipment5,955
 7,897
3,579
 3,099
Intangible assets1,614
 1,382
1,292
 1,155
Unrealized holding gains on securities available for sale—
 3,949
Other9,593
 7,960
12,178
 10,420
Total gross deferred tax liabilities60,950
 56,791
62,369
 50,825
Net deferred tax asset, before valuation allowance64,033
 76,973
59,551
 38,115
Valuation allowance(8,359) (10,187)(11,605) (11,855)
Net deferred tax asset$55,674
 $66,786
$47,946
 $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, 20152018 and 2014,2017, the Corporation had state net operating loss carryforwards of approximately $424$347.3 million and $451$369.1 million,, respectively, which are available to offset future state taxable income, and expire at various dates through 2035.2038.

The Corporation has $5.3$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. Other deferred tax assets include $3.4 million related to realized capital losses on sales of investment securitiesThe Corporation currently believes that have not been deducted on tax returns as there were no capital gains available for offset in the current or carryback periods. These losses will begin to expire in 2016. If sufficient capital gains are not realized during this period, some or all of this deferred tax asset may need to be written off through a charge to income tax expense. The Corporationit has the ability to generate sufficient offsetting capital gains in future periods through the execution of certain tax planning strategies, which may include the sale and leaseback of some or all of its branch and office properties. As such, no valuation allowance for the deferred tax assets related to the realized or unrealized capital losses is considered to be necessary as of December 31, 2015.2018.

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, 2015.2018.


106



Uncertain Tax Positions
The following summarizes the changes in unrecognized tax benefits for the years ended December 31:31:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Balance at beginning of year$1,944
 $1,651
 $1,453
$2,550
 $2,438
 $2,373
Prior period tax positions—
 188
 —
Current period tax positions492
 269
 318
593
 523
 456
Lapse of statute of limitations(63) (164) (120)(417) (411) (391)
Balance at end of year$2,373
 $1,944
 $1,651
$2,726
 $2,550
 $2,438

Virtually all of the Corporation’s unrecognized tax benefits are for positions that are taken on an annual basis on state tax returns.Increases to unrecognized tax benefits will generally occur as a result of accruing for the nonrecognition of the position for the current year.Decreases will occur as a result of the lapsing of the statute of limitations for the oldest outstanding year which includes the position.These offsetting increases and decreases are likely to continue in the future, including over the next twelve months.While the net effect on future total unrecognized tax benefits cannot be reasonably estimated, approximately $391,000 is expected to reverse in 2016 due to lapsing of the statute of limitations. Decreases can also occur through the settlement of positions with taxing authorities.
The $188,000 increase for prior period tax positions in 2014 resulted from changes in state case law, which impacted the estimated amount of positions taken in prior years that will ultimately be recognized.
As of December 31, 2015,2018, if recognized, all of the Corporation’s unrecognized tax benefitswould impact the effective tax rate.Not included in the table above is $806,000$589,000 of federal income tax expensebenefits on unrecognized state tax benefits which, if recognized, would also impact the effective tax rate. Interest accrued related to unrecognized tax benefits is recorded as a component of income tax expense.Penalties, if incurred, would also be recognized in income tax expense. The Corporation recognized approximately $46,000 of$59,000 and $42,000 in 2018 and 2017, respectively, for interest and penalty expense, net of reversals,penalties in income tax expense related to unrecognized tax positions in 2015.positions. As of December 31, 20152018 and 2014,2017, total accrued interest and penalties related to unrecognized tax positions were approximately $531,000$675,000 and $485,000,$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 2012.2015.

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:
   2018 2017 2016
Included in other assets: (in thousands)
Affordable housing tax credit investments, net $170,401
 $191,771
 $169,382
Other tax credit investments, net 72,584
 79,753
 89,881
 Total tax credit investments, net $242,985
 $271,524
 $259,263
Included in other liabilities:      
Unfunded affordable housing tax credit commitments $23,196
 $68,848
 $40,634
Other tax credit liabilities 59,823
 62,049
 69,132
 Total unfunded tax credit commitments and liabilities $83,019
 $130,897
 $109,766






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 21,569
 16,958
 15,574
Deferred tax expense 1,341
 6,201
 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:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
401(k) Retirement Plan$6,423
 $8,643
 $11,807
$8,482
 $8,121
 $7,418
Pension Plan4,102
 1,514
 2,477
3,435
 4,168
 4,310
$10,525
 $10,157
 $14,284
$11,917
 $12,289
 $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. Prior to January 1, 2015, this plan also included a profit sharing component whereby additional employer contributions not to exceed 5% of each eligible employee’s covered compensation, were provided for certain employees.

Contributions to the Defined Benefit Pension Plan (Pension Plan)("Pension Plan") are actuarially determined and funded annually, if necessary. The Corporation recognizes the funded status of its Pension Plan on the consolidated balance sheets and recognizes the changes in that funded status through other comprehensive income. The Pension Plan has been curtailed, with no additional benefits accruing to participants.


107


Pension Plan

The net periodic pension cost for the Pension Plan, as determined by consulting actuaries, consisted of the following components for the years ended December 31:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Service cost (1)$579
 $367
 $202
$—
 $—
 $688
Interest cost3,405
 3,413
 3,087
3,053
 3,320
 3,520
Expected return on assets(3,009) (3,240) (3,194)(2,047) (1,804) (2,318)
Net amortization and deferral3,127
 974
 2,382
2,429
 2,652
 2,420
Net periodic pension cost$4,102
 $1,514
 $2,477
$3,435
 $4,168
 $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.


The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the plan years ended December 31:
2015 20142018 2017
(in thousands)(in thousands)
Projected benefit obligation at beginning of year$93,079
 $73,362
$89,482
 $85,363
Service cost579
 367
Interest cost3,405
 3,413
3,053
 3,320
Benefit payments(3,904) (5,164)(5,796) (3,751)
Change due to change in assumptions(7,722) 22,055
Change in assumptions(8,051) 5,008
Experience gain(701) (954)738
 (458)
Projected benefit obligation at end of year$84,736
 $93,079
$79,426
 $89,482
      
Fair value of plan assets at beginning of year$51,730
 $55,448
$54,061
 $48,684
Actual return on assets(855) 1,446
Employer contributions (1)
13,042
 3,816
Actual return on plan assets(3,482) 5,312
Benefit payments(3,904) (5,164)(5,796) (3,751)
Fair value of plan assets at end of year$46,971
 $51,730
$57,825
 $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:
2015 20142018 2017
(in thousands)(in thousands)
Projected benefit obligation$(84,736) $(93,079)$(79,426) $(89,482)
Fair value of plan assets46,971
 51,730
57,825
 54,061
Funded status$(37,765) $(41,349)$(21,601) $(35,421)

The following table summarizes the changes in the unrecognized net loss included as a component of accumulated other comprehensive loss:
 Unrecognized Net Loss 
 Gross of tax Net of tax
 (in thousands)
Balance as of December 31, 2013$16,161
 $10,505
Recognized as a component of 2014 periodic pension cost(974) (633)
Unrecognized losses arising in 201422,895
 14,882
Balance as of December 31, 201438,082
 24,754
Recognized as a component of 2015 periodic pension cost(3,127) (2,033)
Unrecognized gains arising in 2015(4,559) (2,963)
Balance as of December 31, 2015$30,396
 $19,758
 Unrecognized Net Loss 
 Before tax Net of tax
 (in thousands)
Balance as of December 31, 2016$30,169
 $19,610
Recognized as a component of 2017 periodic pension cost(2,652) (1,724)
Unrecognized gains arising in 20171,042
 678
Balance as of December 31, 201728,559
 18,564
Recognized as a component of 2018 periodic pension cost(2,429) (1,892)
Unrecognized losses arising in 2018(1,783) (1,389)
Re-measurement adjustments for tax rate changes—
 3,678
Balance as of December 31, 2018$24,347
 $18,961

108


The total amount of unrecognized net loss that will be amortized as a component of net periodic pension cost in 20162019 is expected to be $2.4$2.3 million.

Thefollowingrateswereusedtocalculatenetperiodicpensioncost and the present value of benefit obligationsasof December 31:
2015 2014 20132018 2017 2016
Discount rate-projected benefit obligation4.25% 3.75% 4.75%4.25% 3.50% 4.00%
Expected long-term rate of return on plan assets6.00% 6.00% 6.00%5.00% 5.00% 5.00%
As of December 31, 2015 and 2014, theThe discount raterates used waswere determined using the Citigroup Average Life discount rate table, as adjusted based on the Pension Plan's expected benefit payments and rounded to the nearest 0.25%.


The 6.00%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, 20152018 weighted average asset allocations. The expected long-term return is considered to be appropriate based on the asset mix and the historical returns realized.

The following table presents a summary of the fair values of the Pension Plan’s assets as of December 31:
2015 20142018 2017
Estimated
Fair Value		 % of Total
Assets		 Estimated
Fair Value		 % of Total
Assets		Estimated
Fair Value		 % of Total
Assets		 Estimated
Fair Value		 % of Total
Assets
(dollars in thousands)(dollars in thousands)
Equity mutual funds$8,269
 
 $8,503
 
$18,532
 
 $19,219
 
Equity common trust funds6,350
 
 6,018
 
9,062
 
 9,612
 
Equity securities14,619
 31.1% 14,521
 28.1%27,594
 47.7% 28,831
 53.3%
Cash and money market funds8,196
 
 8,957
 
10,754
 
 5,675
 
Fixed income mutual funds9,578
 
 9,845
 
11,523
 
 11,136
 
Corporate debt securities3,749
 
 4,971
 
2,985
 
 2,999
 
U.S. Government agency securities2,881
 

 3,856
 

—
 

 249
 

Fixed income securities and cash24,404
 52.0% 27,629
 53.4%25,262
 43.7% 20,059
 37.1%
Other alternative investment funds7,948
 16.9% 9,580
 18.5%4,969
 8.6% 5,171
 9.6%

$46,971
 100.0% $51,730
 100.0%$57,825
 100.0% $54,061
 100.0%

Investment allocation decisions are made by a retirement plan committee. The goal of the investment allocation strategy is to match certain benefit obligations with maturities of fixed income securities. Pension Plan assets are invested with a conservative growthbalanced objective, with target asset allocations of approximately 25%50% in equities, 55%40% in fixed income securities and cash and 20%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 
2016$3,125
20173,367
20183,727
20193,838
20204,227
2021 – 202523,903
 $42,187
Year 
2019$3,899
20204,203
20214,390
20224,500
20234,628
2024 – 202824,718
 $46,338




109













Postretirement Benefits

The Corporation provides medical benefits and life insurance benefits under a postretirement benefits plan (Postretirement Plan)("Postretirement Plan") to certain retired full-time employees who were employees of the Corporation prior to January 1, 1998.1998. Prior to February 1, 2014, certain full-time employees became eligible for these discretionary benefits if they reached retirement age while working for the Corporation. The Corporation recognizes the funded status of the postretirement plan on the consolidated balance sheets and recognizes the changes in that funded status through other comprehensive income.

Effective February 1, 2014, the Corporation amended the Postretirement Plan, making all active full-time employees ineligible for benefits under this plan. As a result of this amendment, the Corporation recorded a $1.5 million curtailment gain as a reduction to salaries and employee benefits expense in 2014. The curtailment gain resulted from the recognition of the remaining pre-curtailment prior service cost as of December 31, 2013. In addition, this amendment resulted in a $3.4 million decrease in the accumulated postretirement benefit obligation and a corresponding increase in unrecognized prior service cost credits.

In 2015, the Corporation amended the postretirement plan to eliminate a death benefit provision and to fix the cost of health insurance premiums paid for by each participant. This amendment resulted in a $2.5 million decrease in the postretirement benefit obligation that will be amortized to income over the estimated average remaining life of plan participants, or approximately 14 years.

The components of the net (benefit) expense for postretirement benefits other than pensions are as follows:
 2015 2014 2013
 (in thousands)
Service cost$—
 $15
 $228
Interest cost206
 206
 322
Expected return on plan assets—
 —
 (1)
Net amortization and deferral(258) (347) (363)
Net postretirement benefit cost$(52) $(126) $186
 2018 2017 2016
 (in thousands)
Interest cost$57
 $68
 $85
Net amortization and deferral(559) (565) (551)
Net postretirement benefit$(502) $(497) $(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:
2015 20142018 2017
(in thousands)(in thousands)
Accumulated postretirement benefit obligation at beginning of year$5,552
 $8,169
$1,700
 $1,926
Service cost—
 15
Interest cost206
 206
57
 68
Benefit payments(251) (209)(205) (216)
Experience gain189
 (532)35
 (104)
Change due to change in assumptions(2,821) 1,261
Effect of curtailment—
 (3,358)
Change in assumptions(67) 26
Accumulated postretirement benefit obligation at end of year$2,875
 $5,552
$1,520
 $1,700
      
Fair value of plan assets at beginning of year$8
 $23
$—
 $3
Employer contributions258
 194
205
 213
Benefit payments(251) (209)(205) (216)
Fair value of plan assets at end of year$15
 $8
$—
 $—


110



The following table presents 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 $1.7 million, respectively.
 2015 2014
 (in thousands)
Accumulated postretirement benefit obligation$(2,875) $(5,552)
Fair value of plan assets15
 8
Funded status$(2,860) $(5,544)

The following table summarizes the changes in items recognized as a component of accumulated other comprehensive loss:
 Gross of tax  
 Unrecognized
Prior Service
Cost		 Unrecognized
Net Loss (Gain)		 Total Net of tax
 (in thousands)
Balance as of December 31, 2013$(1,484) $(1,137) $(2,621) $(1,704)
Recognized as a component of 2014 postretirement benefit cost, prior to curtailment32
 10
 42
 26
Unrecognized gains arising in 2014, prior to curtailment—
 (313) (313) (203)
Curtailment gain1,452
 —
 1,452
 944
Recognized as a component of 2014 postretirement benefit cost, after curtailment235
 70
 305
 199
Unrecognized gains arising in 2014, after curtailment(3,358) 1,034
 (2,324) (1,511)
Balance as of December 31, 2014(3,123) (336) (3,459) (2,249)
Recognized as a component of 2015 postretirement benefit cost258
 —
 258
 168
Unrecognized gains arising in 2015(2,469) (172) (2,641) (1,717)
Balance as of December 31, 2015$(5,334) $(508) $(5,842) $(3,798)
 Before tax  
 Unrecognized
Prior Service
Cost		 Unrecognized
Net Loss (Gain)		 Total Net of tax
 (in thousands)
Balance as of December 31, 2016$(4,869) $(1,183) $(6,052) $(3,935)
Recognized as a component of 2017 postretirement benefit cost465
 101
 566
 368
Unrecognized gains arising in 2017—
 (77) (77) (50)
Balance as of December 31, 2017(4,404) (1,159) (5,563) (3,617)
Recognized as a component of 2018 postretirement benefit cost464
 95
 559
 435
Unrecognized gains arising in 2018—
 (32) (32) (25)
Re-measurement adjustments for tax rate changes—
 —
 —
 (721)
Balance as of December 31, 2018$(3,940) $(1,096) $(5,036) $(3,928)
For measuring the postretirement benefit obligation, the annual increase in the per capita cost of health care benefits was assumed to be 6.5% in year one, declining to an ultimate rate of 6.0% by year two. Assuming a 1.0% increase in the health care cost trend rate above the assumed annual increase, the accumulated postretirement benefit obligation would increase by approximately $385,000 and the current period expense would increase by approximately $15,000. Conversely, a 1.0% decrease in the health care cost trend rate would decrease the accumulated postretirement benefit obligation by approximately $340,000 and the current period expense by approximately $15,000.




The following rates were used to calculate net periodic postretirement benefit cost and the present value of benefit obligations as of December 31:
2015 2014 20132018 2017 2016
Discount rate-projected benefit obligation4.25% 3.75% 4.75%4.25% 3.50% 4.25%
Expected long-term rate of return on plan assets3.00% 3.00% 3.00%3.00% 3.00% 3.00%
As of December 31, 2015 and 2014, theThe discount raterates used to calculate the accumulated postretirement benefit obligation waswere determined using the Citigroup Average Life discount rate table, as adjusted based on the Postretirement Plan's expected benefit payments and rounded to the nearest 0.25%.

Estimated future benefit payments under the Postretirement Plan are as follows (in thousands):
Year 
2016$342
2017317
2018296
2019275
2020255
2021 – 2025995
 $2,480
Year 
2019$189
2020176
2021164
2022151
2023140
2024 – 2028534
 $1,354

111





NOTE 14 – SHAREHOLDERS’ EQUITY
Accumulated Other Comprehensive (Loss) Income (Loss)
The following table presents the components of other comprehensive income (loss) for the years ended December 31: 

 Before-Tax Amount Tax Effect Net of Tax Amount
 (in thousands)
2015:     
Unrealized loss on securities$(11,872) $4,155
 $(7,717)
Reclassification adjustment for securities gains included in net income (1)(9,066) 3,174
 (5,892)
Reclassification adjustment for loss on derivative financial instruments included in net income (2)3,778
 (1,322) 2,456
Non-credit related unrealized gains on other-than-temporarily impaired debt securities368
 (129) 239
Unrealized gain on derivative financial instruments115
 (40) 75
Unrecognized pension and postretirement cost7,200
 (2,520) 4,680
Amortization of net unrecognized pension and postretirement income (3)2,869
 (1,005) 1,864
Total Other Comprehensive Loss$(6,608) $2,313
 $(4,295)
2014:     
Unrealized gain on securities$51,901
 $(18,167) $33,734
Reclassification adjustment for securities gains included in net income (1)(2,041) 714
 (1,327)
Non-credit related unrealized gains on other-than-temporarily impaired debt securities1,200
 (420) 780
Unrealized gain on derivative financial instruments209
 (73) 136
Reclass adjustment for postretirement plan gain included in net income (3)(1,452) 508
 (944)
Unrecognized pension and postretirement income(20,258) 7,090
 (13,168)
Amortization of net unrecognized pension and postretirement income (3)627
 (219) 408
Total Other Comprehensive Income$30,186
 $(10,567) $19,619
2013:     
Unrealized loss on securities$(76,319) $26,712
 $(49,607)
Reclassification adjustment for securities gains included in net income (1)(8,004) 2,801
 (5,203)
Non-credit related unrealized gains on other-than-temporarily impaired debt securities3,042
 (1,065) 1,977
Unrealized gain on derivative financial instruments209
 (73) 136
Unrecognized pension and postretirement cost12,875
 (4,506) 8,369
Amortization of net unrecognized pension and postretirement income (3)$2,019
 $(707) $1,312
Total Other Comprehensive Loss$(66,178) $23,162
 $(43,016)
 Before-Tax Amount Tax Effect Net of Tax Amount
 (in thousands)
2018:     
Unrealized loss on available for sale securities$(31,235) $6,909
 $(24,326)
Reclassification adjustment for available for sale securities gains included in net income (1)
(37) 7
 (30)
Amortization of net unrealized losses on available for sale securities transferred to held to maturity (2)
2,694
 (596) 2,098
Non-credit related unrealized loss on other-than-temporarily impaired debt securities285
 (63) 222
Unrecognized pension and postretirement income1,798
 (398) 1,400
Amortization of net unrecognized pension and postretirement income (3)
2,116
 (468) 1,648
Total Other Comprehensive Loss$(24,379) $5,391
 $(18,988)
2017:     
Unrealized gain on available for sale securities$16,051
 $(5,619) $10,432
Reclassification adjustment for available for sale securities gains included in net income (1)
(9,071) 3,177
 (5,894)
Non-credit related unrealized loss on other-than-temporarily impaired debt securities285
 (100) 185
Unrecognized pension and postretirement cost(937) 328
 (609)
Amortization of net unrecognized pension and postretirement income (3)
2,092
 (731) 1,361
Total Other Comprehensive Income$8,420
 $(2,945) $5,475
2016:     
Unrealized loss on available for sale securities$(22,907) $8,016
 $(14,891)
Reclassification adjustment for available for sale securities gains included in net income (1)
(2,550) 893
 (1,657)
Non-credit related unrealized loss on other-than-temporarily impaired debt securities(285) 100
 (185)
Amortization of unrealized loss on derivative financial instruments (4)
25
 (9) 16
Unrecognized pension and postretirement cost(1,432) 501
 (931)
Amortization of net unrecognized pension and postretirement income (3)
1,869
 (653) 1,216
Total Other Comprehensive Loss$(25,280) $8,848
 $(16,432)

(1)Amounts reclassified out of accumulated other comprehensive loss.(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)AmountAmounts reclassified out of accumulated other comprehensive loss.(loss) income. Before-tax amount included in "Loss on redemption of trust preferred securities"amounts as a reduction to "Interest Income" on the consolidated statements of income. See "Note 93, - Short-Term Borrowings and Long-Term Debt,Investment Securities," for additional details.
(3)Amounts reclassified out of accumulated other comprehensive loss.(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.

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(4)Amounts reclassified out of accumulated other comprehensive (loss) income. Before-tax amounts included in "Interest Expense" on the consolidated statements of income.




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 Unrecognized Pension and Postretirement Plan Income (Cost) Unrealized Effective Portions of Losses on Forward-Starting Interest Rate Swaps Total
 (in thousands)
Balance as of December 31, 2012$26,362
 $613
 $(18,482) $(2,818) $5,675
Other comprehensive income (loss) before reclassifications(49,607) 1,977
 8,369
 —
 (39,261)
Amounts reclassified from accumulated other comprehensive income (loss)(4,265) (938) 1,312
 136
 (3,755)
Balance as of December 31, 2013(27,510) 1,652
 (8,801) (2,682) (37,341)
Other comprehensive income (loss) before reclassifications33,734
 780
 (14,112) —
 20,402
Amounts reclassified from accumulated other comprehensive income (loss)(244) (1,083) 408
 136
 (783)
Balance as of December 31, 20145,980
 1,349
 (22,505) (2,546) (17,722)
Other comprehensive income (loss) before reclassifications(7,717) 239
 4,680
 —
 (2,798)
Amounts reclassified from accumulated other comprehensive income (loss)(4,762) (1,130) 1,864
 75
 (3,953)
Reclassification adjustment for loss on derivative financial instruments—
 —
 —
 2,456
 2,456
Balance as of December 31, 2015$(6,499) $458
 $(15,961) $(15) $(22,017)
 Unrealized Gain (Losses) on Investment Securities Not Other-Than-Temporarily Impaired Unrealized Non-Credit Gains (Losses) on Other-Than-Temporarily Impaired Debt Securities Unrealized Effective Portions of Losses on Forward-Starting Interest Rate Swaps Unrecognized Pension and Postretirement Plan Income (Cost) Total
 (in thousands)
Balance as of December 31, 2015$(6,499) $458
 $(15) $(15,961) $(22,017)
Other comprehensive loss before reclassifications(14,891) (185) —
 (931) (16,007)
Amounts reclassified from accumulated other comprehensive (loss) income(1,657) —
 15
 1,217
 (425)
Balance as of December 31, 2016(23,047) 273
 —
 (15,675) (38,449)
Other comprehensive income before reclassifications10,432
 185
 —
 (609) 10,008
Amounts reclassified from accumulated other comprehensive (loss) income(5,894) —
 —
 1,361
 (4,533)
Balance as of December 31, 2017(18,509) 458
 —
 (14,923) (32,974)
Other comprehensive loss before reclassifications(24,326) 222
 —
 1,400
 (22,704)
Amounts reclassified from accumulated other comprehensive (loss) income(30) —
 —
 1,648
 1,618
Amortization of net unrealized losses on available for sale securities transferred to held to maturity2,098
 —
 —
 —
 2,098
Reclassification of stranded tax effects(3,887) —
 —
 (3,214) (7,101)
Balance as of December 31, 2018$(44,654) $680
 $—
 $(15,089) $(59,063)

Common Stock Repurchase Plans
In 2013 and 2014, the Corporation repurchased outstanding shares of its common stock under various repurchase programs approved by its board of directors. In 2013, 8.0 million shares were repurchased for $90.9 million or an average cost of $11.37 per share. In 2014, 8.0 million shares were repurchased for $95.2 million, or an average cost of $11.91 per share.

In addition to the repurchases discussed above, in November 2014, the Corporation entered into an accelerated share repurchase agreement (ASR) with a third party to repurchase $100 million of shares of its common stock. Under the terms of the ASR, the Corporation paid $100 million to the third party in November 2014 and received an initial delivery of 6.5 million shares, representing 80% of the shares expected to be delivered under the ASR, based on the closing price for the Corporation’s shares on November 13, 2014. In April 2015, the third party delivered an additional 1.8 million shares of common stock pursuant to the terms of the ASR, thereby completing the $100.0 million ASR. The Corporation repurchased a total of 8.3 million shares of common stock under the ASR at an average price of $12.05 per share.

In April 2015,November 2017, the Corporation announced that itsCorporation's board of directors had 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, 2015.2018. During 2015, 2018, the Corporation repurchased approximately 4.01.9 million shares under this program for a total cost of $50.0approximately $31.5 million, or $12.57$16.71 per share, completing this program.

In October 2015,November 2018, the Corporation announced that itsCorporation's board of directors had approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to $50.0$75.0 million of its outstanding shares of common stock, or approximately 2.3%2.7% of its outstanding shares, through December 31, 20162019. RepurchasedDuring 2018, the Corporation repurchased approximately 4.1 million shares willunder 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. The share repurchase program may be discontinued at any time. Noshares were repurchased under this program as of December 31, 2015.


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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:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Compensation expense$5,938
 $5,865
 $5,330
$7,965
 $5,209
 $6,556
Tax benefit(2,011) (1,608) (1,475)(2,625) (3,994) (2,679)
Stock-based compensation, net of tax$3,927
 $4,257
 $3,855
$5,340
 $1,215
 $3,877

The tax benefitbenefits as a percentage of compensation expense, as shown in the preceding table, is less thanwere 33.0%, 76.7% and 40.9% in 2018, 2017 and 2016, respectively. These percentages differ from the benefit that would be calculated using the Corporation’s statutory tax rates of 21% for 2018 and 35% statutory federal tax rate.for 2017 and 2016 ("Tax Rates"). Tax benefits are only recognized over the vesting period for awards that ordinarily will generate


a tax deduction when exercised, in the case of non-qualified stock options, or upon vesting, in the case of restricted stock. No non-qualifiedstock, 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 granted in 2015exercised, and 2014excess tax benefits realized on vesting RSUs and 50,000 non-qualified stock options were granted in 2013.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:
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Compensation expense$4,646
 $4,345
 $3,705
$7,124
 $4,922
 $6,165
Tax benefit(1,626) (1,510) (1,297)(1,585) (1,559) (2,158)
Restricted stock compensation, net of tax$3,020
 $2,835
 $2,408
$5,539
 $3,363
 $4,007
The following table provides information about stock option activity for the year ended December 31, 20152018:
Stock
Options		 Weighted
Average
Exercise
Price		 Weighted
Average
Remaining
Contractual
Term		 Aggregate
Intrinsic
Value
(in millions)		Stock
Options		 Weighted
Average
Exercise
Price		 Weighted
Average
Remaining
Contractual
Term		 Aggregate
Intrinsic
Value
(in millions)
Outstanding as of December 31, 20144,302,464
 $12.89
  
Outstanding and exercisable as of December 31, 2017878,202
 $10.66
  
Exercised(490,151) 10.21
  (214,845) 10.29
  
Forfeited(83,878) 14.09
  (1,117) 9.84
  
Expired(748,348) 16.80
  (3,472) 9.78
  
Outstanding as of December 31, 20152,980,087
 $12.31
 4.1 years $4.6
Exercisable as of December 31, 20152,630,235
 $12.34
 3.6 years $4.3
Outstanding and exercisable as of December 31, 2018658,768
 $10.75
 4.1 years $3.0
Exercisable as of December 31, 2018658,768
 $10.75
 4.1 years $3.0

The following table provides information about nonvested stock options, restricted stock, RSUs and PSUs granted under the Employee Equity Plan and Directors' Plan for the year ended December 31, 20152018:
Nonvested Stock Options Restricted Stock/RSUs/PSUs 
Restricted Stock/RSUs/PSUs(1)
Options Weighted
Average
Grant Date
Fair Value		 Shares Weighted
Average
Grant Date
Fair Value		 Shares Weighted
Average
Grant Date
Fair Value
Nonvested as of December 31, 2014755,964
 $2.68
 1,063,087
 $11.83
Nonvested as of December 31, 2017 1,306,937
 $13.91
Granted—
 —
 581,719
 12.04
 536,172
 17.15
Vested(393,862) 2.56
 (250,807) 10.48
 (438,596) 12.76
Forfeited(12,250) 2.77
 (5,610) 12.05
 (36,020) 16.18
Nonvested as of December 31, 2015349,852
 $2.82
 1,388,389
 $12.16
Nonvested as of December 31, 2018 1,368,493
 $15.49

(1) There were no nonvested stock options at December 31, 2018 or 2017.

As of December 31, 20152018, there was $7.87.4 million of total unrecognized compensation cost (pre-tax) related to nonvested stock options, restricted stock, RSUs and PSUs that will be recognized as compensation expense over a weighted average period of two years. As of December 31, 20152018, the Employee Equity Plan had 11.510.5 million shares reserved for future grants through 2023,, and the Directors’ Plan had 396,000312,000 shares reserved for future grants through 2021.2021.

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The following table presents information about stock options exercised:
2015 2014 20132018 2017 2016
(dollars in thousands)(dollars in thousands)
Number of options exercised490,151
 215,047
 451,102
214,845
 411,292
 920,924
Total intrinsic value of options exercised$1,442
 $568
 $1,612
$1,616
 $2,955
 $4,619
Cash received from options exercised$4,936
 $2,068
 $3,650
$2,210
 $4,644
 $10,240
Tax deduction realized from options exercised$1,389
 $530
 $1,416
$1,386
 $2,825
 $4,328


Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options.
The fair value of stock option awards under the Employee Equity Plan was estimated on the grant date using the Black-Scholes valuation methodology, which is dependent upon certain assumptions, as summarized in the table below. No options were granted in 2015 under the Employee Equity Plan.
  2014 2013
Risk-free interest rate 2.44% 1.27%
Volatility of Corporation’s stock 28.05% 27.64%
Expected dividend yield 2.36% 2.48%
Expected life of options 7 Years
 7 Years

The expected life of the options was estimated based on historical activity. Volatility of the Corporation’s stock was based on historical volatility for the period commensurate with the expected life of the options. The risk-free interest rate is the zero-coupon U.S. Treasury rate commensurate with the expected life of the options on the date of the grant.
Based on the assumptions above, the Corporation calculated an estimated fair value per option of $3.14 and $2.49 for options granted in 2014 and 2013, respectively. The Corporation granted 288,626 options in 2014 and 617,869 options in 2013.
The fair value of certain PSUs with market-based performance conditions granted in 2015 under the Employee Equity Plan was estimated on the grant date using the Monte Carlo valuation methodology performed by a third-party valuation expert. This valuation is dependent upon certain assumptions, as summarized in the following table:
Risk-free interest rate0.86%
Volatility of Corporation’s stock20.08%
Expected life of PSUs3 Years
 2018
 2017
 2016
Risk-free interest rate2.63% 1.43% 0.92%
Volatility of Corporation’s stock23.50% 22.45% 20.75%
Expected life of PSUs3 Years
 3 Years
 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 20152018, 2017 and 2016 of $10.66.$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:
2015 2014 20132018 2017 2016
ESPP shares purchased121,890
 132,640
 141,608
110,200
 98,000
 109,665
Average purchase price per share (85% of market value)$10.86
 $10.31
 $10.02
$14.74
 $15.28
 $12.37
Compensation expense recognized (in thousands)$234
 $241
 $251
$287
 $261
 $240


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NOTE 16 – LEASES
Certain branch offices and equipment are leased under agreements that expire at varying dates through 2035.2038. Most leases contain renewal provisions at the Corporation’s option. Total rental expense was approximately $18.1 million in 2015, $18.1 million in 2014 and $19.0 million in 2013.2018, $18.7 million in 2017 and $18.4 million in 2016.

Future minimum payments as of December 31, 20152018 under non-cancelable operating leases with initial terms exceeding one year are as follows (in thousands):
Year  
2016$16,325
201715,487
201813,046
201910,995
$18,013
20209,836
17,254
202115,681
202213,735
202311,367
Thereafter46,819
43,307
$112,508
$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


basis. The amount of collateral, if any, obtained upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, equipment and income producing commercial properties. The Corporation records a reserve for unfunded commitments, included in other liabilities on the consolidated balance sheets, which represents management’s estimate of losses inherent in these commitments. See "Note 4 - Loans and Allowance for Credit Losses," for additional information.

Standby letters of credit are conditional commitments issued to guarantee the financial or performance obligation of a customer to a third party. Commercial letters of credit are conditional commitments issued to facilitate foreign and domestic trade transactions for customers. The credit risk involved in issuing letters of credit is similar to that involved in extending loan facilities. These obligations are underwritten consistently with commercial lending standards. The maximum exposure to loss for standby and commercial letters of credit is equal to the contractual (or notional) amount of the instruments.

The 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:
 2015 2014
 (in thousands)
Commercial and other$3,518,960
 $2,972,105
Home equity1,300,062
 1,291,596
Commercial mortgage and construction965,116
 558,662
Total commitments to extend credit$5,784,138
 $4,822,363
    
Standby letters of credit$374,729
 $382,465
Commercial letters of credit39,529
 32,304
Total letters of credit$414,258
 $414,769

During 2015, the Corporation began disclosing available overdraft protection limits to its depositors that are enrolled in overdraft protection. The aggregate of these limits totaled approximately $330.6 million as of December 31, 2015 and are included in the $5.8 billion of commitments to extend credit as of December 31, 2015.

116


During 2015, the Corporation revised the comparative December 31, 2014 disclosure for commitments to extend credit as follows: commercial and other from $2.7 billion to $3.0 billion, commercial mortgage and construction from $351.4 million to $558.7 million and total commitments to extend credit from $4.4 billion to $4.8 billion. The Corporation assessed the materiality of these corrections of an error and concluded, based on qualitative and quantitative considerations, that the adjustments are not material to the financial statements as a whole.
 2018 2017
 (in thousands)
Commercial and other$3,642,545
 $3,689,700
Home equity1,475,066
 1,422,284
Commercial mortgage and construction1,188,972
 1,093,045
Total commitments to extend credit$6,306,583
 $6,205,029
    
Standby letters of credit$309,352
 $326,973
Commercial letters of credit48,682
 41,801
Total letters of credit$358,034
 $368,774

Residential Lending
Residential mortgages are originated and sold by the Corporation and consist primarily of conforming, prime loans sold to government sponsored agencies such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
The Corporation alsooriginates and sells certain residential mortgages to non-government sponsored agencysecondary market investors.

The Corporation provides customary representations and warranties to government sponsored agencies andsecondary market investors that specify, among other things, that the loans have been underwritten to the standards established byof the government sponsored agency orsecondary market investor. The Corporation may be required to repurchase a loanspecific loans, or reimburse the government sponsored agency or investor for a credit loss incurred on a sold loan if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. AsUnder some agreements with secondary market investors, the Corporation may have additional credit exposure beyond customary representations and warranties, based on the specific terms of December 31, 2015 and 2014, total outstanding repurchase requests totaled approximately $543,000.those agreements.

From 2000 to 2011, the Corporation sold loans to the Federal Home Loan Bank of Pittsburgh under its Mortgage Partnership Finance Program (MPF Program). No loans were sold under this program in 2015, 2014 or 2013. The Corporation providedmaintains a "credit enhancement" for residential mortgage loans sold under the MPF Program whereby it would assume credit losses in excess of a defined "First Loss Account," or "FLA" balance, up to specified amounts. The FLA is funded by the Federal Home Loan Bank of Pittsburgh based on a percentage of the outstanding principal balance of loans sold. As of December 31, 2015, the unpaid principal balance of loans sold under the MPF Program was approximately $126 million. As of December 31, 2015 and 2014, the reservesreserve for estimated credit losses related to loans sold under the MPF Program were $1.8 million and $2.3 million, respectively. Required reserves are calculated based on delinquency status and estimated loss rates established through the Corporation's existing allowance for credit loss methodology for residential mortgage loans.

to investors. As of December 31, 20152018 and 2014,2017, the total reserve for losses on residential mortgage loans sold was $2.6$2.1 million, and $3.2 million, respectively, including both reserves for credit losses under the MPF Program and reserves forboth representation and warranty exposures. Management believes that the reserves recorded as of December 31, 2015 are adequate. However, declines in collateral values, the identification of additional loans to be repurchased, or a deterioration in theand credit quality of loans sold under the MPF Program could necessitate additional reserves, established through charges to earnings, in the future.loss exposures.

Other ContingenciesLegal Proceedings

The Corporation and its subsidiaries areis involved in various pending and threatened claims and other legal proceedings in the ordinary course of business.its business activities. The Corporation periodically evaluates the possible impact of pending litigationthese matters, based on, among other factors,taking into consideration the advicemost 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 counsel, available insurance coverage and recorded liabilities and reserves for probable legal liabilities and costs. the loss cannot be reasonably estimated by the Corporation, no loss reserve is established.

In addition, from time to time, the Corporation is the subject ofinvolved 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 industry participants.companies. These inquiries or investigations could lead to administrative, civil or criminal proceedings involving the Corporation, and could possibly result in fines, penalties, restitution, other types of sanctions, or the need to alter the Corporation’s business practices, and causefor the Corporation to incur additional costs.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.

During the second quarter of 2015, Fulton Bank, N.A. (the Bank), the Corporation’s largest bank subsidiary, received a letter from the U.S. Department of Justice (the Department) indicating that the Department had initiated an investigation regarding potential violations of fair lending laws by the Bank in certain of its geographies. The Bank is cooperating with the Department and responding to the Department’s requests for information. Although the Corporation is not able to predict the outcome of the Department’s investigation, it could result in legal proceedings the resolution of which could potentially involve a settlement, fines or other remedial actions.

As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from the final outcomes of pending legal proceedings, or regulatory or governmental inquiries or investigations, will not have a material adverse effect on the financial positioncondition 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'sCorporation’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. See also, "Note 11 - Regulatory Matters,"

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 sub-heading "RegulatoryConsent 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 Orders."of the SEC regarding certain accounting determinations that could have impacted the Corporation’s reported earnings per share. The Corporation believes that


117its 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.





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)
Mortgage loans held for sale$—
 $27,099
 $—
 $27,099
Available for sale investment securities:
 
 
 
U.S. Government sponsored agency securities—
 31,632
 —
 31,632
State and municipal securities—
 279,095
 —
 279,095
Corporate debt securities—
 106,258
 3,275
 109,533
Collateralized mortgage obligations—
 832,080
 —
 832,080
Residential mortgage-backed securities—
 463,344
 —
 463,344
Commercial mortgage-backed securities—
 261,616
 —
 261,616
Auction rate securities—
 —
 102,994
 102,994
Total available for sale investment securities—
 1,974,025
 106,269
 2,080,294
Investments held in Rabbi Trust18,415
 —
 —
 18,415
Derivative assets392
 62,552
 —
 62,944
Total assets$18,807
 $2,063,676
 $106,269
 $2,188,752
Investments held in Rabbi Trust$18,415
 $—
 $—
 $18,415
Derivative liabilities381
 48,185
 —
 48,566
Total liabilities$18,796
 $48,185
 $—
 $66,981
       
20152017
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
(in thousands)(in thousands)
Mortgage loans held for sale$—
 $16,886
 $—
 $16,886
$—
 $31,530
 $—
 $31,530
Available for sale investment securities:
 
 
 

 
 
 
Equity securities21,514
 —
 —
 21,514
918
 —
 —
 918
U.S. Government sponsored agency securities—
 25,136
 —
 25,136
—
 5,938
 —
 5,938
State and municipal securities—
 262,765
 —
 262,765
—
 408,949
 —
 408,949
Corporate debt securities—
 93,619
 3,336
 96,955
—
 93,552
 3,757
 97,309
Collateralized mortgage obligations—
 821,509
 —
 821,509
—
 602,623
 —
 602,623
Mortgage-backed securities—
 1,158,835
 —
 1,158,835
Residential mortgage-backed securities—
 1,120,796
 —
 1,120,796
Commercial mortgage-backed securities—
 212,755
 —
 212,755
Auction rate securities—
 —
 98,059
 98,059
—
 —
 98,668
 98,668
Total available for sale investment securities21,514
 2,361,864
 101,395
 2,484,773
918
 2,444,613
 102,425
 2,547,956
Other assets16,129
 34,465
 —
 50,594
Investments held in Rabbi Trust18,982
 —
 —
 18,982
Derivative assets469
 44,539
 —
 45,008
Total assets$37,643
 $2,413,215
 $101,395
 $2,552,253
$20,369
 $2,520,682
 $102,425
 $2,643,476
Investments held in Rabbi Trust$18,982
 $—
 $—
 $18,982
Derivative liabilities375
 39,014
 —
 39,389
Other liabilities$15,914
 $33,010
 $—
 $48,924
$19,357
 $39,014
 $—
 $58,371
       
2014
Level 1 Level 2 Level 3 Total
(in thousands)
Mortgage loans held for sale$—
 $17,522
 $—
 $17,522
Available for sale investment securities:
 
 
 
Equity securities47,623
 —
 —
 47,623
U.S. Government securities—
 200
 —
 200
U.S. Government sponsored agency securities—
 214
 —
 214
State and municipal securities—
 245,215
 —
 245,215
Corporate debt securities—
 90,126
 7,908
 98,034
Collateralized mortgage obligations—
 902,313
 —
 902,313
Mortgage-backed securities—
 928,831
 —
 928,831
Auction rate securities—
 —
 100,941
 100,941
Total available for sale investment securities47,623
 2,166,899
 108,849
 2,323,371
Other assets17,682
 21,305
 —
 38,987
Total assets$65,305
 $2,205,726
 $108,849
 $2,379,880
Other liabilities$17,737
 $21,084
 $—
 $38,821



The valuation techniques used to measure fair value for the items in the table above are as follows:
Mortgage loans held for sale – This category consists of mortgage loans held for sale that the Corporation has elected to measure at fair value. Fair values as of December 31, 20152018 and December 31, 20142017 were measured as the price that secondary market investors were offering for loans with similar characteristics. See "Note 1 - Summary of Significant Accounting Policies" for details related to the Corporation’s election to measure assets and liabilities at fair value.
Available for sale investment securities – Included within this asset category are both equity and debt securities. Level 2 available for sale debt securities are valued by a third-party pricing service commonly used in the banking industry. The pricing service uses pricing models that vary based on asset class and incorporate available market information,

118


including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings, and matrix pricing.
Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable.

Management tests the values provided by the pricing service by obtaining securities prices from an alternative third-party source and comparing the results. This test is done for approximately 80%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 consistheld as of December 31, 2017 consisted of common stocks of financial institutions ($20.6 million at December 31, 2015 and $41.8 million at December 31, 2014) and other equity investments ($914,000 at December 31, 2015 and $5.8 million at December 31, 2014).investments. These Level 1 investments arewere measured at fair value based on quoted prices for identical securities in active markets.
U.S. Government securities/U.S. Government sponsored agency securities/State and municipal securities/Collateralized mortgage obligations/Mortgage-backedResidential 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 ($53.186.1 million at December 31, 20152018 and $50.0$61.9 million at December 31, 2014)2017), single-issuer trust preferred securities issued by financial institutions ($39.118.6 million at December 31, 20152018 and $42.0$30.7 million at December 31, 2014)2017), pooled trust preferred securities issued by financial institutions ($706,000875,000 at December 31, 20152018 and $4.1 million$707,000 at December 31, 2014)2017) and other corporate debt issued by non-financial institutions ($4.03.9 million at December 31, 20152018 and $1.9$4.0 million at December 31, 2014)2017).
Level 2 investments include subordinated debt and senior debt, other corporate debt issued by non-financial institutions and $36.5$16.3 million and $38.2$27.7 million of single-issuer trust preferred securities held at December 31, 20152018 and 2014,2017, 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 ($706,000875,000 at December 31, 20152018 and $4.1 million$707,000 at December 31, 2014)2017) and certain single-issuer trust preferred securities ($2.62.4 million at December 31, 20152018 and $3.8$3.1 million at December 31, 2014)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.


OtherDerivative assets – Included within this category are the following:
Level 1 assets, consisting of mutual funds that are held in trust for employee deferred compensation plans ($15.6 million at December 31, 2015 and $16.4 million at December 31, 2014) and the- fair value of foreign currency exchange contracts classified as Level 1 assets ($547,000392,000 at December 31, 20152018 and $1.3 million$460,000 at December 31, 2014)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.

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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 ($1.51.2 million at December 31, 20152018 and $1.4$1.1 million at December 31, 2014)2017) and the fair value of interest rate swaps ($33.061.4 million at December 31, 20152018 and $19.9$43.4 million at December 31, 2014)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.
Other liabilitiesInvestments held in Rabbi Trust – Included within this- This category consists of mutual funds that are the following:
Level 1held in trust for employee deferred compensation liabilitiesplans that the Corporation has elected to measure at fair value. Shares of mutual funds are valued based on net asset value, which represent amounts due to employees under deferred compensation plansquoted 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 ($15.618.4 million at December 31, 20152018 and $16.4$19.0 million at December 31, 2014) and2017).
Derivative liabilities - Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($331,000381,000 at December 31, 20152018 and $1.3 million$374,000 at December 31, 2014)2017). The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Other assets," above.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 ($40,000 at December 31, 2015 and $1.21.1 million at December 31, 2014)2018 and $272,000 at December 31, 2017) and the fair value of interest rate swaps ($33.047.1 million at December 31, 20152018 and $19.9$38.7 million at December 31, 2014)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		 Single-issuer
Trust
Preferred
Securities		 ARCs
 (in thousands)
Balance as of December 31, 2013$5,306
 $3,781
 $159,274
Realized adjustments to fair value (1)(18) —
 —
Unrealized adjustments to fair value (2)923
 32
 3,970
Sales(1,888) —
 (11,912)
Settlements - calls(239) —
 (51,212)
Discount accretion (3)4
 7
 821
Balance as of December 31, 20144,088
 3,820
 100,941
Sales(3,633) —
 —
Unrealized adjustments to fair value (2)366
 (230) (903)
Settlements - calls(117) (970) (2,446)
Discount accretion (3)2
 10
 467
Balance as of December 31, 2015$706
 $2,630
 $98,059
 Pooled Trust
Preferred
Securities		 Single-issuer
Trust
Preferred
Securities		 Auction Rate Securities
 (in thousands)
Balance as of December 31, 2016$422
 $2,450
 $97,256
Unrealized adjustments to fair value (1)
285
 588
 1,217
Discount accretion (2)
—
 12
 195
Balance as of December 31, 2017707
 3,050
 98,668
Realized adjustments to fair value—
 71
 —
Unrealized adjustments to fair value (1)
168
 221
 4,326
Settlements - calls—
 (950) —
Discount accretion (2)
—
 8
 —
Balance as of December 31, 2018$875
 $2,400
 $102,994

(1)Realized adjustments to fair value represent credit related other-than-temporary impairment charges and gains on sales of investment securities, both included
as components of investment securities gains on the consolidated statements of income.
(2)Pooled trust preferred securities, single-issuer trust preferred securities and ARCs are classified as available for sale investment securities; as such, the
unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of available for sale investment securities on the consolidated balance sheets.
(3)(2)Included as a component of net interest income on the consolidated statements of income.


120











Certain financial assets are not measured at fair value on an ongoing basis but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment. The following table presents the Corporation's financial assets measured at fair value on a nonrecurring basis and reported on the consolidated balance sheets at December 31:
2015
Level 1 Level 2 Level 3 Total2018 2017
(in thousands)(in thousands)
Net loans$—
 $—
 $138,491
 $138,491
 $149,846
 $149,608
Other financial assets—
 —
 52,043
 52,043
OREO 10,518
 9,823
MSRs 38,573
 37,663
Total assets$—
 $—
 $190,534
 $190,534
 $198,937
 $197,094
       
2014
Level 1 Level 2 Level 3 Total
(in thousands)
Net loans$—
 $—
 $127,834
 $127,834
Other financial assets—
 —
 54,170
 54,170
Total assets$—
 $—
 $182,004
 $182,004

The valuation techniques used to measure fair value for the items in the table above are as follows:
Net loans – This category consists of loans that were evaluated for impairment under FASB ASC Section 310-10-35 and have been classified as Level 3 assets. The amount shown is the balance of impaired loans, net of the related allowance for loan losses. See "Note 4 - Loans and Allowance for Credit Losses," for additional details.
Other financial assetsOREO – This category includes OREO ($11.110.5 million at December 31, 20152018 and $12.0$9.8 million at December 31, 2014) and MSRs ($40.9 million at December 31, 2015 and $42.1 million at December 31, 2014), both2017) 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 preparedperformed by a third-party valuation expert. Significant inputs to the valuation includeincluded 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, 20152018 valuation were 11.2%8.9% and 9.6%9.0%, respectively. Management tests the reasonableness of the significant inputs to the third-party valuation in comparison to market data.

121





























As required by FASB ASC Section 825-10-50, the following table details the book values and the estimated fair values of the Corporation’s financial instruments as of December 31, 20152018 and 2014.2017. A general description of the methods and assumptions used to estimate such fair values is also provided.

2015 2014
Book Value Estimated
Fair Value		 Book Value Estimated
Fair Value		2018
(in thousands)Amortized Cost Level 1 Level 2 Level 3 Estimated Fair Value
FINANCIAL ASSETS       (in thousands)
Cash and due from banks$101,120
 $101,120
 $105,702
 $105,702
$103,436
 $103,436
 $—
 $—
 $103,436
Interest-bearing deposits with other banks230,300
 230,300
 358,130
 358,130
342,251
 342,251
 —
 —
 342,251
Federal Reserve Bank and FHLB stock62,216
 62,216
 64,953
 64,953
Loans held for sale (1)16,886
 16,886
 17,522
 17,522
Securities available for sale (1)2,484,773
 2,484,773
 2,323,371
 2,323,371
Loans, net of unearned income (1)13,838,602
 13,709,957
 13,111,716
 13,030,543
FRB and FHLB stock79,283
 —
 79,283
 —
 79,283
Loans held for sale27,099
 —
 27,099
 —
 27,099
Held to maturity investment securities606,679
 611,419
 —
 —
 611,419
Available for sale investment securities2,115,265
 —
 1,974,025
 106,269
 2,080,294
Net Loans16,005,263
 —
 —
 15,446,895
 15,446,895
Accrued interest receivable42,767
 42,767
 41,818
 41,818
58,879
 58,879
 —
 —
 58,879
Other financial assets (1)166,920
 166,920
 169,764
 169,764
Other financial assets235,782
 124,138
 62,552
 49,092
 235,782
FINANCIAL LIABILITIES                
Demand and savings deposits$11,267,367
 $11,267,367
 $10,296,055
 $10,296,055
$13,478,016
 $13,478,016
 $—
 $—
 $13,478,016
Brokered deposits176,239
 176,239
 —
 —
 176,239
Time deposits2,864,950
 2,862,868
 3,071,451
 3,069,883
2,721,904
 —
 2,712,296
 —
 2,712,296
Short-term borrowings497,663
 497,663
 329,719
 329,719
754,777
 754,777
 —
 —
 754,777
Accrued interest payable10,724
 10,724
 18,045
 18,045
10,529
 10,529
 —
 —
 10,529
Other financial liabilities (1)190,927
 190,927
 172,786
 172,786
Other financial liabilities218,061
 161,003
 48,185
 8,873
 218,061
FHLB advances and long-term debt949,542
 959,315
 1,139,413
 1,142,980
992,279
 —
 970,985
 —
 970,985
         
2017
Amortized Cost Level 1 Level 2 Level 3 Estimated Fair Value
(in thousands)
FINANCIAL ASSETS         
Cash and due from banks$108,291
 $108,291
 $—
 $—
 $108,291
Interest-bearing deposits with other banks293,805
 293,805
 —
 —
 293,805
FRB and FHLB stock60,761
 —
 60,761
 —
 60,761
Loans held for sale31,530
 —
 31,530
 —
 31,530
Held to maturity investment securities—
 —
 —
 —
 —
Available for sale investment securities2,547,956
 918
 2,444,613
 102,425
 2,547,956
Net Loans15,598,337
 —
 —
 15,380,974
 15,380,974
Accrued interest receivable52,910
 52,910
 —
 —
 52,910
Other financial assets215,464
 123,439
 44,539
 47,486
 215,464
FINANCIAL LIABILITIES         
Demand and savings deposits$13,042,147
 $13,042,147
 $—
 $—
 $13,042,147
Brokered deposits90,473
 90,473
 —
 —
 90,473
Time deposits2,664,912
 —
 2,673,359
 —
 2,673,359
Short-term borrowings617,524
 617,524
 —
 —
 617,524
Accrued interest payable9,317
 9,317
 —
 —
 9,317
Other financial liabilities227,569
 182,381
 39,014
 6,174
 227,569
FHLB advances and long-term debt1,038,346
 —
 1,025,640
 —
 1,025,640
         
 
(1)These financial instruments, or certain financial instruments within these categories, are measured at fair value on the Corporation’s consolidated balance sheets. Descriptions of the fair value determinations for these financial instruments are disclosed above.
Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation.


For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded at fair value on the Corporation’s consolidated balance sheets, book value was considered to be a reasonable estimate of fair value.


The following instruments are predominantly short-term:
Assets  Liabilities
Cash and due from banks  Demand and savings deposits
Interest-bearing deposits with other banks  Short-term borrowings
Accrued interest receivable  Accrued interest payable

Federal Reserve Bank and FHLBFederal Home Loan Bank ("FHLB") stock represent restricted investments and are carried at cost on the consolidated balance sheets.

FairAs 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, as defined in FASB ASC Topic 820.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 would beare categorized withinin Level 2 liabilities under FASB ASC Topic 820.

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NOTE 19 – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

CONDENSED BALANCE SHEETS
(in thousands)
December 31,
December 31  December 312018 2017
2015 2014  2015 2014(in thousands)
ASSETS    LIABILITIES AND EQUITY      
Cash$—
 $137
 Long-term debt$361,504
 $465,936
$30,941
 $22,857
Other assets4,337
 10,053
 Payable to non-bank subsidiaries188,087
 84,676
7,072
 5,959
Receivable from subsidiaries29,249
 29,120
 Other liabilities77,263
 81,682
51,646
 53,880

    Total Liabilities626,854
 632,294
Investments in:          
Bank subsidiaries2,226,975
 2,174,786
    2,451,651
 2,399,053
Non-bank subsidiaries408,187
 414,863
 Shareholders’ equity2,041,894
 1,996,665
425,670
 426,846
Total Assets$2,668,748
 $2,628,959
 Total Liabilities and           Shareholders’ Equity$2,668,748
 $2,628,959
$2,966,980
 $2,908,595
LIABILITIES AND EQUITY   
Long-term debt$386,913
 $386,101
Payable to non-bank subsidiaries247,801
 206,766
Other liabilities84,693
 85,871
Total Liabilities719,407
 678,738
Shareholders’ equity2,247,573
 2,229,857
Total Liabilities and Shareholders’ Equity$2,966,980
 $2,908,595








CONDENSED STATEMENTS OF INCOME 
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Income:          
Dividends from subsidiaries$114,000
 $139,150
 $114,438
$150,000
 $66,500
 $115,000
Other (1)141,241
 120,543
 106,297
188,165
 171,490
 148,577
255,241
 259,693
 220,735
338,165
 237,990
 263,577
Expenses176,457
 152,243
 138,164
210,333
 199,981
 177,835
Income before income taxes and equity in undistributed net income of subsidiaries78,784
 107,450
 82,571
127,832
 38,009
 85,742
Income tax benefit(11,834) (10,549) (10,744)(7,100) (5,448) (10,543)
90,618
 117,999
 93,315
134,932
 43,457
 96,285
Equity in undistributed net income (loss) of:          
Bank subsidiaries60,806
 33,134
 56,552
74,631
 111,226
 58,477
Non-bank subsidiaries(1,922) 6,761
 11,973
(1,170) 17,070
 6,863
Net Income$149,502
 $157,894
 $161,840
$208,393
 $171,753
 $161,625
(1) Consists primarily of management fees received from subsidiary banks.

123



CONDENSED STATEMENTS OF CASH FLOWS
2015 2014 20132018 2017 2016
(in thousands)(in thousands)
Cash Flows From Operating Activities:          
Net Income$149,502
 $157,894
 $161,840
$208,393
 $171,753
 $161,625
Adjustments to reconcile net income to net cash provided by operating activities:          
Amortization of issuance costs and discount of long-term debt813
 845
 —
Stock-based compensation5,938
 5,865
 5,330
7,967
 4,740
 6,556
Excess tax benefits from stock-based compensation(201) (81) (302)—
 —
 (964)
Decrease (increase) in other assets2,806
 (7,120) 1,893
6,327
 (17,882) (16,585)
Equity in undistributed net income of subsidiaries(58,884) (39,895) (68,525)(73,460) (128,298) (65,340)
Loss on redemption of trust preferred securities5,626
 —
 —
Increase in other liabilities and payable to non-bank subsidiaries106,490
 37,354
 26,946
Increase (decrease) in other liabilities and payable to non-bank subsidiaries36,273
 31,241
 (5,928)
Total adjustments61,775
 (3,877) (34,658)(22,080) (109,354) (82,261)
Net cash provided by operating activities211,277
 154,017
 127,182
186,313
 62,399
 79,364
Cash Flows From Investing Activities—
 —
 —
—
 —
 —
Cash Flows From Financing Activities:          
Repayments of long-term debt(254,640) —
 —
—
 (100,000) —
Additions to long-term debt147,779
 97,113
 —
—
 123,251
 —
Net proceeds from issuance of common stock10,607
 8,201
 9,936
6,733
 9,007
 16,167
Excess tax benefits from stock-based compensation201
 81
 302
—
 —
 964
Dividends paid(65,361) (64,028) (46,525)(89,654) (80,368) (69,382)
Acquisition of treasury stock(50,000) (175,255) (90,927)(95,308) —
 (18,545)
Deferred accelerated stock repurchase payment—
 (20,000) —
Net cash used in financing activities(211,414) (153,888) (127,214)(178,229) (48,110) (70,796)
Net (Decrease) Increase in Cash and Cash Equivalents(137) 129
 (32)
Cash and Cash Equivalents at Beginning of Year137
 8
 40
Cash and Cash Equivalents at End of Year$—
��$137
 $8
Net Increase in Cash and Cash Equivalents8,084
 14,289
 8,568
Cash and Due From Banks at Beginning of Year22,857
 8,568
 —
Cash and Due From Banks at End of Year$30,941
 $22,857
 $8,568

124



Management Report on Internal Control Over Financial Reporting
The management of Fulton Financial Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Fulton Financial Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’sCorporation’s internal control over financial reporting as of December 31, 20152018, 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, 20152018, the company’sCorporation’s internal control over financial reporting is effective based on those criteria.
 
/s/ E. PHILIP WENGER       
E. Philip Wenger
Chairman and Chief Executive Officer and President
 
/s/ PMATRICKARK S. BR. MARRETTCCOLLOM      
Patrick S. BarrettMark R. McCollom
Senior Executive Vice President and
and Chief Financial Officer


125



Report of Independent Registered Public Accounting Firm


TheTo the Shareholders and Board of Directors and Stockholders
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) and subsidiaries as of December 31, 20152018 and 2014, and2017, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015.2018, 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, 2014,2018, 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 (COSO). 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 accompanyingManagement Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on thesethe 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 Public Company Accounting Oversight Board (United States).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 supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.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.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion,
/s/ KPMG LLP
We have served as the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fulton Financial Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Fulton Financial Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.


Company’s auditor since 2002.

/s/ KPMG LLP
Philadelphia, Pennsylvania
February 26, 2016March 1, 2019

126



QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per-share data)
 
Three Months EndedThree Months Ended
March 31 June 30 September 30 December 31March 31 June 30 September 30 December 31
2015       
2018       
Interest income$145,772
 $144,229
 $146,228
 $147,560
$177,687
 $186,170
 $194,048
 $200,609
Interest expense22,191
 21,309
 20,534
 19,761
26,369
 30,103
 33,921
 37,665
Net interest income123,581
 122,920
 125,694
 127,799
151,318
 156,067
 160,127
 162,944
Provision for credit losses(3,700) 2,200
 1,000
 2,750
3,970
 33,117
 1,620
 8,200
Non-interest income44,737
 46,489
 44,774
 45,839
45,875
 49,094
 51,033
 49,523
Non-interest expenses118,478
 118,354
 124,889
 118,439
136,661
 133,345
 135,413
 140,685
Income before income taxes53,540
 48,855
 44,579
 52,449
56,562
 38,699
 74,127
 63,582
Income tax expense13,504
 12,175
 10,328
 13,914
7,082
 3,502
 8,494
 5,499
Net income$40,036
 $36,680
 $34,251
 $38,535
$49,480
 $35,197
 $65,633
 $58,083
Per share data:              
Net income (basic)$0.22
 $0.21
 $0.20
 $0.22
$0.28
 $0.20
 $0.37
 $0.33
Net income (diluted)0.22
 0.21
 0.20
 0.22
0.28
 0.20
 0.37
 0.33
Cash dividends0.09
 0.09
 0.09
 0.11
0.12
 0.12
 0.12
 0.16
2014       
2017       
Interest income$148,792
 $147,902
 $149,790
 $149,594
$158,487
 $163,881
 $171,511
 $174,987
Interest expense19,227
 20,004
 20,424
 21,556
20,908
 22,318
 24,702
 25,574
Net interest income129,565
 127,898
 129,366
 128,038
137,579
 141,563
 146,809
 149,413
Provision for credit losses2,500
 3,500
 3,500
 3,000
4,800
 6,700
 5,075
 6,730
Non-interest income38,506
 44,872
 41,900
 42,101
46,673
 52,371
 51,974
 56,956
Non-interest expenses109,554
 116,174
 115,798
 117,720
122,275
 132,695
 132,157
 138,452
Income before income taxes56,017
 53,096
 51,968
 49,419
57,177
 54,539
 61,551
 61,187
Income tax expense14,234
 13,500
 13,402
 11,470
13,797
 9,072
 12,646
 27,186
Net income$41,783
 $39,596
 $38,566
 $37,949
$43,380
 $45,467
 $48,905
 $34,001
Per share data:              
Net income (basic)$0.22
 $0.21
 $0.21
 $0.21
$0.25
 $0.26
 $0.28
 $0.19
Net income (diluted)0.22
 0.21
 0.21
 0.21
0.25
 0.26
 0.28
 0.19
Cash dividends0.08
 0.08
 0.08
 0.10
0.11
 0.11
 0.11
 0.14


127



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures
The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 20152018, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
The "Management Report on Internal Control over Financial Reporting" and the "Report of Independent Registered Public Accounting Firm" may be found in Item 8, "Financial Statements and Supplementary Data" of this document.
Changes in Internal Controls
There was no change in the Corporation’s "internal control over financial reporting" (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Item 9B. Other Information

Not applicable.


128



PART III

Item 10. Directors, Executive Officers and Corporate Governance
Incorporated by reference herein is the information appearing under the headings "Information about Nominees, Directors and Independence Standards," "Related Person Transactions," "Section 16(a) Beneficial Ownership Reporting Compliance," "Code of Conduct," "Procedure for Shareholder Nominations," and "Other Board Committees" within the Corporation’s 20162019 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 Officerand 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 20162019 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 20162019 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 20162019 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 20162019 Proxy Statement.


129



PART IV

Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1.
Financial Statements — The following consolidated financial statements of Fulton Financial Corporation and subsidiaries are incorporated herein by reference in response to Item 8 above:
 (i)Consolidated Balance Sheets - December 31, 20152018 and 2014.2017.
 (ii)Consolidated Statements of Income - Years ended December 31, 2015, 20142018, 2017 and 2013.2016.
 (iii)Consolidated Statements of Comprehensive Income - Years ended December 31, 2015, 20142018, 2017 and 2013.2016.
 (iii)Consolidated Statements of Shareholders’ Equity - Years ended December 31, 2015, 20142018, 2017 and 2013.2016.
 (iv)Consolidated Statements of Cash Flows - Years ended December 31, 2015, 20142018, 2017 and 2013.2016.
 (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.
3.3.1Exhibits — The following is a list of the Exhibits required by Item 601 of Regulation S-K and filed as part of this report:
 3.1
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 datedfiled 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 datedfiled September 16,23, 2014.
4.1First Supplemental Indenture entered into on May 1, 2007 between Fulton Financial Corporation and Wilmington Trust Company as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.75% subordinated notes due May 1, 2017 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current Report on Form 8-K dated May 1, 2007.
 4.2
An Indenture entered into on November 17, 2014 between Fulton Financial Corporation and Wilmington Trust, National Association as trustee, relating to the issuance by Fulton Financial Corporation of $250 million aggregate principal amount of 4.50% subordinated notes due November 15, 2024 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current Report on Form 8-K datedfiled November 12,17, 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 datedfiled November 14, 2008.
10.2
Form of Executive Employment Agreement between Fulton Financial Corporation and Craig A. Roda dated August 1, 2011 –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 dated August 5, 2011.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.
10.3Employment
Form of Key Employee Change in Control Agreement between Fulton Financial Corporation and Philmer H. Rohrbaugh dated November 1, 2012 – Incorporated by reference to Exhibit 10.1certain Executive Officers of the Fulton Financial Corporation, Current Report on Form 8-K dated October 22, 2012.
10.4Employment Agreement between Fulton Financial Corporation and Meg R. Mueller dated July 1, 2013 – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.
10.5Employment Agreement between Fulton Financial Corporation and Curtis J. Myers dated July 1, 2013 – Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.filed January 4, 2018.



10.6Employment Agreement
10.3.1
Schedule of Key Employee Change in Control Agreements between Fulton Financial Corporation and Angela M. Sargent dated July 1, 2013 –certain Executive Officers of Fulton Financial Corporation - Incorporated by reference to Exhibit 10.110.5.1 of the Fulton Financial Corporation CurrentAnnual Report on Form 8-K dated June 21, 2013.10-K for the fiscal year ended December 31, 2017.
10.410.7
Employment Agreement between Fulton Financial Corporation and Patrick S. Barrett dated November 4, 2013 – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated October 24, 2013.
 10.8
Form of Death Benefit Only Agreement to Senior Management –- Incorporated by reference to Exhibit 10.9 of the Fulton Financial Corporation Annual Report on Form 10K dated March 1, 2007.
10-K for the fiscal year ended December 31, 2006.

130


10.5
 10.9
Fulton Financial Corporation Amended and Restated Equity and Cash Incentive Compensation Plan – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K datedfiled May 3, 2013.
10.610.10
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.
10.7
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.
10.8
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 datedfiled June 19, 2013.
10.910.11
Amended and Restated Fulton Financial Corporation Employee Stock Purchase Plan – Incorporated by reference to Exhibit A to Fulton Financial Corporation’s definitive proxy statement, datedfiled March 26, 2014.

10.1010.12
Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective December 1, 2015 – filed herewith.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.
10.1110.13
Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated June 23, 2011.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. – Incorporated by reference to Exhibit 10.1 of the
10.12
Fulton Financial Corporation Quarterly Report on Form 10-Q dated August 8, 2011.
10.14Fulton Financial Corporation2011 Directors' Equity Participation Plan – Incorporated by reference to Exhibit A to Fulton Financial Corporation’s definitive proxy statement, datedfiled March 24, 2011.
10.13
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.
10.14
Fulton Financial Corporation Non-Employee Director Compensation - filed herewith.
10.15
Form of Director Stock Unit Award Agreement under the Directors' Equity Participation Plan, as amended - filed herewith.
10.16
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 10.110.2 of the Fulton Financial Corporation Quarterly Report on Form 10-Q dated August 8,for quarterly period ended June 30, 2011.
10.1710.16
Forms of Time-Vested Restricted Stock Unit Award Agreement and Performance Share Restricted Stock Unit Award Agreement between Fulton Financial Corporation and Certain Employees of the Corporation as of March 18, 2014 – Incorporated by reference to Exhibits 10.1 and 10.2, respectively, of the Fulton Financial Corporation Current Report on Form 8-K datedfiled March 18,24, 2014.
10.1810.17
Form of Master Confirmation between Fulton Financial Corporation and Goldman, Sachs & Co. - Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K datedfiled November 12,17, 2014.
21
Subsidiaries of the Registrant.
23
Consent of Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101101
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 20152018 and December 31, 2014;2017; (ii) the Consolidated Statements of Income for the years ended December 31, 2015, 20142018, 2017 and 2013;2016; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 20142018, 2017 and 2013;2016;(iv) the Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015, 20142018, 2017 and 2013;2016; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2015, 20142018, 2017 and 2013;2016; and, (iv) the Notes to Consolidated Financial Statements – filed herewith.


131


Item 16. Form 10-K Summary

Not applicable.

SIGNATURES
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.
 
  FULTON FINANCIAL CORPORATION
  (Registrant)
    
Dated:February 26, 2016March 1, 2019By:
/S/ E. PHILIP WENGER        
   E. Philip Wenger, Chairman and Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature  Capacity  Date
     
/S/ S/ PATRICK S. BARRETT
Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)February 26, 2016
Patrick S. Barrett
/S/ LISA CRUTCHFIELD

  Director  February 26, 2016March 1, 2019
Lisa Crutchfield    
     
/S/ S/ MICHAEL J. J. DEPORTER
  
Executive Vice President and Controller
(Principal Accounting Officer)
  February 26, 2016March 1, 2019
Michael J. DePorter   
    
/S/ DENISE L. L. DEVINE
  Director  February 26, 2016March 1, 2019
Denise L. Devine    
     
/S/ S/ PATRICK J. J. FREER
  Director  February 26, 2016March 1, 2019
Patrick J. Freer    
     
/S/ S/ GEORGE W. W. HODGES
  Director  February 26, 2016March 1, 2019
George W. Hodges    
     
/S/ SMARK R. MCCOLLOM
Senior Executive Vice PresidentMarch 1, 2019
Mark R. McCollomand Chief Financial Officer
(Principal Financial Officer)
/S/ ALBERT MORRISON, III
  Director  February 26, 2016March 1, 2019
Albert Morrison, III    
     
/S/ S/ JAMES R. R. MOXLEY, III
  Director  February 26, 2016March 1, 2019
James R. Moxley, III    
     

132



Signature  Capacity  Date
     
/S/ R. S/ R. SCOTT COTTSMITH,, JR. JR.
  Director  February 26, 2016March 1, 2019
R. Scott Smith, Jr.    
     
/S/ SCOTT A. SNYDER
DirectorMarch 1, 2019
Scott A. Snyder
/S/ RONALD H. H. SPAIR
  Director February 26, 2016March 1, 2019
Ronald H. Spair    
     
/S/ S/ MARK F. F. STRAUSS
  Director  February 26, 2016March 1, 2019
Mark F. Strauss    
     
/S/ S/ ERNEST J. J. WATERS
  Director  February 26, 2016March 1, 2019
Ernest J. Waters    
     
/S/ SE/ E. . PHILIPWENGER
  Chairman and Chief Executive Officer and President (Principal Executive Officer)  February 26, 2016March 1, 2019
E. Philip Wenger   

133



EXHIBIT INDEX

Exhibits Required Pursuant to Item 601 of Regulation S-K
3.1
 Articles of Incorporation, as amended and restated, of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report Form 8-K datedfiled 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 dated8-K/A filed September 16,23, 2014.
4.1
First Supplemental Indenture entered into on May 1, 2007 between Fulton Financial Corporation and Wilmington Trust Company as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.75% subordinated notes due May 1, 2017 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current Report on Form 8-K dated May 1, 2007.
4.2
 An Indenture entered into on November 17, 2014 between Fulton Financial Corporation and Wilmington Trust, National Association as trustee, relating to the issuance by Fulton Financial Corporation of $250 million aggregate principal amount of 4.50% subordinated notes due November 15, 2024 – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current Report on Form 8-K datedfiled November 12,17, 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 datedfiled November 14, 2008.
10.2
 Form of Executive Employment Agreement between Fulton Financial Corporation and Craig A. Roda dated August 1, 2011 –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 dated August 5, 2011.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
 EmploymentForm of Key Employee Change in Control Agreement between Fulton Financial Corporation and Philmer H. Rohrbaugh dated November 1, 2012 – Incorporated by reference to Exhibit 10.1certain Executive Officers of the Fulton Financial Corporation, Current Report on Form 8-K dated October 22, 2012.
10.4
Employment Agreement between Fulton Financial Corporation and Meg R. Mueller dated July 1, 2013 – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.
10.5
Employment Agreement between Fulton Financial Corporation and Curtis J. Myers dated July 1, 2013 – Incorporated by reference to Exhibit 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated June 21, 2013.filed January 4, 2018.








10.6
10.3.1
 Employment AgreementSchedule of Key Employee Change in Control Agreements between Fulton Financial Corporation and Angela M. Sargent dated July 1, 2013 –certain Executive Officers of Fulton Financial Corporation - Incorporated by reference to Exhibit 10.110.5.1 of the Fulton Financial Corporation CurrentAnnual Report on Form 8-K dated June 21, 2013.10-K for the fiscal year ended December 31, 2017.
10.7
Employment Agreement between Fulton Financial Corporation and Patrick S. Barrett dated November 4, 2013 – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated October 24, 2013.
10.810.4
 Form of Death Benefit Only Agreement to Senior Management –- Incorporated by reference to Exhibit 10.9 of the Fulton Financial Corporation Annual Report on Form 10K dated March 1, 2007.10-K for the fiscal year ended December 31, 2006.
10.910.5
 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 datedfiled May 3, 2013.
10.1010.6
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.
10.7
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.
10.8
 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 datedfiled June 19, 2013.
10.1110.9
 Amended and Restated Fulton Financial Corporation Employee Stock Purchase Plan – Incorporated by reference to Exhibit A to Fulton Financial Corporation’s definitive proxy statement, datedfiled March 26, 2014.
10.1210.10
 Fulton Financial Corporation Deferred Compensation Plan, as amended and restated effective December 1, 2015 – filed herewith.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.
10.1310.11
 Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated June 23, 2011.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. – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on Form 10-Q dated August 8, 2011.

134


10.1410.12
 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.
10.13
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.
10.14
Fulton Financial Corporation Non-Employee Director Compensation - filed herewith.
10.15
 Form of Director Stock Unit Award Agreement under the Directors' Equity Participation Plan, as amended - filed herewith.
10.16
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 10.110.2 of the Fulton Financial Corporation Quarterly Report on Form 10-Q dated August 8,for quarterly period ended June 30, 2011.
10.1610.17
 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 datedfiled March 18,24, 2014.
10.1710.18
 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 datedfiled November 12,17, 2014.
21
 Subsidiaries of the Registrant.
23
 Consent of Independent Registered Public Accounting Firm.
31.1
 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
 
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 20152018 and December 31, 2014;2017; (ii) the Consolidated Statements of Income for the years ended December 31, 2015, 20142018, 2017 and 2013;2016; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 20142018, 2017 and 2013;2016;(iv) the Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015, 20142018, 2017 and 2013;2016; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2015, 20142018, 2017 and 2013;2016; and, (iv) the Notes to Consolidated Financial Statements – filed herewith.


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