UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September~~June 30, ~~2020,~~2021, or


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

For the transition period from to

Commission File No. 0-10587

FULTON FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania

23-2195389

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

One Penn Square

Lancaster,

Pennsylvania

17602

(Address of principal executive offices)

(Zip Code)

(717) 291-2411

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

*Denotes class of security issued and outstanding on the date this report is filed, but not at September 30, 2020.

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

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

Common Stock, $2.50 Par Value ~~–162,250,000~~–163,075,000 shares outstanding as of ~~October~~July 30, ~~2020.~~2021.

FULTON FINANCIAL CORPORATION

FORM 10-Q FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021

INDEX


Description		Page



Glossary of Terms		3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

(a)	Consolidated Balance Sheets - ~~September 30, 2020~~June 3 0 , 2021 and December 31, ~~2019~~2020	45

(b)	Consolidated Statements of Income - Three and six ~~nine~~months ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	56

(c)	Consolidated Statements of Comprehensive Income - Three and ~~nine~~six months ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	67

(d)	Consolidated Statements of Shareholders’ Equity - Three ~~and~~ ~~nine~~ and six months ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	78

(e)	Consolidated Statements of Cash Flows - ~~Nine~~Six months ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	89

(f)	Notes to Consolidated Financial Statements	910

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		4443

Item 3. Quantitative and Qualitative Disclosures about Market Risk		7370

Item 4. Controls and Procedures		7673

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		7673

Item 1A. Risk Factors		7673

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		7673

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

Item 4. Mine Safety Disclosures - (not applicable)

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

Item 6. Exhibits		7874

Signatures		7975


FULTON FINANCIAL CORPORATION
GLOSSARY OF DEFINED ACRONYMS AND TERMS

ACL						Allowance for ~~Credit Losses~~credit losses
AFS						Available for ~~Sale~~sale
ALCO						Asset/Liability Management Committee
AML						Anti-Money Laundering
AOCI						Accumulated other comprehensive income
ARC						Auction ~~Rate Security~~rate security
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
bp						~~basis~~Basis point(s)
BSA						Bank Secrecy Act
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CECL						Current ~~Expected Credit Losses~~expected credit losses
Corporation or Company						Fulton Financial Corporation

COVID-19						Coronavirus
ETR						Effective ~~Tax Rate~~tax rate
Exchange Act						Securities Exchange Act of 1934
EAD						Exposure at default
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Fed Funds Rate						Target ~~Federal Funds Rate~~federal funds rate
FHLB						Federal Home Loan Bank
FOMC						Federal Open Market Committee

FRB						Federal Reserve Bank
FTE						Fully ~~Taxable-Equivalent~~taxable-equivalent
Fulton Bank or the Bank						Fulton Bank, N.A.
GAAP						U.S. Generally Accepted Accounting Principles
HTM						Held to ~~Maturity~~maturity
LGD						Loss given default
LIBOR						London Interbank Offered Rate
MSRs						Mortgage ~~Servicing Rights~~servicing rights
NIM						Net ~~Interest Margin~~interest margin
N/M						Not meaningful
Net Loans						Loans and lease receivables, (net of unearned income)
OBS						~~Off-Balance-Sheet~~Off-balance-sheet
OCI						Other comprehensive income
OREO						Other ~~Real Estate Owned~~real estate owned
OTTI						Other-than-temporary impairment
PD						Probability of default
PPP						Paycheck Protection Program
PSU						~~Performance-Based Restricted Stock Unit~~Performance-based restricted stock unit
RSU						Restricted ~~Stock Unit~~stock unit
SBA						Small Business Administration
SEC						United States Securities and Exchange Commission
TCI						Tax ~~Credit Investment~~credit investment


TDR						Troubled ~~Debt Restructuring~~debt restructuring

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

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

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share data)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	139,304	$	132,283	Cash and due from banks	$	143,002	$	120,462
Interest-bearing deposits with other banks	Interest-bearing deposits with other banks	1,395,586		385,508		Interest-bearing deposits with other banks	1,761,057		1,727,370
Cash and cash equivalents	Cash and cash equivalents	1,534,890		517,791		Cash and cash equivalents	1,904,059		1,847,832
FRB and FHLB stock	FRB and FHLB stock	93,964		97,422		FRB and FHLB stock	62,631		92,129
Loans held for sale	Loans held for sale	93,621		37,828		Loans held for sale	41,924		83,886
Investment securities:	Investment securities:					Investment securities:
AFS, at estimated fair value	AFS, at estimated fair value	2,793,480		2,497,537		AFS, at estimated fair value	3,097,375		3,062,143
HTM, at amortized cost	HTM, at amortized cost	304,241		369,841		HTM, at amortized cost	824,283		278,281
Loans		19,028,621		16,837,526
Net Loans						Net Loans	18,586,756		18,900,820
Less: ACL - loans	Less: ACL - loans	(266,825)		(163,622)		Less: ACL - loans	(255,032)		(277,567)
Net Loans		18,761,796		16,673,904
Premises and equipment		236,943		240,046
Loans, net						Loans, net	18,331,724		18,623,253
Net premises and equipment						Net premises and equipment	228,353		231,480
Accrued interest receivable	Accrued interest receivable	70,766		60,898		Accrued interest receivable	63,232		72,942
Goodwill and intangible assets	Goodwill and intangible assets	534,907		535,303		Goodwill and intangible assets	536,847		536,659
Other assets	Other assets	1,118,673		855,470		Other assets	989,346		1,078,128
Total Assets	Total Assets	$	25,543,281	$	21,886,040	Total Assets	$	26,079,774	$	25,906,733
LIABILITIES	LIABILITIES					LIABILITIES
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	6,378,077	$	4,453,324	Noninterest-bearing	$	7,442,132	$	6,531,002
Interest-bearing	Interest-bearing	14,351,974		12,940,589		Interest-bearing	14,282,180		14,308,205
Total Deposits	Total Deposits	20,730,051		17,393,913		Total Deposits	21,724,312		20,839,207

Short-term borrowings	Short-term borrowings	611,727		883,241		Short-term borrowings	533,749		630,066
Accrued interest payable	Accrued interest payable	9,123		8,834		Accrued interest payable	7,322		10,365
Long-term borrowings	Long-term borrowings	1,296,012		881,769		Long-term borrowings	627,213		1,296,263
Other liabilities	Other liabilities	506,107		376,107		Other liabilities	494,220		514,004
Total Liabilities	Total Liabilities	23,153,020		19,543,864		Total Liabilities	23,386,816		23,289,905
SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY					SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value, 600 million shares authorized, 223.1 million shares issued in 2020 and 222.4 million issued in 2019		557,718		556,110
Preferred stock, no par value, 10,000,000 shares authorized; Series A, 200,000 shares authorized and issued in 2020, liquidation preference of $1,000 per share						Preferred stock, no par value, 10,000,000 shares authorized; Series A, 200,000 shares authorized and issued in 2020, liquidation preference of $1,000 per share	192,878		192,878
Common stock, $2.50 par value, 600.0 million shares authorized, 223.8 million shares issued in 2021 and 223.2 million issued in 2020						Common stock, $2.50 par value, 600.0 million shares authorized, 223.8 million shares issued in 2021 and 223.2 million issued in 2020	559,485		557,917
Additional paid-in capital	Additional paid-in capital	1,505,730		1,499,681		Additional paid-in capital	1,513,645		1,508,117
Retained earnings	Retained earnings	1,099,684		1,079,391		Retained earnings	1,208,086		1,120,781
Accumulated other comprehensive gain (loss)		56,954		(137)
Treasury stock, at cost, 61.0 million shares in 2020 and 58.3 million shares in 2019		(829,825)		(792,869)
Accumulated other comprehensive gain						Accumulated other comprehensive gain	47,201		65,091
Treasury stock, at cost, 60.8 million shares in 2021 and in 2020						Treasury stock, at cost, 60.8 million shares in 2021 and in 2020	(828,337)		(827,956)
Total Shareholders’ Equity	Total Shareholders’ Equity	2,390,261		2,342,176		Total Shareholders’ Equity	2,692,958		2,616,828
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	25,543,281	$	21,886,040	Total Liabilities and Shareholders’ Equity	$	26,079,774	$	25,906,733

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

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(in thousands, except per-share data)	(in thousands, except per-share data)	Three months ended September 30				Nine months ended September 30				(in thousands, except per-share data)	Three months ended June 30				Six months ended June 30
		2020		2019		2020		2019			2021		2020		2021		2020
INTEREST INCOME
Interest Income										Interest Income
Loans, including fees	Loans, including fees	$	158,804	$	186,001	$	493,256	$	558,055	Loans, including fees	$	155,080	$	158,928	$	319,065	$	334,452
Investment securities:	Investment securities:									Investment securities:
Taxable	Taxable	13,150		15,565		44,615		46,935		Taxable	13,898		15,171		27,588		31,465
Tax-exempt	Tax-exempt	5,449		3,673		15,481		10,222		Tax-exempt	5,921		5,323		11,574		10,031

Loans held for sale	Loans held for sale	728		466		1,557		1,056		Loans held for sale	199		509		671		829
Other interest income	Other interest income	1,028		2,709		4,324		6,879		Other interest income	1,575		766		2,711		3,297
Total Interest Income	Total Interest Income	179,159		208,414		559,233		623,147		Total Interest Income	176,673		180,697		361,609		380,074
INTEREST EXPENSE
Interest Expense										Interest Expense
Deposits	Deposits	14,631		35,737		58,189		97,974		Deposits	7,982		17,118		17,584		43,558
Short-term borrowings	Short-term borrowings	370		4,156		4,960		12,200		Short-term borrowings	137		517		325		4,590
Long-term borrowings	Long-term borrowings	10,042		7,260		28,468		23,854		Long-term borrowings	6,155		10,307		16,853		18,426
Total Interest Expense	Total Interest Expense	25,043		47,153		91,617		134,028		Total Interest Expense	14,274		27,942		34,762		66,574
Net Interest Income	Net Interest Income	154,116		161,260		467,616		489,119		Net Interest Income	162,399		152,755		326,847		313,500
Provision for credit losses	Provision for credit losses	7,080		2,170		70,680		12,295		Provision for credit losses	(3,500)		19,570		(9,000)		63,600
Net Interest Income After Provision for Credit Losses	Net Interest Income After Provision for Credit Losses	147,036		159,090		396,936		476,824		Net Interest Income After Provision for Credit Losses	165,899		133,185		335,847		249,900
NON-INTEREST INCOME
Wealth management		14,943		13,867		43,405		41,259
Non-Interest Income										Non-Interest Income
Commercial banking	Commercial banking	18,311		18,788		53,477		53,055		Commercial banking	17,129		16,748		33,471		35,167
Consumer banking	Consumer banking	10,423		13,333		30,800		37,077		Consumer banking	10,860		9,138		21,614		20,377
Wealth management										Wealth management	17,634		13,407		34,981		28,462
Mortgage banking	Mortgage banking	16,801		6,658		32,998		18,023		Mortgage banking	2,838		9,964		16,798		16,198
Other	Other	2,769		2,675		10,080		6,733		Other	3,393		3,660		6,912		7,311
Non-Interest Income Before Investment Securities Gains	Non-Interest Income Before Investment Securities Gains	63,246		55,321		170,761		156,147		Non-Interest Income Before Investment Securities Gains	51,854		52,917		113,776		107,515
Investment securities gains, net	Investment securities gains, net	2		4,492		3,053		4,733		Investment securities gains, net	36		3,005		33,511		3,051
Total Non-Interest Income	Total Non-Interest Income	63,248		59,813		173,814		160,879		Total Non-Interest Income	51,890		55,922		147,287		110,566
NON-INTEREST EXPENSE
Non-Interest Expense										Non-Interest Expense
Salaries and employee benefits	Salaries and employee benefits	79,227		78,211		240,467		234,959		Salaries and employee benefits	78,367		81,012		160,953		161,240
Data processing and software										Data processing and software	13,932		12,193		27,493		23,838
Net occupancy	Net occupancy	13,221		12,368		39,851		39,746		Net occupancy	12,494		13,144		26,476		26,630
Data processing and software		12,285		11,590		36,123		33,211
Other outside services	Other outside services	7,617		12,163		23,098		31,774		Other outside services	8,178		7,600		16,668		15,481
State taxes										State taxes	4,384		3,088		8,889		5,891
Equipment										Equipment	3,424		3,193		6,852		6,611
Professional fees	Professional fees	2,879		3,331		10,412		10,261		Professional fees	2,651		3,331		5,430		7,533
Equipment		3,711		3,459		10,322		10,100
State taxes		2,692		2,523		8,583		7,005
FDIC insurance	FDIC insurance	1,578		239		6,519		5,603		FDIC insurance	2,282		2,133		4,906		4,941
Amortization of TCI										Amortization of TCI	1,563		1,450		3,094		2,900
Marketing	Marketing	1,147		3,322		4,029		8,345		Marketing	1,348		1,303		2,350		2,882
Amortization of TCI		1,694		1,533		4,594		4,516
Intangible amortization	Intangible amortization	132		1,071		397		1,285		Intangible amortization	178		132		293		264
Prepayment penalty on FHLB advances		0		4,326		2,878		4,326
Debt extinguishment										Debt extinguishment	412		2,878		32,575		2,878
Other	Other	12,962		12,634		37,431		37,631		Other	11,618		11,549		23,236		24,469
Total Non-Interest Expense	Total Non-Interest Expense	139,147		146,770		424,705		428,762		Total Non-Interest Expense	140,831		143,006		319,215		285,558
Income Before Income Taxes	Income Before Income Taxes	71,137		72,133		146,045		208,941		Income Before Income Taxes	76,958		46,101		163,919		74,909
Income taxes	Income taxes	9,529		10,025		18,832		30,391		Income taxes	11,994		6,542		25,892		9,303
Net Income	Net Income	$	61,607	$	62,108	$	127,213	$	178,550	Net Income	64,964		39,559		138,027		65,606
Preferred stock dividends										Preferred stock dividends	(2,562)		0		(5,153)		0
Net Income Available to Common Shareholders										Net Income Available to Common Shareholders	$	62,402	$	39,559	$	132,874	$	65,606

PER SHARE:	PER SHARE:									PER SHARE:
Net Income (Basic)		$	0.38	$	0.38	$	0.78	$	1.06
Net Income (Diluted)		0.38		0.37		0.78		1.06
Net Income Available to Common Shareholders (Basic)										Net Income Available to Common Shareholders (Basic)	$	0.38	$	0.24	$	0.81	$	0.40
Net Income Available to Common Shareholders (Diluted)										Net Income Available to Common Shareholders (Diluted)	0.38		0.24		0.81		0.40
Cash Dividends	Cash Dividends	0.13		0.13		0.39		0.39		Cash Dividends	0.14		0.13		0.28		0.26
See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements									See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three months ended September 30 Nine months ended September 30
2020 2019 2020 2019

Net Income $ 61,607 $ 62,108 $ 127,213 $ 178,550
Other Comprehensive Income, net of tax:
Unrealized gain on securities 4,333 18,029 56,186 63,244
Reclassification adjustment for securities gains included in net income (1) (3,498) (2,377) (3,686)
Amortization of net unrealized losses on AFS securities transferred to HTM 928 3,430 2,517 5,425
Non-credit related unrealized loss on other-than-temporarily impaired debt securities 0 0 0 (682)
Amortization of net unrecognized pension and postretirement income 255 277 765 843
Other Comprehensive Income 5,515 18,238 57,091 65,144
Total Comprehensive Income $ 67,122 $ 80,346 $ 184,304 $ 243,694
See Notes to Consolidated Financial Statements


	Three months ended June 30				Six months ended June 30
	2021		2020		2021		2020

Net Income	$	64,964	$	39,559	$	138,027	$	65,606
Other Comprehensive Income (Loss), net of tax:
Unrealized gain (loss) on securities	19,298		34,424		(20,701)		51,853
Reclassification adjustment for securities (gains) losses included in net income	(28)		(2,341)		349		(2,376)
Amortization of net unrealized (gains) losses on AFS securities transferred to HTM	(270)		793		1,517		1,589
Net unrealized gain on interest rate swaps used in cash flow hedges	2,074		0		367		0

Amortization of net unrecognized pension and postretirement income	289		255		578		510
Other Comprehensive Income (Loss)	21,363		33,131		(17,890)		51,576
Total Comprehensive Income	$	86,327	$	72,690	$	120,137	$	117,182

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except per-share data)


		Common Stock					Retained Earnings				Treasury Stock		Total			Preferred Stock			Common Stock			Additional		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
		Shares Outstanding	Amount		Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)							Shares	Amount		Shares	Amount		Paid-in Capital
Three months ended September 30, 2020
Balance at June 30, 2020		161,958	$	557,569	$	1,503,750	$	1,059,160	$	51,439	$	(831,417)	$	2,340,501
Three months ended June 30, 2021															Three months ended June 30, 2021
Balance at March 31, 2021															Balance at March 31, 2021	200	$	192,878	162,517	$	558,116	$	1,511,101	$	1,168,491	$	25,838	$	(826,769)	$	2,629,655
Net income	Net income						61,607						61,607		Net income									64,964						64,964
Other comprehensive income	Other comprehensive income								5,515				5,515		Other comprehensive income											21,363				21,363
Stock issued		176	149		105						1,592		1,846

Common stock issued															Common stock issued				471	1,369		446						(1,568)		247
Stock-based compensation awards															Stock-based compensation awards							2,098								2,098

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

Three months ended June 30, 2020															Three months ended June 30, 2020
Balance at March 31, 2020															Balance at March 31, 2020	0	$	0	161,435	$	556,243	$	1,502,189	$	1,040,646	$	18,308	$	(831,638)	$	2,285,748
Net income															Net income									39,559						39,559
Other comprehensive income															Other comprehensive income											33,131				33,131

Common stock issued															Common stock issued				523	1,326		(350)						221		1,197
Stock-based compensation awards	Stock-based compensation awards				1,875								1,875		Stock-based compensation awards							1,911								1,911

Common stock cash dividends - $0.13 per share							(21,083)						(21,083)
Balance at September 30, 2020		162,134	$	557,718	$	1,505,730	$	1,099,684	$	56,954	$	(829,825)	$	2,390,261

Three months ended September 30, 2019
Balance at June 30, 2019		166,903	$	555,690	$	1,493,628	$	1,018,736	$	(12,157)	$	(747,099)	$	2,308,798
Net income							62,108						62,108
Other comprehensive income									18,238				18,238
Stock issued		157	198		919						1,043		2,160
Stock-based compensation awards					2,110								2,110
Acquisition of treasury stock		(3,024)									(48,071)		(48,071)

Common stock cash dividends - $0.13 per share	Common stock cash dividends - $0.13 per share						(21,327)						(21,327)		Common stock cash dividends - $0.13 per share									(21,045)						(21,045)
Balance at September 30, 2019		164,036	$	555,888	$	1,496,657	$	1,059,517	$	6,081	$	(794,127)	$	2,324,016
Balance at June 30, 2020															Balance at June 30, 2020	0	$	0	161,958	$	557,569	$	1,503,750	$	1,059,160	$	51,439	$	(831,417)	$	2,340,501

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

Common stock issued															Common stock issued				638	1,568		1,528						(381)		2,715
Stock-based compensation awards															Stock-based compensation awards							4,000								4,000

Preferred stock dividend															Preferred stock dividend									(5,153)						(5,153)
Common stock cash dividends - $0.28 per share															Common stock cash dividends - $0.28 per share									(45,569)						(45,569)
Balance at June 30, 2021															Balance at June 30, 2021	200	$	192,878	162,988	$	559,485	$	1,513,645	$	1,208,086	$	47,201	$	(828,337)	$	2,692,958

Six months ended June 30, 2020															Six months ended June 30, 2020
Balance at December 31, 2019	Balance at December 31, 2019	164,218	$	556,110	$	1,499,681	$	1,079,391	$	(137)	$	(792,869)	$	2,342,176	Balance at December 31, 2019	0	$	0	164,218	$	556,110	$	1,499,681	$	1,079,391	$	(137)	$	(792,869)	$	2,342,176
Net income	Net income						127,213						127,213		Net income									65,606						65,606
Other comprehensive income	Other comprehensive income								57,091				57,091		Other comprehensive income											51,576				51,576
Stock issued		824	1,608		646						2,792		5,046

Common stock issued															Common stock issued				648	1,459		540						1,200		3,198
Stock-based compensation awards	Stock-based compensation awards				5,403								5,403		Stock-based compensation awards							3,530								3,530
Adjustment for CECL (1)															Adjustment for CECL (1)									(43,807)						(43,807)
Acquisition of treasury stock	Acquisition of treasury stock	(2,908)									(39,748)		(39,748)		Acquisition of treasury stock				(2,908)									(39,748)		(39,748)

Impact of adopting CECL (1)							(43,807)						(43,807)
Common stock cash dividends - $0.39 per share							(63,113)						(63,113)
Balance at September 30, 2020		162,134	$	557,718	$	1,505,730	$	1,099,684	$	56,954	$	(829,825)	$	2,390,261

Nine months ended September 30, 2019
Balance at December 31, 2018		170,184	$	554,377	$	1,489,703	$	946,032	$	(59,063)	$	(683,476)	$	2,247,573
Net income							178,550						178,550
Other comprehensive income									65,144				65,144
Stock issued		701	1,511		1,496						806		3,813
Stock-based compensation awards					5,458								5,458
Acquisition of treasury stock		(6,849)									(111,457)		(111,457)

Common stock cash dividends - $0.39 per share							(65,065)						(65,065)
Balance at September 30, 2019		164,036	$	555,888	$	1,496,657	$	1,059,517	$	6,081	$	(794,127)	$	2,324,016
Common stock cash dividends - $0.26 per share															Common stock cash dividends - $0.26 per share									(42,030)						(42,030)
Balance at June 30, 2020															Balance at June 30, 2020	0	$	0	161,958	$	557,569	$	1,503,750	$	1,059,160	$	51,439	$	(831,417)	$	2,340,501

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

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(in thousands)	(in thousands)	Nine months ended September 30				(in thousands)	Six months ended June 30
		2020		2019			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	Net Income	$	127,213	$	178,550	Net Income	$	138,027	$	65,606
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	Provision for credit losses	70,680		12,295		Provision for credit losses	(9,000)		63,600
Depreciation and amortization of premises and equipment	Depreciation and amortization of premises and equipment	21,653		20,984		Depreciation and amortization of premises and equipment	13,775		14,331
Amortization of TCI	Amortization of TCI	22,883		24,608		Amortization of TCI	14,002		15,237
Net amortization of investment securities premiums	Net amortization of investment securities premiums	8,722		6,861		Net amortization of investment securities premiums	7,546		5,599
Investment securities gains, net	Investment securities gains, net	(3,053)		(4,733)		Investment securities gains, net	(33,511)		(3,051)
Gain on sales of mortgage loans held for sale	Gain on sales of mortgage loans held for sale	(42,208)		(13,822)		Gain on sales of mortgage loans held for sale	(14,094)		(22,728)
Proceeds from sales of mortgage loans held for sale	Proceeds from sales of mortgage loans held for sale	1,113,671		672,314		Proceeds from sales of mortgage loans held for sale	554,406		584,924
Originations of mortgage loans held for sale	Originations of mortgage loans held for sale	(1,127,256)		(665,338)		Originations of mortgage loans held for sale	(498,350)		(601,783)
Intangible amortization	Intangible amortization	397		1,285		Intangible amortization	293		264
Amortization of issuance costs and discounts on long-term debt		836		632
Amortization of issuance costs and discounts on long-term borrowings						Amortization of issuance costs and discounts on long-term borrowings	1,378		543
Debt extinguishment costs						Debt extinguishment costs	32,575		2,878
Stock-based compensation	Stock-based compensation	5,403		5,458		Stock-based compensation	4,000		3,530

Other changes, net	Other changes, net	(169,447)		(195,560)		Other changes, net	22,537		(161,412)
Total adjustments	Total adjustments	(97,719)		(135,016)		Total adjustments	95,557		(98,068)
Net cash provided by operating activities		29,494		43,534
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	233,584		(32,462)
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS securities	Proceeds from sales of AFS securities	215,150		697,634		Proceeds from sales of AFS securities	125,811		187,819
Proceeds from principal repayments and maturities of AFS securities	Proceeds from principal repayments and maturities of AFS securities	282,832		169,380		Proceeds from principal repayments and maturities of AFS securities	246,740		147,551
Proceeds from principal repayments and maturities of HTM securities	Proceeds from principal repayments and maturities of HTM securities	67,268		62,320		Proceeds from principal repayments and maturities of HTM securities	58,470		40,374
Purchase of AFS securities	Purchase of AFS securities	(728,937)		(838,634)		Purchase of AFS securities	(766,574)		(418,395)

Sale (purchase) of FRB and FHLB stock		3,458		(15,274)
Net increase in loans		(2,203,974)		(529,974)
Purchase of HTM securities						Purchase of HTM securities	(227,687)		0
Sale of Visa Shares						Sale of Visa Shares	33,962		0
Sale of FRB and FHLB stock						Sale of FRB and FHLB stock	29,498		6,380
Net decrease (increase) in loans						Net decrease (increase) in loans	300,929		(1,882,433)
Net purchases of premises and equipment	Net purchases of premises and equipment	(18,550)		(23,799)		Net purchases of premises and equipment	(10,648)		(13,881)
Net cash paid for acquisition	Net cash paid for acquisition	0		(3,907)		Net cash paid for acquisition	292		0
Net change in tax credit investments	Net change in tax credit investments	(9,585)		(14,715)		Net change in tax credit investments	(8,065)		(4,873)
Net cash used in investing activities	Net cash used in investing activities	(2,392,338)		(496,969)		Net cash used in investing activities	(217,272)		(1,937,458)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits	Net increase in demand and savings deposits	3,669,990		627,958		Net increase in demand and savings deposits	1,234,732		2,678,900
Net (decrease) increase in time deposits		(333,852)		338,600
Net (decrease) increase in short-term borrowings		(271,514)		78,083
Additions to long-term debt		495,898		305,000
Repayments of long-term debt		(82,491)		(571,197)
Net decrease in time deposits						Net decrease in time deposits	(349,627)		(188,604)
Net decrease in short-term borrowings						Net decrease in short-term borrowings	(96,317)		(310,690)
Proceeds from long-term borrowings						Proceeds from long-term borrowings	620		495,898
Repayments of long-term borrowings						Repayments of long-term borrowings	(703,624)		(85,893)
Net proceeds from issuance of common stock	Net proceeds from issuance of common stock	5,046		3,813		Net proceeds from issuance of common stock	2,715		3,198

Dividends paid	Dividends paid	(63,387)		(64,439)		Dividends paid	(48,584)		(42,333)
Acquisition of treasury stock	Acquisition of treasury stock	(39,748)		(111,457)		Acquisition of treasury stock	0		(39,748)
Net cash provided by financing activities	Net cash provided by financing activities	3,379,942		606,361		Net cash provided by financing activities	39,915		2,510,728
Net Increase in Cash and Cash Equivalents	Net Increase in Cash and Cash Equivalents	1,017,099		152,926		Net Increase in Cash and Cash Equivalents	56,227		540,808
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	517,791		445,687		Cash and Cash Equivalents at Beginning of Period	1,847,832		517,791
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	1,534,890	$	598,613	Cash and Cash Equivalents at End of Period	$	1,904,059	$	1,058,599
Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:					Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	91,328	$	134,935	Interest	$	37,805	$	63,837
Income taxes	Income taxes	12,118		7,966		Income taxes	8,127		11,051
Supplemental schedule of certain noncash activities:
Supplemental Schedule of Certain Noncash Activities:						Supplemental Schedule of Certain Noncash Activities:
Transfer of AFS securities to HTM securities						Transfer of AFS securities to HTM securities	$	376,165	$	0

Transfer of HTM securities to AFS securities		$	0	$	158,898
See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements					See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of the Corporation have been prepared in conformity with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as revenues and expenses during the period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. The Corporation evaluates subsequent events through the date of filing of this Form 10-Q with the SEC.

CECL Adoption ~~and Updated Significant Accounting Policy~~

On January 1, 2020, the Corporation adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial ~~Instruments,~~Instruments. which replaces the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to OBS credit exposures, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments, and net investments in leases recognized by a lessor in accordance with ASC Topic 842.

The Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures. ~~Results for reporting periods beginning after January 1, 2020 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology.~~ The Corporation recorded an increase of $58.3 million to the ACL on January 1, 2020 as a result of the adoption of CECL. Retained earnings decreased $43.8 million and deferred tax assets increased by $12.4 million. Included in the $58.3 million increase to the ACL was $2.1 million for certain OBS credit exposures that was previously recognized in other liabilities before the adoption of CECL.

~~Loans~~: Loans are stated at their principal amount outstanding, except for mortgage loans held for sale, which are carried at fair value. Interest income on loans is accrued as earned. Unearned income on lease financing receivables is recognized on a basis which approximates the effective yield method.

In general, loans are placed on non-accrual status once they become 90 days delinquent as to principal or interest. In certain cases a loan may be placed on non-accrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments, or the Corporation believes it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. When interest accruals are discontinued, unpaid interest previously credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principalCARES Act and interest has been paid currently for six consecutive months or the loan is considered secured and in the process of collection. The Corporation generally applies payments received on non-accruing loans to principal until such time as the principal is paid off, after which time any payments received are recognized as interest income. If the Corporation believes that all amounts outstanding on a non-accrual loan will ultimately be collected, payments received subsequent to its classification as a non-accrual loan are allocated between interest income and principal.

A loan that is 90 days delinquent may continue to accrue interest if the loan is both adequately secured and is in the process of collection. Past due status is determined based on contractual due dates for loan payments. An adequately secured loan is one that has collateral with a supported fair value that is sufficient to discharge the debt, and/or has an enforceable guarantee from a financially responsible party. A loan is considered to be in the process of collection if collection is proceeding through legal action or through other activities that are reasonably expected to result in repayment of the debt or restoration to current status in the near future.

Loans deemed to be a loss are written off through a charge against the ACL. Closed-end consumer loans are generally charged off when they become 120 days past due (180 days for open-end consumer loans) if they are not adequately secured by real

estate. All other loans are evaluated for possible charge-off when it is probable that the balance will not be collected, based on the ability of the borrower to pay and the value of the underlying collateral, if any. Principal recoveries of loans previously charged off are recorded as increases to the ACL.

~~Loan Origination Fees and Costs:~~ Loan origination fees and the related direct origination costs are deferred and amortized over the life of the loan as an adjustment to interest income using the effective yield method. For mortgage loans sold, net loan origination fees and costs are included in the gain or loss on sale of the related loan, as components of mortgage banking.

Loan origination fees and the related direct origination costs for loans originated under the PPP loan program are amortized on a straight-line basis over the repayment period of the loan. To the extent that a PPP loan is forgiven, the unamortized fees and costs will be recorded at the time of forgiveness.

~~Troubled Debt Restructurings:~~ Loans are accounted for and reported as TDRs when, for economic or legal reasons, the Corporation grants a concession to a borrower experiencing financial difficulty that it would not otherwise consider. Concessions, whether negotiated or imposed by bankruptcy, granted under a TDR typically involve a temporary deferral of scheduled loan payments, an extension of a loan’s stated maturity date or a reduction in the interest rate. Non-accrual TDRs can be restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.Consolidated Appropriations Act - 2021

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

~~On April 7, 2020,~~ ~~Troubled Debt Restructurings: Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by COVID-19~~ was issued by the federal banking regulatory agencies. Included in the Interagency Statement were provisions permitting banks that grant loan modifications to customers impacted by COVID-19 to exclude those modifications from loans categorized as TDRs. The Corporation is adopting the guidance in this Interagency Statement effective for COVID-19-related modifications occurring subsequent to March 13, 2020.

~~Allowance for Credit Losses:~~ The discussion that follows describes the methodology for determining the ACL under the CECL model that was adopted January 1, 2020. The allowance methodology for prior periods is disclosed in the Corporation’s 2019 Annual Report on Form 10-K.

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

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

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

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

•~~The PD and LGD model components are determined based on loss estimates driven by historical credit loss experience for each pool of loans.~~

•The PD model components use econometric regression models that use the Corporation’s historical credit loss experience and economic variable inputs to estimate a PD for each loan pool. The LGD model component calculates a lifetime LGD estimate across each pool of loans utilizing a loss rate approach based on the Corporation’s historical charge-off and the balance at the time of loan default adjusted for the Corporation’s recovery experience.

•~~Reasonable and supportable economic variable forecasts are incorporated into the PD model components.~~

•Reasonable and supportable forecast periods are based on different economic forecasts and scenarios sourced from an external third party. A future loss forecast over the reasonable and supportable forecast period is based on the projected performance of specific economic variables that statistically correlate loss experience in the various loan pools.

•~~After the reasonable and supportable forecast period, economic variable forecasts naturally revert, at the input level,to a long-run average.~~

•To calculate the EAD model component, cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate. In addition, a constant prepayment rate is calculated for each loan pool.

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

Loans evaluated individually may have specific allocations assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

For loans secured by real estate, estimated fair values are determined primarily through appraisals performed by third-party appraisers, discounted to arrive at expected net sale proceeds. For collateral dependent loans, estimated real estate fair values are also net of estimated selling costs. When a real estate secured loan is impaired, a decision is made regarding whether an updated appraisal of the real estate is necessary. This decision is based on various considerations, including: the age of the most recent appraisal; the loan-to-value ratio based on the original appraisal; the condition of the property; the Corporation’s experience and knowledge of the real estate market; the purpose of the loan; market factors; payment status; the strength of any guarantors; and the existence and age of other indications of value such as broker price opinions, among others. The Corporation generally obtains updated appraisals performed by third-party appraisers for impaired loans secured predominantly by real estate every 12 months.

When updated appraisals are not obtained for loans secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and there has not been a significant deterioration in the collateral value since the original appraisal was performed.

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

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the PD on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

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

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

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

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

The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Corporation considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.

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

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

~~HTM Debt Securities:~~Expected credit losses on HTM debt securities would be recorded in the ACL on HTM debt securities. As of September 30, 2020, no HTM debt securities required an ACL as these investments consist solely of government guaranteed residential mortgage-backed securities.

~~AFS Debt Securities~~: The ACL approach for AFS debt securities differs from the CECL approach used for HTM debt securities as AFS debt securities are carried at fair value rather than amortized cost. Prior to the adoption of CECL, credit losses on AFS debt securities were determined using an OTTI approach. Under CECL, the concept of OTTI has been eliminated, but the general approach to determining credit losses is largely consistent with the OTTI method. Under CECL, credit losses on AFS debt securities are recognized through an ACL rather than through a direct write-down of the security. As of September 30, 2020, no AFS debt securities required an ACL.

~~Other~~ Recently Adopted Accounting Standards

On January 1, ~~2020,~~2021, the Corporation adoptedASC Update ~~2018-13 - Fair Value Measurement~~2019-12 Income Taxes (Topic ~~820)~~740): ~~Disclosure Framework - Changes to~~Simplifying the ~~Disclosure Requirements~~Accounting for ~~Fair Value Measurement.~~ Income Taxes.This update changes the fair value measurement disclosure requirements of ASC Topic 820 "Fair Value Measurement." Among other things, the update modifies the disclosure objective paragraphs of ASC 820 to eliminate: (1) "at a minimum" from the phrase "an entity shall disclose at a minimum;" and (2) other similar disclosure requirements to promote the appropriate exercise of discretion by entities.

The Corporation adopted this standards update effective with its March 31, ~~2020~~2021 quarterly report on Form 10-Q and it did not have a material impact on ~~its~~the consolidated financial statements.

On January 1, ~~2020,~~2021, the Corporation adopted ASC Update ~~2018-15 - Intangibles - Goodwill and Other - Internal-Use Software~~2021-01 Reference Rate Reform (Topic ~~350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ 848). This update ~~requires a customer~~permits entities to apply optional expedients in ~~a cloud computing arrangement~~Topic 848 to derivative instruments modified because of LIBOR transition affected by changes to the interest rates used for discounting, margining or contract price alignment due to reference rate reform. This update was effective upon issuance and entities may elect to apply the guidance to modifications either retrospectively, as of any date from the beginning of any interim period that includes or is ~~a service contract~~subsequent to ~~follow the internal-use software guidance~~March 12, 2020, or prospectively to new modifications from any date in ~~ASC Subtopic 350-40~~an interim period that includes or is subsequent to ~~determine which implementation costs to capitalize as assets.~~

January 7, 2021. The Corporation adopted this standards update retrospectively effective with its March 31, ~~2020~~2021 quarterly report on Form 10-Q and itthe adoption did not ~~have a material impact on its consolidated financial statements~~

~~In March 2020, the Corporation adopted~~ ~~ASC Update 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.~~ This standards update provided optional guidance for a limited time to ease the potential burden in accounting for reference rate reform, specific to those using LIBOR or another reference rate expected to be discontinued due to this reform.

~~The Corporation adopted this standards update effective with its March 31, 2020 quarterly report on Form 10-Q and it did not have a material impact on its consolidated financial statements.~~

~~Recently Issued Accounting Standards~~


~~Standard~~	~~Description~~	~~Date of Anticipated Adoption~~	~~Effect on Financial Statements~~
~~ASC Update 2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans~~	This update amends ASC Topic 715-20 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. This update is effective for fiscal years ending after December 15, 2020. Early adoption is permitted.	~~Fiscal Year 2020~~	The Corporation intends to adopt this standards update effective with its December 31, 2020 annual report on Form 10-K. This standard will impact the Corporation's disclosure relating to employee benefit plans, but the Corporation does not expect the adoption of this update to have a material impact on the consolidated financial statements.
~~ASC Update 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~	This update simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted.	~~First Quarter 2021~~	~~The Corporation intends to adopt this standards update effective with its March 31, 2021 quarterly report on Form 10-Q. This update is not expected to~~ have a material impact on the consolidated financial statements.

Reclassifications

Certain amounts in the ~~2019~~2020 consolidated financial statements and notes have been reclassified to conform to the ~~2020~~2021 presentation.

NOTE 2 – Restrictions on Cash and Cash Equivalents

The Bank is required to maintain reserves against its deposit liabilities. Prior to March 2020, reserves were in the form of cash and balances with the FRB. The FRB suspended cash reserve requirements effective March 26, 2020. ~~The amount of such reserves as of December 31, 2019 was $218.9 million.~~

In addition, cash collateral is posted by the Corporation with counterparties to secure derivative and other contracts. The amounts of such cash collateral as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$460.3~~$269.6 million and ~~$199.6~~$408.1 million, respectively.

NOTE 3 – Investment Securities

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


		September 30, 2020									June 30, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale	Available for Sale	(in thousands)								Available for Sale	(in thousands)

U.S. Government securities										U.S. Government securities	$	153,885	$	0	$	(340)	$	153,545
U.S. Government sponsored agency securities										U.S. Government sponsored agency securities	62,529		0		(98)		62,431
State and municipal securities	State and municipal securities	$	880,495	$	46,216	$	(157)	$	926,554	State and municipal securities	1,002,146		53,924		(608)		1,055,462
Corporate debt securities	Corporate debt securities	327,143		16,724		(1,309)		342,558		Corporate debt securities	354,593		16,876		(88)		371,381
Collateralized mortgage obligations	Collateralized mortgage obligations	516,312		16,207		(46)		532,473		Collateralized mortgage obligations	299,333		7,965		(133)		307,165
Residential mortgage-backed securities	Residential mortgage-backed securities	318,343		3,409		(57)		321,695		Residential mortgage-backed securities	201,654		1,641		(1,748)		201,547
Commercial mortgage-backed securities	Commercial mortgage-backed securities	548,076		24,136		(2)		572,210		Commercial mortgage-backed securities	858,574		14,338		(1,902)		871,010
Auction rate securities	Auction rate securities	101,510		0		(3,520)		97,990		Auction rate securities	76,350		0		(1,516)		74,834

Total	Total	$	2,691,879	$	106,692	$	(5,091)	$	2,793,480	Total	$	3,009,064	$	94,744	$	(6,433)	$	3,097,375

Held to Maturity	Held to Maturity									Held to Maturity

Residential mortgage-backed securities	Residential mortgage-backed securities	$	304,241	$	20,699	$	0	$	324,940	Residential mortgage-backed securities	$	439,220	$	15,470	$	(5,019)	$	449,671

Commercial mortgage-backed securities										Commercial mortgage-backed securities	385,063		0		(7,802)		377,261
Total										Total	$	824,283	$	15,470	$	(12,821)	$	826,932

December 31, 2019
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
Available for Sale (in thousands)
State and municipal securities $ 638,125 $ 15,826 $ (1,024) $ 652,927
Corporate debt securities 370,401 8,490 (1,534) 377,357
Collateralized mortgage obligations 682,307 11,726 (315) 693,718
Residential mortgage-backed securities 177,183 1,078 (949) 177,312
Commercial mortgage-backed securities 489,603 6,471 (1,777) 494,297
Auction rate securities 107,410 0 (5,484) 101,926
Total $ 2,465,029 $ 43,591 $ (11,083) $ 2,497,537
Held to Maturity
Residential mortgage-backed securities $ 369,841 $ 13,864 $ 0 $ 383,705

On July 1, 2019, the Corporation transferred state and municipal securities from the held to maturity classification to the available for sale classification as permitted through the early adoption of ASU 2019-04. The amortized cost of the securities transferred was $158.9 million and the estimated fair value was $168.5 million.


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


State and municipal securities	$	891,327	$	61,286	$	0	$	952,613
Corporate debt securities	348,391		19,445		(691)		367,145
Collateralized mortgage obligations	491,321		12,560		(115)		503,766
Residential mortgage-backed securities	373,779		4,246		(27)		377,998
Commercial mortgage-backed securities	741,172		22,384		(1,141)		762,415
Auction rate securities	101,510		0		(3,304)		98,206
Total	$	2,947,500	$	119,921	$	(5,278)	$	3,062,143



Held to Maturity

Residential mortgage-backed securities	$	278,281	$	18,576	$	0	$	296,857

Securities carried at ~~$568.4 million~~$2.0 billion at ~~September~~June 30, ~~2020~~2021 and ~~$462.6~~$520.5 million at December 31, ~~2019~~2020 were pledged as collateral to secure public and trust deposits and customer repurchase agreements.

1411

The amortized cost and estimated fair values of debt securities as of ~~September~~June 30, ~~2020,~~2021, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities as certain investment securities are subject to call or prepayment with or without call or prepayment penalties.


			September 30, 2020										June 30, 2021
			Available for Sale				Held to Maturity						Available for Sale				Held to Maturity
			Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value				Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
		(in thousands)										(in thousands)
Due in one year or less	Due in one year or less		$	11,252	$	11,388	$	0	$	0	Due in one year or less		$	8,212	$	8,240	$	0	$	0
Due from one year to five years	Due from one year to five years		32,118		33,397		0		0		Due from one year to five years		253,200		253,976		0		0
Due from five years to ten years	Due from five years to ten years		315,094		330,233		0		0		Due from five years to ten years		353,124		371,026		0		0
Due after ten years	Due after ten years		950,684		992,084		0		0		Due after ten years		1,034,967		1,084,411		0		0
			1,309,148		1,367,102		0		0				1,649,503		1,717,653		0		0
Residential mortgage-backed securities(1)	Residential mortgage-backed securities(1)		318,343		321,695		304,241		324,940		Residential mortgage-backed securities(1)		201,654		201,547		439,220		449,671
Commercial mortgage-backed securities(1)	Commercial mortgage-backed securities(1)		548,076		572,210		0		0		Commercial mortgage-backed securities(1)		858,574		871,010		385,063		377,261
Collateralized mortgage obligations(1)	Collateralized mortgage obligations(1)		516,312		532,473		0		0		Collateralized mortgage obligations(1)		299,333		307,165		0		0
Total	Total		$	2,691,879	$	2,793,480	$	304,241	$	324,940	Total		$	3,009,064	$	3,097,375	$	824,283	$	826,932

(1) Mortgage-backed securities and collateralized mortgage obligations do not have stated maturities and are dependent upon the interest rate environment and prepayments on the underlying loans.	(1) Mortgage-backed securities and collateralized mortgage obligations do not have stated maturities and are dependent upon the interest rate environment and prepayments on the underlying loans.										(1) Mortgage-backed securities and collateralized mortgage obligations do not have stated maturities and are dependent upon the interest rate environment and prepayments on the underlying loans.

The following table presents information related to the gross realized gains and losses on the sales of investment securities for the periods presented:

Gross Realized Gains Gross Realized Losses Net Gains
Three months ended (in thousands)
September 30, 2020 $ 94 $ (92) $ 2
September 30, 2019 7,938 (3,446) 4,492
Nine months ended
September 30, 2020 $ 6,545 $ (3,492) $ 3,053
September 30, 2019 11,207 (6,474) 4,733


	Gross Realized Gains		Gross Realized Losses		Net Gains
Three months ended	(in thousands)
June 30, 2021	$	465	$	(429)	$	36
June 30, 2020	6,334		(3,329)		3,005

Six months ended
June 30, 2021	$	34,481	$	(970)	$	33,511
June 30, 2020	6,451		(3,400)		3,051

During the ~~second~~first quarter of 2020, the Corporation completed a limited balance sheet restructuring that included the sale of investment securities, with an amortized cost $79.0 million and an estimated fair value of $82.0 million, resulting in net investment securities gains of $3.0 million. Offsetting these gains were $2.9 million of prepayment penalties recorded in non-interest expense for the redemption of FHLB advances.

~~During the third quarter of 2019,~~2021, the Corporation completed a balance sheet restructuring that included a $34.0 million gain on the sale of ~~investment~~Visa Shares, offset by net losses on other securities of $400,000, primarily in connection with ~~an amortized cost~~the sale of ~~$409.2 million and an estimated fair value of $413.7 million, resulting in net investment securities gains of $4.5 million. Offsetting these gains were $4.3~~$24.6 million of ~~prepayment penalties recorded~~ARCs. In addition, debt extinguishment costs of $32.2 million included in non-interest expense and a write-off of $841,000 in unamortized discounts was recognized in net interest income in connection with the cash tender offer for certain of its outstanding senior and subordinated notes and the ~~redemption~~prepayment of certain term FHLB advances. See Note 14, "Long-Term Debt" for further details.

1512

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


		September 30, 2020															June 30, 2021
		Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
		Number of Securities	Estimated Fair Value		Unrealized Losses		Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses			Number of Securities	Estimated Fair Value		Unrealized Losses		Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses

Available for Sale	Available for Sale		(in thousands)													Available for Sale		(in thousands)

U.S. Government securities																U.S. Government securities	2	$	153,545	$	(340)	0	$	0	$	0	$	153,545	$	(340)
U.S. Government sponsored agency securities																U.S. Government sponsored agency securities	1	62,431		(98)		0	0		0		62,431		(98)
State and municipal securities	State and municipal securities	6	$	25,372	$	(157)	0	$	0	$	0	$	25,372	$	(157)	State and municipal securities	12	46,851		(608)		0	0		0		46,851		(608)
Corporate debt securities	Corporate debt securities	16	67,030		(965)		1	6,847		(344)		73,877		(1,309)		Corporate debt securities	5	19,921		(88)		0	0		0		19,921		(88)
Collateralized mortgage obligations	Collateralized mortgage obligations	1	25,489		(46)		0	0		0		25,489		(46)		Collateralized mortgage obligations	1	30,402		(133)		0	0		0		30,402		(133)
Residential mortgage-backed securities	Residential mortgage-backed securities	4	75,876		(57)		0	0		0		75,876		(57)		Residential mortgage-backed securities	7	154,928		(1,748)		0	0		0		154,928		(1,748)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1	9,322		(2)		0	0		0		9,322		(2)		Commercial mortgage-backed securities	15	241,220		(1,902)		0	0		0		241,220		(1,902)
Auction rate securities	Auction rate securities	0	0		0		162	97,990		(3,520)		97,990		(3,520)		Auction rate securities	0	0		0		118	74,834		(1,516)		74,834		(1,516)
Total available for sale(1)		28	$	203,089	$	(1,227)	163	$	104,837	$	(3,864)	$	307,926	$	(5,091)
Total available for sale																Total available for sale	43	$	709,298	$	(4,917)	118	$	74,834	$	(1,516)	$	784,132	$	(6,433)

Held to Maturity																Held to Maturity

Residential mortgage-backed securities																Residential mortgage-backed securities	12	$	203,077	$	(5,019)	0	$	0	$	0	$	203,077	$	(5,019)
Commercial mortgage-backed securities																Commercial mortgage-backed securities	21	377,261		(7,802)		0	0		0		377,261		(7,802)
Total																Total	33	$	580,338	$	(12,821)	0	$	0	$	0	$	580,338	$	(12,821)


		December 31, 2019															December 31, 2020
		Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
		Number of Securities	Estimated Fair Value		Unrealized Losses		Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses			Number of Securities	Estimated Fair Value		Unrealized Losses		Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Available for Sale	Available for Sale	(in thousands)														Available for Sale	(in thousands)

State and municipal securities		44	$	136,344	$	(1,024)	0	$	0	$	0	$	136,344	$	(1,024)

Corporate debt securities	Corporate debt securities	5	30,719		(346)		8	18,759		(1,188)		49,478		(1,534)		Corporate debt securities	9	$	44,528	$	(377)	1	$	6,871	$	(314)	$	51,399	$	(691)
Collateralized mortgage obligations	Collateralized mortgage obligations	5	33,865		(190)		1	5,330		(125)		39,195		(315)		Collateralized mortgage obligations	3	57,601		(115)		0	0		0		57,601		(115)
Residential mortgage-backed securities	Residential mortgage-backed securities	5	12,247		(40)		26	127,373		(909)		139,620		(949)		Residential mortgage-backed securities	1	20,124		(27)		0	0		0		20,124		(27)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	7	121,340		(1,777)		0	0		0		121,340		(1,777)		Commercial mortgage-backed securities	9	144,383		(1,141)		0	0		0		144,383		(1,141)
Auction rate securities	Auction rate securities	0	0		0		177	101,926		(5,484)		101,926		(5,484)		Auction rate securities	0	0		0		162	98,206		(3,304)		98,206		(3,304)
Total available for sale(1)	Total available for sale(1)	66	$	334,515	$	(3,377)	212	$	253,388	$	(7,706)	$	587,903	$	(11,083)	Total available for sale(1)	22	$	266,636	$	(1,660)	163	$	105,077	$	(3,618)	$	371,713	$	(5,278)

(1) No HTM securities were in an unrealized loss position as of ~~September 30, 2020 or~~ December 31, ~~2019.~~2020.

The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The change in fair value of these securities is attributable to changes in interest rates and not credit quality. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. Therefore, the Corporation does not have an ACL for these investments as of ~~September~~June 30, ~~2020.~~2021.

Based on management’s evaluations, no ACL was required for ~~ARCs or~~municipal securities, corporate debt securities or ARCs as of ~~September~~June 30, ~~2020.~~2021. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

1613

NOTE 4 - Loans and Allowance for Credit Losses ~~and Asset Quality~~

Net Loans are summarized as follows:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	7,046,330	$	6,700,776	Real estate - commercial mortgage	$	7,152,932	$	7,105,092
Commercial and industrial(1)	Commercial and industrial(1)	5,968,154		4,446,701		Commercial and industrial(1)	4,985,414		5,670,828
Real-estate - residential mortgage	Real-estate - residential mortgage	3,061,835		2,641,465		Real-estate - residential mortgage	3,555,897		3,141,915
Real-estate - home equity	Real-estate - home equity	1,222,709		1,314,944		Real-estate - home equity	1,136,128		1,202,913
Real-estate - construction	Real-estate - construction	1,007,534		971,079		Real-estate - construction	1,070,755		1,047,218
Consumer	Consumer	469,551		463,164		Consumer	448,433		466,772
Equipment lease financing and other	Equipment lease financing and other	274,570		322,625		Equipment lease financing and other	254,550		284,377
Overdrafts	Overdrafts	1,694		3,582		Overdrafts	1,843		4,806
Gross loans	Gross loans	19,052,377		16,864,336		Gross loans	18,605,952		18,923,921
Unearned income	Unearned income	(23,756)		(26,810)		Unearned income	(19,196)		(23,101)
Net Loans	Net Loans	$	19,028,621	$	16,837,526	Net Loans	$	18,586,756	$	18,900,820

(1) Includes PPP loans totaling $1.1 billion and $1.6 billion as of June 30, 2021 and December 31, 2020, respectively.

The Corporation segments its loan portfolio by "portfolio segments," as presented in the table above. Certain portfolio segments are further disaggregated by "class segment" for the purpose of estimating credit losses. ~~See "Allowance for Credit Losses" below for further discussion regarding portfolio and class segments and their impact on the determination of the ACL.~~

Allowance for Credit Losses ~~effective January 1, 2020~~

~~As discussed in Note 1, "Basis~~The Corporation has elected to exclude accrued interest receivable from the measurement of ~~Presentation," the Corporation adopted CECL effective January 1, 2020. CECL requires estimated credit losses~~its ACL. When a loan is placed on loans to be determined based on an expected life of loan model, as compared to an incurred loss model (in effect for periods prior to 2020). Accordingly, ACL disclosures subsequent to January 1, 2020 are not always comparable to prior periods. In addition, certain new disclosures required under CECL are not applicable to prior periods. As a result, the following tables present disclosures separately for each period, where appropriate. New disclosures required under CECL are only shown for the current period and are noted. See Note 1, "Basis of Presentation", for a summary of the impact of adopting CECL on January 1, 2020.non-accrual status, any outstanding accrued interest is reversed against interest income.

~~Under CECL,~~Loans: The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for ~~impairment consist of~~expected credit losses.

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

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

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

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

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

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

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

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

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

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

Loans evaluated individually may have specific allocations of the ACL assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

The ACL ~~related~~is reviewed to ~~loans consists~~evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Corporation considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.

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

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

~~The following table presents the components of the ACL under CECL:~~



	~~September 30, 2020~~
	~~(in thousands)~~
~~ACL - loans~~	$	~~266,825~~
~~ACL - OBS credit exposure~~	~~15,533~~
~~Total ACL~~	$	~~282,358~~

losses.

1715

The following table presents the components of the ACL:



	June 30, 2021		December 31, 2020
	(in thousands)
ACL - loans	$	255,032	$	277,567
ACL - OBS credit exposure	14,773		14,373
Total ACL	$	269,805	$	291,940

The following table presents the activity in the ~~ACL in 2020:~~ACL:


							Three months ended June 30				Six months ended June 30
		Three months ended September 30, 2020		Nine months ended September 30, 2020			2021		2020			2021		2020
		(in thousands)					(in thousands)
Balance at beginning of period	Balance at beginning of period	$	272,920	$	166,209	Balance at beginning of period	$	280,259	$	257,471		$	291,940	$	166,209
Impact of adopting CECL on January 1, 2020 (1)	Impact of adopting CECL on January 1, 2020 (1)	0		58,348		Impact of adopting CECL on January 1, 2020 (1)	0		0			0		58,348
Loans charged off	Loans charged off	(5,489)		(27,539)		Loans charged off	(9,522)		(8,047)			(17,724)		(22,050)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	7,847		14,660		Recoveries of loans previously charged off	2,568		3,926			4,589		6,813
Net loans recovered (charged off)		2,358		(12,879)
Net loans charged off						Net loans charged off	(6,954)		(4,121)			(13,135)		(15,237)
Provision for credit losses (2)	Provision for credit losses (2)	7,080		70,680		Provision for credit losses (2)	(3,500)		19,570			(9,000)		63,600
Balance at end of period	Balance at end of period	$	282,358	$	282,358	Balance at end of period	$	269,805	$	272,920		$	269,805	$	272,920

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

(2) Includes ~~$850,000~~$500,000 and ~~$320,000~~$(2.6) million related to OBS credit exposures for the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively, and includes $400,000 and $1.2 million related to OBS credit exposure for the six months ended June 30, 2021 and 2020, respectively.

The following table presents the activity in the ACL - loans by portfolio ~~segment, for the three and nine months ended September 30, 2020:~~segment:


		Real Estate - Commercial Mortgage		Commercial and Industrial		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Equipment lease financing, other and overdrafts			Total			Real Estate - Commercial Mortgage		Commercial and Industrial		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Equipment lease financing, other and overdrafts		Total
		(in thousands)														(in thousands)
Three months ended September 30, 2020
Balance at June 30, 2020		$	102,695	$	61,447	$	16,391	$	46,443	$	12,314	$	10,299	$	6,948		$	256,537

Three months ended June 30, 2021																			Three months ended June 30, 2021
Balance at March 31, 2021																			Balance at March 31, 2021	$	100,976	$	71,194	$	13,730	$	49,995	$	15,079	$	9,412	$	5,600	$	265,986
Loans charged off	Loans charged off	(746)		(2,969)		(393)		(198)		0		(701)		(483)			(5,489)		Loans charged off	(6,506)		(954)		(212)		(496)		0		(918)		(436)		(9,522)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	100		2,103		44		95		4,873		447		185			7,847		Recoveries of loans previously charged off	729		693		58		105		254		576		153		2,568
Net loans recovered (charged off)	Net loans recovered (charged off)	(646)		(866)		(349)		(103)		4,873		(254)		(298)			2,358		Net loans recovered (charged off)	(5,777)		(261)		(154)		(391)		254		(342)		(283)		(6,954)
Provision for loan losses (1)	Provision for loan losses (1)	9,806		(1,743)		256		2,013		(2,177)		260		(484)			7,930		Provision for loan losses (1)	182		(5,529)		(983)		4,584		(2,679)		331		94		(4,000)
Balance at September 30, 2020		$	111,855	$	58,838	$	16,298	$	48,353	$	15,010	$	10,305	$	6,166		$	266,825
Balance at June 30, 2021																			Balance at June 30, 2021	$	95,381	$	65,404	$	12,593	$	54,188	$	12,654	$	9,401	$	5,411	$	255,032
Three months ended June 30, 2020																			Three months ended June 30, 2020
Balance at March 31, 2020																			Balance at March 31, 2020	$	90,319	$	63,606	$	15,253	$	42,427	$	8,398	$	9,865	$	8,640	$	238,508
Loans charged off																			Loans charged off	(2,324)		(3,480)		(458)		(235)		(17)		(845)		(688)		(8,047)
Recoveries of loans previously charged off																			Recoveries of loans previously charged off	95		2,978		44		112		0		605		92		3,926
Net loans recovered (charged off)																			Net loans recovered (charged off)	(2,229)		(502)		(414)		(123)		(17)		(240)		(596)		(4,121)
Provision for loan and lease losses (1)																			Provision for loan and lease losses (1)	14,605		(1,657)		1,552		4,139		3,933		674		(1,096)		22,150
Balance at June 30, 2020																			Balance at June 30, 2020	$	102,695	$	61,447	$	16,391	$	46,443	$	12,314	$	10,299	$	6,948	$	256,537
Six months ended June 30, 2021																			Six months ended June 30, 2021
Balance at December 31, 2020																			Balance at December 31, 2020	$	103,425	$	74,771	$	14,232	$	51,995	$	15,608	$	10,905	$	6,631	$	277,567

Nine months ended September 30, 2020
Loans charged off																			Loans charged off	(8,343)		(5,273)		(424)		(688)		(39)		(1,553)		(1,404)		(17,724)
Recoveries of loans previously charged off																			Recoveries of loans previously charged off	903		1,462		109		200		638		965		312		4,589
Net loans (charged off) recovered																			Net loans (charged off) recovered	(7,440)		(3,811)		(315)		(488)		599		(588)		(1,092)		(13,135)
Provision for loan losses (1)																			Provision for loan losses (1)	(604)		(5,556)		(1,324)		2,681		(3,553)		(916)		(128)		(9,400)
Balance at June 30, 2021																			Balance at June 30, 2021	$	95,381	$	65,404	$	12,593	$	54,188	$	12,654	$	9,401	$	5,411	$	255,032
Six months ended June 30, 2020																			Six months ended June 30, 2020
Balance at December 31, 2019	Balance at December 31, 2019	$	45,610	$	68,602	$	17,744	$	19,771	$	4,443	$	3,762	$	3,690		$	163,622	Balance at December 31, 2019	$	45,610	$	68,602	$	17,744	$	19,771	$	4,443	$	3,762	$	3,690	$	163,622
Impact of adopting CECL on January 1, 2020	Impact of adopting CECL on January 1, 2020	29,361		(18,576)		(65)		21,235		4,015		5,969		3,784			45,723		Impact of adopting CECL on January 1, 2020	29,361		(18,576)		(65)		21,235		4,015		5,969		3,784		45,723
Loans charged off	Loans charged off	(3,925)		(17,348)		(1,138)		(620)		(17)		(2,788)		(1,704)			(27,539)		Loans charged off	(3,179)		(14,379)		(745)		(422)		(17)		(2,087)		(1,221)		(22,050)
Recoveries of loans previously charged off	Recoveries of loans previously charged off	439		6,815		305		292		4,943		1,481		385			14,660		Recoveries of loans previously charged off	339		4,712		261		197		70		1,034		200		6,813
Net loans recovered (charged off)	Net loans recovered (charged off)	(3,486)		(10,533)		(833)		(328)		4,926		(1,307)		(1,319)			(12,879)		Net loans recovered (charged off)	(2,840)		(9,667)		(484)		(225)		53		(1,053)		(1,021)		(15,237)
Provision for loan losses (1)	Provision for loan losses (1)	40,370		19,345		(548)		7,675		1,626		1,881		11			70,359		Provision for loan losses (1)	30,564		21,088		(804)		5,662		3,803		1,621		495		62,429
Balance at September 30, 2020		$	111,855	$	58,838	$	16,298	$	48,353	$	15,010	$	10,305	$	6,166		$	266,825

Balance at June 30, 2020																			Balance at June 30, 2020	$	102,695	$	61,447	$	16,391	$	46,443	$	12,314	$	10,299	$	6,948	$	256,537

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

Several factors as of the end of the second quarter of 2021 in comparison to the end of the fourth quarter of 2020, including improved economic forecasts, reduced the level of the ACL determined to be necessary as of June 30, 2021, resulting in the negative provision for credit losses for the both the three and six months ended June 30, 2021. The higher provision expense during the first ~~nine~~six months of 2020 was largely driven by the overall downturn in economic forecasts 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.~~ Qualitative adjustments ~~include and consider changes in international, national, regional and local economic and business conditions, an assessment~~during the first six months of ~~the lending environment, including underwriting standards and other factors affecting credit quality. Qualitative adjustments used in determining the ACL~~2020 increased compared to those at the time of the adoption of CECL on January 1, 2020 primarily as a result of uncertainties related to ~~forecasted economic variables due to~~ the economic impact of ~~COVID-19 and~~COVID-19. These uncertainties included consideration for the future performance of loans that received deferrals or forbearances ~~due to COVID-19.~~

~~Allowance for Credit Losses, prior to January 1, 2020~~

~~Prior to January 1, 2020, the ACL consisted~~as a result of ~~the allowance for loan losses~~COVID-19 and the ~~reserve for unfunded lending commitments. The allowance for loan losses represented management’s estimate~~impact COVID-19 had on certain industries where the quantitative models did not appear to be fully capturing the appropriate level of ~~incurred losses in~~risk at that time. PPP loans issued are fully guaranteed by the ~~loan portfolio~~SBA and, as of the balance sheet date and is recorded as a reduction to Net Loans. The reserve for unfunded lending commitments represented management’s estimate of incurred losses in unfunded loan commitments and letters of credit, andsuch, no ACL was recorded ~~in other liabilities on~~against the ~~consolidated balance sheets. The ACL was increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.~~

~~The following table presents the components of the ACL:~~


	~~December 31, 2019~~
	~~(in thousands)~~
~~Allowance for loan losses~~	$	~~163,622~~
~~Reserve for unfunded lending commitments~~	~~2,587~~
~~ACL~~	$	~~166,209~~

~~The following table presents the activity in the ACL for the periods indicated in 2019:~~

Three months ended September 30, 2019 Nine months ended September 30, 2019
(in thousands)
Balance at beginning of period $ 176,941 $ 169,410
Loans charged off (10,128) (20,208)
Recoveries of loans previously charged off 3,814 11,300
Net loans charged off (6,314) (8,908)
Provision for credit losses(1)
2,170 12,295
Balance at end of period $ 172,797 $ 172,797

~~(1)~~ ~~Includes ($46,000) and ($2.2 million) related to reserve for unfunded lending commitments for the three and nine months ended September 30, 2019, respectively.~~

~~The following table presents the activity in the allowance for~~PPP loan ~~losses, by portfolio segment, for the three and nine months ended September 30, 2019:~~

Real Estate -
Commercial
Mortgage Commercial &
Industrial Real Estate -
Home
Equity Real Estate -
Residential
Mortgage Real Estate -
Construction Consumer Equipment lease financing, other
and overdrafts Total
(in thousands)
Three months ended September 30, 2019
Balance at June 30, 2019 $ 54,859 $ 66,341 $ 18,981 $ 18,892 $ 4,928 $ 3,363 $ 2,869 $ 170,233
Loans charged off (394) (7,181) (498) (533) (45) (877) (600) (10,128)
Recoveries of loans previously charged off 444 2,311 132 440 164 216 107 3,814
Net loans recovered (charged off) 50 (4,870) (366) (93) 119 (661) (493) (6,314)
Provision for loan losses(1)
(5,529) 7,710 (662) (109) (664) 798 672 2,216
Balance at September 30, 2019 $ 49,380 $ 69,181 $ 17,953 $ 18,690 $ 4,383 $ 3,500 $ 3,048 $ 166,135
Nine months ended September 30, 2019
Balance at December 31, 2018 $ 52,889 $ 58,868 $ 18,911 $ 18,921 $ 5,061 $ 3,217 $ 2,670 $ 160,537
Loans charged off (1,769) (11,863) (923) (1,322) (143) (2,355) (1,833) (20,208)
Recoveries of loans previously charged off 749 6,234 552 783 1,493 1,005 484 11,300
Net loans recovered (charged off) (1,020) (5,629) (371) (539) 1,350 (1,350) (1,349) (8,908)
Provision for loan losses(1)
(2,489) 15,942 (587) 308 (2,028) 1,633 1,727 14,506
Balance at September 30, 2019 $ 49,380 $ 69,181 $ 17,953 $ 18,690 $ 4,383 $ 3,500 $ 3,048 $ 166,135

~~(1)The provision in the table only includes the portion related to Net Loans.~~

portfolio.

Non-accrual Loans

All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, substantially all of the Corporation’s individually evaluated loans with total commitments greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral, if any. Collateral could be in the form of real estate, in the case of commercial mortgages and construction loans, or business assets, such as accounts receivable

or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

As of ~~both September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, approximately ~~93%~~81% and 83%, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $1.0 million, whose primary collateral isconsisted of real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months.

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


		September 30, 2020						December 31, 2019
		Non-accrual Loans						Non-accrual Loans			June 30, 2021						December 31, 2021
		With a Related Allowance		Without a Related Allowance		Total		Total			With a Related Allowance		Without a Related Allowance		Total		With a Related Allowance		Without a Related Allowance		Total
		(in thousands)									(in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	15,145	$	25,781	$	40,926	$	33,166	Real estate - commercial mortgage	$	22,516	$	30,912	$	53,428	$	19,909	$	31,561	$	51,470
Commercial and industrial	Commercial and industrial	14,326		20,948		35,274		48,106		Commercial and industrial	15,142		18,039		33,181		13,937		18,056		31,993
Real estate - residential mortgage	Real estate - residential mortgage	23,637		1,256		24,893		16,676		Real estate - residential mortgage	32,577		2,198		34,775		24,590		1,517		26,107
Real estate - home equity	Real estate - home equity	8,682		0		8,682		7,004		Real estate - home equity	9,279		0		9,279		9,398		190		9,588
Real estate - construction	Real estate - construction	607		1,014		1,621		3,618		Real estate - construction	173		843		1,016		437		958		1,395
Consumer	Consumer	235		0		235		0		Consumer	287		0		287		332		0		332
Equipment lease financing and other	Equipment lease financing and other	0		16,690		16,690		16,528		Equipment lease financing and other	6,643		9,255		15,898		0		16,313		16,313
		$	62,632	$	65,689	$	128,321	$	125,098		$	86,617	$	61,247	$	147,864	$	68,603	$	68,595	$	137,198

As of ~~September~~June 30, 2021 and December 31, 2020, there were ~~$65.7~~$61.2 million and $68.6 million, respectively,of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

Asset Quality

Maintaining an appropriate ACL is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, ~~under both the CECL and incurred loss models,~~ which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Risk ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff or if specific loan review assessments identify a deterioration or an improvement in the loans.

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

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

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

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

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

September 30, 2020
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans
(dollars in thousands) Amortized Amortized
2020 2019 2018 2017 2016 Prior Cost Basis Cost Basis Total
Real estate - construction(1)
Pass $ 94,758 $ 243,614 $ 196,393 $ 138,308 $ 44,315 $ 114,228 $ 47,594 $ 0 $ 879,210
Special Mention 0 241 0 0 7,103 6,106 0 0 13,450
Substandard or Lower 0 448 0 0 760 5,822 943 0 7,973
Total real estate - construction 94,758 244,303 196,393 138,308 52,178 126,156 48,537 0 900,633
Real estate - construction(1)
Current period gross charge-offs 0 0 0 0 0 (17) 0 0 (17)
Current period recoveries 0 0 0 0 68 4,875 0 0 4,943
Total net (charge-offs) recoveries 0 0 0 0 68 4,858 0 0 4,926
Commercial and industrial
Pass 2,409,273 540,493 330,516 229,184 216,228 635,782 1,256,763 0 5,618,239
Special Mention 52,203 13,653 7,618 10,886 13,693 29,919 50,673 0 178,645
Substandard or Lower 38,983 1,125 15,819 11,797 13,422 25,081 64,089 954 171,270
Total commercial and industrial 2,500,459 555,271 353,953 251,867 243,343 690,782 1,371,525 954 5,968,154
Commercial and industrial
Current period gross charge-offs 0 (106) (10) (102) (388) (117) (16,625) 0 (17,348)
Current period recoveries 39 364 207 91 1,704 4,410 0 6,815
Total net (charge-offs) recoveries 0 (67) 354 105 (297) 1,587 (12,215) 0 (10,533)
Real estate - commercial mortgage
Pass 702,768 933,999 792,029 850,926 871,759 2,381,373 88,116 327 6,621,297
Special Mention 13,247 13,505 19,298 33,245 46,354 139,832 3,502 0 268,983
Substandard or Lower 1,119 2,409 13,665 39,467 9,375 88,671 1,344 0 156,050
Total real estate - commercial mortgage 717,134 949,913 824,992 923,638 927,488 2,609,876 92,962 327 7,046,330
Real estate - commercial mortgage
Current period gross charge-offs 0 (16) (36) (2,515) (29) (1,312) (17) 0 (3,925)
Current period recoveries 0 0 0 0 1 438 0 0 439
Total net (charge-offs) recoveries 0 (16) (36) (2,515) (28) (874) (17) 0 (3,486)
Total
Pass $ 3,206,799 $ 1,718,106 $ 1,318,938 $ 1,218,418 $ 1,132,302 $ 3,131,383 $ 1,392,473 $ 327 $ 13,118,746
Special Mention 65,450 27,399 26,916 44,131 67,150 175,857 54,175 0 461,078
Substandard or Lower 40,102 3,982 29,484 51,264 23,557 119,574 66,376 954 335,293
Total $ 3,312,351 $ 1,749,487 $ 1,375,338 $ 1,313,813 $ 1,223,009 $ 3,426,814 $ 1,513,024 $ 1,281 $ 13,915,117


		June 30, 2021
		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
		(dollars in thousands)												Amortized		Amortized
		2021		2020		2019		2018		2017		Prior		Cost Basis		Cost Basis		Total
Real estate - construction(1)
	Pass	$	55,746	$	259,489	$	203,753	$	163,203	$	34,926	$	132,581	$	39,453	$	0	$	889,151
	Special Mention	4,386		0		285		0		0		14,421		0		0		19,092
	Substandard or Lower	0		0		153		0		1,952		1,598		239		0		3,942
	Total real estate - construction	60,132		259,489		204,191		163,203		36,878		148,600		39,692		0		912,185
Real estate - construction(1)
	Current period gross charge-offs	0		0		(39)		0		0		0		0		0		(39)
	Current period recoveries	0		0		39		0		0		599		0		0		638
	Total net (charge-offs) recoveries	0		0		0		0		0		599		0		0		599
Commercial and industrial
	Pass	1,094,643		890,179		474,995		252,445		190,560		659,879		1,127,132		0		4,689,833
	Special Mention	286		12,141		21,656		16,478		9,393		39,229		44,015		0		143,198
	Substandard or Lower	4,933		6,987		15,496		23,258		13,193		41,750		44,881		1,885		152,383
	Total commercial and industrial	1,099,862		909,307		512,147		292,181		213,146		740,858		1,216,028		1,885		4,985,414
Commercial and industrial
	Current period gross charge-offs	0		(50)		(70)		(91)		(130)		(472)		(4,460)		0		(5,273)
	Current period recoveries	0		0		22		249		58		640		493		0		1,462
	Total net (charge-offs) recoveries	0		(50)		(48)		158		(72)		168		(3,967)		0		(3,811)
Real estate - commercial mortgage
	Pass	433,412		953,225		924,009		629,504		749,132		2,622,402		61,387		0		6,373,071
	Special Mention	204		43,125		30,204		93,345		79,800		294,149		841		105		541,773
	Substandard or Lower	0		3,453		24,239		15,881		40,407		151,580		2,491		37		238,088
	Total real estate - commercial mortgage	433,616		999,803		978,452		738,730		869,339		3,068,131		64,719		142		7,152,932
Real estate - commercial mortgage
	Current period gross charge-offs	0		0		0		(25)		(6,603)		(1,517)		(198)		0		(8,343)
	Current period recoveries	0		0		0		0		0		903		0		0		903
	Total net (charge-offs) recoveries	0		0		0		(25)		(6,603)		(614)		(198)		0		(7,440)
Total
	Pass	$	1,583,801	$	2,102,893	$	1,602,757	$	1,045,152	$	974,618	$	3,414,862	$	1,227,972	$	0	$	11,952,055
	Special Mention	4,876		55,266		52,145		109,823		89,193		347,799		44,856		105		704,063
	Substandard or Lower	4,933		10,440		39,888		39,139		55,552		194,928		47,611		1,922		394,413
	Total	$	1,593,610	$	2,168,599	$	1,694,790	$	1,194,114	$	1,119,363	$	3,957,589	$	1,320,439	$	2,027	$	13,050,531

(1) Excludes real estate - construction - other.

The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit risk ratings for the indicated loan class segments:

December 31, 2019
Pass Special Mention Substandard or Lower Total
(dollars in thousands)
Real estate - commercial mortgage $ 6,429,407 $ 137,163 $ 134,206 $ 6,700,776
Commercial and industrial - secured 3,830,847 171,442 195,884 4,198,173
Commercial and industrial - unsecured 234,987 9,665 3,876 248,528
Total commercial and industrial 4,065,834 181,107 199,760 4,446,701
Construction - commercial residential 100,808 2,897 3,461 107,166
Construction - commercial 765,562 1,322 2,676 769,560
Total construction (excluding construction - other) 866,370 4,219 6,137 876,726
$ 11,361,611 $ 322,489 $ 340,103 $ 12,024,203
% of Total 94.5 % 2.7 % 2.8 % 100.0 %

The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and equipment lease financing. For these loans, the most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories is a significant component of the ACL methodology for those loans, ~~under both the CECL and incurred loss models,~~ which ~~base~~bases the PD on this migration.

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


		December 31, 2020
		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
		(dollars in thousands)												Amortized		Amortized
		2020		2019		2018		2017		2016		Prior		Cost Basis		Cost Basis		Total
Real estate - construction(1)
	Pass	$	185,883	$	229,097	$	217,604	$	81,086	$	37,976	$	110,470	$	38,026	$	0	$	900,142
	Special Mention	0		0		0		0		7,047		6,212		0		0		13,259
	Substandard or Lower	0		447		0		2,000		753		1,637		632		0		5,469
	Total real estate - construction	185,883		229,544		217,604		83,086		45,776		118,319		38,658		0		918,870
Real estate - construction(1)
	Current period gross charge-offs	0		0		0		0		0		(17)		0		0		(17)
	Current period recoveries	0		0		0		0		68		5,054		0		0		5,122
	Total net (charge-offs) recoveries	0		0		0		0		68		5,037		0		0		5,105
Commercial and industrial
	Pass	2,283,533		508,541		298,567		214,089		208,549		596,646		1,278,689		0		5,388,614
	Special Mention	6,633		23,834		29,167		10,945		11,506		25,960		45,994		0		154,039
	Substandard or Lower	3,221		5,947		8,434		11,251		11,192		23,852		64,278		0		128,175
	Total commercial and industrial	2,293,387		538,322		336,168		236,285		231,247		646,458		1,388,961		0		5,670,828
Commercial and industrial
	Current period gross charge-offs	0		(114)		(30)		(488)		(393)		(520)		(17,370)		0		(18,915)
	Current period recoveries	0		43		486		216		162		4,531		5,958		0		11,396
	Total net (charge-offs) recoveries	0		(71)		456		(272)		(231)		4,011		(11,412)		0		(7,519)
Real estate - commercial mortgage
	Pass	973,664		917,510		708,946		794,955		783,094		2,213,343		53,041		404		6,444,957
	Special Mention	13,639		40,874		84,047		80,705		89,112		167,424		2,364		0		478,165
	Substandard or Lower	1,238		6,681		6,247		39,027		22,605		103,007		2,225		940		181,970
	Total real estate - commercial mortgage	988,541		965,065		799,240		914,687		894,811		2,483,774		57,630		1,344		7,105,092
Real estate - commercial mortgage
	Current period gross charge-offs	(60)		(21)		(36)		(2,515)		(29)		(1,547)		(17)		0		(4,225)
	Current period recoveries	0		6		0		0		1		1,020		0		0		1,027
	Total net (charge-offs) recoveries	(60)		(15)		(36)		(2,515)		(28)		(527)		(17)		0		(3,198)
Total
	Pass	$	3,443,080	$	1,655,148	$	1,225,117	$	1,090,130	$	1,029,619	$	2,920,459	$	1,369,756	$	404	$	12,733,713
	Special Mention	20,272		64,708		113,214		91,650		107,665		199,596		48,358		0		645,463
	Substandard or Lower	4,459		13,075		14,681		52,278		34,550		128,496		67,135		940		315,614
	Total	$	3,467,811	$	1,732,931	$	1,353,012	$	1,234,058	$	1,171,834	$	3,248,551	$	1,485,249	$	1,344	$	13,694,790

(1) Excludes real estate - construction - other.

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


			September 30, 2020																				June 30, 2021
			Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans						Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
			(dollars in thousands)												Amortized								(dollars in thousands)												Amortized
			2020		2019		2018		2017		2016		Prior		Cost Basis				Total				2021		2020		2019		2018		2017		Prior		Cost Basis				Total
Real estate - home equity	Real estate - home equity																				Real estate - home equity
		Performing	$	21,247	$	8,297	$	14,573	$	12,064	$	13,006	$	140,145	$	995,811	$	5,485	$	1,210,628		Performing	$	14,248	$	27,159	$	7,757	$	11,063	$	8,898	$	112,798	$	940,727	$	2,502	$	1,125,152
		Nonperforming	0		0		153		256		225		2,354		8,764		329		12,081			Nonperforming	0		0		0		23		233		2,489		8,231		0		10,976
		Total real estate - home equity	21,247		8,297		14,726		12,320		13,231		142,499		1,004,575		5,814		1,222,709			Total real estate - home equity	14,248		27,159		7,757		11,086		9,131		115,287		948,958		2,502		1,136,128
Real estate - home equity	Real estate - home equity																				Real estate - home equity
		Current period gross charge-offs	0		0		0		0		0		0		(1,137)		0		(1,137)			Current period gross charge-offs	0		0		(41)		0		0		(171)		(212)		0		(424)
		Current period recoveries	0		0		0		0		0		123		182		0		305			Current period recoveries	0		0		0		0		0		58		51		0		109
		Total net (charge-offs) recoveries	0		0		0		0		0		123		(955)		0		(832)			Total net (charge-offs) recoveries	0		0		(41)		0		0		(113)		(161)		0		(315)
Real estate - residential mortgage	Real estate - residential mortgage																				Real estate - residential mortgage
		Performing	953,063		649,475		268,809		383,345		294,005		484,717		0		0		3,033,414			Performing	916,128		1,203,025		435,125		148,034		251,748		563,509		0		0		3,517,569
		Nonperforming	0		832		2,437		2,611		723		21,818		0		0		28,421			Nonperforming	0		6,259		2,412		3,232		2,934		23,491		0		0		38,328
		Total real estate - residential mortgage	953,063		650,307		271,246		385,956		294,728		506,535		0		0		3,061,835			Total real estate - residential mortgage	916,128		1,209,284		437,537		151,266		254,682		587,000		0		0		3,555,897
Real estate - residential mortgage	Real estate - residential mortgage																				Real estate - residential mortgage
		Current period gross charge-offs	0		(68)		(101)		(190)		(7)		(254)		0		0		(620)			Current period gross charge-offs	0		(49)		(143)		(125)		(4)		(367)		0		0		(688)
		Current period recoveries	0		0		13		1		0		278		0		0		292			Current period recoveries	0		0		0		12		0		96		92		0		200
		Total net (charge-offs) recoveries	0		(68)		(88)		(189)		(7)		24		0		0		(328)			Total net (charge-offs) recoveries	0		(49)		(143)		(113)		(4)		(271)		92		0		(488)
Consumer	Consumer																				Consumer
		Performing	93,208		106,797		104,984		48,281		27,828		38,319		49,594		0		469,011			Performing	62,507		95,909		81,669		75,781		33,021		51,329		47,785		0		448,001
		Nonperforming	123		68		56		62		47		162		22		0		540			Nonperforming	0		150		24		74		34		102		48		0		432
		Total consumer	93,331		106,865		105,040		48,343		27,875		38,481		49,616		0		469,551			Total consumer	62,507		96,059		81,693		75,855		33,055		51,431		47,833		0		448,433
Consumer	Consumer																				Consumer
		Current period gross charge-offs	0		(500)		(425)		(346)		(433)		(642)		(442)		0		(2,788)			Current period gross charge-offs	(12)		(208)		(225)		(154)		(172)		(157)		(625)		0		(1,553)
		Current period recoveries	0		48		148		116		177		891		101		0		1,481			Current period recoveries	0		87		85		52		43		523		175		0		965
		Total net (charge-offs) recoveries	0		(452)		(277)		(230)		(256)		249		(341)		0		(1,307)			Total net (charge-offs) recoveries	(12)		(121)		(140)		(102)		(129)		366		(450)		0		(588)
Equipment lease financing and other	Equipment lease financing and other																				Equipment lease financing and other
		Performing	69,512		71,629		53,733		39,888		18,481		6,219		0		0		259,462			Performing	31,408		70,990		55,764		41,562		26,647		14,115		0		0		240,486
		Nonperforming	0		0		190		16,054		272		286		0		0		16,802			Nonperforming	0		0		157		0		15,750		0		0		0		15,907
		Total leasing and other	69,512		71,629		53,923		55,942		18,753		6,505		0		0		276,264			Total leasing and other	31,408		70,990		55,921		41,562		42,397		14,115		0		0		256,393
Equipment lease financing and other	Equipment lease financing and other																				Equipment lease financing and other
		Current period gross charge-offs	(1,463)		(241)		0		0		0		0		0		0		(1,704)			Current period gross charge-offs	(128)		(1,276)		0		0		0		0		0		0		(1,404)
		Current period recoveries	187		136		17		16		9		20		0		0		385			Current period recoveries	0		239		58		6		5		4		0		0		312
		Total net (charge-offs) recoveries	(1,276)		(105)		17		16		9		20		0		0		(1,319)			Total net (charge-offs) recoveries	(128)		(1,037)		58		6		5		4		0		0		(1,092)
Construction - other	Construction - other																				Construction - other
		Performing	45,386		36,764		6,614		0		16		0		17,940		0		106,720			Performing	52,082		94,302		7,085		4,912		0		16		0		0		158,397
		Nonperforming	0		0		0		181		0		0		0		0		181			Nonperforming	0		0		0		0		173		0		0		0		173
		Total construction - other	45,386		36,764		6,614		181		16		0		17,940		0		106,901			Total construction - other	52,082		94,302		7,085		4,912		173		16		0		0		158,570
Construction - other	Construction - other																				Construction - other
		Current period gross charge-offs	0		0		0		0		0		0		0		0		0			Current period gross charge-offs	0		0		0		0		0		0		0		0		0
		Current period recoveries	0		0		0		0		0		0		0		0		0			Current period recoveries	0		0		0		0		0		0		0		0		0
		Total net (charge-offs) recoveries	0		0		0		0		0		0		0		0		0			Total net (charge-offs) recoveries	0		0		0		0		0		0		0		0		0
Total	Total																				Total
		Performing	$	1,182,416	$	872,962	$	448,713	$	483,578	$	353,336	$	669,400	$	1,063,345	$	5,485	$	5,079,235		Performing	$	1,076,373	$	1,491,385	$	587,400	$	281,352	$	320,314	$	741,767	$	988,512	$	2,502	$	5,489,605
		Nonperforming	123		900		2,836		19,164		1,267		24,620		8,786		329		58,025			Nonperforming	0		6,409		2,593		3,329		19,124		26,082		8,279		0		65,816
		Total	$	1,182,539	$	873,862	$	451,549	$	502,742	$	354,603	$	694,020	$	1,072,131	$	5,814	$	5,137,260		Total	$	1,076,373	$	1,497,794	$	589,993	$	284,681	$	339,438	$	767,849	$	996,791	$	2,502	$	5,555,421

2321

The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, a summary of performing, delinquent and non-performing loans for the indicated class segments:


																December 31, 2020
		December 31, 2019														Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans converted to Term Loans
		Performing			Delinquent (1)			Non-performing (2)			Total					(dollars in thousands)												Amortized
		(dollars in thousands)														2020		2019		2018		2017		2016		Prior		Cost Basis				Total
Real estate - home equity	Real estate - home equity	$	1,292,035		$	12,341		$	10,568		$	1,314,944		Real estate - home equity
															Performing	$	31,445	$	8,176	$	13,906	$	11,024	$	11,667	$	126,749	$	982,285	$	5,321	$	1,190,573
															Nonperforming	0		88		23		233		221		2,290		9,485		0		12,340
															Total real estate - home equity	31,445		8,264		13,929		11,257		11,888		129,039		991,770		5,321		1,202,913
Real estate - home equity														Real estate - home equity
															Current period gross charge-offs	0		0		0		0		0		(34)		(1,159)		0		(1,193)
															Current period recoveries	0		0		0		0		0		138		366		0		504
															Total net (charge-offs) recoveries	0		0		0		0		0		104		(793)		0		(689)
Real estate - residential mortgage	Real estate - residential mortgage	2,584,763			34,291			22,411			2,641,465			Real estate - residential mortgage
Construction - other		92,649			895			809			94,353
Consumer - direct		63,582			465			190			64,237
Consumer - indirect		393,974			4,685			268			398,927
Total consumer		457,556			5,150			458			463,164
															Performing	1,255,532		585,878		228,398		341,563		264,990		434,889		0		0		3,111,250
															Nonperforming	217		2,483		3,177		2,483		722		21,583		0		0		30,665
															Total real estate - residential mortgage	1,255,749		588,361		231,575		344,046		265,712		456,472		0		0		3,141,915
Real estate - residential mortgage														Real estate - residential mortgage
															Current period gross charge-offs	0		(68)		(101)		(190)		(7)		(254)		0		0		(620)
															Current period recoveries	0		68		16		1		1		405		0		0		491
															Total net (charge-offs) recoveries	0		0		(85)		(189)		(6)		151		0		0		(129)
Consumer														Consumer
															Performing	114,399		98,587		95,072		43,334		25,804		36,086		52,698		42		466,022
															Nonperforming	168		19		124		141		114		150		34		0		750
															Total consumer	114,567		98,606		95,196		43,475		25,918		36,236		52,732		42		466,772
Consumer														Consumer
															Current period gross charge-offs	(134)		(542)		(524)		(444)		(489)		(769)		(498)		0		(3,400)
															Current period recoveries	0		64		165		159		94		101		1,292		0		1,875
															Total net (charge-offs) recoveries	(134)		(478)		(359)		(285)		(395)		(668)		794		0		(1,525)
Equipment lease financing and other	Equipment lease financing and other	278,743			4,012			16,642			299,397			Equipment lease financing and other
		$	4,705,746		$	56,689		$	50,888		$	4,813,323			Performing	102,324		65,303		49,453		34,995		15,631		5,040		0		0		272,746
% of Total		97.8		%	1.2		%	1.0		%	100		%
															Nonperforming	0		0		30		15,983		142		282		0		0		16,437
															Total leasing and other	102,324		65,303		49,483		50,978		15,773		5,322		0		0		289,183
Equipment lease financing and other														Equipment lease financing and other
															Current period gross charge-offs	(606)		(1,581)		0		0		0		0		0		0		(2,187)
															Current period recoveries	185		349		21		18		11		21		0		0		605
															Total net (charge-offs) recoveries	(421)		(1,232)		21		18		11		21		0		0		(1,582)
Construction - other														Construction - other
															Performing	96,444		24,888		6,822		0		16		0		0		0		128,170
															Nonperforming	0		0		0		178		0		0		0		0		178
															Total construction - other	96,444		24,888		6,822		178		16		0		0		0		128,348
Construction - other														Construction - other
															Current period gross charge-offs	0		0		0		0		0		0		0		0		0
															Current period recoveries	0		0		0		0		0		0		0		0		0
															Total net (charge-offs) recoveries	0		0		0		0		0		0		0		0		0
Total														Total
															Performing	$	1,600,144	$	782,832	$	393,651	$	430,916	$	318,108	$	602,764	$	1,034,983	$	5,363	$	5,168,761
															Nonperforming	385		2,590		3,354		19,018		1,199		24,305		9,519		0		60,370
															Total	$	1,600,529	$	785,422	$	397,005	$	449,934	$	319,307	$	627,069	$	1,044,502	$	5,363	$	5,229,131

~~(1)Includes all accruing loans 30 days to 89 days past due.~~

~~(2)Includes all accruing loans 90 days or more past due and all non-accrual loans.~~

The following table presents non-performing assets:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Non-accrual loans	Non-accrual loans	$	128,321	$	125,098	Non-accrual loans	$	147,864	$	137,198
Loans 90 days or more past due and still accruing	Loans 90 days or more past due and still accruing	13,761		16,057		Loans 90 days or more past due and still accruing	5,865		9,929
Total non-performing loans	Total non-performing loans	142,082		141,155		Total non-performing loans	153,729		147,127
OREO (1)	OREO (1)	4,565		6,831		OREO (1)	2,779		4,178
Total non-performing assets	Total non-performing assets	$	146,647	$	147,986	Total non-performing assets	$	156,508	$	151,305

(1) Excludes ~~$9.6~~$7.4 million and $8.1 million of residential mortgage properties for which formal foreclosure proceedings were in process as of ~~September~~June 30, ~~2020.~~2021 and December 31, 2020, respectively.

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


		30-59		60-89		≥ 90 Days										30-59		60-89		≥ 90 Days
		Days Past		Days Past		Past Due		Non-								Days Past		Days Past		Past Due		Non-
		Due		Due		and Accruing		Accrual		Current			Total			Due		Due		and Accruing		Accrual		Current		Total
		(in thousands)										(in thousands)
September 30, 2020
June 30, 2021															June 30, 2021
Real estate – commercial mortgage	Real estate – commercial mortgage	$	11,867	$	3,702	$	2,499	$	40,926	$	6,987,336		$	7,046,330	Real estate – commercial mortgage	$	5,341	$	40	$	265	$	53,428	$	7,093,858	$	7,152,932
Commercial and industrial	Commercial and industrial	5,326		1,228		1,950		35,274		5,924,376			5,968,154		Commercial and industrial	7,136		1,406		171		33,181		4,943,520		4,985,414
Real estate – residential mortgage	Real estate – residential mortgage	10,686		1,180		3,394		24,893		3,021,682			3,061,835		Real estate – residential mortgage	13,753		611		3,398		34,775		3,503,360		3,555,897
Real estate – home equity	Real estate – home equity	3,966		902		3,070		8,682		1,206,089			1,222,709		Real estate – home equity	2,883		774		1,698		9,279		1,121,494		1,136,128
Real estate – construction	Real estate – construction	0		0		2,430		1,621		1,003,483			1,007,534		Real estate – construction	666		0		0		1,016		1,069,073		1,070,755
Consumer	Consumer	1,648		436		306		235		466,926			469,551		Consumer	1,935		456		144		287		445,611		448,433
Equipment lease financing and other	Equipment lease financing and other	250		110		112		16,690		235,346			252,508		Equipment lease financing and other	33		257		189		15,898		220,820		237,197
Total	Total	$	33,743	$	7,558	$	13,761	$	128,321	$	18,845,238		$	19,028,621	Total	$	31,747	$	3,544	$	5,865	$	147,864	$	18,397,736	$	18,586,756


		30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Current		Total			30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Current		Total
		(in thousands)													(in thousands)
December 31, 2019
December 31, 2020														December 31, 2020
Real estate – commercial mortgage	Real estate – commercial mortgage	$	10,912	$	1,543	$	4,113	$	33,166	$	6,651,042	$	6,700,776	Real estate – commercial mortgage	$	14,999	$	9,273	$	1,177	$	51,470	$	7,028,173	$	7,105,092
Commercial and industrial	Commercial and industrial	2,302		2,630		1,385		48,106		4,392,278		4,446,701		Commercial and industrial	11,285		1,068		616		31,993		5,625,866		5,670,828
Real estate – residential mortgage	Real estate – residential mortgage	26,982		7,309		5,735		16,676		2,584,763		2,641,465		Real estate – residential mortgage	22,281		7,675		4,687		26,107		3,081,165		3,141,915
Real estate – home equity	Real estate – home equity	9,635		2,706		3,564		7,004		1,292,035		1,314,944		Real estate – home equity	5,622		1,654		2,753		9,588		1,183,296		1,202,913
Real estate – construction	Real estate – construction	1,715		900		688		3,618		964,158		971,079		Real estate – construction	1,938		0		155		1,395		1,043,730		1,047,218
Consumer	Consumer	4,228		922		458		0		457,556		463,164		Consumer	3,036		501		417		332		462,486		466,772
Equipment lease financing and other	Equipment lease financing and other	552		3,460		114		16,528		278,743		299,397		Equipment lease financing and other	838		150		124		16,313		248,657		266,082
Total	Total	$	56,326	$	19,470	$	16,057	$	125,098	$	16,620,575	$	16,837,526	Total	$	59,999	$	20,321	$	9,929	$	137,198	$	18,673,373	$	18,900,820

Collateral-Dependent Loans

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

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

Troubled Debt Restructurings

The following table presents TDRs, by class segment:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Real estate - commercial mortgage						Real estate - commercial mortgage	$	14,651	$	28,451
Commercial and industrial						Commercial and industrial	6,765		6,982
Real estate - residential mortgage	Real estate - residential mortgage	$	19,427	$	21,551	Real estate - residential mortgage	16,861		18,602
Real estate - commercial mortgage		28,558		13,330
Real estate - home equity	Real estate - home equity	14,875		15,068		Real estate - home equity	13,566		14,391
Commercial and industrial		7,328		5,193

Real estate - construction						Real estate - construction	153		0
Consumer	Consumer	0		8		Consumer	4		0

Total accruing TDRs	Total accruing TDRs	70,188		55,150		Total accruing TDRs	52,000		68,426
Non-accrual TDRs (1)	Non-accrual TDRs (1)	37,025		20,825		Non-accrual TDRs (1)	60,504		35,755
Total TDRs	Total TDRs	$	107,213	$	75,975	Total TDRs	$	112,504	$	104,181

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

The following table presents TDRs, by class segment, for loans that were modified during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended September 30						Nine months ended September 30							Three months ended June 30						Six months ended June 30
		2020			2019			2020			2019				2021			2020			2021			2020
		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment			Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
		(dollars in thousands)													(dollars in thousands)
Commercial and industrial														Commercial and industrial	0	$	0	13	$	1,304	4	$	1,894	14	$	1,378
Real estate - commercial mortgage														Real estate - commercial mortgage	3	2,729		6	16,082		5	6,891		7	16,474
Real estate - residential mortgage	Real estate - residential mortgage	8	$	1,351	1	$	830	48	$	10,516	6	$	2,263	Real estate - residential mortgage	14	3,101		33	8,505		37	10,728		40	9,165
Real estate - commercial mortgage		5	8,394		1	81		12	24,868		1	81

Real estate - home equity	Real estate - home equity	13	1,370		12	327		40	3,556		46	2,281		Real estate - home equity	11	598		19	1,609		16	746		27	2,186
Commercial and industrial		4	3,021		3	97		18	4,399		13	4,928
Real estate - construction														Real estate - construction	0	0		0	0		1	154		0	0
Consumer	Consumer	3	53		0	0		11	238		0	0		Consumer	0	0		8	185		0	0		8	185
Total	Total	33	$	14,189	17	$	1,335	129	$	43,577	66	$	9,553	Total	28	$	6,428	79	$	27,685	63	$	20,413	96	$	29,388

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

In accordance with regulatory guidance, payment schedule modifications granted after March 13, 2020 to borrowers impacted by the effects of the COVID-19 pandemic and who were not delinquent at the time of the payment schedule modifications have been excluded from TDRs. ~~For the nine months ended September~~As of June 30, 2021 and 2020, payment schedule modifications since the inception of this guidance having a recorded investment of ~~$3.8~~$3.5 billion and $3.9 billion, respectively, were excluded from ~~TDRs based on this regulatory guidance.~~TDRs.

NOTE 5 – Mortgage Servicing Rights

The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance sheets:


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Amortized cost:	Amortized cost:									Amortized cost:
Balance at beginning of period	Balance at beginning of period	$	38,692	$	38,826	$	39,267	$	38,573	Balance at beginning of period	$	37,803	$	38,854	$	38,745	$	39,267
Originations of MSRs	Originations of MSRs	4,319		2,499		8,569		5,585		Originations of MSRs	1,457		2,772		4,268		4,250
Amortization	Amortization	(4,129)		(1,970)		(8,954)		(4,803)		Amortization	(3,198)		(2,934)		(6,951)		(4,825)
Balance at end of period	Balance at end of period	$	38,882	$	39,355	$	38,882	$	39,355	Balance at end of period	$	36,062	$	38,692	$	36,062	$	38,692

Valuation allowance:	Valuation allowance:									Valuation allowance:
Balance at beginning of period	Balance at beginning of period	$	(7,700)	$	0	$	0	$	0	Balance at beginning of period	$	(4,400)	$	(1,100)	$	(10,500)	$	0
Additions to valuation allowance		(1,500)		0		(9,200)		0
Reduction (addition) to valuation allowance										Reduction (addition) to valuation allowance	(2,200)		(6,600)		3,900		(7,700)
Balance at end of period	Balance at end of period	$	(9,200)	$	0	$	(9,200)	$	0	Balance at end of period	$	(6,600)	$	(7,700)	$	(6,600)	$	(7,700)

Net MSRs at end of period	Net MSRs at end of period	$	29,682	$	39,355	$	29,682	$	39,355	Net MSRs at end of period	$	29,462	$	30,992	$	29,462	$	30,992
Estimated fair value of MSRs at end of period		$	29,682	$	43,968	$	29,682	$	43,968

MSRs represent the economic value of contractual rights to service mortgage loans that have been sold. The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was ~~$4.8~~$4.4 billion and ~~$4.9~~$4.7 billion as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Actual and expected prepayments of the underlying mortgage loans can impact the fair values of the MSRs. The Corporation accounts for MSRs at the lower of amortized cost or fair value.

The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The fair values of MSRs were ~~$29.7~~$29.5 million and ~~$45.2~~$28.2 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Based on its fair value analysis as of ~~September~~June 30, ~~2020,~~2021, the Corporation determined that a ~~$1.5~~$2.2 million increase to the valuation allowance was required for the three months ended ~~September~~June 30, ~~2020,~~2021, resulting in a total valuation allowance of ~~$9.2~~$6.6 million ~~for the nine months ended September~~as of June 30, ~~2020.~~2021. The ~~increases~~$2.2 million increase to the valuation allowance ~~were~~was recorded as ~~reductions~~a reduction to mortgage banking income on the consolidated statements of income for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020.~~2021. Based on its fair value analysis as of March 31, 2021 the Corporation had determined that a $6.1 million reduction to the valuation allowance was required as of March 31, 2021; the net $3.9 million decrease to the valuation allowance was recorded as an increase to mortgage banking income on the consolidated statements of income for the six months ended June 30, 2021.

NOTE 6 – Derivative Financial Instruments

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

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

Derivative contracts create counterparty credit risk with both the Corporation's customers and with institutional derivative counterparties. The Corporation manages counterparty credit risk through its credit approval processes, monitoring procedures and obtaining adequate collateral, when the Corporation determines it is appropriate to do so and in accordance with counterparty contracts.

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

Mortgage Banking Derivatives

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured.

Interest Rate Swaps - Non-Designated Hedges

The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. The Corporation’s existing credit derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders which participate in loans.The Corporation is required to clear all eligible interest rate swap contracts with a clearing agent and is subject to the regulations of the Commodity Futures Trading Commission.

Cash Flow Hedges of Interest Rate Risk

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

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

Foreign Exchange Contracts

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

2726

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


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
		Notional Amount		Asset (Liability) Fair Value		Notional Amount		Asset (Liability) Fair Value			Notional Amount		Asset (Liability) Fair Value		Notional Amount		Asset (Liability) Fair Value
		(in thousands)									(in thousands)
Interest Rate Locks with Customers	Interest Rate Locks with Customers									Interest Rate Locks with Customers
Positive fair values	Positive fair values	$	446,268	$	11,994	$	132,260	$	1,123	Positive fair values	$	335,010	$	3,595	$	382,903	$	8,034
Negative fair values	Negative fair values	4,611		(61)		9,783		(53)		Negative fair values	1,688		(10)		3,154		(35)

Forward Commitments	Forward Commitments									Forward Commitments
Positive fair values	Positive fair values	0		0		75,000		63		Positive fair values	0		0		0		0
Negative fair values	Negative fair values	414,110		(1,644)		180,000		(371)		Negative fair values	54,000		(211)		292,262		(2,263)

Interest Rate Swaps with Customers	Interest Rate Swaps with Customers									Interest Rate Swaps with Customers
Positive fair values	Positive fair values	3,777,684		375,567		2,903,489		143,484		Positive fair values	3,315,775		210,570		3,834,062		330,951
Negative fair values	Negative fair values	12,288		(2)		376,705		(695)		Negative fair values	542,265		(1,301)		45,640		(2)

Interest Rate Swaps with Dealer Counterparties	Interest Rate Swaps with Dealer Counterparties									Interest Rate Swaps with Dealer Counterparties
Positive fair values	Positive fair values	12,288		2		376,705		695		Positive fair values	542,265		1,301		45,640		2
Negative fair values	Negative fair values	3,777,684		(183,225)		2,903,489		(75,327)		Negative fair values	3,315,775		(105,883)		3,834,062		(165,205)

Interest Rate Swaps used in Cash Flow Hedges										Interest Rate Swaps used in Cash Flow Hedges
Positive fair values										Positive fair values	500,000		235		0		0
Negative fair values										Negative fair values	0		0		0		0
Foreign Exchange Contracts with Customers	Foreign Exchange Contracts with Customers									Foreign Exchange Contracts with Customers
Positive fair values	Positive fair values	2,947		32		3,373		38		Positive fair values	11,672		143		1,121		5
Negative fair values	Negative fair values	5,885		(280)		7,283		(154)		Negative fair values	1,463		(48)		5,963		(275)

Foreign Exchange Contracts with Correspondent Banks	Foreign Exchange Contracts with Correspondent Banks									Foreign Exchange Contracts with Correspondent Banks
Positive fair values	Positive fair values	7,325		340		9,028		192		Positive fair values	5,582		89		6,372		318
Negative fair values	Negative fair values	2,653		(19)		4,976		(45)		Negative fair values	10,942		(145)		1,422		(5)

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


	Amount of Gain (Loss) Recognized in OCI on Derivative		Amount of Gain (Loss) Recognized in OCI Included Component		Amount of Gain or (Loss) Recognized in OCI Excluded Component		Location of Gain or (Loss) Recognized from AOCI into Income	Amount of Gain Reclassified from AOCI into Income		Amount of Gain Reclassified from AOCI into Income Included Component		Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
	(in thousands)
Derivatives in Cash Flow Hedging Relationships:
Three months ended June 30, 2021
Interest Rate Products	$	3,560	$	3,560	$	0	Interest income	$	877	$	877	$	0
Six months ended June 30, 2021
Interest Rate Products	$	1,495	$	1,495	$	0	Interest income	$	1,021	$	1,021	$	0

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




	Consolidated Statements of Income Classification
	Interest Income
	Three months ended		Six months ended
	June 30, 2021		June 30, 2021
	(in thousands)
Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	877	$	1,021
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships	—
Interest contracts:
Amount of gain reclassified from AOCI into income	877		1,021
Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring	—		—
Amount of Gain Reclassified from AOCI into Income - Included Component	877		1,021
Amount of Gain or (Loss) Reclassified from AOCI into Income - Excluded Component	0		0

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


		Consolidated Statements of Income Classification	Three months ended September 30				Nine months ended September 30					Consolidated Statements of Income Classification	Three months ended June 30				Six months ended June 30
			2020		2019		2020		2019				2021		2020		2021		2020
			(in thousands)										(in thousands)
Mortgage banking derivatives (1)	Mortgage banking derivatives (1)	Mortgage banking income	$	1,783	$	843	$	9,527	$	1,457	Mortgage banking derivatives (1)	Mortgage banking income	$	(3,158)	$	6,704	$	(2,362)	$	7,744

Interest rate swaps	Interest rate swaps	Other expense	(12)		51		70		198		Interest rate swaps	Other expense	(104)		10		(208)		82

Foreign exchange contracts	Foreign exchange contracts	Other income	25		10		42		44		Foreign exchange contracts	Other income	(12)		(102)		(4)		17

Net fair value gains on derivative financial instruments	Net fair value gains on derivative financial instruments		$	1,796	$	904	$	9,639	$	1,699	Net fair value gains on derivative financial instruments		$	(3,274)	$	6,612	$	(2,574)	$	7,843

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

Fair Value Option

The Corporation has elected to measure mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements as of the periods shown:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Amortized cost (1)	Amortized cost (1)	$	90,416	$	37,396	Amortized cost (1)	$	40,923	$	80,662
Fair value	Fair value	93,621		37,828		Fair value	41,924		83,886

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

Gains related to changes in fair values of mortgage loans held for sale were ~~$658,000~~$711,000 and ~~$2.8~~$1.4 million for the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2019,~~2021, losses related to changes in fair values of mortgage loans held for sale were ~~$499,000 and $174,000, respectively.~~$2.2 million compared to gains of $2.1 million for the six months ended June 30, 2020.

Balance Sheet Offsetting

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

The Corporation is a party to interest rate swaps with ~~dealer~~financial institution counterparties and customers. Under these agreements, the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. Cash collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the interest rate swap agreements in the event of default. A daily settlement occurs through a clearing agent for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared daily through a clearing agent. As a result, the total fair values of interest rate swap derivative assets and liabilities recognized on the consolidated balance sheet are not equal and offsetting.

The Corporation is also a party to foreign currency exchange contracts with financial institution counterparties, under which the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. As with interest rate swaps, collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the foreign currency exchange contracts in the event of default.

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

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

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


		Gross Amounts		Gross Amounts Not Offset							Gross Amounts		Gross Amounts Not Offset
		Recognized		on the Consolidated							Recognized		on the Consolidated
		on the		Balance Sheets							on the		Balance Sheets
		Consolidated		Financial		Cash		Net			Consolidated		Financial		Cash		Net
		Balance Sheets		Instruments(1)		Collateral (2)		Amount			Balance Sheets		Instruments(1)		Collateral (2)		Amount
		(in thousands)									(in thousands)
September 30, 2020
June 30, 2021										June 30, 2021
Interest rate swap derivative assets										Interest rate swap derivative assets	$	212,106	$	(2,506)	$	0	$	209,600

Foreign exchange derivative assets with correspondent banks										Foreign exchange derivative assets with correspondent banks	89		(89)		0		0
Total										Total	$	212,195	$	(2,595)	$	0	$	209,600

Interest rate swap derivative liabilities										Interest rate swap derivative liabilities	$	107,184	$	(2,506)	$	(103,435)	$	1,243

Foreign exchange derivative liabilities with correspondent banks										Foreign exchange derivative liabilities with correspondent banks	145		(89)		0		56
Total										Total	$	107,329	$	(2,595)	$	(103,435)	$	1,299

December 31, 2020										December 31, 2020
Interest rate swap derivative assets	Interest rate swap derivative assets	$	375,569	$	(2)	$	0	$	375,567	Interest rate swap derivative assets	$	330,951	$	(2)	$	0	$	330,949
Foreign exchange derivative assets with correspondent banks	Foreign exchange derivative assets with correspondent banks	340		(19)		0		321		Foreign exchange derivative assets with correspondent banks	318		(5)		0		313
Total	Total	$	375,909	$	(21)	$	0	$	375,888	Total	$	331,269	$	(7)	$	0	$	331,262

Interest rate swap derivative liabilities	Interest rate swap derivative liabilities	$	183,230	$	(2)	$	(183,228)	$	0	Interest rate swap derivative liabilities	$	165,205	$	(2)	$	(165,203)	$	0
Foreign exchange derivative liabilities with correspondent banks	Foreign exchange derivative liabilities with correspondent banks	19		(19)		0		0		Foreign exchange derivative liabilities with correspondent banks	5		(5)		0		0
Total	Total	$	183,249	$	(21)	$	(183,228)	$	0	Total	$	165,210	$	(7)	$	(165,203)	$	0

December 31, 2019
Interest rate swap derivative assets		$	144,179	$	(757)	$	0	$	143,422
Foreign exchange derivative assets with correspondent banks		192		(45)		0		147
Total		$	144,371	$	(802)	$	0	$	143,569

Interest rate swap derivative liabilities		$	76,022	$	(757)	$	(75,265)	$	0
Foreign exchange derivative liabilities with correspondent banks		45		(45)		0		0
Total		$	76,067	$	(802)	$	(75,265)	$	0

(1)For interest rate swap assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default. For interest rate swap liabilities, amounts represent any derivative asset fair values that could be offset in the event of counterparty or customer default.

(2)Amounts represent cash collateral received from the counterparty or posted by the Corporation on interest rate swap transactions and foreign exchange contracts with financial institution counterparties. Interest rate swaps with customers are collateralized by the same collateral securing the underlying loans to those borrowers. Cash and securities collateral amounts are included in the table only to the extent of the net derivative fair values.

NOTE 7 – Tax Credit Investments

TCIs are primarily for investments promoting qualified affordable housing projects and investments in community development entities. Investments in these projects generate a return primarily through the realization of federal income tax credits and deductions for operating losses over a specified time period.

The TCIs are included in other assets, with any unfunded equity commitments recorded in other liabilities on the consolidated balance sheets. Certain TCIs qualify for the proportional amortization method and are amortized over the period the Corporation expects to receive the tax credits, with the expense included within income taxes on the consolidated statements of income. Other TCIs are accounted for under the equity method of accounting, with amortization included within non-interest expense on the consolidated statements of income. This amortization includes equity in partnership losses and the systematic write-down of investments over the period in which income tax credits are earned. All of the TCIs are evaluated for impairment at the end of each reporting period.

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


			September 30,		December 31,				June 30,		December 31,
			2020		2019				2021		2020
Included in other assets:	Included in other assets:		(in thousands)				Included in other assets:		(in thousands)
Affordable housing tax credit investment, net	Affordable housing tax credit investment, net		$	145,415	$	153,351	Affordable housing tax credit investment, net		$	162,431	$	152,203
Other tax credit investments, net	Other tax credit investments, net		70,379		64,354		Other tax credit investments, net		50,577		59,224
		Total TCIs, net	$	215,794	$	217,705		Total TCIs, net	$	213,008	$	211,427
Included in other liabilities:	Included in other liabilities:						Included in other liabilities:
Unfunded affordable housing tax credit commitments	Unfunded affordable housing tax credit commitments		$	22,591	$	16,684	Unfunded affordable housing tax credit commitments		$	47,354	$	31,562
Other tax credit liabilities	Other tax credit liabilities		60,585		55,105		Other tax credit liabilities		41,217		49,491
		Total unfunded tax credit commitments and liabilities	$	83,176	$	71,789		Total unfunded tax credit commitments and liabilities	$	88,571	$	81,053

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


			Three Months Ended				Nine Months Ended
			September 30				September 30						Three months ended June 30				Six months ended June 30
			2020		2019		2020		2019				2021		2020		2021		2020
Components of income taxes:	Components of income taxes:		(in thousands)								Components of income taxes:		(in thousands)
Affordable housing tax credits and other tax benefits	Affordable housing tax credits and other tax benefits		$	(7,290)	$	(7,852)	$	(21,678)	$	(23,002)	Affordable housing tax credits and other tax benefits		$	(6,543)	$	(7,194)	$	(13,031)	$	(14,388)
Other tax credit investment credits and tax benefits	Other tax credit investment credits and tax benefits		(1,240)		(1,136)		(3,122)		(3,407)		Other tax credit investment credits and tax benefits		(722)		(941)		(1,445)		(1,882)
Amortization of affordable housing investments, net of tax benefit	Amortization of affordable housing investments, net of tax benefit		5,024		5,649		15,071		16,638		Amortization of affordable housing investments, net of tax benefit		4,323		5,023		8,689		10,047
Deferred tax expense	Deferred tax expense		275		238		691		715		Deferred tax expense		160		208		320		416
		Total net reduction in income tax expense	$	(3,231)	$	(3,101)	$	(9,038)	$	(9,056)		Total net reduction in income tax expense	$	(2,782)	$	(2,904)	$	(5,467)	$	(5,807)
Amortization of TCIs:	Amortization of TCIs:										Amortization of TCIs:
Affordable housing tax credits investment	Affordable housing tax credits investment		$	1,021	$	863	$	3,065	$	2,508	Affordable housing tax credits investment		$	1,018	$	1,022	$	2,004	$	2,044
Other tax credit investment amortization	Other tax credit investment amortization		673		670		1,529		2,008		Other tax credit investment amortization		545		428		1,090		856
		Total amortization of TCIs	$	1,694	$	1,533	$	4,594	$	4,516		Total amortization of TCIs	$	1,563	$	1,450	$	3,094	$	2,900

3031

NOTE 8 – Accumulated Other Comprehensive Income (Loss)

The following table presents ~~changes in~~ other comprehensive ~~income:~~income(loss):


		Before-Tax Amount		Tax Effect		Net of Tax Amount			Before-Tax Amount		Tax Effect		Net of Tax Amount
Three months ended September 30, 2020		(in thousands)
Three months ended June 30, 2021								Three months ended June 30, 2021	(in thousands)
Unrealized gain on securities	Unrealized gain on securities	$	5,565	$	(1,232)	$	4,333	Unrealized gain on securities	$	24,968	$	(5,670)	$	19,298

Reclassification adjustment for securities gains included in net income (1)	Reclassification adjustment for securities gains included in net income (1)	(2)		1		(1)		Reclassification adjustment for securities gains included in net income (1)	(36)		8		(28)

Amortization of net unrealized gains on AFS securities transferred to HTM (2)								Amortization of net unrealized gains on AFS securities transferred to HTM (2)	(349)		79		(270)
Net unrealized gain on interest rate swaps used in cash flow hedges (3)								Net unrealized gain on interest rate swaps used in cash flow hedges (3)	2,683		(609)		2,074

Amortization of net unrecognized pension and postretirement items (4)								Amortization of net unrecognized pension and postretirement items (4)	370		(81)		289
Total OCI								Total OCI	$	27,636	$	(6,273)	$	21,363
Three months ended June 30, 2020								Three months ended June 30, 2020
Unrealized gain on securities								Unrealized gain on securities	$	44,199	$	(9,775)	$	34,424

Reclassification adjustment for securities gains included in net income (1)								Reclassification adjustment for securities gains included in net income (1)	(3,005)		664		(2,341)
Amortization of net unrealized losses on AFS securities transferred to HTM (2)								Amortization of net unrealized losses on AFS securities transferred to HTM (2)	1,019		(226)		793

Amortization of net unrecognized pension and postretirement items (4)								Amortization of net unrecognized pension and postretirement items (4)	328		(73)		255
Total OCI								Total OCI	$	42,541	$	(9,410)	$	33,131

Six months ended June 30, 2021								Six months ended June 30, 2021
Unrealized loss on securities								Unrealized loss on securities	$	(26,783)	$	6,082	$	(20,701)

Reclassification adjustment for securities losses included in net income (1)								Reclassification adjustment for securities losses included in net income (1)	451		(102)		349

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

Net unrealized gain on interest rate swaps used in cash flow hedges (3)								Net unrealized gain on interest rate swaps used in cash flow hedges (3)	474		(107)		367
Amortization of net unrecognized pension and postretirement items (3)								Amortization of net unrecognized pension and postretirement items (3)	740		(162)		578
Total OCI								Total OCI	$	(23,155)	$	5,265	$	(17,890)

Six months ended June 30, 2020								Six months ended June 30, 2020
Unrealized gain on securities (4)								Unrealized gain on securities (4)	$	66,581	$	(14,728)	$	51,853
Reclassification adjustment for securities gains included in net income (1)								Reclassification adjustment for securities gains included in net income (1)	(3,051)		675		(2,376)

Amortization of net unrealized losses on AFS securities transferred to HTM (2)	Amortization of net unrealized losses on AFS securities transferred to HTM (2)	1,192		(264)		928		Amortization of net unrealized losses on AFS securities transferred to HTM (2)	2,040		(451)		1,589

Amortization of net unrecognized pension and postretirement items (3)	Amortization of net unrecognized pension and postretirement items (3)	329		(73)		255		Amortization of net unrecognized pension and postretirement items (3)	656		(146)		510
Total Other Comprehensive Income		$	7,083	$	(1,568)	$	5,515
Three months ended September 30, 2019
Unrealized gain on securities (4)		$	23,150	$	(5,121)	$	18,029

Reclassification adjustment for securities gains included in net income (1)		(4,492)		994		(3,498)
Amortization of net unrealized losses on AFS securities transferred to HTM (2)		4,405		(974)		3,430

Amortization of net unrecognized pension and postretirement items (3)		357		(80)		277
Total Other Comprehensive Income		$	23,419	$	(5,181)	$	18,238

Nine months ended September 30, 2020
Unrealized gain on securities		$	72,146	$	(15,960)	$	56,186

Reclassification adjustment for securities gains included in net income (1)		(3,053)		676		(2,377)

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

Amortization of net unrecognized pension and postretirement items (3)		984		(219)		765
Total Other Comprehensive Income		$	73,309	$	(16,218)	$	57,091

Nine months ended September 30, 2019
Unrealized gain on securities (4)		$	81,207	$	(17,963)	$	63,244
Reclassification adjustment for securities gains included in net income (1)		(4,733)		1,047		(3,686)

Amortization of net unrealized losses on AFS securities transferred to HTM (2)		6,966		(1,541)		5,425
Non-credit related unrealized losses on other-than-temporarily impaired debt securities		(875)		193		(682)

Amortization of net unrecognized pension and postretirement items (3)		1,083		(240)		843
Total Other Comprehensive Income		$	83,648	$	(18,504)	$	65,144
Total OCI								Total OCI	$	66,226	$	(14,650)	$	51,576

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

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

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

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

~~(4) Before-Tax amount includes a $3.7 million reclassification of unrealized loss related to the early adoption of ASU 2019-04.~~

3132

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

Unrealized Gains (Losses) on Investment Securities Unrealized Non-Credit Gains (Losses) on Other-Than-Temporarily Impaired Debt Securities Unrecognized Pension and Postretirement Plan Income (Costs) Total
(in thousands)
Three months ended September 30, 2020
Balance at June 30, 2020 $ 65,930 $ 0 $ (14,491) $ 51,439
Other comprehensive income before reclassifications 4,333 0 0 4,333
Amounts reclassified from accumulated other comprehensive income (1) 0 255 254
Amortization of net unrealized losses on AFS securities transferred to HTM 928 0 0 928
Balance at September 30, 2020 $ 71,190 $ 0 $ (14,236) $ 56,954
Three months ended September 30, 2019
Balance at June 30, 2019 $ 2,368 $ (2) $ (14,523) $ (12,157)
Other comprehensive income before reclassifications 18,029 0 0 18,029
Amounts reclassified from accumulated other comprehensive income (loss) (3,498) 0 277 (3,221)
Amortization of net unrealized losses on AFS securities transferred to HTM 3,430 0 0 3,430
Balance at September 30, 2019 $ 20,329 $ (2) $ (14,246) $ 6,081
Nine months ended September 30, 2020
Balance at December 31, 2019 $ 14,864 $ 0 $ (15,001) $ (137)
Other comprehensive income before reclassifications 56,186 0 0 56,186
Amounts reclassified from accumulated other comprehensive income (loss) (2,377) 0 765 (1,612)
Amortization of net unrealized losses on AFS securities transferred to HTM 2,517 0 0 2,517
Balance at September 30, 2020 $ 71,190 $ 0 $ (14,236) $ 56,954
Nine months ended September 30, 2019
Balance at December 31, 2018 $ (44,654) $ 680 $ (15,089) $ (59,063)
Other comprehensive income before reclassifications 63,244 (682) 0 62,562
Amounts reclassified from accumulated other comprehensive income (loss) (3,686) 0 843 (2,843)
Amortization of net unrealized losses on AFS securities transferred to HTM 5,425 0 0 5,425
Balance at September 30, 2019 $ 20,329 $ (2) $ (14,246) $ 6,081


	Unrealized Gains (Losses) on Investment Securities		Net Unrealized (Loss) Gain on Interest Rate Swaps used in Cash Flow Hedges		Unrecognized Pension and Postretirement Plan Income (Costs)		Total
	(in thousands)
Three months ended June 30, 2021
Balance at March 31, 2021	$	43,769	$	(1,707)	$	(16,224)	$	25,838
OCI before reclassifications	19,298		0		0		19,298
Amounts reclassified from AOCI	(28)		2,074		289		2,335
Amortization of net unrealized gains on AFS securities transferred to HTM	(270)		0		0		(270)

Balance at June 30, 2021	$	62,769	$	367	$	(15,935)	$	47,201
Three months ended June 30, 2020
Balance at March 31, 2020	$	33,054	$	0	$	(14,746)	$	18,308
OCI before reclassifications	34,424		0		0		34,424
Amounts reclassified from AOCI	(2,341)		0		255		(2,086)
Amortization of net unrealized losses on AFS securities transferred to HTM	793		0		0		793

Balance at June 30, 2020	$	65,930	$	0	$	(14,491)	$	51,439

Six months ended June 30, 2021
Balance at December 31, 2020	$	81,604	$	0	$	(16,513)	$	65,091
OCI before reclassifications	(20,701)		0		0		(20,701)
Amounts reclassified from AOCI	349		367		578		1,294
Amortization of net unrealized losses on AFS securities transferred to HTM	1,517		0		0		1,517

Balance at June 30, 2021	$	62,769	$	367	$	(15,935)	$	47,201
Six months ended June 30, 2020
Balance at December 31, 2019	$	14,864	$	0	$	(15,001)	$	(137)
OCI before reclassifications	51,853		0		0		51,853
Amounts reclassified from AOCI	(2,376)		0		510		(1,866)
Amortization of net unrealized losses on AFS securities transferred to HTM	1,589		0		0		1,589

Balance at June 30, 2020	$	65,930	$	0	$	(14,491)	$	51,439

NOTE 9 – Fair Value Measurements

FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to measure assets and liabilities at fair value using the following three categories (from highest to lowest priority):

•Level 1 – Inputs that represent quoted prices for identical instruments in active markets.

•Level 2 – Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means.

•Level 3 – Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.

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


		September 30, 2020									June 30, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(in thousands)									(in thousands)
Loans held for sale	Loans held for sale	$	0	$	93,621	$	0	$	93,621	Loans held for sale	$	0	$	41,924	$	0	$	41,924
Available for sale investment securities:	Available for sale investment securities:									Available for sale investment securities:

U.S. Government securities										U.S. Government securities	153,545		0		0		153,545
U.S. Government sponsored agency securities										U.S. Government sponsored agency securities	0		62,431		0		62,431
State and municipal securities	State and municipal securities	0		926,554		0		926,554		State and municipal securities	0		1,055,462		0		1,055,462
Corporate debt securities	Corporate debt securities	0		342,558		0		342,558		Corporate debt securities	0		371,381		0		371,381
Collateralized mortgage obligations	Collateralized mortgage obligations	0		532,473		0		532,473		Collateralized mortgage obligations	0		307,165		0		307,165
Residential mortgage-backed securities	Residential mortgage-backed securities	0		321,695		0		321,695		Residential mortgage-backed securities	0		201,547		0		201,547
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		572,210		0		572,210		Commercial mortgage-backed securities	0		871,010		0		871,010
Auction rate securities	Auction rate securities	0		0		97,990		97,990		Auction rate securities	0		0		74,834		74,834
Total available for sale investment securities	Total available for sale investment securities	0		2,695,490		97,990		2,793,480		Total available for sale investment securities	153,545		2,868,996		74,834		3,097,375
Other assets:	Other assets:									Other assets:
Investments held in Rabbi Trust	Investments held in Rabbi Trust	21,828		0		0		21,828		Investments held in Rabbi Trust	27,142		0		0		27,142
Derivative assets	Derivative assets	372		387,563		0		387,935		Derivative assets	232		215,701		0		215,933
Total assets	Total assets	$	22,200	$	3,176,674	$	97,990	$	3,296,864	Total assets	$	180,919	$	3,126,621	$	74,834	$	3,382,374
Other liabilities:	Other liabilities:									Other liabilities:
Deferred compensation liabilities	Deferred compensation liabilities	$	21,828	$	0	$	0	$	21,828	Deferred compensation liabilities	$	27,142	$	0	$	0	$	27,142
Derivative liabilities	Derivative liabilities	299		184,932		0		185,231		Derivative liabilities	193		107,405		0		107,598
Total liabilities	Total liabilities	$	22,127	$	184,932	$	0	$	207,059	Total liabilities	$	27,335	$	107,405	$	0	$	134,740


	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Loans held for sale	$	0	$	83,886	$	0	$	83,886
Available for sale investment securities:



State and municipal securities	0		952,613		0		952,613
Corporate debt securities	0		367,145		0		367,145
Collateralized mortgage obligations	0		503,766		0		503,766
Residential mortgage-backed securities	0		377,998		0		377,998
Commercial mortgage-backed securities	0		762,415		0		762,415
Auction rate securities	0		0		98,206		98,206
Total available for sale investment securities	0		2,963,937		98,206		3,062,143
Other assets:
Investments held in Rabbi Trust	24,383		0		0		24,383
Derivative assets	323		338,987		0		339,310
Total assets	$	24,706	$	3,386,810	$	98,206	$	3,509,722
Other liabilities:
Deferred compensation liabilities	$	24,383	$	0	$	0	$	24,383
Derivative liabilities	280		167,505		0		167,785
Total liabilities	$	24,663	$	167,505	$	0	$	192,168

3334

December 31, 2019
Level 1 Level 2 Level 3 Total
(in thousands)
Loans held for sale $ 0 $ 37,828 $ 0 $ 37,828
Available for sale investment securities:
State and municipal securities 0 652,927 0 652,927
Corporate debt securities 0 374,957 2,400 377,357
Collateralized mortgage obligations 0 693,718 0 693,718
Residential mortgage-backed securities 0 177,312 0 177,312
Commercial mortgage-backed securities 0 494,297 0 494,297
Auction rate securities 0 0 101,926 101,926
Total available for sale investment securities 0 2,393,211 104,326 2,497,537
Other assets:
Investments held in Rabbi Trust 22,213 0 0 22,213
Derivative assets 230 145,365 0 145,595
Total assets $ 22,443 $ 2,576,404 $ 104,326 $ 2,703,173
Other liabilities:
Deferred compensation liabilities $ 22,213 $ 0 $ 0 $ 22,213
Derivative liabilities 199 76,447 0 76,646
Total liabilities $ 22,412 $ 76,447 $ 0 $ 98,859

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

Loans held for sale – This category includes mortgage loans held for sale that are measured at fair value. Fair values as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were based on the price that secondary market investors were offering for loans with similar characteristics. See "Note 6 - Derivative Financial Instruments" for details related to the Corporation’s election to measure assets and liabilities at fair value.

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

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

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

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

•Corporate debt securities – This category consists of subordinated debt and senior debt issued by financial institutions ($~~338.2~~367.0 million at ~~September~~June 30, ~~2020~~2021 and ~~$362.3~~$362.8 million at December 31, ~~2019), single-issuer trust preferred securities issued by financial institutions ($0 at September 30, 2020 and $11.2 million at December 31, 2019)~~2020) and other corporate debt issued by non-financial institutions ($~~4.4~~4.3 million at ~~September~~June 30, ~~2020~~2021 and ~~$3.9~~$4.4 million at December 31, ~~2019)~~2020). ~~As noted in "Note 3 - Investment Securities", several corporate debt securities were sold in the second quarter of 2020. Refer to the specific note for further information.~~

Level 2 investment securities include the Corporation’s holdings of subordinated debt and senior debt, other corporate debt issued by non-financial institutions and $0 and $8.8 million of single-issuer TruPS held at September 30, 2020 and December 31, 2019, respectively. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above.

Level 3 investment securities include the Corporation’s investments in certain single-issuer TruPS ($0 at September 30, 2020 and $2.4 million at December 31, 2019). The fair values of these securities were determined based on quotes provided by third-party brokers who determined fair values based predominantly on internal valuation models which were not indicative prices or binding offers. The Corporation’s third-party pricing service cannot derive fair values for these securities primarily due to inactive markets for similar investments. Level 3 values are tested by management primarily through trend analysis, by comparing current values to those reported at the end of the preceding calendar quarter, and determining if they are reasonable based on price and spread movements for this asset class.

•Auction rate securities – Due to their illiquidity, ARCs are classified as Level 3 investment securities and are valued through the use of an expected cash flows model prepared by a third-party valuation expert. The assumptions used in preparing the expected cash flows model include estimates for coupon rates, time to maturity and market rates of return. The most significant unobservable input to the expected cash flows model is an assumed return to market liquidity sometime in the next five years. If the assumed return to market liquidity was lengthened beyond the next five years, this would result in a decrease in the fair value of these ARCs. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. Level 3 fair values are tested by management through the performance of a trend analysis of the market price and discount rate. Changes in the price and discount rates are compared to changes in market data, including bond ratings, parity ratios, balances and delinquency levels.

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

Derivative assets – Fair value of foreign currency exchange contracts classified as Level 1 assets ($~~372,000~~232,000 at ~~September~~June 30, ~~2020~~2021 and ~~$230,000~~$323,000 at December 31, ~~2019)~~2020). The mutual funds and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical instruments in active markets.

Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($~~12.0~~3.6 million at ~~September~~June 30, ~~2020~~2021 and ~~$1.2~~$8.0 million at December 31, ~~2019)~~2020) and the fair value of interest rate swaps ($~~375.6~~212.1 million at ~~September~~June 30, ~~2020~~2021 and ~~$144.2~~$331.0 million at December 31, ~~2019)~~2020). The fair values of the Corporation’s interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. See "Note 6 - Derivative Financial Instruments," for additional information.

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

Derivative liabilities – Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($~~299,000~~193,000 at ~~September~~June 30, ~~2020~~2021 and ~~$199,000~~$280,000 at December 31, ~~2019)~~2020).

Level 2 liabilities, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($~~1.7~~221,000 at June 30, 2021 and $2.3 million ~~at September 30, 2020 and $424,000~~ at December 31, ~~2019)~~2020) and the fair value of interest rate swaps ($~~183.2~~107.2 million at ~~September~~June 30, ~~2020~~2021 and ~~$76.0~~$165.2 million at December 31, ~~2019)~~2020).

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

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


		Pooled Trust Preferred Securities		Single-issuer Trust Preferred Securities		ARCs				Single-issuer Trust Preferred Securities		ARCs
Three months ended September 30, 2020		(in thousands)
Balance at June 30, 2020		$	0	$	0	$	100,859
Three months ended June 30, 2021								Three months ended June 30, 2021	(in thousands)
Balance at March 31, 2021								Balance at March 31, 2021		$	0	$	76,204

Unrealized adjustment to fair value (1)								Unrealized adjustment to fair value (1)		0		(1,370)

Balance at June 30, 2021								Balance at June 30, 2021		$	0	$	74,834

Three months ended June 30, 2020								Three months ended June 30, 2020
Balance at March 31, 2020								Balance at March 31, 2020		$	2,160	$	93,666
Sales	Sales	0		0		0		Sales		(2,160)		0

Unrealized adjustment to fair value (1)	Unrealized adjustment to fair value (1)	0		0		(2,869)		Unrealized adjustment to fair value (1)		0		7,193

Balance at September 30, 2020		$	0	$	0	$	97,990
Balance at June 30, 2020								Balance at June 30, 2020		$	0	$	100,859

Three months ended September 30, 2019
Balance at June 30, 2019		$	0	$	2,370	$	103,365

Six months ended June 30, 2021								Six months ended June 30, 2021
Balance at December 31, 2020								Balance at December 31, 2020		$	0	$	98,206
Sales								Sales		0		(24,619)

Unrealized adjustment to fair value (1)	Unrealized adjustment to fair value (1)	0		(2)		(67)		Unrealized adjustment to fair value (1)		0		1,247

Discount accretion		0		2		0
Balance at September 30, 2019		$	0	$	2,370	$	103,298

Nine months ended September 30, 2020
Balance at June 30, 2021								Balance at June 30, 2021		$	0	$	74,834

Six months ended June 30, 2020								Six months ended June 30, 2020
Balance at December 31, 2019	Balance at December 31, 2019	$	0	$	2,400	$	101,926	Balance at December 31, 2019		$	2,400	$	101,926
Sales	Sales	0		(2,160)		0		Sales		(2,160)		0

Unrealized adjustment to fair value (1)	Unrealized adjustment to fair value (1)	0		(242)		(3,936)		Unrealized adjustment to fair value (1)		(242)		(1,067)

Discount accretion	Discount accretion	0		2		0		Discount accretion		2		0
Balance at September 30, 2020		$	0	$	0	$	97,990
Balance at June 30, 2020								Balance at June 30, 2020		$	0	$	100,859

Nine months ended September 30, 2019
Balance at December 31, 2018		$	875	$	2,400	$	102,994
Sales		(770)		0		0

Unrealized adjustment to fair value (1)		(105)		(32)		304

Discount accretion		0		2		0
Balance at September 30, 2019		$	0	$	2,370	$	103,298

(1)Pooled trust preferred securities, single-issuer trust preferred securities and ARCs are classified as available for sale investment securities; as such, the unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of "available for sale at estimated fair value" on the consolidated balance sheets.

Certain assets are not measured at fair value on an ongoing basis, but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment. The following table presents Level 3 financial assets measured at fair value on a nonrecurring basis:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Net Loans		$	113,073	$	144,807
Loans, net						Loans, net	$	129,542	$	116,584
OREO	OREO	4,565		6,831		OREO	2,779		4,178
MSRs (1)	MSRs (1)	29,682		45,193		MSRs (1)	29,462		28,245
Total assets	Total assets	$	147,320	$	196,831	Total assets	$	161,783	$	149,007

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

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

•Net Loans – This category consists of loans that were individually evaluated for impairment and have been classified as Level 3 assets. ~~In 2020, the amount shown is the balance of nonaccrual loans, net of the related ACL. In 2019, the~~

~~amount shown is the balance of impaired loans, net of the related ACL.~~ See "Note 4 - Loans and Allowance for Credit Losses, ~~and Asset Quality,~~" for additional details.

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

•MSRs - This category consists of MSRs, which were initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors, and subsequently carried at the lower of amortized cost or fair value. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans. MSRs are stratified by product type and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined at the end of each quarter through a discounted cash flows valuation performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income, the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted average discount rate used in the ~~September~~June 30, ~~2020~~2021 valuation were ~~17.7%~~17.8% and ~~9.5%~~9.0%, respectively. Management reviews the reasonableness of the significant inputs to the third-party valuation in comparison to market data. See "Note 5 - Mortgage Servicing Rights," for additional information.

In ~~2008,~~2007, the Corporation received ~~Class B restricted shares of~~the Visa Shares in connection with a corporate restructuring undertaken by Visa, Inc. ~~("Visa") as part~~in contemplation of ~~Visa’s~~its initial public offering. These securities ~~are~~were considered equity securities without readily determinable fair values. As such, the approximately 133,000 Visa ~~Class B shares~~Shares owned ~~as of September 30, 2020~~ were carried at a zero cost basis.

During the first quarter of 2021, the Corporation sold all of its Visa Shares and recognized a $34.0 million gain.

The following tables present the carrying amounts and estimated fair values of the Corporation’s financial instruments ~~as of~~for the ~~periods shown.~~current period. A general description of the methods and assumptions used to estimate such fair values follows:


		September 30, 2020											June 30, 2021
				Estimated Fair Value											Estimated Fair Value
		Carrying Amount		Level 1		Level 2		Level 3		Total			Carrying Amount		Level 1		Level 2		Level 3		Total
		(in thousands)											(in thousands)
FINANCIAL ASSETS	FINANCIAL ASSETS											FINANCIAL ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	1,534,890	$	1,534,890	$	0	$	0	$	1,534,890	Cash and cash equivalents	$	1,904,059	$	1,904,059	$	0	$	0	$	1,904,059
FRB and FHLB stock	FRB and FHLB stock	93,964		0		93,964		0		93,964		FRB and FHLB stock	62,631		0		62,631		0		62,631
Loans held for sale	Loans held for sale	93,621		0		93,621		0		93,621		Loans held for sale	41,924		0		41,924		0		41,924
AFS securities	AFS securities	2,793,480		0		2,695,490		97,990		2,793,480		AFS securities	3,097,375		153,545		2,868,996		74,834		3,097,375
HTM securities	HTM securities	304,241		0		324,940		0		324,940		HTM securities	824,283		0		826,932		0		826,932
Net Loans	Net Loans	18,761,796		0		0		18,514,547		18,514,547		Net Loans	18,331,724		0		0		17,963,518		17,963,518
Accrued interest receivable	Accrued interest receivable	70,766		70,766		0		0		70,766		Accrued interest receivable	63,232		63,232		0		0		63,232
Other assets	Other assets	694,442		272,632		387,563		34,247		694,442		Other assets	542,967		295,025		215,701		32,241		542,967
FINANCIAL LIABILITIES	FINANCIAL LIABILITIES											FINANCIAL LIABILITIES
Demand and savings deposits	Demand and savings deposits	$	17,997,443	$	17,997,443	$	0	$	0	$	17,997,443	Demand and savings deposits	$	19,514,090	$	19,514,090	$	0	$	0	$	19,514,090
Brokered deposits	Brokered deposits	317,588		275,719		41,869		0		317,588		Brokered deposits	277,444		257,444		20,830		0		278,274
Time deposits	Time deposits	2,415,020		0		2,442,422		0		2,442,422		Time deposits	1,932,778		0		1,942,321		0		1,942,321
Short-term borrowings	Short-term borrowings	611,727		611,727		0		0		611,727		Short-term borrowings	533,749		533,749		0		0		533,749
Accrued interest payable	Accrued interest payable	9,123		9,123		0		0		9,123		Accrued interest payable	7,322		7,322		0		0		7,322
FHLB advances and long-term debt		1,296,012		0		1,342,192		0		1,342,192
Long-term borrowings												Long-term borrowings	627,213		—		617,167		0��		617,167
Other liabilities	Other liabilities	352,740		152,272		184,935		15,533		352,740		Other liabilities	312,700		190,522		107,405		14,773		312,700

		December 31, 2019
				Estimated Fair Value
		Carrying Amount		Level 1		Level 2		Level 3		Total
		(in thousands)
FINANCIAL ASSETS
Cash and cash equivalents		$	517,791	$	517,791	$	0	$	0	$	517,791
FRB and FHLB stock		97,422		0		97,422		0		97,422
Loans held for sale		37,828		0		37,828		0		37,828
AFS securities		2,497,537		0		2,393,211		104,326		2,497,537
HTM securities		369,841		0		383,705		0		383,705
Net Loans		16,673,904		0		0		16,485,122		16,485,122
Accrued interest receivable		60,898		60,898		0		0		60,898
Other assets		431,565		234,176		145,365		52,024		431,565
FINANCIAL LIABILITIES
Demand and savings deposits		$	14,327,453	$	14,327,453	$	0	$	0	$	14,327,453
Brokered deposits		264,531		223,982		40,549		0		264,531
Time deposits		2,801,930		0		2,828,988		0		2,828,988
Short-term borrowings		883,241		883,241		0		0		883,241
Accrued interest payable		8,834		8,834		0		0		8,834
FHLB advances and long-term debt		881,769		0		878,385		0		878,385
Other liabilities		221,542		142,508		76,447		2,587		221,542

3837


	December 31, 2020
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	1,847,832	$	1,847,832	$	0	$	0	$	1,847,832
FRB and FHLB stock	92,129		0		92,129		0		92,129
Loans held for sale	83,886		0		83,886		0		83,886
AFS securities	3,062,143		0		2,963,937		98,206		3,062,143
HTM securities	278,281		0		296,857		0		296,857
Net Loans	18,623,253		0		0		18,354,532		18,354,532
Accrued interest receivable	72,942		72,942		0		0		72,942
Other assets	650,425		279,015		338,987		32,423		650,425
FINANCIAL LIABILITIES
Demand and savings deposits	$	18,279,358	$	18,279,358	$	0	$	0	$	18,279,358
Brokered deposits	335,185		295,185		41,206		0		336,391
Time deposits	2,224,664		0		2,246,457		0		2,246,457
Short-term borrowings	630,066		630,066		0		0		630,066
Accrued interest payable	10,365		10,365		0		0		10,365
Long-term borrowings	1,296,263		0		1,332,041		0		1,332,041
Other liabilities	338,747		156,869		167,505		14,373		338,747

Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation.

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

The following instruments are predominantly short-term:


Assets						Liabilities
Cash and cash equivalents						Demand and savings deposits
Accrued interest receivable						Short-term borrowings
						Accrued interest payable

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

As of ~~September~~June 30, ~~2020,~~2021, fair values for loans and time deposits were estimated by discounting future cash flows using the current rates, as adjusted for liquidity considerations, at which similar loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values of loans also include estimated credit losses that would be assumed in a market transaction, which represents estimated exit prices.

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

NOTE 10 – Net Income Per Share

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

Diluted net income per share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method. The Corporation’s common stock equivalents consist of outstanding stock options, restricted stock, RSUs, and PSUs. PSUs are required to be included in weighted average diluted shares outstanding if performance measures, as defined in each PSU award agreement, are met as of the end of the period.

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


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2020		2019		2020		2019			2021		2020		2021		2020
Weighted average shares outstanding (basic)	Weighted average shares outstanding (basic)	162,061		165,324		162,416		167,834		Weighted average shares outstanding (basic)	162,785		161,715		162,614		162,582
Impact of common stock equivalents	Impact of common stock equivalents	518		802		667		888		Impact of common stock equivalents	1,073		552		1,124		744
Weighted average shares outstanding (diluted)	Weighted average shares outstanding (diluted)	162,579		166,126		163,083		168,722		Weighted average shares outstanding (diluted)	163,858		162,267		163,738		163,326
Per share:	Per share:									Per share:
Basic	Basic	$	0.38	$	0.38	$	0.78	$	1.06	Basic	$	0.38	$	0.24	$	0.81	$	0.40
Diluted	Diluted	0.38		0.37		0.78		1.06		Diluted	0.38		0.24		0.81		0.40

NOTE 11 – Stock-Based Compensation

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

such awards. Compensation expense for PSUs is also recognized over the period during which employees are required to provide service in exchange for such awards, however, compensation expense may vary based on the expectations for actual performance relative to defined performance measures.

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

Equity awards under the Employee Equity Plan are generally granted annually and become fully vested over or after a three-year vesting period. The vesting period for non-performance-based awards represents the period during which employees are required to provide service in exchange for such awards. Equity awards under the Directors' Plan are generally granted annually and become fully vested after a one-year vesting period. Certain events, as defined in the Employee Equity Plan and the Directors' Plan, result in the acceleration of the vesting of equity awards.

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

As of ~~September~~June 30, ~~2020,~~2021, the Employee Equity Plan had ~~9.3~~8.8 million shares reserved for future grants through 2023, and the Directors’ Plan had approximately ~~180,000~~126,000 shares reserved for future grants through 2029.

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


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Compensation expense	Compensation expense	$	1,875	$	2,110	$	5,403	$	5,458	Compensation expense	$	2,098	$	1,911	$	4,000	$	3,530
Tax benefit	Tax benefit	(397)		(451)		(1,144)		(1,194)		Tax benefit	(457)		(403)		(870)		(747)
Stock-based compensation expense, net of tax benefit	Stock-based compensation expense, net of tax benefit	$	1,478	$	1,659	$	4,259	$	4,264	Stock-based compensation expense, net of tax benefit	$	1,641	$	1,508	$	3,130	$	2,783

NOTE 12 – Employee Benefit Plans

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


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)

Interest cost	Interest cost	$	681	$	813	$	2,043	$	2,443	Interest cost	$	561	$	681	$	1,122	$	1,362
Expected return on plan assets	Expected return on plan assets	(982)		(688)		(2,946)		(2,066)		Expected return on plan assets	(1,011)		(982)		(2,022)		(1,964)
Net amortization and deferral	Net amortization and deferral	465		496		1,395		1,486		Net amortization and deferral	504		465		1,008		930
Net periodic pension cost	Net periodic pension cost	$	164	$	621	$	492	$	1,863	Net periodic pension cost	$	54	$	164	$	108	$	328

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


		Three months ended September 30				Nine months ended September 30					Three months ended June 30				Six months ended June 30
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Interest cost	Interest cost	$	11	$	15	$	33	$	45	Interest cost	$	8	$	11	$	16	$	22

Net accretion and deferral	Net accretion and deferral	(137)		(139)		(411)		(417)		Net accretion and deferral	(134)		(137)		(268)		(274)
Net periodic benefit	Net periodic benefit	$	(126)	$	(124)	$	(378)	$	(372)	Net periodic benefit	$	(126)	$	(126)	$	(252)	$	(252)

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

NOTE 13 – Commitments and Contingencies

Commitments

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

Those financial instruments include commitments to extend credit and letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized on the Corporation’s consolidated balance sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the outstanding amount of those instruments.

The ~~outstanding amounts of commitments to extend credit and letters of credit were as follows:~~

September 30,
2020 December 31, 2019
(in thousands)
Commitments to extend credit $ 8,325,169 $ 6,689,519
Standby letters of credit 294,429 303,020
Commercial letters of credit 54,112 50,432

~~The~~ Corporation records a reserve for unfunded lending commitments, included in ACL - OBS credit exposures, which represents management’s estimate of credit losses associated with unused commitments to extend credit and letters of credit. As of June 30, 2021 and December 31, 2020, the ACL - OBS credit exposures for unfunded lending commitments was $10.1 million and $9.1 million, respectively. See "Note 4 - Loans and Allowance for Credit Losses, ~~and Asset Quality,~~" for additional details.

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


	June 30, 2021		December 31, 2020
	(in thousands)
Commitments to extend credit	$	9,003,425	$	8,651,055
Standby letters of credit	314,921		298,750
Commercial letters of credit	56,862		56,229

Residential Lending

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

The Corporation maintains a reserve for estimated losses related to loans sold to ~~investors.~~investors in other liabilities. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the total reserve for losses on residential mortgage loans sold was ~~$1.1~~$1.3 million and ~~$3.2~~$1.1 million, respectively, including reserves for both representation and warranty and credit loss exposures. ~~With the adoption~~In addition, a component of CECL on January 1, 2020 the reserve for estimated losses on certain residential mortgage loans sold to investors was reclassified to ACL - OBS credit exposures. This reclassification resulted in a $2.1 million increase to ACL - OBS credit exposures of $4.7 million and ~~a corresponding decrease to the reserve for estimated losses~~$5.3 million, as of June 30, 2021 and December 31, 2020, respectively, related to ~~loans sold to investors in the first quarter of 2020.~~additional credit exposures for potential loan repurchases.

Legal Proceedings

~~Legal Proceedings~~

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

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

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

~~SEC Investigation~~

As disclosed in the Corporation’s Current Report on Form 8-K filed with the SEC on September 28, 2020, on September 28, 2020, the SEC announced that it has accepted an Offer of Settlement submitted by the Corporation to resolve the previously disclosed investigation by the staff of the Division of Enforcement of the SEC regarding certain accounting determinations that could have impacted the Corporation’s reported earnings per share. Under the settlement, without admitting or denying the SEC’s findings in this matter, the Corporation consented to the entry of an administrative civil cease-and-desist order by the SEC with respect to certain violations of the federal securities laws in the fourth quarter of 2016 through the second quarter of 2017, and the payment of a civil monetary penalty of $1.5 million.

Kress v. Fulton Bank, N.A.

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

for a period of three years, liquidated damages and attorney fees and costs; (ii) the New Jersey State Wage and Hour Law and seeks back overtime wages for a period of six years, treble damages and attorney fees and costs; and (iii) the New Jersey Wage Payment Law and seeks back wages for a period of six years, treble damages and attorney fees and costs. The lawsuit also asserts New Jersey common law claims seeking compensatory damages and interest. ~~Following the submission of a formal demand for damages by Counsel~~The Corporation and counsel representing plaintiffs ("Plaintiffs’ Counsel"), the Corporation and Plaintiffs’ Counsel engaged in negotiations regarding the potential settlement of this lawsuit on a collective and class basis. While the negotiations are ongoing, the Corporation and Plaintiffs’ Counsel have reached and executed a ~~tentative agreement with respect to the financial terms of a potential settlement~~formal Settlement Agreement to resolve this lawsuit. If Plaintiffs’ Counsel has filed a Motion for Preliminary Approval of Class and Collective Settlement and Provisional Certification of Settlement Class and Collective ("the ~~parties are able to reach a formal settlement agreement, that settlement agreement would be subject to approval by~~Motion") with the U.S. District Court for the District of New ~~Jersey.~~Jersey ("the Court"). The Corporation is not able to provide any assurance that ~~a formal settlement agreement~~the Court will grant the Motion. If the Court does grant the Motion, the Settlement Agreement will be ~~reached, or that~~administered according to its terms and thereafter subject to final approval by the ~~District Court will approve the settlement agreement.~~Court. The financial terms of the ~~potential settlement involve an amount that is~~Settlement Agreement are not expected to be material to the Corporation. The Corporation established an accrued liability during the third quarter of 2020 for the ~~amount of~~costs expected to be incurred in connection with the ~~potential settlement.~~Settlement Agreement.

NOTE 14 – Long-Term Borrowings

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

~~NOTE 14 – Long-Term Debt~~

In March 2020, the Corporation issued $200.0 million and $175.0 million of subordinated notes due in 2030 and 2035, respectively. The subordinated notes maturing in 2030 were issued with a fixed-to-floating rate of 3.25% and an effective rate of 3.35%, due to issuance costs, and the subordinated notes maturing in 2035 were issued with a fixed-to-floating rate of 3.75% and an effective rate of 3.85%, due to issuance costs.

~~NOTE 15 – Subsequent Event~~

On October 29, 2020 the Corporation issued 8,000,000 depositary shares ("Depositary Shares"), each representing a 1/40th interest in a share of Fulton’s 5.125% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, with a liquidation preference of $1,000 per share (equivalent to $25.00 per Depositary Share), for an aggregate offering amount of $200 million. The Corporation received net proceeds from the offering of $193.7 million, after deducting underwriting discounts and commissions and before deducting transaction expenses payable by the Corporation.

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 ~~and lease~~ 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 leases~~ 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 ~~N.A.~~ 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 theBSA, 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 ~~achieve~~implement, from time to time, measures intended to manage growth in non-interest expenses and improve the ~~expected cost savings, and the timing of such savings, associated with the Corporation’s recently announced plans to consolidate certain~~efficiency of its ~~financial service offices~~operations and ~~implement other cost-saving measures;~~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, including the Corporation’s adoption of ASU 2016-13, Financial Instruments – Credit Losses (CECL);~~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, ~~2019,~~2020, Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020~~2021 and elsewhere in this Report, including in Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements and in Item 1A. "Risk Factors".

4544

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:

Three months ended September 30 Nine months ended September 30
2020 2019 2020 2019
Net income (in thousands) $61,607 $62,108 $127,213 $178,550
Diluted net income per share $0.38 $0.37 $0.78 $1.06
Return on average assets 0.97% 1.15% 0.71% 1.13%
Return on average shareholders' equity 10.32% 10.64% 7.26% 10.41%
Return on average tangible shareholders' equity (1)
13.50% 14.03% 9.44% 13.64%
Net interest margin (2)
2.70% 3.31% 2.90% 3.41%
Efficiency ratio (1)
62.3% 63.6% 64.4% 63.9%
Non-performing assets to total assets 0.57% 0.66% 0.57% 0.66%
Annualized net (recoveries) charge-offs to average loans (0.05)% 0.15% 0.10% 0.07%


	Three months ended June 30		Six months ended June 30
	2021	2020	2021	2020


Net income available to common shareholders (in thousands)	$62,402	$39,559	$132,874	$65,606
Diluted net income available to common shareholders per share	$0.38	$0.24	$0.81	$0.40
Return on average assets, annualized	1.00%	0.66%	1.07%	0.57%
Return on average common shareholders' equity, annualized	9.38%	6.89%	10.10%	5.68%
Return on average common shareholders' equity (tangible), annualized (1)	12.93%	8.99%	13.95%	7.40%
Net interest margin (2)	2.73%	2.81%	2.76%	3.01%
Efficiency ratio (1)	63.8%	66.4%	63.4%	65.4%
Non-performing assets to total assets	0.60%	0.59%	0.60%	0.60%
Annualized net charge-offs to average loans	0.15%	0.09%	0.14%	0.17%

(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 ~~the~~ first quarter of 2020, the COVID-19 pandemic has caused substantial ~~disruption~~disruptions in economic and social activity, both globally and in the United States. The spread of COVID-19, and ~~the~~ related ~~government~~governmental actions to mandate or encourage temporary closures of businesses, quarantines, social distancing, "stay at home" orders and other restrictions on in-person operations ~~activities,~~ and ~~operations,~~activities, have caused severe disruptions in the U.S. economy, which, ~~has,~~ in turn, disrupted ~~and will likely continue to disrupt~~ the business, activities, and operations of the ~~Company's~~Corporation’s customers, as well as the ~~Company's~~Corporation’s own business and operations. The resulting impacts of ~~COVID-19~~the pandemic on consumers, including ~~the sudden, significant increase~~elevated levels of unemployment and changes in ~~the unemployment rate, has caused~~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 ~~Company~~Corporation offers, as well as the creditworthiness of ~~current~~its borrowers.

While economic activity has rebounded as much of the national economy has “reopened,” there is still significant uncertainty concerning the breadth and ~~prospective borrowers. The significant decrease in commercial activity~~duration of business disruptions related to the COVID-19 pandemic, as well as their impact on the U.S. economy and ~~disruptions in supply chains associated with~~ the ~~pandemic, both nationally and in the Company’s markets, may cause~~Corporation’s customers, vendors and ~~counterparties~~counterparties. The extent to which the pandemic impacts the Corporation’s results will depend on future developments, which are highly uncertain and cannot be ~~unable~~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 ~~meet existing payment or other obligations~~respond to any such future developments. Moreover, although multiple COVID-19 vaccines have received regulatory approval and are currently being distributed, it is too early to know how quickly and broadly these vaccines can be distributed and will be accepted and how effective they will be in mitigating the ~~Company.~~adverse social and economic effects of the COVID-19 pandemic.

The ~~Company expects~~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, ~~to limit,~~the Corporation adjusted service models at ~~least for a period~~certain of time, customer demand for many banking products and services. Many companies and residents in the Company's market areas were subject to mandatory "non-essential business" shut-downs and stay at home orders, which reduced banking activity across its ~~market areas. In response to these mandates, the Company temporarily limited most~~financial center locations, including limiting some locations to drive-up and ATM services ~~with~~only, offering lobby access ~~available~~ by

appointment only, ~~reduced hours of operation at some locations, temporarily closed some locations~~ and ~~encouraged~~encouraging the ~~Company’s~~Corporation’s customers to use electronic banking platforms. ~~In addition, a significant portion of the Company’s employees have transitioned to working remotely as a result of COVID-19.~~

As the COVID-19 pandemic began to subside within the Company’s markets and governmental restrictions began to be lifted or eased, the Company adopted a phased approach to restoring regular lobby access at most of its locations and returning employees currently working remotely to the Company’s offices. The timing and scope of these processes are adaptable to respond to changes in the evolution of COVID-19 and governmental restrictions and recommendations, and include the addition of new physical and procedural safeguards designed to protect the health and safety of the Company’s employees and

~~customers and comply with governmental requirements and recommendations.~~ Approximately 25% of the ~~Company’s~~Corporation’s locations are expected to provide lobby access by appointment only on a long-term basis.

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. The Corporation has announced plans for the majority of its employees currently working remotely to return to onsite or hybrid onsite-remote working arrangements late in the third quarter of 2021.

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 ~~continue to~~ adversely affect the ~~Company's~~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 ~~who~~that meet ~~the necessary~~ eligibility requirements in order to keep their workers on the ~~payroll. As~~payroll and fund specified operating expenses. Subsequent legislation extended the authority of ~~September 30,~~the SBA to guaranty loans under the PPP through August 8, 2020. In December 2020, the ~~Company funded approximately 10,000~~Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act reauthorized the SBA to guarantee loans ~~totaling $2.0 billion~~ 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 June 30, 2021, the Corporation funded a total of approximately $2.7 billion of loans under the PPP. Through June 30, 2021, a total of $1.6 billion of those PPP loans have qualified for loan forgiveness and have been repaid by the SBA.

~~Stimulus~~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.~~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 ~~Company,~~Corporation, either of which could require the ~~Company~~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 ~~Company’s~~Corporation’s financial results is evolving and uncertain. The ~~Company~~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 ~~began~~continue to exhibit signs of recovery, ~~during the third quarter of 2020,~~ 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 ~~Company’s~~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 ~~Company’s~~Corporation’s net interest income, non-interest income and credit-related losses for an uncertain period of time. As a result, the Company has taken steps to maintain liquidity and conserve capital during this period of uncertainty. The Company has been holding excess cash reserves since the middle of March, has additional liquidity available through borrowing arrangements and other sources and has suspended its share repurchase program until there is more clarity surrounding the economic conditions. See additional discussion in "Results of Operations" and "Financial Condition" of Management's Discussion.

~~Adoption of CECL~~

The Corporation adopted CECL effective January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost, and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Corporation recorded an increase of $58.3 million to the ACL on January 1, 2020 primarily as a result of the adoption of CECL. Retained earnings decreased $43.8 million and deferred tax assets increased by $12.4 million on January 1, 2020, representing the cumulative effect of adoption.Financial Highlights

~~Summary~~Following is a summary of ~~Financial Results~~the financial highlights for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021:

•Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was ~~$61.6 million and $127.2~~$62.4 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020, respectively. For the three months ended September 30, 2020, net income decreased $500,000~~2021, a $22.8 million increase compared to $39.6 million for the same period ~~in 2019.~~of 2020. Diluted net income per share was $0.38, a ~~$0.01, or 2.7%,~~$0.14 increase compared to the same period in ~~2019.~~2020. The increase in ~~diluted~~net income during the second quarter of 2021 was primarily a result of a negative provision for credit losses, an increase in net interest income and lower non-interest expenses, partially offset by lower non-interest income, net investment securities gains, higher income taxes and the preferred stock dividend as discussed below.

Net income available to common shareholders was $132.9 million for the six months ended June 30, 2021, a $67.3 million increase compared to $65.6 million for the same period of 2020. Diluted net income per share was ~~the result of lower weighted average diluted shares outstanding for the three months ended September 30, 2020~~$0.81, a $0.41 increase compared to the same period in 2019. Net income for the nine months ended September 30, 2020 decreased $51.3 million, or 28.8%, compared to the same period in 2019, and diluted net income per share was $0.78, a $0.28, or 26.4%, decrease compared to the same period in 2019.2020. The ~~decreases~~increase in net income ~~for both periods were~~during thesix months ended June 30, 2021was primarily a result of ~~lower net interest income, and~~ a ~~higher~~negative provision for credit losses, ~~as a result of the adoption of CECL~~an increase in net interest income, non-

interest income, and ~~deteriorating economic assumptions resulting from COVID-19,~~net investment securities gains, partially offset by higher non-interest expenses, higher income taxes and ~~lower non-interest expense.~~the preferred stock dividend as discussed below.

•Net Interest Income- Net interest income ~~decreased $7.1~~increased $9.6 million, or ~~4.4%, and $21.5 million, or 4.4%~~6.3%, for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020,~~2021 and increased $13.0 million, or 4.3% for the six months ended June 30, 2021 compared to the same periods in 2020. The increases resulted from 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 decreased 8 bp and 25 bp for the three and six months ended June 30, 2021, respectively compared to the same periods in 2019. The decreases resulted from lower yields on interest-earning assets, partially offset by balance sheet growth and the impact of lower funding costs. Overall, the net interest margin decreased 61 bp and 51 bp for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.2020.

◦Net Interest Margin - For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the decreases in the net interest margin ~~reflect~~reflected the net impact of ~~a 112~~35 bp and ~~a 88~~58 bp, ~~decrease~~respectively, decreases in yields on interest-earning assets, ~~respectively,~~ partially offset by ~~a 55~~28 bp and 3935 bp, ~~decrease~~respectively, decreases in the cost of ~~funds, respectively.~~funds.

◦Loan Growth - Average Net Loans grew by ~~$2.4~~$574.8 million, or 3.1%, and $1.3 billion, or ~~14.9%, and $1.7 billion, or 10.5%~~7.7%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019.~~2020. The increases were driven largely by the issuance of PPP loans and growth in the real estate commercial and residential mortgage portfolios.

◦Deposit Growth - Average deposits grew ~~$3.4~~$2.5 billion, or ~~20.3%~~12.9%, and ~~$2.4~~$3.2 billion, or ~~14.5%~~17.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively compared to the same periods in ~~2019.~~2020. The increases were driven by growth in all deposit categories except time deposits. The increases in average total demand and savings accounts were driven by ~~the funding of various government stimulus programs, which largely remained in~~strong customer ~~deposit accounts during the second and third quarters as well as seasonal increases in municipal accounts.~~liquidity.

•~~Long-term Debt~~Provision for Credit Losses - ~~- In~~The provision for credit losses was a negative $3.5 million and a negative $9.0 million for the three and six months ended June 30, 2021, respectively, decreases of $23.1 million and $72.6 million, respectively, from the same periods of 2020. As of June 30, 2021, improved economic forecasts and other factors compared to those as of both March 31, 2021, for the three months ended June 30, 2021, and December 31, 2020, for the ~~Corporation issued a total~~six months ended June 30, 2021, reduced the level of ~~$375.0 million~~the ACL determined to be necessary at the end of ~~subordinated notes, with $200.0 million~~the second quarter of ~~subordinated notes due~~2021. The higher provision for credit losses in ~~2030 having a fixed-to-floating rate~~the first half of ~~3.25% and an effective rate~~2020 was primarily driven by the assessment of ~~3.35% and $175.0 million~~the initial estimated impacts of ~~subordinated notes due~~COVID-19, as reflected in ~~2035 having a fixed-to-floating rate~~economic forecasts, on the level of ~~3.75% and an effective rate of 3.85%.~~expected credit losses.

•Asset Quality - Non-performing assets ~~decreased $1.3~~increased $5.2 million, or 3.4%, as of ~~September~~June 30, ~~2020~~2021 compared to December 31, ~~2019.~~2020, and were 0.60% and 0.58% of total assets, respectively, as of those dates. Annualized net ~~recoveries~~charge-offs to average loans outstanding were ~~0.05%~~0.15% for the three months ended ~~September~~June 30, 2021 compared to 0.09% for the same period in 2020. For the six months ended June 30, 2021 and 2020, ~~and~~ annualized net charge-offs to average loans outstanding were ~~0.10% for~~0.14% and 0.17%, respectively.

•Balance Sheet Restructuring - During the ~~nine months ended September 30, 2020, compared to net charge-offs~~first quarter of ~~0.15% and 0.07% for~~2021, the ~~same periods in 2019, respectively. The provisions for credit~~Corporation completed a balance sheet restructuring that included a $34.0 million gain on sale of Visa Shares, offset by other securities losses ~~for the three and nine months ended September 30, 2020 were $7.1~~of $400,000, debt extinguishment costs of $32.6 million and ~~$70.7 million, respectively, compared to $2.2 million~~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 $12.3 million, respectively, for the same periods in 2019. The higher provision during the first nine months of 2020 was largely driven by the overall downturn in economic forecasts due to COVID-19, resulting in higher expected future credit losses under CECL. Qualitative adjustments used in determining the ACL increased compared to those at the time of adoption of CECL on January 1, 2020 primarily as a result of uncertainties related to forecasted economic variables due to the economic impact of COVID-19subordinated notes and the ~~future performance~~prepayment of ~~loans that received deferrals or forbearances due~~certain term FHLB advances. See Note 14, "Long-Term Debt," in the Notes to ~~COVID-19.~~Consolidated Financial Statements for further details on the tender of certain outstanding senior and subordinated notes.

•Non-interest Income - For the three ~~and nine~~ months ended ~~September~~June 30, ~~2020,~~2021, non-interest income, excluding net investment securities gains, ~~increased $7.9~~decreased $1.1 million, or ~~14.3%~~2.0%, ~~and $14.6 million, or 9.4%, respectively,~~ as compared to the same ~~periods~~period in ~~2019.~~2020. The ~~increase during~~decrease in the ~~three months ended September 30, 2020,~~2021 period was primarily the result of mortgage banking income, which ~~increased $10.1~~decreased $7.1 million, driven by ~~an increase~~a reduction in ~~gains on sales~~gain-on-sale spreads of ~~mortgage loans, partially offset by~~mortgages sold as well as a ~~$1.5~~$2.2 million ~~increase~~addition to the valuation allowance for MSRs. ~~In addition~~Partially offsetting this decrease were wealth management fees, which increased ~~$1.0~~$4.2 million, or 31.5%, resulting from an increase in client asset levels and overall market ~~performance.~~ performance, and higher. commercial and consumer banking revenues.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020, mortgage banking~~2021, non-interest income, excluding net investment securities gains, increased ~~$15.0~~$6.3 million, ~~net of a $9.2 million increase~~or 5.8%, as compared to the ~~valuation allowance for MSRs. Increases were also experienced~~same period in 2020. The increase in the 2021 period was primarily the result of wealth management fees, which increased $6.5 million, or 22.9%, resulting from an increase in client asset levels and overall market performance, consumer banking revenues and mortgage banking income, partially offset by lower commercial ~~banking.~~banking income, driven primarily by a decrease in capital markets income, consisting primarily of fees earned on commercial loan interest rate swaps.

•Non-interest Expense - Non-interest expense decreased ~~$7.6~~$2.2 million, or ~~5.2%, and $4.1 million, or 0.9%~~1.5%, for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020, respectively, in comparison~~2021 compared to the same ~~periods~~period in ~~2019.~~2020. The decrease during the ~~three months ended September 30, 2020~~quarter was ~~primarily the result of~~largely driven by lower outside services, marketing and professional fees, partially offset by higher FDIC insurance and salaries and employee benefits. During 2019 in connection with the consolidation of the Corporation's subsidiary banks into Fulton Bank ("Charter Consolidation"), expenses, primarily outside services, totaling $5.2 million and $11.7 million were incurred for the three and nine months ended September 30, 2019, respectively. In addition during the third quarter of 2019, the Corporation recorded $4.3 million of prepayment penalties on certain FHLB advances in conjunction with a balance sheet restructuring. The decrease during the nine months ended September 30, 2020 was primarily the result of decreases in outside services and marketing, and lower prepayment penalties on FHLB advances, partially offset by higher salaries and employee benefits ~~increases~~and lower debt extinguishment costs. In the second quarter of 2020, the Corporation redeemed long-term FHLB advances, which resulted in prepayment penalties of $2.9 million. Increases were recognized in data processing and software expenses and state taxes.

AsNon-interest expense increased $33.7 million, or 11.8%, for the six months ended June 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 second quarter of 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 ~~result of a recent~~ strategic operating expense review, ~~announced~~which resulted in ~~October of 2020, the Corporation is undertaking~~ a number of cost-saving initiatives that ~~are~~were expected to result in annual expense savings of $25 ~~million.~~million, these expense reductions were fully realized 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 ~~expects to reinvest~~has been reinvesting a portion of the cost savings to accelerate digital transformation initiatives. It is expected that the cost savings will not be fully realized until mid-2021. In addition, it is expected that a pre-tax charge within the range of $17 to $19 million will be realized for this initiative for employee severance, fixed asset write-offs

and lease termination charges, among others. Of this charge, $800,000 for severance expense in connection with the closure and consolidation of 21 financial centers expected to be completed in early 2021 was incurred in the third quarter of 2020, $16 to $17 million is expected to be incurred in the fourth quarter of 2020, with the remaining charges of up to approximately $1 million being recognized in the first quarter of 2021.

•Income Taxes - Income ~~taxes were $9.5~~tax expense for the three months ended June 30, 2021 was $12.0 million, ~~and $18.8~~a $5.5 million increase from $6.5 million for the same period in 2020. The Corporation’s ETR was 15.6% for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020, respectively, resulting in ETRs of 13.4% and 12.9%, respectively, as~~2021, compared to ~~13.9% and 14.5%~~14.2% in the same period of 2020. Income tax expense for the six months ended June 30, 2021 was $25.9 million, a $16.6 million increase from $9.3 million for the same ~~periods~~period in ~~2019, respectively.~~2020. The Corporation’s ETR was ~~lower mainly due~~15.8% for the six months ended June 30, 2021, compared to ~~lower~~12.4% in the same period of 2020. The increase in income tax expense primarily resulted from an increase in income before ~~income taxes.~~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.

4948

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.~~operations and financial condition. Presentation of these non-GAAP financial measures is consistent with how the Corporation evaluates its performance internally, and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of the Corporation and companies in the Corporation's industry. Management believes that these non-GAAP financial measures, in addition to GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors should recognize that the Corporation's presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures at other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures, and the Corporation strongly encourages a review of its consolidated financial statements in their entirety. Following are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure:


		Three months ended September 30						Nine months ended September 30							Three months ended June 30						Six months ended June 30
		2020			2019			2020			2019				2021			2020			2021			2020
		(dollars in thousands)													(dollars in thousands)
Return on average tangible shareholders' equity
Net income		$	61,607		$	62,108		$	127,213		$	178,550
Return on average common shareholders' equity (tangible)														Return on average common shareholders' equity (tangible)
Net income available to common shareholders														Net income available to common shareholders	$	62,402		$	39,558		$	132,874		$	65,606
Plus: Intangible amortization, net of tax	Plus: Intangible amortization, net of tax	103			846			312			1,016			Plus: Intangible amortization, net of tax	140			104			230			208
Numerator	Numerator	$	61,711		$	62,954		$	127,525		$	179,566		Numerator	$	62,542		$	39,662		$	133,104		$	65,814

Average common shareholders' equity	Average common shareholders' equity	$	2,374,091		$	2,315,585		$	2,340,204		$	2,294,165		Average common shareholders' equity	$	2,669,413		$	2,309,133		$	2,653,345		$	2,323,074
Less: Average goodwill and intangible assets	Less: Average goodwill and intangible assets	(534,971)			(535,184)			(535,103)			(534,097)			Less: Average goodwill and intangible assets	(536,470)			(535,103)			(536,536)			(535,169)
Less: Average preferred stock														Less: Average preferred stock	(192,878)			—			(192,878)			—
Denominator	Denominator	$	1,839,120		$	1,780,401		$	1,805,101		$	1,760,068		Denominator	$	1,940,065		$	1,774,030		$	1,923,931		$	1,787,905

Return on average tangible shareholders' equity, annualized		13.50		%	14.03		%	9.44		%	13.64		%
Return on average common shareholders' equity (tangible), annualized														Return on average common shareholders' equity (tangible), annualized	12.93		%	8.99		%	13.95		%	7.40		%

Efficiency ratio	Efficiency ratio													Efficiency ratio
Non-interest expense	Non-interest expense	$	139,147		$	146,770		$	424,705		$	428,762		Non-interest expense	$	140,831		$	143,006		$	319,215		$	285,558
Less: Prepayment penalty on FHLB advances		—			(4,326)			(2,878)			(4,326)
Less: Debt extinguishment cost														Less: Debt extinguishment cost	(412)			(2,878)			(32,575)			(2,878)
Less: Amortization of tax credit investments	Less: Amortization of tax credit investments	(1,694)			(1,533)			(4,594)			(4,516)			Less: Amortization of tax credit investments	(1,563)			(1,450)			(3,094)			(2,900)
Less: Intangible amortization	Less: Intangible amortization	(132)			(1,071)			(397)			(1,285)			Less: Intangible amortization	(178)			(132)			(293)			(264)
Numerator	Numerator	$	137,321		$	139,840		$	416,836		$	418,635		Numerator	$	138,678		$	138,546		$	283,253		$	279,516

Net interest income (FTE) (1)		$	157,106		$	164,517		$	476,931		$	498,877
Net interest income														Net interest income	$	162,399		$	152,754		$	326,847		$	313,500
Tax equivalent adjustment (1)														Tax equivalent adjustment (1)	3,018			3,100			5,998			6,325
Plus: Total non-interest income	Plus: Total non-interest income	63,248			59,813			173,814			160,879			Plus: Total non-interest income	51,890			55,922			147,287			110,565
Less: Investment securities gains, net	Less: Investment securities gains, net	(2)			(4,492)			(3,053)			(4,733)			Less: Investment securities gains, net	(36)			(3,005)			(33,511)			(3,051)
Denominator	Denominator	$	220,353		$	219,838		$	647,692		$	655,023		Denominator	$	217,271		$	208,771		$	446,621		$	427,339

Efficiency ratio	Efficiency ratio	62.3		%	63.6		%	64.4		%	63.9		%	Efficiency ratio	63.8		%	66.4		%	63.4		%	65.4		%

(1) ~~Presented on a FTE basis,~~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.

~~CRITICAL ACCOUNTING POLICIES~~

~~The Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 includes a summary of critical accounting policies that the Corporation considers to be most important~~ to the presentation of its financial condition and results of operations, because they require management’s most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.

~~The following discussion addresses the critical accounting policies related to the application of CECL, which was adopted on January 1, 2020.~~

~~ALLOWANCE FOR CREDIT LOSSES~~

The Corporation adopted new accounting guidance for estimating credit losses, known as CECL, in the first quarter of 2020. In accordance with CECL, the ACL, which includes both the ACL - loans and the ACL - OBS credit exposures, is calculated with the objective of maintaining a reserve for CECL over the remaining expected life of the portfolio. Management's determination of the appropriateness of the reserve is based on periodic evaluations of the loan portfolio, lending-related commitments, current as well as forecasted economic factors and other relevant factors.

In determining the ACL, the Corporation uses three independent components. These components are PD, which measures the likelihood that a borrower will be unable to meet its debt obligations, LGD, which measures the share of an asset that is lost if a borrower defaults, and EAD which measures the gross exposure under a facility upon default. The PD models were developed based on historical default data. Both internal variables and external variables are evaluated in the process. The main internal variables are risk rating (commercial loans) or delinquency history (consumer loans) and the external variables are economic variables obtained from external forecasts. Management applies risk rating transition matrices to pools of loans and lending-related commitments with similar risk characteristics to determine default probabilities, calibrates using economic forecasts, applies modeled LGD results to associated EAD and incorporates modeled overlays and qualitative adjustments to estimate ACL. As such, the calculation of ACL is inherently subjective and requires management to exercise significant judgment.

The ACL is estimated over a reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with PD rates. As economic variables revert to long-term averages through the forecast process, externally developed long-term economic forecasts are used to establish the impacts of the economic scenario, reversion, and long-term averages in the development of losses over the expected life of the assets being modeled. The CECL estimate is highly sensitive to the economic forecasts used to develop the estimate. Due to the high level of uncertainty regarding significant assumptions, such as the ultimate impact of COVID-19 and effectiveness of the related government response, since the beginning of 2020 the Corporation has evaluated a range of economic scenarios, including more and less severe economic deteriorations, with varying speeds of recovery.

The ACL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. Qualitative adjustments include and consider changes in international, national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality. Qualitative adjustments have increased compared to those at the time of adoption of CECL on January 1, 2020 primarily as a result of uncertainties related to forecasted economic variables due to the economic impact of COVID-19 and the future performance of loans that received deferrals or forbearances due to COVID-19.

For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Basis of Presentation" to the Consolidated Financial Statements. To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods.

5149

Three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020

Net Interest Income

FTE net interest income ~~decreased $7.4~~increased $9.6 million, to ~~$157.1~~$165.4 million, for the three months ended ~~September~~June 30, ~~2020,~~2021, from ~~$164.5~~$155.9 million in the same period in ~~2019.~~2020. The NIM decreased 618 bp, or ~~18.4%~~2.8%, to ~~2.70%~~2.73%, compared to ~~3.31%~~2.81% for the same period in ~~2019.~~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													Three months ended June 30
		2020						2019							2021						2020
		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
ASSETS	ASSETS	(dollars in thousands)												ASSETS	(dollars in thousands)
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Net Loans (1)	Net Loans (1)	$	18,880,519	$	160,344	3.38	%	$	16,436,507	$	188,280	4.55	%	Net Loans (1)	$	18,906,556	$	156,525	3.32	%	$	18,331,797	$	160,613	3.52	%
Taxable investment securities (2)	Taxable investment securities (2)	2,011,893		13,150		2.61		2,282,292		15,565		2.73		Taxable investment securities (2)	2,630,090		13,898		1.93		2,200,870		15,171		2.76
Tax-exempt investment securities (2)	Tax-exempt investment securities (2)	861,764		6,899		3.19		516,907		4,650		3.57		Tax-exempt investment securities (2)	961,141		7,494		3.11		830,836		6,737		3.23

Total investment securities	Total investment securities	2,873,657		20,049		2.79		2,799,199		20,215		2.88		Total investment securities	3,591,231		21,392		2.38		3,031,706		21,908		2.89
Loans held for sale	Loans held for sale	79,999		728		3.64		31,898		466		5.83		Loans held for sale	31,948		199		2.49		55,608		509		3.66
Other interest-earning assets	Other interest-earning assets	1,387,327		1,028		0.30		509,579		2,709		2.12		Other interest-earning assets	1,752,549		1,575		0.16		815,910		766		0.38
Total interest-earning assets	Total interest-earning assets	23,221,502		182,149		3.13		19,777,183		211,670		4.25		Total interest-earning assets	24,282,284		179,691		2.97		22,235,021		183,796		3.32
Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Cash and due from banks	Cash and due from banks	138,567						120,967						Cash and due from banks	129,927						153,728
Premises and equipment	Premises and equipment	239,183						240,383						Premises and equipment	229,047						240,417
Other assets	Other assets	1,835,190						1,491,115						Other assets	1,643,410						1,761,038
Less: ACL - loans (3)	Less: ACL - loans (3)	(264,934)						(171,848)						Less: ACL - loans (3)	(267,126)						(251,088)
Total Assets	Total Assets	$	25,169,508					$	21,457,800					Total Assets	$	26,017,542					$	24,139,116
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY													LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Demand deposits	Demand deposits	$	5,591,548	$	1,913	0.14	%	$	4,448,112	$	9,163	0.82	%	Demand deposits	$	5,979,855	$	932	0.06	%	$	5,103,419	$	2,219	0.17	%
Savings deposits	Savings deposits	5,716,050		2,347		0.16		5,026,316		11,059		0.87		Savings deposits	6,280,629		1,363		0.09		5,446,368		3,331		0.25
Brokered deposits	Brokered deposits	314,721		440		0.56		253,426		1,536		2.40		Brokered deposits	297,815		253		0.34		312,121		422		0.54
Time deposits	Time deposits	2,495,445		9,931		1.58		2,974,993		13,979		1.86		Time deposits	2,003,606		5,434		1.09		2,624,962		11,145		1.71
Total interest-bearing deposits	Total interest-bearing deposits	14,117,764		14,631		0.41		12,702,847		35,737		1.12		Total interest-bearing deposits	14,561,905		7,982		0.22		13,486,870		17,118		0.51
Short-term borrowings	Short-term borrowings	613,127		370		0.24		919,697		4,156		1.78		Short-term borrowings	514,025		137		0.11		707,771		517		0.29
FHLB advances and long-term debt		1,295,515		10,042		3.10		842,706		7,260		3.44
Long-term borrowings														Long-term borrowings	626,795		6,155		3.93		1,361,421		10,307		3.03
Total interest-bearing liabilities	Total interest-bearing liabilities	16,026,406		25,043		0.62		14,465,250		47,153		1.29		Total interest-bearing liabilities	15,702,725		14,274		0.36		15,556,062		27,942		0.72
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits	Demand deposits	6,270,683						4,247,820						Demand deposits	7,203,696						5,789,788
Total Deposits/Cost of deposits		20,388,447				0.29		16,950,667				0.84
Other liabilities	Other liabilities	498,328						429,145						Other liabilities	441,708						484,133
Total Liabilities	Total Liabilities	22,795,417						19,142,215						Total Liabilities	23,348,129						21,829,983
Total Deposits/Cost of deposits														Total Deposits/Cost of deposits	21,765,601				0.15		19,276,658				0.36
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	22,297,089				0.45		18,713,070				1.00		Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	22,906,421				0.25		21,345,850				0.53
Shareholders’ equity	Shareholders’ equity	2,374,091						2,315,585						Shareholders’ equity	2,669,413						2,309,133
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	25,169,508					$	21,457,800					Total Liabilities and Shareholders’ Equity	$	26,017,542					$	24,139,116
Net interest income/FTE NIM	Net interest income/FTE NIM			157,106		2.70	%			164,517		3.31	%	Net interest income/FTE NIM			165,417		2.73	%			155,854		2.81	%
Tax equivalent adjustment	Tax equivalent adjustment			(2,990)						(3,257)				Tax equivalent adjustment			(3,018)						(3,100)
Net interest income	Net interest income			$	154,116					$	161,260			Net interest income			$	162,399					$	152,754

(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.

5250

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~~June 30, ~~2020~~2021 in comparison to the same period in ~~2019:~~2020:


		2020 vs. 2019 Increase (Decrease) due to change in							2021 vs. 2020 Increase (Decrease) due to change in
		Volume		Rate		Net			Volume		Rate		Net
		(in thousands)							(in thousands)
FTE Interest income on:	FTE Interest income on:							FTE Interest income on:
Net Loans (1)	Net Loans (1)	$	24,784	$	(52,720)	$	(27,936)	Net Loans (1)	$	5,075	$	(9,163)	$	(4,088)
Taxable investment securities	Taxable investment securities	(1,961)		(454)		(2,415)		Taxable investment securities	3,072		(4,345)		(1,273)
Tax-exempt investment securities	Tax-exempt investment securities	2,783		(534)		2,249		Tax-exempt investment securities	1,012		(255)		757

Loans held for sale	Loans held for sale	487		(225)		262		Loans held for sale	(177)		(133)		(310)
Other interest-earning assets	Other interest-earning assets	1,957		(3,638)		(1,681)		Other interest-earning assets	1,124		(315)		809
Total interest income	Total interest income	$	28,050	$	(57,571)	$	(29,521)	Total interest income	$	10,106	$	(14,211)	$	(4,105)
Interest expense on:	Interest expense on:							Interest expense on:
Demand deposits	Demand deposits	$	1,569	$	(8,819)	$	(7,250)	Demand deposits	$	317	$	(1,604)	$	(1,287)
Savings deposits	Savings deposits	1,303		(10,014)		(8,711)		Savings deposits	450		(2,418)		(1,968)
Brokered deposits	Brokered deposits	232		(1,328)		(1,096)		Brokered deposits	(21)		(148)		(169)
Time deposits	Time deposits	(2,094)		(1,955)		(4,049)		Time deposits	(2,256)		(3,455)		(5,711)
Short-term borrowings	Short-term borrowings	(1,054)		(2,732)		(3,786)		Short-term borrowings	(115)		(265)		(380)
Long-term borrowings	Long-term borrowings	3,550		(768)		2,782		Long-term borrowings	(6,612)		2,460		(4,152)
Total interest expense	Total interest expense	$	3,507	$	(25,617)	$	(22,110)	Total interest expense	$	(8,237)	$	(5,430)	$	(13,667)

(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 ~~decreased~~reducing the Fed Funds Rate ~~by 25 bp in each of August, September~~to near zero and ~~October of 2019. In March 2020, the FOMC decreased the Fed Funds Rate by a total of 150 bp~~taking other monetary policy actions in response to COVID-19. These changes in the Fed Funds Rate resulted in corresponding decreases to the index rates for the Corporation's variable and adjustable rate loans, primarily the prime rate and LIBOR as well as for certain interest-bearing liabilities.

As summarized in the preceding table, the ~~112~~35 bp decrease in the yield on average interest-earning assets drove a ~~$57.6~~$14.2 million decrease in FTE interest income ~~but~~that was partially offset by the impact of a ~~$3.4~~$2.0 billion, or ~~17.4%~~9.2%, increase in average interest-earning assets, primarily PPP loans, which contributed ~~$28.1~~$10.1 million to FTE interest income. The yield on the loan portfolio decreased ~~117~~20 bp, or ~~25.7%~~5.7%, from the ~~third~~second quarter of ~~2019,~~2020, as ~~all~~ 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 ~~such,~~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 ~~$22.1~~$13.7 million primarily due to the 6736 bp decrease in the rate on average interest-bearing liabilities. The rates on average interest-bearing demand deposits and savings deposits decreased 6811 bp and 7116 bp, respectively, which contributed ~~$8.8~~$1.6 million and ~~$10.0~~$2.4 million to the decrease in interest expense, respectively. ~~Brokered deposit rates~~ The cost of average time depositsdecreased ~~184~~62 bp and the average balance of time deposits decreased $621.4 million, which contributed ~~$1.3~~$3.5 million and $2.3 million to the decrease in interest ~~expense.~~ expense, respectively.In addition, the ~~154 bp~~$734.6 million decrease ~~in the rates on short-term borrowings contributed $2.7 million to the decrease in interest expense. The $452.8 million increase~~ in average long-term borrowings ~~contributed $3.6~~resulted in a $6.6 million ~~of additional~~decrease in interest expense, partially offset by the 90 bp increase in the average rate on long-term borrowings, which contributed $2.5 million of additional interest expense. As discussed in the "Overview" section of Management's Discussion, the Corporation completed a ~~$768,000~~balance sheet restructuring in March of 2021, which included the prepayment of $535.0 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:


	Three months ended June 30								Increase (Decrease)
	2021				2020				in Balance
	Balance		Yield		Balance		Yield		$		%
	(dollars in thousands)
Real estate – commercial mortgage	$	7,177,622	3.16	%	$	6,875,872	3.47	%	$	301,750	4.4	%
Commercial and industrial (1)	5,445,160		2.58		5,710,145		3.35		(264,985)		(4.6)
Real estate – residential mortgage	3,396,690		3.39		2,769,682		3.88		627,008		22.6
Real estate – home equity	1,139,558		3.71		1,271,190		3.91		(131,632)		(10.4)
Real estate – construction	1,054,469		3.05		941,079		3.53		113,390		12.0
Consumer	451,486		3.89		465,728		4.17		(14,242)		(3.1)
Equipment lease financing	256,248		3.74		284,658		3.44		(28,410)		(10.0)
Other (2)	(14,677)		—		13,443		—		(28,120)		N/M
Total loans	$	18,906,556	3.32	%	$	18,331,797	3.52	%	$	574,759	3.1	%

(1) Includes average PPP loans of $1.5 billion and $1.3 billion for the three months ended June 30, 2021 and 2020, respectively.

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

Average loans increased $574.8 million, or 3.1%, compared to the same period of 2020. The increase was driven largely by growth in the commercial and residential mortgage and construction portfolios, partially offset by decreases in the commercial and industrial and home equity portfolios. The decrease in ~~additional~~the commercial and industrial portfolio was the net result of the forgiveness of $639.0 million of loans originated under the PPP and the origination of $60.0 million of new PPP loans, as well as reduced utilization of lines of credit.

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


	Three months ended June 30								Increase (Decrease) in Balance
	2021				2020
	Balance		Rate		Balance		Rate		$		%
	(dollars in thousands)
Noninterest-bearing demand	$	7,203,696	—	%	$	5,789,788	—	%	$	1,413,908	24.4	%
Interest-bearing demand	5,979,855		0.06		5,103,419		0.17		876,436		17.2
Savings	6,280,629		0.09		5,446,368		0.25		834,261		15.3
Total demand and savings	19,464,180		0.05		16,339,575		0.14		3,124,605		19.1
Brokered deposits	297,815		0.34		312,121		0.54		(14,306)		(4.6)
Time deposits	2,003,606		1.09		2,624,962		1.71		(621,356)		(23.7)
Total deposits	$	21,765,601	0.15	%	$	19,276,658	0.36	%	$	2,488,943	12.9	%

The average cost of total deposits decreased 21 bp, to 0.15%, for the second quarter of 2021, compared to 0.36% for the same period of 2020, mainly as a result of ~~34 bp~~reductions in deposit rates, due to the continued low interest rate environment, and growth in noninterest-bearing demand deposits. This decrease in the average ~~rate.~~cost of deposits contributed $7.6 million to the reduction of interest expense. Average total deposits increased $2.5 billion, or 12.9%, primarily driven by increases in noninterest-bearing demand deposits, interest-bearing demand and saving accounts, partially offset by a $621.4 million, or 23.7%, decrease in time deposits.

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


	Three months ended June 30								Increase (Decrease)
	2021				2020				in Balance
	Balance		Rate		Balance		Rate		$		%
Short-term borrowings:	(dollars in thousands)


Customer funding(1)	$	514,025	0.11	%	$	546,716	0.23	%	$	(32,691)	(6.0)	%
Federal funds purchased	—		—		74,231		0.06		(74,231)		(100.0)
FHLB advances and other borrowings (2)	—		—		86,824		0.90		(86,824)		(100.0)
Total short-term borrowings	514,025		0.11		707,771		0.29		(193,746)		(27.4)
Long-term borrowings:
FHLB advances	—		—		601,938		1.88		(601,938)		(100.0)
Other long-term debt	626,795		3.93		759,483		3.94		(132,688)		(17.5)
Total long-term borrowings	626,795		3.93		1,361,421		3.03		(734,626)		(54.0)
Total borrowings	$	1,140,820	2.21	%	$	2,069,192	2.10	%	$	(928,372)	(44.9)	%

(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 $193.7 million, or 27.4%, in the second 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 $734.6 million, or 54.0%, in the second 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 $6.6 million to the reduction of interest expense during the second quarter of 2021 compared to the same period a year ago.

Provision for Credit Losses

The provision for credit losses was a negative $3.5 million for the second quarter of 2021, a decrease of $23.1 million from the same period of 2020. Several factors as of the end of the second quarter of 2021 in comparison to the end of the fourth quarter of 2020, including improved economic forecasts, reduced the level of the ACL determined to be necessary at the end of the second quarter of 2021, resulting in the negative provision for credit losses for the second quarter of 2021. The $19.6 million provision expense for credit losses in the second quarter of 2020 was the result of several factors, most notably, the overall uncertainty in economic forecasts due to COVID-19.

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

Three months ended September 30 Increase (Decrease)
2020 2019 in Balance
Balance Yield Balance Yield $ %
(dollars in thousands)
Real estate – commercial mortgage $ 6,986,528 3.27 % $ 6,489,456 4.57 % $ 497,072 7.7 %
Commercial and industrial (1)
5,983,872 2.53 4,414,406 4.57 1,569,466 35.6
Real estate – residential mortgage 2,975,516 3.73 2,512,899 4.06 462,617 18.4
Real estate – home equity 1,237,602 3.87 1,364,161 5.27 (126,559) (9.3)
Real estate – construction 981,589 3.84 905,060 4.68 76,529 8.5
Consumer 464,851 4.07 457,524 4.36 7,327 1.6
Equipment lease financing 279,217 3.96 277,555 4.41 1,662 0.6
Other (2)
(28,656) — 15,446 — (44,102) N/M
Total loans $ 18,880,519 3.38 % $ 16,436,507 4.55 % $ 2,444,012 14.9 %

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

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

~~N/M - Not meaningful~~Non-Interest Income

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


	Three months ended June 30				Increase (Decrease)
	2021		2020		$		%
	(dollars in thousands)
Commercial banking:
Merchant and card	$	6,786	$	5,326	$	1,460	27.4	%
Cash management	5,341		4,503		838		18.6
Capital markets	1,536		5,004		(3,468)		(69.3)
Other commercial banking	3,466		1,914		1,552		81.1
Total commercial banking	17,129		16,748		381		2.3
Consumer banking:
Card	5,733		4,966		767		15.4
Overdraft	2,750		2,107		643		30.5
Other consumer banking	2,377		2,065		312		15.1
Total consumer banking	10,860		9,138		1,722		18.8
Wealth management fees	17,634		13,407		4,227		31.5
Mortgage banking:
Gains on sales of mortgage loans	5,438		16,547		(11,109)		(67.1)
Mortgage servicing income	(2,601)		(6,584)		3,983		(60.5)
Total mortgage banking	2,838		9,964		(7,126)		(71.5)
Other	3,393		3,660		(267)		(7.3)
Non-interest income before investment securities gains	51,854		52,917		(1,063)		(2.0)
Investment securities gains, net	36		3,005		(2,969)		(98.8)
Total Non-Interest Income	$	51,890	$	55,922	$	(4,032)	(7.2)	%

Non-interest income, before net investment securities gains, decreased $1.1 million, or 2.0%, in the second quarter of 2021 as compared to the same period in 2020.

Total commercial banking increased ~~$2.4 billion,~~$381,000, or ~~14.9%~~2.3%, compared to the same period ~~of 2019. The increase was~~in 2020, driven ~~largely~~ by ~~growth~~increases in ~~the~~other commercial banking income, primarily SBA income and ~~industrial portfolio as a result of loans originated under the PPP. Excluding loans originated under the PPP, commercial~~merchant and ~~industrial loan balances declined. Commercial and residential mortgage loan portfolios, as well as the construction, consumer and equipment lease financing portfolios, experienced growth,~~card income, partially offset by decreases in ~~the home equity~~capital markets revenue, which consists primarily of commercial loan ~~portfolio.~~interest rate swaps.

~~Average deposits~~Total consumer banking income increased $1.7 million, or 18.8%, compared to the same period in 2020, primarily driven by higher overdraft fees and ~~average interest rates, by type, are summarized~~an increase in ~~the following table:~~

Three months ended September 30 Increase (Decrease)
in Balance
2020 2019
Balance Rate Balance Rate $ %
(dollars in thousands)
Noninterest-bearing demand $ 6,270,683 — % $ 4,247,820 — % $ 2,022,863 47.6 %
Interest-bearing demand 5,591,548 0.14 4,448,112 0.82 1,143,436 25.7
Savings 5,716,050 0.16 5,026,316 0.87 689,734 13.7
Total demand and savings 17,578,281 0.1 13,722,248 0.58 3,856,033 28.1
Brokered deposits 314,721 0.56 253,426 2.40 61,295 24.2
Time deposits 2,495,445 1.58 2,974,993 1.86 (479,548) (16.1)
Total deposits $ 20,388,447 0.29 % $ 16,950,667 0.84 % $ 3,437,780 20.3 %
card income.

~~Average total demand and savings accounts~~Wealth management revenues increased ~~$3.9 billion,~~$4.2 million, or ~~28.1%~~31.5%, primarily resulting from growth in brokerage income due to an increase in client asset levels andimproved overall market performance.

Mortgage banking income decreased $7.1 million, or 71.5%, as a result of decreased gains on sales of mortgage loans, driven by ~~increases~~lower mortgage sales and gain-on-sale spreads on loans sold. This was slightly offset by an increase in ~~noninterest-bearing demand deposits as well as interest-bearing demand and saving accounts. The increases~~mortgage servicing income, which was negatively impacted by a $2.2 million addition to the valuation allowance for MSRs in ~~average total demand and savings accounts resulted from~~ the ~~funding~~second quarter of ~~various government stimulus programs, which largely remained in customer deposit accounts~~2021 compared to a $6.6 million addition during the same period last year.

Net investment securities gain were $3.0 million lower compared to the second quarter ~~as well as seasonal increases in municipal accounts.~~of 2020.

Non-Interest Expense

The ~~average cost~~following table presents the components of ~~total deposits~~non-interest expense:


	Three months ended June 30				Increase (Decrease)
	2021		2020		$		%
	(dollars in thousands)
Salaries and employee benefits	$	78,367	$	81,012	$	(2,645)	(3.3)	%
Data processing and software	13,932		12,193		1,739		14.3
Net occupancy	12,494		13,144		(650)		(4.9)
Other outside services	8,178		7,600		578		7.6
State taxes	4,384		3,088		1,296		42.0
Equipment	3,424		3,193		231		7.2
Professional fees	2,651		3,331		(680)		(20.4)
FDIC insurance	2,282		2,133		149		7.0
Amortization of TCI	1,563		1,450		113		7.8
Marketing	1,348		1,303		45		3.5
Intangible amortization	178		132		46		34.8
Debt extinguishment	412		2,878		(2,466)		(85.7)
Other	11,618		11,549		69		0.6
Total non-interest expense	$	140,831	$	143,006	$	(2,175)	(1.5)	%

Salaries and employee benefits decreased ~~55 bp,~~$2.6 million, or 3.3%, primarily the result of lower salary expenses due to ~~0.29%~~a lower number of full-time equivalent employees.

Data processing and software increased $1.7 million, or 14.3%, reflecting costs related to technology initiatives.

State taxes increased $1.3 million, or 42.0%, primarily as a result of an increase in the accrual for PA shares tax expense resulting from increased capital levels.

Professional fees decreased $680,000, or 20.4%, primarily due to a decrease in legal fees. The Corporation incurs fees related to various legal matters in the ~~third~~normal course of business. These fees can fluctuate based on timing and the extent of these matters.

Debt extinguishment costs decreased $2.5 million in the second quarter of 2021. In the second quarter of 2020, ~~compared to 0.84%~~the Corporation redeemed long-term FHLB advances, which resulted in prepayment penalties of $2.9 million.

Income Taxes

Income tax expense for the three months ended June 30, 2021 was $12.0 million, a $5.5 million increase from $6.5 million for the same period in 2020. The Corporation’s ETR was 15.6% for the three months ended June 30, 2021, compared to 14.2% in the same period of ~~2019, mainly as a result of reductions~~2020. The increase in ~~deposit rates~~income tax expense and the ETR primarily resulted from an increase in ~~response~~income before taxes, while net favorable permanent differences were relatively the same compared to the ~~FOMC reductions to the Fed Funds Rate and also as a result~~same period of ~~deposit rate decreases implemented after the Fed Funds Rate cuts during the second half of 2019.~~2020.

5455

Six months ended June 30, 2021 compared to the six months ended June 30, 2020

Net Interest Income

FTE net interestincome increased $13.0 million to $332.8 million for the six months ended June 30, 2021, up from $319.8 million in the same period in 2020. The NIM decreased 25 bp, or 8.3%, to 2.76%, compared to 3.01% 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.


	Six months ended June 30
	2021						2020
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
ASSETS	(dollars in thousands)
Interest-earning assets:
Net Loans(1)	$	18,943,367	$	321,987	3.42	%	$	17,595,932	$	338,110	3.86	%
Taxable investment securities (2)	2,534,821		27,588		2.00		2,242,663		31,465		2.81
Tax-exempt investment securities (2)	936,531		14,651		3.12		775,530		12,698		3.26

Total investment securities	3,471,352		42,239		2.43		3,018,193		44,163		2.92
Loans held for sale	42,647		671		3.14		41,393		829		4.00
Other interest-earning assets	1,825,966		2,711		0.19		709,091		3,297		4.31
Total interest-earning assets	24,283,332		367,607		3.05		21,364,609		386,399		3.63
Noninterest-earning assets:
Cash and due from banks	125,081						145,988
Premises and equipment	229,843						240,019
Other assets	1,685,708						1,675,849
Less: ACL - loans(3)	(273,965)						(230,858)
Total Assets	$	26,049,999					$	23,195,607
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits	$	5,906,423	$	2,092	0.07	%	$	4,876,662	$	8,020	0.33	%
Savings and money market deposits	6,209,253		2,890		0.09		5,287,015		10,441		0.40
Brokered deposits	311,016		647		0.42		293,756		1,495		1.02
Time deposits	2,076,681		11,955		1.16		2,693,202		23,602		1.76
Total interest-bearing deposits	14,503,373		17,584		0.24		13,150,635		43,558		0.67
Short-term borrowings	542,243		325		0.12		1,005,409		4,590		0.91
FHLB advances and other long-term debt	947,203		16,853		3.56		1,212,318		18,426		3.04
Total interest-bearing liabilities	15,992,819		34,762		0.44		15,368,362		66,574		0.87
Noninterest-bearing liabilities:
Demand deposits	6,939,731						5,048,408
Other liabilities	464,104						455,763
Total Liabilities	23,396,654						20,872,533
Total Deposits/Cost of deposits	21,443,104				0.17		18,199,043				0.48
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds	22,932,550				0.30		20,416,770				0.65
Shareholders’ equity	2,653,345						2,323,074
Total Liabilities and Shareholders’ Equity	$	26,049,999					$	23,195,607
Net interest income/FTE NIM			332,845		2.76	%			319,825		3.01	%
Tax equivalent adjustment			(5,998)						(6,325)
Net interest income			$	326,847					$	313,500

(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 six months ended June 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)	$	24,330	$	(40,453)	$	(16,123)
Taxable investment securities	4,378		(8,255)		(3,877)
Tax-exempt investment securities	2,750		(797)		1,953

Loans held for sale	24		(183)		(158)
Other interest-earning assets	3,090		(3,676)		(586)
Total interest income	$	34,572	$	(53,364)	$	(18,792)
Interest expense on:
Demand deposits	$	1,405	$	(7,333)	$	(5,928)
Savings deposits	1,553		(9,104)		(7,550)
Brokered deposits	112		(960)		(848)
Time deposits	(4,679)		(6,968)		(11,647)
Short-term borrowings	(1,479)		(2,786)		(4,265)
Long-term borrowings	(4,387)		2,814		(1,573)
Total interest expense	$	(7,475)	$	(24,337)	$	(31,812)

(1)Average balance includes non-performing loans.

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 58 bp decrease in the yield on average interest-earning assets drove a $53.4 million decrease in FTE interest income that was partially offset by the impact of a $2.9 billion, or 13.7%, increase in average interest-earning assets which contributed $34.6 million to FTE interest income.The yield on the loan portfolio decreased 44 bp, or 11.3%, 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 $31.8 million primarily due to the 43 bp decrease in the rate on average interest-bearing liabilities.The rates on average interest-bearing demand deposits and savings deposits decreased 26 bp and 31 bp, respectively, which contributed $7.3 million and $9.1 million to the decrease in interest expense, respectively. The cost of average time depositsdecreased 60 bp and the average balance of time deposits decreased $616.5 million, which contributed $7.0 million and $4.7 million to the decrease in interest expense, respectively.In addition, the $463.2 million decrease in average short-term borrowings and the $265.1 million decrease in average long-term borrowings resulted in $4.3 million and $1.6 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 $535.0 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:


	Six months ended June 30								Increase (Decrease) in Balance
	2021				2020
	Balance		Yield		Balance		Yield		$		%
	(dollars in thousands)
Real estate – commercial mortgage	$	7,153,444	3.16	%	$	6,811,318	3.83	%	$	342,126	5.0	%
Commercial and industrial (1)	5,582,855		3.73		5,078,448		3.73		504,407		9.9
Real estate – residential mortgage	3,290,726		3.46		2,719,851		3.93		570,875		21.0
Real estate – home equity	1,157,289		3.73		1,285,661		4.32		(128,372)		(10.0)
Real estate – construction	1,054,593		3.07		935,304		3.83		119,289		12.8
Consumer	455,241		4.01		466,071		4.25		(10,830)		(2.3)
Equipment lease financing	261,300		3.93		284,612		3.88		(23,312)		(8.2)
Other (2)	(12,081)		—		14,667		—		(26,748)		N/M
Total loans	$	18,943,367	3.42	%	$	17,595,932	3.86	%	$	1,347,435	7.7	%

(1) Includes average PPP loans of $1.6 billion and $629.5 million for the six months ended June 30, 2021 and 2020, respectively.

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

Average loans increased $1.3 billion, or 7.7%, compared to the same period of 2020. The increase was driven largely by growth in the commercial and residential mortgage portfolios, the commercial and industrial portfolio, as a result of loans originated under the PPP, and 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, 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:


	Six months ended June 30								Increase (Decrease) in Balance
	2021				2020
	Balance		Rate		Balance		Rate		$		%
	(dollars in thousands)
Noninterest-bearing demand	$	6,939,731	—	%	$	5,048,408	—	%	$	1,891,323	37.5	%
Interest-bearing demand	5,906,423		0.07		4,876,662		0.33		1,029,761		21.1
Savings	6,209,253		0.09		5,287,015		0.40		922,238		17.4
Total demand and savings	19,055,407		0.05		15,212,085		0.24		3,843,322		25.3
Brokered deposits	311,016		0.42		293,756		1.02		17,260		5.9
Time deposits	2,076,681		1.16		2,693,202		1.76		(616,521)		(22.9)
Total deposits	$	21,443,104	0.17	%	$	18,199,043	0.48	%	$	3,244,061	17.8	%

The average cost of total deposits decreased 31 bp to 0.17% for the first half of 2021 compared to 0.48% 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 $24.4 million to the reduction of interest expense. Average total deposits increased $3.2 billion, or 17.8%, primarily driven by increases in noninterest-bearing demand deposits, interest-bearing demand and saving accounts, partially offset by a $616.5 million, or 22.9%, decrease in time deposits.

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

Three months ended September 30 Increase (Decrease)
2020 2019 in Balance
Balance Rate Balance Rate $ %
Short-term borrowings: (dollars in thousands)
Customer funding(1)
$ 613,127 0.24 % $ 332,893 0.80 % $ 280,234 84.2 %
Federal funds purchased — — 101,022 2.11 (101,022) N/M
FHLB advances and other borrowings (2)
— — 485,782 2.38 (485,782) N/M
Total short-term borrowings 613,127 0.24 919,697 1.78 (306,570) (33.3)
Long-term borrowings:
FHLB advances 535,992 1.81 455,264 2.55 80,728 17.7
Other long-term debt 759,523 4.00 387,442 4.48 372,081 96.0
Total long-term borrowings 1,295,515 3.10 842,706 3.44 452,809 53.7
Total borrowings $ 1,908,642 2.18 % $ 1,762,403 2.57 % $ 146,239 8.3 %


	Six months ended June 30								Increase (Decrease) in Balance
	2021				2020
	Balance		Rate		Balance		Rate		$		%
Short-term borrowings:	(dollars in thousands)
Customer funding(1)	$	542,243	0.12	%	$	487,478	0.38	%	$	54,765	11.2	%
Federal funds purchased	—		—		130,549		0.82		(130,549)		(100.0)
FHLB advances and other borrowings(2)	—		—		387,382		1.61		(387,382)		(100.0)
Total short-term borrowings	542,243		0.12		1,005,409		0.91		(463,166)		(46.1)
Long-term borrowings:
FHLB advances	255,453		1.80		579,445		1.91		(323,992)		(55.9)
Other long-term debt	691,750		4.21		632,873		4.09		58,877		9.3
Total long-term borrowings	947,203		3.56		1,212,318		3.04		(265,115)		(21.9)
Total borrowings	$	1,489,446	2.31	%	$	2,217,727	2.08	%	$	(728,281)	(32.8)	%

(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 ~~$306.6~~$463.2 million, or ~~33.3%~~46.1%, during the first six months of 2021, compared to the same period of 2020 primarily as a result of a $485.8 million decrease in FHLB advances and other borrowings and a $101.0 million decrease in federal funds purchased, partially offset by a $280.2 million increase in customer funding. These decreases resulted from excess funding provided by ~~higher deposits. The average cost of short-term borrowings decreased 154 bp, mainly due to the net impact of changes~~growth in ~~the Fed Funds Rate.~~deposit balances.

Average total long-term borrowings ~~increased $452.8~~decreased $265.1 million, or ~~53.7%~~21.9%, ~~during~~in the ~~third quarter~~first half of ~~2020,~~2021, compared to the same period of ~~2019,~~2020 primarily as a result of the ~~issuance of $375.0 million of subordinated notes~~balance sheet restructuring competed in March of ~~2020. The 74~~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 $4.4 million to the reduction of interest expense, partially offset by the impact of a 52 bp ~~decrease~~increase in the rate on ~~FHLB advances reflects~~average long-term borrowings during the ~~impact~~first half of ~~restructurings.~~2021.

Provision for Credit Losses

The provision for credit losses was ~~$7.1~~a negative $9.0 million for the ~~third quarter~~first six months of ~~2020, an increase~~2021, a decrease of ~~$4.9~~$72.6 million from the same period of ~~2019.~~2020. Several factors as of the six months ended June 30, 2021 in comparison to the end of the fourth quarter of 2020, including improved economic forecasts, reduced the level of the ACL determined to be necessary at the end of the six months ended June 30, 2021. The ~~increase~~$63.6 million provision for credit losses during the six months ended June 30, 2020 was the result of several factors, most notably, the overall uncertainty in economic forecasts due to COVID-19.

5559

Non-Interest Income

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

Three months ended September 30 Increase (Decrease)
2020 2019 $ %
(dollars in thousands)
Wealth management fees $ 14,943 $ 13,867 $ 1,076 7.8 %
Commercial banking:
   Merchant and card 6,237 6,166 71 1.2
   Cash management 4,742 4,696 46 1.0
   Capital markets 4,696 4,448 248 5.6
   Other commercial banking 2,636 3,478 (842) (24.2)
     Total commercial banking 18,311 18,788 (477) (2.5)
Consumer banking:
  Card 5,002 5,791 (789) (13.6)
  Overdraft 3,015 4,682 (1,667) (35.6)
  Other consumer banking 2,406 2,860 (454) (15.9)
     Total consumer banking 10,423 13,333 (2,910) (21.8)
Mortgage banking:
Gains on sales of mortgage loans 19,480 5,520 13,960 N/M
Mortgage servicing income (2,679) 1,138 (3,817) N/M
        Total mortgage banking 16,801 6,658 10,143 N/M
Other 2,769 2,675 94 3.5
     Non-interest income before investment securities gains 63,246 55,321 7,925 14.3
Investment securities gains, net 2 4,492 (4,490) N/M
Total Non-Interest Income $ 63,248 $ 59,813 $ 3,435 5.7 %

~~N/M - Not meaningful~~


	Six months ended June 30				Increase (Decrease)
	2021		2020		$		%
	(dollars in thousands)
Commercial banking:
Merchant and card	$	12,554	$	10,950	$	1,604	14.6	%
Cash management	10,262		9,245		1,017		11.0
Capital markets	4,336		10,079		(5,743)		(57.0)
Other commercial banking	6,319		4,892		1,427		29.2
Total commercial banking	33,471		35,167		(1,696)		(4.8)
Consumer banking:
Card	11,611		9,651		1,960		20.3
Overdraft	5,474		6,165		(691)		(11.2)
Other consumer banking	4,529		4,561		(32)		(0.7)
Total consumer banking	21,614		20,377		1,237		6.1
Wealth management fees	34,981		28,462		6,519		22.9
Mortgage banking:
Gains on sales of mortgage loans	14,094		22,728		(8,634)		(38.0)
Mortgage servicing income	2,704		(6,530)		9,234		(141.4)
Total mortgage banking	16,798		16,198		600		3.7
Other	6,912		7,311		(399)		(5.5)
Non-interest income before investment securities gains, net	113,776		107,515		6,261		5.8
Investment securities gains, net	33,511		3,051		30,460		N/M
Total Non-Interest Income	$	147,287	$	110,566	$	36,721	33.2	%

Non-interest income, before net investment securities gains, increased ~~$7.9~~$6.3 million, or ~~14.3%~~5.8%, induring the ~~third quarter of 2020~~six months ended June 30, 2021 as compared to the same period in ~~2019.~~ 2020.

Commercial banking decreased $1.7 million, or 4.8%, 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 $1.2 million, or 6.1%, compared to the same period in 2020, primarily driven by an increase in card income.

Wealth management revenues increased ~~$1.1~~$6.5 million, or ~~7.8%~~22.9%, primarily resulting from growth in brokerage income due to an increase in client asset levels and improved overall market performance.

Total commercial banking income decreased $477,000, or 2.5%, compared to the same period in 2019, driven by decreases in other commercial banking income (primarily other services charges on deposits and Small Business Administration income) as a result of COVID-19.

~~Total consumer banking income decreased $2.9 million, or 21.8%, compared to the same period in 2019, primarily driven by lower overdraft fees.~~

Mortgage banking income increased ~~$10.1 million,~~$600,000, or 3.7%, driven by an increase in mortgage servicing income, partially offset by a decrease in gains on sales of mortgage ~~loans, partially offset by a decrease~~loans. The increase in mortgage servicing ~~income.~~income was driven by a $3.9 million decrease to the valuation allowance for MSRs compared to a $7.7 million increase to the valuation allowance for the same period in 2020. The ~~increase~~decrease in gains on sales of mortgage loans reflected ~~increases~~decreases in both the volume of loans sold and ~~higher~~lower spreads realized on sales. The decrease in mortgage servicing income was driven by a $1.5 million increase to the valuation allowance for MSRs in the third quarter of 2020, and higher MSR amortization due to higher prepayments.mortgages sold.

Investment securities gains, net, were ~~lower compared to~~$33.5 million in the ~~same period of 2019~~six months ended June 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 ~~involving~~as discussed in the ~~sale~~"Overviews" section of approximately $400 million of investment securities and a corresponding prepayment of FHLB advances completed during the third quarter of 2019. As a result of these transactions, $4.5 million of investment securities gains were realized during the third quarter of 2019.Management's Discussion.

5660

Non-Interest Expense

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

Three months ended September 30 Increase (Decrease)
2020 2019 $ %
(dollars in thousands)
Salaries and employee benefits $ 79,227 $ 78,211 $ 1,016 1.3 %
Net occupancy 13,221 12,368 853 6.9
Data processing and software 12,285 11,590 695 6.0
Other outside services 7,617 12,163 (4,546) (37.4)
Professional fees 2,879 3,331 (452) (13.6)
Equipment 3,711 3,459 252 7.3
State taxes 2,692 2,523 169 6.7
FDIC insurance 1,578 239 1,339 N/M
Marketing 1,147 3,322 (2,175) (65.5)
Amortization of TCI 1,694 1,533 161 10.5
Intangible amortization 132 1,071 (939) (87.7)
Prepayment penalty on FHLB advances — 4,326 (4,326) N/M
Other 12,962 12,634 328 2.6
Total non-interest expense $ 139,147 $ 146,770 $ (7,623) (5.2) %

~~N/M - Not meaningful~~


	Six months ended June 30				Increase (Decrease)
	2021		2020		$		%
	(dollars in thousands)
Salaries and employee benefits	$	160,953	$	161,240	$	(287)	(0.2)	%
Data processing and software	27,493		23,838		3,655		15.3
Net occupancy	26,476		26,630		(154)		(0.6)
Other outside services	16,668		15,481		1,187		7.7
State taxes	8,889		5,891		2,998		50.9
Equipment	6,852		6,611		241		3.6
Professional fees	5,430		7,533		(2,103)		(27.9)
FDIC insurance	4,906		4,941		(35)		(0.7)
Amortization of TCI	3,094		2,900		194		6.7
Marketing	2,350		2,882		(532)		(18.5)
Intangible amortization	293		264		29		11.0
Debt extinguishment	32,575		2,878		29,697		N/M
Other	23,236		24,469		(1,233)		(5.0)
Total non-interest expense	$	319,215	$	285,558	$	33,657	11.8	%

~~The $1.0~~Data processing and software increased $3.7 million, or ~~1.3%~~15.3%, ~~increase in salaries and employee benefits reflected an $800,000 severance expense incurred in connection with the 21 financial center closures and consolidations expected~~reflecting costs related to ~~be completed in early 2021.~~technology initiatives.

~~Other outside services decreased $4.5~~State taxes increased $3.0 million, or ~~37.4%~~50.9%, ~~as 2019 included $2.6 million of expense associated with the Charter Consolidation.~~

~~Marketing expense declined $2.2 million, or 65.5%,~~primarily as a result of ~~reduced marketing campaigns during~~an increase in the ~~quarter.~~accrual for PA shares tax expense resulting from increased capital levels.

Professional fees decreased ~~$452,000,~~$2.1 million, or ~~13.6%~~27.9%, 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.

~~FDIC insurance~~Debt extinguishment costs increased ~~$1.3~~$29.7 million ~~compared to the same period in 2019. FDIC insurance expense was reduced in the third quarter of 2019~~ as a result of ~~the receipt of assessment credits.~~

~~The third quarter of 2019 included approximately $4.3~~$20.9 million ofin prepayment penalties ~~related to~~incurred upon the prepayment of ~~certain~~long-term FHLB advances ~~in conjunction~~and $11.3 million of expenses associated with the ~~2019~~cash tender offer to purchase subordinated and senior notes as part of the balance sheet restructuring ~~mentioned above.~~discussed in the "Overview" section of Management's Discussion.

Income Taxes

Income tax expense for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$9.5~~$25.9 million, a ~~$500,000 decrease~~$16.6 million increase from ~~$10.0~~$9.3 million for the same period in ~~2019.~~2020. The Corporation’s ETR was ~~13.4%~~15.8% for the ~~three~~six months ended ~~September~~June 30, ~~2020,~~2021, as compared to ~~13.9%~~12.4% in the same period of ~~2019.~~2020. The ~~decrease~~increase in income tax expense and the ETR primarily resulted from ~~a decrease~~an increase in income before ~~taxes. The ETR is generally lower than~~taxes, while net favorable permanent differences were relatively the ~~federal statutory rate~~same compared to the same period 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.2020.

~~Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019~~

~~Net Interest Income~~

FTE net interest income decreased $21.9 million, to $476.9 million for the nine months ended September 30, 2020, from $498.9 million for the same period in 2019. The NIM decreased 51 bp, or 15.0%, to 2.90% compared to 3.41% for the same period in 2019. 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
2020 2019
Average
Balance Interest Yield/
Rate Average
Balance Interest Yield/
Rate
ASSETS (dollars in thousands)
Interest-earning assets:
Net Loans(1)
$ 18,027,253 $ 498,455 3.69 % $ 16,316,540 $ 565,095 4.63 %
Taxable investment securities (2)
2,165,180 44,615 2.75 2,305,472 46,935 2.71
Tax-exempt investment securities (2)
804,484 19,596 3.24 468,689 12,940 3.66
Total investment securities 2,969,664 64,211 2.88 2,774,161 59,875 2.87
Loans held for sale 54,355 1,557 3.82 24,357 1,056 5.78
Other interest-earning assets 936,819 4,325 0.62 428,982 6,879 2.14
Total interest-earning assets 21,988,091 568,548 3.45 19,544,040 632,905 4.33
Noninterest-earning assets:
Cash and due from banks 143,496 116,019
Premises and equipment 239,739 239,402
Other assets 1,729,351 1,337,482
Less: ACL - loans(3)
(242,300) (165,733)
Total Assets $ 23,858,377 $ 21,071,210
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 5,116,696 $ 9,933 0.26 % $ 4,263,869 $ 24,854 0.78 %
Savings and money market deposits 5,431,071 12,788 0.31 4,955,403 31,570 0.85
Brokered deposits 300,795 1,935 0.86 240,045 4,500 2.51
Time deposits 2,626,802 33,533 1.71 2,853,147 37,050 1.74
Total interest-bearing deposits 13,475,364 58,189 0.58 12,312,464 97,974 1.06
Short-term borrowings 873,694 4,960 0.76 894,116 12,200 1.81
FHLB advances and other long-term debt 1,240,253 28,468 3.06 965,111 23,854 3.30
Total interest-bearing liabilities 15,589,311 91,617 0.78 14,171,691 134,028 1.26
Noninterest-bearing liabilities:
Demand deposits 5,458,807 4,223,927
Total Deposits/Cost of deposits 18,934,171 0.41 16,536,391 0.79
Other liabilities 470,055 381,427
Total Liabilities 21,518,173 18,777,045
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds 21,048,118 0.58 18,395,618 0.97
Shareholders’ equity 2,340,204 2,294,165
Total Liabilities and Shareholders’ Equity $ 23,858,377 $ 21,071,210
Net interest income/FTE NIM 476,931 2.90 % 498,877 3.41 %
Tax equivalent adjustment (9,315) (9,758)
Net interest income $ 467,616 $ 489,119

~~(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, 2020 in comparison to the same period in 2019:

2020 vs. 2019
Increase (Decrease) due
to change in
Volume Rate Net
FTE Interest income on: (in thousands)
Net Loans (1)
$ 3,192 $ (69,832) $ (66,640)
Taxable investment securities (2,213) (108) (2,320)
Tax-exempt investment securities 6,580 76 6,656
Loans held for sale 579 (78) 501
Other interest-earning assets 436 (2,990) (2,554)
Total interest income $ 8,575 $ (72,932) $ (64,357)
Interest expense on:
Demand deposits $ (1,303) $ (13,618) $ (14,921)
Savings deposits (732) (18,050) (18,782)
Brokered deposits (228) (2,336) (2,565)
Time deposits (1,161) (2,355) (3,517)
Short-term borrowings (273) (6,967) (7,240)
Long-term borrowings 4,594 20 4,614
Total interest expense $ 896 $ (43,307) $ (42,411)

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

The ~~FOMC decreased the Fed Funds Rate by 25 bp in each of August, September~~table below presents condensed consolidated ending balance sheets.


	June 30, 2021		December 31, 2020		Increase (Decrease)
					$		%
Assets	(dollars in thousands)
Cash and cash equivalents	$	1,904,059	$	1,847,832	$	56,227	3.0	%
FRB and FHLB Stock	62,631		92,129		(29,498)		(32.0)
Loans held for sale	41,924		83,886		(41,962)		(50.0)
Investment securities	3,921,658		3,340,424		581,234		17.4
Net Loans	18,331,724		18,623,253		(291,529)		(1.6)
Premises and equipment	228,353		231,480		(3,127)		(1.4)
Goodwill and intangibles	536,847		536,659		188		—
Other assets	1,052,578		1,151,070		(98,492)		(8.6)
Total Assets	$	26,079,774	$	25,906,733	$	173,041	0.7	%
Liabilities and Shareholders’ Equity
Deposits	$	21,724,312	$	20,839,207	$	885,105	4.2	%
Short-term borrowings	533,749		630,066		(96,317)		(15.3)
Long-term borrowings	627,213		1,296,263		(669,050)		(51.6)
Other liabilities	501,542		524,369		(22,827)		(4.4)
Total Liabilities	23,386,816		23,289,905		96,911		0.4
Total Shareholders’ Equity	2,692,958		2,616,828		76,130		2.9
Total Liabilities and Shareholders’ Equity	$	26,079,774	$	25,906,733	$	173,041	0.7	%

Cash and October of 2019. In March 2020, the FOMC decreased the Fed Funds Rate by a total of 150 bp in response to COVID-19. These changes in the Fed Funds Rate resulted in corresponding decreases to the index rates for the Corporation's variable and adjustable rate loans, primarily the prime rate and LIBOR as well as for certain interest-bearing liabilities.Cash Equivalents

The ~~88 bp~~$56.2 million, or 3.0%, 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 $29.5 million, or 32.0%, 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 ~~yield on average interest-earning assets drove~~usage of FHLB letters of credit.

Loans Held for Sale

Loans held for sale decreased $42.0 million, or 50.0%, primarily as the result of the Corporation's decision to hold a ~~$72.9 million decrease~~greater proportion of the residential mortgage loans it originated in FTE interest income, but was partially offset by the impact of a $2.4 billion, or 12.5%, increase in average interest-earning assets, primarily loans, which contributed $8.6 million to FTE interest income. The yield on the loan portfolio, ~~decreased 94 bp, or 20.2%, from the same period of 2019, as all variable and certain adjustable rate~~rather than selling those 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 such, the impact of changes in index rates on adjustable rate loans may not be fully realized until future periods.

Interest expense decreased $42.4 million primarily due to the 48 bp decrease in the rate on average interest-bearing liabilities. The rates on average interest-bearing demand deposits and savings deposits decreased 52 bp and 54 bp, respectively, which contributed $13.6 million and $18.1 million to the decrease in interest expense, respectively. In addition, the 105 bp decrease in the rates on short-term borrowings contributed $7.0 million to the decrease in interest expense.secondary market.

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

Nine months ended September 30 Increase (Decrease)
2020 2019 in Balance
Balance Yield Balance Yield $ %
(dollars in thousands)
Real estate – commercial mortgage $ 6,870,148 3.64 % $ 6,431,012 4.64 % $ 439,136 6.8 %
Commercial and industrial (1)
5,382,459 3.10 4,438,894 4.65 943,565 21.3
Real estate – residential mortgage 2,805,694 3.86 2,386,264 4.07 419,430 17.6
Real estate – home equity 1,269,525 4.17 1,400,371 5.32 (130,846) (9.3)
Real estate – construction 950,845 3.83 926,036 4.94 24,809 2.7
Consumer 465,661 4.19 442,678 4.41 22,983 5.2
Equipment lease financing 282,800 3.91 278,463 4.42 4,337 1.6
Other (2)
121 — 12,822 — (12,701) (99.1)
Total loans $ 18,027,253 3.69 % $ 16,316,540 4.63 % $ 1,710,713 10.5 %

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

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

Average loans increased $1.7 billion, or 10.5%, compared to the same period of 2019. The increase was driven largely by growth in the commercial and industrial portfolio, which was primarily attributable to the origination of PPP loans in the second quarter of 2020. Excluding loans originated under the PPP, commercial and industrial loan balances declined as a result of the overall slowing of the economy. Commercial and residential mortgage loan portfolios, as well as the construction, consumer and equipment lease financing portfolios experienced growth, partially offset by decreases in the home equity loan portfolio.

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

Nine months ended September 30 Increase (Decrease)
in Balance
2020 2019
Balance Rate Balance Rate $ %
(dollars in thousands)
Noninterest-bearing demand $ 5,458,807 — % $ 4,223,927 — % $ 1,234,880 29.2 %
Interest-bearing demand 5,116,696 0.26 4,263,869 0.78 852,827 20.0
Savings 5,431,071 0.31 4,955,403 0.85 475,668 9.6
Total demand and savings 16,006,574 0.19 13,443,199 0.56 2,563,375 19.1
Brokered deposits 300,795 0.86 240,045 2.51 60,750 25.3
Time deposits 2,626,802 1.71 2,853,147 1.74 (226,345) (7.9)
Total deposits $ 18,934,171 0.41 % $ 16,536,391 0.79 % $ 2,397,780 14.5 %

Average total demand and savings accounts increased $2.6 billion, or 19.1%, driven by increases in noninterest-bearing demand deposits, interest-bearing demand deposits and saving accounts. The primary reason for the increases in average total demand and savings accounts were the result of the funding of various government stimulus programs, which largely remained in customer deposit accounts during the period as well as seasonal increases in municipal accounts.

The average cost of total deposits decreased 38 bp, to 0.41%, for the first nine months of 2020, compared to 0.79% for the same period of 2019, mainly as a result of reductions in deposit rates in response to the FOMC reductions to the Fed Funds Rate as well as deposit rate decreases implemented after the Fed Funds Rate cuts during the second half of 2019. The majority of deposit rates are discretionary, with the exception of indexed municipal balances. The average cost of interest-bearing deposits decreased in all non-maturity deposit categories.

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

Nine months ended September 30 Increase (Decrease)
2020 2019 in Balance
Balance Rate Balance Rate $ %
Short-term borrowings: (dollars in thousands)
Customer funding(1)
$ 529,667 0.33 % $ 541,237 1.39 % $ (11,570) (2.1) %
Federal funds purchased 86,715 0.82 146,432 2.35 (59,717) (40.8)
FHLB advances and other borrowings(2)
257,312 1.61 206,447 2.55 50,865 24.6
Total short-term borrowings 873,694 0.76 894,116 1.81 (20,422) (2.3)
Long-term borrowings:
FHLB advances 564,855 1.88 577,835 2.50 (12,980) (2.2)
Other long-term debt 675,398 4.05 387,276 4.49 288,122 74.4
Total long-term borrowings 1,240,253 3.06 965,111 3.30 275,142 28.5
Total borrowings $ 2,113,947 2.11 % $ 1,859,227 2.58 % $ 254,720 13.7 %

~~(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 $20.4 million, or 2.3%, primarily as a result of a $59.7 million, or 40.8%, decrease in federal funds purchased partially offset by a $50.9 million increase in short-term FHLB advances and other borrowings. The average cost of short-term borrowings decreased 105 bp, mainly due to the net impact of changes in the Fed Funds Rate.

Average total long-term borrowings increased $275.1 million, or 28.5%, during the first nine months of 2020, compared to the same period of 2019, as a result of the issuance of $375.0 million of subordinated notes in March of 2020, partially offset by a decrease in average FHLB advances.

~~Provision for Credit Losses~~

The provision for credit losses was $70.7 million for first nine months of 2020, an increase of $58.4 million from the same period of 2019. The increase was the result of several factors, most notably, the overall uncertainty in economic forecasts due to COVID-19.

~~Non-Interest Income~~

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

Nine months ended September 30 Increase (Decrease)
2020 2019 $ %
(dollars in thousands)
Wealth management fees $ 43,405 $ 41,259 $ 2,146 5.2 %
Commercial banking:
Merchant and card 17,187 18,236 (1,049) (5.8)
Cash management 13,987 13,695 292 2.1
Capital markets 14,775 11,015 3,760 34.1
Other commercial banking 7,528 10,109 (2,581) (25.5)
Total commercial banking 53,477 53,055 422 0.8
Consumer banking:
Card 14,653 15,524 (871) (5.6)
Overdraft 9,180 13,199 (4,019) (30.4)
Other consumer banking 6,967 8,354 (1,387) (16.6)
Total consumer banking 30,800 37,077 (6,277) (16.9)
Mortgage banking:
Gains on sales of mortgage loans 42,208 13,822 28,386 N/M
Mortgage servicing income (9,210) 4,203 (13,413) N/M
Total mortgage banking 32,998 18,023 14,975 83.1
Other 10,080 6,733 3,347 49.7
Non-interest income before investment securities gains 170,761 156,147 14,614 9.4
Investment securities gains, net 3,053 4,733 (1,680) (35.5)
Total Non-Interest Income $ 173,814 $ 160,879 $ 12,935 8.0 %

~~N/M - Not meaningful~~

~~Wealth management revenues increased $2.1 million, or 5.2%, resulting primarily from growth in brokerage income due to an increase in client asset levels and improved overall market performance.~~

Total commercial banking income increased $422,000, or 0.8%, compared to the same period in 2019, driven by increases in capital markets revenues, primarily commercial loan interest rate swap income, partially offset by decreases in other commercial banking income, primarily other services charges on deposits and Small Business Administration income, and merchant and card income as a result of COVID-19.

~~Total consumer banking income decreased $6.3 million, or 16.9%, compared to the same period in 2019, primarily driven by lower overdraft fees activity.~~

Mortgage banking income increased $15.0 million, or 83.1%, driven by an increase in gains on sales of mortgage loans, partially offset by a decrease in mortgage servicing income. The increase in gains on sales of mortgage loans reflected increases in both the volume of loans sold and higher spreads on sales. The decrease in mortgage servicing income was driven by a $9.2 million increase to the valuation allowance for MSRs.

~~Other income increased $3.3 million, or 49.7%, as a result of additional investments made in bank owned life insurance in 2019 and gains on sales of certain properties.~~

Investment securities gains, net were $3.0 million as the result of a limited balance sheet restructuring that included the sale of investment securities, with an amortized cost of $79.0 million and an estimated fair value of $82.0 million that the Corporation completed during the second quarter of 2020. Offsetting these gains were $2.9 million of prepayment penalties recorded in non-interest expense for the redemption of FHLB advances.

During the third quarter of 2019, the Corporation completed a balance sheet restructuring involving the sale of approximately $400 million of investment securities and a corresponding prepayment of FHLB advances. As a result of these transactions, $4.5 million of investment securities gains were realized during the third quarter of 2019. Offsetting these gains were $4.3 million of prepayment penalties recorded in non-interest expense for the redemption of FHLB advances.

~~Non-Interest Expense~~

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

Nine months ended September 30 Increase (Decrease)
2020 2019 $ %
(dollars in thousands)
Salaries and employee benefits $ 240,467 $ 234,959 $ 5,508 2.3 %
Net occupancy 39,851 39,746 105 0.3
Data processing and software 36,123 33,211 2,912 8.8
Other outside services 23,098 31,774 (8,676) (27.3)
Professional fees 10,412 10,261 151 1.5
Equipment 10,322 10,100 222 2.2
State taxes 8,583 7,005 1,578 22.5
FDIC insurance 6,519 5,603 916 16.3
Marketing 4,029 8,345 (4,316) (51.7)
Amortization of tax credit investments 4,594 4,516 78 1.7
Intangible amortization 397 1,285 (888) (69.1)
Prepayment penalty on FHLB advances 2,878 4,326 (1,448) (33.5)
Other 37,431 37,631 (200) (0.5)
Total non-interest expense $ 424,705 $ 428,762 $ (4,057) (0.9) %

The $5.5 million, or 2.3%, increase in salaries and benefits reflects the net impact of changes in various items, including increases in salaries expense (due to normal merit increases) overtime expense, incentive compensation, health insurance expense and commissions (primarily mortgage banking). These increases were partially offset by higher deferrals of direct origination costs as a result of higher loan origination volumes and lower defined benefit plan expense.

~~Data processing and software increased $2.9 million, or 8.8%, reflecting higher transaction volumes and costs related to technology initiatives.~~

Other outside services decreased $8.7 million, or 27.3%, as the 2019 period included $6.6 million of expense associated with Charter Consolidation. Marketing expense also declined $4.3 million, or 51.7%, due to higher marketing expense associated with the Charter Consolidation in 2019.

~~State taxes increased $1.6 million, or 22.5%, primarily driven by an increase in Pennsylvania Bank Shares and Virginia franchise tax expenses, both due to growth in total assets and equity.~~

~~FDIC insurance increased $916,000, or 16.3%, compared to the same period in 2019, which included the recognition of assessment credits in the third quarter.~~

The Corporation redeemed certain long-term FHLB advances in the second quarter of 2020, which resulted in prepayment penalties of $2.9 million compared to 2019, which included approximately $4.3 million of penalties related to the prepayment of certain FHLB advances in conjunction with the balance sheet restructuring that was completed in the third quarter of 2019.

~~Income Taxes~~

Income tax expense for the nine months ended September 30, 2020 was $18.8 million, an $11.6 million decrease from $30.4 million for the same period in 2019. The Corporation’s ETR was 12.9% for the nine months ended September 30, 2020, as compared to 14.5% in the same period of 2019. The decrease in income tax expense and the ETR primarily resulted from a

decrease in income before taxes. 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.

~~FINANCIAL CONDITION~~

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

September 30, 2020 December 31, 2019 Increase (Decrease)
$ %
Assets (dollars in thousands)
Cash and cash equivalents $ 1,534,890 $ 517,791 $ 1,017,099 N/M
FRB and FHLB Stock 93,964 97,422 (3,458) (3.5)
Loans held for sale 93,621 37,828 55,793 147.5
Investment securities 3,097,721 2,867,378 230,343 8.0
Net Loans 18,761,796 16,673,904 2,087,892 12.5
Premises and equipment 236,943 240,046 (3,103) (1.3)
Goodwill and intangibles 534,907 535,303 (396) (0.1)
Other assets 1,189,439 916,368 273,071 29.8
Total Assets $ 25,543,281 $ 21,886,040 $ 3,657,241 16.7 %
Liabilities and Shareholders’ Equity
Deposits $ 20,730,051 $ 17,393,913 $ 3,336,138 19.2 %
Short-term borrowings 611,727 883,241 (271,514) (30.7)
Long-term borrowings 1,296,012 881,769 414,243 47.0
Other liabilities 515,230 384,941 130,289 33.8
Total Liabilities 23,153,020 19,543,864 3,609,156 18.5
Total Shareholders’ Equity 2,390,261 2,342,176 48,085 2.1
Total Liabilities and Shareholders’ Equity $ 25,543,281 $ 21,886,040 $ 3,657,241 16.7 %

~~N/M - Not meaningful~~

~~Cash and Cash Equivalents~~

The $1.0 billion increase in cash and cash equivalents mainly resulted from additional cash maintained at the FRB due to deposit growth as well as additional collateral required to be posted with counterparties for derivative contracts.

~~Loans held for sale~~

~~Loans held for sale increased $55.8 million, or 147.5%, primarily as the result of an increase in the volume of residential mortgage originations due to higher refinancing activity.~~

Investment Securities

The following table presents the carrying amount of investment securities:


		September 30, 2020		December 31, 2019				Increase (Decrease)							June 30, 2021			December 31, 2020			Increase (Decrease)
						$				%							$				%
Available for Sale	Available for Sale	(dollars in thousands)												Available for Sale			(dollars in thousands)

U.S. Government securities														U.S. Government securities	$	153,545		$	—		$	153,545		N/M
U.S. Government sponsored agency securities														U.S. Government sponsored agency securities	62,431			—			62,431			N/M
State and municipal securities	State and municipal securities	$	926,554			$	652,927			$	273,627			41.9	%	State and municipal securities	1,055,462			952,613			102,849			10.8	%
Corporate debt securities	Corporate debt securities	342,558		377,357				(34,799)				(9.2)		Corporate debt securities	371,381			367,145			4,236			1.2
Collateralized mortgage obligations	Collateralized mortgage obligations	532,473		693,718				(161,245)				(23.2)		Collateralized mortgage obligations	307,165			503,766			(196,601)			(39.0)
Residential mortgage-backed securities	Residential mortgage-backed securities	321,695		177,312				144,383				81.4		Residential mortgage-backed securities	201,547			377,998			(176,451)			(46.7)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	572,210		494,297				77,913				15.8		Commercial mortgage-backed securities	871,010			762,415			108,595			14.2
Auction rate securities	Auction rate securities	97,990		101,926				(3,936)				(3.9)		Auction rate securities	74,834			98,206			(23,372)			(23.8)

Total available for sale securities	Total available for sale securities	2,793,480		2,497,537				295,943				11.8		Total available for sale securities	$	3,097,375		$	3,062,143		$	35,232		1.2	%
Held to Maturity	Held to Maturity													Held to Maturity

Residential mortgage-backed securities	Residential mortgage-backed securities	304,241		369,841				(65,600)				(17.7)		Residential mortgage-backed securities	$	439,220		$	278,281		$	160,939		57.8	%

Commercial mortgage-backed securities														Commercial mortgage-backed securities	385,063			—			385,063			N/M
Total held to maturity securities														Total held to maturity securities	$	824,283		$	278,281		$	546,002		N/M

Total Investment Securities	Total Investment Securities	$	3,097,721	$	2,867,378			$	230,343			8.0	%	Total Investment Securities	$	3,921,658		$	3,340,424		$	581,234		17.4	%

Total AFS securities increased ~~$295.9~~$35.2 million, or ~~11.8%~~1.2%, primarily ~~due to~~as the ~~investment of a portion~~result of the ~~proceeds from the issuance~~purchase of ~~$375.0~~$153.5 million and $62.4 million of ~~subordinated notes,~~U.S. Government securities and U.S. Government sponsored agency securities, respectively. The increase was partially offset by $376.2 million of residential and commercial mortgage backed securities transferred from the ~~sale of investment securities,~~AFS classification to the HTM classification. In addition, the Corporation sold ARCs with an estimated fair value of ~~$82.0~~$24.6 million ~~completed~~ during the ~~second~~first quarter of 2020 as part of a limited balance sheet restructuring that included the redemption of FHLB advances. See Note 14, "Long-Term Debt," in the Notes to Consolidated Financial Statements for additional detail on the subordinated notes issuance. 2021.

Total HTM securities ~~decreased $65.6~~increased $546.0 million, ~~or 17.7%,~~ primarily as a result of ~~principal repayments and premium amortization. There were no~~the above mentioned transfer of AFS securities as well as purchases of ~~or transfers into HTM securities during the periods presented.~~additional mortgage-backed securities.

Loans

The following table presents ending balances of Net Loans:


		September 30, 2020			December 31, 2019			Increase (Decrease)						June 30, 2021					December 31, 2020			2021 vs. 2020 Increase (Decrease)
							$			%							$					%
				(dollars in thousands)														(dollars in thousands)
Real estate – commercial mortgage	Real estate – commercial mortgage	$	7,046,330		$	6,700,776		$	345,554		5.2	%	Real estate – commercial mortgage		$	7,152,932				$	7,105,092		$	47,840		0.7		%
Commercial and industrial (1)	Commercial and industrial (1)	5,968,154			4,446,701			1,521,453			34.2		Commercial and industrial (1)	4,985,414					5,670,828			(685,414)			(12.1)
Real estate – residential mortgage	Real estate – residential mortgage	3,061,835			2,641,465			420,370			15.9		Real estate – residential mortgage	3,555,897					3,141,915			413,982			13.2
Real estate – home equity	Real estate – home equity	1,222,709			1,314,944			(92,235)			(7.0)		Real estate – home equity	1,136,128					1,202,913			(66,785)			(5.6)
Real estate – construction	Real estate – construction	1,007,534			971,079			36,455			3.8		Real estate – construction	1,070,755					1,047,218			23,537			2.2
Consumer	Consumer	469,551			463,164			6,387			1.4		Consumer	448,433					466,772			(18,339)			(3.9)
Equipment lease financing and other	Equipment lease financing and other	274,570			322,625			(48,055)			(14.9)		Equipment lease financing and other	254,550					284,377			(29,827)			(10.5)
Overdrafts	Overdrafts	1,694			3,582			(1,888)			(52.7)		Overdrafts	1,843					4,806			(2,963)			(61.7)
Gross loans	Gross loans	19,052,377			16,864,336			2,188,041			13.0		Gross loans	18,605,952					18,923,921			(317,969)			(1.7)
Unearned income	Unearned income	(23,756)			(26,810)			3,054			(11.4)		Unearned income	(19,196)					(23,101)			3,905			(16.9)
Net Loans	Net Loans	$	19,028,621		$	16,837,526		$	2,191,095		13.0	%	Net Loans	$	18,586,756				$	18,900,820		$	(314,064)		(1.7)		%

(1) Includes PPP loans totaling ~~$2.0~~$1.1 billion ~~for the nine months ended September~~and $1.6 billion as of June 30, 2021 and December 31, 2020, respectively.

Net Loans ~~increased $2.2 billion,~~decreased $314.1 million, or ~~13.0%~~1.7%, in comparison to December 31, ~~2019,~~2020, primarily due ~~to growth~~the forgiveness of approximately $1.2 billion PPP loans during the first six months of 2021. Growth in ~~commercial and industrial loans and~~the commercial and residential mortgage portfolios and construction loans partially offset by decreases in ~~home equity loans~~the commercial and ~~equipment lease financing.~~ 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 ~~loans~~loan portfolio was impacted by the net effect of the forgiveness of approximately ~~$2.0~~$1.2 billion of PPP ~~loans.~~loans and the origination of approximately $753 million of new PPP loans during the first six 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 ~~$8.1~~$8.2 billion, or ~~42.3%~~44.2%, of the loan portfolio was in commercial mortgage and construction loans as of

~~September~~ June 30, ~~2020.~~2021. The Corporation's internal policy limited its maximum total lending commitment to an individual borrowing relationship to $55 million as of ~~September~~June 30, ~~2020.~~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, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Real estate (1)	Real estate (1)	39.4	%	41.4	%	Real estate (1)	44.7	%	41.4	%
Health care	Health care	7.3		8.1		Health care	7.6		8.7
Agriculture	Agriculture	5.9		7.1		Agriculture	6.3		6.4
Construction (2)		4.4		6.2
Manufacturing	Manufacturing	4.9		6.0		Manufacturing	5.2		6.3
Other services (3)	Other services (3)	4.5		4.7		Other services (3)	5.2		5.1
Construction (2)						Construction (2)	4.3		6.4
Hospitality and food services						Hospitality and food services	4.0		4.2
Educational services						Educational services	3.1		3.3
Retail	Retail	3.3		4.2		Retail	3.0		3.8
Hospitality and food services		3.6		4.1
Wholesale trade	Wholesale trade	2.4		3.6		Wholesale trade	3.0		3.3
Educational services		2.8		4.1
Arts, entertainment and recreation						Arts, entertainment and recreation	2.7		2.4
Professional, scientific and technical services	Professional, scientific and technical services	2.0		2.9		Professional, scientific and technical services	2.2		3.6
Arts, entertainment and recreation		2.2		2.2
Public administration	Public administration	1.6		2.0		Public administration	1.5		1.7
Transportation and warehousing	Transportation and warehousing	1.3		1.2		Transportation and warehousing	1.4		1.7
Other (4)		14.4		2.2
Other (4) (5)						Other (4) (5)	5.8		1.7
Total	Total	100.0	%	100.0	%	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 and $2.0 billion~~sector.

(5)Includes $790.7 million of PPP ~~loans.~~

loans, consisting primarily of loans originated during the six months ended June 30, 2021, as of June 30, 2021 and $136.7 million of PPP loans as of December 31, 2020. The remaining PPP loans were included within their respective industry classification above as of both June 30, 2021 and December 31, 2020.

6664

The following table presents the changes in non-accrual loans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


		Commercial and Industrial		Real Estate - Commercial Mortgage		Real Estate - Construction		Real Estate - Residential Mortgage		Real Estate - Home Equity		Consumer		Equipment Lease Financing		Total			Commercial and Industrial		Real Estate - Commercial Mortgage		Real Estate - Construction		Real Estate - Residential Mortgage		Real Estate - Home Equity		Consumer		Equipment Lease Financing		Total
		(in thousands)																	(in thousands)
Three months ended September 30, 2020
Balance at June 30, 2020		$	39,379	$	40,775	$	3,482	$	16,890	$	7,723	$	—	$	16,823	$	125,072
Three months ended June 30, 2021																		Three months ended June 30, 2021
Balance at March 31, 2021																		Balance at March 31, 2021	$	31,652	$	51,977	$	1,441	$	33,401	$	9,368	$	301	$	15,749	$	143,889
Additions																		Additions	8,153		18,395		—		2,779		607		924		309		31,167
Payments																		Payments	(5,670)		(9,982)		(425)		(909)		(484)		(20)		(32)		(17,522)
Charge-offs																		Charge-offs	(954)		(6,506)		—		(496)		(212)		(918)		(128)		(9,214)

Transfers to OREO																		Transfers to OREO	—		(456)		—		—		—		—		—		(456)
Balance at June 30, 2021																		Balance at June 30, 2021	$	33,181	$	53,428	$	1,016	$	34,775	$	9,279	$	287	$	15,898	$	147,864

Six months ended June 30, 2021																		Six months ended June 30, 2021
Balance at December 31, 2020																		Balance at December 31, 2020	$	31,993	$	51,470	$	1,395	$	26,107	$	9,588	$	332	$	16,312	$	137,197
Additions	Additions	4,585		5,703		150		8,624		1,778		936		230		22,006		Additions	18,063		24,457		404		10,423		1,228		1,549		482		56,606
Payments	Payments	(5,721)		(4,775)		(2,010)		(186)		(276)		—		(133)		(13,101)		Payments	(11,540)		(13,231)		(744)		(1,067)		(839)		(41)		(84)		(27,546)
Charge-offs	Charge-offs	(2,969)		(746)		—		(198)		(393)		(701)		(230)		(5,237)		Charge-offs	(5,273)		(8,343)		(39)		(688)		(424)		(1,553)		(812)		(17,132)
Transfers to accrual status	Transfers to accrual status	—		(31)		—		(237)		(150)		—		—		(418)		Transfers to accrual status	—		—		—		—		(274)		—		—		(274)
Transfers to OREO	Transfers to OREO	—		—		(1)		—		—		—		—		(1)		Transfers to OREO	(62)		(925)		—		—		—		—		—		(987)
Balance at September 30, 2020		$	35,274	$	40,926	$	1,621	$	24,893	$	8,682	$	235	$	16,690	$	128,321

Nine months ended September 30, 2020
Balance at December 31, 2019		$	48,106	$	33,166	$	3,618	$	16,676	$	7,004	$	—	$	16,528	$	125,098
Additions		31,088		22,409		153		10,661		4,123		2,994		1,688		73,116
Payments		(26,572)		(10,677)		(2,132)		(729)		(1,051)		—		(828)		(41,989)
Charge-offs		(17,348)		(3,925)		(17)		(620)		(1,167)		(2,759)		(698)		(26,534)
Transfers to accrual status		—		(31)		—		(237)		(227)		—		—		(495)
Transfers to OREO		—		(16)		(1)		(858)		—		—		—		(875)
Balance at September 30, 2020		$	35,274	$	40,926	$	1,621	$	24,893	$	8,682	$	235	$	16,690	$	128,321
Balance at June 30, 2021																		Balance at June 30, 2021	$	33,181	$	53,428	$	1,016	$	34,775	$	9,279	$	287	$	15,898	$	147,864

Non-accrual loans increased approximately ~~$3.2~~$4.0 million, or ~~2.6%~~2.8%, in comparison to ~~both June 30, 2020 and December~~March 31, ~~2019~~2021, primarily as a result of additions to non-accrual loans during the ~~respective periods,~~period, partially offset by payments and charge-offs.

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


		September 30, 2020			December 31, 2019					June 30, 2021			December 31, 2020
		(dollars in thousands)						(dollars in thousands)
Non-accrual loans	Non-accrual loans	$	128,321		$	125,098			Non-accrual loans	$	147,864		$	137,198
Loans 90 days or more past due and still accruing	Loans 90 days or more past due and still accruing	13,761			16,057				Loans 90 days or more past due and still accruing	5,865			9,929
Total non-performing loans	Total non-performing loans	142,082			141,155				Total non-performing loans	153,729			147,127
OREO (1)	OREO (1)	4,565			6,831				OREO (1)	2,779			4,178
Total non-performing assets	Total non-performing assets	$	146,647		$	147,986			Total non-performing assets	$	156,508		$	151,305

Non-performing loans to total loans	Non-performing loans to total loans	0.75		%	0.84		%		Non-performing loans to total loans	0.83		%	0.78		%
Non-performing assets to total assets	Non-performing assets to total assets	0.57		%	0.68		%		Non-performing assets to total assets	0.60		%	0.58		%

ACL - loans to non-performing loans	ACL - loans to non-performing loans	188		%	116		%		ACL - loans to non-performing loans	166		%	189		%

Non-performing loans increased ~~$927,000,~~$6.6 million, or ~~0.7%~~4.5%, in comparison to December 31, ~~2019.~~2020. Non-performing loans as a percentage of total loans were ~~0.75%~~0.83% at ~~September~~June 30, ~~2020~~2021 in comparison to ~~0.84%~~0.78% at December 31, ~~2019.~~2020. See Note 4, ~~"Allowance~~"Loans and Allowance for Credit Losses, ~~and Asset Quality,~~" 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, 2020		December 31, 2019				June 30, 2021		December 31, 2020
		(in thousands)				(in thousands)
Real estate - commercial mortgage							Real estate - commercial mortgage	$	14,651	$	28,451
Commercial and industrial							Commercial and industrial	6,765		6,982
Real estate - residential mortgage	Real estate - residential mortgage	$	19,427	$	21,551		Real estate - residential mortgage	16,861		18,602
Real estate - home equity	Real estate - home equity	14,875		15,068			Real estate - home equity	13,566		14,391
Real estate - commercial mortgage		28,558		13,330
Commercial and industrial		7,328		5,193
Real estate - construction							Real estate - construction	153		—
Consumer							Consumer	4		—

Consumer		—		8
Total accruing TDRs	Total accruing TDRs	70,188		55,150			Total accruing TDRs	52,000		68,426
Non-accrual TDRs (1)	Non-accrual TDRs (1)	37,025		20,825			Non-accrual TDRs(1)	60,504		35,755
Total TDRs	Total TDRs	$	107,213	$	75,975		Total TDRs	$	112,504	$	104,181

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

The Company has adopted a disaster relief and assistance program and has provided assistance through payment deferrals and forbearances to consumer, small business and commercial customers that have been impacted by COVID-19.

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, ~~"Allowance~~"Loans and Allowance for Credit Losses, ~~and Asset Quality,~~" in the Notes to Consolidated Financial Statements.

Total internally risk-rated loans were ~~$13.9~~$13.1 billion, of which ~~$796.4 million~~$1.1 billion were criticized and classified, as of ~~September~~June 30, ~~2020,~~2021, and ~~$12.0~~$13.7 billion, of which ~~$662.6~~$961.1 million were criticized and classified, as of December 31, ~~2019.~~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							Special Mention (1)						Increase (Decrease)			Substandard or Lower (2)						Increase (Decrease)			Total Criticized and Classified Loans
		September 30, 2020			December 31, 2019			$		%		September 30, 2020			December 31, 2019			$		%		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020			$		%	June 30, 2021			December 31, 2020			$		%	June 30, 2021			December 31, 2020
		(dollars in thousands)																											(dollars in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	268,983		$	137,163		$	131,820	96.1	%	$	156,050		$	134,206		$	21,844	16.3	%	$	425,033		$	271,369		Real estate - commercial mortgage	$	541,773		$	478,165		$	63,608	13.3%	$	238,088		$	181,970		$	56,118	30.8%	$	779,861		$	660,135
Commercial and industrial	Commercial and industrial	178,645			181,107			(2,462)		(1.4)		171,270			199,760			(28,490)		(14.3)		349,915			380,867			Commercial and industrial	143,198			154,039			(10,841)		(7.0)	152,383			128,175			24,208		18.9	295,581			282,214
Real estate - construction (3)	Real estate - construction (3)	13,450			4,219			9,231		N/M		7,973			6,137			1,836		29.9		21,423			10,356			Real estate - construction (3)	19,092			13,259			5,833		44.0	3,942			5,469			(1,527)		(27.9)	23,034			18,728
Total	Total	$	461,078		$	322,489		$	138,589	43.0	%	$	335,293		$	340,103		$	(4,810)	(1.4)	%	$	796,371		$	662,592		Total	$	704,063		$	645,463		$	58,600	9.1%	$	394,413		$	315,614		$	78,799	25.0%	$	1,098,476		$	961,077

% of total risk rated loans	% of total risk rated loans	3.3		%	2.7		%					2.4		%	2.8		%					5.7		%	5.5		%	% of total risk rated loans	5.4		%	4.7		%				3.0		%	2.3		%				8.4		%	7.0		%

(1) Considered "criticized" loans by banking regulators

(2) Considered "classified" loans by banking regulators

(3) Excludes construction - other

~~N/M - Not meaningful~~

The increase in loans with internal risk ratings of substandard or lower that occurred during the six months ended June 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.

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Provision and Allowance for Credit Losses

The following table presents the components of the ACL:


		September 30, 2020			December 31, 2019				June 30, 2021		December 31, 2020
		(dollars in thousands)							(dollars in thousands)
ACL - loans	ACL - loans	$	266,825		$	163,622		ACL - loans	$	255,032	$	277,567
ACL - OBS credit exposure (1)	ACL - OBS credit exposure (1)	15,533			2,587			ACL - OBS credit exposure (1)	14,773		14,373
Total ACL	Total ACL	$	282,358		$	166,209		Total ACL	$	269,805	$	291,940

ACL - loans to net loans outstanding		1.40		%	0.97		%

(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							Three months ended June 30						Six months ended June 30
		2020			2019			2020			2019				2021			2020			2021			2020
		(dollars in thousands)													(dollars in thousands)
Average balance of net loans		$	18,880,519		$	16,436,507		$	18,027,253		$	16,316,540
Average balance of Net Loans														Average balance of Net Loans	$	18,906,556		$	18,331,797		$	18,943,367		$	17,595,932

Balance of ACL - loans at beginning of period		$	256,537		$	170,233		$	163,622		$	160,537
Balance of ACL at beginning of period														Balance of ACL at beginning of period	$	265,986		$	238,508		$	277,567		$	163,622
Impact of adopting CECL on January 1, 2020	Impact of adopting CECL on January 1, 2020	—			—			45,723			—			Impact of adopting CECL on January 1, 2020	—			—			—			45,723
Loans charged off:	Loans charged off:													Loans charged off:
Real estate – commercial mortgage														Real estate – commercial mortgage	6,506			2,324			8,343			3,179
Commercial and industrial	Commercial and industrial	2,969			7,181			17,348			11,863			Commercial and industrial	954			3,480			5,273			14,379
Real estate – residential mortgage														Real estate – residential mortgage	496			235			688			422
Real estate – home equity														Real estate – home equity	212			458			424			745
Real estate – construction														Real estate – construction	—			17			39			17
Consumer	Consumer	701			877			2,788			2,355			Consumer	918			845			1,553			2,087
Real estate – commercial mortgage		746			394			3,925			1,769
Real estate – home equity		393			498			1,138			923
Real estate – residential mortgage		198			533			620			1,322
Real estate – construction		—			45			17			143
Equipment lease financing and other	Equipment lease financing and other	483			600			1,704			1,833			Equipment lease financing and other	436			688			1,404			1,221
Total loans charged off	Total loans charged off	5,490			10,128			27,540			20,208			Total loans charged off	9,522			8,047			17,724			22,050
Recoveries of loans previously charged off:	Recoveries of loans previously charged off:													Recoveries of loans previously charged off:
Real estate – commercial mortgage														Real estate – commercial mortgage	729			95			903			339
Commercial and industrial	Commercial and industrial	2,103			2,311			6,815			6,234			Commercial and industrial	693			2,978			1,462			4,712
Real estate – commercial mortgage		100			444			439			749
Real estate – residential mortgage														Real estate – residential mortgage	105			112			200			197
Real estate – home equity	Real estate – home equity	44			132			305			552			Real estate – home equity	58			44			109			261
Real estate – residential mortgage		95			440			292			783
Real estate – construction	Real estate – construction	4,873			164			4,943			1,493			Real estate – construction	254			—			638			70
Consumer	Consumer	447			216			1,481			1,005			Consumer	576			605			965			1,034
Equipment lease financing and other	Equipment lease financing and other	185			107			385			484			Equipment lease financing and other	153			92			312			200
Total recoveries	Total recoveries	7,847			3,814			14,660			11,300			Total recoveries	2,568			3,926			4,589			6,813
Net loans (recovered) charged off		(2,357)			6,314			12,880			8,908
Net loan charged off														Net loan charged off	6,954			4,121			13,135			15,237
Provision for credit losses (1)	Provision for credit losses (1)	7,930			2,170			70,359			12,295			Provision for credit losses (1)	(4,000)			22,150			(9,400)			62,429
Balance of ACL - loans at end of period		$	266,825		$	166,135		$	266,825		$	166,135
Balance of ACL at end of period														Balance of ACL at end of period	$	255,032		$	256,537		$	255,032		$	256,537

Net (recoveries) charge-offs to average loans (annualized)		(0.05)		%	0.15		%	0.10		%	0.07		%
Net charge-offs to average loans (annualized)														Net charge-offs to average loans (annualized)	0.15		%	0.09		%	0.14		%	0.17		%

(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~~six months ended ~~September~~June 30, 2021 was negative $4.0 million and negative $9.4 million, respectively, compared to a provision expense of $22.2 million and $62.4 million, respectively, recorded in the same periods of 2020. Several factors during the first six months of 2021 in comparison to the end of the fourth quarter of 2020, including improved economic forecasts, reduced the level of the ACL determined to be necessary at the end of both the first and second quarters of 2021. The higher provision during the first six months of 2020 was ~~$7.9 million and $70.4 million, respectively. Prior periods did not incorporate "life of loan"~~largely driven by the overall downturn in economic forecasts due to COVID-19, resulting in higher expected future credit losses under ~~CECL and applied an incurred loss model, which would not have considered economic forecasts or forward-looking consideration over the remaining expected~~CECL. The

6967

~~lives of loans. The amounts recorded for the three and nine months ended September 30, 2020 were primarily driven by economic assumptions, which considered~~ACL includes qualitative adjustments, as appropriate, intended to capture the impact of ~~COVID-19.~~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 ~~recoveries~~loan charge offs in the three months ended ~~September~~June 30, ~~2020 were an improvement of $8.7~~2021 increased $2.8 million compared to the same period of ~~2019, primarily due to real estate construction recoveries of $4.9 million. However, net charge-offs in~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2020 were $4.0~~2021, net loan charge offs decreased $2.1 million ~~higher~~ compared to the same period of 2019. Annualized net (recoveries) charge-offs as a percentage of average loans for the three and nine months ended September 30, 2020 were (0.05)% and 0.10%, respectively, as compared to 0.15% and 0.07% during the same periods of 2019.2020.

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


		September 30, 2020				December 31, 2019						June 30, 2021				December 31, 2020
		ACL - loans		% In Each Loan Category (1)		ACL - loans		% In Each Loan Category (1)				ACL - loans		% In Each Loan Category (1)		ACL - loans		% In Each Loan Category (1)
		(dollars in thousands)								(dollars in thousands)
Real estate - commercial mortgage	Real estate - commercial mortgage	$	111,855	37.0	%	$	45,610	39.7	%		Real estate - commercial mortgage	$	95,381	38.3	%	$	103,425	37.6	%
Commercial and industrial	Commercial and industrial	58,838		31.3		68,602		26.4			Commercial and industrial	65,404		26.8		74,771		30.0
Real estate - residential mortgage	Real estate - residential mortgage	48,353		16.1		19,771		15.7			Real estate - residential mortgage	54,188		19.1		51,995		16.6
Real estate - home equity		16,298		6.4		17,744		7.8
Consumer		10,305		2.5		3,762		2.7
Consumer, home equity, equipment lease financing											Consumer, home equity, equipment lease financing	27,405		9.9		31,770		10.3
Real estate - construction	Real estate - construction	15,010		5.3		4,443		5.8			Real estate - construction	12,654		5.8		15,608		5.5
Equipment lease financing and other		6,166		1.4		3,690		1.9	%

Total ACL - loans	Total ACL - loans	$	266,825	100.0	%	$	163,622	100.0	%		Total ACL - loans	$	255,032	100.0	%	$	277,567	100.0	%

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

~~Other Assets~~

Other assets increased $273.1 million, or 29.8%, primarily due to higher fair values of derivative contracts for commercial loan interest rate swaps, an increase in the net deferred tax asset as the result of the adoption of CECL and a reclassification from accrued federal income tax, partially offset by the increase to the valuation allowance for MSRs.

Deposits and Borrowings

The following table presents ending deposits, by type:


		September 30, 2020			December 31, 2019			Increase (Decrease)						June 30, 2021					December 31, 2020			Increase (Decrease)
							$			%							$					%
				(dollars in thousands)														(dollars in thousands)
Noninterest-bearing demand	Noninterest-bearing demand	$	6,378,077		$	4,453,324		$	1,924,753		43.2	%	Noninterest-bearing demand		$	7,442,132				$	6,531,002		$	911,130		14.0		%
Interest-bearing demand	Interest-bearing demand	5,813,935			4,720,188			1,093,747			23.2		Interest-bearing demand	5,795,404					5,818,564			(23,160)			(0.4)
Savings	Savings	5,805,431			5,153,941			651,490			12.6		Savings	6,276,554					5,929,792			346,762			5.8
Total demand and savings	Total demand and savings	17,997,443			14,327,453			3,669,990			25.6		Total demand and savings	19,514,090					18,279,358			1,234,732			6.8
Brokered deposits	Brokered deposits	317,588			264,531			53,057			20.1		Brokered deposits	277,444					335,185			(57,741)			(17.2)
Time deposits	Time deposits	2,415,020			2,801,929			(386,909)			(13.8)		Time deposits	1,932,778					2,224,664			(291,886)			(13.1)
Total deposits	Total deposits	$	20,730,051		$	17,393,913		$	3,336,138		19.2	%	Total deposits	$	21,724,312				$	20,839,207		$	885,105		4.2		%

Total demand and savings accounts increased ~~$3.7~~$1.2 billion, or ~~25.6%~~6.8%, driven by increases in ~~all categories~~noninterest-bearing demand and savings accounts, primarily as the result of ~~the funding of various government stimulus programs, which largely remained~~strong customer liquidity. These increases were partially offset by decreases in ~~customer deposit accounts during the second~~interest-bearing demand, brokered and ~~third quarters, and seasonal increases in municipal accounts.~~time deposits.

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The following table presents ending borrowings, by type:

September 30, 2020 December 31, 2019 Increase (Decrease)
$ %
(dollars in thousands)
Short-term borrowings:
Customer funding(1)
$ 611,727 $ 383,241 $ 228,486 59.6 %
FHLB advances and other borrowings (2)
— 500,000 (500,000) N/M
Total short-term borrowings 611,727 883,241 (271,514) (30.7)
Long-term borrowings:
FHLB advances 535,986 491,024 44,962 9.2
Other long-term debt 760,026 390,745 369,281 94.5
Total long-term borrowings 1,296,012 881,769 414,243 47.0
Total borrowings $ 1,907,739 $ 1,765,010 $ 142,729 8.1 %

~~N/M - Not meaningful~~


	June 30, 2021		December 31, 2020		Increase (Decrease)
					$		%
	(dollars in thousands)
Short-term borrowings:
Customer funding (1)	$	533,749	$	630,066	$	(96,317)	(15.3)	%


Total short-term borrowings	533,749		630,066		(96,317)		(15.3)
Long-term borrowings:
FHLB advances	—		535,973		(535,973)		(100.0)
Other long-term borrowings	627,213		760,290		(133,077)		(17.5)
Total long-term borrowings	627,213		1,296,263		(669,050)		(51.6)
Total borrowings	$	1,160,962	$	1,926,329	$	(765,367)	(39.7)	%

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

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

Total short-term borrowings decreased ~~$271.5~~$96.3 million, or ~~30.7%, due to a $500.0 million decrease in short-term FHLB advances and other borrowings partially offset by an increase of $228.5 million, or 59.6%, in customer funding.~~15.3%. The decrease in short-term borrowings was a result of higher balances of deposits, ~~and the increase in long-term borrowings,~~ reducing the need for short-term borrowings. ~~Long-term FHLB advances increased $45.0 million, or 9.2%, and other~~Total long-term ~~debt increased $369.3 million as the result of the issuance of $375.0 million of subordinated notes in March 2020 as~~borrowings decreased $669.1 million. As discussed in the "Overview" section of Management's ~~Discussion.~~

~~Other Liabilities~~

~~Other liabilities increased $130.3~~Discussion, as part of a balance sheet restructuring, the Corporation prepaid $536.0 million ~~or 33.8%, primarily as the result~~ of ~~an increase~~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 ~~fair values of derivative contracts related~~Notes to ~~commercial loan interest rate swaps.~~Consolidated Financial Statements for further details.

Shareholders' Equity

Total shareholders’ equity increased ~~$48.1~~$76.1 million during the first ~~nine~~six months of ~~2020.~~2021. The increase was due primarily to ~~$127.2~~$138.0 million of net income, ~~and~~partially offset by $45.6 million of common stock cash dividends, a ~~$57.1~~$17.9 million ~~increase~~decrease in ~~accumulated other comprehensive income,~~AOCI, mainly due to ~~improvements~~declines in fair values of AFS securities, ~~partially offset by a $43.8 million reduction to retained earnings as a result of the adoption of CECL on January 1, 2020, $39.7~~and $5.2 million of ~~common~~preferred stock ~~repurchases and $63.1 million of common stock cash~~ dividends.

In ~~October 2019,~~February 2021, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to ~~$100.0~~$75.0 million of its outstanding shares of common stock, or approximately ~~3.9%~~3.2% of its outstanding shares, through December 31, ~~2020~~2021. During the first quarter of 2020, 2.9 million shares were repurchased at a total cost of $39.7 million, or $13.65 per share, under this program. Up to an additional $60.3 million of the Corporation's common stock may be repurchased under this program. Under the repurchase program, repurchased shares ~~were~~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 and was suspended in mid-March in order to preserve liquidity in response to potential unknown economic impacts~~time. No repurchases of common stock were made under this program during the ~~COVID-19 pandemic.~~six months ended June 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 and a Tier 1 capital ratio of 6.00% of risk-weighted~~ assets;

•~~Continue to require~~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 ~~leverage~~ capital ratio of ~~4.00%~~6.00% of ~~average~~risk-weighted assets; ~~and~~

•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, ~~have been phased out~~are excluded as a component of Tier 1 capital for institutions of the Corporation's size.

The Corporation and Fulton Bank are also required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments.

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

As of ~~September~~June 30, ~~2020,~~2021, the Corporation's capital levels met the fully phased-in minimum capital requirements, including the ~~new~~ 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 ~~has~~ elected to apply the amended rule to the regulatory capital treatment for the adoption of CECL.

As of ~~September~~June 30, ~~2020,~~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. In October 2020, the Corporation issued 8,000,000 depositary shares of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and received net proceeds from the offering of $193.7 million, after deducting underwriting discounts and commissions and before deducting transaction expenses payable by the Corporation. See Note 15, "Subsequent Event," in the Notes to Consolidated Financial Statements for additional details. Preferred stock is included in both Tier 1 and Tier 2 regulatory capital, and would have the effect of increasing the Total Capital, Tier 1 Capital and Tier I Leverage Capital ratios by approximately 1.00%. There were no other conditions or events since ~~September~~June 30, ~~2020~~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:


		September 30, 2020		December 31, 2019		Regulatory Minimum for Capital Adequacy		Fully Phased-in, with Capital Conservation Buffers			June 30, 2021		December 31, 2020		Regulatory Minimum for Capital Adequacy		Fully Phased-in, with Capital Conservation Buffers
Total Capital (to Risk-Weighted Assets)	Total Capital (to Risk-Weighted Assets)	13.8	%	11.8	%	8.0	%	10.5	%	Total Capital (to Risk-Weighted Assets)	14.5	%	14.4	%	8.0	%	10.5	%
Tier I Capital (to Risk-Weighted Assets)	Tier I Capital (to Risk-Weighted Assets)	9.6	%	9.7	%	6.0	%	8.5	%	Tier I Capital (to Risk-Weighted Assets)	11.0	%	10.5	%	6.0	%	8.5	%
Common Equity Tier I (to Risk-Weighted Assets)	Common Equity Tier I (to Risk-Weighted Assets)	9.6	%	9.7	%	4.5	%	7.0	%	Common Equity Tier I (to Risk-Weighted Assets)	10.0	%	9.5	%	4.5	%	7.0	%
Tier I Leverage Capital (to Average Assets)	Tier I Leverage Capital (to Average Assets)	7.5	%	8.4	%	4.0	%	4.0	%	Tier I Leverage Capital (to Average Assets)	8.5	%	8.2	%	4.0	%	4.0	%

The increase in the total capital ratio from December 31, 2019 to September 30, 2020 was mainly due to the issuance of $375.0 million of subordinated notes, which is a component of Tier 2 Capital, in March 2020, as discussed in the "Overview" of Management's Discussion, partially offset by common stock repurchases during the quarter. The decrease in the Tier 1 Leverage Capital ratio was mainly due to growth in average assets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of market risk exposures generally faced by financial institutions include interest rate risk, equity market price risk, debt security market price risk, foreign currency price risk and commodity price risk. Due to the nature of its operations, foreign currency price risk and commodity price risk are not significant to the Corporation.

Interest Rate Risk, Asset/Liability Management and Liquidity

Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Corporation’s liquidity position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the Corporation’s net interest income and changes in the economic value of its equity.

The Corporation employs various management techniques to minimize its exposure to interest rate risk. An ALCO is responsible for reviewing the interest rate sensitivity and liquidity positions of the Corporation, approving asset and liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions.

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

Simulation of net interest income is performed for the next 12-month period. A variety of interest rate scenarios are used to measure the effects of sudden and gradual movements upward and downward in the yield curve. These results are compared to the results obtained in a flat or unchanged interest rate scenario. Simulation of net interest income is used primarily to measure the Corporation’s short-term earnings exposure to rate movements. The Corporation’s policy limits the potential exposure of net interest income, in a non-parallel instantaneous shock, to 10% of the base case net interest income for a 100 bp shock in interest rates, 15% for a 200 bp shock, ~~and~~ 20% for a 300 bp shock and 25% for a 400 bp shock. A "shock" is an immediate upward or downward movement of interest rates. The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor does it take into account the potential effects of competition on the pricing of deposits and loans over the forward 12-month period.

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

The following table summarizes the expected impact of abrupt interest rate changes, that is, a non-parallel instantaneous shock, on net interest income as of ~~September~~June 30, ~~2020~~2021 (due to the current level of interest rates, the downward shock scenarios are not shown):


Rate Shock(1)	Annual change in net interest income	% change in net interest income
+400 bp	+ ~~$116.3~~$186.1 million	~~18.7%~~30.4%
+300 bp	+ ~~$87.5~~$139.5 million	~~14.1%~~22.7%
+200 bp	+ ~~$58.0~~$92.4 million	~~9.3%~~15.1%
+100 bp	+ ~~$27.3~~$44.6 million	~~4.4%~~7.3%

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

Economic value of equity estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for like assets and liabilities. Abrupt changes or "shocks" in interest rates, both upward and downward, are used to determine the comparative effect of such interest rate movements relative to the unchanged environment. This measurement tool is used primarily to evaluate the longer-term repricing risks and options in the Corporation’s balance sheet. The

Corporation's policy limits the economic value of equity that may be at risk, in a non-parallel instantaneous shock, to 10% of the base case economic value of equity for a 100 bp shock in interest rates, 20% for a 200 bp shock and 30% for a 300 bp shock. As of September 30, 2020, the Corporation was within economic value of equity policy limits for every 100 bp shock.

Interest Rate Swaps

Cash Flow Hedges of Interest Rate Risk

Liquidity

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

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

Fulton Bank is a member of the FHLB and has access to FHLB overnight and term credit facilities. As of ~~September~~June 30, ~~2020,~~2021, the Corporation had ~~$539.0~~$3.0 million of borrowings outstanding from the FHLB with an additional borrowing capacity of approximately ~~$3.8~~ $5.4billion under these facilities. Advances from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets.

As of ~~September~~June 30, ~~2020,~~2021, the Corporation had aggregate federal funds lines of ~~$1.8~~$2.1 billion, with no outstanding borrowings. A combination of commercial real estate loans, commercial loans and securities are pledged to the ~~Federal Reserve Bank~~FRB of Philadelphia to provide access to ~~Federal Reserve Bank~~FRB Discount Window borrowings. As of ~~September~~June 30, ~~2020,~~2021, the Corporation had ~~$373~~$799.2 million of collateralized borrowing availability at the Discount Window, and no outstanding borrowings.

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

The Corporation’s sources and uses of funds were discussed in general terms in the "Net Interest Income" section of Management’s Discussion and Analysis. The consolidated statements of cash flows provide additional information. The Corporation’s operating activities during the first ~~nine~~six months of ~~2020~~2021 provided ~~$29.5~~$233.6 million of cash, mainly due to net income of ~~$127.2~~$138.0 million, ~~partially offset~~and by the net impact of other operating activities. Cash used in investing activities was ~~$2.4 billion,~~$217.3 million, mainly due to net increases in ~~loans and investments.~~investments, partially offset by net decreases in loans. Cash provided by financing activities was ~~$3.4 billion~~$39.9 million due ~~mainly~~ to increases in demand and savings ~~deposits.~~deposits, partially offset by the repayments of long-term borrowings and decreases in time deposits and short-term borrowings.

Debt Security Market Price Risk

Debt security market price risk is the risk that changes in the values of debt securities, unrelated to interest rate changes, could have a material impact on the financial position or results of operations of the Corporation. The Corporation’s debt security investments consist primarily of U.S. government sponsored agency issued residential mortgage-backed and commercial mortgage-backed securities and collateralized mortgage obligations, state and municipal ~~securities, U.S. government debt~~ securities, auction rate securities and corporate debt securities. All of the Corporation's investments in residential mortgage-backed ~~securities~~and commercial mortgage-backed and collateralized mortgage obligations have principal payments that are guaranteed by U.S. government sponsored agencies.

State and Municipal Securities

As of ~~September~~June 30, ~~2020,~~2021, the Corporation owned securities issued by various states orand municipalities with a total ~~cost basis of $880.5 million and~~ a fair value of ~~$926.6 million. Downward pressure~~$1.1 billion. Uncertainty with respect to the financial strength of state and municipal bond insurers places emphasis on the underlying strength of issuers. Pressure on local tax revenues of issuers due to adverse economic conditions could have an adverse impact on the underlying credit quality of issuers. The Corporation evaluates existing and potential holdings primarily based on the underlying creditworthiness of the issuing state or municipality and then, to a lesser extent, on any ~~underlying~~ credit enhancement. State orand municipal securities can be supported by the general obligation of the issuing state or municipality, allowing the securities to be repaid by any means available to the issuing state or municipality.As of ~~September~~June 30, ~~2020, approximately~~2021, substantially all of state and municipal securities were supported by the general obligation of corresponding states or municipalities. Approximately ~~64%~~65% of these securities were school district issuances, which are also supported by the states of the issuing municipalities.

~~Corporate Debt~~Auction Rate Securities

~~The Corporation holds corporate debt securities in the form of subordinated debt and senior debt issued by financial institutions.~~ As of ~~September~~June 30, ~~2020, these securities~~2021, the Corporation’s investments in ARCs had ~~an amortized~~a cost basis of ~~$327.1~~$76.4 million and an estimated fair value of ~~$342.6~~$74.8 million. ~~During the second quarter of 2020, the Corporation sold corporate debt securities with an amortized cost of $66.8 million and an estimated fair value of $66.9 million.~~

~~See "Note 9 - Fair Value Measurements," in the Notes to Consolidated Financial Statements for further discussion related to the~~The fair values of the ARCs currently in the portfolio were derived using significant unobservable inputs based on an expected cash flows model which produced fair values that may not represent those that could be expected from settlement of these investments in the current market. The expected cash flows model produced fair values which assumed a return to market liquidity sometime within the next five years. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid.

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

7572

~~PART II – OTHER INFORMATION~~

Item 4. Controls and Procedures

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

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

~~Item 4. Controls and Procedures~~

~~Changes in Internal Control over Financial Reporting~~

During the first quarter of 2020, the Corporation implemented new CECL accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes made to the Corporation’s internal control over financial reporting that materially affected, or would be reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Item 1A. Risk Factors

Item 1A. Risk Factors of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 include a discussion of the material risks and uncertainties that could adversely affect the Corporation's business, results of operations and financial condition. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in the Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

The Corporation may not be able to achieve the reductions in non-interest expenses expected to result from the recently announced plans to consolidate certain of its financial center offices and other cost-saving initiatives in the amount, or within the timeframe, anticipated, and those initiatives may have an adverse impact on the Corporation’s competitive position and ability to achieve its growth plans.

It is possible that the Corporation will not be able to implement its previously announced plans to consolidate certain of its financial center offices and other cost-saving initiatives as planned, achieve the reductions in non-interest expenses expected to result from these initiatives in the amount, or within the timeframe, anticipated, or create the cost efficiencies intended through these initiatives.Moreover, these initiatives could adversely impact the retention of customers and deposit balances, harm the Corporation’s relationships with its customers, weaken the Corporation’s competitive position, or make it more difficult for the Corporation to achieve its growth plans.~~Any of these circumstances, should they arise, could have a material adverse effect on the Corporation’s business or results of operations.~~

There have been no ~~other~~ material changes to the risk factors previously disclosed in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2019 and Part II, Item 1A of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020.

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

(a) None.

(b) None.

(c) ~~In October 2019,~~On February 9, 2021, the ~~Corporation's~~Corporation announced that its board of directors approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to ~~$100.0~~$75.0 million of its outstanding shares of common stock, or approximately ~~3.9%~~3.2% of its outstanding shares, through December 31, ~~2020~~2021. During the first quarter of 2020, 2.9 million shares were repurchased at a total cost of $39.7 million, or $13.65 per share. Up to an additional $60.3 million of the Corporation's common stock may be repurchased under this program through December 31, 2020. Under the repurchase program, repurchased shares ~~were~~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 and was suspended in mid-March~~time. No repurchases of ~~2020 in order to preserve liquidity in response to potential unknown economic impacts due to~~common stock were made under this program during the ~~COVID-19 pandemic.~~six months ended June 30, 2021.

7773

Item 6. Exhibits



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

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

3.3						Bylaws of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on a Form 8-K filed on May ~~21, 2020.~~14 , 202 1 .

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

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

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

10.1						Third Amendment effective March 11, 2021 to the Fulton Financial Corporation Deferred Compensation Plan - filed herewith.

10.2						Fourth Amendment effective July 20, 2021 to the Fulton Financial Corporation Deferred Compensation Plan - filed herewith.

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

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

7874

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FULTON FINANCIAL CORPORATION

Date:

~~November 6, 2020~~August 9, 2021

/s/ E. Philip Wenger

E. Philip Wenger

Chairman and Chief Executive Officer

Date:

~~November 6, 2020~~August 9, 2021

/s/ Mark R. McCollom

Mark R. McCollom

Senior Executive Vice President and Chief Financial Officer

7975


	Real Estate - Commercial Mortgage		Commercial & Industrial		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Equipment lease financing, other and overdrafts		Total
	(in thousands)
Three months ended September 30, 2019
Balance at June 30, 2019	$	54,859	$	66,341	$	18,981	$	18,892	$	4,928	$	3,363	$	2,869	$	170,233
Loans charged off	(394)		(7,181)		(498)		(533)		(45)		(877)		(600)		(10,128)
Recoveries of loans previously charged off	444		2,311		132		440		164		216		107		3,814
Net loans recovered (charged off)	50		(4,870)		(366)		(93)		119		(661)		(493)		(6,314)
Provision for loan losses(1)	(5,529)		7,710		(662)		(109)		(664)		798		672		2,216
Balance at September 30, 2019	$	49,380	$	69,181	$	17,953	$	18,690	$	4,383	$	3,500	$	3,048	$	166,135
Nine months ended September 30, 2019
Balance at December 31, 2018	$	52,889	$	58,868	$	18,911	$	18,921	$	5,061	$	3,217	$	2,670	$	160,537
Loans charged off	(1,769)		(11,863)		(923)		(1,322)		(143)		(2,355)		(1,833)		(20,208)
Recoveries of loans previously charged off	749		6,234		552		783		1,493		1,005		484		11,300
Net loans recovered (charged off)	(1,020)		(5,629)		(371)		(539)		1,350		(1,350)		(1,349)		(8,908)
Provision for loan losses(1)	(2,489)		15,942		(587)		308		(2,028)		1,633		1,727		14,506
Balance at September 30, 2019	$	49,380	$	69,181	$	17,953	$	18,690	$	4,383	$	3,500	$	3,048	$	166,135


	Unrealized Gains (Losses) on Investment Securities		Unrealized Non-Credit Gains (Losses) on Other-Than-Temporarily Impaired Debt Securities		Unrecognized Pension and Postretirement Plan Income (Costs)		Total
	(in thousands)
Three months ended September 30, 2020
Balance at June 30, 2020	$	65,930	$	0	$	(14,491)	$	51,439
Other comprehensive income before reclassifications	4,333		0		0		4,333
Amounts reclassified from accumulated other comprehensive income	(1)		0		255		254
Amortization of net unrealized losses on AFS securities transferred to HTM	928		0		0		928

Balance at September 30, 2020	$	71,190	$	0	$	(14,236)	$	56,954
Three months ended September 30, 2019
Balance at June 30, 2019	$	2,368	$	(2)	$	(14,523)	$	(12,157)
Other comprehensive income before reclassifications	18,029		0		0		18,029
Amounts reclassified from accumulated other comprehensive income (loss)	(3,498)		0		277		(3,221)
Amortization of net unrealized losses on AFS securities transferred to HTM	3,430		0		0		3,430

Balance at September 30, 2019	$	20,329	$	(2)	$	(14,246)	$	6,081

Nine months ended September 30, 2020
Balance at December 31, 2019	$	14,864	$	0	$	(15,001)	$	(137)
Other comprehensive income before reclassifications	56,186		0		0		56,186
Amounts reclassified from accumulated other comprehensive income (loss)	(2,377)		0		765		(1,612)
Amortization of net unrealized losses on AFS securities transferred to HTM	2,517		0		0		2,517

Balance at September 30, 2020	$	71,190	$	0	$	(14,236)	$	56,954
Nine months ended September 30, 2019
Balance at December 31, 2018	$	(44,654)	$	680	$	(15,089)	$	(59,063)
Other comprehensive income before reclassifications	63,244		(682)		0		62,562
Amounts reclassified from accumulated other comprehensive income (loss)	(3,686)		0		843		(2,843)
Amortization of net unrealized losses on AFS securities transferred to HTM	5,425		0		0		5,425

Balance at September 30, 2019	$	20,329	$	(2)	$	(14,246)	$	6,081