FULTON FINANCIAL CORP (FULT)

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

This Management's Discussion relates to the Corporation, a financial holding company registered under the BHCA and incorporated under the laws of the Commonwealth of Pennsylvania, 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 Quarterly Report on Form 10-Q.

OVERVIEW

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

The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the NIM, 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 and 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:

(1) 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 "Supplemental Reporting of Non-GAAP Based Financial Measures" section of Management's Discussion.

(2) Presented on a FTE basis using a 21% federal tax rate and statutory interest expense disallowances.

Blue Foundry Bancorp

On April 1, 2026, the Corporation completed its acquisition of Blue Foundry and Blue Foundry Bank became a wholly owned subsidiary of the Corporation. Blue Foundry Bank is expected to be merged with and into Fulton Bank in the third quarter of 2026.

See "Note 2 - Business Combinations" in the Notes to Consolidated Financial Statements in Part I, "Item 1. Financial Statements."

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Financial Highlights

Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $92.2 million for the three months ended March 31, 2026, a $1.8 million increase compared to $90.4 million for the same period in 2025. Net income available to common shareholders per diluted share was $0.51 for the three months ended March 31, 2026, a $0.02 increase compared to the same period in 2025.

Three Months Ended March 31, 2026 Results were Impacted by the Following Items:

•NIM of 3.58%, a 15 bps increase compared to 3.43% for the same period in 2025.

•Net interest income of $262.0 million, a $10.8 million increase compared to $251.2 million for the same period in 2025.

•Provision for credit losses of $14.4 million resulting in an ACL attributable to net loans of $367.5 million, or 1.51% of total net loans as of March 31, 2026.

•Non-interest income of $69.8 million, a $2.6 million increase compared to $67.2 million for the same period in 2025.

•Non-interest expense of $200.3 million, a $10.8 million increase compared to $189.5 million for the same period in 2025.

•During the three months ended March 31, 2026, 1,212,650 shares of the Corporation's common stock were repurchased under the 2026 Repurchase Program at a cost of $24.5 million or an average of $20.21 per share.

Critical Accounting Policies

The Corporation's accounting policies are fundamental to understanding Management’s Discussion. Critical policies are those 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 Corporation's critical accounting policies are described in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Critical Accounting Policies" in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2025.

Supplemental Reporting of Non-GAAP Based Financial Measures

This Quarterly Report on Form 10-Q contains supplemental financial information, as detailed below, that 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. Presentation of these non-GAAP financial measures is consistent with how the Corporation evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Corporation's industry. Management believes that these non-GAAP financial measures, in addition to GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors should recognize that the Corporation's presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures, and the Corporation strongly encourages a review of its Consolidated Financial Statements in their entirety.

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Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure follow:

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RESULTS OF OPERATIONS

Three months ended March 31, 2026 compared to the three months ended March 31, 2025

Net Interest Income

FTE net interest income was $266.3 million for the three months ended March 31, 2026, an increase of $10.8 million, compared to $255.5 million for the same period in 2025. For the three months ended March 31, 2026, NIM increased to 3.58%, or 15 bps, compared to the same period in 2025. The Corporation manages the risk associated with changes in interest rates through the techniques described within Part 1, "Item 3. Quantitative and Qualitative Disclosures About Market Risk" in this Quarterly Report on Form 10-Q. The following table provides a comparative average balance sheet and net interest income analysis for the three months ended March 31, 2026 compared to the same period in 2025. Interest income and yields are presented on an FTE basis using a 21% federal tax rate as well as statutory interest expense disallowances. The discussion following this table is based on these taxable-equivalent amounts.

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[Excerpt truncated for page length; source filing is linked above.]

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion relates to the Corporation, a financial holding company registered under the BHCA and incorporated under the laws of the Commonwealth of Pennsylvania, 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 Annual Report on Form 10-K.

OVERVIEW

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

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

Merger

On November 24, 2025, the Corporation entered into the Merger Agreement with Blue Foundry. Under the terms of the Merger Agreement, Blue Foundry will merge with and into the Corporation, with the Corporation continuing as the surviving corporation. The combined company will operate under the Corporation's name and will trade under the ticker symbol "FULT." Shareholders of Blue Foundry approved the Merger at the Blue Foundry special shareholder meeting on January 29, 2026, and all regulatory approvals required to complete the Merger have been obtained. Subject to the satisfaction of the remaining customary closing conditions in the Merger Agreement, we expect the Merger to close on or about April 1, 2026. Blue Foundry Bank is expected to be merged with and into Fulton Bank in the third quarter of 2026.

The Corporation developed a comprehensive integration plan with respect to the Merger and will expense direct costs as incurred. These direct costs related to the Merger totaled $1.1 million for the year ending December 31, 2025. Costs related to the Merger are included in acquisition-related expenses in the Consolidated Statements of Income.

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

(1)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 "Supplemental Reporting of Non-GAAP Based Financial Measures" section of Management's Discussion.

(2)Presented on a FTE basis using a 21% federal tax rate and statutory interest expense disallowances.

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Financial Highlights

Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $381.4 million for the year ended December 31, 2025, a $102.9 million increase compared to $278.5 million in 2024. Net income available to common shareholders per diluted share was $2.08 for the year ended December 31, 2025, a $0.51 increase compared to $1.57 in 2024.

Year Ended December 31, 2025 Results were Impacted by the Following Items:

•NIM of 3.51%, a nine bps increase compared to 3.42% in 2024.

•Net interest income of $1.0 billion, a $76.0 million increase compared to $960.3 million in 2024.

•Provision for credit losses of $35.7 million resulting in an ACL attributable to net loans of $364.5 million, or 1.51% of total net loans as of December 31, 2025.

•Non-interest income of $276.8 million, a $1.0 million increase compared to $275.7 million in 2024.

•Non-interest expense of $791.8 million, a $28.0 million decrease compared to $819.8 million in 2024.

•During the year ended December 31, 2025, 3.3 million shares of the Corporation's common stock were repurchased at a total cost of $59.7 million, or $18.16 per share, under the 2025 Repurchase Program.

Supplemental Reporting of Non-GAAP Based Financial Measures

This Annual Report on Form 10-K contains supplemental financial information, as detailed below, that 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. Presentation of these non-GAAP financial measures is consistent with how the Corporation evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Corporation's industry. Management believes that these non-GAAP financial measures, in addition to GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors should recognize that the Corporation's presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures, and the Corporation strongly encourages a review of its Consolidated Financial Statements in their entirety.

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Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure follow:

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CRITICAL ACCOUNTING POLICIES

The Corporation's accounting policies are fundamental to understanding Management’s Discussion. Critical accounting policies are those 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 is a summary of those accounting policies that the Corporation considers to be most important to the presentation of its financial condition and results of operations.

See additional information regarding these critical accounting policies in "Note 1 - Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data."

Allowance for Credit Losses - The ACL is based on estimated losses over the remaining expected life of loans. Management's determination of the appropriateness of the reserve is based on periodic evaluations of the loan portfolio, lending-related commitments, current and forecasted economic factors and other relevant factors.

Loans Evaluated Collectively: Loans evaluated collectively for expected credit losses include all accruing loans and non-accrual loans where the total commitment amount is less than $1 million. In determining the ACL, the Corporation uses three inputs to model the estimate. These inputs are the PD rate which estimates the likelihood that a borrower will be unable to meet its debt obligations, the LGD rate which estimates the percentage of an asset that is lost if a borrower defaults, and the EAD balance which estimates the gross exposure under a facility upon default. The PD models were developed based on historical default data. Both internal and external variables are evaluated in the process. The main internal variables are risk rating or delinquency history and indicators of default. The external variables are economic variables obtained from third-party forecasts.

The PD models are transition matrix models that utilize historical credit observations and incorporate economic forecasts to project future default rates using a linear regression methodology for each loan segment. The LGD model uses a vintage loss approach that estimates LGD rates based on the bank’s historical loss experience for each loan segment. The EAD incorporates a prepayment rate and applies the PD rates to estimate the projected exposure at default across the life of each loan. The ACL is calculated by applying the LGD to the EAD at each period across the life of each loan.

The ACL incorporates the Corporation’s historical credit observations, current conditions and reasonable and supportable forecasts. These forecasts are based on the projected performance of specific economic variables statistically correlated with historical PD rates. The reasonable and supportable forecast extends to 24 months and reverts back to an average PD rate using a straight-line reversion methodology over a 12 month period.

The ACL is highly sensitive to the economic forecasts used to develop the reserve. As such, the calculation of the ACL is inherently subjective and requires management to exercise judgment.

The ACL may include qualitative adjustments intended to capture the impact of uncertainties not reflected in the quantitative models. In determining qualitative adjustments, management considers changes in national, regional, and local economic and business conditions and their impact on the lending environment, including underwriting standards and other factors affecting credit losses over the remaining life of each loan.

The ACL for loans was $364.5 million and $379.2 million on December 31, 2025 and December 31, 2024, respectively.

The Corporation performs loan loss sensitivity analysis on a quarterly basis to determine the impact of varying economic conditions based on third-party forecasts. Our sensitivity analysis does not represent management's view of expected credit losses at the balance sheet date. One scenario identified includes a highly adverse economic environment. This scenario resulted in a hypothetical increase to the ACL of approximately $35.5 million.

For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data."

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

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The Corporation must also evaluate the likelihood that DTAs will be recovered through future taxable income. If any such assets are determined to be more likely than not unrecoverable, then a valuation allowance must be recognized. The assessment of the carrying value of DTAs is based on certain assumptions, the changes of which could have a material impact on the Corporation's Consolidated Financial Statements.

On a periodic basis, the Corporation evaluates its income tax expense based on tax laws, regulations and financial reporting considerations and records adjustments as appropriate. Recognition and measurement of tax positions is based upon management's evaluations of current taxing authorities' examinations of the Corporation's tax returns, recent positions taken by the taxing authorities on similar transactions and the overall tax environment.

Income tax expense was $94.0 million and $55.9 million for the years ended December 31, 2025 and 2024, respectively.

Recently Issued Accounting Standards

For a description of accounting standards recently issued, but not yet adopted by the Corporation, see "Recently Issued Accounting Standards," in "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data."

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RESULTS OF OPERATIONS

Net Interest Income

FTE net interest income was $1.1 billion for the year ended December 31, 2025, an increase of $75.8 million, compared to $978.2 million for the same period in 2024. For the years ended December 31, 2025 and December 31, 2024, NIM was 3.51% and 3.42%, respectively. The Corporation manages the risk associated with changes in interest rates through the techniques described within Item "7A. Quantitative and Qualitative Disclosures About Market Risk." The following table provides a comparative average balance sheet and net interest income analysis for 2025 compared to 2024 and 2023. Interest income and yields are presented on an FTE basis using a 21% federal tax rate as well as statutory interest expense disallowances. The discussion following this table is based on these tax-equivalent amounts.

(1) Average balances include non-performing loans and loan fees.

(2) Average balances include amortized historical cost for AFS investment securities; 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.

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Comparison of 2025 to 2024

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volumes) and changes in yields and rates:

(1) Average balance includes non-performing loans and loan fees.

Compared to 2024, FTE total interest income for 2025 increased $34.4 million due to an increase of $66.5 million attributable to changes in volume, partially offset by a decrease of $32.1 million attributable to changes in yield. The increase due to changes in volume was due to an increase in average net loans and average investment securities. The decrease due to changes in yield was largely due to a decrease in the yield on average net loans, partially offset by an increase in the yield on average investment securities.

The yield on average interest-earning assets decreased 15 bps in 2025 compared to 2024.

In 2025, total interest expense decreased $41.3 million compared to 2024, driven by a decrease in rate on interest-bearing liabilities resulting in a $53.0 million decrease in interest expense, partially offset by an increase in average interest-bearing liabilities resulting in a $11.6 million increase in interest expense. The decrease in interest expense attributable to rate was driven by decreases in the rate on average time deposits, average savings and money market deposits, average brokered deposits, average borrowings and other interest-bearing liabilities and average interest-bearing demand deposits. The increase in interest expense attributable to volume was primarily driven by increases in average savings and money market deposits, average interest-bearing demand deposits and average time deposits, partially offset by a decrease in average borrowings and other interest-bearing liabilities and average brokered deposits.

The rate on average interest-bearing liabilities decreased 33 bps in 2025 compared to 2024.

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

(1) Consists of equipment lease financing, overdrafts and net origination fees and costs.

During 2025, average net loans increased $850.1 million, or 3.7%, compared to 2024. The increase in average net loans was driven by the full-year impact of loans acquired in the Republic First Transaction.

The yield on total loans decreased 21 bps to 5.87% in 2025 compared to 6.08% in 2024.

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

The cost of total deposits decreased 17 bps to 1.96% in 2025 compared to 2.13% in 2024, primarily due to declining interest rates and a change in mix of deposits. Average deposits increased $1.7 billion, or 7.1%, compared to 2024. The increase in average deposits was driven by the full-year impact of deposits acquired in the Republic First Transaction.

Average borrowings and other interest-bearing liabilities and interest rates, by type, are summarized in the following table:

(1) Includes repurchase agreements, short-term promissory notes, capital leases and collateral liabilities.

Average borrowings and other interest-bearing liabilities decreased $676.1 million, or 29.6% compared to 2024.

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Provision for Credit Losses

The provision for credit losses was $35.7 million in 2025 compared to $71.6 million in 2024. The decrease was primarily due to the Republic First Transaction in 2024, which included a provision for credit losses of $23.4 million for non-PCD Loans.

Non-Interest Income

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

Non-interest income before investment securities losses and gain on acquisition, net of tax increased $17.8 million, or 6.9%, during 2025 compared to 2024. The increase of $17.8 million included a $5.8 million increase in wealth management revenues due to an increase in assets under management, a $4.8 million increase in cash management fee income due to an increase in account analysis fees as commercial customers moved funds to interest-bearing deposit accounts, a $3.5 million increase in income from equity method investments, reflected in other non-interest income, a $1.6 million increase in consumer banking overdraft fees, a $1.2 million increase in debit card fee income and a $1.1 million increase in commercial customer derivative fee income, reflected in capital markets.

In May 2024, the Corporation sold $345.7 million of AFS investment securities and recorded a pre-tax loss of $20.3 million. The proceeds from the sale were reinvested into higher yielding securities of a similar type and similar duration.

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Non-Interest Expense

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

Non-interest expense in 2025 decreased $28.0 million, or 3.4%, compared to 2024. Excluding the gain on the Sale-Leaseback Transaction, acquisition-related expenses and FultonFirst implementation and asset disposal costs, non-interest expense increased $18.0 million, or 2.3%, in 2025 compared to 2024. The increase in non-interest expense excluding gain on the Sale-Leaseback Transaction, acquisition-related expenses and FultonFirst implementation and asset disposal costs, was primarily due to an $18.0 million increase in salaries and employee benefits expense, driven by higher incentive compensation expense, annual merit increases and lower deferred costs from loan origination activities, and a $4.6 million increase in intangible amortization expense due to amortization of CDI from the Republic First Transaction, partially offset by a decrease of $5.4 million in professional fees largely due to a recovery of previously incurred fees in the first quarter of 2025.

Income Taxes

Income tax expense for 2025 was $94.0 million, a $38.1 million increase compared to 2024. The Corporation's ETR was 19.4% in 2025 compared to 16.2% in 2024. Excluding the impact from the $37.0 million gain on acquisition, net of tax, the Corporation's ETR in 2024 was 18.2%. The increase in income tax expense in 2025 was primarily due to higher taxable income. 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 TCIs that generate tax credits under various federal programs.

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Comparison of 2024 to 2023

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volumes) and changes in yields and rates:

(1) Average balance includes non-performing loans and loan fees.

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.

Compared to 2023, FTE total interest income for 2024 increased $309.1 million due to increases of $144.0 million attributable to changes in yield and $165.0 million attributable to changes in volume. The increase due to changes in yield was largely due to an increase in net loans. The increase due to changes in volume was due to an increase in average net loans.

The yield on average interest-earning assets increased 54 bps in 2024 compared to 2023.

In 2024, interest expense increased $202.9 million compared to 2023, primarily driven by an increase in rate on interest-bearing liabilities resulting in a $124.5 million increase in interest expense. The increase in interest expense attributable to rate was driven by increases in interest-bearing demand deposits, savings and money market deposits and time deposits. The increase in interest expense attributable to volume was $78.4 million primarily driven by increases in time deposits, interest-bearing demand deposits and savings and money market deposits, partially offset by a decrease in borrowings and other interest-bearing liabilities.

The rate on average interest-bearing liabilities increased 58 bps in 2024 compared to 2023.

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

(1) Consists of equipment lease financing, overdrafts and net origination fees and costs.

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During 2024, average net loans increased $2.2 billion, or 10.6%, compared to 2023. The increase in average net loans was primarily due to approximately $2.4 billion of total loans acquired in the Republic First Transaction and outstanding as of December 31, 2024. The yield on total loans increased 51 bps to 6.08% in 2024 compared to 5.57% in 2023.

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

The cost of total deposits increased 75 bps to 2.13% in 2024 compared to 1.38% in 2023, primarily due to rising interest rates and a change in mix of deposits. Average deposits increased $3.4 billion, or 16.0%, compared to 2023. The increase in average total deposits was primarily due to approximately $3.7 billion of total deposits assumed in the Republic First Transaction and outstanding as of December 31, 2024.

Average borrowings and other interest-bearing liabilities and interest rates, by type, are summarized in the following table:

(1) Includes repurchase agreements, short-term promissory notes, capital leases and collateral liabilities.

Average borrowings and other interest-bearing liabilities decreased $490.9 million during 2024 compared to 2023.

In November 2024, the Corporation retired $168.8 million of subordinated notes issued in November 2014 and June 2015, which matured on November 15, 2024.

See "Note 10 - Borrowings" of the Notes to Consolidated Financial Statements for additional details.

Provision for Credit Losses

The provision for credit losses was $71.6 million in 2024 compared to $54.0 million in 2023. The increase was primarily due to the Republic First Transaction, which included a provision for credit losses of $23.4 million for non-PCD Loans, partially offset by an elevated level of provision for credit losses in the same period in 2023 due to a $13.3 million charge-off for a commercial office loan.

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Non-Interest Income

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

Non-interest income before investment securities losses and gain on acquisition, net of tax increased $30.6 million, or 13.4%, during 2024 compared to 2023. The increase in non-interest income was partially due to $7.7 million from acquired operations in the Republic First Transaction. The remaining increase of $22.9 million included a $9.2 million increase in wealth management revenues due to an increase in assets under management, a $4.8 million increase in cash management fee income due to an increase in account analysis fees with customers electing to move funds to interest-bearing deposit accounts, a $3.6 million increase in mortgage banking income primarily due to higher loan volumes and spreads, a $1.8 million increase in SBA income largely due to higher loan sale volumes, a $1.6 million increase in income from bank owned life insurance and a $1.7 million increase in debit card fee income.

In May 2024, the Corporation sold $345.7 million of AFS investment securities and recorded a pre-tax loss of $20.3 million. The proceeds from the sale were reinvested into higher yielding securities of a similar type and similar duration.

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Non-Interest Expense

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

Non-interest expense in 2024 increased $140.6 million, or 20.7%, compared to 2023. Excluding the gain on the Sale-Leaseback Transaction, acquisition-related expenses and FultonFirst implementation and asset disposal costs, non-interest expense increased $94.4 million, or 14.0%, in 2024 compared to 2023. The increase in non-interest expense was primarily due to $71.9 million from acquired operations in the Republic First Transaction, including $15.7 million of CDI amortization expense, and $21.5 million in salaries and benefits expense driven by annual merit increases, higher incentive compensation expense and lower deferred costs from loan origination activities.

Income Taxes

Income tax expense for 2024 was $55.9 million, an $8.6 million decrease compared to 2023. The Corporation's ETR was 16.2% in 2024. Excluding the impact from the $37.0 million gain on acquisition, net of tax, the Corporation's ETR was 18.2% compared to 18.5% in 2023. The decrease in income tax expense in 2024 resulted primarily from the lower ETR. 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 TCIs that generate tax credits under various federal programs.

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FINANCIAL CONDITION

The table below presents condensed consolidated ending balance sheets:

Investment Securities

The table below presents the carrying amount of investment securities:

Compared to December 31, 2024, total AFS investment securities at December 31, 2025 decreased $3.0 million, or 0.1%. The decrease in AFS investment securities at December 31, 2025 compared to December 31, 2024 was due to decreases of $223.2 million in residential mortgage-backed securities and $85.4 million in corporate debt securities, partially offset by increases of $251.2 million in collateralized mortgage obligations, $42.6 million in commercial mortgage-backed securities and $11.8 million in state and municipal securities.

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Compared to December 31, 2024, total HTM investment securities at December 31, 2025 increased $30.3 million, or 2.2%. The increase in HTM investment securities at December 31, 2025 compared to December 31, 2024 was primarily driven by an increase in residential mortgage-backed securities of $35.8 million.

Loans

The following table presents ending net loans outstanding, by type:

(1) Includes unearned income of $36.8 million and $35.6 million as of December 31, 2025 and 2024, respectively.

During 2025, net loans increased $100.0 million, or 0.4%, compared to December 31, 2024. The increase in net loans during 2025 was primarily due to increases in residential mortgage loans and commercial mortgage loans of $320.4 million and $219.1 million, respectively, partially offset by a decrease in construction loans of $424.6 million.

The Corporation does not have a significant concentration of credit risk with any single borrower. As of December 31, 2025, approximately $10.8 billion, or 44.7%, of the loan portfolio was comprised of commercial mortgage loans and construction loans.

The Corporation has established lower total lending limits for certain types of commercial lending commitments and lower total lending limits based on the Corporation's internal risk rating of an individual borrower at the time the lending commitment is approved. The Corporation adheres to loan portfolio management practices, which include requiring an annual review of the majority of commercial loans. Additionally, management monitors the loan portfolio throughout the year taking into account, among other things, the size, complexity and risk of loans and individual borrowers. An independent loan review function assesses the portfolio for internal risk rating accuracy and loan servicing policy requirements. The Corporation consolidates risk migrations to identify emerging risks by industry and real estate property types, taking into consideration economic forecasts and industry trends. The Corporation takes a risk-based approach when reviewing a specific loan portfolio, such as the commercial office loan portfolio or multi-family loan portfolio. The Corporation reviews portfolio concentrations and adjusts the lending limits based on asset quality, economic forecasts and industry outlook.

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The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios:

(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.

The commercial mortgage loan portfolio consists of 45.0% owner occupied commercial mortgage loans and 55.0% non-owner occupied commercial mortgage loans as of December 31, 2025. The following table summarizes the non-owner occupied commercial mortgage loan portfolio outstanding balance and the percent to total net loans.

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The following table summarizes the commercial mortgage office non-owner occupied loan portfolio outstanding balance, total commitment and LTV ratio by Metropolitan Statistical Area:

(1) Weighted average LTV as of origination.

(2) Philadelphia-Camden-Wilmington, PA-NJ-DE-MD.

(3) Washington-Arlington-Alexandria, DC-VA-MD-WV.

(4) Baltimore-Columbia-Towson, MD.

(5) New York-Newark-Jersey City, NY-NJ-PA.

The non-owner occupied commercial mortgage office loan portfolio table above excludes commercial construction loans secured by office property collateral with no total outstanding balance and total outstanding loan commitments of $1.1 million as of December 31, 2025.

The following table summarizes the non-owner occupied commercial mortgage multi-family loan portfolio outstanding balance, total commitment and LTV ratio by Metropolitan Statistical Area:

(1) Weighted average LTV as of origination.

(2) Philadelphia-Camden-Wilmington, PA-NJ-DE-MD.

(3) New York-Newark-Jersey City, NY-NJ-PA.

(4) Baltimore-Columbia-Towson, MD.

(5) Washington-Arlington-Alexandria, DC-VA-MD-WV.

The non-owner occupied commercial mortgage multi-family loan portfolio table above excludes commercial construction loans secured by multi-family property collateral with a total outstanding loan balance of $196.5 million and outstanding loan commitments of $388.6 million as of December 31, 2025.

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The following table presents the changes in non-accrual loans for the years ended December 31: