UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021,~~2022, or


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. ~~0-39680~~001-39680

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

~~17602~~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	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $2.50	FULT	The Nasdaq Stock Market, LLC
Depositary Shares, Each Representing 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A	FULTP	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark 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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $2.50 Par Value ~~–161,304,000 shares~~ –167,356,767 shares outstanding as of ~~October 28, 2021.~~July 29, 2022.

FULTON FINANCIAL CORPORATION

FORM 10-Q FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022

INDEX


Description		Page



Glossary of Terms		3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

(a)	Consolidated Balance Sheets - ~~September~~June 30 ~~30, 2021~~, 2022 and December 31, ~~2020~~2021	5

(b)	Consolidated Statements of Income - Three and ~~nine~~six months ended ~~September~~ June 30 ~~2021~~, 2022 and ~~2020~~2021	6

(c)	Consolidated Statements of Comprehensive Income - Three and six ~~nine~~months ended ~~September~~June 30 ~~30,~~, 2022 and 2021 ~~and 2020~~	7

(d)	Consolidated Statements of Shareholders’ Equity - Three and six ~~nine~~months ended ~~September~~June 30 ~~30,~~, 2022 and 2021 ~~and 2020~~	8

(e)	Consolidated Statements of Cash Flows - ~~Nine~~S ix months ended ~~September~~June 30 ~~30,~~, 2022 and 2021 ~~and 2020~~	9

(f)	Notes to Consolidated Financial Statements	10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		4341

Item 3. Quantitative and Qualitative Disclosures about Market Risk		7166

Item 4. Controls and Procedures		7468

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		7469

Item 1A. Risk Factors		7469

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		7469

Item 3. Defaults Upon Senior Securities - (not applicable)

Item 4. Mine Safety Disclosures - (not applicable)

Item 5. Other Information - (none to be reported)

Item 6. Exhibits		7570

Signatures		7671


FULTON FINANCIAL CORPORATION
GLOSSARY OF DEFINED ACRONYMS AND TERMS

ACL						Allowance for credit losses
AFS						Available for sale
ALCO						Asset/Liability Management Committee
~~AML~~						~~Anti-Money Laundering~~
AOCI						Accumulated other comprehensive income
ARC						Auction rate security
~~ARRC~~						~~Alternative Reference Rates Committee~~
ASC						Accounting Standards Codification
ASU						Accounting Standards Update


BHCA						Bank Holding Company Act of 1956, as amended
bp or bps						Basis point(s)
~~BSA~~						~~Bank Secrecy Act~~
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
~~CECL~~						~~Current expected credit losses~~
Corporation or Company						Fulton Financial Corporation
COVID-19						Coronavirus
Directors' Plan						Amended and Restated Directors’ Equity Participation Plan
Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act

~~COVID-19~~Employee Equity Plan						~~Coronavirus~~2022 Amended and Restated Equity and Cash Incentive Compensation Plan
ESG						Environmental, social and governance
ETR						Effective tax rate
Exchange Act						Securities Exchange Act of 1934
~~EAD~~						~~Exposure at default~~
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Fed Funds Rate						Target federal funds rate
Federal Reserve Board						Board of Governors of the Federal Reserve System
FHLB						Federal Home Loan Bank
FOMC						Federal Open Market Committee
Foreign Currency Nostro Accounts						Foreign currency with international correspondent banks
FRB						Federal Reserve Bank
FTE						Fully taxable-equivalent
Fulton Bank or the Bank						Fulton Bank, N.A.
GAAP						U.S. Generally Accepted Accounting Principles
HTM						Held to maturity
~~LGD~~						~~Loss given default~~
LIBOR						London Interbank Offered Rate
Management Discussion						Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger						The acquisition by the Corporation of Prudential, which was completed effective as of July 1, 2022
Merger Agreement						Agreement and Plan of Merger, dated as of March 1, 2022, between the Corporation and Prudential
Merger Consideration						For each share of Prudential common stock, $3.65 in cash and 0.7974 of a share of the Corporation's common stock
MSRs						Mortgage servicing rights
Net loans						Loans and lease receivables (net of unearned income)
NIM						Net interest margin
N/M						Not meaningful
~~Net Loans~~						~~Loans and lease receivables, (net of unearned income)~~
OBS						Off-balance-sheet
OCI						Other comprehensive income
OREO						Other real estate owned


PDPension Plan						~~Probability of default~~Defined Benefit Pension Plan
Postretirement Plan						Postretirement Benefits Plan
PPP						Paycheck Protection Program
Prudential						Prudential Bancorp, Inc.
PSU						Performance-based restricted stock unit
RSU						Restricted stock unit
SBA						Small Business Administration
SEC						United States Securities and Exchange Commission
~~SOFR~~						~~Secured Overnight Financing Rate~~


TCI						Tax credit investment
TDR						Troubled debt restructuring

TruPS						Trust Preferred Securities
Visa Shares						Visa, Inc. Class B restricted shares

Note: Some numbers contained in the document may not sum due to rounding

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share data)


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	260,564	$	120,462	Cash and due from banks	$	158,605	$	172,276
Interest-bearing deposits with other banks	Interest-bearing deposits with other banks	2,210,445		1,727,370		Interest-bearing deposits with other banks	291,069		1,466,338
Cash and cash equivalents	Cash and cash equivalents	2,471,009		1,847,832		Cash and cash equivalents	449,674		1,638,614
FRB and FHLB stock	FRB and FHLB stock	61,293		92,129		FRB and FHLB stock	62,146		57,635
Federal funds sold						Federal funds sold	30,500		—
Loans held for sale	Loans held for sale	43,123		83,886		Loans held for sale	17,528		35,768
Investment securities:	Investment securities:					Investment securities:
AFS, at estimated fair value	AFS, at estimated fair value	3,084,337		3,062,143		AFS, at estimated fair value	2,778,838		3,187,390
HTM, at amortized cost	HTM, at amortized cost	916,423		278,281		HTM, at amortized cost	1,338,963		980,384
Net Loans		18,269,407		18,900,820
Net loans						Net loans	18,920,950		18,325,350
Less: ACL - loans	Less: ACL - loans	(256,727)		(277,567)		Less: ACL - loans	(248,564)		(249,001)
Loans, net	Loans, net	18,012,680		18,623,253		Loans, net	18,672,386		18,076,349
Net premises and equipment	Net premises and equipment	228,179		231,480		Net premises and equipment	211,639		220,357
Accrued interest receivable	Accrued interest receivable	57,902		72,942		Accrued interest receivable	64,457		57,451
Goodwill and intangible assets		536,697		536,659
Goodwill and net intangible assets						Goodwill and net intangible assets	537,700		538,053
Other assets	Other assets	979,189		1,078,128		Other assets	1,088,855		1,004,397
Total Assets	Total Assets	$	26,390,832	$	25,906,733	Total Assets	$	25,252,686	$	25,796,398
LIABILITIES	LIABILITIES					LIABILITIES
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	7,434,155	$	6,531,002	Noninterest-bearing	$	7,530,777	$	7,370,963
Interest-bearing	Interest-bearing	14,639,886		14,308,205		Interest-bearing	13,613,089		14,202,536
Total Deposits	Total Deposits	22,074,041		20,839,207		Total Deposits	21,143,866		21,573,499

Short-term borrowings:						Short-term borrowings:
Federal funds purchased						Federal funds purchased	20,000		—
Other short-term borrowings						Other short-term borrowings	436,185		416,764
Short-term borrowings	Short-term borrowings	468,967		630,066		Short-term borrowings	456,185		416,764
Accrued interest payable	Accrued interest payable	5,202		10,365		Accrued interest payable	6,010		7,000
Long-term borrowings	Long-term borrowings	627,386		1,296,263		Long-term borrowings	557,130		621,345
Other liabilities	Other liabilities	515,418		514,004		Other liabilities	618,402		465,110
Total Liabilities	Total Liabilities	23,691,014		23,289,905		Total Liabilities	22,781,593		23,083,718
SHAREHOLDERS’ EQUITY
Preferred stock, no par value, 10.0 million shares authorized; Series A, 0.2 million shares authorized and issued in 2020, liquidation preference of $1,000 per share		192,878		192,878
Common stock, $2.50 par value, 600.0 million shares authorized, 223.8 million shares issued in 2021 and 223.2 million issued in 2020		559,622		557,917
SHAREHOLDERS' EQUITY						SHAREHOLDERS' EQUITY
Preferred stock, no par value, 10.0 million shares authorized; Series A, 0.2 million shares authorized and issued as of June 30, 2022 and December 31, 2021, liquidation preference of $1,000 per share						Preferred stock, no par value, 10.0 million shares authorized; Series A, 0.2 million shares authorized and issued as of June 30, 2022 and December 31, 2021, liquidation preference of $1,000 per share	192,878		192,878
Common stock, $2.50 par value, 600.0 million shares authorized, 224.5 million shares issued as of June 30, 2022 and 223.9 million issued as of December 31, 2021						Common stock, $2.50 par value, 600.0 million shares authorized, 224.5 million shares issued as of June 30, 2022 and 223.9 million issued as of December 31, 2021	561,181		559,766
Additional paid-in capital	Additional paid-in capital	1,516,618		1,508,117		Additional paid-in capital	1,527,756		1,519,873
Retained earnings	Retained earnings	1,258,499		1,120,781		Retained earnings	1,363,344		1,282,383
Accumulated other comprehensive gain		25,615		65,091
Treasury stock, at cost, 62.4 million shares in 2021 and 60.8 million shares in 2020		(853,414)		(827,956)
Total Shareholders’ Equity		2,699,818		2,616,828
Total Liabilities and Shareholders’ Equity		$	26,390,832	$	25,906,733
Accumulated other comprehensive (loss) gain						Accumulated other comprehensive (loss) gain	(304,210)		27,411
Treasury stock, at cost, 63.4 million shares as of June 30, 2022 and December 31, 2021						Treasury stock, at cost, 63.4 million shares as of June 30, 2022 and December 31, 2021	(869,856)		(869,631)
Total Shareholders' Equity						Total Shareholders' Equity	2,471,093		2,712,680
Total Liabilities and Shareholders' Equity						Total Liabilities and Shareholders' Equity	$	25,252,686	$	25,796,398

See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements					See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(in thousands, except per-share data)	(in thousands, except per-share data)	Three months ended September 30				Nine months ended September 30				(in thousands, except per-share data)	Three months ended June 30				Six months ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
Interest Income	Interest Income									Interest Income
Loans, including fees	Loans, including fees	$	161,889	$	158,804	$	480,955	$	493,256	Loans, including fees	$	164,171	$	155,080	$	313,908	$	319,065
Investment securities:	Investment securities:									Investment securities:	24,144		19,819		46,497		39,162
Taxable		13,757		13,150		41,345		44,615
Tax-exempt		6,246		5,449		17,820		15,481

Loans held for sale	Loans held for sale	299		728		969		1,557		Loans held for sale	260		199		501		671
Other interest income	Other interest income	1,888		1,028		4,599		4,324		Other interest income	1,724		1,575		2,394		2,711
Total Interest Income	Total Interest Income	184,079		179,159		545,688		559,233		Total Interest Income	190,299		176,673		363,300		361,609
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	6,525		14,631		24,108		58,189		Deposits	5,796		7,982		11,401		17,584
Short-term borrowings	Short-term borrowings	131		370		456		4,960		Short-term borrowings	190		137		311		325
Long-term borrowings	Long-term borrowings	6,153		10,042		23,006		28,468		Long-term borrowings	5,482		6,155		11,447		16,853
Total Interest Expense	Total Interest Expense	12,809		25,043		47,570		91,617		Total Interest Expense	11,468		14,274		23,159		34,762
Net Interest Income	Net Interest Income	171,270		154,116		498,118		467,616		Net Interest Income	178,831		162,399		340,141		326,847
Provision for credit losses	Provision for credit losses	(600)		7,080		(9,600)		70,680		Provision for credit losses	1,500		(3,500)		(5,450)		(9,000)
Net Interest Income After Provision for Credit Losses	Net Interest Income After Provision for Credit Losses	171,870		147,036		507,718		396,936		Net Interest Income After Provision for Credit Losses	177,331		165,899		345,591		335,847
Non-Interest Income	Non-Interest Income									Non-Interest Income
Commercial banking	Commercial banking	16,738		18,311		50,209		53,477		Commercial banking	20,359		17,129		36,367		33,471
Consumer banking	Consumer banking	11,801		10,423		33,415		30,800		Consumer banking	12,472		10,860		24,146		21,614
Wealth management	Wealth management	18,532		14,943		53,513		43,405		Wealth management	18,274		17,634		37,702		34,981
Mortgage banking	Mortgage banking	9,535		16,801		26,333		32,999		Mortgage banking	3,768		2,838		8,344		16,798
Other	Other	5,971		2,769		12,883		10,080		Other	3,510		3,393		7,061		6,912
Non-Interest Income Before Investment Securities Gains	Non-Interest Income Before Investment Securities Gains	62,577		63,247		176,353		170,761		Non-Interest Income Before Investment Securities Gains	58,383		51,854		113,620		113,776
Investment securities gains, net	Investment securities gains, net	—		2		33,511		3,053		Investment securities gains, net	8		36		27		33,511
Total Non-Interest Income	Total Non-Interest Income	62,577		63,249		209,864		173,814		Total Non-Interest Income	58,391		51,890		113,647		147,287
Non-Interest Expense	Non-Interest Expense									Non-Interest Expense
Salaries and employee benefits	Salaries and employee benefits	82,679		79,227		243,632		240,467		Salaries and employee benefits	85,404		78,367		169,868		160,953
Data processing and software	Data processing and software	14,335		12,285		41,828		36,123		Data processing and software	14,685		13,932		29,000		27,493
Net occupancy	Net occupancy	12,957		13,221		39,433		39,851		Net occupancy	13,587		12,494		28,109		26,476
Other outside services	Other outside services	7,889		7,617		24,557		23,098		Other outside services	8,764		8,178		16,931		16,668
State taxes	State taxes	4,994		2,692		13,883		8,583		State taxes	3,568		4,384		6,605		8,889
Equipment	Equipment	3,416		3,711		10,268		10,322		Equipment	3,422		3,424		6,845		6,852
FDIC insurance										FDIC insurance	2,961		2,282		6,170		4,906
Professional fees	Professional fees	2,271		2,879		7,701		10,412		Professional fees	2,013		2,651		3,805		5,430
FDIC insurance		2,727		1,578		7,633		6,519
Amortization of TCI		1,546		1,694		4,640		4,594
Marketing	Marketing	1,448		1,147		3,798		4,029		Marketing	1,326		1,348		2,646		2,350
Intangible amortization	Intangible amortization	150		132		443		397		Intangible amortization	177		178		353		293
Debt extinguishment	Debt extinguishment	—		—		32,575		2,878		Debt extinguishment	—		412		—		32,575
Merger-related expenses										Merger-related expenses	1,027		—		1,428		—
Other	Other	10,184		12,962		33,420		37,431		Other	12,796		13,181		23,948		26,330
Total Non-Interest Expense	Total Non-Interest Expense	144,596		139,145		463,811		424,705		Total Non-Interest Expense	149,730		140,831		295,708		319,215
Income Before Income Taxes	Income Before Income Taxes	89,851		71,140		253,771		146,045		Income Before Income Taxes	85,992		76,958		163,530		163,919
Income taxes	Income taxes	14,268		9,529		40,160		18,832		Income taxes	16,003		11,994		29,253		25,892
Net Income	Net Income	75,583		61,611		213,611		127,213		Net Income	69,989		64,964		134,277		138,027
Preferred stock dividends	Preferred stock dividends	(2,562)		—		(7,715)		—		Preferred stock dividends	(2,562)		(2,562)		(5,124)		(5,153)
Net Income Available to Common Shareholders	Net Income Available to Common Shareholders	$	73,021	$	61,611	$	205,896	$	127,213	Net Income Available to Common Shareholders	$	67,427	$	62,402	$	129,153	$	132,874

PER SHARE:	PER SHARE:									PER SHARE:
Net Income Available to Common Shareholders (Basic)		$	0.45	$	0.38	$	1.27	$	0.78
Net Income Available to Common Shareholders (Diluted)		0.45		0.38		1.26		0.78
Cash Dividends		0.14		0.13		0.42		0.39
Net income available to common shareholders (basic)										Net income available to common shareholders (basic)	$	0.42	$	0.38	$	0.80	$	0.81
Net income available to common shareholders (diluted)										Net income available to common shareholders (diluted)	0.42		0.38		0.80		0.81
Cash dividends										Cash dividends	0.15		0.14		0.30		0.28
See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements									See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021

Net Income	Net Income	$	75,583	$	61,611	$	213,611	$	127,213	Net Income	$	69,989	$	64,964	$	134,277	$	138,027
Other Comprehensive (Loss)/Income, net of tax:	Other Comprehensive (Loss)/Income, net of tax:									Other Comprehensive (Loss)/Income, net of tax:
Unrealized gains (losses) on AFS investment securities										Unrealized gains (losses) on AFS investment securities
Unrealized (loss)/gain on securities	Unrealized (loss)/gain on securities	(21,622)		4,333		(16,073)		56,186		Unrealized (loss)/gain on securities	(88,352)		19,298		(242,211)		(20,701)
Reclassification adjustment for securities gains included in net income	Reclassification adjustment for securities gains included in net income	—		(1)		(25,901)		(2,377)		Reclassification adjustment for securities gains included in net income	6		(28)		21		349
Amortization of net unrealized losses on AFS securities transferred to HTM	Amortization of net unrealized losses on AFS securities transferred to HTM	637		928		2,154		2,517		Amortization of net unrealized losses on AFS securities transferred to HTM	(48,113)		(270)		(47,677)		1,517
Net unrealized gain on interest rate swaps used in cash flow hedges		(891)		—		(524)		—

Amortization of net unrecognized pension and postretirement income		290		255		868		765
Net unrealized gains (losses) on AFS investment securities										Net unrealized gains (losses) on AFS investment securities	(136,459)		19,000		(289,867)		(18,835)
Unrealized (losses) gains on interest rate swaps used in cash flow hedges										Unrealized (losses) gains on interest rate swaps used in cash flow hedges
Net unrealized holding (losses) gains arising during the period										Net unrealized holding (losses) gains arising during the period	(8,586)		2,752		(39,962)		1,158
Reclassification adjustment for net (losses) gains realized in net income										Reclassification adjustment for net (losses) gains realized in net income	(335)		(678)		(1,842)		(791)
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges										Net unrealized (losses) gains on interest rate swaps used in cash flow hedges	(8,921)		2,074		(41,804)		367
Defined benefit pension plan and postretirement benefits										Defined benefit pension plan and postretirement benefits

Amortization of net unrecognized pension and postretirement items										Amortization of net unrecognized pension and postretirement items	25		289		50		578
Other Comprehensive (Loss)/Income	Other Comprehensive (Loss)/Income	(21,586)		5,515		(39,476)		57,091		Other Comprehensive (Loss)/Income	(145,355)		21,363		(331,621)		(17,890)
Total Comprehensive Income		$	53,997	$	67,126	$	174,135	$	184,304
Total Comprehensive (Loss) Income										Total Comprehensive (Loss) Income	$	(75,366)	$	86,327	$	(197,344)	$	120,137

See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements									See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except per-share data)


		Preferred Stock			Common Stock			Additional		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total			Preferred Stock				Common Stock				Additional		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
		Shares	Amount		Shares	Amount		Paid-in Capital						Shares							Amount		Shares		Amount		Paid-in Capital
Three months ended September 30, 2021
Balance at June 30, 2021		200	$	192,878	162,988	$	559,485	$	1,513,645	$	1,208,086	$	47,201		$	(828,337)	$	2,692,958
Three months ended June 30, 2022																			Three months ended June 30, 2022
Balance at March 31, 2022																			Balance at March 31, 2022	200		$	192,878	160,669		$	560,045	$	1,524,110	$	1,320,076	$	(158,855)	$	(868,719)	$	2,569,535
Net income	Net income									75,583							75,583		Net income											69,989						69,989
Other comprehensive loss	Other comprehensive loss											(21,586)					(21,586)		Other comprehensive loss													(145,355)				(145,355)

Common stock issued	Common stock issued				132	137		781							1,049		1,967		Common stock issued					388		1,136		(94)						(1,137)		(95)
Stock-based compensation awards	Stock-based compensation awards							2,192									2,192		Stock-based compensation awards									3,740								3,740
Acquisition of treasury stock					(1,691)										(26,126)		(26,126)

Preferred stock dividend	Preferred stock dividend									(2,562)							(2,562)		Preferred stock dividend											(2,562)						(2,562)
Common stock cash dividends - $0.14 per share										(22,608)							(22,608)
Balance at September 30, 2021		200	$	192,878	161,429	$	559,622	$	1,516,618	$	1,258,499	$	25,615		$	(853,414)	$	2,699,818
Common stock cash dividends - $0.15 per share																			Common stock cash dividends - $0.15 per share											(24,159)						(24,159)
Balance at June 30, 2022																			Balance at June 30, 2022	200		$	192,878	161,057		$	561,181	$	1,527,756	$	1,363,344	$	(304,210)	$	(869,856)	$	2,471,093

Three months ended September 30, 2020
Balance at June 30, 2020		—	$	—	161,958	$	557,569	$	1,503,750	$	1,059,160	$	51,439		$	(831,417)	$	2,340,501
Three months ended June 30, 2021																			Three months ended June 30, 2021
Balance at March 31, 2021																			Balance at March 31, 2021	200		$	192,878	162,517		$	558,116	$	1,511,101	$	1,168,491	$	25,838	$	(826,769)	$	2,629,655
Net income	Net income									61,611							61,611		Net income											64,964						64,964
Other comprehensive income	Other comprehensive income											5,515					5,515		Other comprehensive income													21,363				21,363

Common stock issued	Common stock issued				176	149		105							1,592		1,846		Common stock issued					471		1,369		446						(1,568)		247
Stock-based compensation awards	Stock-based compensation awards							1,875									1,875		Stock-based compensation awards									2,098								2,098

Preferred stock dividend																			Preferred stock dividend											(2,562)						(2,562)
Common stock cash dividends - $0.14 per share																			Common stock cash dividends - $0.14 per share											(22,807)						(22,807)
Balance at June 30, 2021																			Balance at June 30, 2021	200		$	192,878	162,988		$	559,485	$	1,513,645	$	1,208,086	$	47,201	$	(828,337)	$	2,692,958

Six months ended June 30, 2022																			Six months ended June 30, 2022
Balance at December 31, 2021																			Balance at December 31, 2021	200		$	192,878	160,490		$	559,766	$	1,519,873	$	1,282,383	$	27,411	$	(869,631)	$	2,712,680
Net income																			Net income											134,277						134,277
Other comprehensive loss																			Other comprehensive loss													(331,621)				(331,621)
Common stock issued																			Common stock issued					567		1,415		1,508						(225)		2,698
Stock-based compensation awards																			Stock-based compensation awards									6,375								6,375

Common stock cash dividends - $0.13 per share										(21,083)							(21,083)
Balance at September 30, 2020		—	$	—	162,134	$	557,718	$	1,505,730	$	1,099,688	$	56,954		$	(829,825)	$	2,390,265
Preferred stock dividend																			Preferred stock dividend											(5,124)						(5,124)
Common stock cash dividends - $0.30 per share																			Common stock cash dividends - $0.30 per share											(48,192)						(48,192)
Balance at June 30, 2022																			Balance at June 30, 2022	200		$	192,878	161,057		$	561,181	$	1,527,756	$	1,363,344	$	(304,210)	$	(869,856)	$	2,471,093

Nine months ended September 30, 2021
Six months ended June 30, 2021																			Six months ended June 30, 2021
Balance at December 31, 2020	Balance at December 31, 2020	200	$	192,878	162,350	$	557,917	$	1,508,117	$	1,120,781	$	65,091		$	(827,956)	$	2,616,828	Balance at December 31, 2020	200		$	192,878	162,350		$	557,917	$	1,508,117	$	1,120,781	$	65,091	$	(827,956)	$	2,616,828
Net income	Net income									213,611							213,611		Net income											138,027						138,027
Other comprehensive loss	Other comprehensive loss											(39,476)					(39,476)		Other comprehensive loss													(17,890)				(17,890)

Common stock issued	Common stock issued				770	1,705		2,309							668		4,682		Common stock issued					638		1,568		1,528						(381)		2,715
Stock-based compensation awards	Stock-based compensation awards							6,192									6,192		Stock-based compensation awards									4,000								4,000
Acquisition of treasury stock					(1,691)										(26,126)		(26,126)

Preferred stock dividend	Preferred stock dividend									(7,715)							(7,715)		Preferred stock dividend											(5,153)						(5,153)
Common stock cash dividends - $0.42 per share										(68,178)							(68,178)
Balance at September 30, 2021		200	$	192,878	161,429	$	559,622	$	1,516,618	$	1,258,499	$	25,615		$	(853,414)	$	2,699,818

Nine months ended September 30, 2020
Balance at December 31, 2019		—	$	—	164,218	$	556,110	$	1,499,681	$	1,079,391	$	(137)		$	(792,869)	$	2,342,176
Net income										127,213							127,213
Other comprehensive income												57,091					57,091

Common stock issued					824	1,608		646							2,792		5,046
Stock-based compensation awards								5,403									5,403
Adjustment for CECL (1)										(43,807)							(43,807)
Acquisition of treasury stock					(2,908)										(39,748)		(39,748)

Common stock cash dividends - $0.39 per share										(63,109)							(63,109)
Balance at September 30, 2020		—	$	—	162,134	$	557,718	$	1,505,730	$	1,099,688	$	56,954		$	(829,825)	$	2,390,265
Common stock cash dividends - $0.28 per share																			Common stock cash dividends - $0.28 per share											(45,569)						(45,569)
Balance at June 30, 2021																			Balance at June 30, 2021	200		$	192,878	162,988		$	559,485	$	1,513,645	$	1,208,086	$	47,201	$	(828,337)	$	2,692,958

See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements																		See Notes to Consolidated Financial Statements

(1) The Corporation adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments on January 1, 2020. See Note 1, "Basis of Presentation" to the Consolidated Financial Statements for further details.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(in thousands)	(in thousands)	Nine months ended September 30				(in thousands)	Six months ended June 30
		2021		2020			2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	Net Income	$	213,611	$	127,213	Net Income	$	134,277	$	138,027
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	Provision for credit losses	(9,600)		70,680		Provision for credit losses	(5,450)		(9,000)
Depreciation and amortization of premises and equipment	Depreciation and amortization of premises and equipment	20,647		21,653		Depreciation and amortization of premises and equipment	14,963		13,775
Amortization of TCI		21,001		22,883
Net amortization of investment securities premiums	Net amortization of investment securities premiums	11,816		8,722		Net amortization of investment securities premiums	7,027		7,546

Investment securities gains, net	Investment securities gains, net	(33,511)		(3,053)		Investment securities gains, net	(27)		(33,511)
Gain on sales of mortgage loans held for sale	Gain on sales of mortgage loans held for sale	(20,038)		(42,208)		Gain on sales of mortgage loans held for sale	(5,568)		(14,094)
Proceeds from sales of mortgage loans held for sale	Proceeds from sales of mortgage loans held for sale	818,432		1,113,671		Proceeds from sales of mortgage loans held for sale	297,511		554,406
Originations of mortgage loans held for sale	Originations of mortgage loans held for sale	(757,631)		(1,127,256)		Originations of mortgage loans held for sale	(273,704)		(498,350)
Intangible amortization	Intangible amortization	443		397		Intangible amortization	353		293
Amortization of issuance costs and discounts on long-term borrowings	Amortization of issuance costs and discounts on long-term borrowings	1,608		836		Amortization of issuance costs and discounts on long-term borrowings	379		1,378
Debt extinguishment costs	Debt extinguishment costs	32,575		2,878		Debt extinguishment costs	—		32,575
Stock-based compensation	Stock-based compensation	6,192		5,403		Stock-based compensation	6,375		4,000
Change in deferred federal income tax						Change in deferred federal income tax	(96,703)		(4,503)
Change in accrued salaries and benefits						Change in accrued salaries and benefits	1,274		4,746
Change in life insurance cash surrender value						Change in life insurance cash surrender value	(28,742)		(13,736)

Other changes, net	Other changes, net	16,627		(169,447)		Other changes, net	(67,652)		50,032
Total adjustments	Total adjustments	108,561		(94,841)		Total adjustments	(149,964)		95,557
Net cash provided by (used in) operating activities		322,172		32,372
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(15,687)		233,584
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS securities	Proceeds from sales of AFS securities	125,811		215,150		Proceeds from sales of AFS securities	109,252		125,811
Proceeds from principal repayments and maturities of AFS securities	Proceeds from principal repayments and maturities of AFS securities	366,788		282,832		Proceeds from principal repayments and maturities of AFS securities	316,037		246,740
Proceeds from principal repayments and maturities of HTM securities	Proceeds from principal repayments and maturities of HTM securities	89,349		67,268		Proceeds from principal repayments and maturities of HTM securities	67,230		58,470
Purchase of AFS securities	Purchase of AFS securities	(901,400)		(728,937)		Purchase of AFS securities	(501,642)		(766,574)
Purchase of HTM securities	Purchase of HTM securities	(310,699)		—		Purchase of HTM securities	(9,541)		(227,687)
Sale of Visa Shares	Sale of Visa Shares	33,962		—		Sale of Visa Shares	—		33,962
Sale of FRB and FHLB stock		30,836		3,458
Net decrease (increase) in loans		620,583		(2,203,974)
(Increase) decrease of FRB and FHLB stock						(Increase) decrease of FRB and FHLB stock	(4,511)		29,498
(Increase) decrease of federal funds sold						(Increase) decrease of federal funds sold	(30,500)		—
Net increase in loans						Net increase in loans	(590,797)		300,929
Net purchases of premises and equipment	Net purchases of premises and equipment	(17,346)		(18,550)		Net purchases of premises and equipment	(6,245)		(10,648)
Net cash paid for acquisition	Net cash paid for acquisition	292		—		Net cash paid for acquisition	—		292
Net change in tax credit investments	Net change in tax credit investments	(12,439)		(9,585)		Net change in tax credit investments	(18,735)		(8,065)
Net cash provided by (used in) investing activities		25,737		(2,392,338)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(669,452)		(217,272)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits		1,743,512		3,669,990
Net decrease in time deposits		(508,678)		(333,852)
Net decrease in short-term borrowings		(161,099)		(271,514)
Net (decrease) increase in demand and savings deposits						Net (decrease) increase in demand and savings deposits	(253,864)		1,234,732
Net (decrease) increase in time deposits						Net (decrease) increase in time deposits	(175,769)		(349,627)
Net (decrease) increase in short-term borrowings						Net (decrease) increase in short-term borrowings	39,421		(96,317)
Proceeds from long-term borrowings	Proceeds from long-term borrowings	620		495,898		Proceeds from long-term borrowings	546		620
Repayments of long-term borrowings	Repayments of long-term borrowings	(703,681)		(82,491)		Repayments of long-term borrowings	(65,140)		(703,624)
Net proceeds from issuance of common stock	Net proceeds from issuance of common stock	4,682		5,046		Net proceeds from issuance of common stock	2,698		2,715

Dividends paid	Dividends paid	(73,962)		(63,387)		Dividends paid	(51,693)		(48,584)
Acquisition of treasury stock		(26,126)		(39,748)
Net cash provided by financing activities		275,268		3,379,942
Net Increase in Cash and Cash Equivalents		623,177		1,019,976

Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(503,801)		39,915
Net (decrease) increase in Cash and Cash Equivalents						Net (decrease) increase in Cash and Cash Equivalents	(1,188,940)		56,227
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	1,847,832		517,791		Cash and Cash Equivalents at Beginning of Period	1,638,614		1,847,832
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	2,471,009	$	1,537,767	Cash and Cash Equivalents at End of Period	$	449,674	$	1,904,059
Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:					Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	52,733	$	91,328	Interest	$	24,149	$	37,805
Income taxes	Income taxes	8,329		12,118		Income taxes	15,692		8,127
Supplemental Schedule of Certain Noncash Activities:	Supplemental Schedule of Certain Noncash Activities:					Supplemental Schedule of Certain Noncash Activities:
Transfer of AFS securities to HTM securities	Transfer of AFS securities to HTM securities	$	376,165	$	—	Transfer of AFS securities to HTM securities	$	479,008	$	376,165

See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements					See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of the Corporation have been prepared in conformity with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as revenues and expenses during the period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022. The Corporation evaluates subsequent events through the date of filing of this Form 10-Q with the SEC.

~~CECL Adoption~~Significant Accounting Policies:

~~On January 1, 2020, the Corporation adopted ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments.~~ The ~~Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments~~significant accounting policies used in ~~leases and OBS credit exposures. The Corporation recorded an increase of $58.3 million to the ACL on January 1, 2020 as a result~~preparation of the ~~adoption of CECL. Retained earnings decreased $43.8 million and deferred tax assets increased by $12.4 million. Included~~Consolidated Financial Statements are disclosed in the ~~$58.3 million increase to the ACL was $2.1 million for certain OBS credit exposures that was previously recognized in other liabilities before the adoption of CECL.~~Corporation's 2021 Annual Report on Form 10-K. Those significant accounting policies are unchanged at June 30, 2022.

CARES Act and Consolidated Appropriations Act - 2021

On March 27, 2020 the CARES Act was signed into law. The CARES Act includes an option for financial institutions to suspend the requirements of GAAP for certain loan modifications that would otherwise be categorized as a TDR. Certain conditions must be met with respect to the loan modification including that the modification is related to COVID-19 and the modified loan was not more than 30 days past due on December 31, 2019. On December 27, 2020, the 2021 Consolidated Appropriations Act was signed into law and this Act extended the relief for TDR treatment that was set to expire on December 31, 2020 to the earlier of 60 days after the national emergency termination date or January 1, 2022. The Corporation ~~is applying~~applied the option under the CARES act for all loan modifications that ~~qualify.~~qualified.

Recently Adopted Accounting Standards

On January 1, ~~2021,~~2022, the Corporation adopted ASC Update ~~2019-12 Income Taxes~~2021-06 Presentation of Financial Statements (Topic ~~740)~~205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):~~Simplifying the Accounting~~ Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for ~~Income Taxes.~~Bank and Savings and Loan Registrants (SEC Update). The Corporation adopted this standards update effective with its March 31, ~~2021~~2022 quarterly report on Form 10-Q and it did not have a material impact on the consolidated financial statements.

Recently Issued Accounting Standards

In March 2022, FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method ("ASU 2022-01"). This updateaddresses questions regarding the last-of-layer method arising from the issuance of ASU 2017-12 and permits more flexibility in hedging interest rate risk for both variable-rate and fixed-rate financial instruments and introduces the ability to hedge risk components for non-financial hedges. The Corporation will adopt ASU 2022-01 on January 1, ~~2021, the Corporation adopted~~ ~~ASC Update 2021-01 Reference Rate Reform (Topic 848)~~. This update permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of LIBOR transition affected by changes to the interest rates used for discounting, margining or contract price alignment due to reference rate reform. This update was effective upon issuance and entities may elect to apply the guidance to modifications either retrospectively, as of any date from the beginning of any interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date in an interim period that includes or is subsequent to January 7, 2021.2023. The Corporation ~~adopted this standards update retrospectively effective with its March 31, 2021 quarterly report on Form 10-Q and~~does not expect the adoption ~~did not~~of ASU 2022-01 to have a material impact on ~~the~~its consolidated financial statements.

In March 2022, FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This update reduces the complexity of accounting for TDRs by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Corporation will adopt ASU 2022-02 on January 1, 2023. The Corporation does not expect the adoption of ASU 2022-02 to have a material impact on its consolidated financial statements.

In June 2022, FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This update clarifies how the fair value of equity securities subject to contractual sale restrictions is determined and requires additional qualitative and quantitative disclosures for equity securities with contractual

sale restrictions. The Corporation will adopt ASU 2022-03 on January 1, 2024. The Corporation does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

Reclassifications

Certain amounts in the ~~2020~~2021 consolidated financial statements and notes have been reclassified to conform to the ~~2021~~2022 presentation.

NOTE 2 – Restrictions on Cash and Cash Equivalents

The Bank is required to maintain reserves against its deposit liabilities. Prior to March 2020, reserves were in the form of cash and balances with the FRB. The FRB suspended cash reserve requirements effective March 26, 2020.

~~In addition, cash~~Cash collateral is posted by the Corporation with counterparties to secure derivatives and other ~~contracts.~~contracts, which is included in "interest-bearing deposits with other banks" on the consolidated balance sheets. The amounts of such ~~cash~~ collateral as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were ~~$238.7~~$83.8 million and ~~$408.1~~$202.8 million, respectively.

NOTE 3 – Investment Securities

The following table presents the amortized cost and estimated fair values of investment securities for the periods presented:


		September 30, 2021									June 30, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale	Available for Sale	(in thousands)								Available for Sale	(in thousands)
U.S. Government securities	U.S. Government securities	$	153,493	$	—	$	(283)	$	153,210	U.S. Government securities	$	376,505	$	—	$	(5,239)	$	371,266
U.S. Government sponsored agency securities		62,137		—		(71)		62,066

State and municipal securities	State and municipal securities	1,111,024		43,139		(3,769)		1,150,394		State and municipal securities	1,239,591		501		(156,615)		1,083,477
Corporate debt securities	Corporate debt securities	354,727		14,663		(52)		369,338		Corporate debt securities	413,487		186		(20,112)		393,561
Collateralized mortgage obligations	Collateralized mortgage obligations	246,726		5,639		(330)		252,035		Collateralized mortgage obligations	154,558		10		(6,465)		148,103
Residential mortgage-backed securities	Residential mortgage-backed securities	191,623		1,669		(3,169)		190,123		Residential mortgage-backed securities	213,567		167		(18,375)		195,359
Commercial mortgage-backed securities	Commercial mortgage-backed securities	827,921		10,039		(5,922)		832,038		Commercial mortgage-backed securities	636,380		28		(49,336)		587,072
Auction rate securities		76,350		—		(1,217)		75,133

Total	Total	$	3,024,001	$	75,149	$	(14,813)	$	3,084,337	Total	$	3,034,088	$	892	$	(256,142)	$	2,778,838

Held to Maturity	Held to Maturity									Held to Maturity

Residential mortgage-backed securities	Residential mortgage-backed securities	$	410,189	$	13,803	$	(6,514)	$	417,478	Residential mortgage-backed securities	$	466,076	$	297	$	(35,444)	$	430,929
Commercial mortgage-backed securities	Commercial mortgage-backed securities	506,234		—		(13,556)		492,678		Commercial mortgage-backed securities	872,887		12		(88,503)		784,396
Total	Total	$	916,423	$	13,803	$	(20,070)	$	910,156	Total	$	1,338,963	$	309	$	(123,947)	$	1,215,325


		December 31, 2020									December 31, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale	Available for Sale	(in thousands)								Available for Sale	(in thousands)

U.S. Government securities										U.S. Government securities	$	127,831	$	—	$	(213)	$	127,618

State and municipal securities	State and municipal securities	$	891,327	$	61,286	$	—	$	952,613	State and municipal securities	1,139,187		50,161		(678)		1,188,670
Corporate debt securities	Corporate debt securities	348,391		19,445		(691)		367,145		Corporate debt securities	373,482		13,009		(358)		386,133
Collateralized mortgage obligations	Collateralized mortgage obligations	491,321		12,560		(115)		503,766		Collateralized mortgage obligations	206,532		3,581		(754)		209,359
Residential mortgage-backed securities	Residential mortgage-backed securities	373,779		4,246		(27)		377,998		Residential mortgage-backed securities	231,607		1,224		(3,036)		229,795
Commercial mortgage-backed securities	Commercial mortgage-backed securities	741,172		22,384		(1,141)		762,415		Commercial mortgage-backed securities	974,541		6,141		(9,534)		971,148
Auction rate securities	Auction rate securities	101,510		—		(3,304)		98,206		Auction rate securities	76,350		—		(1,683)		74,667
Total	Total	$	2,947,500	$	119,921	$	(5,278)	$	3,062,143	Total	$	3,129,530	$	74,116	$	(16,256)	$	3,187,390

Held to Maturity	Held to Maturity									Held to Maturity

Residential mortgage-backed securities	Residential mortgage-backed securities	$	278,281	$	18,576	$	—	$	296,857	Residential mortgage-backed securities	$	404,958	$	11,022	$	(7,067)	$	408,913

Commercial mortgage-backed securities										Commercial mortgage-backed securities	575,426		—		(18,472)		556,954
Total										Total	$	980,384	$	11,022	$	(25,539)	$	965,867

During the first quarter of 2022, all ARCs were sold.

On May 1, 2022, the Corporation transferred certain residential mortgage-backed securities and commercial mortgage-backed securities from AFS to HTM classification as permitted by ASU 2019-04. The estimated fair value of the securities transferred was $415.2 million, and the amortized cost of the securities was $479.0 million.

Securities carried at ~~$2.6~~$1.8 billion at ~~September~~June 30, ~~2021~~2022 and ~~$520.5 million~~$2.5 billion at December 31, ~~2020~~2021 were pledged as collateral to secure public and trust ~~deposits and customer repurchase agreements.~~deposits.

1112

The amortized cost and estimated fair values of debt securities as of ~~September~~June 30, ~~2021,~~2022, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities ~~as certain investment securities are subject~~because borrowers may have the right to call or ~~prepayment~~prepay with or without call or prepayment penalties.


			September 30, 2021										June 30, 2022
			Available for Sale				Held to Maturity						Available for Sale				Held to Maturity
			Amortized Cost		Estimated Fair Value		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	Due in one year or less		$	8,233	$	8,422	$	—	$	—	Due in one year or less		$	160,087	$	160,007	$	—	$	—
Due from one year to five years	Due from one year to five years		246,887		247,567		—		—		Due from one year to five years		280,399		274,819		—		—
Due from five years to ten years	Due from five years to ten years		378,245		394,995		—		—		Due from five years to ten years		447,924		427,025		—		—
Due after ten years	Due after ten years		1,124,366		1,159,157		—		—		Due after ten years		1,141,173		986,453		—		—
			1,757,731		1,810,141		—		—				2,029,583		1,848,304		—		—
Residential mortgage-backed securities(1)	Residential mortgage-backed securities(1)		191,623		190,123		410,189		417,478		Residential mortgage-backed securities(1)		213,567		195,359		466,076		430,929
Commercial mortgage-backed securities(1)	Commercial mortgage-backed securities(1)		827,921		832,038		506,234		492,678		Commercial mortgage-backed securities(1)		636,380		587,072		872,887		784,396
Collateralized mortgage obligations(1)	Collateralized mortgage obligations(1)		246,726		252,035		—		—		Collateralized mortgage obligations(1)		154,558		148,103		—		—
Total	Total		$	3,024,001	$	3,084,337	$	916,423	$	910,156	Total		$	3,034,088	$	2,778,838	$	1,338,963	$	1,215,325

(1) Mortgage-backed securities and collateralized mortgage obligations do not have stated maturities and are dependent upon the interest rate environment and prepayments on the underlying loans.
(1) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the underlying loans.											(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 ~~the~~ gross realized gains and losses on the sales of ~~investment~~ securities for the periods presented:

Gross Realized Gains Gross Realized Losses Net Gains
Three months ended (in thousands)
September 30, 2021 $ — $ — $ —
September 30, 2020 94 (92) 2
Nine months ended
September 30, 2021 $ 34,481 $ (970) $ 33,511
September 30, 2020 6,545 (3,492) 3,053


	Gross Realized Gains		Gross Realized Losses		Net Gains
Three months ended	(in thousands)
June 30, 2022	$	8	$	—	$	8
June 30, 2021	465		(429)		36

Six months ended
June 30, 2022	$	1,554	$	(1,527)	$	27
June 30, 2021	34,481		(970)		33,511

During the first quarter of 2021, the Corporation completed a balance sheet restructuring that included a $34.0 million gain on the sale of Visa Shares, offset by ~~net~~ losses on other securities of ~~$400,000,~~$0.4 million, primarily in connection with the sale of $24.6 million of ARCs.

The following tables present the gross unrealized losses and estimated fair values of investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for the periods presented:


		September 30, 2021															June 30, 2022
		Less than 12 months					12 months or longer					Total					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			Number of Securities	Estimated Fair Value		Unrealized Losses		Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses

Available for Sale	Available for Sale		(in thousands)													Available for Sale		($ in thousands)
U.S. Government securities	U.S. Government securities	2	$	153,210	$	(283)	—	$	—	$	—	$	153,210	$	(283)	U.S. Government securities	4	$	371,266	$	(5,239)	—	$	—	$	—	$	371,266	$	(5,239)
U.S. Government sponsored agency securities		1	62,066		(71)		—	—		—		62,066		(71)

State and municipal securities	State and municipal securities	64	269,388		(3,769)		—	—		—		269,388		(3,769)		State and municipal securities	355	989,029		(149,910)		6	24,248		(6,705)		1,013,277		(156,615)
Corporate debt securities	Corporate debt securities	3	13,952		(52)		—	—		—		13,952		(52)		Corporate debt securities	55	363,657		(20,112)		—	—		—		363,657		(20,112)
Collateralized mortgage obligations	Collateralized mortgage obligations	1	29,565		(330)		—	—		—		29,565		(330)		Collateralized mortgage obligations	72	140,957		(6,465)		—	—		—		140,957		(6,465)
Residential mortgage-backed securities	Residential mortgage-backed securities	6	129,507		(2,574)		1	17,522		(595)		147,029		(3,169)		Residential mortgage-backed securities	28	130,063		(9,194)		4	60,469		(9,181)		190,532		(18,375)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	26	368,338		(5,922)		—	—		—		368,338		(5,922)		Commercial mortgage-backed securities	75	539,431		(45,245)		1	24,134		(4,091)		563,565		(49,336)
Auction rate securities		—	—		—		118	75,133		(1,217)		75,133		(1,217)

Total available for sale	Total available for sale	103	$	1,026,026	$	(13,001)	119	$	92,655	$	(1,812)	$	1,118,681	$	(14,813)	Total available for sale	589	$	2,534,403	$	(236,165)	11	$	108,851	$	(19,977)	$	2,643,254	$	(256,142)

Held to Maturity	Held to Maturity															Held to Maturity

Residential mortgage-backed securities	Residential mortgage-backed securities	12	$	193,637	$	(6,514)	—	$	—	$	—	$	193,637	$	(6,514)	Residential mortgage-backed securities	58	$	181,966	$	(4,790)	12	$	152,702	$	(30,654)	$	334,668	$	(35,444)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	27	452,785		(13,556)		—	—		—		452,785		(13,556)		Commercial mortgage-backed securities	39	454,603		(32,031)		20	301,951		(56,472)		756,554		(88,503)
Total	Total	39	$	646,422	$	(20,070)	—	$	—	$	—	$	646,422	$	(20,070)	Total	97	$	636,569	$	(36,821)	32	$	454,653	$	(87,126)	$	1,091,222	$	(123,947)

December 31, 2020
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
Available for Sale (in thousands)
Corporate debt securities 9 $ 44,528 $ (377) 1 $ 6,871 $ (314) $ 51,399 $ (691)
Collateralized mortgage obligations 3 57,601 (115) — — — 57,601 (115)
Residential mortgage-backed securities 1 20,124 (27) — — — 20,124 (27)
Commercial mortgage-backed securities 9 144,383 (1,141) — — — 144,383 (1,141)
Auction rate securities — — — 162 98,206 (3,304) 98,206 (3,304)
Total available for sale(1)
22 $ 266,636 $ (1,660) 163 $ 105,077 $ (3,618) $ 371,713 $ (5,278)

~~(1)~~ ~~No HTM securities were in an unrealized loss position as of December 31, 2020.~~


	December 31, 2021
	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
Available for Sale	($ in thousands)
U.S Government Securities	2	$	127,618	$	(213)	—	$	—	$	—	$	127,618	$	(213)

State and municipal securities	29	82,731		(678)		—	—		—		82,731		(678)
Corporate debt securities	6	43,068		(358)		—	—		—		43,068		(358)
Collateralized mortgage obligations	4	28,517		(754)		—	—		—		28,517		(754)
Residential mortgage-backed securities	7	123,687		(2,388)		1	16,669		(648)		140,356		(3,036)
Commercial mortgage-backed securities	41	512,312		(9,534)		—	—		—		512,312		(9,534)
Auction rate securities	—	—		—		118	74,667		(1,683)		74,667		(1,683)
Total available for sale	89	$	917,933	$	(13,925)	119	$	91,336	$	(2,331)	$	1,009,269	$	(16,256)



Held to Maturity

Residential mortgage-backed securities	14	$	205,969	$	(7,067)	—	$	—	$	—	$	205,969	$	(7,067)
Commercial mortgage-backed securities	36	556,954		(18,472)		—	—		—		556,954		(18,472)
Total	50	$	762,923	$	(25,539)	—	$	—	$	—	$	762,923	$	(25,539)

The ~~Corporation’s~~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. The change in fair value of these securities is attributable to changes in interest rates and not credit quality. 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. Therefore, the Corporation does not have an ACL for these investments as of ~~September~~June 30, 2022 and December 31, 2021.

Based on management’s evaluations, no ACL was required for state and municipal securities ~~corporate debt securities or ARCs~~ as of ~~September~~June 30, 2022 or December 31, 2021. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

As of June 30, 2022 and December 31, 2021, all corporate debt securities were rated above investment grade. Based on the payment status, rating and management's evaluation of these securities, no ACL was required for corporate debt securities as of June 30, 2022 or December 31, 2021.

As of December 31, 2021, all ARCs were rated above investment grade. All of the loans underlying the ARCs had principal payments that were guaranteed by the federal government. Based on the payment status, rating and management's evaluation of these securities, no ACL was required for ARCs as of December 31, 2021.

NOTE 4 - Loans and Allowance for Credit Losses

Loans and leases, net of unearned income

~~Net~~ Loans and leases, net of unearned income are summarized as follows:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	7,145,115	$	7,105,092	Real estate - commercial mortgage	$	7,417,036	$	7,279,080
Commercial and industrial (1)	Commercial and industrial (1)	4,454,059		5,670,828		Commercial and industrial (1)	4,173,114		4,208,327
Real-estate - residential mortgage	Real-estate - residential mortgage	3,719,684		3,141,915		Real-estate - residential mortgage	4,203,827		3,846,750
Real-estate - home equity	Real-estate - home equity	1,126,628		1,202,913		Real-estate - home equity	1,108,808		1,118,248
Real-estate - construction	Real-estate - construction	1,111,487		1,047,218		Real-estate - construction	1,177,446		1,139,779
Consumer	Consumer	458,595		466,772		Consumer	538,747		464,657
Equipment lease financing and other	Equipment lease financing and other	266,489		284,377		Equipment lease financing and other	321,855		283,557
Overdrafts	Overdrafts	5,471		4,806		Overdrafts	2,346		1,988
Gross loans	Gross loans	18,287,528		18,923,921		Gross loans	18,943,179		18,342,386
Unearned income	Unearned income	(18,121)		(23,101)		Unearned income	(22,229)		(17,036)
Net Loans		$	18,269,407	$	18,900,820
Net loans						Net loans	$	18,920,950	$	18,325,350

(1) Includes PPP loans totaling ~~$0.6~~$0.1 billion and ~~$1.6~~$0.3 billion as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The Corporation segments its loan portfolio by "portfolio segments," as presented in the table above. Certain portfolio segments are further disaggregated by "class segment" for the purpose of estimating credit losses.

Allowance for Credit Losses

The ~~Corporation has elected~~ACL related to ~~exclude accrued interest receivable from the measurement~~loans consists of ~~its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.~~

loans evaluated collectively and individually for expected credit losses. The ACL ~~for~~related to loans isrepresents an estimate of expected credit losses over the expected ~~losses to be realized over the~~ life of the loans inas of the ~~portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses.~~

Loans Evaluated Collectively: Loans evaluated collectively for expected credit losses include loans on accrual status, excluding accruing TDRs, and loans initially evaluated individually, but determined not to have enhanced credit risk characteristics. This category includes loans on non-accrual status and TDRs where the total commitment amount is less than $1 million. The ACL is estimated by applying a PD and LGD to the EAD at the loan level. In order to determine the PD, LGD, and EAD calculation inputs:

•~~Loans are aggregated into pools based on similar risk characteristics.~~

•~~The PD and LGD rates are determined by historical credit loss experience for each pool of loans.~~

•The loan segment PD rates are estimated using six econometric regression models that use the Corporation’s historical credit loss experience and incorporate reasonable and supportable economic forecasts for various macroeconomic variables that are statistically correlated with expected loss behavior in the loan segment.

•~~The reasonable and supportable forecast for each macroeconomic variable is sourced from an external third party~~balance sheet date and is applied over the contractual term of the Corporation’s loan portfolio. The Corporation’s economic forecast considers the general health of the economy, the interest rate environment, real estate pricing and market risk.

•~~A single baseline forecast scenario is used for each macroeconomic variable.~~

~~��The loan segment lifetime LGD rates are estimated using~~recorded as a ~~loss rate approach based on the Corporation’s historical charge-off experience and the balance at the time of loan default.~~

•~~The LGD rates are adjusted for the Corporation’s recovery experience.~~

•To calculate the EAD, the corporation estimates contractual cash flows over the remaining life of each loan. Certain cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate. In addition, a prepayment rate is used in determining the EAD estimate.

Loans Evaluated Individually: Loans evaluated individually for expected credit losses include loans on non-accrual status and TDRs where the commitment amount equals or exceeds $1.0 million. The required ACL for such loans is determined using either the present value of expected future cash flows, observable market price or the fair value of collateral.

Loans evaluated individually may have specific allocations of the ACL assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assignedreduction to ~~those~~net loans. Collateral could be in the form of real estate 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 estate.

For loans secured by real estate, estimated fair values are determined primarily through appraisals performed by 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 is 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 third-party appraisers for impaired loans secured predominantly by real estate every 12 months.

When updated appraisals are not obtained for loans 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 there has not been a significant deterioration in the collateral value since the original appraisal was performed.

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

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. 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 ACL methodology for these loans, which bases the PD on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

The ACL 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.

Qualitative and Other Adjustments to ACL: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These qualitative factors include changes in lending policy, the nature and volume of the portfolio, overall business conditions in the economy, credit concentrations, specific industry risks, competition, model imprecision and legal and regulatory requirements. Qualitative adjustments are judgmental and are based on management’s knowledge of the portfolio and the markets in which the Corporation operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results. These categories include but are not limited to loans-in-process, trade acceptances and overdrafts.

~~OBS Credit Exposures:~~ The ACL for OBS credit exposure includes estimated losses on unfunded loan commitments, letters of credit and other OBS credit exposures and is recorded in other ~~liabilities on the consolidated balance sheets. This portion of the~~liabilities. The total ACL represents management’s estimate of expected losses in its unfunded loan commitments and other OBS credit exposures. The ACL specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for OBS credit exposures is increased ~~or decreased~~ by charges ~~or reductions~~ to expense, through the provision for credit ~~losses.~~losses, and decreased by charge-offs, net of recoveries.

The following table presents the components of the ACL:

September 30, 2021 December 31, 2020
(in thousands)
ACL - loans $ 256,727 $ 277,567
ACL - OBS credit exposure 14,783 14,373
Total ACL $ 271,510 $ 291,940

~~The following table presents the activity in the ACL:~~

Three months ended September 30 Nine months ended September 30
2021 2020 2021 2020
(in thousands)
Balance at beginning of period $ 269,805 $ 272,920 $ 291,940 $ 166,209
Impact of adopting CECL on January 1, 2020 (1)
— — — 58,348
Loans charged off (2,234) (5,489) (19,958) (27,539)
Recoveries of loans previously charged off 4,539 7,847 9,128 14,660
Net loans recovered/(charged off) 2,305 2,358 (10,830) (12,879)
Provision for credit losses (2)
(600) 7,080 (9,600) 70,680
Balance at end of period $ 271,510 $ 282,358 $ 271,510 $ 282,358

~~(1)~~ ~~Includes $12.6 million of reserves for OBS credit exposures as of January 1, 2020.~~

~~(2)~~ Includes $10,000 and $850,000 related to OBS credit exposures for the three months ended September 30, 2021 and 2020, respectively, and includes $410,000 and $320,000 related to OBS credit exposure for the nine months ended September 30, 2021 and 2020, respectively.



	June 30, 2022		December 31, 2021
	(in thousands)
ACL - loans	$	248,564	$	249,001
ACL - OBS credit exposure	14,323		14,533
Total ACL	$	262,887	$	263,534

1615

The following table presents the activity in the ACL:


	Three months ended June 30				Six months ended June 30
	2022		2021		2022		2021
	(in thousands)
Balance at beginning of period	$	257,638	$	280,259	$	263,534	$	291,940
Loans charged off	(1,618)		(9,522)		(3,518)		(17,724)
Recoveries of loans previously charged off	5,367		2,568		8,321		4,589
Net loans (charged-off) recovered	3,749		(6,954)		4,803		(13,135)
Provision for credit losses (1)	1,500		(3,500)		(5,450)		(9,000)
Balance at end of period	$	262,887	$	269,805	$	262,887	$	269,805

(1) Includes $0.4 million and$0.5 million related to OBS credit exposures for the three months ended June 30, 2022 and 2021, respectively, and includes

$(0.2) million and $0.4 million related to OBS credit exposure for the six months ended June 30, 2022 and 2021, respectively.

The following table presents the activity in the ACL ~~- loans~~ by portfolio segment:


		Real Estate - Commercial Mortgage		Commercial and Industrial		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Equipment lease financing, other and overdrafts		Total			Real Estate Commercial Mortgage		Commercial and Industrial		Consumer and Real Estate Home Equity		Real Estate Residential Mortgage		Real Estate Construction		Equipment lease financing, other and overdrafts		Total
		(in thousands)																	(in thousands)
Three months ended September 30, 2021
Balance at June 30, 2021		$	95,381	$	65,404	$	12,593	$	54,188	$	12,654	$	9,401	$	5,411	$	255,032
Three months ended June 30, 2022																		Three months ended June 30, 2022
Balance at March 31, 2022																		Balance at March 31, 2022	$	79,853	$	66,511	$	20,213	$	55,892	$	13,303	$	7,933	$	243,705
Loans charged off	Loans charged off	(14)		(647)		(58)		(602)		—		(446)		(467)		(2,234)		Loans charged off	—		(201)		(877)		(66)		—		(474)		(1,618)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	564		2,330		78		86		697		426		358		4,539		Recoveries of loans previously charged off	3,536		739		762		92		12		226		5,367
Net loans recovered (charged off)	Net loans recovered (charged off)	550		1,683		20		(516)		697		(20)		(109)		2,305		Net loans recovered (charged off)	3,536		538		(115)		26		12		(248)		3,749
Provision for loan losses (1)	Provision for loan losses (1)	234		(4,196)		(202)		2,557		(930)		(324)		2,251		(610)		Provision for loan losses (1)	(10,784)		5,070		2,982		5,717		(2,687)		812		1,110
Balance at September 30, 2021		$	96,165	$	62,891	$	12,411	$	56,229	$	12,421	$	9,057	$	7,553	$	256,727
Three months ended September 30, 2020
Balance at June 30, 2020		$	102,695	$	61,447	$	16,391	$	46,443	$	12,314	$	10,299	$	6,948	$	256,537
Balance at June 30, 2022																		Balance at June 30, 2022	$	72,605	$	72,119	$	23,080	$	61,635	$	10,628	$	8,497	$	248,564
Three months ended June 30, 2021																		Three months ended June 30, 2021
Balance at March 31, 2021																		Balance at March 31, 2021	$	100,976	$	71,194	$	23,142	$	49,995	$	15,079	$	5,600	$	265,986
Loans charged off	Loans charged off	(746)		(2,969)		(393)		(198)		—		(701)		(483)		(5,490)		Loans charged off	(6,506)		(954)		(1,130)		(496)		—		(436)		(9,522)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	100		2,103		44		95		4,873		447		185		7,847		Recoveries of loans previously charged off	729		693		634		105		254		153		2,568
Net loans recovered (charged off)	Net loans recovered (charged off)	(646)		(866)		(349)		(103)		4,873		(254)		(298)		2,357		Net loans recovered (charged off)	(5,777)		(261)		(496)		(391)		254		(283)		(6,954)
Provision for loan and lease losses (1)	Provision for loan and lease losses (1)	9,806		(1,743)		256		2,013		(2,177)		260		(484)		7,931		Provision for loan and lease losses (1)	182		(5,529)		(652)		4,584		(2,679)		94		(4,000)
Balance at September 30, 2020		$	111,855	$	58,838	$	16,298	$	48,353	$	15,010	$	10,305	$	6,166	$	266,825
Nine months ended September 30, 2021
Balance at December 31, 2020		$	103,425	$	74,771	$	14,232	$	51,995	$	15,608	$	10,905	$	6,631	$	277,567

Balance at June 30, 2021																		Balance at June 30, 2021	$	95,381	$	65,404	$	21,994	$	54,188	$	12,654	$	5,411	$	255,032
Six months ended June 30, 2022																		Six months ended June 30, 2022
Balance at December 31, 2021																		Balance at December 31, 2021	$	87,970	$	67,056	$	19,749	$	54,236	$	12,941	$	7,049	$	249,001
Loans charged off	Loans charged off	(8,357)		(5,920)		(482)		(1,290)		(39)		(1,999)		(1,871)		(19,958)		Loans charged off	(152)		(428)		(1,929)		(66)		—		(943)		(3,518)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	1,467		3,792		187		286		1,335		1,391		670		9,128		Recoveries of loans previously charged off	3,648		2,719		1,216		314		44		380		8,321
Net loans recovered (charged off)	Net loans recovered (charged off)	(6,890)		(2,128)		(295)		(1,004)		1,296		(608)		(1,201)		(10,830)		Net loans recovered (charged off)	3,496		2,291		(713)		248		44		(563)		4,803
Provision for loan losses (1)	Provision for loan losses (1)	(370)		(9,752)		(1,526)		5,238		(4,483)		(1,240)		2,123		(10,010)		Provision for loan losses (1)	(18,861)		2,772		4,044		7,151		(2,357)		2,011		(5,240)
Balance at September 30, 2021		$	96,165	$	62,891	$	12,411	$	56,229	$	12,421	$	9,057	$	7,553	$	256,727
Nine months ended September 30, 2020
Balance at December 31, 2019		$	45,610	$	68,602	$	17,744	$	19,771	$	4,443	$	3,762	$	3,690	$	163,622
Impact of adopting CECL on January 1, 2020		29,361		(18,576)		(65)		21,235		4,015		5,969		3,784		45,723
Balance at June 30, 2022																		Balance at June 30, 2022	$	72,605	$	72,119	$	23,080	$	61,635	$	10,628	$	8,497	$	248,564
Six months ended June 30, 2021																		Six months ended June 30, 2021
Balance at December 31, 2020																		Balance at December 31, 2020	$	103,425	$	74,771	$	25,137	$	51,995	$	15,608	$	6,631	$	277,567
Loans charged off	Loans charged off	(3,925)		(17,348)		(1,138)		(620)		(17)		(2,788)		(1,704)		(27,540)		Loans charged off	(8,343)		(5,273)		(1,977)		(688)		(39)		(1,404)		(17,724)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	439		6,815		305		292		4,943		1,481		385		14,660		Recoveries of loans previously charged off	903		1,462		1,074		200		638		312		4,589
Net loans recovered (charged off)	Net loans recovered (charged off)	(3,486)		(10,533)		(833)		(328)		4,926		(1,307)		(1,319)		(12,880)		Net loans recovered (charged off)	(7,440)		(3,811)		(903)		(488)		599		(1,092)		(13,135)
Provision for loan losses (1)	Provision for loan losses (1)	40,370		19,345		(548)		7,675		1,626		1,881		11		70,360		Provision for loan losses (1)	(604)		(5,556)		(2,240)		2,681		(3,553)		(128)		(9,400)
Balance at September 30, 2020		$	111,855	$	58,838	$	16,298	$	48,353	$	15,010	$	10,305	$	6,166	$	266,825
Balance at June 30, 2021																		Balance at June 30, 2021	$	95,381	$	65,404	$	21,994	$	54,188	$	12,654	$	5,411	$	255,032

(1) Provision included in the table only includes the portion related to ~~Net Loans.~~net loans.

The ACL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. Qualitative adjustments include and consider changes in national, regional and local economic and

business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality.

The provision for credit losses for the second quarter of 2022 was recorded to increase the allowance for credit losses as a result of loan growth during the quarter as well as the economic outlook.

Several factors as of the end of the ~~third~~second quarter of ~~2021~~2022 in comparison to the end of the ~~fourth~~second quarter of ~~2020,~~2021, including ~~improved economic conditions,~~a reduction in qualitative adjustments due to COVID-19-related uncertainties, reduced the level of the ACL determined to be necessary as of ~~September~~June 30, 2021, resulting in the negative provision for credit losses for the both the three and nine months ended September 30, 2021. The higher provision expense during the first nine months of 2020 was largely driven by the overall downturn in economic conditions due to COVID-19, resulting in higher expected future credit losses under CECL. Qualitative adjustments during the first nine months of 2020 increased compared to those at the time of the adoption of CECL on January 1, 2020 primarily as a result of uncertainties related to the economic impact of COVID-19. These uncertainties included consideration for the future performance of loans that received deferrals or forbearances as a result of COVID-19 and the impact COVID-19 had on certain industries where the quantitative models did not appear to be fully capturing the appropriate level of risk at that time. PPP loans issued are fully guaranteed by the SBA and, as such, no ACL was recorded against the PPP loan portfolio.2022.

Non-accrual Loans

All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, substantially all of the ~~Corporation’s~~Corporation's individually evaluated loans with total commitments greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral, if any. Collateral could be in the form of real estate, in the case of 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 estate.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, approximately ~~92%~~68% and ~~83%~~98%, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $1.0 million, whose primary collateral consisted of real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months.

The following table presents total non-accrual loans, by class segment:


		September 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
		With a Related Allowance		Without a Related Allowance		Total		With a Related Allowance		Without a Related Allowance		Total			With a Related Allowance		Without a Related Allowance		Total		With a Related Allowance		Without a Related Allowance		Total
		(in thousands)													(in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	21,415	$	26,719	$	48,134	$	19,909	$	31,561	$	51,470	Real estate - commercial mortgage	$	18,035	$	41,530	$	59,565	$	20,564	$	32,251	$	52,815
Commercial and industrial	Commercial and industrial	14,413		15,024		29,437		13,937		18,056		31,993		Commercial and industrial	13,593		30,098		43,691		12,571		17,570		30,141
Real estate - residential mortgage	Real estate - residential mortgage	34,125		1,256		35,381		24,590		1,517		26,107		Real estate - residential mortgage	34,390		1,195		35,585		35,269		—		35,269
Real estate - home equity	Real estate - home equity	8,785		—		8,785		9,398		190		9,588		Real estate - home equity	7,974		136		8,110		8,671		—		8,671
Real estate - construction	Real estate - construction	173		786		959		437		958		1,395		Real estate - construction	—		1,357		1,357		173		728		901
Consumer	Consumer	263		—		263		332		—		332		Consumer	160		—		160		229		—		229
Equipment lease financing and other	Equipment lease financing and other	6,462		9,412		15,874		—		16,313		16,313		Equipment lease financing and other	4,807		9,255		14,062		6,247		9,393		15,640
		$	85,636	$	53,197	$	138,833	$	68,603	$	68,595	$	137,198		$	78,959	$	83,571	$	162,530	$	83,724	$	59,942	$	143,666

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were ~~$53.2~~$83.6 millionand ~~$68.6~~$59.9 million, respectively, of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

Asset Quality

Maintaining an appropriate ACL is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, 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 ACL 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 loans.

The following ~~is a summary of the Corporation's~~table summarizes designated internal risk rating ~~categories:~~categories by portfolio segment and loan class, by origination year, in the current period:

•
~~Pass: These~~


		June 30, 2022
		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
		(dollars in thousands)												Amortized		Amortized
		2022		2021		2020		2019		2018		Prior		Cost Basis		Cost Basis		Total
Real estate - construction(1)
	Pass	$	42,940	$	292,317	$	287,166	$	66,620	$	49,664	$	120,391	$	29,138	$	1,054	$	889,290
	Special Mention	—		—		2,012		9,984		—		20,678		—		—		32,674
	Substandard or Lower	—		—		—		—		—		4,451		214		—		4,665
	Total real estate - construction	42,940		292,317		289,178		76,604		49,664		145,520		29,352		1,054		926,629
Real estate - construction(1)
	Current period gross charge-offs	—		—		—		—		—		—		—		—		—
	Current period recoveries	—		—		—		—		—		—		—		44		44
	Total net (charge-offs) recoveries	—		—		—		—		—		—		—		44		44
Commercial and industrial(2)
	Pass	462,732		533,826		436,620		346,343		203,490		665,347		1,232,430		724		3,881,512
	Special Mention	6,815		13,149		10,076		9,843		5,927		21,322		65,728		—		132,860
	Substandard or Lower	—		5,621		9,284		28,390		14,915		33,448		67,011		73		158,742
	Total commercial and industrial	469,547		552,596		455,980		384,576		224,332		720,117		1,365,169		797		4,173,114
Commercial and industrial
	Current period gross charge-offs	—		—		(36)		—		(21)		—		(174)		(197)		(428)
	Current period recoveries	—		—		30		95		379		569		545		1,101		2,719
	Total net (charge-offs) recoveries	—		—		(6)		95		358		569		371		904		2,291
Real estate - commercial mortgage
	Pass	477,751		1,014,857		978,961		799,726		601,768		2,775,873		65,309		—		6,714,245
	Special Mention	336		32,783		43,579		97,163		45,601		153,027		1,994		—		374,483
	Substandard or Lower	—		1,510		8,335		37,106		75,075		205,826		456		—		328,308
	Total real estate - commercial mortgage	478,087		1,049,150		1,030,875		933,995		722,444		3,134,726		67,759		—		7,417,036
Real estate - commercial mortgage
	Current period gross charge-offs	—		—		—		—		—		—		—		(152)		(152)
	Current period recoveries	—		—		—		—		—		4		—		3,644		3,648
	Total net (charge-offs) recoveries	—		—		—		—		—		4		—		3,492		3,496
Total
	Pass	$	983,423	$	1,841,000	$	1,702,747	$	1,212,689	$	854,922	$	3,561,611	$	1,326,877	$	1,778	$	11,485,047
	Special Mention	7,151		45,932		55,667		116,990		51,528		195,027		67,722		—		540,017
	Substandard or Lower	—		7,131		17,619		65,496		89,990		243,725		67,681		73		491,715
	Total	$	990,574	$	1,894,063	$	1,776,033	$	1,395,175	$	996,440	$	4,000,363	$	1,462,280	$	1,851	$	12,516,779

(1) Excludes real estate - construction - other.

(2) Loans originated in 2021 and 2020 include $0.1 billion of PPP loans ~~do not currently pose undue credit risk and can range from the highest to average quality, depending~~that were assigned a rating of Pass based on the ~~degree~~existence of ~~potential risk.~~a federal government guaranty through the SBA.

•~~Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable but, are nevertheless potentially weak.~~

•

~~Substandard or Lower~~

: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

The following table summarizes designated internal risk rating categories by portfolio segment and loan class, by origination year, in the ~~current~~prior period:


			September 30, 2021																				December 31, 2021
			Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans						Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
			(dollars in thousands)												Amortized								(dollars in thousands)												Amortized
			2021		2020		2019		2018		2017		Prior		Cost Basis				Total				2021		2020		2019		2018		2017		Prior		Cost Basis				Total
Real estate - construction(1)	Real estate - construction(1)																				Real estate - construction(1)
		Pass	$	128,034	$	293,806	$	151,408	$	144,492	$	33,644	$	125,191	$	51,540	$	—	$	928,115		Pass	$	190,030	$	315,811	$	113,245	$	83,886	$	17,545	$	117,157	$	46,409	$	—	$	884,083
		Special Mention	4,995		—		5,588		—		—		8,708		—		—		19,291			Special Mention	5,843		775		9,984		20,200		15,724		6,315		—		—		58,841
		Substandard or Lower	—		—		153		—		1,928		1,145		235		—		3,461			Substandard or Lower	—		—		—		—		1,912		4,185		227		—		6,324
		Total real estate - construction	133,029		293,806		157,149		144,492		35,572		135,044		51,775		—		950,867			Total real estate - construction	195,873		316,586		123,229		104,086		35,181		127,657		46,636		—		949,248
Real estate - construction(1)	Real estate - construction(1)																				Real estate - construction(1)
		Current period gross charge-offs	—		—		(39)		—		—		—		—		—		(39)			Current period gross charge-offs	—		—		(39)		—		—		—		—		—		(39)
		Current period recoveries	—		—		39		—		—		1,296		—		—		1,335			Current period recoveries	—		—		39		—		—		1,373		—		—		1,412
		Total net (charge-offs) recoveries	—		—		—		—		—		1,296		—		—		1,296			Total net (charge-offs) recoveries	—		—		—		—		—		1,373		—		—		1,373
Commercial and industrial(2)	Commercial and industrial(2)																				Commercial and industrial(2)
		Pass	944,250		593,100		440,777		241,747		169,970		621,558		1,134,355		—		4,145,757			Pass	855,924		520,802		396,575		232,805		147,675		581,762		1,177,857		339		3,913,739
		Special Mention	1,334		12,204		30,505		16,791		7,933		42,241		49,972		95		161,075			Special Mention	5,386		8,538		33,937		8,301		10,346		23,380		52,386		95		142,369
		Substandard or Lower	419		8,590		15,586		22,916		12,733		36,887		47,329		2,767		147,227			Substandard or Lower	1,225		9,775		19,393		24,327		11,912		34,825		49,562		1,200		152,219
		Total commercial and industrial	946,003		613,894		486,868		281,454		190,636		700,686		1,231,656		2,862		4,454,059			Total commercial and industrial	862,535		539,115		449,905		265,433		169,933		639,967		1,279,805		1,634		4,208,327
Commercial and industrial	Commercial and industrial																				Commercial and industrial
		Current period gross charge-offs	—		(70)		(128)		(110)		(155)		(529)		(4,928)		—		(5,920)			Current period gross charge-offs	(2,977)		(406)		(4,966)		(208)		(286)		(800)		(5,694)		—		(15,337)
		Current period recoveries	—		—		78		835		335		1,739		805		—		3,792			Current period recoveries	6		39		4,691		841		457		2,342		1,211		—		9,587
		Total net (charge-offs) recoveries	—		(70)		(50)		725		180		1,210		(4,123)		—		(2,128)			Total net (charge-offs) recoveries	(2,971)		(367)		(275)		633		171		1,542		(4,483)		—		(5,750)
Real estate - commercial mortgage	Real estate - commercial mortgage																				Real estate - commercial mortgage
		Pass	680,108		959,013		915,762		629,123		725,055		2,467,159		54,023		—		6,430,243			Pass	1,086,113		899,172		826,866		624,653		712,223		2,356,308		55,370		—		6,560,705
		Special Mention	2,285		26,391		44,713		92,508		79,543		248,743		188		105		494,476			Special Mention	1,317		60,732		96,508		25,280		33,595		169,732		115		—		387,279
		Substandard or Lower	—		8,197		25,745		14,884		37,701		131,514		2,319		36		220,396			Substandard or Lower	1,537		8,516		28,810		68,818		69,793		151,450		684		1,488		331,096
		Total real estate - commercial mortgage	682,393		993,601		986,220		736,515		842,299		2,847,416		56,530		141		7,145,115			Total real estate - commercial mortgage	1,088,967		968,420		952,184		718,751		815,611		2,677,490		56,169		1,488		7,279,080
Real estate - commercial mortgage	Real estate - commercial mortgage																				Real estate - commercial mortgage
		Current period gross charge-offs	—		—		(14)		(25)		(6,603)		(1,517)		(198)		—		(8,357)			Current period gross charge-offs	—		—		(14)		(25)		(6,972)		(1,517)		(198)		—		(8,726)
		Current period recoveries	—		—		—		—		27		1,440		—		—		1,467			Current period recoveries	—		—		—		—		983		1,491		—		—		2,474
		Total net (charge-offs) recoveries	—		—		(14)		(25)		(6,576)		(77)		(198)		—		(6,890)			Total net (charge-offs) recoveries	—		—		(14)		(25)		(5,989)		(26)		(198)		—		(6,252)
Total	Total																				Total
		Pass	$	1,752,392	$	1,845,919	$	1,507,947	$	1,015,362	$	928,669	$	3,213,908	$	1,239,918	$	—	$	11,504,115		Pass	$	2,132,067	$	1,735,785	$	1,336,686	$	941,344	$	877,443	$	3,055,227	$	1,279,636	$	339	$	11,358,527
		Special Mention	8,614		38,595		80,806		109,299		87,476		299,692		50,160		200		674,842			Special Mention	12,546		70,045		140,429		53,781		59,665		199,427		52,501		95		588,489
		Substandard or Lower	419		16,787		41,484		37,800		52,362		169,546		49,883		2,803		371,084			Substandard or Lower	2,762		18,291		48,203		93,145		83,617		190,460		50,473		2,688		489,639
		Total	$	1,761,425	$	1,901,301	$	1,630,237	$	1,162,461	$	1,068,507	$	3,683,146	$	1,339,961	$	3,003	$	12,550,041		Total	$	2,147,375	$	1,824,121	$	1,525,318	$	1,088,270	$	1,020,725	$	3,445,114	$	1,382,610	$	3,122	$	12,436,655

(1) Excludes real estate - construction - other.

(2) Loans originated in 2021 and 2020 include $0.3 billion of PPP loans that were assigned a rating of Pass based on the existence of a federal government guaranty through the SBA.

The Corporation considers the performance of the loan portfolio and its impact on the ACL. The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and equipment lease financing. 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 ACL methodology for those loans, which bases the PD on this migration.~~

~~The following table summarizes designated internal risk rating categories by portfolio segment~~ and ~~loan class, by origination year, in the prior period:~~

December 31, 2020
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans
(dollars in thousands) Amortized Amortized
2020 2019 2018 2017 2016 Prior Cost Basis Cost Basis Total
Real estate - construction(1)
Pass $ 185,883 $ 229,097 $ 217,604 $ 81,086 $ 37,976 $ 110,470 $ 38,026 $ — $ 900,142
Special Mention — — — — 7,047 6,212 — — 13,259
Substandard or Lower — 447 — 2,000 753 1,637 632 — 5,469
Total real estate - construction 185,883 229,544 217,604 83,086 45,776 118,319 38,658 — 918,870
Real estate - construction(1)
Current period gross charge-offs — — — — — (17) — — (17)
Current period recoveries — — — — 68 5,054 — — 5,122
Total net (charge-offs) recoveries — — — — 68 5,037 — — 5,105
Commercial and industrial
Pass 2,283,533 508,541 298,567 214,089 208,549 596,646 1,278,689 — 5,388,614
Special Mention 6,633 23,834 29,167 10,945 11,506 25,960 45,994 — 154,039
Substandard or Lower 3,221 5,947 8,434 11,251 11,192 23,852 64,278 — 128,175
Total commercial and industrial 2,293,387 538,322 336,168 236,285 231,247 646,458 1,388,961 — 5,670,828
Commercial and industrial
Current period gross charge-offs — (114) (30) (488) (393) (520) (17,370) — (18,915)
Current period recoveries — 43 486 216 162 4,531 5,958 — 11,396
Total net (charge-offs) recoveries — (71) 456 (272) (231) 4,011 (11,412) — (7,519)
Real estate - commercial mortgage
Pass 973,664 917,510 708,946 794,955 783,094 2,213,343 53,041 404 6,444,957
Special Mention 13,639 40,874 84,047 80,705 89,112 167,424 2,364 — 478,165
Substandard or Lower 1,238 6,681 6,247 39,027 22,605 103,007 2,225 940 181,970
Total real estate - commercial mortgage 988,541 965,065 799,240 914,687 894,811 2,483,774 57,630 1,344 7,105,092
Real estate - commercial mortgage
Current period gross charge-offs (60) (21) (36) (2,515) (29) (1,547) (17) — (4,225)
Current period recoveries — 6 — — 1 1,020 — — 1,027
Total net (charge-offs) recoveries (60) (15) (36) (2,515) (28) (527) (17) — (3,198)
Total
Pass $ 3,443,080 $ 1,655,148 $ 1,225,117 $ 1,090,130 $ 1,029,619 $ 2,920,459 $ 1,369,756 $ 404 $ 12,733,713
Special Mention 20,272 64,708 113,214 91,650 107,665 199,596 48,358 — 645,463
Substandard or Lower 4,459 13,075 14,681 52,278 34,550 128,496 67,135 940 315,614
Total $ 3,467,811 $ 1,732,931 $ 1,353,012 $ 1,234,058 $ 1,171,834 $ 3,248,551 $ 1,485,249 $ 1,344 $ 13,694,790

~~(1) Excludes real estate - construction - other.~~

~~The Corporation considers the performance of the loan portfolio and its impact on the ACL. For certain loan classes,~~ the Corporation evaluates credit quality based on the aging status of the loan. The following tables present the amortized cost of these loans based on payment activity, by origination year, for the periods shown:


			September 30, 2021																				June 30, 2022
			Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans						Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
			(dollars in thousands)												Amortized								(dollars in thousands)												Amortized
			2021		2020		2019		2018		2017		Prior		Cost Basis				Total				2022		2021		2020		2019		2018		Prior		Cost Basis				Total
Real estate - home equity
Consumer and real estate - home equity																					Consumer and real estate - home equity
		Performing	$	24,122	$	25,743	$	6,929	$	10,265	$	8,210	$	100,740	$	935,387	$	4,161	$	1,115,557		Performing	$	199,006	$	126,665	$	92,240	$	62,883	$	56,742	$	103,004	$	852,242	$	144,223	$	1,637,005
		Nonperforming	—		—		—		16		233		2,124		8,698		—		11,071			Nonperforming	22		148		108		19		112		2,341		2,088		5,712		10,550
		Total real estate - home equity	24,122		25,743		6,929		10,281		8,443		102,864		944,085		4,161		1,126,628			Total consumer and real estate - home equity	199,028		126,813		92,348		62,902		56,854		105,345		854,330		149,935		1,647,555
Real estate - home equity
Consumer and real estate - home equity																					Consumer and real estate - home equity
		Current period gross charge-offs	—		—		(41)		—		—		(171)		(270)		—		(482)			Current period gross charge-offs	—		(587)		(70)		(108)		(16)		(355)		(77)		(716)		(1,929)
		Current period recoveries	—		—		—		—		—		82		105		—		187			Current period recoveries	—		44		88		29		16		351		144		544		1,216
		Total net (charge-offs) recoveries	—		—		(41)		—		—		(89)		(165)		—		(295)			Total net (charge-offs) recoveries	—		(543)		18		(79)		—		(4)		67		(172)		(713)
Real estate - residential mortgage	Real estate - residential mortgage																				Real estate - residential mortgage
		Performing	1,250,164		1,178,626		385,806		129,589		220,587		517,694		—		—		3,682,466			Performing	537,306		1,591,120		1,067,487		296,239		89,886		578,653		—		—		4,160,691
		Nonperforming	—		6,639		1,701		3,390		2,726		22,762		—		—		37,218			Nonperforming	—		1,122		6,322		5,056		3,808		26,828		—		—		43,136
		Total real estate - residential mortgage	1,250,164		1,185,265		387,507		132,979		223,313		540,456		—		—		3,719,684			Total real estate - residential mortgage	537,306		1,592,242		1,073,809		301,295		93,694		605,481		—		—		4,203,827
Real estate - residential mortgage	Real estate - residential mortgage																				Real estate - residential mortgage
		Current period gross charge-offs	—		(626)		(148)		(125)		(4)		(387)		—		—		(1,290)
		Current period recoveries	—		—		1		15		—		178		92		—		286
		Total net (charge-offs) recoveries	—		(626)		(147)		(110)		(4)		(209)		92		—		(1,004)
Consumer
		Performing	102,573		87,668		73,606		67,172		29,069		46,371		51,696		—		458,155
		Nonperforming	64		145		21		56		33		96		25		—		440
		Total consumer	102,637		87,813		73,627		67,228		29,102		46,467		51,721		—		458,595
Consumer
		Current period gross charge-offs	(12)		(359)		(239)		(235)		(219)		(195)		(740)		—		(1,999)			Current period gross charge-offs	—		—		—		—		—		—		—		(66)		(66)
		Current period recoveries	—		122		103		86		129		704		247		—		1,391			Current period recoveries	—		—		4		—		27		261		—		22		314
		Total net (charge-offs) recoveries	(12)		(237)		(136)		(149)		(90)		509		(493)		—		(608)			Total net (charge-offs) recoveries	—		—		4		—		27		261		—		(44)		248
Equipment lease financing and other	Equipment lease financing and other																				Equipment lease financing and other
		Performing	71,134		64,931		50,952		35,124		22,960		10,985		—		—		256,086			Performing	126,093		49,563		50,710		37,619		24,936		21,218		—		—		310,139
		Nonperforming	—		—		—		—		15,718		156		—		—		15,874			Nonperforming	—		—		—		—		—		14,062		—		—		14,062
		Total leasing and other	71,134		64,931		50,952		35,124		38,678		11,141		—		—		271,960			Total leasing and other	126,093		49,563		50,710		37,619		24,936		35,280		—		—		324,201
Equipment lease financing and other	Equipment lease financing and other																				Equipment lease financing and other
		Current period gross charge-offs	(595)		(1,276)		—		—		—		—		—		—		(1,871)			Current period gross charge-offs	—		—		—		—		—		(943)		—		—		(943)
		Current period recoveries	215		320		83		8		14		30		—		—		670			Current period recoveries	—		1		68		13		3		227		—		68		380
		Total net (charge-offs) recoveries	(380)		(956)		83		8		14		30		—		—		(1,201)			Total net (charge-offs) recoveries	—		1		68		13		3		(716)		—		68		(563)
Construction - other	Construction - other																				Construction - other
		Performing	80,993		69,823		4,611		5,009		—		11		—		—		160,447			Performing	61,082		162,281		22,426		—		4,580		—		—		448		250,817
		Nonperforming	—		—		—		—		173		—		—		—		173			Nonperforming	—		—		—		—		—		—		—		—		—
		Total construction - other	80,993		69,823		4,611		5,009		173		11		—		—		160,620			Total construction - other	61,082		162,281		22,426		—		4,580		—		—		448		250,817
Construction - other	Construction - other																				Construction - other
		Current period gross charge-offs	—		—		—		—		—		—		—		—		—			Current period gross charge-offs	—		—		—		—		—		—		—		—		—
		Current period recoveries	—		—		—		—		—		—		—		—		—			Current period recoveries	—		—		—		—		—		—		—		—		—
		Total net (charge-offs) recoveries	—		—		—		—		—		—		—		—		—			Total net (charge-offs) recoveries	—		—		—		—		—		—		—		—		—
Total	Total																				Total
		Performing	$	1,528,986	$	1,426,791	$	521,904	$	247,159	$	280,826	$	675,801	$	987,083	$	4,161	$	5,672,711		Performing	$	923,487	$	1,929,629	$	1,232,863	$	396,741	$	176,144	$	702,875	$	852,242	$	144,671	$	6,358,652
		Nonperforming	64		6,784		1,722		3,462		18,883		25,138		8,723		—		64,776			Nonperforming	22		1,270		6,430		5,075		3,920		43,231		2,088		5,712		67,748
		Total	$	1,529,050	$	1,433,575	$	523,626	$	250,621	$	299,709	$	700,939	$	995,806	$	4,161	$	5,737,487		Total	$	923,509	$	1,930,899	$	1,239,293	$	401,816	$	180,064	$	746,106	$	854,330	$	150,383	$	6,426,400


		December 31, 2021
		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
		(dollars in thousands)												Amortized		Amortized
		2021		2020		2019		2018		2017		Prior		Cost Basis		Cost Basis		Total
Consumer and Real estate - home equity
	Performing	$	162,441	$	102,918	$	73,769	$	68,564	$	33,254	$	135,412	$	990,842	$	3,999	$	1,571,199
	Nonperforming	122		101		60		51		314		2,348		8,512		198		11,706
	Total consumer and real estate - home equity	162,563		103,019		73,829		68,615		33,568		137,760		999,354		4,197		1,582,905
Consumer and Real estate - home equity
	Current period gross charge-offs	(175)		(491)		(496)		(238)		(224)		(411)		(1,274)		—		(3,309)
	Current period recoveries	—		223		131		131		167		1,048		645		—		2,345
	Total net (charge-offs) recoveries	(175)		(268)		(365)		(107)		(57)		637		(629)		—		(964)
Real estate - residential mortgage
	Performing	1,548,174		1,133,602		344,625		113,801		198,164		468,842		—		—		3,807,208
	Nonperforming	—		6,753		2,189		3,424		2,844		24,332		—		—		39,542
	Total real estate - residential mortgage	1,548,174		1,140,355		346,814		117,225		201,008		493,174		—		—		3,846,750
Real estate - residential mortgage
	Current period gross charge-offs	—		(626)		(148)		(125)		(4)		(387)		—		—		(1,290)
	Current period recoveries	—		—		1		18		—		264		92		—		375
	Total net (charge-offs) recoveries	—		(626)		(147)		(107)		(4)		(123)		92		—		(915)
Equipment lease financing and other
	Performing	97,077		65,316		49,591		34,107		22,444		1,369		—		—		269,904
	Nonperforming	—		—		—		—		15,503		138		—		—		15,641
	Total leasing and other	97,077		65,316		49,591		34,107		37,947		1,507		—		—		285,545
Equipment lease financing and other
	Current period gross charge-offs	(975)		(1,276)		—		—		—		—		—		—		(2,251)
	Current period recoveries	255		539		88		10		18		43		—		—		953
	Total net (charge-offs) recoveries	(720)		(737)		88		10		18		43		—		—		(1,298)
Construction - other
	Performing	144,652		40,040		638		5,028		—		—		—		—		190,358
	Nonperforming	—		—		—		—		173		—		—		—		173
	Total construction - other	144,652		40,040		638		5,028		173		—		—		—		190,531
Construction - other
	Current period gross charge-offs	—		—		—		—		—		—		—		—		—
	Current period recoveries	—		—		—		—		—		—		—		—		—
	Total net (charge-offs) recoveries	—		—		—		—		—		—		—		—		—
Total
	Performing	$	1,952,344	$	1,341,876	$	468,623	$	221,500	$	253,862	$	605,623	$	990,842	$	3,999	$	5,838,669
	Nonperforming	122		6,854		2,249		3,475		18,834		26,818		8,512		198		67,062
	Total	$	1,952,466	$	1,348,730	$	470,872	$	224,975	$	272,696	$	632,441	$	999,354	$	4,197	$	5,905,731

December 31, 2020
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans
(dollars in thousands) Amortized Amortized
2020 2019 2018 2017 2016 Prior Cost Basis Cost Basis Total
Real estate - home equity
Performing $ 31,445 $ 8,176 $ 13,906 $ 11,024 $ 11,667 $ 126,749 $ 982,285 $ 5,321 $ 1,190,573
Nonperforming — 88 23 233 221 2,290 9,485 — 12,340
Total real estate - home equity 31,445 8,264 13,929 11,257 11,888 129,039 991,770 5,321 1,202,913
Real estate - home equity
Current period gross charge-offs — — — — — (34) (1,159) — (1,193)
Current period recoveries — — — — — 138 366 — 504
Total net (charge-offs) recoveries — — — — — 104 (793) — (689)
Real estate - residential mortgage
Performing 1,255,532 585,878 228,398 341,563 264,990 434,889 — — 3,111,250
Nonperforming 217 2,483 3,177 2,483 722 21,583 — — 30,665
Total real estate - residential mortgage 1,255,749 588,361 231,575 344,046 265,712 456,472 — — 3,141,915
Real estate - residential mortgage
Current period gross charge-offs — (68) (101) (190) (7) (254) — — (620)
Current period recoveries — 68 16 1 1 405 — — 491
Total net (charge-offs) recoveries — — (85) (189) (6) 151 — — (129)
Consumer
Performing 114,399 98,587 95,072 43,334 25,804 36,086 52,698 42 466,022
Nonperforming 168 19 124 141 114 150 34 — 750
Total consumer 114,567 98,606 95,196 43,475 25,918 36,236 52,732 42 466,772
Consumer
Current period gross charge-offs (134) (542) (524) (444) (489) (769) (498) — (3,400)
Current period recoveries — 64 165 159 94 101 1,292 — 1,875
Total net (charge-offs) recoveries (134) (478) (359) (285) (395) (668) 794 — (1,525)
Equipment lease financing and other
Performing 102,324 65,303 49,453 34,995 15,631 5,040 — — 272,746
Nonperforming — — 30 15,983 142 282 — — 16,437
Total leasing and other 102,324 65,303 49,483 50,978 15,773 5,322 — — 289,183
Equipment lease financing and other
Current period gross charge-offs (606) (1,581) — — — — — — (2,187)
Current period recoveries 185 349 21 18 11 21 — — 605
Total net (charge-offs) recoveries (421) (1,232) 21 18 11 21 — — (1,582)
Construction - other
Performing 96,444 24,888 6,822 — 16 — — — 128,170
Nonperforming — — — 178 — — — — 178
Total construction - other 96,444 24,888 6,822 178 16 — — — 128,348
Construction - other
Current period gross charge-offs — — — — — — — — —
Current period recoveries — — — — — — — — —
Total net (charge-offs) recoveries — — — — — — — — —
Total
Performing $ 1,600,144 $ 782,832 $ 393,651 $ 430,916 $ 318,108 $ 602,764 $ 1,034,983 $ 5,363 $ 5,168,761
Nonperforming 385 2,590 3,354 19,018 1,199 24,305 9,519 — 60,370
Total $ 1,600,529 $ 785,422 $ 397,005 $ 449,934 $ 319,307 $ 627,069 $ 1,044,502 $ 5,363 $ 5,229,131
The following table presents non-performing assets:


	June 30, 2022		December 31, 2021
	(in thousands)
Non-accrual loans	$	162,530	$	143,666
Loans 90 days or more past due and still accruing(1)	11,016		8,453
Total non-performing loans	173,546		152,119
OREO (2)	4,786		1,817
Total non-performing assets	$	178,332	$	153,936

(1) Excludes PPP loans which are fully guaranteed by the federal government of $0.7 million as of June 30, 2022.

(2) Excludes$3.8 million and $6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of June 30, 2022 and December 31, 2021, respectively.

The following tables present the aging of the amortized cost basis of loans, by class segment:


	30-59		60-89		≥ 90 Days
	Days Past		Days Past		Past Due		Non-
	Due		Due		and Accruing		Accrual		Current		Total
	(in thousands)
June 30, 2022
Real estate – commercial mortgage	$	5,486	$	3,219	$	375	$	59,565	$	7,348,391	$	7,417,036
Commercial and industrial(1)	11,197		1,417		1,022		43,691		4,115,787		4,173,114
Real estate – residential mortgage	31,221		5,796		7,337		35,585		4,123,888		4,203,827
Real estate – home equity	4,554		1,341		1,942		8,110		1,092,861		1,108,808
Real estate – construction	3,728		550		—		1,357		1,171,811		1,177,446
Consumer	4,963		1,081		340		160		532,203		538,747
Equipment lease financing and other	4,472		33		—		14,062		283,405		301,972
Total	$	65,621	$	13,437	$	11,016	$	162,530	$	18,668,346	$	18,920,950

(1) Delinquent PPP loans 30-59 days past due and 60-89 days past due of $7.9 million and $1.3 million, respectively, which are fully guaranteed by the federal government, are classified as current.


	30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Current		Total
	(in thousands)
December 31, 2021
Real estate – commercial mortgage	$	1,089	$	1,750	$	1,229	$	52,815	$	7,222,197	$	7,279,080
Commercial and industrial	5,457		1,932		488		30,141		4,170,309		4,208,327
Real estate – residential mortgage	22,957		2,920		4,130		35,269		3,781,474		3,846,750
Real estate – home equity	4,369		1,154		2,253		8,671		1,101,801		1,118,248
Real estate – construction	1,318		—		—		901		1,137,560		1,139,779
Consumer	3,561		876		353		229		459,638		464,657
Equipment lease financing and other	226		27		—		15,640		252,616		268,509
Total	$	38,977	$	8,659	$	8,453	$	143,666	$	18,125,595	$	18,325,350

~~The following table presents non-performing assets:~~

September 30,
2021 December 31,
2020
(in thousands)
Non-accrual loans $ 138,833 $ 137,198
Loans 90 days or more past due and still accruing 11,389 9,929
Total non-performing loans 150,222 147,127
OREO (1)
1,896 4,178
Total non-performing assets $ 152,118 $ 151,305

~~(1)~~ ~~Excludes $7.1 million and $8.1 million of residential mortgage properties for which formal foreclosure proceedings were in process as of September 30, 2021 and December 31, 2020, respectively.~~

~~The following tables present the aging of the amortized cost basis of loans, by class segment:~~

30-59 60-89 ≥ 90 Days
Days Past Days Past Past Due Non-
Due Due and Accruing Accrual Current Total
(in thousands)
September 30, 2021
Real estate – commercial mortgage $ 7,495 $ 240 $ 3,966 $ 48,134 $ 7,085,280 $ 7,145,115
Commercial and industrial 16,134 1,366 3,261 29,437 4,403,861 4,454,059
Real estate – residential mortgage 19,365 2,974 1,695 35,381 3,660,269 3,719,684
Real estate – home equity 3,245 1,194 2,286 8,785 1,111,118 1,126,628
Real estate – construction 360 — 5 959 1,110,163 1,111,487
Consumer 2,412 475 176 263 455,269 458,595
Equipment lease financing and other 306 — — 15,874 237,659 253,839
Total $ 49,317 $ 6,249 $ 11,389 $ 138,833 $ 18,063,619 $ 18,269,407

30-59 Days Past
Due 60-89
Days Past
Due ≥ 90 Days
Past Due
and
Accruing Non-
accrual Current Total
(in thousands)
December 31, 2020
Real estate – commercial mortgage $ 14,999 $ 9,273 $ 1,177 $ 51,470 $ 7,028,173 $ 7,105,092
Commercial and industrial 11,285 1,068 616 31,993 5,625,866 5,670,828
Real estate – residential mortgage 22,281 7,675 4,687 26,107 3,081,165 3,141,915
Real estate – home equity 5,622 1,654 2,753 9,588 1,183,296 1,202,913
Real estate – construction 1,938 — 155 1,395 1,043,730 1,047,218
Consumer 3,036 501 417 332 462,486 466,772
Equipment lease financing and other 838 150 124 16,313 248,657 266,082
Total $ 59,999 $ 20,321 $ 9,929 $ 137,198 $ 18,673,373 $ 18,900,820

Collateral-Dependent Loans

A ~~financial asset~~loan is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of ~~financial assets~~loans deemed collateral-dependent, the Corporation elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Corporation records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists

of various types of real estate, including residential properties, commercial properties, such as retail centers, office buildings, and lodging, agriculture land, and vacant land.

Troubled Debt Restructurings

~~The following table presents TDRs, by class segment:~~

September 30,
2021 December 31,
2020
(in thousands)
Real estate - commercial mortgage $ 14,546 $ 28,451
Commercial and industrial 6,577 6,982
Real estate - residential mortgage 13,694 18,602
Real estate - home equity 12,704 14,391
Real estate - construction 153 —
Consumer 5 —
Total accruing TDRs 47,679 68,426
Non-accrual TDRs (1)
59,802 35,755
Total TDRs $ 107,481 $ 104,181

~~(1)Included in non-accrual loans in the preceding table detailing non-performing assets.~~

~~The following table presents TDRs, by class segment, for loans that were modified during the three and nine months ended September 30, 2021 and 2020:~~

Three months ended September 30 Nine months ended September 30
2021 2020 2021 2020
Number of Loans Recorded Investment Number of Loans Recorded Investment Number of Loans Recorded Investment Number of Loans Recorded Investment
(dollars in thousands)
Commercial and industrial 5 $ 852 4 $ 3,021 9 $ 2,745 18 $ 4,399
Real estate - commercial mortgage 4 9,129 5 8,394 9 16,020 12 24,868
Real estate - residential mortgage 5 1,703 8 1,351 42 12,431 48 10,516
Real estate - home equity 6 123 13 1,370 22 870 40 3,556
Real estate - construction — — — — 1 154 — —
Consumer — — 3 53 — — 11 238
Total 20 $ 11,807 33 $ 14,189 83 $ 32,220 129 $ 43,577

Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction or some combination of these concessions. The restructured loan modifications primarily included maturity date extensions, rate modifications and payment schedule modifications.

The following table presents TDRs, by class segment:


	June 30, 2022		December 31, 2021
	(in thousands)
Real estate - commercial mortgage	$	3,489	$	3,464
Commercial and industrial	1,871		1,857
Real estate - residential mortgage	10,279		11,948
Real estate - home equity	11,764		12,218

Consumer	2		5

Total accruing TDRs	27,405		29,492
Non-accrual TDRs (1)	45,439		55,945
Total TDRs	$	72,844	$	85,437

(1) Included in non-accrual loans in the preceding table detailing non-performing assets.

The following table presents TDRs, by class segment, for loans that were modified during the three and six months ended June 30, 2022 and 2021:


	Three months ended June 30						Six months ended June 30
	2022			2021			2022			2021
	Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment
	(dollars in thousands)
Commercial and industrial	—	$	—	—	$	—	1	$	82	4	$	1,894
Real estate - commercial mortgage	—	—		3	2,729		1	150		5	6,891
Real estate - residential mortgage	—	—		14	3,101		5	293		37	10,728

Real estate - home equity	—	—		11	598		5	329		16	746
Real estate - construction	—	—		—	—		—	—		1	154
Consumer	2	199		—	—		2	199		—	—
Total	2	$	199	28	$	6,428	14	$	1,053	63	$	20,413

In accordance with regulatory guidance, payment schedule modifications granted after March 13, 2020 to borrowers impacted by the effects of the COVID-19 pandemic and who were not delinquent at the time of the payment schedule modifications have been excluded from TDRs. As of ~~September~~June 30, 2021 and 2020, payment schedule modifications since the inception of this guidance having a recorded investment of $3.3 billion and $3.8 billion, respectively, were excluded from TDRs. As of September 30, 2021, $65.12022, $5.8 million in recorded investment ~~remain~~remains in active COVID-19 deferral programs.

NOTE 5 – Mortgage Servicing Rights

The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance ~~sheets:~~sheets, with adjustments to the carrying value included in mortgage banking income on the consolidated statements of income:


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in thousands)
Amortized cost:	Amortized cost:									Amortized cost:
Balance at beginning of period	Balance at beginning of period	$	36,062	$	38,692	$	38,745	$	39,267	Balance at beginning of period	$	35,624	$	37,803	$	35,993	$	38,745
Originations of MSRs	Originations of MSRs	2,637		4,319		6,905		8,569		Originations of MSRs	1,053		1,457		2,407		4,268
Amortization	Amortization	(2,661)		(4,129)		(9,612)		(8,954)		Amortization	(1,428)		(3,198)		(3,151)		(6,951)
Balance at end of period	Balance at end of period	$	36,038	$	38,882	$	36,038	$	38,882	Balance at end of period	$	35,249	$	36,062	$	35,249	$	36,062

Valuation allowance:	Valuation allowance:									Valuation allowance:
Balance at beginning of period	Balance at beginning of period	$	(6,600)	$	(7,700)	$	(10,500)	$	—	Balance at beginning of period	$	—	$	(4,400)	$	(600)	$	(10,500)
Reduction (addition) to valuation allowance	Reduction (addition) to valuation allowance	3,500		(1,500)		7,400		(9,200)		Reduction (addition) to valuation allowance	—		(2,200)		600		3,900
Balance at end of period	Balance at end of period	$	(3,100)	$	(9,200)	$	(3,100)	$	(9,200)	Balance at end of period	$	—	$	(6,600)	$	—	$	(6,600)

Net MSRs at end of period	Net MSRs at end of period	$	32,938	$	29,682	$	32,938	$	29,682	Net MSRs at end of period	$	35,249	$	29,462	$	35,249	$	29,462

Estimated fair value of MSRs at end of period										Estimated fair value of MSRs at end of period	$	49,804	$	29,462	$	49,804	$	29,462

MSRs represent the economic value of contractual rights to service mortgage loans that have been sold. The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was ~~$4.3~~$4.3 billion ~~and $4.7 billion~~ as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. Actual and expected prepayments of the underlying mortgage loans can impact the fair values of the MSRs. The Corporation accounts for MSRs at the lower of amortized cost or fair value.

The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The fair values of MSRs were ~~$32.9~~$49.8 million and ~~$28.2~~$35.4 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Based on its fair value analysis as of ~~September~~June 30, ~~2021,~~2022, the Corporation determined that ~~a $3.5 million decrease to the~~no valuation allowance was required ~~for the three months ended September 30, 2021, resulting in a total valuation allowance of $3.1 million~~ as of ~~September~~June 30, 2021. The $3.5 million decrease to the valuation allowance was recorded as an increase to mortgage banking income on the consolidated statements of income for the three months ended September 30, 2021. For the nine months ended September 30, 2021, the net $7.4 million decrease to the valuation allowance was recorded as an increase to mortgage banking income on the consolidated statements of income.2022.

NOTE 6 – Derivative Financial Instruments

The Corporation manages its exposure to certain interest rate and foreign currency risks through the use of derivatives. Certain of the Corporation's outstanding derivative contracts are designated as hedges, and none are entered into for speculative purposes. The Corporation does enter into derivative contracts that are intended to economically hedge certain of its risks, even if hedge accounting does not apply or the Corporation elects not to apply hedge accounting.

The Corporation records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Corporation has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For derivatives where hedge accounting is applied, changes in fair value are recognized in other comprehensive income. For derivatives where hedge accounting does not apply, changes in fair value are recognized in earnings as components of interest income, 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.

For each of the derivatives, gross derivative assets and liabilities are recorded in other assets and other liabilities, respectively, on the consolidated balance sheets. Related gains and losses on these derivative instruments are recorded in other changes, net on the consolidated statement of cash flows.

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.

Interest Rate Swaps - Non-Designated Hedges

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. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The ~~Corporation’s~~Corporation's existing credit derivatives result from ~~participations~~participation in interest rate swaps provided by external lenders as part of loan participation arrangements and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders which participate in loans.

The Corporation is required to clear all eligible interest rate swap contracts with a clearing agent and is subject to the regulations of the Commodity Futures Trading Commission.

Cash Flow Hedges of Interest Rate Risk

The ~~Corporation’s~~Corporation's objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate swaps as part of its interest rate risk management strategy. During ~~the first quarter of~~ 2021, the Corporation entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Corporation making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the ~~Corporation’s~~Corporation's variable-rate liabilities. During the next twelve months, the Corporation estimates that an additional~~$3.4~~ $21.4 million will be reclassified as ~~an increase~~a decrease to interest income.

Foreign Exchange Contracts

The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts are commitments to buy or sell foreign currency on a specific date at a contractual price. The Corporation limits its foreign exchange exposure with customers by entering into contracts with institutional counterparties to mitigate its foreign exchange risk. The Corporation also holds certain amounts of foreign currency ~~with international correspondent banks ("~~in Foreign Currency Nostro ~~Accounts").~~Accounts. The Corporation limits the total overnight net foreign currency open positions, which is defined as an aggregate of all outstanding contracts and Foreign Currency Nostro Account balances, to $500,000.

~~The following table presents a summary of the notional amounts and fair values of derivative financial instruments:~~

September 30, 2021 December 31, 2020
Notional
Amount Asset
(Liability)
Fair Value Notional
Amount Asset
(Liability)
Fair Value
(in thousands)
Interest Rate Locks with Customers
Positive fair values $ 304,893 $ 2,990 $ 382,903 $ 8,034
Negative fair values 3,366 (18) 3,154 (35)
Forward Commitments
Positive fair values 53,000 630 — —
Negative fair values — — 292,262 (2,263)
Interest Rate Swaps with Customers
Positive fair values 3,205,646 183,850 3,834,062 330,951
Negative fair values 701,719 (2,633) 45,640 (2)
Interest Rate Swaps with Dealer Counterparties
Positive fair values 701,719 2,633 45,640 2
Negative fair values 3,205,646 (94,235) 3,834,062 (165,205)
Interest Rate Swaps used in Cash Flow Hedges
Positive fair values 400,000 377 — —
Negative fair values 100,000 (150) — —
Foreign Exchange Contracts with Customers
Positive fair values 9,782 293 1,121 5
Negative fair values 649 (13) 5,963 (275)
Foreign Exchange Contracts with Correspondent Banks
Positive fair values 1,525 26 6,372 318
Negative fair values 10,554 (284) 1,422 (5)

~~The following table presents the effect of fair value and cash flow hedge accounting on AOCI:~~

Amount of Gain (Loss) Recognized in OCI on Derivative Amount of Gain (Loss) Recognized in OCI Included Component Amount of Gain or (Loss) Recognized in OCI Excluded Component Location of Gain or (Loss) Recognized from AOCI into Income Amount of Gain Reclassified from AOCI into Income Amount of Gain Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
(in thousands)
Derivatives in Cash Flow Hedging Relationships:
Three months ended September 30, 2021
Interest Rate Products $ (280) $ (280) $ — Interest income $ 873 $ 873 $ —
Nine months ended September 30, 2021
Interest Rate Products $ 1,215 $ 1,215 $ — Interest income $ 1,894 $ 1,894 $ —

2725

The following table presents a summary of the notional amounts and fair values of derivative financial instruments:


	June 30, 2022				December 31, 2021
	Notional Amount		Asset (Liability) Fair Value		Notional Amount		Asset (Liability) Fair Value
	(in thousands)
Interest Rate Locks with Customers
Positive fair values	$	128,465	$	811	$	261,428	$	2,326
Negative fair values	19,948		(616)		2,549		(23)

Forward Commitments
Positive fair values	35,000		439		51,000		41
Negative fair values	—		—		—		—

Interest Rate Swaps with Customers
Positive fair values	790,286		7,598		3,213,924		153,752
Negative fair values	3,134,128		(152,409)		752,462		(4,766)

Interest Rate Swaps with Dealer Counterparties
Positive fair values	3,134,128		84,197		752,462		4,766
Negative fair values	790,286		(7,891)		3,213,924		(79,889)

Interest Rate Swaps used in Cash Flow Hedges
Positive fair values	900,000		—		500,000		60
Negative fair values	100,000		(7,356)		500,000		(1,432)
Foreign Exchange Contracts with Customers
Positive fair values	13,995		737		7,629		229
Negative fair values	1,550		(69)		3,388		(51)

Foreign Exchange Contracts with Correspondent Banks
Positive fair values	2,074		76		3,656		69
Negative fair values	13,781		(696)		9,364		(240)

The following table presents the effect of fair value and cash flow hedge accounting on AOCI:


	Amount of Gain (Loss) Recognized in OCI on Derivative		Amount of Gain (Loss) Recognized in OCI Included Component		Amount of Gain or (Loss) Recognized in OCI Excluded Component		Location of Gain or (Loss) Recognized from AOCI into Income	Amount of Gain Reclassified from AOCI into Income		Amount of Gain Reclassified from AOCI into Income Included Component		Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
	(in thousands)
Derivatives in Cash Flow Hedging Relationships:
Three months ended June 30, 2022
Interest Rate Products	$	(11,100)	$	(11,100)	$	—	Interest income	$	434	$	434	$	—
Three months ended June 30, 2021
Interest Rate Products	3,560		3,560		—		Interest income	877		877		—
Six months ended June 30, 2022
Interest Rate Products	(51,663)		(51,663)		—		Interest income	2,382		2,382		—
Six months ended June 30, 2021
Interest Rate Products	1,495		1,495		—		Interest Income	1,021		1,021		—

The following table presents the effect of fair value and cash flow hedge ~~accounting:~~accounting on the income statement:


		Consolidated Statements of Income Classification				Consolidated Statements of Income Classification
		Interest Income						Interest Income
		Three months ended		Nine months ended			Three months ended June 30							Six months ended June 30
		September 30, 2021		September 30, 2021						2022		2021			2022		2021
		(in thousands)				(in thousands)
Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	873	$	1,894				Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	434	$	877		$	2,382	$	1,021
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships		—		—

Interest contracts:	Interest contracts:								Interest contracts:
Amount of gain reclassified from AOCI into income	Amount of gain reclassified from AOCI into income	873		1,894					Amount of gain reclassified from AOCI into income	434		877			2,382		1,021
Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring	Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring	—		—					Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring	—		—			—		—
Amount of Gain Reclassified from AOCI into Income - Included Component	Amount of Gain Reclassified from AOCI into Income - Included Component	873		1,894					Amount of Gain Reclassified from AOCI into Income - Included Component	434		877			2,382		1,021
Amount of Gain or (Loss) Reclassified from AOCI into Income - Excluded Component	Amount of Gain or (Loss) Reclassified from AOCI into Income - Excluded Component	—		—					Amount of Gain or (Loss) Reclassified from AOCI into Income - Excluded Component	—		—			—		—

The following table presents a summary of the net fair value gains (losses) on derivative financial instruments:


		Consolidated Statements of Income Classification	Three months ended September 30				Nine months ended September 30					Consolidated Statements of Income Classification	Three months ended June 30				Six months ended June 30
			2021		2020		2021		2020				2022		2021		2022		2021
			(in thousands)										(in thousands)
Mortgage banking derivatives (1)	Mortgage banking derivatives (1)	Mortgage banking income	$	228	$	1,783	$	(2,134)	$	9,527	Mortgage banking derivatives (1)	Mortgage banking income	$	(2,095)	$	(3,158)	$	(1,710)	$	(2,362)

Interest rate swaps	Interest rate swaps	Other expense	1,069		(12)		861		70		Interest rate swaps	Other expense	—		(104)		—		(208)

Foreign exchange contracts	Foreign exchange contracts	Other income	(17)		25		(21)		42		Foreign exchange contracts	Other income	(6)		(12)		41		(4)

Net fair value gains/(losses) on derivative financial instruments	Net fair value gains/(losses) on derivative financial instruments		$	1,280	$	1,796	$	(1,294)	$	9,639	Net fair value gains/(losses) on derivative financial instruments		$	(2,101)	$	(3,274)	$	(1,669)	$	(2,574)

(1) Includes interest rate locks with customers and forward commitments.

Fair Value Option

The Corporation has elected to measure 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 the periods shown:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Amortized cost (1)	Amortized cost (1)	$	42,361	$	80,662	Amortized cost (1)	$	17,440	$	35,050
Fair value	Fair value	43,123		83,886		Fair value	17,528		35,768

(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance.

Gains related to changes in fair values of mortgage loans held for sale were $0.5 millionand $0.7 million for the three months ended June 30, 2022 and June 30, 2021, respectively. Losses related to changes in fair values of mortgage loans held for sale were $239,000 for the three months ended September 30, 2021 compared to gains of $658,000 for the three months ended September 30, 2020. During the nine months ended September 30, 2021, losses related to changes in fair values of mortgage loans held for sale were $2.5 million compared to $2.8$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~

2022 compared to losses of $2.2 million for the six months ended June 30, 2021.

Balance Sheet Offsetting

~~Although certain financial assets~~The fair values of interest rate swap agreements and ~~liabilities~~foreign exchange contracts the Corporation enters into with customers and dealer counterparties may be eligible for offset on the consolidated balance sheets ~~because~~if they are subject to master netting arrangements or similar ~~agreements, the Corporation elects to not offset such qualifying assets and liabilities.~~

agreements. The Corporation ~~is a party~~has elected to ~~interest rate swaps with~~net its 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 daily through a clearing agent. As a result, the total fair values of interest rate swap derivative assets and liabilities ~~recognized on the consolidated balance sheet are not equal and offsetting.~~

~~The Corporation~~designated as cash flow hedges when offsetting 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 swaps, 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.

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 AFS 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.

As of September 30, 2021, the fair value of derivatives were in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements and as such the Corporation did not post any collateral to its derivative counterparty.

permitted. The following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets:

Gross Amounts Gross Amounts Not Offset
Recognized on the Consolidated
on the Balance Sheets
Consolidated Financial Cash Net
Balance Sheets
Instruments(1)
Collateral (2)
Amount
(in thousands)
September 30, 2021
Interest rate swap derivative assets $ 186,860 $ (4,205) $ — $ 182,655
Foreign exchange derivative assets with correspondent banks 26 (26) — —
Total $ 186,886 $ (4,231) $ — $ 182,655
Interest rate swap derivative liabilities $ 97,018 $ (3,978) $ (90,620) $ 2,420
Foreign exchange derivative liabilities with correspondent banks 284 (26) — 258
Total $ 97,302 $ (4,004) $ (90,620) $ 2,678
December 31, 2020
Interest rate swap derivative assets $ 330,951 $ (2) $ — $ 330,949
Foreign exchange derivative assets with correspondent banks 318 (5) — 313
Total $ 331,269 $ (7) $ — $ 331,262
Interest rate swap derivative liabilities $ 165,205 $ (2) $ (165,203) $ —
Foreign exchange derivative liabilities with correspondent banks 5 (5) — —
Total $ 165,210 $ (7) $ (165,203) $ —


	Gross Amounts		Gross Amounts Not Offset
	Recognized		on the Consolidated
	on the		Balance Sheets
	Consolidated		Financial		Cash		Net
	Balance Sheets		Instruments(1)		Collateral (2)		Amount
	(in thousands)
June 30, 2022
Interest rate swap derivative assets	$	91,795	$	(17,495)	$	—	$	74,300

Foreign exchange derivative assets with correspondent banks	76		(76)		—		—
Total	$	91,871	$	(17,571)	$	—	$	74,300

Interest rate swap derivative liabilities	$	167,656	$	(10,139)	$	(67,888)	$	89,629

Foreign exchange derivative liabilities with correspondent banks	696		(76)		—		620
Total	$	168,352	$	(10,215)	$	(67,888)	$	90,249

December 31, 2021
Interest rate swap derivative assets	$	158,578	$	(8,028)	$	—	$	150,550
Foreign exchange derivative assets with correspondent banks	69		(69)		—		—
Total	$	158,647	$	(8,097)	$	—	$	150,550

Interest rate swap derivative liabilities	$	86,087	$	(6,656)	$	(74,359)	$	5,072
Foreign exchange derivative liabilities with correspondent banks	240		(69)		—		171
Total	$	86,327	$	(6,725)	$	(74,359)	$	5,243

(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 received from the counterparty or posted by the Corporation 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 7 – Tax Credit Investments

TCIs are primarily for investments promoting qualified affordable housing projects and investments in community development entities. 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 TCIs are included in other assets, with any unfunded equity commitments recorded in other liabilities on the consolidated balance sheets. Certain TCIs 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 TCIs 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 TCIs are evaluated for impairment at the end of each reporting period.

The following table presents the balances of the Corporation's TCIs and related unfunded commitments:


			September 30,		December 31,				June 30,		December 31,
			2021		2020				2022		2021
Included in other assets:	Included in other assets:		(in thousands)				Included in other assets:		(in thousands)
Affordable housing tax credit investment, net			$	167,434	$	152,203
Other tax credit investments, net			47,645		59,224
Affordable housing tax credit investments							Affordable housing tax credit investments		$	168,500	$	161,052
Other tax credit investments							Other tax credit investments		62,043		42,987
		Total TCIs, net	$	215,079	$	211,427		Total TCIs	$	230,543	$	204,039
Included in other liabilities:	Included in other liabilities:						Included in other liabilities:
Unfunded affordable housing tax credit commitments	Unfunded affordable housing tax credit commitments		$	54,420	$	31,562	Unfunded affordable housing tax credit commitments		$	56,630	$	49,364
Other tax credit liabilities	Other tax credit liabilities		38,845		49,491		Other tax credit liabilities		48,113		33,941
		Total unfunded tax credit commitments and liabilities	$	93,265	$	81,053		Total unfunded tax credit commitments and liabilities	$	104,743	$	83,305

The following table presents other information relating to the Corporation's TCIs:


			Three months ended September 30				Nine months ended September 30						Three months ended June 30				Six months ended June 30
			2021		2020		2021		2020				2022		2021		2022		2021
Components of income taxes:	Components of income taxes:		(in thousands)								Components of income taxes:		(in thousands)
Affordable housing tax credits and other tax benefits	Affordable housing tax credits and other tax benefits		$	(6,515)	$	(7,290)	$	(19,546)	$	(21,678)	Affordable housing tax credits and other tax benefits		$	(6,209)	$	(6,543)	$	(12,417)	$	(13,031)
Other tax credit investment credits and tax benefits	Other tax credit investment credits and tax benefits		(723)		(1,240)		(2,168)		(3,122)		Other tax credit investment credits and tax benefits		(845)		(722)		(1,690)		(1,445)
Amortization of affordable housing investments, net of tax benefit	Amortization of affordable housing investments, net of tax benefit		4,344		5,024		13,033		15,071		Amortization of affordable housing investments, net of tax benefit		4,824		4,323		9,649		8,689
Deferred tax expense	Deferred tax expense		159		275		479		691		Deferred tax expense		192		160		383		320
		Total net reduction in income tax expense	$	(2,735)	$	(3,231)	$	(8,202)	$	(9,038)		Total net reduction in income tax expense	$	(2,038)	$	(2,782)	$	(4,075)	$	(5,467)
Amortization of TCIs:	Amortization of TCIs:										Amortization of TCIs:
Affordable housing tax credits investment			$	1,002	$	1,021	$	3,006	$	3,065
Other tax credit investment amortization			544		673		1,634		1,529
		Total amortization of TCIs	$	1,546	$	1,694	$	4,640	$	4,594

												Total amortization of TCIs	$	695	$	1,563	$	1,391	$	3,094

3129

NOTE 8 – Accumulated Other Comprehensive (Loss) Income ~~(Loss)~~

The following table presents the components of other comprehensive ~~income(loss):~~(loss) income:


		Before-Tax Amount		Tax Effect		Net of Tax Amount			Before-Tax Amount		Tax Effect		Net of Tax Amount
Three months ended September 30, 2021		(in thousands)
Three months ended June 30, 2022								Three months ended June 30, 2022	(in thousands)
Unrealized loss on securities	Unrealized loss on securities	$	(27,975)	$	6,353	$	(21,622)	Unrealized loss on securities	$	(114,312)	$	25,960	$	(88,352)

Reclassification adjustment for securities gains included in net income (1)	Reclassification adjustment for securities gains included in net income (1)	—		—		—		Reclassification adjustment for securities gains included in net income (1)	8		(2)		6

Amortization of net unrealized losses on AFS securities transferred to HTM (2)	Amortization of net unrealized losses on AFS securities transferred to HTM (2)	824		(187)		637		Amortization of net unrealized losses on AFS securities transferred to HTM (2)	(62,250)		14,137		(48,113)
Net unrealized losses on interest rate swaps used in cash flow hedges (3)		(1,153)		262		(891)

Amortization of net unrecognized pension and postretirement items (4)		371		(81)		290
Total OCI		$	(27,933)	$	6,347	$	(21,586)
Three months ended September 30, 2020
Net unrealized holding loss arising during the period on interest rate swaps used in cash flow hedges								Net unrealized holding loss arising during the period on interest rate swaps used in cash flow hedges	(11,100)		2,514		(8,586)
Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges								Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges	(434)		99		(335)
Amortization of net unrecognized pension and postretirement items (3)								Amortization of net unrecognized pension and postretirement items (3)	33		(8)		25
Total Other Comprehensive Loss								Total Other Comprehensive Loss	$	(188,055)	$	42,700	$	(145,355)
Three months ended June 30, 2021								Three months ended June 30, 2021
Unrealized gain on securities	Unrealized gain on securities	$	5,565	$	(1,232)	$	4,333	Unrealized gain on securities	$	24,968	$	(5,670)	$	19,298

Reclassification adjustment for securities gains included in net income (1)	Reclassification adjustment for securities gains included in net income (1)	(2)		1		(1)		Reclassification adjustment for securities gains included in net income (1)	(36)		8		(28)
Amortization of net unrealized gains on AFS securities transferred to HTM (2)								Amortization of net unrealized gains on AFS securities transferred to HTM (2)	(349)		79		(270)
Net unrealized holding gain arising during the period on interest rate swaps used in cash flow hedges								Net unrealized holding gain arising during the period on interest rate swaps used in cash flow hedges	3,560		(808)		2,752

Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges								Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges	(877)		199		(678)
Amortization of net unrecognized pension and postretirement items (3)								Amortization of net unrecognized pension and postretirement items (3)	370		(81)		289
Total Other Comprehensive Loss								Total Other Comprehensive Loss	$	27,636	$	(6,273)	$	21,363

Six months ended June 30, 2022								Six months ended June 30, 2022
Unrealized loss on securities								Unrealized loss on securities	$	(313,379)	$	71,168	$	(242,211)

Reclassification adjustment for securities loss included in net income (1)								Reclassification adjustment for securities loss included in net income (1)	27		(6)		21
Amortization of net unrealized losses on AFS securities transferred to HTM (2)	Amortization of net unrealized losses on AFS securities transferred to HTM (2)	1,192		(264)		928		Amortization of net unrealized losses on AFS securities transferred to HTM (2)	(61,686)		14,009		(47,677)

Net unrealized loss on interest rate swaps used in cash flow hedges								Net unrealized loss on interest rate swaps used in cash flow hedges	(51,663)		11,701		(39,962)
Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges								Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges	(2,382)		540		(1,842)
Amortization of net unrecognized pension and postretirement items (3)								Amortization of net unrecognized pension and postretirement items (3)	65		(15)		50
Total Other Comprehensive Loss								Total Other Comprehensive Loss	$	(429,018)	$	97,397	$	(331,621)

Amortization of net unrecognized pension and postretirement items (4)		329		(73)		255
Total OCI		$	7,083	$	(1,568)	$	5,515

Nine months ended September 30, 2021
Six months ended June 30, 2021								Six months ended June 30, 2021
Unrealized loss on securities	Unrealized loss on securities	$	(20,796)	$	4,723	$	(16,073)	Unrealized loss on securities	$	(26,783)	$	6,082	$	(20,701)

Reclassification adjustment for securities gains included in net income (1)	Reclassification adjustment for securities gains included in net income (1)	(33,511)		7,610		(25,901)		Reclassification adjustment for securities gains included in net income (1)	451		(102)		349

Amortization of net unrealized losses on AFS securities transferred to HTM (2)	Amortization of net unrealized losses on AFS securities transferred to HTM (2)	2,787		(633)		2,154		Amortization of net unrealized losses on AFS securities transferred to HTM (2)	1,963		(446)		1,517

Net unrealized gain on interest rate swaps used in cash flow hedges (3)		(678)		154		(524)
Amortization of net unrecognized pension and postretirement items (3)		1,111		(243)		868
Total OCI		$	(51,087)	$	11,611	$	(39,476)

Nine months ended September 30, 2020
Unrealized gain on securities (4)		$	72,146	$	(15,960)	$	56,186
Reclassification adjustment for securities gains included in net income (1)		(3,053)		676		(2,377)

Amortization of net unrealized losses on AFS securities transferred to HTM (2)		3,232		(715)		2,517

Net unrealized gain on interest rate swaps used in cash flow hedges								Net unrealized gain on interest rate swaps used in cash flow hedges	1,495		(337)		1,158
Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges								Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges	(1,021)		230		(791)

Amortization of net unrecognized pension and postretirement items (3)	Amortization of net unrecognized pension and postretirement items (3)	984		(219)		765		Amortization of net unrecognized pension and postretirement items (3)	740		(162)		578
Total OCI		$	73,309	$	(16,218)	$	57,091
Total Other Comprehensive Loss								Total Other Comprehensive Loss	$	(23,155)	$	5,265	$	(17,890)

(1) Amounts reclassified out of AOCI. Before-tax amounts included in "Investment securities gains, net" on the Consolidated Statements of Income. See Note 3, "Investment Securities," for additional details.

(2) Amounts reclassified out of AOCI. Before-tax amounts included as a reduction to "Interest Income" on the Consolidated Statements of Income.

(3) Amounts reclassified out of AOCI. Before-tax amounts included in ~~"Interest Income" on the Consolidated Statements of Income.~~

~~(4) Amounts reclassified out of AOCI. Before-tax amounts included in~~ "Salaries and employee benefits" on the Consolidated Statements of Income. See Note 12, "Employee Benefit Plans," for additional details.

The following table presents changes in each component of accumulated other comprehensive income (loss), net of tax:


		Unrealized Gains (Losses) on Investment Securities		Net Unrealized (Loss) Gain on Interest Rate Swaps used in Cash Flow Hedges		Unrecognized Pension and Postretirement Plan Income (Costs)			Total			Unrealized Gains (Losses) on Investment Securities		Net Unrealized (Loss) Gain on Interest Rate Swaps used in Cash Flow Hedges		Unrecognized Pension and Postretirement Plan Income (Costs)		Total
		(in thousands)						(in thousands)
Three months ended September 30, 2021
Balance at June 30, 2021		$	62,769	$	367	$	(15,935)		$	47,201
Three months ended June 30, 2022											Three months ended June 30, 2022
Balance at March 31, 2022											Balance at March 31, 2022	$	(112,968)	$	(37,699)	$	(8,188)	$	(158,855)
OCI before reclassifications	OCI before reclassifications	(21,622)		—		—			(21,622)		OCI before reclassifications	(88,352)		—		—		(88,352)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	—		(891)		290			(601)		Amounts reclassified from AOCI	6		(8,921)		25		(8,890)
Amortization of net unrealized losses on AFS securities transferred to HTM	Amortization of net unrealized losses on AFS securities transferred to HTM	637		—		—			637		Amortization of net unrealized losses on AFS securities transferred to HTM	(48,113)		—		—		(48,113)

Balance at September 30, 2021		$	41,784	$	(524)	$	(15,645)		$	25,615
Three months ended September 30, 2020
Balance at June 30, 2020		$	65,930	$	—	$	(14,491)		$	51,439
Balance at June 30, 2022											Balance at June 30, 2022	$	(249,427)	$	(46,620)	$	(8,163)	$	(304,210)
Three months ended June 30, 2021											Three months ended June 30, 2021
Balance at March 31, 2021											Balance at March 31, 2021	$	43,769	$	(1,707)	$	(16,224)	$	25,838
OCI before reclassifications	OCI before reclassifications	4,333		—		—			4,333		OCI before reclassifications	19,298		—		—		19,298
Amounts reclassified from AOCI	Amounts reclassified from AOCI	—		—		255			255		Amounts reclassified from AOCI	(28)		2,074		289		2,335
Amortization of net unrealized losses on AFS securities transferred to HTM	Amortization of net unrealized losses on AFS securities transferred to HTM	928		—		—			928		Amortization of net unrealized losses on AFS securities transferred to HTM	(270)		—		—		(270)

Balance at September 30, 2020		$	71,190	$	—	$	(14,236)		$	56,954
Balance at June 30, 2021											Balance at June 30, 2021	$	62,769	$	367	$	(15,935)	$	47,201

Nine months ended September 30, 2021
Six months ended June 30, 2022											Six months ended June 30, 2022
Balance at December 31, 2021											Balance at December 31, 2021	$	40,440	$	(4,816)	$	(8,213)	$	27,411
OCI before reclassifications											OCI before reclassifications	(242,211)		—		—		(242,211)
Amounts reclassified from AOCI											Amounts reclassified from AOCI	21		(41,804)		50		(41,733)
Amortization of net unrealized losses on AFS securities transferred to HTM											Amortization of net unrealized losses on AFS securities transferred to HTM	(47,677)		—		—		(47,677)

Balance at June 30, 2022											Balance at June 30, 2022	$	(249,427)	$	(46,620)	$	(8,163)	$	(304,210)
Six months ended June 30, 2021											Six months ended June 30, 2021
Balance at December 31, 2020	Balance at December 31, 2020	$	81,604	$	—	$	(16,513)		$	65,091	Balance at December 31, 2020	$	81,604	$	—	$	(16,513)	$	65,091
OCI before reclassifications	OCI before reclassifications	(16,073)		—		—			(16,073)		OCI before reclassifications	(20,701)		—		—		(20,701)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	(25,901)		(524)		868			(25,557)		Amounts reclassified from AOCI	349		367		578		1,294
Amortization of net unrealized losses on AFS securities transferred to HTM	Amortization of net unrealized losses on AFS securities transferred to HTM	2,154		—		—			2,154		Amortization of net unrealized losses on AFS securities transferred to HTM	1,517		—		—		1,517

Balance at September 30, 2021		$	41,784	$	(524)	$	(15,645)		$	25,615
Nine months ended September 30, 2020
Balance at December 31, 2019		$	14,864	$	—	$	(15,001)		$	(137)
OCI before reclassifications		56,186		—		—			56,186
Amounts reclassified from AOCI		(2,377)		—		765			(1,612)
Amortization of net unrealized losses on AFS securities transferred to HTM		2,517		—		—			2,517

Balance at September 30, 2020		$	71,190	$	—	$	(14,236)		$	56,954
Balance at June 30, 2021											Balance at June 30, 2021	$	62,769	$	367	$	(15,935)	$	47,201

NOTE 9 – 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.

3331

All assets and liabilities measured at fair value on both a recurring and nonrecurring basis have been categorized into the above three levels. The following tables present assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheets:


		September 30, 2021									June 30, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(in thousands)									(in thousands)
Loans held for sale	Loans held for sale	$	—	$	43,123	$	—	$	43,123	Loans held for sale	$	—	$	17,528	$	—	$	17,528
Available for sale investment securities:	Available for sale investment securities:									Available for sale investment securities:
Equity securities										Equity securities	—		—		—		—
U.S. Government securities										U.S. Government securities	371,266		—		—		371,266

U.S. Government securities		153,210		—		—		153,210
U.S. Government sponsored agency securities		—		62,066		—		62,066
State and municipal securities	State and municipal securities	—		1,150,394		—		1,150,394		State and municipal securities	—		1,083,477		—		1,083,477
Corporate debt securities	Corporate debt securities	—		369,338		—		369,338		Corporate debt securities	—		393,561		—		393,561
Collateralized mortgage obligations	Collateralized mortgage obligations	—		252,035		—		252,035		Collateralized mortgage obligations	—		148,103		—		148,103
Residential mortgage-backed securities	Residential mortgage-backed securities	—		190,123		—		190,123		Residential mortgage-backed securities	—		195,359		—		195,359
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		832,038		—		832,038		Commercial mortgage-backed securities	—		587,072		—		587,072
Auction rate securities		—		—		75,133		75,133

Total available for sale investment securities	Total available for sale investment securities	153,210		2,855,994		75,133		3,084,337		Total available for sale investment securities	371,266		2,407,572		—		2,778,838
Other assets:	Other assets:									Other assets:
Investments held in Rabbi Trust	Investments held in Rabbi Trust	27,015		—		—		27,015		Investments held in Rabbi Trust	23,669		—		—		23,669
Derivative assets	Derivative assets	319		190,480		—		190,799		Derivative assets	813		93,045		—		93,858
Total assets	Total assets	$	180,544	$	3,089,597	$	75,133	$	3,345,274	Total assets	$	395,748	$	2,518,145	$	—	$	2,913,893
Other liabilities:	Other liabilities:									Other liabilities:
Deferred compensation liabilities	Deferred compensation liabilities	$	27,015	$	—	$	—	$	27,015	Deferred compensation liabilities	$	23,669	$	—	$	—	$	23,669
Derivative liabilities	Derivative liabilities	297		97,036		—		97,333		Derivative liabilities	765		168,272		—		169,037
Total liabilities	Total liabilities	$	27,312	$	97,036	$	—	$	124,348	Total liabilities	$	24,434	$	168,272	$	—	$	192,706


		December 31, 2020									December 31, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(in thousands)									(in thousands)
Loans held for sale	Loans held for sale	$	—	$	83,886	$	—	$	83,886	Loans held for sale	$	—	$	35,768	$	—	$	35,768
Available for sale investment securities:	Available for sale investment securities:									Available for sale investment securities:

U.S. Government securities										U.S. Government securities	127,618		—		—		127,618

State and municipal securities	State and municipal securities	—		952,613		—		952,613		State and municipal securities	—		1,188,670		—		1,188,670
Corporate debt securities	Corporate debt securities	—		367,145		—		367,145		Corporate debt securities	—		386,133		—		386,133
Collateralized mortgage obligations	Collateralized mortgage obligations	—		503,766		—		503,766		Collateralized mortgage obligations	—		209,359		—		209,359
Residential mortgage-backed securities	Residential mortgage-backed securities	—		377,998		—		377,998		Residential mortgage-backed securities	—		229,795		—		229,795
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		762,415		—		762,415		Commercial mortgage-backed securities	—		971,148		—		971,148
Auction rate securities	Auction rate securities	—		—		98,206		98,206		Auction rate securities	—		—		74,667		74,667
Total available for sale investment securities	Total available for sale investment securities	—		2,963,937		98,206		3,062,143		Total available for sale investment securities	127,618		2,985,105		74,667		3,187,390
Other assets:	Other assets:									Other assets:
Investments held in Rabbi Trust	Investments held in Rabbi Trust	24,383		—		—		24,383		Investments held in Rabbi Trust	28,619		—		—		28,619
Derivative assets	Derivative assets	323		338,987		—		339,310		Derivative assets	298		160,945		—		161,243
Total assets	Total assets	$	24,706	$	3,386,810	$	98,206	$	3,509,722	Total assets	$	156,535	$	3,181,818	$	74,667	$	3,413,020
Other liabilities:	Other liabilities:									Other liabilities:
Deferred compensation liabilities	Deferred compensation liabilities	$	24,383	$	—	$	—	$	24,383	Deferred compensation liabilities	$	28,619	$	—	$	—	$	28,619
Derivative liabilities	Derivative liabilities	280		167,505		—		167,785		Derivative liabilities	291		86,110		—		86,401
Total liabilities	Total liabilities	$	24,663	$	167,505	$	—	$	192,168	Total liabilities	$	28,910	$	86,110	$	—	$	115,020

3432

The valuation techniques used to measure fair value for the items in the preceding tables are as follows:

Loans held for sale – This category includes mortgage loans held for sale that are measured at fair value. Fair values as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were based on the price that secondary market investors were offering for loans with similar characteristics. ~~See "Note 6 - Derivative Financial Instruments" for details related to the Corporation’s election to measure assets and liabilities at fair value.~~

Available for sale investment securities – Included in this asset category are debt securities. Level 2 investment securities are valued by a third-party pricing service. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing.

Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable.

•U.S. Government securities – These securities are classified as Level 1. Fair values are based on quoted prices with active markets.

•~~U.S. Government sponsored agency securities/~~State and municipal securities/Collateralized mortgage obligations/Residential mortgage-backed securities/Commercial mortgage-backed securities – These debt securities are classified as Level 2. Fair values are determined by a third-party pricing service, as detailed above.

•Corporate debt securities – This category consists of subordinated debt and senior debt issued by financial institutions ($~~366.6~~390.8 million at ~~September~~June 30, ~~2021~~2022 and ~~$362.8~~$383.4 million at December 31, ~~2020)~~2021) and other corporate debt issued by non-financial institutions ($2.8 million at ~~September~~June 30, ~~2021~~2022 and ~~$4.4 million at~~ December 31, ~~2020)~~2021).

Level 2 investments include subordinated debt and senior debt, and other corporate debt issued by non-financial institutions at June 30, 2022 and December 31, 2021. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above.

•Auction rate securities – Due to their illiquidity, ARCs are classified as Level 3 investment securities 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~~In the ~~expected cash flows model is an assumed return to market liquidity sometime~~first quarter of 2022, the Corporation sold all of its investment in ~~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. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. Level 3 fair 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.

Investments held in Rabbi Trust – This category consists of mutual funds that are held in trust for employee deferred compensation plans that the Corporation has elected to measure at fair value. Shares of mutual funds are valued based on net asset value, which represent quoted market prices for the underlying shares held in the mutual funds, and as such, are classified as Level 1.

Derivative assets – Fair value of foreign currency exchange contracts are classified as Level 1 assets ($~~0.3~~0.8 million at ~~September~~June 30, ~~2021~~2022 and $0.3 million at December 31, ~~2020)~~2021). The mutual funds and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical instruments in active markets.

Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($~~3.6~~1.3 million at ~~September~~June 30, ~~2021~~2022 and ~~$8.0~~$2.4 million at December 31, ~~2020)~~2021) and the fair value of interest rate swaps ($~~186.9~~91.8 million at ~~September~~June 30, ~~2021~~2022 and ~~$331.0~~$158.6 million at December 31, ~~2020)~~2021). The fair values of the ~~Corporation’s~~ 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 6 - Derivative Financial Instruments," for additional information.

Deferred compensation liabilities – Fair value of amounts due to employees under deferred compensation plans, classified as Level 1 liabilities and are included in other liabilities on the consolidated balance sheets. The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Investments held in Rabbi Trust" above.

Derivative liabilities – Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($~~0.3~~0.8 million at ~~September~~June 30, ~~2021~~2022 and $0.3 million at December 31, ~~2020)~~2021).

3533

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 ($~~18 thousand~~0.6 million at ~~September~~June 30, ~~2021~~2022 and ~~$2.3 million~~NaN at December 31, ~~2020)~~2021) and the fair value of interest rate swaps ($~~97.0~~167.7 million at ~~September~~June 30, ~~2021~~2022 and ~~$165.2~~$86.1 million at December 31, ~~2020)~~2021).

The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Derivative assets" above.

The following table presents the changes in the ~~Corporation’s~~Corporation's available for sale investment securities measured at fair value on a recurring basis using unobservable inputs (Level 3):

Single-issuer
Trust Preferred
Securities ARCs
Three months ended September 30, 2021 (in thousands)
Balance at June 30, 2021 $ — $ 74,834
Unrealized adjustment to fair value (1)
— 299
Balance at September 30, 2021 $ — $ 75,133
Three months ended September 30, 2020
Balance at June 30, 2020 $ — $ 100,859
Sales — —
Unrealized adjustment to fair value (1)
— (2,869)
Balance at September 30, 2020 $ — $ 97,990
Nine months ended September 30, 2021
Balance at December 31, 2020 $ — $ 98,206
Sales — (24,619)
Unrealized adjustment to fair value (1)
— 1,546
Balance at September 30, 2021 $ — $ 75,133
Nine months ended September 30, 2020
Balance at December 31, 2019 $ 2,400 $ 101,926
Sales (2,160) —
Unrealized adjustment to fair value (1)
(242) (3,936)
Discount accretion 2 —
Balance at September 30, 2020 $ — $ 97,990


		ARCs
Three months ended June 30, 2022	(in thousands)
Balance at March 31, 2022		$	—
Sales		—
Unrealized adjustment to fair value (1)		—

Balance at June 30, 2022		$	—

Three months ended June 30, 2021
Balance at March 31, 2021		$	76,204

Unrealized adjustment to fair value (1)		(1,370)

Balance at June 30, 2021		$	74,834

Six months ended June 30, 2022
Balance at December 31, 2021		$	74,667
Sales		(74,823)
Unrealized adjustment to fair value (1)		156

Balance at June 30, 2022		$	—

Six months ended June 30, 2021
Balance at December 31, 2020		$	98,206
Sales		(24,619)
Unrealized adjustment to fair value (1)		1,247

Balance at June 30, 2021		$	74,834

(1)~~Pooled trust preferred securities, single-issuer trust preferred securities and~~ ARCs are classified as available for sale investment ~~securities; as~~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~~"AFS at estimated fair value" on the consolidated balance sheets.

Certain ~~assets~~financial instruments 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 Level 3 financial assets measured at fair value on a nonrecurring basis:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Loans, net	Loans, net	$	113,261	$	116,584	Loans, net	$	137,267	$	118,458
OREO	OREO	1,896		4,178		OREO	4,786		1,817
MSRs (1)	MSRs (1)	32,938		28,245		MSRs (1)	49,804		35,393
Total assets	Total assets	$	148,095	$	149,007	Total assets	$	191,857	$	155,668

(1)Amounts shown are estimated fair value. MSRs are recorded on the Corporation's consolidated balance sheets at the lower of amortized cost or fair value. See "Note 5 - Mortgage Servicing Rights" for additional information.

The valuation techniques used to measure fair value for the items in the table above are as follows:

•~~Net~~ Loans, net – This category consists of loans that were individually evaluated for impairment and have been classified as Level 3 assets. The amount shown is the balance of non-accrual loans, net of related ACL. See "Note 4 - Loans and Allowance for Credit Losses," for additional details.

•OREO – This category consists of OREO classified as Level 3 assets, for which the fair values were based on estimated selling prices less estimated selling costs for similar assets in active markets.

•MSRs - This category consists of MSRs, which were initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors, and subsequently carried at the lower of amortized cost or fair value. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans. MSRs are stratified by product type and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined at the end of each quarter through a discounted cash flows valuation performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income, the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted average discount rate used in the ~~September~~June 30, ~~2021~~2022 valuation were ~~15.9%~~7.9% and ~~9.0%~~7.2%, respectively. Management reviews the reasonableness of the significant inputs to the third-party valuation in comparison to market data. See "Note 5 - Mortgage Servicing Rights," for additional information.

In 2007, the Corporation received the Visa Shares in connection with a corporate restructuring undertaken by Visa, Inc. in contemplation of its initial public offering. These securities were considered equity securities without readily determinable fair values. As such, the approximately 133,000 Visa Shares owned were carried at a zero cost basis. During the first quarter of 2021, the Corporation sold all of its Visa Shares and recognized a $34.0 million gain.

The following tables ~~present~~detail the ~~carrying amounts~~book values and the estimated fair values of the ~~Corporation’s~~Corporation's financial instruments ~~for the current period. A general description~~as of ~~the methods~~June 30, 2022 and ~~assumptions used to estimate such fair values follows:~~December 31, 2021.


		September 30, 2021											June 30, 2022
				Estimated Fair Value											Estimated Fair Value
		Carrying Amount		Level 1		Level 2		Level 3		Total			Carrying Amount		Level 1		Level 2		Level 3		Total
		(in thousands)											(in thousands)
FINANCIAL ASSETS	FINANCIAL ASSETS											FINANCIAL ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	2,471,009	$	2,471,009	$	—	$	—	$	2,471,009	Cash and cash equivalents	$	449,674	$	449,674	$	—	$	—	$	449,674
FRB and FHLB stock	FRB and FHLB stock	61,293		—		61,293		—		61,293		FRB and FHLB stock	62,146		—		62,146		—		62,146
Federal funds sold												Federal funds sold	30,500		30,500		—		—		30,500
Loans held for sale	Loans held for sale	43,123		—		43,123		—		43,123		Loans held for sale	17,528		—		17,528		—		17,528
AFS securities	AFS securities	3,084,337		153,210		2,855,994		75,133		3,084,337		AFS securities	2,778,838		371,266		2,407,572		—		2,778,838
HTM securities	HTM securities	916,423		—		910,156		—		910,156		HTM securities	1,338,963		—		1,215,325		—		1,215,325
Net Loans		18,012,680		—		—		17,434,206		17,434,206
Loans, net												Loans, net	18,672,386		—		—		17,993,585		17,993,585
Accrued interest receivable	Accrued interest receivable	57,902		57,902		—		—		57,902		Accrued interest receivable	64,457		64,457		—		—		64,457
Other assets	Other assets	517,140		291,826		190,480		34,834		517,140		Other assets	505,136		357,501		93,045		54,590		505,136
FINANCIAL LIABILITIES	FINANCIAL LIABILITIES											FINANCIAL LIABILITIES
Demand and savings deposits	Demand and savings deposits	$	20,022,870	$	20,022,870	$	—	$	—	$	20,022,870	Demand and savings deposits	$	19,340,633	$	19,340,633	$	—	$	—	$	19,340,633
Brokered deposits	Brokered deposits	262,617		242,617		20,732		—		263,349		Brokered deposits	243,172		223,172		20,167		—		243,339
Time deposits	Time deposits	1,788,554		—		1,795,084		—		1,795,084		Time deposits	1,560,061		—		1,552,555		—		1,552,555
Accrued interest payable												Accrued interest payable	6,010		6,010		—		—		6,010
Short-term borrowings	Short-term borrowings	468,967		468,967		—		—		468,967		Short-term borrowings	456,185		456,185		—		—		456,185
Accrued interest payable		5,202		5,202		—		—		5,202
Long-term borrowings	Long-term borrowings	627,386		—		614,866		—		614,866		Long-term borrowings	557,130		—		490,331		—		490,331
Other liabilities	Other liabilities	325,361		213,542		97,036		14,783		325,361		Other liabilities	343,794		161,198		168,272		14,324		343,794

3735


		December 31, 2020											December 31, 2021
				Estimated Fair Value											Estimated Fair Value
		Carrying Amount		Level 1		Level 2		Level 3		Total			Carrying Amount		Level 1		Level 2		Level 3		Total
		(in thousands)											(in thousands)
FINANCIAL ASSETS	FINANCIAL ASSETS											FINANCIAL ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	1,847,832	$	1,847,832	$	—	$	—	$	1,847,832	Cash and cash equivalents	$	1,638,614	$	1,638,614	$	—	$	—	$	1,638,614
FRB and FHLB stock	FRB and FHLB stock	92,129		—		92,129		—		92,129		FRB and FHLB stock	57,635		—		57,635		—		57,635
Loans held for sale	Loans held for sale	83,886		—		83,886		—		83,886		Loans held for sale	35,768		—		35,768		—		35,768
AFS securities	AFS securities	3,062,143		—		2,963,937		98,206		3,062,143		AFS securities	3,187,390		127,618		2,985,105		74,667		3,187,390
HTM securities	HTM securities	278,281		—		296,857		—		296,857		HTM securities	980,384		—		965,867		—		965,867
Net Loans		18,623,253		—		—		18,354,532		18,354,532
Loans, net												Loans, net	18,076,349		—		—		17,519,497		17,519,497
Accrued interest receivable	Accrued interest receivable	72,942		72,942		—		—		72,942		Accrued interest receivable	57,451		57,451		—		—		57,451
Other assets	Other assets	650,425		279,015		338,987		32,423		650,425		Other assets	565,491		367,336		160,945		37,210		565,491
FINANCIAL LIABILITIES	FINANCIAL LIABILITIES											FINANCIAL LIABILITIES
Demand and savings deposits	Demand and savings deposits	$	18,279,358	$	18,279,358	$	—	$	—	$	18,279,358	Demand and savings deposits	$	19,594,497	$	19,594,497	$	—	$	—	$	19,594,497
Brokered deposits	Brokered deposits	335,185		295,185		41,206		—		336,391		Brokered deposits	251,526		231,526		20,603		—		252,129
Time deposits	Time deposits	2,224,664		—		2,246,457		—		2,246,457		Time deposits	1,727,476		—		1,730,673		—		1,730,673
Accrued interest payable												Accrued interest payable	7,000		7,000		—		—		7,000
Short-term borrowings	Short-term borrowings	630,066		630,066		—		—		630,066		Short-term borrowings	416,764		416,764		—		—		416,764
Accrued interest payable		10,365		10,365		—		—		10,365
Long-term borrowings	Long-term borrowings	1,296,263		—		1,332,041		—		1,332,041		Long-term borrowings	621,345		—		605,719		—		605,719
Other liabilities	Other liabilities	338,747		156,869		167,505		14,373		338,747		Other liabilities	288,862		188,219		86,110		14,533		288,862

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~~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 cash equivalents						Demand and savings deposits
Accrued interest receivable						Short-term borrowings
						Accrued interest payable

FRB and FHLB stock represent restricted investments and are carried at cost on the consolidated balance sheets, which is a reasonable estimate of fair value.

As of ~~September~~June 30, ~~2021,~~2022, 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, which represents estimated exit prices.

Brokered deposits ~~consists~~consist of demand and saving deposits, which are classified as Level 1, and time deposits, which are classified as Level 2. The fair value of these deposits are determined in a manner consistent with the respective type of deposits discussed above.

3836

NOTE 10 – Net Income Per Share

Basic net income per share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding.

Diluted net income per share is calculated as net income available to common shareholders 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~~Corporation's common stock equivalents consist of outstanding stock options, restricted stock, RSUs, and PSUs. PSUs are required to be included in weighted average diluted shares outstanding if performance measures, as defined in each PSU award agreement, are met as of the end of the period.

A reconciliation of weighted average shares outstanding used to calculate basic and diluted net income per share follows (in thousands, except per share data):


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
Weighted average shares outstanding (basic)	Weighted average shares outstanding (basic)	162,506		162,061		162,577		162,416		Weighted average shares outstanding (basic)	160,920		162,785		160,755		162,614
Impact of common stock equivalents	Impact of common stock equivalents	950		518		1,057		667		Impact of common stock equivalents	1,155		1,073		1,260		1,124
Weighted average shares outstanding (diluted)	Weighted average shares outstanding (diluted)	163,456		162,579		163,634		163,083		Weighted average shares outstanding (diluted)	162,075		163,858		162,015		163,738
Per share:	Per share:									Per share:
Basic	Basic	$	0.45	$	0.38	$	1.27	$	0.78	Basic	$	0.42	$	0.38	$	0.80	$	0.81
Diluted	Diluted	0.45		0.38		1.26		0.78		Diluted	0.42		0.38		0.80		0.81

NOTE 11 – Stock-Based Compensation

The Corporation grants equity awards to employees in the form of stock options, restricted stock, RSUs or PSUs under its ~~Amended and Restated Equity and Cash Incentive Compensation Plan ("~~Employee Equity ~~Plan"). Recent grants of equity awards under the Employee Equity Plan have generally been limited to RSUs and PSUs.~~Plan. In addition, employees may purchase stock under the ~~Corporation’s~~Corporation's Employee Stock Purchase Plan. The fair value of equity awards granted to employees is recognized as compensation expense over the period during which employees are required to provide service in exchange for such awards. Compensation expense for PSUs is also recognized over the period during which employees are required to provide service in exchange for such awards, however, compensation expense may vary based on the expectations for actual performance relative to defined performance measures.

The Corporation also grants equity awards to non-employee members of its board of directors and subsidiary bank boards of directors under the ~~2011~~ Directors’ ~~Equity Participation Plan, which was amended and approved by shareholders as the Amended and Restated Directors’ Equity Participation Plan in 2019 ("Directors’ Plan").~~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, RSUs or common stock. Recent grants of equity awards under the Directors’ Plan have been limited to RSUs.

Equity awards 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 are generally granted annually and become fully vested after a one-year vesting period. Certain events, as defined in the Employee Equity Plan and the Directors' Plan, result in the acceleration of the vesting of equity awards.

Fair values for RSUs and a majority of PSUs are based on the trading price of the ~~Corporation’s~~Corporation's stock on the date of grant and earn dividend equivalents during the vesting period, which are forfeitable if the awards do not vest. The fair value of certain PSUs are estimated through the use of the Monte Carlo valuation methodology as of the date of grant.

On May 17, 2022, upon approval at the Corporation’s annual meeting of Shareholders (the “Annual Meeting”), the Employee Equity Plan was amended and restated. Subject to adjustments provided for in the Employee Equity Plan, the total number of equity awards that may be awarded under the Employee Equity Plan was reduced to 5,806,000 shares as of the date of the Annual Meeting.

As of ~~September~~June 30, ~~2021,~~2022, the Employee Equity Plan had ~~9.7~~approximately 5.1 million shares reserved for future grants through ~~2023,~~2032, and the Directors’ Plan had approximately ~~111,000~~51,000 shares reserved for future grants through 2029.

3937

The following table presents compensation expense and the related tax benefits for equity awards recognized in the consolidated statements of income:


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in thousands)
Compensation expense	Compensation expense	$	2,192	$	1,875	$	6,192	$	5,403	Compensation expense	$	3,846	$	2,098	$	6,586	$	4,000
Tax benefit	Tax benefit	(481)		(397)		(1,352)		(1,144)		Tax benefit	(758)		(457)		(1,361)		(870)
Stock-based compensation expense, net of tax benefit		$	1,711	$	1,478	$	4,840	$	4,259
Total stock-based compensation, net of tax										Total stock-based compensation, net of tax	$	3,088	$	1,641	$	5,225	$	3,130

NOTE 12 – Employee Benefit Plans

The net periodic pension cost for the ~~Corporation’s Defined Benefit~~Corporation's Pension Plan ~~("Pension Plan")~~ consisted of the following components:


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in thousands)

Interest cost	Interest cost	$	561	$	681	$	1,683	$	2,043	Interest cost	$	598	$	561	$	1,196	$	1,122
Expected return on plan assets	Expected return on plan assets	(1,011)		(982)		(3,033)		(2,946)		Expected return on plan assets	(1,099)		(1,011)		(2,197)		(2,022)
Net amortization and deferral	Net amortization and deferral	504		465		1,513		1,395		Net amortization and deferral	164		504		327		1,008
Net periodic pension cost	Net periodic pension cost	$	54	$	164	$	163	$	492	Net periodic pension cost	$	(337)	$	54	$	(674)	$	108

The components of the net benefit for the ~~Corporation’s~~Corporation's Postretirement ~~Benefits~~ Plan ~~("Postretirement Plan")~~ consisted of the following components:


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in thousands)
Interest cost	Interest cost	$	8	$	11	$	24	$	33	Interest cost	$	9	$	8	$	17	$	16

Net accretion and deferral	Net accretion and deferral	(134)		(137)		(402)		(411)		Net accretion and deferral	(131)		(134)		(262)		(268)
Net periodic benefit	Net periodic benefit	$	(126)	$	(126)	$	(378)	$	(378)	Net periodic benefit	$	(122)	$	(126)	$	(245)	$	(252)

The Corporation recognizes the funded status of its Pension Plan and Postretirement Plan on the consolidated balance sheets and recognizes the change in that funded status through other comprehensive income.

NOTE 13 – 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.

~~Those financial instruments include~~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 by the customer or obligor. Since some of the commitments are expected to expire without being drawn upon, the total commitments to extend credit do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral, if any, obtained upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, equipment and income-producing commercial properties.

Standby letters of credit ~~which involve,~~are conditional commitments issued to ~~varying degrees, elements~~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 ~~and interest rate risk~~involved in excess of the amounts recognized on the Corporation’s consolidated balance sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit andissuing letters of credit is ~~represented by~~similar to that involved in extending loan

facilities. These obligations are underwritten consistent with commercial lending standards. The maximum exposure to loss for standby and commercial letters of credit is equal to the ~~outstanding~~contractual (or notional) amount of ~~those~~the instruments.

The Corporation records a reserve for unfunded lending commitments, included in ACL - OBS credit exposures, which represents management’s estimate of credit losses associated with unused commitments to extend credit and letters of credit. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the ACL - OBS credit exposures for unfunded lending commitments was ~~$10.5~~$8.8 million and $9.1 million, respectively. See "Note 4 - Loans and Allowance for Credit Losses," for additional details.

The following table presents the Corporation's commitments to extend credit and letters of credit:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Commitments to extend credit	Commitments to extend credit	$	9,083,877	$	8,651,055	Commitments to extend credit	$	8,474,459	$	8,731,168
Standby letters of credit	Standby letters of credit	302,834		298,750		Standby letters of credit	282,227		298,275
Commercial letters of credit	Commercial letters of credit	56,387		56,229		Commercial letters of credit	50,802		54,196

Residential Lending

The Corporation originates and sells residential mortgages to secondary market investors. The Corporation provides customary representations and warranties to secondary market investors that specify, among other things, that the loans have been underwritten to the standards of the secondary market investor. The Corporation may be required to repurchase specific loans, or reimburse the investor for a credit loss incurred on a sold loan if it is determined that the representations and warranties have not been met. Under some agreements with secondary market investors, the Corporation may have additional credit exposure beyond customary representations and warranties, based on the specific terms of those agreements.

The Corporation maintains a reserve for estimated losses related to loans sold to ~~investors in other liabilities.~~investors. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the total reserve for losses on residential mortgage loans sold was $1.2 million and $1.1 million, respectively, including reserves for both representation and warranty and credit loss exposures. In addition, a component of ACL - OBS credit exposures of ~~$4.3~~$4.2 million and ~~$5.3~~$3.8 million, as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, related to additional credit exposures for potential loan repurchases.

Legal Proceedings

The Corporation is involved in various pending and threatened claims and other legal proceedings in the ordinary course of its business activities. The Corporation evaluates the possible impact of these matters, taking into consideration the most recent information available. A loss reserve is established for those matters for which the Corporation believes a loss is both probable and reasonably estimable. Once established, the reserve is adjusted as appropriate to reflect any subsequent developments. Actuallosses with respect to any such matter may be more or less than the amount estimated by the Corporation. For matters where a loss is not probable, or the amount of the loss cannot be reasonably estimated by the Corporation, no loss reserve is established.

In addition, from time to time, the Corporation is involved in investigations or other forms of regulatory or governmental inquiry covering a range of possible issues and, in some cases, these may be part of similar reviews of the specified activities of other companies. These inquiries or investigations could lead to administrative, civil or criminal proceedings involving the Corporation, and could result in fines, penalties, restitution, other types of sanctions, or ~~restrictions, or~~ the need for the Corporation to undertake remedial actions, or to alter its business, financial or accounting practices. The ~~Corporation’s~~Corporation's practice is to cooperate fully with regulatory and governmental inquiries and investigations.

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

Kress v. Fulton Bank, N.A.

On October 15, 2019, a former Fulton Bank teller supervisor, D. Kress, filed a putative collective and class action lawsuit on behalf of herself and other teller supervisors, tellers, and other similar non-exempt employees in the U.S. District Court for the District of New Jersey, D. Kress v. Fulton Bank, N.A., Case No. 1:19-cv-18985. Fulton Bank accepted summons without a formal service of process on January 20, 2020. The lawsuit alleges that Fulton Bank did not record or otherwise account for the amount of time D. Kress and putative collective and class members spent conducting branch opening security procedures. The allegation is that, as a result, Fulton Bank did not properly compensate those employees for their regular and overtime wages. The lawsuit alleges that by doing so, Fulton violated: (i) the federal Fair Labor Standards Act and seeks back overtime wages

for a period of three years, liquidated damages and attorney fees and costs; (ii) the New Jersey State Wage and Hour Law and seeks back overtime wages for a period of six years, treble damages and attorney fees and costs; and (iii) the New Jersey Wage Payment Law and seeks back wages for a period of six years, treble damages and attorney fees and costs. The lawsuit also asserts New Jersey common law claims seeking compensatory damages and interest. The Corporation and counsel representing plaintiffs ("~~Plaintiffs’~~Plaintiffs' Counsel") ~~have~~ reached and executed a formal Settlement Agreement to resolve this lawsuit. ~~Plaintiffs’~~Plaintiffs' Counsel ~~has~~ filed a Motion for Preliminary Approval of Class and Collective Settlement and Provisional Certification of Settlement Class and Collective ("the Motion") with the U.S. District Court for the District of New Jersey ("the Court"). ~~In September 2021, a magistrate judge for~~On June 30, 2022, the Court ~~issued~~granted the Motion and scheduled a ~~Report and Recommendation recommending that the Court grant preliminary~~hearing for final approval of the ~~Motion. The Corporation is not able~~Settlement Agreement and matters related thereto for November 2, 2022. Subject to ~~provide any assurance that~~final approval by the Court, ~~will grant the Motion. If the Court does grant the Motion,~~ the Settlement Agreement will be administered according to its ~~terms and thereafter subject to final approval by the Court.~~terms. The financial terms of the Settlement Agreement are not expected to be material to the Corporation. The Corporation established an accrued liability during the third quarter of 2020 for the costs expected to be incurred in connection with the Settlement Agreement. The accrued liability is included in "other liabilities" on the consolidated balance sheets.

NOTE 14 – Long-Term Borrowings

On March 16, 2022, $65.0 million of senior notes with a fixed rate of 3.60% were repaid upon their maturity.

On March 30, 2021, pursuant to a cash tender offer, the Corporation purchased $75.0 million and $60.0 million of its subordinated notes which are scheduled to mature on November 15, 2024 and its senior notes which ~~mature~~matured on March 16, 2022, respectively. ~~The subordinated notes carry a fixed rate of 4.50% and an effective rate of 4.87% and the senior notes carry a fixed rate of 3.60% and an effective rate of 3.95%.~~ The Corporation incurred $11.3 million in debt extinguishment costs and expensed ~~$841,000~~$0.8 million of unamortized discount costs. In addition, during the first quarter of 2021, the Corporation prepaid $536.0 million of long-term FHLB advances and incurred $20.9 million in prepayment penalties.

NOTE 15 – Subsequent Events

On July 1, 2022, the Corporation completed its previously announced merger with Prudential, pursuant to the Merger Agreement.

As a result of this acquisition, the Corporation expects to enhance its presence in Philadelphia, Pennsylvania, expand its customer base, leverage operating costs through economies of scale, and positively affect the Corporation's long-term operating results.

As part of the acquisition, the Corporation made a $2 million contribution to the Fulton Forward Foundation in July 2022, designated to be used to provide impact gifts in support of nonprofit community organizations in Philadelphia that are focused on advancing economic empowerment, particularly in underserved communities.

The Corporation will complete the acquisition accounting for the transaction during the third quarter of 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

FORWARD-LOOKING STATEMENTS

The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition, results of operations and business. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "will," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes," "plans," "expects," "future," "intends," "projects," the negative of these terms and other comparable terminology. These forward-looking statements may include projections of, or guidance on, the Corporation's future financial performance, expected levels of future expenses, including future credit losses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in the Corporation's business or financial results.

Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, ~~they~~the statements are based on current beliefs, expectations and assumptions regarding the future of the Corporation's business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Corporation's control, and actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Any forward-looking statement is based only on information currently available and speaks only as of the date when made. The Corporation undertakes no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors could affect future financial results including, without limitation:

•◦the impact of adverse conditions in the economy and financial markets on the performance of the ~~Corporation’s~~Corporation's loan portfolio and demand for the ~~Corporation’s~~Corporation's products and services;

•◦the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic, the ~~Corporation’s~~Corporation's participation in the PPP and other COVID-19 relief programs, and the direct and indirect impacts of the pandemic on the Corporation, its customers and third parties;

•◦the determination of the ACL, which depends significantly upon assumptions and judgments with respect to a variety of factors, including the performance of the loan portfolio, the weighted-average remaining lives of different classifications of loans within the loan portfolio and current and forecasted economic conditions, among other factors;

•◦increases in non-performing assets, which may require the Corporation to increase the allowance for credit losses, ~~charge off~~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~~replacement of LIBOR as a benchmark reference rate;

•◦the effects of changes in interest rates on demand for the ~~Corporation’s~~Corporation's products and services;

•◦the effects of changes in interest rates or disruptions in liquidity markets on the ~~Corporation’s~~Corporation's sources of funding;

•◦the effects of the extensive level of regulation and supervision to which the Corporation and Fulton Bank are subject;

•◦the effects of the significant amounts of time and expense associated with regulatory compliance and risk management;

•◦the potential for negative consequences resulting from regulatory violations, investigations and examinations, ~~or failure to comply with the BSA, the Patriot Act and related AML requirements,~~ including potential supervisory actions, the assessment of fines and penalties, the imposition of sanctions, ~~or restrictions,~~ the need to undertake remedial actions and possible damage to the ~~Corporation’s~~Corporation's reputation;

•◦the continuing impact of the Dodd-Frank Act on the ~~Corporation’s~~Corporation's business and results of operations;

•◦the effects of, and uncertainty surrounding, new legislation, changes in regulation and government policy, which could result in significant changes in banking and financial services regulation;

•◦the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact money supply and market interest rates;

•◦the effects of changes in U.S. federal, state or local tax laws;

•◦the effects of negative publicity on the ~~Corporation’s~~Corporation's reputation;

•

◦the effects of adverse outcomes in litigation and governmental or administrative proceedings;

•◦the potential to incur losses in connection with repurchase and indemnification payments related to sold loans;

•◦the ~~Corporation’s~~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 potential effects of climate change ~~and related government policies~~ on the ~~Corporation’s~~Corporation's business and results of operations;

•◦the ~~Corporation’s ability~~effects of concerns relating to ~~implement, from time to time, measures intended to manage growth in non-interest expenses~~the Corporation's ESG posture, including potential adverse impacts on the Corporation's reputation and ~~improve~~ the ~~efficiency~~market value of its ~~operations and realize the intended effects of those initiatives;~~securities;

•◦the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;

•◦the ~~Corporation’s~~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~~Corporation's reporting of its 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~~Corporation's system of internal controls;

•◦the loss of, or failure to safeguard, confidential or proprietary information;

•◦the ~~Corporation’s~~Corporation's failure to identify and toadequately and promptly address ~~cyber-security~~cybersecurity risks, including data breaches and cyber-attacks;

•◦the ~~Corporation’s~~Corporation's ability to keep pace with technological changes;

•◦the ~~Corporation’s~~Corporation's ability to attract and retain talented personnel;

•◦capital and liquidity strategies, including the ~~Corporation’s~~Corporation's ability to comply with applicable capital and liquidity requirements, and the ~~Corporation’s~~Corporation's ability to generate capital internally or raise capital on favorable terms;

•◦the ~~Corporation’s~~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~~Corporation or Fulton ~~Bank’s~~Bank's credit ratings on each of their borrowing costs or access to capital ~~markets.~~markets;

◦the possibility that the anticipated benefits of the Merger, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or challenges arising from, the integration of Prudential into the Corporation or as a result of the strength of the economy, competitive factors in the areas where the Corporation and Prudential do business, or as a result of other unexpected factors or events;

◦potential adverse reactions or changes to business or employee relationships, including those resulting from the Merger;

◦unanticipated challenges or delays in the integration of Prudential’s business into the Corporation's business and or the conversion of Prudential’s operating systems and customer data onto the Corporation's may significantly increase the expense associated with the Merger; and

◦other factors that may affect future results of the Corporation.

Additional information regarding these as well as other factors that could affect future financial results can be found in the sections entitled "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the ~~Corporation’s~~Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021, Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and elsewhere in this ~~Report,~~report, including in Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements.

4442

~~RESULTS OF OPERATIONS~~OVERVIEW

~~Overview~~The Corporation is a financial holding company, which, through its wholly-owned banking subsidiary, provides a full range of retail and commercial financial services primarily in Pennsylvania, Delaware, Maryland, New Jersey and Virginia.

The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans ~~investments~~ and ~~other interest-earning assets,~~investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is FTE net interest income 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 orand properties. Offsetting these revenue sources are provisions for credit losses on loans and OBS credit risks, non-interest expenses and income taxes.

The following table presents a summary of the ~~Corporation’s~~Corporation's earnings and selected performance ratios:


		Three months ended September 30						Nine months ended September 30							Three months ended June 30						Six months ended June 30
		2021			2020			2021			2020				2022			2021			2022			2021

Net income (in thousands)														Net income (in thousands)	$	69,989		$	64,964		$	134,277		$	138,027
Net income available to common shareholders (in thousands)	Net income available to common shareholders (in thousands)	$	73,021		$	61,611		$	205,896		$	127,213		Net income available to common shareholders (in thousands)	$	67,427		$	62,402		$	129,153		$	132,874
Diluted net income available to common shareholders per share	Diluted net income available to common shareholders per share	$	0.45		$	0.38		$	1.26		$	0.78		Diluted net income available to common shareholders per share	$	0.42		$	0.38		$	0.80		$	0.81
Return on average assets, annualized	Return on average assets, annualized	1.13		%	0.97		%	1.09		%	0.71		%	Return on average assets, annualized	1.10		%	1.00		%	1.06		%	1.07		%
Return on average assets, annualized, excluding merger-related expenses(1)														Return on average assets, annualized, excluding merger-related expenses(1)	1.11		%	1.00		%	1.07		%	1.07		%
Return on average common shareholders' equity, annualized	Return on average common shareholders' equity, annualized	10.64		%	10.32		%	10.28		%	7.26		%	Return on average common shareholders' equity, annualized	11.57		%	10.11		%	10.78		%	10.10		%
Return on average common shareholders' equity (tangible), annualized (1)	Return on average common shareholders' equity (tangible), annualized (1)	14.56		%	13.35		%	21.36		%	9.44		%	Return on average common shareholders' equity (tangible), annualized(1)	15.23		%	12.93		%	14.01		%	13.95		%
Net interest margin (2)	Net interest margin (2)	2.82		%	2.70		%	2.78		%	2.90		%	Net interest margin(2)	3.04		%	2.73		%	2.91		%	2.76		%
Efficiency ratio (1)	Efficiency ratio (1)	60.3		%	62.0		%	62.3		%	64.2		%	Efficiency ratio(1)	61.4		%	63.8		%	63.5		%	63.4		%
Non-performing assets to total assets	Non-performing assets to total assets	0.58		%	0.57		%	0.58		%	0.57		%	Non-performing assets to total assets	0.71		%	0.60		%	0.71		%	0.60		%
Annualized net charge-offs to average loans	Annualized net charge-offs to average loans	(0.05)		%	(0.05)		%	0.08		%	0.10		%	Annualized net charge-offs to average loans	(0.08)		%	0.15		%	(0.05)		%	0.14		%

(1)Ratio represents a financial measure derived by methods other than 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" at the end of this "Overview" section of Management’s Discussion.~~Measures"

(2)Presented on ana FTE basis, using a 21% federal tax rate and statutory interest expense disallowances. See also the ~~“Net~~"Net Interest ~~Income”~~Income" section of ~~Management’s~~the Management's Discussion.

~~COVID-19 Pandemic~~

Beginning in first quarter of 2020, the COVID-19 pandemic has caused substantial disruptions in economic and social activity, both globally and in the United States. The spread of COVID-19, and related governmental actions to mandate or encourage temporary closures of businesses, quarantines, social distancing, "stay at home" orders and other restrictions on in-person operations and activities, have caused severe disruptions in the U.S. economy, which, in turn, disrupted the business, activities, and operations of the Corporation’s customers, as well as the Corporation’s own business and operations. The resulting impacts of the pandemic on consumers, including elevated levels of unemployment and changes in consumer behavior, as well as disruptions in national and global supply chains, have continued to cause changes in consumer and business spending, borrowing needs and saving habits, which have and will likely continue to affect the demand for loans and other products and services the Corporation offers, as well as the creditworthiness of its borrowers.

While economic activity has rebounded as much of the national economy has “reopened,” there is still significant uncertainty concerning the breadth and duration of business disruptions related to the COVID-19 pandemic, as well as their impact on the U.S. economy and the Corporation’s customers, vendors and counterparties. The extent to which the pandemic impacts the Corporation’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the continuing severity of the COVID-19 pandemic, whether there are additional outbreaks of COVID-19 or the emergence of more virulent COVID-19 variants, and the actions taken to respond to any such future developments. Moreover, although multiple COVID-19 vaccines have received regulatory approval and are currently being distributed, there remains uncertainty regarding how broadly these vaccines will be accepted and how effective they will be in mitigating the adverse social and economic effects of the COVID-19 pandemic.Federal Funds Rate

The ~~Corporation’s business is dependent upon~~FOMC raised the ~~willingness~~target range for the Fed Funds Rate by 25 bps to 0.25%-0.50% at its March 2022 meeting, by 50 bps to 0.75%-1.00% at its May 2022 meeting and ~~ability of~~by 75 bps to 1.50%-1.75% at its customers to conduct banking and other financial transactions. In an effort to mitigate the spread of COVID-19, the Corporation adjusted service models at certain of its financial center locations, including limiting some locations to drive-up and ATM services only, offering lobby access by appointment only, and encouraging the Corporation’s customers to use electronic banking platforms.

June 2022 meeting.

AsBusiness Combinations

On July 1, 2022, the ~~COVID-19 pandemic unfolded in~~Corporation completed the ~~first quarter~~acquisition of ~~2020,~~Prudential. Prudential was merged with and into the Corporation, and Prudential's wholly owned subsidiary, Prudential Bank, became a ~~significant portion~~wholly owned subsidiary of the ~~Corporation’s employees transitioned~~Corporation. The Corporation plans to working remotely as a result of the COVID-19 pandemic, which, in addition to requiring added support from the Corporation’s information technology infrastructure, increases cybersecurity risks. Duringmerge Prudential Bank with and into Fulton Bank during the fourth quarter of ~~2021,~~2022. The consolidated financial statements contained in this report do not include the ~~Corporation plans to transition~~results of Prudential for the ~~majority of its employees currently working remotely to onsite or hybrid onsite-remote working arrangements.~~periods presented.

~~COVID-19 has significantly affected~~Prudential merger-related expenses included in non-interest expense for the ~~financial markets~~three months and has resulted in a number of responses by the U.S. government, including reductions in interest rates by the FOMC. These reductions in interest rates, especially if prolonged, could adversely affect the Corporation’s net interest income and margins and the Corporation’s profitability.

The CARES Act was enacted in March 2020 and, among other provisions, authorized the SBA to guarantee loans under the PPP for small businesses that meet eligibility requirements in order to keep their workers on the payroll and fund specified operating expenses. Subsequent legislation extended the authority of the SBA to guaranty loans under the PPP through August 8, 2020. In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act reauthorized the SBA to guarantee loans under the PPP through March 31, 2021, and the PPP Extension Act of 2021 extended that authorization throughsix months ended June 30, 2021 for applications received by the SBA prior to June 1, 2021. From the inception of the PPP through September 30, 2021, the Corporation funded a total of approximately $2.7 billion of loans under the PPP. Through September 30, 2021, a total of $2.1 billion of those PPP loans have qualified for loan forgiveness2022, were $1.0 million and ~~have been repaid by the SBA.~~

A series of stimulus payments to eligible consumers, enhanced unemployment benefits provided by the federal government and traditional, state-provided unemployment compensation, as well as other forms of relief provided to consumers and businesses, have helped to limit some of the adverse impacts of COVID-19 and, together with other factors, have contributed to significant growth in the Corporation’s customer deposit balances since the pandemic began. The reduction, expiration or discontinuation of these measures may adversely impact the recovery of economic activity and the ability of borrowers to meet their payment and other obligations to the Corporation, either of which could require the Corporation to increase the ACL through provisions for credit losses. Further, if economic activity continues to recover, and consumer spending and business investment increase, customers may be less likely to maintain deposit balances with the Corporation at recent levels, which might require the Corporation to increase its reliance on alternative or higher-cost sources of funding.

The impact of COVID-19 on the Corporation’s financial results is evolving and uncertain. The Corporation has limited exposure to some of the industries that were initially most significantly impacted by COVID-19, such as hospitality and food services, energy and entertainment, and most of these loans are secured by real estate and other forms of collateral. While many areas of the economy continue to exhibit signs of recovery, the lingering effects of the pandemic, particularly in certain sectors of the economy, or a resurgence in COVID-19 infections that prompts the continuation or imposition of governmental restrictions on activities, may result in decreased demand for the Corporation’s loan products. In addition, the decline in economic activity occurring due to COVID-19 and the actions by the FOMC with respect to interest rates are likely to affect the Corporation’s net interest income, non-interest income and credit-related losses for an uncertain period of time. See additional discussion in "Results of Operations" and "Financial Condition" of Management's Discussion.$1.4 million, respectively.

Financial Highlights

Following is a summary of the financial highlights for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~:2022:

•Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was ~~$73.0~~$67.4 million for the three months ended ~~September~~June 30, ~~2021, an $11.4~~2022, a $5.0 million increase compared to ~~$61.6~~$62.4 million for the same period ~~of 2020. Diluted net income per share was $0.45, a $0.07 increase compared to the same period~~ in 2020. The increase in net income during the third quarter of 2021 was primarily a result of a negative provision for credit losses and an increase in net interest income, partially offset by lower non-interest income, higher non-interest expenses, higher income taxes and the preferred stock dividend as discussed below.

2021. Net income available to common shareholders was ~~$205.9~~$129.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, a ~~$78.7~~$3.7 million ~~increase~~decrease compared to ~~$127.2~~$132.9 million for the same period ~~of 2020.~~in 2021. Diluted net income per share was ~~$1.26,~~$0.42 for the three months ended June 30, 2022, a ~~$0.48~~$0.04 increase compared to the same

period in 2021, and $0.80 for the six months ended June 30, 2022, a $0.01 decrease compared to the same period in ~~2020. The increase in net income during thenine months ended September 30, 2021~~was primarily a result of a negative provision for credit losses, and increases in net interest income, non-interest income and net investment securities gains, partially offset by higher non-interest expenses, higher income taxes and the preferred stock dividend as discussed below.2021.

•Net Interest Income -~~Net~~FTE net interest income increased ~~$17.2~~$16.8 million, or ~~11.1%~~10.2%, for the three months ended ~~September~~June 30, ~~2021 and increased $30.5 million, or 6.5%, for the nine months ended September 30, 2021~~2022 compared to the same ~~periods~~period in ~~2020.~~ 2021.The ~~increases~~increase was driven by higher interest rates, which resulted ~~from PPP loan fee~~in a $9.2 million increase in interest income ~~reduced long-term borrowings, lower rates~~ on ~~interest-bearing liabilities and higher volumes of interest-earning assets, primarily~~average net loans, ~~partially offset by lower yields on interest-earning assets. Overall,~~as well as the $807.2 million increase in average investment securities, which contributed $4.7 million to the increase in interest income. FTE net interest ~~margin~~income increased ~~12 bp~~$14.0 million, or 4.2%, for the ~~three~~six months ended ~~September~~June 30, ~~2021 and decreased 12 bp for the nine months ended September 30, 2021, respectively~~2022 compared to the same ~~periods~~period in ~~2020.~~2021.The increase in net interest income was primarily from an increase in interest income of $8.1 million from investments, a decrease of $6.2 million in interest expense from interest-bearing deposits and a decrease of $5.4 million in interest expense from long-term borrowings, partially offset by a decrease in interest income of $5.2 million on net loans, primarily due to a decline in PPP loans.

◦•Net Interest Margin - ~~For~~Overall, net interest margin increased 31 bps for the three months ended ~~September~~June 30, ~~2021, the increase in the net interest margin~~2022 compared to the same period in ~~2020 reflected an increase in PPP loan fee income and~~2021. Net interest margin increased 15 bps for the ~~net impact of a decrease in cost of funds by 23 bp, partially offset by a decrease in yields on interest earning assets of 10 bp. For the nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to the ~~decrease~~same period in ~~the~~2021. The increases in net interest margin ~~reflected the net impact of a decrease in~~were driven by higher yields ofon average interest-earning assets, ~~of 41 bp, partially offset by a 30 bp decrease in the cost of funds.~~and funds moving to higher yielding investment securities from lower yielding other interest-earning assets.

◦•Loan Growth - Average ~~Net Loans~~net loans decreased by ~~$0.5 billion,~~$269.4 million, or ~~2.5%~~1.4%, ~~and increased by $0.7 billion, or 4.1%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The decrease~~ for the three months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in 2021. The decrease was largely driven ~~largely~~by a $1.4 billion decline in PPP loans due to the repayment of these loans upon forgiveness by the ~~forgiveness~~SBA, partially offset by increases in average residential mortgage loans, average commercial mortgage loans, average real estate construction loans and average commercial and industrial loans of ~~PPP loans. The increase~~$656.0 million, $162.8 million, $134.5 million and $119.8 million, respectively. Average net loans decreased $432.5 million, or 2.3%, for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in 2021. The decrease was primarily driven ~~largely~~ by ~~the issuance of~~a $1.4 billion decline in PPP loans, partially offset by increases in average residential mortgage loans, average commercial mortgage loans and ~~growth in the~~average real estate ~~commercial~~construction loans of $680.2 million, $165.0 million and ~~residential mortgage portfolios.~~$110.2 million, respectively.

◦•Deposit Growth - Average deposits ~~grew $1.7 billion,~~decreased $241.9 million, or ~~8.5%, and $2.7 billion, or 14.5%~~1.1%, for the three ~~and nine~~ months ended ~~September~~June 30, ~~2021, respectively~~2022 compared to the same ~~periods~~period in ~~2020.~~2021. The ~~increases were driven~~decrease was largely due to decreases in average time deposits and average interest-bearing demand deposits of $395.3 million and $381.9 million, respectively, partially offset by growth in ~~all deposit categories except~~average non-interest bearing demand deposits and average savings and money market deposits of $443.9 million and $145.0 million, respectively. Average deposits increased $59.0 million, or 0.3%, for the six months ended June 30, 2022, compared to the same period in 2021. The increase was primarily due to increases in average noninterest-bearing demand deposits and average savings and money market deposits of $600.2 million and $221.8 million, respectively, partially offset by decreases in average time deposits and ~~brokered deposits. The increases in~~ average ~~total~~interest-bearing demand ~~and savings accounts were driven by strong customer liquidity.~~

•~~Provision for Credit Losses~~ - ~~The provision for credit losses was a negative $0.6~~deposits of $424.3 million and ~~a negative $9.6~~$275.1 million, for the three and nine months ended September 30, 2021, respectively, reflecting decreases of $7.7 million and $80.3 million, respectively, from the same periods of 2020. As of September 30, 2021, improved economic forecasts and other factors compared to those as of both June 30, 2021 and December 31, 2020, reduced the level of the ACL determined to be necessary at the end of the third quarter of 2021. The higher provision for credit losses for the three and nine months ended September 30, 2020 were primarily driven by the assessment of the estimated impacts of COVID-19, as reflected in economic forecasts, on the level of expected credit losses.respectively.

•Asset Quality - Non-performing assets increased ~~$0.8~~$24.4 million, or ~~0.5%~~15.8%, as of ~~September~~June 30, ~~2021~~2022 compared to December 31, ~~2020,~~2021, and were ~~0.58%~~0.71% and 0.60% of total assets as of those ~~dates. Annualized~~dates, respectively. For the six months ended June 30, 2022 and 2021, annualized net charge-offs to average loans outstanding were (0.05)% and 0.14%, respectively. The provision for credit losses was a negative $5.5 million for the ~~three~~six months ended ~~September~~June 30, ~~2021 unchanged from~~2022, compared to a negative provision of $9.0 million for the same period ~~in 2020. For the nine months ended September 30, 2021 and 2020, annualized net charge-offs to average loans outstanding were 0.08% and 0.10%, respectively.~~

•~~Balance Sheet Restructuring~~ - ~~During the first quarter~~ of 2021, the Corporation completed a balance sheet restructuring that included a $34.0 million gain on sale of Visa Shares, offset by other securities losses of $400,000, debt extinguishment costs of $32.6 million and a write-off of $841,000 recognized in net interest income in connection with the cash tender offer for certain of its outstanding senior and subordinated notes and the prepayment of certain term FHLB advances. See Note 14, "Long-Term Debt," in the Notes to Consolidated Financial Statements for further details on the tender for certain outstanding senior and subordinated notes.2021.

•Non-interest Income - For the three months ended ~~September~~June 30, 2021, non-interest income, excluding net investment securities gains, decreased $0.7 million, or 1.1%, as compared to the same period in 2020. The decrease in the 2021 period was primarily the result of mortgage banking income, which decreased $7.3 million, driven by a reductions in both the volume of mortgage loans sold and the gain-on-sale spreads of mortgages sold. Partially offsetting this decrease were wealth management fees, which increased $3.6 million, or 24.0%, resulting from an increase in client asset levels and overall market performance, and higher consumer banking revenues.

~~For the nine months ended September 30, 2021,~~2022, non-interest income, excluding net investment securities gains, increased ~~$5.6~~$6.5 million, or ~~3.3%~~12.6%, as compared to the same period in ~~2020.~~2021. The increase in ~~the 2021 period~~non-interest income was primarily ~~the result~~due to increases of $2.2 million in fee income from commercial customer interest rate swaps, $1.6 million in consumer banking fees, $0.9 million in mortgage banking income, $0.7 million in cash management fees, $0.6 million in wealth management ~~fees, which increased $10.1~~revenues and $0.6 million in commercial banking merchant and card revenues. Non-interest income, excluding net investment securities gains, decreased $0.2 million, or ~~23.3%, resulting from an increase~~0.1% for the six months ended June 30, 2022 compared to the same period in ~~client asset levels and overall market performance and consumer banking revenues, partially offset by lower~~2021.

4744

~~commercial banking income, decreases in mortgage banking income and capital markets income, consisting primarily of fees earned on commercial loan interest rate swaps.~~

•Non-interest Expense - Non-interest expense, excluding merger-related expenses of $1.0 million, increased ~~$5.5~~$7.9 million, or ~~3.9%~~5.6%, for the three months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020. The~~2021. This increase ~~during the quarter~~ was ~~largely driven by higher~~primarily due to increases of $7.0 million in salaries and employee benefits, ~~state taxes~~$1.1 million in net occupancy expense and $0.8 million in data processing and software, ~~costs,~~ partially offset by ~~lower occupancy costs, equipment costs and professional fees.~~

a decrease of $0.8 million in state taxes. Non-interest expense, ~~increased $39.1~~excluding merger-related expenses of $1.4 million, decreased $24.9 million, or ~~9.2%~~7.8%, for the ~~nine months~~six-months ended ~~September~~June 30, ~~2021~~2022, compared to the same period in ~~2020.~~2021. The ~~increase~~decrease was largely driven by debt extinguishment ~~costs recorded~~expenses in ~~the first quarter~~2021 of ~~2021, in connection with the balance sheet restructuring discussed above, compared to $2.9~~$32.6 million, ~~of debt extinguishment costs recognized in the nine months ended September 30, 2020. Higher data processing and software, state taxes and other outside services also contributed to the increase,~~ partially offset by ~~lower professional fees.~~

~~In 2020, the Corporation completed a strategic operating expense review, which resulted~~an increase of $8.9 million in a number of cost-saving initiatives that were expected to result in annual expense savings of $25 million, these expense reductions were fully realized on annualized basis by the end of the second quarter of 2021. The expense reductions occurred primarily within salaries and employee ~~benefits and net occupancy expense categories. The Corporation has been reinvesting a portion of the cost savings to accelerate digital transformation initiatives.~~benefits.

•Income Taxes - Income tax expense for the three months ended ~~September~~June 30, ~~2021~~2022 was ~~$14.3~~$16.0 million, a ~~$4.7~~$4.0 million increase from ~~$9.5~~$12.0 million from the same period in 2021. Income tax expense for the six months ended June 30, 2022 was $29.3 million, a $3.4 million increase from the same period in 2021. The Corporation's ETR was 18.6% for the three months ended June 30, 2022 compared to 15.6% for the same period in 2020. The Corporation’s ETR was 15.9% for the three months ended September 30, 2021, compared to 13.4% in the same period of 2020. Income tax expense for the nine months ended September 30, 2021 was $40.2 million, a $21.3 million increase from $18.8 million for the same period in 2020. The Corporation’s ETR was 15.8% for the nine months ended September 30, 2021, compared to 12.9% in the same period of 2020. The increase in income tax expense primarily resulted from an increase in income before taxes, while net favorable permanent differences were relatively the same compared to the same periods of 2020.2021. The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits under various federal programs.

Supplemental Reporting of Non-GAAP Based Financial Measures

This Quarterly Report on Form 10-Q contains supplemental financial information, as detailed below, which has been derived by methods other than 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 and financial condition. 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 the Corporation and 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 at 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:~~

Three months ended September 30 Nine months ended September 30
2021 2020 2021 2020
(dollars in thousands)
Return on average common shareholders' equity (tangible)
Net income available to common shareholders $ 73,021 $ 61,611 $ 205,896 $ 127,213
Plus: Intangible amortization, net of tax 118 103 349 312
Numerator $ 73,139 $ 61,714 $ 206,245 $ 127,525
Average common shareholders' equity $ 2,722,833 $ 2,374,091 $ 2,676,762 $ 2,340,204
Less: Average goodwill and intangible assets (536,772) (534,971) (536,615) (535,103)
Less: Average preferred stock (192,878) — (192,878) —
Denominator $ 1,993,183 $ 1,839,120 $ 1,947,269 $ 1,805,101
Return on average common shareholders' equity (tangible), annualized 14.56 % 13.35 % 21.36 % 9.44 %
Efficiency ratio
Non-interest expense $ 144,596 $ 139,145 $ 463,811 $ 424,705
Less: Debt extinguishment cost — — (32,575) (2,878)
Less: Amortization of tax credit investments (1,546) (1,694) (4,640) (4,594)
Less: Intangible amortization (150) (132) (443) (397)
Numerator $ 142,900 $ 136,519 $ 426,153 $ 416,036
Net interest income $ 171,270 $ 154,116 $ 498,118 $ 467,616
Tax equivalent adjustment (1)
3,114 2,990 9,111 9,315
Plus: Total non-interest income 62,577 63,249 209,864 173,813
Less: Investment securities gains, net — (2) (33,511) (3,053)
Denominator $ 236,961 $ 220,353 $ 683,582 $ 647,691
Efficiency ratio 60.3 % 62.0 % 62.3 % 64.2 %

~~(1) Calculated using a 21% federal tax rate and statutory interest expense disallowances. See also the “Net Interest Income” section of Management’s Discussion and Analysis.~~

~~Three months ended September 30, 2021 compared to the three months ended September 30, 2020~~

~~Net Interest Income~~

FTE net interest income increased $17.3 million, to $174.4 million, for the three months ended September 30, 2021, from $157.1 million in the same period in 2020. The NIM increased 12 bp, to 2.82%, compared to 2.70% for the same period in 2020. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate and statutory interest expense disallowances. The discussion following this table is based on these FTE amounts.

Three months ended September 30
2021 2020
Average
Balance Interest Yield/
Rate Average
Balance Interest Yield/
Rate
ASSETS (dollars in thousands)
Interest-earning assets:
Net Loans (1)
$ 18,414,153 $ 163,343 3.53 % $ 18,880,519 $ 160,344 3.38 %
Taxable investment securities (2)
2,785,828 13,757 1.80 2,011,893 13,150 2.61
Tax-exempt investment securities (2)
1,035,685 7,906 3.05 861,764 6,899 3.19
Total investment securities 3,821,513 21,663 2.27 2,873,657 20,049 2.79
Loans held for sale 36,427 299 3.28 79,999 728 3.64
Other interest-earning assets 2,301,326 1,888 0.18 1,387,327 1,028 0.30
Total interest-earning assets 24,573,419 187,193 3.03 23,221,502 182,149 3.13
Noninterest-earning assets:
Cash and due from banks 200,315 138,567
Premises and equipment 228,861 239,183
Other assets 1,695,767 1,835,190
Less: ACL - loans (3)
(257,486) (264,934)
Total Assets $ 26,440,876 $ 25,169,508
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 6,168,908 $ 814 0.05 % $ 5,591,548 $ 1,913 0.14 %
Savings deposits 6,392,537 1,054 0.07 5,716,050 2,347 0.16
Brokered deposits 270,168 229 0.34 314,721 440 0.56
Time deposits 1,852,223 4,428 0.95 2,495,445 9,931 1.58
Total interest-bearing deposits 14,683,836 6,525 0.18 14,117,764 14,631 0.41
Short-term borrowings 494,811 131 0.11 613,127 370 0.24
Long-term borrowings 627,300 6,153 3.92 1,295,515 10,042 3.10
Total interest-bearing liabilities 15,805,947 12,809 0.32 16,026,406 25,043 0.62
Noninterest-bearing liabilities:
Demand deposits 7,439,644 6,270,683
Other liabilities 472,452 498,328
Total Liabilities 23,718,043 22,795,417
Total Deposits/Cost of deposits 22,123,480 0.12 20,388,447 0.29
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds 23,245,591 0.22 22,297,089 0.45
Shareholders’ equity 2,722,833 2,374,091
Total Liabilities and Shareholders’ Equity $ 26,440,876 $ 25,169,508
Net interest income/FTE NIM 174,384 2.82 % 157,106 2.70 %
Tax equivalent adjustment (3,114) (2,990)
Net interest income $ 171,270 $ 154,116

~~(1)Average balance includes non-performing loans.~~

~~(2)Balances include amortized historical cost for AFS. The related unrealized holding gains (losses) are included in other assets.~~

~~(3)ACL - loans relates to the ACL specifically for Net Loans and does not include the ACL for OBS credit exposures, which is included in other liabilities.~~

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volume) and changes in rates for the three months ended September 30, 2021 in comparison to the same period in 2020:

2021 vs. 2020
Increase (Decrease) due
to change in
Volume Rate Net
(in thousands)
FTE Interest income on:
Net Loans (1)
$ (4,033) $ 7,032 $ 2,999
Taxable investment securities 4,883 (4,276) 607
Tax-exempt investment securities 1,327 (320) 1,007
Loans held for sale (363) (66) (429)
Other interest-earning assets 1,057 (197) 860
Total interest income $ 2,871 $ 2,173 $ 5,044
Interest expense on:
Demand deposits $ 199 $ (1,298) $ (1,099)
Savings deposits 226 (1,519) (1,293)
Brokered deposits (56) (155) (211)
Time deposits (2,161) (3,342) (5,503)
Short-term borrowings (63) (176) (239)
Long-term borrowings (6,111) 2,222 (3,889)
Total interest expense $ (7,966) $ (4,268) $ (12,234)

~~(1)Average balance includes non-performing loans.~~

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 direct changes that are attributable to each component.

The general level of interest rates has remained at or near historic lows since March 2020 as a result of the FOMC reducing the Fed Funds Rate to near zero and taking other monetary policy actions in response to COVID-19. As summarized in the preceding table, the $5.0 million increase in FTE interest income was due to $1.4 billion, or 5.8%, increase in average interest-earning assets, primarily investment securities and other interest-earned assets, which contributed $2.9 million to FTE interest income, and a 15 bp increase in yield on net loans, which was partially offset by a decrease in yield of 81 bp on taxable investments securities, which contributed $2.2 million to FTE interest income. 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. As a result, the impact of changes in index rates, primarily the prime rate and LIBOR, on adjustable rate loans may not be fully realized until future periods.

~~Interest expense decreased $12.2 million primarily due to the 30 bp decrease in the rate on average interest-bearing liabilities.~~The rates on average interest-bearing demand deposits and savings deposits each decreased 9 bp which contributed $1.3 million and $1.5 million to the decrease in interest expense, respectively. The cost of average time deposits decreased 63 bp and the average balance of time deposits decreased $643.2 million, which contributed $3.3 million and $2.2 million to the decrease in interest expense, respectively.In addition, the $668.2 million decrease in average long-term borrowings resulted in a $6.1 million decrease in interest expense, partially offset by the 82 bp increase in the average rate on long-term borrowings, which contributed $2.2 million of additional interest expense. As discussed in the "Overview" section of Management's Discussion, the Corporation completed a balance sheet restructuring in March of 2021, which included the prepayment of $536.0 million of FHLB advances and the cash tender offer for $75.0 million and $60.0 million of subordinated debt and senior notes, respectively.

In 2014, the Financial Stability Oversight Council and Financial Stability Board raised concerns about the reliability and robustness of LIBOR and called for the development of alternative interest rate benchmarks. The ARRC, through authority from the Federal Reserve, have selected SOFR as the alternative rate and developed a transition plan from LIBOR. As a result, the Corporation is reaching out to certain borrowers to refinance or modify their loans to avoid any uncertainty around the LIBOR transition. Effective October 1, 2021, the Corporation ceased originating new LIBOR-based loans. Additionally, the Corporation has begun to issue SOFR based loans.

~~Average loans and average FTE yields, by type, are summarized in the following table:~~

Three months ended September 30 Increase (Decrease)
2021 2020 in Balance
Balance Yield Balance Yield $ %
(dollars in thousands)
Real estate – commercial mortgage $ 7,134,177 3.11 % $ 6,986,528 3.27 % $ 147,649 2.1 %
Commercial and industrial (1)
4,729,385 2.79 5,983,872 2.53 (1,254,487) (21.0)
Real estate – residential mortgage 3,642,822 3.39 2,975,516 3.73 667,306 22.4
Real estate – home equity 1,128,076 3.68 1,237,602 3.87 (109,526) (8.8)
Real estate – construction 1,085,846 3.13 981,589 3.84 104,257 10.6
Consumer 452,844 4.00 464,851 4.07 (12,007) (2.6)
Equipment lease financing 247,776 3.88 279,217 3.96 (31,441) (11.3)
Other (2)
(6,773) — (28,656) — 21,883 (76.4)
Total loans $ 18,414,153 3.53 % $ 18,880,519 3.38 % $ (466,366) (2.5) %

~~(1) Includes average PPP loans of $0.9 billion and $2.0 billion for the three months ended September 30, 2021and 2020, respectively.~~

~~(2) Consists of overdrafts and net origination fees and costs.~~

Average loans decreased $466.4 million, or 2.5%, compared to the same period of 2020. The decrease was driven largely by the net reduction in PPP loans due to the repayment of these loans upon forgiveness by the SBA, partially offset by increases in the residential mortgage, commercial mortgage and construction portfolios.

~~Average deposits and average interest rates, by type, are summarized in the following table:~~

Three months ended September 30 Increase (Decrease)
in Balance
2021 2020
Balance Rate Balance Rate $ %
(dollars in thousands)
Noninterest-bearing demand $ 7,439,644 — % $ 6,270,683 — % $ 1,168,961 18.6 %
Interest-bearing demand 6,168,908 0.05 5,591,548 0.14 577,360 10.3
Savings 6,392,537 0.07 5,716,050 0.16 676,487 11.8
Total demand and savings 20,001,089 0.04 17,578,281 0.10 2,422,808 13.8
Brokered deposits 270,168 0.34 314,721 0.56 (44,553) (14.2)
Time deposits 1,852,223 0.95 2,495,445 1.58 (643,222) (25.8)
Total deposits $ 22,123,480 0.12 % $ 20,388,447 0.29 % $ 1,735,033 8.5 %

The average cost of total deposits decreased 17 bp, to 0.12%, for the third quarter of 2021, compared to 0.29% for the same period of 2020, mainly as a result of reductions in deposit rates, due to the continued low interest rate environment, and growth in noninterest-bearing demand deposits. This decrease in the average cost of deposits contributed $8.1 million to the reduction of interest expense. Average total deposits increased $1.7 billion, or 8.5%, primarily driven by increases in noninterest-bearing demand deposits, interest-bearing demand and saving accounts, partially offset by a $643.2 million, or 25.8%, decrease in time deposits.

~~Average borrowings and interest rates, by type, are summarized in the following table:~~

Three months ended September 30 Increase (Decrease)
2021 2020 in Balance
Balance Rate Balance Rate $ %
Short-term borrowings: (dollars in thousands)
Customer funding(1)
$ 494,811 0.11 % $ 613,127 0.24 % $ (118,316) (19.3) %
Total short-term borrowings 494,811 0.11 613,127 0.24 (118,316) (19.3)
Long-term borrowings:
FHLB advances — — 535,992 1.81 (535,992) N/M
Other long-term debt 627,300 3.92 759,523 4.00 (132,223) (17.4)
Total long-term borrowings 627,300 3.92 1,295,515 3.10 (668,215) (51.6)
Total borrowings $ 1,122,111 2.24 % $ 1,908,642 2.18 % $ (786,531) (41.2) %

~~(1) Includes repurchase agreements and short-term promissory notes.~~

~~(2) Consists of FHLB advances and other borrowings with original terms of less than one year.~~

Average total short-term borrowings decreased $118.3 million, or 19.3%, in the third quarter of 2021, compared to the same period of 2020, primarily as a result of excess funding provided by higher deposit balances.

Average total long-term borrowings decreased $668.2 million, or 51.6%, in the third quarter of 2021, compared to the same period of 2020, primarily as a result of the balance sheet restructuring completed in March of 2021, which included the prepayment of $536.0 million of long-term FHLB advances and the cash tender offer for $75.0 million and $60.0 million of the Corporation's outstanding subordinated and senior notes, respectively. This reduction in long-term borrowings contributed $6.1 million to the reduction of interest expense, partially offset by an 82 bp increase in the rate on average long-term borrowings during the third quarter of 2021 compared to the same period a year ago.

~~Provision for Credit Losses~~

The provision for credit losses was a negative $0.6 million for the third quarter of 2021, a decrease of $7.7 million from the same period of 2020. Several factors as of the end of the third quarter of 2021 in comparison to the end of the fourth quarter of 2020, including improved economic conditions, reduced the level of the ACL determined to be necessary at the end of the third quarter of 2021, resulting in the negative provision for credit losses for the third quarter of 2021. The $7.1 million provision expense for credit losses in the third quarter of 2020 was the result of several factors, most notably, the overall uncertainty in economic conditions due to COVID-19.

5345

~~Non-Interest Income~~Following are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure:


	Three months ended June 30						Six months ended June 30
	2022			2021			2022			2021
	(dollars in thousands)
Return on average assets, excluding merger-related expenses
Net income	$	69,989		$	64,964		$	134,277		$	138,027
Plus: Merger-related expenses, net of tax	811			—			1,128			—
Net income (numerator)	$	70,800		$	64,964		$	135,405		$	138,027

Total average assets (denominator)	$	25,578,432		$	26,017,542		$	25,600,325		$	26,049,999

Return on average assets, excluding merger-related expenses, annualized	1.11		%	1.00		%	1.07		%	1.07		%

Return on average common shareholders' equity (tangible)
Net income available to common shareholders	$	67,427		$	62,402		$	129,153		$	132,874
Plus: Merger-related expenses, net of tax	811			—			1,128			—
Plus: Intangible amortization, net of tax	140			140			279			230
Numerator	$	68,378		$	62,542		$	130,560		$	133,104

Average shareholders' equity	$	2,531,346		$	2,669,413		$	2,609,655		$	2,653,345

Less: Average goodwill and intangible assets	(537,786)			(536,470)			(537,881)			(536,536)
Less: Average preferred stock	(192,878)			(192,878)			(192,878)			(192,878)
Average tangible common shareholders' equity (denominator)	$	1,800,682		$	1,940,065		$	1,878,896		$	1,923,931
Return on average common shareholders' equity (tangible), annualized	15.23		%	12.93		%	14.01		%	13.95		%

Efficiency ratio
Non-interest expense	$	149,730		$	140,831		$	295,708		$	319,215
Less: Amortization of tax credit investments	(696)			(1,563)			(1,391)			(3,094)
Less: Merger-related expenses	(1,027)			—			(1,428)			—
Less: Intangible amortization	(177)			(178)			(353)			(293)
Less: Debt extinguishment cost	—			(412)			—			(32,575)
Numerator	$	147,830		$	138,678		$	292,536		$	283,253

Net interest income	$	178,831		$	162,399		$	340,141		$	326,847
Tax equivalent adjustment	3,427			3,018			6,716			5,998
Plus: Total non-interest income	58,391			51,890			113,647			147,287
Less: Investment securities gains, net	(8)			(36)			(27)			(33,511)
Denominator	$	240,641		$	217,271		$	460,477		$	446,621
Efficiency ratio	61.4		%	63.8		%	63.5		%	63.4		%

~~The following table presents the components of non-interest income:~~Presented on a FTE basis, using a 21% federal tax rate.

Three months ended September 30 Increase (Decrease)
2021 2020 $ %
(dollars in thousands)
Commercial banking:
   Merchant and card $ 6,979 $ 6,237 $ 742 11.9 %
   Cash management 5,285 4,742 543 11.5
   Capital markets 2,063 4,696 (2,633) (56.1)
   Other commercial banking 2,411 2,636 (225) (8.5)
Total commercial banking 16,738 18,311 (1,573) (8.6)
Consumer banking:
  Card 5,941 5,002 939 18.8
  Overdraft 3,474 3,015 459 15.2
  Other consumer banking 2,386 2,406 (20) (0.8)
Total consumer banking 11,801 10,423 1,378 13.2
Wealth management fees 18,532 14,943 3,589 24.0
Mortgage banking:
Gains on sales of mortgage loans 5,944 19,480 (13,536) (69.5)
Mortgage servicing income 3,591 (2,679) 6,270 N/M
Total mortgage banking 9,535 16,801 (7,266) (43.2)
Other 5,971 2,769 3,202 115.6
Non-interest income before investment securities gains 62,577 63,247 (670) (1.1)
Investment securities gains, net — 2 (2) (100.0)
Total Non-Interest Income $ 62,577 $ 63,249 $ (672) (1.1) %

~~Non-interest income, before net investment securities gains, decreased $0.7 million, or 1.1%, in the third quarter of 2021 as compared to the same period in 2020.~~

Total commercial banking decreased $1.6 million, or 8.6%, compared to the same period in 2020, driven by a decrease in capital markets revenue, which consists primarily of fees earned on commercial loan interest rate swaps.

~~Total consumer banking income increased $1.4 million, or 13.2%, compared to the same period in 2020, primarily driven by an increase in card income.~~

~~Wealth management revenues increased $3.6 million, or 24.0%, primarily resulting from growth in brokerage income due to an increase in client asset levels andimproved overall market performance.~~

Mortgage banking income decreased $7.3 million, or 43.2%, as a result of decreased gains on sales of mortgage loans, driven by lower mortgage sales and lower gain-on-sale spreads on loans sold. This was slightly offset by an increase in mortgage servicing income, which was positively impacted by a $3.5 million decrease to the valuation allowance for MSRs in the third quarter of 2021 compared to a $1.5 million addition to the valuation allowance during the same period last year.

RESULTS OF OPERATIONS

~~Non-Interest Expense~~

~~The following table presents the components of non-interest expense:~~

Three months ended September 30 Increase (Decrease)
2021 2020 $ %
(dollars in thousands)
Salaries and employee benefits $ 82,679 $ 79,227 $ 3,452 4.4 %
Data processing and software 14,335 12,285 2,050 16.7
Net occupancy 12,957 13,221 (264) (2.0)
Other outside services 7,889 7,617 272 3.6
State taxes 4,994 2,692 2,302 85.5
Equipment 3,416 3,711 (295) (7.9)
FDIC insurance 2,727 1,578 1,149 72.8
Professional fees 2,271 2,879 (608) (21.1)
Amortization of TCI 1,546 1,694 (148) (8.7)
Marketing 1,448 1,147 301 26.2
Intangible amortization 150 132 18 13.6
Other 10,184 12,962 (2,778) (21.4)
Total non-interest expense $ 144,596 $ 139,145 $ 5,451 3.9 %

~~Salaries and employee benefits increased $3.5 million, or 4.4%, primarily the result of increases in health care expenses and higher incentive compensation accruals due~~Three months ended June 30, 2022 compared to ~~higher earnings in 2021.~~

~~Data processing and software increased $2.1 million, or 16.7%, reflecting costs related to technology initiatives.~~

~~State taxes increased $2.3 million, or 85.5%, primarily as a result of an increase in the accrual for Pennsylvania shares tax expense resulting from increased capital levels.~~

Professional fees decreased $608,000, or 21.1%, primarily due to a decrease in legal fees. The Corporation incurs fees related to various legal matters in the normal course of business. These fees can fluctuate based on timing and the extent of these matters.

~~Income Taxes~~

~~Income tax expense for~~ the three months ended ~~September~~June 30, 2021 was $14.3 million, a $4.7 million increase from $9.5 million for the same period in 2020. The Corporation’s ETR was 15.9% for the three months ended September 30, 2021, compared to 13.4% in the same period of 2020. The increase in income tax expense and the ETR primarily resulted from an increase in income before taxes, while net favorable permanent differences were relatively the same compared to the same period of 2020.

~~Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020~~

Net Interest Income

FTE net interestincome increased ~~$30.3~~$16.8 million to ~~$507.2~~$182.3 million for the ~~nine~~three months ended ~~September~~June 30, ~~2021, up~~2022, from ~~$476.9~~$165.4 million ~~in the same period in 2020. The NIM decreased 12 bp, or 4.2% to 2.78%, compared to 2.90%~~ for the same period in ~~2020.~~2021. NIM increased 31 bps, to 3.04%, compared to 2.73% for the same period in 2021. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate, and statutory interest expense disallowances. The discussion following this table is based on these ~~FTE~~taxable-equivalent amounts.


		Nine months ended September 30													Three months ended June 30
		2021						2020							2022						2021
		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
ASSETS	ASSETS	(dollars in thousands)												ASSETS	(dollars in thousands)
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Net Loans(1)		$	18,765,024	$	485,330	3.46	%	$	18,027,253	$	498,455	3.69	%
Taxable investment securities (2)		2,619,411		41,345		1.93		2,165,180		44,615		2.75
Tax-exempt investment securities (2)		969,946		22,557		3.10		804,484		19,596		3.24
Net loans (1)														Net loans (1)	$	18,637,175	$	165,682	3.56	%	$	18,906,556	$	156,525	3.32	%

Total investment securities		3,589,357		63,902		2.37		2,969,664		64,211		2.88
Investment securities (2)														Investment securities (2)	4,398,424		26,061		2.37		3,591,231		21,392		2.38
Loans held for sale	Loans held for sale	40,551		969		3.19		54,355		1,557		3.82		Loans held for sale	13,260		260		7.84		31,948		199		2.49
Other interest-earning assets	Other interest-earning assets	1,986,161		4,599		0.18		936,819		4,325		0.62		Other interest-earning assets	938,244		1,723		0.74		1,752,549		1,575		0.36
Total interest-earning assets	Total interest-earning assets	24,381,093		554,799		3.04		21,988,091		568,548		3.45		Total interest-earning assets	23,987,103		193,726		3.24		24,282,284		179,691		2.97
Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Cash and due from banks	Cash and due from banks	150,435						143,496						Cash and due from banks	160,240						129,927
Premises and equipment	Premises and equipment	229,513						239,739						Premises and equipment	216,798						229,047
Other assets	Other assets	1,689,094						1,729,351						Other assets	1,463,332						1,643,410
Less: ACL - loans(3)	Less: ACL - loans(3)	(268,412)						(242,300)						Less: ACL - loans (3)	(249,041)						(267,126)
Total Assets	Total Assets	$	26,181,723					$	23,858,377					Total Assets	$	25,578,432					$	26,017,542
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY													LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Demand deposits	Demand deposits	$	5,994,878	$	2,905	0.06	%	$	5,116,696	$	9,933	0.26	%	Demand deposits	$	5,597,975	$	797	0.06	%	$	5,979,855	$	932	0.06	%
Savings and money market deposits	Savings and money market deposits	6,271,019		3,944		0.08		5,431,071		12,788		0.31		Savings and money market deposits	6,425,634		1,125		0.07		6,280,629		1,363		0.09
Brokered deposits	Brokered deposits	297,250		876		0.39		300,795		1,935		0.86		Brokered deposits	244,200		619		1.02		297,815		253		0.34
Time deposits	Time deposits	2,001,043		16,383		1.09		2,626,802		33,533		1.71		Time deposits	1,608,286		3,255		0.81		2,003,606		5,434		1.09
Total interest-bearing deposits	Total interest-bearing deposits	14,564,190		24,108		0.22		13,475,364		58,189		0.58		Total interest-bearing deposits	13,876,095		5,796		0.17		14,561,905		7,982		0.22
Short-term borrowings	Short-term borrowings	526,259		456		0.12		873,694		4,960		0.76		Short-term borrowings	446,838		190		0.17		514,025		137		0.11
Long-term borrowings	Long-term borrowings	839,396		23,006		3.66		1,240,253		28,468		3.06		Long-term borrowings	556,992		5,482		3.94		626,795		6,155		3.93
Total interest-bearing liabilities	Total interest-bearing liabilities	15,929,845		47,570		0.40		15,589,311		91,617		0.78		Total interest-bearing liabilities	14,879,925		11,468		0.31		15,702,725		14,274		0.36
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits	Demand deposits	7,108,199						5,458,807						Demand deposits	7,647,618						7,203,696
Other liabilities	Other liabilities	466,917						470,055						Other liabilities	519,543						441,708
Total Liabilities	Total Liabilities	23,504,961						21,518,173						Total Liabilities	23,047,086						23,348,129
Total Deposits/Cost of deposits	Total Deposits/Cost of deposits	21,672,389				0.15		18,934,171				0.41		Total Deposits/Cost of deposits	21,523,713				0.11		21,765,601				0.15
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	23,038,044				0.28		21,048,118				0.58		Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	22,527,543				0.20		22,906,421				0.25
Shareholders’ equity	Shareholders’ equity	2,676,762						2,340,204						Shareholders’ equity	2,531,346						2,669,413
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	26,181,723					$	23,858,377					Total Liabilities and Shareholders’ Equity	$	25,578,432					$	26,017,542
Net interest income/FTE NIM	Net interest income/FTE NIM			507,229		2.78	%			476,931		2.90	%	Net interest income/FTE NIM			182,258		3.04	%			165,417		2.73	%
Tax equivalent adjustment	Tax equivalent adjustment			(9,111)						(9,315)				Tax equivalent adjustment			(3,427)						(3,018)
Net interest income	Net interest income			$	498,118					$	467,616			Net interest income			$	178,831					$	162,399

(1)Average balance includes non-performing loans.

(2)Balances include amortized historical cost for AFS. The related unrealized holding gains (losses) are included in other assets.

(3)ACL - loans relates to the ACL specifically for net loans and does not include the ACL for OBS credit exposures, which is included in other liabilities.

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volume) and changes in yields and rates for the three months ended June 30, 2022 in comparison to the same period in 2021:


	2022 vs. 2021 Increase (Decrease) due to change in
	Volume		Yield/Rate		Net
	(in thousands)
FTE Interest income on:
Net loans (1)	$	(2,218)	$	11,375	$	9,157
Investment securities	4,759		(90)		4,669

Loans held for sale	(169)		230		61
Other interest-earning assets	(970)		1,118		148
Total interest income	$	1,402	$	12,633	$	14,035
Interest expense on:
Demand deposits	$	(135)	$	—	$	(135)
Savings and money market deposits	37		(275)		(238)
Brokered deposits	(53)		419		366
Time deposits	(947)		(1,232)		(2,179)
Short-term borrowings	(19)		72		53
Long-term borrowings	(689)		16		(673)
Total interest expense	$	(1,806)	$	(1,000)	$	(2,806)

(1)Average balance includes non-performing loans.

Compared to the second quarter of 2021, FTE total interest income for the second quarter of 2022 increased $14.0 million, or 7.8%, primarily due to an increase of $12.6 millionattributable to changes in yield of which $11.4 millionrelated to net loans.The yield on average interest-earning assets increased 27 bps in the second quarter of 2022 compared to the same period in 2021.

In the second quarter of 2022, interest expense decreased $2.8 million compared to the second quarter of 2021, primarily driven by the decrease in average interest-bearing liabilities resulting in a $1.8 million decline in interest expense. The decrease in interest expense attributable to volume was primarily driven by the decreases in average time deposits and average long-term borrowings.

Average loans and average FTE yields, by type, are summarized in the following table:


	Three months ended June 30								Increase (Decrease)
	2022				2021				in Balance
	Balance		Yield		Balance		Yield		$		%
	(dollars in thousands)
Real estate – commercial mortgage	$	7,340,417	3.46	%	$	7,177,622	3.16	%	$	162,795	2.3	%
Commercial and industrial (1)	4,155,436		3.57		5,445,160		2.58		(1,289,724)		(23.7)
Real estate – residential mortgage	4,052,666		3.31		3,396,690		3.39		655,976		19.3
Real estate – home equity	1,118,494		4.09		1,139,558		3.71		(21,064)		(1.8)
Real estate – construction	1,188,932		3.44		1,054,469		3.05		134,463		12.8
Consumer	485,095		5.30		451,486		3.89		33,609		7.4
Equipment lease financing	253,659		3.89		256,248		3.74		(2,589)		(1.0)
Other (2)	42,476		—		(14,677)		—		57,153		N/M
Total loans	$	18,637,175	3.56	%	$	18,906,556	3.32	%	$	(269,381)	(1.4)	%

(1) Includes average PPP loans of $0.1 billion and $1.5 billion for the three months ended June 30, 2022 and 2021, respectively.

(2) Consists of overdrafts and net origination fees and costs.

During the second quarter of 2022, average loans decreased $269.4 million, or 1.4%, compared to the same period in 2021. The decrease was largely driven by a $1.4 billion decline in average PPP loans due to the repayment of these loans upon forgiveness by the SBA, partially offset by increases in average residential mortgage loans, average commercial mortgage loans and average construction loans of $656.0 million, $162.8 million and $134.5 million, respectively. The increases in yields on commercial mortgage loans, commercial and industrial loans, home equity loans and construction loans were primarily due to rising interest rates.

Average deposits and average interest rates, by type, are summarized in the following table:


	Three months ended June 30								Increase (Decrease) in Balance
	2022				2021
	Balance		Rate		Balance		Rate		$		%
	(dollars in thousands)
Noninterest-bearing demand	$	7,647,618	—	%	$	7,203,696	—	%	$	443,922	6.2	%
Interest-bearing demand	5,597,975		0.06		5,979,855		0.06		(381,880)		(6.4)
Savings and money market deposits	6,425,634		0.07		6,280,629		0.09		145,005		2.3
Total demand and savings	19,671,227		0.04		19,464,180		0.05		207,047		1.1
Brokered deposits	244,200		1.02		297,815		0.34		(53,615)		(18.0)
Time deposits	1,608,286		0.81		2,003,606		1.09		(395,320)		(19.7)
Total deposits	$	21,523,713	0.11	%	$	21,765,601	0.15	%	$	(241,888)	(1.1)	%

The cost of total deposits decreased 4 bps, to 0.11%, for the second quarter of 2022, compared to 0.15% for the same period in 2021, due to the change in mix of deposits and a decline in rates on time deposits of 28 bps and savings and money market deposits of 2 bps. Average noninterest-bearing demand deposits and average savings and money market deposits increased $443.9 million and $145.0 million, respectively, and time deposits and interest-bearing demand deposits decreased $395.3 million and $381.9 million, respectively, during the second quarter of 2022 compared to the same period in 2021.

Average borrowings and interest rates, by type, are summarized in the following table:


	Three months ended June 30								Increase (Decrease)
	2022				2021				in Balance
	Balance		Rate		Balance		Rate		$		%
Short-term borrowings:	(dollars in thousands)


Customer funding(1)	$	443,970	0.18	%	$	514,025	0.11	%	$	(70,055)	(13.6)	%
Federal funds purchased	2,857		1.48		—		—		2,857		N/M
FHLB advances and other borrowings (2)	11		—		—		—		11		N/M
Total short-term borrowings	446,838		0.17		514,025		0.11		(67,187)		(13.1)
Long-term borrowings:

Other long-term debt	556,992		3.94		626,795		3.93		(69,803)		(11.1)

Total borrowings	$	1,003,830	2.26	%	$	1,140,820	2.21	%	$	(136,990)	(12.0)	%

(1) Includes repurchase agreements and short-term promissory notes.

(2) Consists of FHLB advances and other borrowings with original terms of less than one year.

Average total short-term borrowings decreased $67.2 million, or 13.1%, in the second quarter of 2022, compared to the same period in 2021.

Average total long-term borrowings decreased $69.8 million, or 11.1%, in the second quarter of 2022, compared to the same period in 2021, primarily as a result of the $65 million repayment of senior notes on March 16, 2022. See Note 14 "Long-Term Borrowings" of the Notes to Consolidated Financial Statements for additional details.

Provision for Credit Losses

The provision for credit losses was $1.5 million for the second quarter of 2022, an increase of $5.0 million from the same period in 2021. The provision for credit losses for the second quarter of 2022 was recorded to adjust the allowance for credit losses as a result of loan growth during the quarter as well as the economic outlook.

Non-Interest Income

The following table presents the components of non-interest income:


	Three months ended June 30				Increase (Decrease)
	2022		2021		$		%
	(dollars in thousands)
Commercial banking:
Merchant and card	$	7,355	$	6,786	$	569	8.4	%
Cash management	6,062		5,341		721		13.5
Capital markets	3,893		1,536		2,357		N/M
Other commercial banking	3,049		3,466		(417)		(12.0)
Total commercial banking	20,359		17,129		3,230		18.9
Consumer banking:
Card	6,067		5,733		334		5.8
Overdraft	3,881		2,750		1,131		41.1
Other consumer banking	2,524		2,377		147		6.2
Total consumer banking	12,472		10,860		1,612		14.8
Wealth management revenues	18,274		17,634		640		3.6
Mortgage banking:
Gains on sales of mortgage loans	2,542		5,438		(2,896)		(53.3)
Mortgage servicing income	1,226		(2,600)		3,826		(147.2)
Total mortgage banking	3,768		2,838		930		32.8
Other	3,510		3,393		117		3.4
Non-interest income before investment securities gains	58,383		51,854		6,529		12.6
Investment securities gains, net	8		36		(28)		(77.8)
Total Non-Interest Income	$	58,391	$	51,890	$	6,501	12.5	%

Excluding net investment securities gains, non-interest income increased $6.5 million, or 12.6%, in the second quarter of 2022 compared to the same period in 2021.

Compared to the second quarter of 2021, commercial banking income in the second quarter of 2022 increased $3.2 million, or 18.9%, driven by a $2.2 million increase in fee income from commercial customer interest rate swaps reflected in capital markets income. Mortgage servicing income in the second quarter of 2022 compared to the same period in 2021 increased $3.8 million, partially offset by a decrease of $2.9 million in gains of sales of mortgage loans.

Non-Interest Expense

The following table presents the components of non-interest expense:


	Three months ended June 30				Increase (Decrease)
	2022		2021		$		%
	(dollars in thousands)
Salaries and employee benefits	$	85,404	$	78,367	$	7,037	9.0	%
Data processing and software	14,685		13,932		753		5.4
Net occupancy	13,587		12,494		1,093		8.7
Other outside services	8,764		8,178		586		7.2
State taxes	3,568		4,384		(816)		(18.6)
Equipment	3,422		3,424		(2)		(0.1)
FDIC insurance	2,961		2,282		679		29.8
Professional fees	2,013		2,651		(638)		(24.1)
Marketing	1,326		1,348		(22)		(1.6)
Intangible amortization	177		178		(1)		(0.6)
Debt extinguishment	—		412		(412)		(100.0)
Merger-related expenses	1,027		—		1,027		N/M
Other	12,796		13,181		(385)		(2.9)
Total non-interest expense	$	149,730	$	140,831	$	8,899	6.3	%

Compared to the second quarter of 2021, non-interest expense, excluding merger-related expenses of $1.0 million, in the second quarter of 2022 increased $7.9 million, or 5.6%, primarily due to increases of $7.0 million in salaries and employee benefits and $1.1 million in net occupancy expense, partially offset by a decrease in state taxes of $0.8 million.

Income Taxes

Income tax expense for the three months ended June 30, 2022 was $16.0 million, a $4.0 million increase from $12.0 million for the same period in 2021. The Corporation's ETR was 18.6% for the three months ended June 30, 2022, compared to 15.6% for the same period in 2021.

Six months ended June 30, 2022 compared to the six months ended June 30, 2021

Net Interest Income

FTE net interest income increased $14.0 million to $346.9 million for the six months ended June 30, 2022,from $332.8 million for the same period in 2021. NIM increased 15 bps, to 2.91%,compared to 2.76%for the same period in 2021. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate, and statutory interest expense disallowances. The discussion following this table is based on these taxable-equivalent amounts.


	Six months ended June 30
	2022						2021
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
ASSETS	(dollars in thousands)
Interest-earning assets:
Net loans(1)	$	18,510,845	$	316,809	3.44	%	$	18,943,367	$	321,987	3.42	%

Investment securities (2)	4,312,867		50,312		2.33		3,471,352		42,239		2.43
Loans held for sale	20,862		501		4.80		42,647		671		3.14
Other interest-earning assets	1,097,326		2,394		0.44		1,825,966		2,711		0.30
Total interest-earning assets	23,941,900		370,016		3.11		24,283,332		367,607		3.05
Noninterest-earning assets:
Cash and due from banks	161,274						125,081
Premises and equipment	218,357						229,843
Other assets	1,528,820						1,685,708
Less: ACL - loans(3)	(250,026)						(273,965)
Total Assets	$	25,600,325					$	26,049,999
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits	$	5,631,296	$	1,525	0.06	%	$	5,906,423	$	2,092	0.07	%
Savings and money market deposits	6,431,060		2,146		0.07		6,209,253		2,890		0.09
Brokered deposits	247,258		835		0.68		311,016		647		0.42
Time deposits	1,652,430		6,895		0.84		2,076,681		11,955		1.16
Total interest-bearing deposits	13,962,044		11,401		0.16		14,503,373		17,584		0.24
Short-term borrowings	435,457		311		0.14		542,243		325		0.12
Long-term borrowings	583,283		11,447		3.92		947,203		16,853		3.56
Total interest-bearing liabilities	14,980,784		23,159		0.31		15,992,819		34,762		0.44
Noninterest-bearing liabilities:
Demand deposits	7,540,025						6,939,731
Other liabilities	469,861						464,104
Total Liabilities	22,990,670						23,396,654
Total Deposits/Cost of deposits	21,502,069				0.11		21,443,104				0.17
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	22,520,809				0.21		22,932,550				0.30
Shareholders’ equity	2,609,655						2,653,345
Total Liabilities and Shareholders’ Equity	$	25,600,325					$	26,049,999
Net interest income/FTE NIM			346,857		2.91	%			332,845		2.76	%
Tax equivalent adjustment			(6,716)						(5,998)
Net interest income			$	340,141					$	326,847

(1) Average balance includes non-performing loans.

(2) Balances include amortized historical cost for AFS. The related unrealized holding gains (losses) are included in other assets.

(3) ACL - loans relates to the ACL specifically for "Net ~~Loans"~~loans" and does not include the ACL for OBS credit exposures, which is included in other liabilities.

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average

balances (volume) and changes in rates for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 in comparison to the same period in ~~2020:~~2021:


		2021 vs. 2020 Increase (Decrease) due to change in							2022 vs. 2021 Increase (Decrease) due to change in
		Volume		Rate		Net			Volume		Yield/Rate		Net
		(in thousands)							(in thousands)
FTE interest income on:	FTE interest income on:							FTE interest income on:
Net Loans (1)		$	19,381	$	(32,506)	$	(13,125)
Taxable investment securities		9,618		(12,888)		(3,270)
Tax-exempt investment securities		3,839		(878)		2,961
Net loans (1)								Net loans (1)	$	(7,114)	$	1,936	$	(5,178)
Investment securities								Investment securities	9,845		(1,772)		8,073

Loans held for sale	Loans held for sale	(356)		(232)		(588)		Loans held for sale	(428)		259		(169)
Other interest-earning assets	Other interest-earning assets	3,942		(3,668)		274		Other interest-earning assets	(1,315)		998		(317)
Total interest income	Total interest income	$	36,424	$	(50,172)	$	(13,749)	Total interest income	$	988	$	1,421	$	2,409
Interest expense on:	Interest expense on:							Interest expense on:
Demand deposits	Demand deposits	$	1,510	$	(8,538)	$	(7,028)	Demand deposits	$	(139)	$	(428)	$	(567)
Savings deposits		1,698		(10,542)		(8,844)
Savings and money market deposits								Savings and money market deposits	68		(812)		(744)
Brokered deposits	Brokered deposits	(22)		(1,037)		(1,059)		Brokered deposits	(153)		341		188
Time deposits	Time deposits	(6,800)		(10,350)		(17,150)		Time deposits	(2,153)		(2,907)		(5,060)
Short-term borrowings	Short-term borrowings	(1,445)		(3,059)		(4,504)		Short-term borrowings	(66)		52		(14)
Long-term borrowings	Long-term borrowings	(10,328)		4,866		(5,462)		Long-term borrowings	(6,957)		1,551		(5,406)
Total interest expense	Total interest expense	$	(15,387)	$	(28,660)	$	(44,047)	Total interest expense	$	(9,400)	$	(2,203)	$	(11,603)

(1)Average balance includes non-performing loans.

Compared to the same period in 2021, FTE total interest income for the six months ended June 30, 2022 increased $2.4 million, due to increases of $1.4 million attributable to changes in yield and $1.0 million attributable to changes in volume. The ~~general level of interest rates has remained at or near historic lows since March 2020 as~~increase due to changes in rate was primarily driven by net loans and other interest-earning assets, partially offset by a ~~result of the FOMC reducing the Fed Funds Rate to near zero and taking other monetary policy actions in response to COVID-19. As summarized in the preceding table, the 41 bp~~ decrease in ~~the~~yield on investment securities. The increase due to changes in volume was primarily due to an increase in average investment securities, partially offset by decreases in average net loans and average other interest-earning assets.

The yield on average interest-earning assets ~~drove a $50.2 million decrease~~increased 6 bps in ~~FTE interest income that was partially offset by~~ the ~~impact of a $2.4 billion, or 10.9%, increase in average interest-earning assets which contributed $36.4 million to FTE interest income.~~ ~~The yield on the loan portfolio decreased 23 bp, or 6.3%, from~~six months ended June 30, 2022compared to the same period of 2020, as variable and certain adjustable rate loans repriced to lower rates and yields on new loan originations generally were lower than the average yield on the loan portfolio. Adjustable rate loans reprice on dates specified in the loan agreements, which may be later than the date the Fed Funds Rate and related loan index rates increase or decrease. As a result, the impact of changes in index rates, primarily the prime rate and LIBOR, on adjustable rate loans may not be fully realized until future periods.2021.

~~Interest~~For the six months ended June 30, 2022, interest expense decreased ~~$44.0~~$11.6 million compared to the same period in 2021, primarily due to the ~~38 bp~~ decrease in ~~the rate on~~ average interest-bearing ~~liabilities.The rates on average interest-bearing demand deposits and savings deposits decreased 20 bp and 23 bp, respectively, which contributed $8.5~~liabilities resulting in a $9.4 million ~~and $10.5 million to the~~decline in interest expense. The decrease in interest expense ~~respectively. The cost of average time depositsdecreased 62 bp and~~attributable to volume was primarily driven by the ~~average balance of time deposits decreased $625.8~~$7.0 million ~~which contributed $10.4 million and $6.8 million to~~impact from the ~~decrease in interest expense, respectively.In addition, the change in rates, along with the $347.4 million decrease in average short-term borrowings and the $400.9 million~~ decrease in average long-term ~~borrowings resulted in $4.5 million and $5.5 million decreases in~~borrowings. In addition, interest expense ~~respectively. As discussed in the "Overview" section of Management's Discussion, the Corporation completed a balance sheet restructuring in March of 2021, which included the prepayment of $536.0~~on average time deposits decreased $5.1 million, of ~~FHLB advances~~which $2.2 million was attributable to volume and ~~the cash tender offer for $75.0~~$2.9 million ~~and $60.0 million of subordinated debt and senior notes, respectively.~~was attributable to rate.

~~Average loans and average FTE yields, by type, are summarized in the following table:~~

Nine months ended September 30 Increase (Decrease) in Balance
2021 2020
Balance Yield Balance Yield $ %
(dollars in thousands)
Real estate – commercial mortgage $ 7,146,951 3.14 % $ 6,870,148 3.64 % $ 276,803 4.0 %
Commercial and industrial (1)
5,295,240 2.64 5,382,459 3.10 (87,219) (1.6)
Real estate – residential mortgage 3,409,381 3.43 2,805,694 3.86 603,687 21.5
Real estate – home equity 1,147,444 3.71 1,269,525 4.17 (122,081) (9.6)
Real estate – construction 1,065,125 3.09 950,845 3.83 114,280 12.0
Consumer 454,434 4.00 465,661 4.19 (11,227) (2.4)
Equipment lease financing 256,741 3.92 282,800 3.91 (26,059) (9.2)
Other (2)
(10,292) — 121 — (10,413) N/M
Total loans $ 18,765,024 3.46 % $ 18,027,253 3.69 % $ 737,771 4.1 %

~~(1) Includes average PPP loans of $1.4 billion and $1.1 billion for the nine months ended September 30, 2021 and 2020, respectively.~~

~~(2) Consists of overdrafts and net origination fees and costs.~~

Average loans increased $0.7 billion, or 4.1%, compared to the same period of 2020. The increase was driven largely by growth in the commercial and residential mortgage portfolios and the construction portfolio. Excluding loans originated under the PPP, commercial and industrial loan balances declined. The increases were partially offset by decreases in the home equity, commercial and industrial, equipment lease financing and consumer portfolios as well as other loans.

~~Average deposits and average interest rates, by type, are summarized in the following table:~~

Nine months ended September 30 Increase (Decrease) in
Balance
2021 2020
Balance Rate Balance Rate $ %
(dollars in thousands)
Noninterest-bearing demand $ 7,108,199 — % $ 5,458,807 — % $ 1,649,392 30.2 %
Interest-bearing demand 5,994,878 0.06 5,116,696 0.26 878,182 17.2
Savings 6,271,019 0.08 5,431,071 0.31 839,948 15.5
Total demand and savings 19,374,096 0.05 16,006,574 0.19 3,367,522 21.0
Brokered deposits 297,250 0.39 300,795 0.86 (3,545) (1.2)
Time deposits 2,001,043 1.09 2,626,802 1.71 (625,759) (23.8)
Total deposits $ 21,672,389 0.15 % $ 18,934,171 0.41 % $ 2,738,218 14.5 %

The average cost of total deposits decreased 26 bp to 0.15% for the first nine months of 2021 compared to 0.41% for the same period of 2020, mainly as a result of reductions in deposit rates due to the continued low interest rate environment, and growth in noninterest-bearing demand deposits. This decrease in the average cost of deposits contributed $34.1 million to the reduction of interest expense. Average total deposits increased $2.7 billion, or 14.5%, primarily driven by increases in noninterest-bearing demand deposits, interest-bearing demand and saving accounts, partially offset by a $625.8 million, or 23.8%, decrease in time deposits.

5853

Average loans and average FTE yields, by type, are summarized in the following table:


	Six months ended June 30								Increase (Decrease) in Balance
	2022				2021
	Balance		Yield		Balance		Yield		$		%
	(dollars in thousands)
Real estate – commercial mortgage	$	7,318,422	3.30	%	$	7,153,444	3.16	%	$	164,978	2.3	%
Commercial and industrial (1)	4,185,883		3.31		5,582,855		3.73		(1,396,972)		(25.0)
Real estate – residential mortgage	3,970,877		3.30		3,290,726		3.46		680,151		20.7
Real estate – home equity	1,125,257		3.85		1,157,289		3.73		(32,032)		(2.8)
Real estate – construction	1,164,785		3.23		1,054,593		3.07		110,192		10.4
Consumer	461,159		5.38		455,241		4.01		5,918		1.3
Equipment lease financing	245,071		3.84		261,300		3.93		(16,229)		(6.2)
Other (2)	39,391		—		(12,081)		—		51,472		N/M
Total loans	$	18,510,845	3.44	%	$	18,943,367	3.42	%	$	(432,522)	(2.3)	%

(1) Includes average PPP loans of $0.2 billion and $1.6 billion for the six months ended June 30, 2022 and 2021, respectively.

(2) Consists of overdrafts and net origination fees and costs.

During the six months ended June 30, 2022, average loans decreased $432.5 million, or 2.3%, compared to the same period in 2021. The decrease was largely driven by a decline in PPP loans due to the repayment of these loans upon forgiveness by the SBA, partially offset by increases in residential mortgage loans, commercial mortgage loans and construction loans of $680.2 million, $165.0 million and $110.2 million, respectively.

Average deposits and average interest rates, by type, are summarized in the following table:


	Six months ended June 30								Increase (Decrease) in Balance
	2022				2021
	Balance		Rate		Balance		Rate		$		%
	(dollars in thousands)
Noninterest-bearing demand	$	7,540,025	—	%	$	6,939,731	—	%	$	600,294	8.7	%
Interest-bearing demand	5,631,296		0.06		5,906,423		0.07		(275,127)		(4.7)
Savings and money market deposits	6,431,060		0.07		6,209,253		0.09		221,807		3.6
Total demand and savings	19,602,381		0.04		19,055,407		0.05		546,974		2.9
Brokered deposits	247,258		0.68		311,016		0.42		(63,758)		(20.5)
Time deposits	1,652,430		0.84		2,076,681		1.16		(424,251)		(20.4)
Total deposits	$	21,502,069	0.11	%	$	21,443,104	0.17	%	$	58,965	0.3	%

The cost of total deposits decreased 6 bps to 0.11% for the first six months of 2022 compared to 0.17% for the same period of 2021, primarily due to the change in mix of deposits with increases in average noninterest-bearing demand deposits and average savings and money market deposits of $600.3 million and $221.8 million, respectively, and decreases of $424.3 million in average time deposits and $275.1 million in average interest-bearing demand deposits. Additionally, the decline in the rate on average time deposits resulted in a $2.9 million decrease in interest expense during the first six months of 2022 compared to the same period in 2021.

Average borrowings and interest rates, by type, are summarized in the following table:


		Nine months ended September 30								Increase (Decrease) in Balance					Six months ended June 30								Increase (Decrease) in Balance
		2021				2020									2022				2021
		Balance		Rate		Balance		Rate		$		%			Balance		Rate		Balance		Rate		$		%
Short-term borrowings:	Short-term borrowings:	(dollars in thousands)												Short-term borrowings:	(dollars in thousands)
Customer funding(1)	Customer funding(1)	$	526,259	0.12	%	$	529,667	0.33	%	$	(3,408)	(0.6)	%	Customer funding(1)	$	434,015	0.15	%	$	542,243	0.12	%	$	(108,228)	(20.0)	%
Federal funds purchased	Federal funds purchased	—		—		86,715		0.82		(86,715)		N/M		Federal funds purchased	1,436		1.48		—		—		1,436		N/M
FHLB advances and other borrowings(2)	FHLB advances and other borrowings(2)	—		—		257,312		1.61		(257,312)		N/M		FHLB advances and other borrowings(2)	6		—		—		—		6		N/M
Total short-term borrowings	Total short-term borrowings	526,259		0.12		873,694		0.76		(347,435)		(39.8)		Total short-term borrowings	435,457		0.14		542,243		0.12		(106,786)		(19.7)
Long-term borrowings:	Long-term borrowings:													Long-term borrowings:
FHLB advances	FHLB advances	169,366		1.80		564,855		1.88		(395,489)		(70.0)		FHLB advances	—		—		255,453		1.80		(255,453)		(100.0)
Other long-term debt	Other long-term debt	670,030		4.12		675,398		4.05		(5,368)		(0.8)		Other long-term debt	583,283		3.92		691,750		4.21		(108,467)		(15.7)
Total long-term borrowings	Total long-term borrowings	839,396		3.66		1,240,253		3.06		(400,857)		(32.3)		Total long-term borrowings	583,283		3.92		947,203		3.56		(363,920)		(38.4)
Total borrowings	Total borrowings	$	1,365,655	2.29	%	$	2,113,947	2.11	%	$	(748,292)	(35.4)	%	Total borrowings	$	1,018,740	2.31	%	$	1,489,446	2.31	%	$	(470,706)	(31.6)	%

(1) Includes repurchase agreements and short-term promissory notes.

(2) Consists of FHLB borrowings with original term of less than one year.

Average total short-term borrowings decreased ~~$347.4~~$106.8 million, or ~~39.8%~~19.7%, during the first ~~nine~~six months of ~~2021,~~2022, compared to the same period ~~of 2020 primarily as a result of excess funding provided by growth~~ in ~~deposit balances.~~2021.

Average total long-term borrowings decreased ~~$400.9~~$363.9 million, or ~~32.3%~~38.4%, in the first ~~nine~~six months of ~~2021,~~2022, compared to the same period of ~~2020~~2021 primarily as a result of the ~~balance sheet restructuring competed in March~~reduction of ~~2021, which included the prepayment of $536.0 million of long-term~~ FHLB advances during 2021 and the ~~cash tender offer for $75.0~~$65 million ~~and $60.0 million~~repayment of senior notes on March 16, 2022. See Note 14 "Long-Term Borrowings" of the ~~Corporation's outstanding subordinated and senior notes, respectively. This reduction in long-term borrowings contributed $10.3 million~~Notes to ~~the reduction of interest expense, partially offset by the impact of a 60 bp increase in the rate on average long-term borrowings during the first nine months of 2021.~~Consolidated Financial Statements for additional details.

Provision for Credit Losses

The provision for credit losses was a negative ~~$9.6~~$5.5 million for the first ~~nine~~six months of 2021, a decrease of $80.3 million from the same period of 2020. Several factors as of September 30, 2021 in comparison to the end of the fourth quarter of 2020, including improved economic conditions, reduced the level of the ACL determined to be necessary at September 30, 2021. The $70.7 million provision for credit losses during the nine months ended September 30, 2020 was the result of several factors, most notably, the overall uncertainty in economic conditions due to COVID-19.

~~Non-Interest Income~~

~~The following table presents the components of non-interest income:~~

Nine months ended September 30 Increase (Decrease)
2021 2020 $ %
(dollars in thousands)
Commercial banking:
Merchant and card $ 19,533 $ 17,187 $ 2,346 13.6 %
Cash management 15,547 13,987 1,560 11.2
Capital markets 6,399 14,775 (8,376) (56.7)
Other commercial banking 8,730 7,528 1,202 16.0
Total commercial banking 50,209 53,477 (3,268) (6.1)
Consumer banking:
Card 17,552 14,653 2,899 19.8
Overdraft 8,948 9,180 (232) (2.5)
Other consumer banking 6,915 6,967 (52) (0.7)
Total consumer banking 33,415 30,800 2,615 8.5
Wealth management fees 53,513 43,405 10,108 23.3
Mortgage banking:
Gains on sales of mortgage loans 20,038 42,208 (22,170) (52.5)
Mortgage servicing income 6,295 (9,209) 15,504 (168.4)
Total mortgage banking 26,333 32,999 (6,666) (20.2)
Other 12,883 10,080 2,803 27.8
Non-interest income before investment securities gains, net 176,353 170,761 5,592 3.3
Investment securities gains, net 33,511 3,053 30,458 N/M
Total Non-Interest Income $ 209,864 $ 173,814 $ 36,050 20.7 %

~~Non-interest income, before net investment securities gains, increased $5.6 million, or 3.3%, during the nine months ended September 30, 2021 as compared to the same period in 2020.~~

Commercial banking decreased $3.3 million, or 6.1%, compared to the same period in 2020, driven by a decrease in capital markets revenue, which consists primarily of fees earned on commercial loan interest rate swaps, partially offset by increases in merchant and card, cash management and other commercial banking.

~~Consumer banking increased $2.6 million, or 8.5%, compared to the same period in 2020, primarily driven by an increase in card income.~~

~~Wealth management revenues increased $10.1 million, or 23.3%, primarily resulting from growth in brokerage income due to an increase in client asset levels and improved overall market performance.~~

Mortgage banking income decreased $6.7 million, or 20.2%, driven by a decrease in gains on sales of mortgage loans, partially offset by an increase in mortgage servicing income. The increase in mortgage servicing income was driven by a $7.4 million decrease to the valuation allowance for MSRs2022, compared to a ~~$9.2 million increase to the valuation allowance for the same period in 2020. The decrease in gains on sales~~negative provision of ~~mortgage loans reflected decreases in both the volume of loans sold and lower spreads realized on mortgages sold.~~

Investment securities gains, net, were $33.5 million in the nine months ended September 30, 2021 as a result of a $34.0 million gain on the sale of the Visa Shares that was part of the balance sheet restructuring as discussed in the "Overview" section of Management's Discussion.

~~Non-Interest Expense~~

~~The following table presents the components of non-interest expense:~~

Nine months ended September 30 Increase (Decrease)
2021 2020 $ %
(dollars in thousands)
Salaries and employee benefits $ 243,632 $ 240,467 $ 3,165 1.3 %
Data processing and software 41,828 36,123 5,705 15.8
Net occupancy 39,433 39,851 (418) (1.0)
Other outside services 24,557 23,098 1,459 6.3
State taxes 13,883 8,583 5,300 61.7
Equipment 10,268 10,322 (54) (0.5)
Professional fees 7,701 10,412 (2,711) (26.0)
FDIC insurance 7,633 6,519 1,114 17.1
Amortization of TCI 4,640 4,594 46 1.0
Marketing 3,798 4,029 (231) (5.7)
Intangible amortization 443 397 46 11.6
Debt extinguishment 32,575 2,878 29,697 N/M
Other 33,420 37,432 (4,012) (10.7)
Total non-interest expense $ 463,811 $ 424,705 $ 39,106 9.2 %

~~Salaries and employee benefits increased $3.2 million, or 1.3%, due primarily to increased health care expenses and higher incentive compensation accruals as a result of higher earnings in 2021.~~

~~Data processing and software increased $5.7 million, or 15.8%, reflecting costs related to technology initiatives.~~

~~State taxes increased $5.3 million, or 61.7%, primarily as a result of an increase in the accrual for Pennsylvania shares tax expense resulting from increased capital levels.~~

Professional fees decreased $2.7 million, or 26.0%, primarily due to a decrease in legal fees. The Corporation incurs fees related to various legal matters in the normal course of business. These fees can fluctuate based on timing and the extent of these matters.

Debt extinguishment costs increased $29.7 million as a result of $20.9 million in prepayment penalties incurred upon the prepayment of long-term FHLB advances and $11.3 million of expenses associated with the cash tender offer to purchase subordinated and senior notes as part of the balance sheet restructuring discussed in the "Overview" section of Management's Discussion.

~~Income Taxes~~

~~Income tax expense for the nine months ended September 30, 2021 was $40.2 million, a $21.3 million increase from $18.8~~$9.0 million for the same period in 2020. The Corporation’s ETR was 15.8% for the nine months ended September 30, 2021, as compared to 12.9% in the same period of 2020. The increase in income tax expense and the ETR primarily resulted from an increase in income before taxes, while net favorable permanent differences were relatively the same compared to the same period of 2020.

~~FINANCIAL CONDITION~~

~~The table below presents condensed consolidated ending balance sheets.~~

September 30, 2021 December 31, 2020 Increase (Decrease)
$ %
Assets (dollars in thousands)
Cash and cash equivalents $ 2,471,009 $ 1,847,832 $ 623,177 33.7 %
FRB and FHLB Stock 61,293 92,129 (30,836) (33.5)
Loans held for sale 43,123 83,886 (40,763) (48.6)
Investment securities 4,000,760 3,340,424 660,336 19.8
Net Loans 18,012,680 18,623,253 (610,573) (3.3)
Premises and equipment 228,179 231,480 (3,301) (1.4)
Goodwill and intangibles 536,697 536,659 38 —
Other assets 1,037,091 1,151,070 (113,979) (9.9)
Total Assets $ 26,390,832 $ 25,906,733 $ 484,099 1.9 %
Liabilities and Shareholders’ Equity
Deposits $ 22,074,041 $ 20,839,207 $ 1,234,834 5.9 %
Short-term borrowings 468,967 630,066 (161,099) (25.6)
Long-term borrowings 627,386 1,296,263 (668,877) (51.6)
Other liabilities 520,620 524,369 (3,749) (0.7)
Total Liabilities 23,691,014 23,289,905 401,109 1.7
Total Shareholders’ Equity 2,699,818 2,616,828 82,990 3.2
Total Liabilities and Shareholders’ Equity $ 26,390,832 $ 25,906,733 $ 484,099 1.9 %

~~Cash and Cash Equivalents~~

~~The $623.2 million, or 33.7%, increase in cash and cash equivalents mainly resulted from additional cash maintained at the FRB due to the Corporation's excess liquidity position.~~

~~FRB and FHLB Stock~~

The $30.8 million, or 33.5%, decrease in FRB and FHLB stock was the result of a decrease in FHLB stock required due to the prepayment of long-term FHLB advances, as mentioned in the "Overview" section of Management's Discussion, and a decrease in the usage of FHLB letters of credit.

~~Loans Held for Sale~~

Loans held for sale decreased $40.8 million, or 48.6%, primarily as the result of the Corporation's decision to hold a greater proportion of the residential mortgage loans it originated in the loan portfolio, rather than selling those loans in the secondary market.

~~Investment Securities~~

~~The following table presents the carrying amount of investment securities:~~

September 30,
2021 December 31,
2020 Increase (Decrease)
$ %
Available for Sale (dollars in thousands)
U.S. Government securities $ 153,210 $ — $ 153,210 N/M
U.S. Government sponsored agency securities 62,066 — 62,066 N/M
State and municipal securities 1,150,394 952,613 197,781 20.8 %
Corporate debt securities 369,338 367,145 2,193 0.6
Collateralized mortgage obligations 252,035 503,766 (251,731) (50.0)
Residential mortgage-backed securities 190,123 377,998 (187,875) (49.7)
Commercial mortgage-backed securities 832,038 762,415 69,623 9.1
Auction rate securities 75,133 98,206 (23,073) (23.5)
Total available for sale securities $ 3,084,337 $ 3,062,143 $ 22,194 0.7 %
Held to Maturity
Residential mortgage-backed securities $ 410,189 $ 278,281 $ 131,908 47.4 %
Commercial mortgage-backed securities 506,234 — 506,234 N/M
Total held to maturity securities $ 916,423 $ 278,281 $ 638,142 N/M
Total Investment Securities $ 4,000,760 $ 3,340,424 $ 660,336 19.8 %

Total AFS securities increased $22.2 million, or 0.7%, primarily as the result of the net purchases of $153.2 million and $62.1 million of U.S. Government securities and U.S. Government sponsored agency securities, respectively, as well as net purchases of state and municipal securities of $197.8 million. The increase was partially offset by $376.2 million of residential and commercial mortgage backed securities transferred from the AFS classification to the HTM classification. In addition, the Corporation sold ARCs with an estimated fair value of $24.6 million during the first quarter of 2021.

~~Total HTM securities increased $638.1 million, primarily as a result of the above mentioned transfer of AFS securities as well as purchases of additional mortgage-backed securities.~~

~~Loans~~

~~The following table presents ending balances of Net Loans:~~

September 30,
2021 December 31, 2020 2021 vs. 2020 Increase (Decrease)
$ %
(dollars in thousands)
Real estate – commercial mortgage $ 7,145,115 $ 7,105,092 $ 40,023 0.6 %
Commercial and industrial (1)
4,454,059 5,670,828 (1,216,769) (21.5)
Real estate – residential mortgage 3,719,684 3,141,915 577,769 18.4
Real estate – home equity 1,126,628 1,202,913 (76,285) (6.3)
Real estate – construction 1,111,487 1,047,218 64,269 6.1
Consumer 458,595 466,772 (8,177) (1.8)
Equipment lease financing and other 266,489 284,377 (17,888) (6.3)
Overdrafts 5,471 4,806 665 13.8
Gross loans 18,287,528 18,923,921 (636,393) (3.4)
Unearned income (18,121) (23,101) 4,980 (21.6)
Net Loans $ 18,269,407 $ 18,900,820 $ (631,413) (3.3) %

~~(1) Includes PPP loans totaling $0.6 billion and $1.6 billion as of September 30, 2021 and December 31, 2020, respectively.~~

Net Loans decreased $631.4 million, or 3.3%, in comparison to December 31, 2020, primarily due the forgiveness of approximately $2.1 billion PPP loans during the first nine months of 2021. Growth in the commercial and residential mortgage portfolios and construction loans partially offset decreases in the commercial and industrial and other loan portfolios.

The increase in the residential mortgage portfolio was the result of continued growth in originations and the strategic decision by the Corporation to hold a greater proportion of the originations on its balance sheet. The decrease in the commercial and industrial loan portfolio was impacted by the net effect of the forgiveness of approximately $2.1 billion of PPP loans and the origination of approximately $754 million of new PPP loans during the first nine months of 2021.

Construction loans include loans to commercial borrowers secured by commercial real estate, loans to commercial borrowers secured by residential real estate, and other construction loans, which are loans to individuals secured by residential real estate. Approximately $8.3 billion, or 45.1%, of the loan portfolio was in commercial mortgage and construction loans as of September 30, 2021. The Corporation's internal policy limited its maximum total lending commitment to an individual borrowing relationship to $55 million as of September 30, 2021. 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 borrowing relationship at the time the lending commitment is approved.

The Corporation has limited exposure to some of the industries that were initially most significantly impacted by COVID-19, such as hospitality, energy and entertainment, and most of these loans are secured by real estate and other forms of collateral. The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios:

September 30, 2021(5)
December 31, 2020(5)
Real estate (1)
45.7 % 43.1 %
Health care 6.9 7.2
Agriculture 6.3 6.5
Manufacturing 5.2 5.0
Other services (3)
5.2 4.9
Construction (2)
4.1 4.7
Hospitality and food services 3.9 4.0
Retail 3.1 3.5
Educational services 2.8 3.0
Wholesale trade 2.8 2.7
Arts, entertainment and recreation 2.4 2.4
Professional, scientific and technical services 1.8 2.2
Public administration 1.5 1.7
Transportation and warehousing 1.4 1.4
Finance and Insurance 1.4 1.4
Other (4)
5.5 6.3
Total 100.0 % 100.0 %

(1) Includes commercial loans to borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for others; and appraising real estate.

~~(2) Includes commercial loans to borrowers engaged in the construction industry.~~

~~(3) Excludes public administration.~~

~~(4) Includes the energy sector.~~

~~(5)Excludes PPP loans.~~

6555

Non-Interest Income

The following table presents the components of non-interest income:


	Six months ended June 30				Increase (Decrease)
	2022		2021		$		%
	(dollars in thousands)
Commercial banking:
Merchant and card	$	13,452	$	12,554	$	898	7.2	%
Cash management	11,490		10,262		1,228		12.0
Capital markets	5,569		4,336		1,233		28.4
Other commercial banking	5,856		6,319		(463)		(7.3)
Total commercial banking	36,367		33,471		2,896		8.7
Consumer banking:
Card	11,863		11,611		252		2.2
Overdraft	7,653		5,474		2,179		39.8
Other consumer banking	4,630		4,529		101		2.2
Total consumer banking	24,146		21,614		2,532		11.7
Wealth management revenues	37,702		34,981		2,721		7.8
Mortgage banking:
Gains on sales of mortgage loans	5,568		14,094		(8,526)		(60.5)
Mortgage servicing income	2,776		2,704		72		2.7
Total mortgage banking	8,344		16,798		(8,454)		(50.3)
Other	7,061		6,912		149		2.2
Non-interest income before investment securities gains	113,620		113,776		(156)		(0.1)
Investment securities gains, net	27		33,511		(33,484)		N/M
Total Non-Interest Income	$	113,647	$	147,287	$	(33,640)	(22.8)	%

Excluding net investment securities gains, non-interest income decreased $0.2 million, or 0.1%, during the six months ended June 30, 2022 as compared to the same period in 2021.

Investment securities gains recognized in the first six months of 2021 were the result of the sale of Visa Shares as part of the balance sheet restructuring completed during the first six months of 2021.

Non-Interest Expense

The following table presents the components of non-interest expense:


	Six months ended June 30				Increase (Decrease)
	2022		2021		$		%
	(dollars in thousands)
Salaries and employee benefits	$	169,868	$	160,953	$	8,915	5.5	%
Data processing and software	29,000		27,493		1,507		5.5
Net occupancy	28,109		26,476		1,633		6.2
Other outside services	16,931		16,668		263		1.6
Equipment	6,845		6,852		(7)		(0.1)
State taxes	6,605		8,889		(2,284)		(25.7)
FDIC insurance	6,170		4,906		1,264		25.8
Professional fees	3,805		5,430		(1,625)		(29.9)
Marketing	2,646		2,350		296		12.6
Intangible amortization	353		293		60		20.5
Debt extinguishment	—		32,575		(32,575)		(100.0)
Merger-related expenses	1,428		—		1,428		N/M
Other	23,948		26,330		(2,382)		(9.0)
Total non-interest expense	$	295,708	$	319,215	$	(23,507)	(7.4)	%

Compared to the first six months of 2021, non-interest expense in the first six months of 2022, excluding $1.4 million of merger-related expenses, decreased $24.9 million, or 7.8%, primarily as a result of debt extinguishment expenses related to the prepayment of FHLB advances, subordinated debt and senior notes in 2021, partially offset by an $8.9 million increase and salaries and employee benefits expenses.

Income Taxes

Income tax expense for the six months ended June 30, 2022 was $29.3 million, a $3.4 million increase from $25.9 million for the same period in 2021. The Corporation's ETR was 17.9% for the six months ended June 30, 2022, as compared to 15.8% in the same period of 2021.

FINANCIAL CONDITION

The table below presents condensed consolidated ending balance sheets.


	June 30, 2022		December 31, 2021		Increase (Decrease)
					$		%
Assets	(dollars in thousands)
Cash and cash equivalents	$	449,674	$	1,638,614	$	(1,188,940)	(72.6)	%
FRB and FHLB Stock	62,146		57,635		4,511		7.8
Federal funds sold	30,500		—		30,500		N/M
Loans held for sale	17,528		35,768		(18,240)		(51.0)
Investment securities	4,117,801		4,167,774		(49,973)		(1.2)
Net loans, less ACL - loans	18,672,386		18,076,349		596,037		3.3
Net premises and equipment	211,639		220,357		(8,718)		(4.0)
Goodwill and intangibles	537,700		538,053		(353)		(0.1)
Other assets	1,153,312		1,061,848		91,464		8.6
Total Assets	$	25,252,686	$	25,796,398	$	(543,712)	(2.1)	%
Liabilities and Shareholders' Equity
Deposits	$	21,143,866	$	21,573,499	$	(429,633)	(2.0)	%
Short-term borrowings	456,185		416,764		39,421		9.5
Long-term borrowings	557,130		621,345		(64,215)		(10.3)
Other liabilities	624,412		472,110		152,302		32.3
Total Liabilities	22,781,593		23,083,718		(302,125)		(1.3)
Total Shareholders' Equity	2,471,093		2,712,680		(241,587)		(8.9)
Total Liabilities and Shareholders' Equity	$	25,252,686	$	25,796,398	$	(543,712)	(2.1)	%

Cash and Cash Equivalents

Compared to December 31, 2021, cash and cash equivalents at June 30, 2022 decreased $1.2 billion, or 72.6%, primarily due to a $596.0 million increase in net loans, and a $429.6 million decrease in deposits.

Other Assets

Compared to December 31, 2021, other assets increased $91.5 million in the second quarter of 2022, primarily due to the increase in deferred federal income tax of $92.6 million.

Shareholders' Equity

Compared to December 31, 2021, shareholders' equity at June 30, 2022 decreased $241.6 million, primarily due to a $331.6 million loss in OCI primarily attributable to unrealized losses on investment securities and derivative instruments. See Note 8 "Accumulated Other Comprehensive (Loss) Income" of the Notes to Consolidated Financial Statements for additional details.

Investment Securities

The following table presents the carrying amount of investment securities:


	June 30, 2022		December 31, 2021		Increase (Decrease)
					$		%
Available for Sale	(dollars in thousands)
U.S. Government securities	$	371,266	$	127,618	$	243,648	N/M

State and municipal securities	1,083,477		1,188,670		(105,193)		(8.8)	%
Corporate debt securities	393,561		386,133		7,428		1.9
Collateralized mortgage obligations	148,103		209,359		(61,256)		(29.3)
Residential mortgage-backed securities	195,359		229,795		(34,436)		(15.0)
Commercial mortgage-backed securities	587,072		971,148		(384,076)		(39.5)
Auction rate securities	—		74,667		(74,667)		(100.0)


Total available for sale securities	$	2,778,838	$	3,187,390	$	(408,552)	(12.8)	%
Held to Maturity

Residential mortgage-backed securities	$	466,076	$	404,958	$	61,118	15.1	%
Commercial mortgage-backed securities	872,887		575,426		297,461		51.7
Total held to maturity securities	$	1,338,963	$	980,384	$	358,579	36.6	%

Total Investment Securities	$	4,117,801	$	4,167,774	$	(49,973)	(1.2)	%

Compared to December 31, 2021, total AFS securities at June 30, 2022 decreased $408.6 million, or 12.8%, primarily due to decreases of $384.1 million in commercial mortgage-backed securities and $105.2 million in state and municipal securities, partially offset by an increase of $243.6 million in U.S government securities.

At June 30, 2022, total HTM securities increased $358.6 million compared to December 31, 2021, primarily driven by an increase of $297.5 million in commercial mortgage-backed securities.

Loans

The following table presents ending loans outstanding by type:


	June 30, 2022		December 31, 2021		2022 vs. 2021 Increase (Decrease)
					$		%
	(dollars in thousands)
Real estate – commercial mortgage	$	7,417,036	$	7,279,080	$	137,956	1.9	%
Commercial and industrial (1)	4,173,114		4,208,327		(35,213)		(0.8)
Real estate – residential mortgage	4,203,827		3,846,750		357,077		9.3
Real estate – home equity	1,108,808		1,118,248		(9,440)		(0.8)
Real estate – construction	1,177,446		1,139,779		37,667		3.3
Consumer	538,747		464,657		74,090		15.9
Equipment lease financing and other	321,855		283,557		38,298		13.5
Overdrafts	2,346		1,988		358		18.0
Gross loans	18,943,179		18,342,386		600,793		3.3
Unearned income	(22,229)		(17,036)		(5,193)		(30.5)	%
Net loans	$	18,920,950	$	18,325,350	$	595,600	3.3	%

(1) Includes PPP loans totaling $0.1 billion and $0.3 billion as of June 30, 2022 and December 31, 2021, respectively.

During the six months ended June 30, 2022, net loans increased $595.6 million, or 3.3%, compared to the level at December 31, 2021, primarily due to increases in residential mortgage loans, commercial mortgages and consumer loans of $357.1 million, $138.0 million and $74.1 million, respectively.

The increase in residential mortgage loans was the result of continued growth in loan originations and the strategic decision by the Corporation to hold a greater proportion of the loan originations from adjustable rate mortgage products on its balance sheet.

The increase in commercial mortgages was due to increased loan origination volumes and the increase in consumer loans was primarily driven by growth in student loans and indirect auto loans.

The Corporation does not have a significant concentration of credit risk with any single borrower, industry or geographic location within its footprint. TheCorporation's policies limit the maximum total lending commitment to an individual borrower to $70.0 million as of June 30, 2022. 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, geographic location of customer or collateral and asset class.

The following table summarized the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios (excluding PPP loans):


	June 30, 2022		December 31, 2021
Real estate (1)	44.9	%	44.3	%
Health care	6.5		6.7
Agriculture	5.8		6.1
Manufacturing	5.6		5.1
Other services (2)	4.8		5.0
Construction (3)	4.5		3.9
Hospitality and food services	3.5		3.7
Wholesale trade	3.2		2.8
Retail	2.9		3.0
Educational services	2.4		2.7
Arts, entertainment and recreation	2.2		2.3
Professional, scientific and technical services	1.8		1.8
Public administration	1.3		1.5
Transportation and warehousing	1.2		1.3
Finance and Insurance	1.1		1.4
Other (4)	8.3		8.4
Total	100.0	%	100.0	%

(1) Includes commercial loans to borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for others; and appraising real estate.

(2) Excludes public administration.

(3) Includes commercial loans to borrowers engaged in the construction industry.

(4) Includes the energy sector.

The following table presents the changes in non-accrual loans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


		Commercial and Industrial		Real Estate - Commercial Mortgage		Real Estate - Construction		Real Estate - Residential Mortgage		Real Estate - Home Equity		Consumer		Equipment Lease Financing		Total			Commercial and Industrial		Real Estate - Commercial Mortgage		Real Estate - Construction		Real Estate - Residential Mortgage		Consumer and Real Estate - Home Equity		Equipment Lease Financing		Total
		(in thousands)																	(in thousands)
Three months ended September 30, 2021
Balance at June 30, 2021		$	33,340	$	53,428	$	1,016	$	34,797	$	9,279	$	287	$	15,717	$	147,864
Additions		3,148		579		—		1,628		249		445		646		6,695
Payments		(6,404)		(5,859)		(57)		(442)		(685)		(23)		(22)		(13,492)
Charge-offs		(647)		(14)		—		(602)		(58)		(446)		(467)		(2,234)

Transfers to OREO		—		—		—		—		—		—		—		—
Balance at September 30, 2021		$	29,437	$	48,134	$	959	$	35,381	$	8,785	$	263	$	15,874	$	138,833

Nine months ended September 30, 2021
Balance at December 31, 2020		$	31,993	$	51,470	$	1,395	$	26,107	$	9,588	$	332	$	16,312	$	137,197
Three months ended June 30, 2022																		Three months ended June 30, 2022
Balance at March 31, 2022																		Balance at March 31, 2022	$	28,490	$	50,400	$	672	$	33,920	$	8,320	$	14,997	$	136,799
Additions	Additions	21,379		25,036		404		12,073		1,477		1,994		949		63,312		Additions	21,845		18,349		739		2,397		1,719		—		45,049
Payments	Payments	(17,953)		(19,090)		(801)		(1,509)		(1,524)		(64)		(108)		(41,049)		Payments	(6,443)		(6,353)		(54)		(666)		(413)		(461)		(14,390)
Charge-offs	Charge-offs	(5,920)		(8,357)		(39)		(1,290)		(482)		(1,999)		(1,279)		(19,366)		Charge-offs	(201)		—		—		(66)		(877)		(474)		(1,618)
Transfers to accrual status	Transfers to accrual status	—		—		—		—		(274)		—		—		(274)		Transfers to accrual status	—		—		—		—		(429)		—		(429)
Transfers to OREO	Transfers to OREO	(62)		(925)		—		—		—		—		—		(987)		Transfers to OREO	—		(2,831)		—		—		(50)		—		(2,881)
Balance at September 30, 2021		$	29,437	$	48,134	$	959	$	35,381	$	8,785	$	263	$	15,874	$	138,833
Balance at June 30, 2022																		Balance at June 30, 2022	$	43,691	$	59,565	$	1,357	$	35,585	$	8,270	$	14,062	$	162,530

Six months ended June 30, 2022																		Six months ended June 30, 2022
Balance at December 31, 2021																		Balance at December 31, 2021	$	30,141	$	52,815	$	901	$	35,269	$	8,900	$	15,640	$	143,666
Additions																		Additions	23,242		20,747		739		2,716		3,377		—		50,821
Payments																		Payments	(8,893)		(8,146)		(283)		(2,334)		(1,441)		(635)		(21,732)
Charge-offs																		Charge-offs	(428)		(152)		—		(66)		(1,929)		(943)		(3,518)
Transfers to accrual status																		Transfers to accrual status	(349)		(2,238)		—		—		(429)		—		(3,016)
Transfers to OREO																		Transfers to OREO	(22)		(3,461)		—		—		(208)		—		(3,691)
Balance at June 30, 2022																		Balance at June 30, 2022	$	43,691	$	59,565	$	1,357	$	35,585	$	8,270	$	14,062	$	162,530

~~Non-accrual~~During the second quarter of 2022, non-accrual loans ~~decreased~~increased approximately ~~$9.0~~$25.7 million, or ~~6.1%~~18.8%, ~~in comparison to June 30, 2021, primarily~~ as a result of additions to non-accrual loans, partially offset by payments, and to a lesser extent, ~~charge-offs, partially offset by additions~~transfers to ~~non-accrual loans~~OREO and to accrual status, during the period.

The following table summarizes non-performing assets as of the indicated dates:


		September 30, 2021			December 31, 2020					June 30, 2022			December 31, 2021
		(dollars in thousands)						(dollars in thousands)
Non-accrual loans	Non-accrual loans	$	138,833		$	137,198			Non-accrual loans	$	162,530		$	143,666
Loans 90 days or more past due and still accruing	Loans 90 days or more past due and still accruing	11,389			9,929				Loans 90 days or more past due and still accruing	11,016			8,453
Total non-performing loans(1)	Total non-performing loans(1)	150,222			147,127				Total non-performing loans(1)	173,546			152,119
OREO ~~(1)~~(2)	OREO ~~(1)~~(2)	1,896			4,178				OREO ~~(1)~~(2)	4,786			1,817
Total non-performing assets	Total non-performing assets	$	152,118		$	151,305			Total non-performing assets	$	178,332		$	153,936

Non-accrual loans to total loans									Non-accrual loans to total loans	0.86		%	0.78		%
Non-performing loans to total loans	Non-performing loans to total loans	0.82		%	0.78		%		Non-performing loans to total loans	0.92		%	0.83		%
Non-performing assets to total assets	Non-performing assets to total assets	0.58		%	0.58		%		Non-performing assets to total assets	0.71		%	0.60		%

ACL - loans to non-performing loans	ACL - loans to non-performing loans	171		%	189		%		ACL - loans to non-performing loans	143		%	164		%

(1)Excludes PPP loans which are fully guaranteed by the federal government of $0.7 million as of June 30, 2022.

(2) Excludes ~~$7.1~~$3.8 million and ~~$8.1~~$6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively~~2021, respectively.

Non-performing loans at June 30, 2022 increased ~~$3.1~~$21.4 million, or ~~2.1%~~14.1%, ~~in comparison~~compared to the level at December 31, ~~2020.~~2021. Non-performing loans as a percentage of total loans were ~~0.82%~~0.92% at ~~September~~June 30, ~~2021 in comparison to 0.78%~~2022 and 0.83% at December 31, ~~2020.~~2021. See Note 4, "Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements for further details on non-performing loans.

The following table presents ~~loans whose terms have been modified under~~ TDRs ~~by type,~~ as of the ~~indicated dates:~~dates shown:


		September 30, 2021		December 31, 2020				June 30, 2022		December 31, 2021
		(in thousands)				(in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	14,546	$	28,451		Real estate - commercial mortgage	$	3,489	$	3,464
Commercial and industrial	Commercial and industrial	6,577		6,982			Commercial and industrial	1,871		1,857
Real estate - residential mortgage	Real estate - residential mortgage	13,694		18,602			Real estate - residential mortgage	10,279		11,948
Real estate - home equity	Real estate - home equity	12,704		14,391			Real estate - home equity	11,764		12,218
Real estate - construction		153		—

Consumer	Consumer	5		—			Consumer	2		5

Total accruing TDRs	Total accruing TDRs	47,679		68,426			Total accruing TDRs	27,405		29,492
Non-accrual TDRs(1)	Non-accrual TDRs(1)	59,802		35,755			Non-accrual TDRs(1)	45,439		55,945
Total TDRs	Total TDRs	$	107,481	$	104,181		Total TDRs	$	72,844	$	85,437

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

The ability to identify potential problem loans in a timely manner is important to maintaining an adequate ACL. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality.The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals, ~~and~~ consumer loans and equipment lease financing is based on payment history, through the monitoring of delinquency levels and trends. ~~For a description of the Corporation's risk ratings, see Note 4, "Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements.~~

Total internally risk-rated loans were ~~$12.6~~$12.5 billion, of which $1.0 billion were criticized and classified, as of ~~September~~June 30, ~~2021,~~2022, and ~~$13.7~~$12.4 billion, of which ~~$1.0~~$1.1 billion were criticized and classified, as of December 31, ~~2020.~~2021. The following table presents criticized and classified loans, or those with internal risk ratings of special mention or substandard or lower for commercial mortgages, commercial and industrial loans ~~real estate - commercial mortgages~~ and ~~real estate -~~ construction loans to commercial borrowers, ~~with internal risk ratings of Special Mention~~ ~~(1)~~ ~~or Substandard or lower~~ ~~(2)~~:by class segment:


		Special Mention (1)						Increase (Decrease)			Substandard or Lower (2)						Increase (Decrease)			Total Criticized and Classified Loans							Special Mention (1)						Increase (Decrease)			Substandard or Lower (2)						Increase (Decrease)				Total Criticized and Classified Loans
		September 30, 2021			December 31, 2020			$		%	September 30, 2021			December 31, 2020			$		%	September 30, 2021			December 31, 2020				June 30, 2022			December 31, 2021			$		%	June 30, 2022			December 31, 2021			$		%		June 30, 2022			December 31, 2021
		(dollars in thousands)																									(dollars in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	494,476		$	478,165		$	16,311	3.4%	$	220,396		$	181,970		$	38,426	21.1%	$	714,872		$	660,135		Real estate - commercial mortgage	$	374,483		$	387,279		$	(12,796)	(3.3)%	$	328,308		$	331,096		$	(2,788)	(0.8)	%	$	702,791		$	718,375
Commercial and industrial	Commercial and industrial	161,075			154,039			7,036		4.6	147,227			128,175			19,052		14.9	308,302			282,214			Commercial and industrial	132,860			142,369			(9,509)		(6.7)	158,742			152,219			6,523		4.3		291,602			294,588
Real estate - construction (3)	Real estate - construction (3)	19,291			13,259			6,032		45.5	3,461			5,469			(2,008)		(36.7)	22,752			18,728			Real estate - construction (3)	32,674			58,841			(26,167)		(44.5)	4,665			6,324			(1,659)		(26.2)		37,339			65,165
Total	Total	$	674,842		$	645,463		$	29,379	4.6%	$	371,084		$	315,614		$	55,470	17.6%	$	1,045,926		$	961,077		Total	$	540,017		$	588,489		$	(48,472)	(8.2)%	$	491,715		$	489,639		$	2,076	0.4%		$	1,031,732		$	1,078,128

% of total risk rated loans	% of total risk rated loans	5.4		%	4.7		%				3.0		%	2.3		%				8.3		%	7.0		%	% of total risk rated loans	4.3		%	4.7		%				3.9		%	3.9		%					8.2		%	8.6		%

(1) Considered "criticized" loans by banking regulators

(2) Considered "classified" loans by banking regulators

(3) Excludes construction - other

The increase in loans with internal risk ratings of substandard or lower that occurred during the nine months ended September 30, 2021 was attributed to risk rating downgrades due to COVID-19 related shutdowns and restrictions on operations, mostly impacting the hospitality and food services and arts, entertainment and recreation sectors.

6762

Provision and Allowance for Credit Losses

The following table presents the components of the ACL:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(dollars in thousands)					(dollars in thousands)
ACL - loans	ACL - loans	$	256,727	$	277,567	ACL - loans	$	248,564	$	249,001
ACL - OBS credit exposure (1)	ACL - OBS credit exposure (1)	14,783		14,373		ACL - OBS credit exposure (1)	14,323		14,533
Total ACL	Total ACL	$	271,510	$	291,940	Total ACL	$	262,887	$	263,534

(1) Included in "other liabilities" on the consolidated balance sheet.

The following table presents the activity in the ~~ACL related to loans:~~ACL:


		Three months ended September 30						Nine months ended September 30							Three months ended June 30						Six months ended June 30
		2021			2020			2021			2020				2022			2021			2022			2021
		(dollars in thousands)													(dollars in thousands)
Average balance of Net Loans		$	18,414,153		$	18,880,519		$	18,765,024		$	18,027,253
Average balance of Net loans														Average balance of Net loans	$	18,637,175		$	18,906,556		$	18,510,845		$	18,943,367

Balance of ACL at beginning of period	Balance of ACL at beginning of period	$	255,032		$	256,537		$	277,567		$	163,622		Balance of ACL at beginning of period	$	243,705		$	265,986		$	249,001		$	277,567
Impact of adopting CECL on January 1, 2020		—			—			—			45,723
Loans charged off:	Loans charged off:													Loans charged off:
Commercial and industrial														Commercial and industrial	(201)			(954)			(428)			(5,273)
Real estate – commercial mortgage	Real estate – commercial mortgage	(14)			(746)			(8,357)			(3,925)			Real estate – commercial mortgage	—			(6,506)			(152)			(8,343)
Commercial and industrial		(647)			(2,969)			(5,920)			(17,348)
Consumer and real estate – home equity														Consumer and real estate – home equity	(877)			(1,130)			(1,929)			(1,977)
Equipment lease financing and other														Equipment lease financing and other	(474)			(436)			(943)			(1,404)
Real estate – residential mortgage	Real estate – residential mortgage	(602)			(198)			(1,290)			(620)			Real estate – residential mortgage	(66)			(496)			(66)			(688)
Real estate – home equity		(58)			(393)			(482)			(1,138)
Real estate – construction	Real estate – construction	—			—			(39)			(17)			Real estate – construction	—			—			—			(39)
Consumer		(446)			(701)			(1,999)			(2,788)
Equipment lease financing and other		(467)			(483)			(1,871)			(1,704)
Total loans charged off	Total loans charged off	(2,234)			(5,490)			(19,958)			(27,540)			Total loans charged off	(1,618)			(9,522)			(3,518)			(17,724)
Recoveries of loans previously charged off:	Recoveries of loans previously charged off:													Recoveries of loans previously charged off:
Commercial and industrial														Commercial and industrial	739			693			2,719			1,462
Real estate – commercial mortgage	Real estate – commercial mortgage	564			100			1,467			439			Real estate – commercial mortgage	3,536			729			3,648			903
Commercial and industrial		2,330			2,103			3,792			6,815
Consumer and real estate – home equity														Consumer and real estate – home equity	762			634			1,216			1,074
Equipment lease financing and other														Equipment lease financing and other	226			153			380			312
Real estate – residential mortgage	Real estate – residential mortgage	86			95			286			292			Real estate – residential mortgage	92			105			314			200
Real estate – home equity		78			44			187			305
Real estate – construction	Real estate – construction	697			4,873			1,335			4,943			Real estate – construction	12			254			44			638
Consumer		426			447			1,391			1,481
Equipment lease financing and other		358			185			670			385
Total recoveries	Total recoveries	4,539			7,847			9,128			14,660			Total recoveries	5,367			2,568			8,321			4,589
Net loans charged off/(recoveries)	Net loans charged off/(recoveries)	2,305			2,357			(10,830)			(12,880)			Net loans charged off/(recoveries)	3,749			(6,954)			4,803			(13,135)
Provision for credit losses (1)	Provision for credit losses (1)	(610)			7,931			(10,010)			70,360			Provision for credit losses (1)	1,110			(4,000)			(5,240)			(9,400)
Balance of ACL at end of period	Balance of ACL at end of period	$	256,727		$	266,825		$	256,727		$	266,825		Balance of ACL at end of period	$	248,564		$	255,032		$	248,564		$	255,032

Net charge-offs to average loans (annualized)	Net charge-offs to average loans (annualized)	(0.05)		%	(0.05)		%	0.08		%	0.10		%	Net charge-offs to average loans (annualized)	(0.08)		%	0.15		%	(0.05)		%	0.14		%

(1) Provision for credit losses included in the table only includes the portion related to loans.

The provision for credit losses, specific to loans, for the three ~~and nine~~ months ended ~~September~~June 30, ~~2021~~2022 was ~~negative $0.6~~$1.1 million, ~~and negative $10.0 million, respectively,~~ compared to a negative provision ~~expense~~ of ~~$7.9~~$4.0 million ~~and $70.4 million, respectively,~~ recorded infor the same ~~periods of 2020. Several factors during the first nine months of 2021~~period in ~~comparison to the end of the fourth quarter of 2020, including improved economic conditions, reduced the level of the ACL determined to be necessary at the end of the third quarter of~~ 2021. ~~The higher provision during the first nine months of 2020 was largely driven by the overall downturn in economic conditions due to COVID-19, resulting in higher expected future credit losses under~~

~~CECL.~~ The ACL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. See Note 4, "Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements for further details on the provision for credit ~~losses.~~losses.

In addition, net loan charge offs in the three months ended September 30, 2021 decreased $0.1 million compared to the same period of 2020. For the nine months ended September 30, 2021, net loan charge offs decreased $2.1 million compared to the same period of 2020.

The following table summarizes the allocation of the ACL - loans:


		September 30, 2021				December 31, 2020						June 30, 2022				December 31, 2021
		ACL - loans		% In Each Loan Category (1)		ACL - loans		% In Each Loan Category (1)				ACL - loans		% In Each Loan Category (1)		ACL - loans		% In Each Loan Category (1)
		(dollars in thousands)								(dollars in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	96,165	39.1	%	$	103,425	37.6	%		Real estate - commercial mortgage	$	72,605	39.2	%	$	87,970	39.7	%
Commercial and industrial	Commercial and industrial	62,891		24.4		74,771		30.0			Commercial and industrial	72,119		22.0		67,056		22.9
Real estate - residential mortgage	Real estate - residential mortgage	56,229		20.3		51,995		16.6			Real estate - residential mortgage	61,635		22.2		54,236		21.0
Consumer, home equity, equipment lease financing	Consumer, home equity, equipment lease financing	29,021		10.1		31,770		10.3			Consumer, home equity, equipment lease financing	31,577		10.4		26,798		10.2
Real estate - construction	Real estate - construction	12,421		6.1		15,608		5.5			Real estate - construction	10,628		6.2		12,941		6.2

Total ACL - loans	Total ACL - loans	$	256,727	100.0	%	$	277,567	100.0	%		Total ACL - loans	$	248,564	100.0	%	$	249,001	100.0	%

(1) Ending loan balances as a % of total loans for the periods presented.

Deposits and Borrowings

The following table presents ending deposits by type:


		September 30, 2021			December 31, 2020			Increase (Decrease)						June 30, 2022					December 31, 2021			Increase (Decrease)
							$			%							$					%
				(dollars in thousands)														(dollars in thousands)
Noninterest-bearing demand	Noninterest-bearing demand	$	7,434,155		$	6,531,002		$	903,153		13.8	%	Noninterest-bearing demand		$	7,530,777				$	7,370,963		$	159,814		2.2		%
Interest-bearing demand	Interest-bearing demand	6,187,096			5,818,564			368,532			6.3		Interest-bearing demand	5,403,805					5,819,539			(415,734)			(7.1)
Savings		6,401,619			5,929,792			471,827			8.0
Savings and money market deposits													Savings and money market deposits	6,406,051					6,403,995			2,056			—
Total demand and savings	Total demand and savings	20,022,870			18,279,358			1,743,512			9.5		Total demand and savings	19,340,633					19,594,497			(253,864)			(1.3)
Brokered deposits	Brokered deposits	262,617			335,185			(72,568)			(21.7)		Brokered deposits	243,172					251,526			(8,354)			(3.3)
Time deposits	Time deposits	1,788,554			2,224,664			(436,110)			(19.6)		Time deposits	1,560,061					1,727,476			(167,415)			(9.7)
Total deposits	Total deposits	$	22,074,041		$	20,839,207		$	1,234,834		5.9	%	Total deposits	$	21,143,866				$	21,573,499		$	(429,633)		(2.0)		%

~~Total~~During the six months ended June 30, 2022, total deposits decreased by $429.6 million, or 2.0%, primarily due to a $415.7 million decrease in interest-bearing demand and savings accounts increased $1.7 billion, or 9.5%, driven by increases in all demand and savings account categories, primarily as the result of strong customer liquidity. These increases were partially offset by decreases in brokered and time deposits.

The following table presents ending borrowings by type:


	June 30, 2022		December 31, 2021		Increase (Decrease)
					$		%
	(dollars in thousands)
Short-term borrowings:
Customer funding (1)	$	436,185	$	416,764	$	19,421	4.7	%
Federal funds purchased	20,000		—		20,000		N/M

Total short-term borrowings	456,185		416,764		39,421		9.5
Long-term borrowings:

Other long-term borrowings	557,130		621,345		(64,215)		(10.3)

Total borrowings	$	1,013,315	$	1,038,109	$	(24,794)	(2.4)	%

(1) Includes repurchase agreements and short-term promissory notes.

During the six months ended June 30, 2022, short-term borrowings increased $39.4 million, or 9.5%. In addition, as compared to December 31, 2021, total long-term borrowings decreased $64.2 million due to the maturity of $65.0 million of senior notes with a fixed rate of 3.60%.

6964

~~The following table presents ending borrowings, by type:~~

September 30, 2021 December 31, 2020 Increase (Decrease)
$ %
(dollars in thousands)
Short-term borrowings:
Customer funding (1)
$ 468,967 $ 630,066 $ (161,099) (25.6) %
Total short-term borrowings 468,967 630,066 (161,099) (25.6)
Long-term borrowings:
FHLB advances — 535,973 (535,973) (100.0)
Other long-term borrowings 627,386 760,290 (132,904) (17.5)
Total long-term borrowings 627,386 1,296,263 (668,877) (51.6)
Total borrowings $ 1,096,353 $ 1,926,329 $ (829,976) (43.1) %

~~(1) Includes repurchase agreements and short-term promissory notes.~~

Total short-term borrowings decreased $161.1 million, or 25.6%. The decrease in short-term borrowings was a result of higher balances of deposits, reducing the need for short-term borrowings. Total long-term borrowings decreased $668.9 million. As discussed in the "Overview" section of Management's Discussion, as part of a balance sheet restructuring, the Corporation prepaid $536.0 million of long-term FHLB advances and completed a cash tender offer for $75.0 million of 4.50% subordinated debt due in 2024 and $60.0 million of 3.60% senior notes due in 2022. Also, See Note 14, "Long-Term Debt," in the Notes to Consolidated Financial Statements for further details.

Shareholders' Equity

Total shareholders’ equity ~~increased $83.0~~decreased $241.6 million during the ~~first nine~~six months ~~of 2021.~~ended June 30, 2022. The ~~increase~~decrease was due primarily to ~~$213.6 million of net income, partially offset by $68.2 million of common stock cash dividends,~~ a ~~$39.5~~$331.6 million decrease in AOCI, mainly due to ~~declines~~unrealized losses in ~~fair values~~investment securities and derivatives. The decrease in AOCI was partially offset by net income of ~~AFS securities, $26.1~~$134.3 million ~~of common stock repurchases and $7.7 million of preferred stock dividends.~~reflected in retained earnings.

~~In February 2021,~~On March 21, 2022, the ~~Corporation's~~Corporation announced that its board of directors approved ~~a share~~the repurchase ~~program pursuant to which the Corporation is authorized to repurchase~~of up to ~~$75.0~~$75 million of ~~its outstanding~~ shares of the Corporation's common stock, or approximately ~~3.2%~~2.7% of ~~its~~the Corporation's outstanding shares, ~~through December 31, 2021~~based on the closing price of the Corporation's common stock and the number of shares outstanding on March 17, 2022. . Under the repurchase program, repurchased shares are 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 repurchase program may be discontinued at any ~~time. Approximately 1.7 million~~time and will expire on December 31, 2022. No shares of the Corporation's common stock were ~~purchased~~repurchased under this program during the ~~nine~~three and six months ended ~~September~~June 30, ~~2021.~~2022.

Regulatory Capital

The Corporation and its subsidiary bank, Fulton Bank, are subject to regulatory capital requirements ("Capital Rules") administered by banking regulators. Failure to meet minimum capital requirements could result in certain actions by regulators that could have a material effect on the ~~Corporation’s~~Corporation's financial statements.

The Capital Rules require the Corporation and Fulton Bank to:

•Meet a minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets;

•Meet a minimum Tier 1 Leverage capital ratio of 4.00% of average assets;

•Meet a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 capital ratio of 6.00% of risk-weighted assets;

•Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and

•Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses. Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, are excluded as a component of Tier 1 capital for institutions of the Corporation's size.

The Capital Rules use a standardized approach for risk weightings that expands 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 weightings for a variety of asset categories.

As of ~~September~~June 30, ~~2021,~~2022, the Corporation's capital levels met the fully phased-in minimum capital requirements, including the capital conservation buffers, as prescribed in the Capital Rules.

In March 2020, the banking regulators amended the optional CECL Transition Rule to allow banks to add back to regulatory capital the decrease recorded to retained earnings at the CECL adoption date, or January 1, 2020 for the Corporation, plus 25% of additions to the ACL over the next two years. These amounts will then be phased in as reductions to regulatory capital over the following three years, or 2022 - 2024. Prior to this amendment, the regulatory capital impact of adopting CECL was to be phased in over a 3-year period beginning in 2020. The Corporation elected to apply the amended rule to the regulatory capital treatment for the adoption of CECL.

As of ~~September~~June 30, ~~2021,~~2022, Fulton Bank met the well capitalized requirements under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank 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 regulation. There were no other conditions or events since ~~September~~June 30, ~~2021~~2022 that management believes have changed the Corporation's capital categories.

The following table summarizes the ~~Corporation’s~~Corporation's capital ratios in comparison to regulatory requirements:


		September 30, 2021		December 31, 2020		Regulatory Minimum for Capital Adequacy		Fully Phased-in, with Capital Conservation Buffers			June 30, 2022		December 31, 2021		Regulatory Minimum for Capital Adequacy		Fully Phased-in, with Capital Conservation Buffers
Total Risk-Based Capital (to Risk-Weighted Assets)										Total Risk-Based Capital (to Risk-Weighted Assets)	13.7	%	14.1	%	8.0	%	10.5	%
Tier I Risk-Based Capital (to Risk-Weighted Assets)										Tier I Risk-Based Capital (to Risk-Weighted Assets)	10.8	%	10.9	%	6.0	%	8.5	%
Common Equity Tier I (to Risk-Weighted Assets)										Common Equity Tier I (to Risk-Weighted Assets)	9.9	%	9.9	%	4.5	%	7.0	%
Tier I Leverage Capital (to Average Assets)	Tier I Leverage Capital (to Average Assets)	8.4	%	8.2	%	4.0	%	4.0	%	Tier I Leverage Capital (to Average Assets)	9.1	%	8.6	%	4.0	%	4.0	%
Common Equity Tier I (to Risk-Weighted Assets)		10.1	%	9.5	%	4.5	%	7.0	%
Tier I Risk-Based Capital (to Risk-Weighted Assets)		11.1	%	10.5	%	6.0	%	8.5	%
Total Risk-Based Capital (to Risk-Weighted Assets)		14.4	%	14.4	%	8.0	%	10.5	%

Item 3. 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~~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~~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. AnThe Corporation's ALCO is responsible for reviewing the interest rate sensitivity and liquidity positions of the Corporation, approving asset and liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions.

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

Simulation of net interest income is performed for the next 12-month period. A variety of interest rate scenarios are used to measure the effects of sudden and gradual movements upward and downward in the yield curve. These results are compared to the results obtained in a flat or unchanged interest rate scenario. Simulation of net interest income is used primarily to measure the ~~Corporation’s~~Corporation's short-term earnings exposure to rate movements. The ~~Corporation’s~~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 bpbps shock in interest rates, 15% for a 200 bpbps shock, 20% for a 300 bpbps shock and 25% for a 400 bpbps shock. A "shock" is an immediate upward or downward movement of interest rates. The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor does it take into account the potential effects of competition on the pricing of deposits and loans over the forward 12-month period.

Contractual maturities and repricing opportunities of loans are incorporated in the simulation model as are prepayment assumptions, maturity data and call options within the investment portfolio. Assumptions based on past experience are incorporated into the model for non-maturity deposit accounts. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model's simulated results due to timing, amount and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

The following table summarizes the expected impact of abrupt interest rate changes, that is, a non-parallel instantaneous shock, on net interest income as of ~~September~~June 30, ~~2021~~2022 (due to the current level of interest rates, the downward shock scenarios are not shown):


Rate Shock(1)	Annual change in net interest income	% change in net interest income
+400 bp	+ ~~$199.6~~$142.3 million	~~28.4%~~17.6%
+300 bp	+ ~~$149.4~~$107.3 million	~~21.3%~~13.3%
+200 bp	+ ~~$98.8~~$72.4 million	~~14.1%~~8.9%
+100 bp	+ ~~$47.9~~$36.4 million	~~6.8%~~4.5%

(1)These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.

Interest Rate Swaps

The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. These interest rate swaps are derivative financial instruments, and the gross fair values are recorded in other assets and liabilities on the consolidated balance sheets, with changes in fair value during the period recorded in other non-interest expense on the consolidated statements of income.

Cash Flow Hedges ~~of Interest Rate Risk~~

The ~~Corporation’s~~Corporation's objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate swaps as part of its interest rate risk management strategy. ~~During the first quarter of 2021, the~~The Corporation ~~entered into~~uses interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Corporation making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

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~~short- and long-term needs.

The Corporation maintains liquidity sources in the form of interest-bearing deposits and customer funding ~~(repurchase agreements and short-term~~(short-term promissory notes). The Corporation can access additional liquidity from these sources, if necessary, by increasing the rates of interest paid on those instruments. The positive impact to liquidity resulting from paying higher interest rates could have a detrimental impact on the net interest margin and net interest income if rates on interest-earning assets do not experience a proportionate increase. Borrowing availability with the FHLB and the FRB, along with federal funds lines at various correspondent banks, provides the Corporation with additional liquidity.

Fulton Bank is a member of the FHLB and has access to FHLB overnight and term credit facilities. ~~The Bank had~~ ~~$3.0 billion~~As of June 30, 2022, the Corporation had no short- or long-term advances outstanding ~~commitments to~~with the ~~FHLB with an additional~~FHLB. As of June 30, 2022, the Corporation has borrowing capacity of approximately ~~$5.5~~ $5.9 billion under these ~~facilities as of September 30, 2021.~~facilities. Advances from the FHLB, when utilized, are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets.

As of ~~September~~June 30, ~~2021,~~2022, the Corporation had aggregate federal funds lines borrowing capacity of~~$2.1 billion, with no outstanding borrowings.~~ $2.1 billion. A combination of commercial real estate loans, commercial loans and securities are pledged to the FRB of Philadelphia to provide access to FRB ~~Discount Window~~discount window borrowings.As of ~~September~~June 30, ~~2021,~~2022, the Corporation had ~~$875.0 million~~$1.2 billion of collateralized borrowing ~~availability~~capacity at the ~~Discount Window, and no outstanding borrowings.~~discount window.

Liquidity must also be managed at the ~~Corporation~~Corporation's parent company level. For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from a subsidiary ~~bank~~banks to the parent company in the form of loans and dividends. Generally, these limitations are based on the subsidiary ~~bank's~~banks’ regulatory capital levels and ~~its~~their net income. Management continues to monitor the liquidity and capital needs of the parent company and will implement appropriate strategies, as necessary, to remain ~~sufficiently~~adequately capitalized and to meet its cash needs.

The ~~Corporation’s sources and uses of funds were discussed in general terms in the "Net Interest Income" section of Management’s Discussion and Analysis. The~~ consolidated statements of cash flows provide additional information. The ~~Corporation’s~~Corporation's operating activities during the first ~~nine~~six months of ~~2021 provided $322.2~~2022 used $15.7 million of ~~cash, mainly due to net income of $213.6 million, and by the net impact of other operating activities.~~cash. Cash ~~provided~~used by investing activities was ~~$25.7~~$669.5 million and was mainly due to the net ~~decreases~~increase in loans ~~partially offset by net increases in investments.~~of $590.8 million. Cash ~~provided~~used by financing activities was ~~$275.3~~$503.8 million, and was primarily due ~~to increases~~a decrease in ~~demand and savings~~ deposits ~~partially offset by the repayments~~ of ~~long-term borrowings and decreases in time deposits and short-term borrowings.~~$429.6 million.

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~~Corporation's debt security investments consist primarily of U.S. government sponsored agency issued ~~residential mortgage-backed and commercial~~ mortgage-backed securities and collateralized mortgage obligations, state and municipal securities, auction rate securities and corporate debt securities. All of the Corporation's investments in ~~residential~~ mortgage-backed ~~and commercial 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 ~~September~~June 30, ~~2021,~~2022, the Corporation owned securities issued by various states and municipalities with a total a fair value of ~~$1.2~~$1.1 billion. Uncertainty with respect to the financial strength of state and municipal bond insurers places emphasis on the underlying strength of issuers. Pressure on local tax revenues of issuers due to adverse economic conditions could have an adverse impact on the underlying credit quality of issuers. The Corporation evaluates existing and potential holdings primarily based on the underlying creditworthiness of the issuing state or municipality and then, to a lesser extent, on any credit enhancement. State and municipal securities can be supported by the general obligation of the issuing state or municipality, allowing the securities to be repaid by any means available to the issuing state or municipality. As of ~~September~~June 30, ~~2021, substantially all~~2022, approximately 100% of state and municipal securities were supported by the general obligation of corresponding states or municipalities. Approximately ~~69%~~71% of these securities were school district issuances, which are also supported by the states of the issuing municipalities.

~~Auction Rate Securities~~

As of September 30, 2021, the Corporation’s investments in ARCs had a cost basis of $76.4 million and an estimated fair value of $75.1 million. The fair values of the ARCs currently in the portfolio were derived using significant unobservable inputs based on an expected cash flows model which produced fair values that may not represent those that could be expected from settlement of these investments in the current market. The expected cash flows model produced fair values which assumed a return to market liquidity sometime within the next five years. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid.

The credit quality of the underlying debt associated with the ARCs is also a factor in the determination of their estimated fair value. As of September 30, 2021, all of the ARCs were rated above investment grade. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. At September 30, 2021, all of the Corporation's ARCs were current and making scheduled interest payments.

Item 4. Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the ~~Corporation’s~~Corporation's management, including the ~~Corporation’s~~Corporation's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the ~~Corporation’s~~Corporation's disclosure controls and procedures pursuant to Rule 13a-15, promulgated under the ~~Securities~~ Exchange ~~Act of 1934 (the "Exchange Act").~~Act. Based upon that evaluation, the ~~Corporation’s~~Corporation's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the ~~Corporation’s~~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 Corporation reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~U.S. Securities and Exchange Commission’s~~SEC's rules and forms.

There have been no changes in the ~~Corporation’s~~Corporation's internal control over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the ~~Corporation’s~~Corporation's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in the "Legal Proceedings" section of Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the ~~Corporation’s~~Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 and Part II, Item 1A of the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c)

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
July 1, 2021 to July 31, 2021 100,100 $ 15.30 100,100 $ 73,468,470
August 1, 2021 to August 31, 2021 292,346 15.27 292,346 69,003,382
September 1, 2021 to September 30, 2021 1,298,682 15.47 1,298,682 48,908,096

(c)

On ~~February 9, 2021,~~March 21, 2022, the Corporation announced that its board of directors approved ~~a share~~the repurchase ~~program pursuant to which the Corporation is authorized to repurchase~~of up to ~~$75.0~~$75 million of ~~its outstanding~~ shares of the Corporation's common stock, or approximately ~~3.2%~~2.7% of ~~its~~the Corporation's outstanding shares, through December 31, ~~2021~~. During three months ended September 30, 2021, 1.7 million shares were repurchased at a total cost of $26.1 million, or $15.43 per share. Up to an additional $48.9 million of the Corporation's common stock may be repurchased under2022. Under this program through December 31,2021. During the period from October 1, 2021 through November 8, 2021, 200,430 additional shares were repurchased at a total cost of $3.2 million, or $15.76 per share. Under the repurchase program, repurchased shares are 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~~This repurchase program may be discontinued at any time. During the three months ended June 30, 2022, no shares were repurchased under this program.

7469

Item 6. Exhibits



2.1						Agreement and Plan of Merger with Prudential Bancorp, Inc. dated March 1, 2022 - Incorporated by reference to Exhibit 2.1 of the Fulton Financial Corporation Current Report on Form 8-K filed on March 1, 2022.

3.1						Articles of Incorporation, as amended and restated, of Fulton Financial Corporation– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on Form 8-K filed on June 24, 2011. (File No. 0-10587)

3.2						Statement with Respect to Shares of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A of Fulton Financial Corporation, dated October 23, 2020, filed with the Pennsylvania Department of State - Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on Form 8-K filed on October 29, 2020.

3.3						Bylaws of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on a Form 8-K filed on May 14, 2021.

4.1						Statement with Respect to Shares of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A of Fulton Financial Corporation, dated October 23, 2020, filed with the Pennsylvania Department of State - Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on Form 8-K filed on October 29, 2020.

4.2						Deposit Agreement, dated October 29, 2020, among Fulton Financial Corporation, Equiniti Trust Company, as depositary, and the holders from time to time of the depositary receipts described therein - Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Current Report on Form 8-K filed on October 29, 2020.

4.3						Form of depositary receipt representing the Depositary Shares (included as Exhibit A to Exhibit 4.2 of this report).

~~10.1~~4.4						~~Fifth Amendment, effective January 1, 2022, to the~~Stock Certificate - Incorporated by reference as Exhibit 4.1 of Fulton Financial Corporation ~~Deferred Compensation Plan -~~ Registration Statement on Form S-4 filed ~~herewith~~.on April 21, 2022.

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 files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

104						Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101)

7570

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements 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

Date:

~~November~~August 8, ~~2021~~2022

/s/ E. Philip Wenger

E. Philip Wenger

Chairman and Chief Executive Officer

Date:

~~November~~August 8, ~~2021~~2022

/s/ Mark R. McCollom

Mark R. McCollom

Senior Executive Vice President and Chief Financial Officer

7671


	September 30, 2021		December 31, 2020		2021 vs. 2020 Increase (Decrease)
					$		%
	(dollars in thousands)
Real estate – commercial mortgage	$	7,145,115	$	7,105,092	$	40,023	0.6	%
Commercial and industrial (1)	4,454,059		5,670,828		(1,216,769)		(21.5)
Real estate – residential mortgage	3,719,684		3,141,915		577,769		18.4
Real estate – home equity	1,126,628		1,202,913		(76,285)		(6.3)
Real estate – construction	1,111,487		1,047,218		64,269		6.1
Consumer	458,595		466,772		(8,177)		(1.8)
Equipment lease financing and other	266,489		284,377		(17,888)		(6.3)
Overdrafts	5,471		4,806		665		13.8
Gross loans	18,287,528		18,923,921		(636,393)		(3.4)
Unearned income	(18,121)		(23,101)		4,980		(21.6)
Net Loans	$	18,269,407	$	18,900,820	$	(631,413)	(3.3)	%


	September 30, 2021(5)		December 31, 2020(5)
Real estate (1)	45.7	%	43.1	%
Health care	6.9		7.2
Agriculture	6.3		6.5
Manufacturing	5.2		5.0
Other services (3)	5.2		4.9
Construction (2)	4.1		4.7
Hospitality and food services	3.9		4.0
Retail	3.1		3.5
Educational services	2.8		3.0
Wholesale trade	2.8		2.7
Arts, entertainment and recreation	2.4		2.4
Professional, scientific and technical services	1.8		2.2
Public administration	1.5		1.7
Transportation and warehousing	1.4		1.4
Finance and Insurance	1.4		1.4
Other (4)	5.5		6.3
Total	100.0	%	100.0	%


(c) 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

July 1, 2021 to July 31, 2021	100,100	$	15.30	100,100	$	73,468,470
August 1, 2021 to August 31, 2021	292,346	15.27		292,346	69,003,382
September 1, 2021 to September 30, 2021	1,298,682	15.47		1,298,682	48,908,096