Fulton Financial Corporation — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY 2020. This filing is an annual report, not a standalone Q4 earnings report. Fulton is a regional bank holding company operating through Fulton Bank in Pennsylvania, Delaware, Maryland, New Jersey and Virginia.
Financial performance and position
| Metric | FY 2021 / year-end | FY 2020 / comparison |
|---|---|---|
| Net income | $275.5 million | $178.0 million |
| Net income available to common shareholders | $265.2 million; diluted EPS $1.62 | $175.9 million; diluted EPS $1.08 |
| Net interest income | $663.7 million | $629.2 million |
| Net interest margin (FTE) | 2.78% | 2.86% |
| Non-interest income | $273.7 million, including $33.5 million securities gains | $229.4 million, including $3.1 million securities gains |
| Non-interest expense | $617.8 million, including $33.2 million debt-extinguishment costs | $579.4 million |
| Cash flow from operating activities | $342.3 million | $157.4 million |
| Total assets | $25.8 billion | $25.9 billion |
| Deposits | $21.6 billion | $20.8 billion |
| Total borrowings | $1.04 billion | $1.93 billion |
- Returns improved: return on average assets was 1.05% versus 0.73%; return on average equity was 10.64% versus 7.45%. The efficiency ratio improved to 63.1% from 65.7%.
- Net interest income rose 5.5%, supported in part by $59.0 million of PPP loan fees. Margin nevertheless fell 8 basis points as asset yields declined more than funding costs.
- Average deposits increased 12.0% to $21.7 billion, largely in demand and savings accounts. Year-end loan-to-deposit ratio was 84.9%, versus 90.7%.
- Net loans fell 3.0% to $18.3 billion, largely because PPP loans declined to $0.3 billion from $1.6 billion; residential mortgage loans grew $704.8 million.
- Provision for credit losses was a benefit of $14.6 million, compared with a $76.9 million provision in 2020. The year-end allowance for credit losses was $263.5 million, including $249.0 million for loans.
- Net charge-offs were 0.07% of average loans versus 0.05%. Nonperforming assets were $153.9 million, or 0.60% of assets, compared with $151.3 million, or 0.58%.
- Operating cash flow was $342.3 million; investing activities used $214.0 million and financing activities used $337.5 million. Cash and cash equivalents ended the year at $1.64 billion.
- Regulatory capital ratios remained above minimums: the Corporation’s CET1 ratio was 9.9%, total risk-based capital 14.1%, and Tier 1 leverage 8.6%. Fulton Bank was reported well capitalized.
Material changes and unusual items
- Earnings growth reflected the lower credit-loss provision and higher net interest income, as well as increased securities gains. The $33.5 million of 2021 securities gains was primarily a $34.0 million gain on the sale of Visa shares as part of a balance-sheet restructuring.
- The restructuring included prepayment of FHLB advances, reducing their year-end balance from $536.0 million to zero, and a cash tender offer for $75 million of subordinated debt and $60 million of senior notes. Debt-extinguishment costs were $33.2 million.
- Non-interest income excluding securities gains rose 6.1%, led by wealth-management fees, up 21.6%. Mortgage banking income fell 20.6%, principally due to lower mortgage-loan sale gains.
- The effective tax rate rose to 17.6% from 12.0%, primarily reflecting higher pretax income; management attributed the rate below the 21% federal statutory rate mainly to tax-exempt income and tax-credit investments.
- Fulton repurchased 2.8 million shares for $43.9 million during 2021 and paid $0.64 per common share in dividends, versus $0.56 in 2020. At year-end, $31.1 million remained authorized for repurchases through March 31, 2022.
- PPP lending totaled approximately $2.7 billion from program inception; $2.2 billion had been forgiven and repaid by the SBA through year-end. Average 2021 PPP loans were $1.1 billion.
Outlook, commentary and key risks
- The filing provides no specific quantified earnings or revenue guidance. Management emphasized uncertainty around COVID-19, borrower performance, interest rates, deposit behavior and economic conditions.
- Management noted the Federal Reserve had signaled potential rate increases in early 2022. Fulton’s year-end rate-sensitivity model estimated net interest income increases of 6.0% under an instantaneous +100 basis-point shock and 12.5% under +200 basis points; these are modeled scenarios, not guidance, and rely on assumptions about balance-sheet behavior.
- Credit risks include the commercial concentration of lending: approximately 69% of loans were commercial, commercial mortgage, construction or PPP loans, and commercial mortgage plus construction loans were 45.9% of the portfolio. Criticized and classified loans increased 12.2%; substandard-or-lower balances rose 55.1%.
- Other disclosed risks include pandemic-related borrower stress and PPP servicing or guarantee issues; inflation and interest-rate sensitivity; deposit competition and funding costs; LIBOR transition; cybersecurity, third-party and operational risks; regulatory and consumer-compliance changes; climate and ESG risks; and litigation.
- Liquidity sources included $5.8 billion of FHLB borrowing capacity, $2.1 billion of federal funds lines and $0.9 billion of discount-window availability, with no outstanding borrowings against these facilities at year-end. Access and costs may change under stress.
- The company disclosed a 2020 SEC enforcement resolution involving a $1.5 million civil penalty related to accounting determinations that could have affected reported EPS. A labor class-action settlement was pending court approval; its financial terms were not expected to be material. The filing stated that other pending matters were not expected to materially affect financial condition, while acknowledging outcomes are uncertain.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective. The collective allowance for credit losses was identified as a critical audit matter because it depends on significant estimates and economic assumptions.
Investor verification priorities
- Check whether the credit-loss benefit is sustainable, and review subsequent trends in criticized loans, nonperforming assets, charge-offs and the allowance assumptions.
- Assess earnings excluding PPP fees, securities gains and debt-extinguishment costs; confirm the recurring trajectory of net interest margin and expense growth.
- Track deposit mix, large municipal deposits, loan-to-deposit ratio and funding costs as pandemic-related balances normalize and rates change.
- Verify the treatment and remaining balance of senior and subordinated debt maturities, and the effect of share repurchases and dividends on capital.
- Review subsequent disclosures on the labor settlement, the SEC matter, PPP forgiveness or SBA claims, and any material regulatory or legal developments.