Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("Management’s Discussion") relates to Fulton Financial Corporation, a financial holding company registered under the Bank Holding Company Act and incorporated under the laws of the Commonwealth of Pennsylvania in 1982, and its wholly owned subsidiaries. Management’s Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report.
FORWARD-LOOKING STATEMENTS
The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition, results of operations and business. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "will," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes," "plans," "expects," "future," "intends," "projects," the negative of these terms and other comparable terminology. These forward-looking statements may include projections of, or guidance on, the Corporation's future financial performance, expected levels of future expenses, 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 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 loan portfolio and demand for the 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 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 loans and incur elevated collection and carrying costs related to such non-performing assets;
•investment securities gains and losses, including other-than-temporary declines in the value of securities which may result in charges to earnings;
•the effects of market interest rates, and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities, on net interest margin and net interest income;
•the planned phasing out of LIBOR as a benchmark reference rate;
•the effects of changes in interest rates on demand for the Corporation’s products and services;
•the effects of changes in interest rates or disruptions in liquidity markets on the Corporation’s sources of funding;
•the effects of the extensive level of regulation and supervision to which the Corporation and 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 reputation;
•the continuing impact of the Dodd-Frank Act on the Corporation’s business and results of operations;
•the effects of, and uncertainty surrounding, new legislation, changes in regulation and government policy, which could result in significant changes in banking and financial services regulation;
•the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact money supply and market interest rates;
•the effects of changes in U.S. federal, state or local tax laws;
•the effects of negative publicity on the Corporation’s reputation;
•the effects of adverse outcomes in litigation and governmental or administrative proceedings;
•the potential to incur losses in connection with repurchase and indemnification payments related to sold loans;
•the Corporation’s ability to 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 business and results of operations;
•the Corporation’s ability to implement, from time to time, measures intended to manage growth in non-interest expenses and improve the efficiency of its operations and realize the intended effects of those initiatives;
•the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;
•the Corporation’s ability to manage the level of non-interest expenses, including salaries and employee benefits expenses, operating risk losses and goodwill impairment;
•the effects of changes in accounting policies, standards, and interpretations on the Corporation’s 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 system of internal controls;
•the loss of, or failure to safeguard, confidential or proprietary information;
•the Corporation’s failure to identify and to address cyber-security risks, including data breaches and cyber-attacks;
•the Corporation’s ability to keep pace with technological changes;
•the Corporation’s ability to attract and retain talented personnel;
•capital and liquidity strategies, including the Corporation’s ability to comply with applicable capital and liquidity requirements, and the Corporation’s ability to generate capital internally or raise capital on favorable terms;
•the Corporation’s reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions; and
•the effects of any downgrade in the Corporation’s or Fulton Bank’s credit ratings on their borrowing costs or access to capital markets.
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 Annual Report on Form 10-K for the year ended December 31, 2020 and elsewhere in this Report, including in Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Overview
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, 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, or 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 earnings and selected performance ratios:
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Three months ended September 30
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Nine months ended September 30
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2021
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2020
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2021
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2020
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Net income available to common shareholders (in thousands)
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$
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73,021
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$
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61,611
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$
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205,896
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$
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127,213
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Diluted net income available to common shareholders per share
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$
|
0.45
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$
|
0.38
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$
|
1.26
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$
|
0.78
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Return on average assets, annualized
|
1.13
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%
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|
0.97
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%
|
|
1.09
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%
|
|
0.71
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%
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|
Return on average common shareholders' equity, annualized
|
10.64
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%
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|
10.32
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%
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|
10.28
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%
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|
7.26
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%
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Return on average common shareholders' equity (tangible), annualized (1)
|
14.56
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%
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|
13.35
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%
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21.36
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%
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|
9.44
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%
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Net interest margin (2)
|
2.82
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%
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|
2.70
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%
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2.78
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%
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|
2.90
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%
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Efficiency ratio (1)
|
60.3
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%
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62.0
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%
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|
62.3
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%
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|
64.2
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%
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Non-performing assets to total assets
|
0.58
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%
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|
0.57
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%
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|
0.58
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%
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|
0.57
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%
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Annualized net charge-offs to average loans
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(0.05)
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%
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(0.05)
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%
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0.08
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%
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0.10
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%
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(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.
(2)Presented on an FTE basis, using a 21% federal tax rate and statutory interest expense disallowances. See also the “Net Interest Income” section of 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.
The Corporation’s business is dependent upon the willingness and ability of 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.
As the COVID-19 pandemic unfolded in the first quarter of 2020, a significant portion of the Corporation’s employees transitioned 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. During the fourth quarter of 2021, the Corporation plans to transition the majority of its employees currently working remotely to onsite or hybrid onsite-remote working arrangements.
COVID-19 has significantly affected the financial markets 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 through 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 forgiveness 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.
Financial Highlights
Following is a summary of the financial highlights for the three and nine months ended September 30, 2021:
•Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $73.0 million for the three months ended September 30, 2021, an $11.4 million increase compared to $61.6 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.
Net income available to common shareholders was $205.9 million for the nine months ended September 30, 2021, a $78.7 million increase compared to $127.2 million for the same period of 2020. Diluted net income per share was $1.26, a $0.48 increase compared to the same period in 2020. The increase in net income during the nine 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.
•Net Interest Income - Net interest income increased $17.2 million, or 11.1%, for the three months ended September 30, 2021 and increased $30.5 million, or 6.5%, for the nine months ended September 30, 2021 compared to the same periods in 2020. The increases resulted from PPP loan fee income, reduced long-term borrowings, lower rates on interest-bearing liabilities and higher volumes of interest-earning assets, primarily loans, partially offset by lower yields on interest-earning assets. Overall, the net interest margin increased 12 bp for the three months ended September 30, 2021 and decreased 12 bp for the nine months ended September 30, 2021, respectively compared to the same periods in 2020.
◦Net Interest Margin - For the three months ended September 30, 2021, the increase in the net interest margin compared to the same period in 2020 reflected an increase in PPP loan fee income and 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 months ended September 30, 2021, the decrease in the net interest margin reflected the net impact of a decrease in yields of interest-earning assets of 41 bp, partially offset by a 30 bp decrease in the cost of funds.
◦Loan Growth - Average Net Loans decreased by $0.5 billion, or 2.5%, 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 30, 2021 was driven largely by the forgiveness of PPP loans. The increase for the nine months ended September 30, 2021 was driven largely by the issuance of PPP loans and growth in the real estate commercial and residential mortgage portfolios.
◦Deposit Growth - Average deposits grew $1.7 billion, or 8.5%, and $2.7 billion, or 14.5%, for the three and nine months ended September 30, 2021, respectively compared to the same periods in 2020. The increases were driven by growth in all deposit categories except time deposits and brokered deposits. The increases in average total demand and savings accounts were driven by strong customer liquidity.
•Provision for Credit Losses - The provision for credit losses was a negative $0.6 million and a negative $9.6 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.
•Asset Quality - Non-performing assets increased $0.8 million, or 0.5%, as of September 30, 2021 compared to December 31, 2020, and were 0.58% of total assets as of those dates. Annualized net charge-offs to average loans outstanding were (0.05)% for the three months ended September 30, 2021 unchanged from 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.
•Non-interest Income - For the three months ended September 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, non-interest income, excluding net investment securities gains, increased $5.6 million, or 3.3%, as compared to the same period in 2020. The increase in the 2021 period was primarily the result of wealth management fees, which increased $10.1 million, or 23.3%, resulting from an increase in client asset levels and overall market performance and consumer banking revenues, partially offset by lower
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 increased $5.5 million, or 3.9%, for the three months ended September 30, 2021 compared to the same period in 2020. The increase during the quarter was largely driven by higher salaries and employee benefits, state taxes and data processing and software costs, partially offset by lower occupancy costs, equipment costs and professional fees.
Non-interest expense increased $39.1 million, or 9.2%, for the nine months ended September 30, 2021 compared to the same period in 2020. The increase was largely driven by debt extinguishment costs recorded in the first quarter of 2021, in connection with the balance sheet restructuring discussed above, compared to $2.9 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 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.
•Income Taxes - Income tax expense for the three months ended September 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. 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. 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:
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|
Three months ended September 30
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|
Nine months ended September 30
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|
|
2021
|
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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
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|
|
Plus: Intangible amortization, net of tax
|
118
|
|
|
103
|
|
|
349
|
|
|
312
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|
|
Numerator
|
$
|
73,139
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|
|
$
|
61,714
|
|
|
$
|
206,245
|
|
|
$
|
127,525
|
|
|
|
|
|
|
|
|
|
|
|
Average common shareholders' equity
|
$
|
2,722,833
|
|
|
$
|
2,374,091
|
|
|
$
|
2,676,762
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|
|
$
|
2,340,204
|
|
|
Less: Average goodwill and intangible assets
|
(536,772)
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|
|
(534,971)
|
|
|
(536,615)
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|
|
(535,103)
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|
Less: Average preferred stock
|
(192,878)
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|
|
—
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|
|
(192,878)
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|
|
—
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|
|
Denominator
|
$
|
1,993,183
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|
|
$
|
1,839,120
|
|
|
$
|
1,947,269
|
|
|
$
|
1,805,101
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common shareholders' equity (tangible), annualized
|
14.56
|
%
|
|
13.35
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%
|
|
21.36
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%
|
|
9.44
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%
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
|
|
|
|
|
|
Non-interest expense
|
$
|
144,596
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|
|
$
|
139,145
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|
|
$
|
463,811
|
|
|
$
|
424,705
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|
|
Less: Debt extinguishment cost
|
—
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|
|
—
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|
|
(32,575)
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|
|
(2,878)
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|
|
Less: Amortization of tax credit investments
|
(1,546)
|
|
|
(1,694)
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|
|
(4,640)
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|
|
(4,594)
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|
|
Less: Intangible amortization
|
(150)
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|
|
(132)
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|
|
(443)
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|
|
(397)
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|
|
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.
Non-Interest Income
The following table presents the components of non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and improved 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.
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 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 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 interest income increased $30.3 million to $507.2 million for the nine months ended September 30, 2021, up from $476.9 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. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine 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)
|
$
|
18,765,024
|
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
3,589,357
|
|
|
63,902
|
|
|
2.37
|
|
|
2,969,664
|
|
|
64,211
|
|
|
2.88
|
|
|
Loans held for sale
|
40,551
|
|
|
969
|
|
|
3.19
|
|
|
54,355
|
|
|
1,557
|
|
|
3.82
|
|
|
Other interest-earning assets
|
1,986,161
|
|
|
4,599
|
|
|
0.18
|
|
|
936,819
|
|
|
4,325
|
|
|
0.62
|
|
|
Total interest-earning assets
|
24,381,093
|
|
|
554,799
|
|
|
3.04
|
|
|
21,988,091
|
|
|
568,548
|
|
|
3.45
|
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
150,435
|
|
|
|
|
|
|
143,496
|
|
|
|
|
|
|
Premises and equipment
|
229,513
|
|
|
|
|
|
|
239,739
|
|
|
|
|
|
|
Other assets
|
1,689,094
|
|
|
|
|
|
|
1,729,351
|
|
|
|
|
|
|
Less: ACL - loans(3)
|
(268,412)
|
|
|
|
|
|
|
(242,300)
|
|
|
|
|
|
|
Total Assets
|
$
|
26,181,723
|
|
|
|
|
|
|
$
|
23,858,377
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
$
|
5,994,878
|
|
|
$
|
2,905
|
|
|
0.06
|
%
|
|
$
|
5,116,696
|
|
|
$
|
9,933
|
|
|
0.26
|
%
|
|
Savings and money market deposits
|
6,271,019
|
|
|
3,944
|
|
|
0.08
|
|
|
5,431,071
|
|
|
12,788
|
|
|
0.31
|
|
|
Brokered deposits
|
297,250
|
|
|
876
|
|
|
0.39
|
|
|
300,795
|
|
|
1,935
|
|
|
0.86
|
|
|
Time deposits
|
2,001,043
|
|
|
16,383
|
|
|
1.09
|
|
|
2,626,802
|
|
|
33,533
|
|
|
1.71
|
|
|
Total interest-bearing deposits
|
14,564,190
|
|
|
24,108
|
|
|
0.22
|
|
|
13,475,364
|
|
|
58,189
|
|
|
0.58
|
|
|
Short-term borrowings
|
526,259
|
|
|
456
|
|
|
0.12
|
|
|
873,694
|
|
|
4,960
|
|
|
0.76
|
|
|
Long-term borrowings
|
839,396
|
|
|
23,006
|
|
|
3.66
|
|
|
1,240,253
|
|
|
28,468
|
|
|
3.06
|
|
|
Total interest-bearing liabilities
|
15,929,845
|
|
|
47,570
|
|
|
0.40
|
|
|
15,589,311
|
|
|
91,617
|
|
|
0.78
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
7,108,199
|
|
|
|
|
|
|
5,458,807
|
|
|
|
|
|
|
Other liabilities
|
466,917
|
|
|
|
|
|
|
470,055
|
|
|
|
|
|
|
Total Liabilities
|
23,504,961
|
|
|
|
|
|
|
21,518,173
|
|
|
|
|
|
|
Total Deposits/Cost of deposits
|
21,672,389
|
|
|
|
|
0.15
|
|
|
18,934,171
|
|
|
|
|
0.41
|
|
|
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds
|
23,038,044
|
|
|
|
|
0.28
|
|
|
21,048,118
|
|
|
|
|
0.58
|
|
|
Shareholders’ equity
|
2,676,762
|
|
|
|
|
|
|
2,340,204
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
26,181,723
|
|
|
|
|
|
|
$
|
23,858,377
|
|
|
|
|
|
|
Net interest income/FTE NIM
|
|
|
507,229
|
|
|
2.78
|
%
|
|
|
|
476,931
|
|
|
2.90
|
%
|
|
Tax equivalent adjustment
|
|
|
(9,111)
|
|
|
|
|
|
|
(9,315)
|
|
|
|
|
Net interest income
|
|
|
$
|
498,118
|
|
|
|
|
|
|
$
|
467,616
|
|
|
|
(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 nine 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)
|
$
|
19,381
|
|
|
$
|
(32,506)
|
|
|
$
|
(13,125)
|
|
|
Taxable investment securities
|
9,618
|
|
|
(12,888)
|
|
|
(3,270)
|
|
|
Tax-exempt investment securities
|
3,839
|
|
|
(878)
|
|
|
2,961
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
(356)
|
|
|
(232)
|
|
|
(588)
|
|
|
Other interest-earning assets
|
3,942
|
|
|
(3,668)
|
|
|
274
|
|
|
Total interest income
|
$
|
36,424
|
|
|
$
|
(50,172)
|
|
|
$
|
(13,749)
|
|
|
Interest expense on:
|
|
|
|
|
|
|
Demand deposits
|
$
|
1,510
|
|
|
$
|
(8,538)
|
|
|
$
|
(7,028)
|
|
|
Savings deposits
|
1,698
|
|
|
(10,542)
|
|
|
(8,844)
|
|
|
Brokered deposits
|
(22)
|
|
|
(1,037)
|
|
|
(1,059)
|
|
|
Time deposits
|
(6,800)
|
|
|
(10,350)
|
|
|
(17,150)
|
|
|
Short-term borrowings
|
(1,445)
|
|
|
(3,059)
|
|
|
(4,504)
|
|
|
Long-term borrowings
|
(10,328)
|
|
|
4,866
|
|
|
(5,462)
|
|
|
Total interest expense
|
$
|
(15,387)
|
|
|
$
|
(28,660)
|
|
|
$
|
(44,047)
|
|
(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 41 bp decrease in the yield on average interest-earning assets drove a $50.2 million decrease 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 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.
Interest expense decreased $44.0 million 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 million and $10.5 million to the decrease in interest expense, respectively. The cost of average time deposits decreased 62 bp and the average balance of time deposits decreased $625.8 million, which contributed $10.4 million and $6.8 million to 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 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 million of FHLB advances and the cash tender offer for $75.0 million and $60.0 million of subordinated debt and senior notes, respectively.
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.
Average borrowings and 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
|
|
$
|
|
%
|
|
Short-term borrowings:
|
(dollars in thousands)
|
|
Customer funding(1)
|
$
|
526,259
|
|
|
0.12
|
%
|
|
$
|
529,667
|
|
|
0.33
|
%
|
|
$
|
(3,408)
|
|
|
(0.6)
|
%
|
|
Federal funds purchased
|
—
|
|
|
—
|
|
|
86,715
|
|
|
0.82
|
|
|
(86,715)
|
|
|
N/M
|
|
FHLB advances and other borrowings(2)
|
—
|
|
|
—
|
|
|
257,312
|
|
|
1.61
|
|
|
(257,312)
|
|
|
N/M
|
|
Total short-term borrowings
|
526,259
|
|
|
0.12
|
|
|
873,694
|
|
|
0.76
|
|
|
(347,435)
|
|
|
(39.8)
|
|
|
Long-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
169,366
|
|
|
1.80
|
|
|
564,855
|
|
|
1.88
|
|
|
(395,489)
|
|
|
(70.0)
|
|
|
Other long-term debt
|
670,030
|
|
|
4.12
|
|
|
675,398
|
|
|
4.05
|
|
|
(5,368)
|
|
|
(0.8)
|
|
|
Total long-term borrowings
|
839,396
|
|
|
3.66
|
|
|
1,240,253
|
|
|
3.06
|
|
|
(400,857)
|
|
|
(32.3)
|
|
|
Total borrowings
|
$
|
1,365,655
|
|
|
2.29
|
%
|
|
$
|
2,113,947
|
|
|
2.11
|
%
|
|
$
|
(748,292)
|
|
|
(35.4)
|
%
|
(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 million, or 39.8%, during the first nine months of 2021, compared to the same period of 2020 primarily as a result of excess funding provided by growth in deposit balances.
Average total long-term borrowings decreased $400.9 million, or 32.3%, in the first nine months of 2021, compared to the same period of 2020 primarily as a result of the balance sheet restructuring competed 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 $10.3 million 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.
Provision for Credit Losses
The provision for credit losses was a negative $9.6 million for the first nine 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 MSRs compared to a $9.2 million increase to the valuation allowance for the same period in 2020. The decrease in gains on sales 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 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.
The following table presents the changes in non-accrual loans for the three and nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and
Industrial
|
|
Real Estate -
Commercial
Mortgage
|
|
Real Estate -
Construction
|
|
Real Estate -
Residential
Mortgage
|
|
Real Estate -
Home
Equity
|
|
Consumer
|
|
Equipment Lease Financing
|
|
Total
|
|
|
(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
|
|
|
Additions
|
21,379
|
|
|
25,036
|
|
|
404
|
|
|
12,073
|
|
|
1,477
|
|
|
1,994
|
|
|
949
|
|
|
63,312
|
|
|
Payments
|
(17,953)
|
|
|
(19,090)
|
|
|
(801)
|
|
|
(1,509)
|
|
|
(1,524)
|
|
|
(64)
|
|
|
(108)
|
|
|
(41,049)
|
|
|
Charge-offs
|
(5,920)
|
|
|
(8,357)
|
|
|
(39)
|
|
|
(1,290)
|
|
|
(482)
|
|
|
(1,999)
|
|
|
(1,279)
|
|
|
(19,366)
|
|
|
Transfers to accrual status
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(274)
|
|
|
—
|
|
|
—
|
|
|
(274)
|
|
|
Transfers to OREO
|
(62)
|
|
|
(925)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(987)
|
|
|
Balance at September 30, 2021
|
$
|
29,437
|
|
|
$
|
48,134
|
|
|
$
|
959
|
|
|
$
|
35,381
|
|
|
$
|
8,785
|
|
|
$
|
263
|
|
|
$
|
15,874
|
|
|
$
|
138,833
|
|
Non-accrual loans decreased approximately $9.0 million, or 6.1%, in comparison to June 30, 2021, primarily as a result of payments, and to a lesser extent, charge-offs, partially offset by additions to non-accrual loans during the period.
The following table summarizes non-performing assets as of the indicated dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
(dollars 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
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
0.82
|
%
|
|
0.78
|
%
|
|
|
|
Non-performing assets to total assets
|
0.58
|
%
|
|
0.58
|
%
|
|
|
|
|
|
|
|
|
|
|
ACL - loans to non-performing loans
|
171
|
%
|
|
189
|
%
|
|
|
(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
Non-performing loans increased $3.1 million, or 2.1%, in comparison to December 31, 2020. Non-performing loans as a percentage of total loans were 0.82% at September 30, 2021 in comparison to 0.78% at December 31, 2020. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 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 billion, of which $1.0 billion were criticized and classified, as of September 30, 2021, and $13.7 billion, of which $1.0 billion were criticized and classified, as of December 31, 2020. The following table presents internal risk ratings for 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(dollars in thousands)
|
|
Real estate - commercial mortgage
|
$
|
494,476
|
|
$
|
478,165
|
|
$
|
16,311
|
|
3.4%
|
|
$
|
220,396
|
|
$
|
181,970
|
|
$
|
38,426
|
|
21.1%
|
|
$
|
714,872
|
|
$
|
660,135
|
|
Commercial and industrial
|
161,075
|
|
154,039
|
|
7,036
|
|
4.6
|
|
147,227
|
|
128,175
|
|
19,052
|
|
14.9
|
|
308,302
|
|
282,214
|
|
Real estate - construction (3)
|
19,291
|
|
13,259
|
|
6,032
|
|
45.5
|
|
3,461
|
|
5,469
|
|
(2,008)
|
|
(36.7)
|
|
22,752
|
|
18,728
|
|
Total
|
$
|
674,842
|
|
$
|
645,463
|
|
$
|
29,379
|
|
4.6%
|
|
$
|
371,084
|
|
$
|
315,614
|
|
$
|
55,470
|
|
17.6%
|
|
$
|
1,045,926
|
|
$
|
961,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total risk rated loans
|
5.4
|
%
|
|
4.7
|
%
|
|
|
|
|
|
3.0
|
%
|
|
2.3
|
%
|
|
|
|
|
|
8.3
|
%
|
|
7.0
|
%
|
(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.
Provision and Allowance for Credit Losses
The following table presents the components of the ACL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
(dollars in thousands)
|
|
ACL - loans
|
$
|
256,727
|
|
|
$
|
277,567
|
|
|
ACL - OBS credit exposure (1)
|
14,783
|
|
|
14,373
|
|
|
Total ACL
|
$
|
271,510
|
|
|
$
|
291,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Included in "other liabilities" on the consolidated balance sheet.
The following table presents the activity in the ACL related to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(dollars in thousands)
|
|
Average balance of Net Loans
|
$
|
18,414,153
|
|
|
$
|
18,880,519
|
|
|
$
|
18,765,024
|
|
|
$
|
18,027,253
|
|
|
|
|
|
|
|
|
|
|
|
Balance of ACL at beginning of period
|
$
|
255,032
|
|
|
$
|
256,537
|
|
|
$
|
277,567
|
|
|
$
|
163,622
|
|
|
Impact of adopting CECL on January 1, 2020
|
—
|
|
|
—
|
|
|
—
|
|
|
45,723
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
Real estate – commercial mortgage
|
(14)
|
|
|
(746)
|
|
|
(8,357)
|
|
|
(3,925)
|
|
|
Commercial and industrial
|
(647)
|
|
|
(2,969)
|
|
|
(5,920)
|
|
|
(17,348)
|
|
|
Real estate – residential mortgage
|
(602)
|
|
|
(198)
|
|
|
(1,290)
|
|
|
(620)
|
|
|
Real estate – home equity
|
(58)
|
|
|
(393)
|
|
|
(482)
|
|
|
(1,138)
|
|
|
Real estate – construction
|
—
|
|
|
—
|
|
|
(39)
|
|
|
(17)
|
|
|
Consumer
|
(446)
|
|
|
(701)
|
|
|
(1,999)
|
|
|
(2,788)
|
|
|
Equipment lease financing and other
|
(467)
|
|
|
(483)
|
|
|
(1,871)
|
|
|
(1,704)
|
|
|
Total loans charged off
|
(2,234)
|
|
|
(5,490)
|
|
|
(19,958)
|
|
|
(27,540)
|
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
Real estate – commercial mortgage
|
564
|
|
|
100
|
|
|
1,467
|
|
|
439
|
|
|
Commercial and industrial
|
2,330
|
|
|
2,103
|
|
|
3,792
|
|
|
6,815
|
|
|
Real estate – residential mortgage
|
86
|
|
|
95
|
|
|
286
|
|
|
292
|
|
|
Real estate – home equity
|
78
|
|
|
44
|
|
|
187
|
|
|
305
|
|
|
Real estate – construction
|
697
|
|
|
4,873
|
|
|
1,335
|
|
|
4,943
|
|
|
Consumer
|
426
|
|
|
447
|
|
|
1,391
|
|
|
1,481
|
|
|
Equipment lease financing and other
|
358
|
|
|
185
|
|
|
670
|
|
|
385
|
|
|
Total recoveries
|
4,539
|
|
|
7,847
|
|
|
9,128
|
|
|
14,660
|
|
|
Net loans charged off/(recoveries)
|
2,305
|
|
|
2,357
|
|
|
(10,830)
|
|
|
(12,880)
|
|
|
Provision for credit losses (1)
|
(610)
|
|
|
7,931
|
|
|
(10,010)
|
|
|
70,360
|
|
|
Balance of ACL at end of period
|
$
|
256,727
|
|
|
$
|
266,825
|
|
|
$
|
256,727
|
|
|
$
|
266,825
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans (annualized)
|
(0.05)
|
%
|
|
(0.05)
|
%
|
|
0.08
|
%
|
|
0.10
|
%
|
(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 30, 2021 was negative $0.6 million and negative $10.0 million, respectively, compared to a provision expense of $7.9 million and $70.4 million, respectively, recorded in the same periods of 2020. Several factors during the first nine months 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. 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.
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
|
|
|
|
|
ACL - loans
|
|
% In Each Loan
Category (1)
|
|
ACL - loans
|
|
% In Each Loan Category (1)
|
|
|
|
|
(dollars in thousands)
|
|
Real estate - commercial mortgage
|
$
|
96,165
|
|
|
39.1
|
%
|
|
$
|
103,425
|
|
|
37.6
|
%
|
|
|
|
Commercial and industrial
|
62,891
|
|
|
24.4
|
|
|
74,771
|
|
|
30.0
|
|
|
|
|
Real estate - residential mortgage
|
56,229
|
|
|
20.3
|
|
|
51,995
|
|
|
16.6
|
|
|
|
|
Consumer, home equity, equipment lease financing
|
29,021
|
|
|
10.1
|
|
|
31,770
|
|
|
10.3
|
|
|
|
|
Real estate - construction
|
12,421
|
|
|
6.1
|
|
|
15,608
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ACL - loans
|
$
|
256,727
|
|
|
100.0
|
%
|
|
$
|
277,567
|
|
|
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)
|
|
|
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
Noninterest-bearing demand
|
$
|
7,434,155
|
|
|
$
|
6,531,002
|
|
|
$
|
903,153
|
|
|
13.8
|
%
|
|
Interest-bearing demand
|
6,187,096
|
|
|
5,818,564
|
|
|
368,532
|
|
|
6.3
|
|
|
Savings
|
6,401,619
|
|
|
5,929,792
|
|
|
471,827
|
|
|
8.0
|
|
|
Total demand and savings
|
20,022,870
|
|
|
18,279,358
|
|
|
1,743,512
|
|
|
9.5
|
|
|
Brokered deposits
|
262,617
|
|
|
335,185
|
|
|
(72,568)
|
|
|
(21.7)
|
|
|
Time deposits
|
1,788,554
|
|
|
2,224,664
|
|
|
(436,110)
|
|
|
(19.6)
|
|
|
Total deposits
|
$
|
22,074,041
|
|
|
$
|
20,839,207
|
|
|
$
|
1,234,834
|
|
|
5.9
|
%
|
Total 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 million during the first nine months of 2021. The increase was due primarily to $213.6 million of net income, partially offset by $68.2 million of common stock cash dividends, a $39.5 million decrease in AOCI, mainly due to declines in fair values of AFS securities, $26.1 million of common stock repurchases and $7.7 million of preferred stock dividends.
In February 2021, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to $75.0 million of its outstanding shares of common stock, or approximately 3.2% of its outstanding shares, through December 31, 2021. 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 shares of common stock were purchased under this program during the nine months ended September 30, 2021.
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 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 30, 2021, 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 30, 2021, 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 30, 2021 that management believes have changed the Corporation's capital categories.
The following table summarizes the Corporation’s capital ratios in comparison to regulatory requirements:
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September 30, 2021
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December 31, 2020
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Regulatory
Minimum
for Capital
Adequacy
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Fully Phased-in, with Capital Conservation Buffers
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Tier I Leverage Capital (to Average Assets)
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8.4
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%
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8.2
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%
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4.0
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%
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4.0
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%
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Common Equity Tier I (to Risk-Weighted Assets)
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10.1
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%
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9.5
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%
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4.5
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%
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7.0
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%
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Tier I Risk-Based Capital (to Risk-Weighted Assets)
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11.1
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%
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10.5
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%
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6.0
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%
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8.5
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%
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Total Risk-Based Capital (to Risk-Weighted Assets)
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14.4
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%
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14.4
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%
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8.0
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%
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10.5
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%
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