Fulton Financial Corporation — 2022 Form 10-K Summary
Business context and reporting period
Fulton Financial Corporation is a Pennsylvania-based bank holding company operating primarily in Pennsylvania, Delaware, Maryland, New Jersey and Virginia through Fulton Bank. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone fourth-quarter report. Prudential Bancorp was acquired on July 1, 2022, and its results were consolidated from that date. Prudential Bank merged into Fulton Bank on November 5, 2022.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $781.6 million | $663.7 million |
| Total non-interest income | $227.1 million | $273.7 million |
| Net income | $287.0 million | $275.5 million |
| Net income available to common shareholders | $276.7 million | $265.2 million |
| Diluted earnings per common share | $1.67 | $1.62 |
| Net interest margin, FTE | 3.27% | 2.78% |
| Efficiency ratio | 60.5% | 63.1% |
| Return on average assets | 1.10% | 1.05% |
| Return on average common equity | 11.69% | 10.64% |
- Revenue and earnings: Net interest income rose 17.8%, driven by higher rates and average loan balances. Net interest margin expanded 49 basis points. Non-interest income excluding securities gains declined 5.4%, primarily because mortgage banking income fell $19.4 million. The 2021 comparison included $33.5 million of net securities gains, mainly from Visa shares sold in a balance-sheet restructuring; 2022 recorded a $27,000 net securities loss.
- Expenses and credit costs: Non-interest expense was $633.7 million, up 2.6%; it included $10.3 million in merger-related costs. The provision for credit losses was $28.0 million versus a $14.6 million provision benefit in 2021. The 2022 provision included an $8.0 million CECL Day 1 provision for acquired loans. The effective tax rate was 17.3%, compared with 17.6%.
- Loans and asset quality: Year-end net loans were $20.0 billion, up 10.7%; average net loans grew 2.8%. Deposits declined 4.3% to $20.65 billion. Non-performing assets increased to $177.7 million from $153.9 million and were 0.66% of total assets, versus 0.60%. Net charge-offs were low at 0.04% of average loans, down from 0.07%. The loan ACL was $269.4 million, or 1.33% of net loans, versus $249.0 million, or 1.36%, at year-end 2021.
- Cash flow: Operating activities provided $598.3 million. Investing activities used $1.54 billion, principally reflecting a $1.41 billion net increase in loans. Financing activities used $15.9 million as deposit outflows and dividends were partly offset by increased borrowings. Cash and cash equivalents ended the year at $681.9 million, down from $1.64 billion.
- Balance sheet, debt and capital: Total assets were $26.93 billion, up 4.4%. Borrowings rose to $2.87 billion from $1.04 billion, chiefly as deposits declined and loans grew; this included $1.25 billion of FHLB advances. Shareholders’ equity was $2.58 billion, down 4.9%, largely due to the $412.9 million deterioration in accumulated other comprehensive loss, including interest-rate-driven securities losses. Corporation capital ratios were 13.6% total risk-based, 10.9% Tier 1, 10.0% CET1 and 9.5% Tier 1 leverage; the Bank was reported well capitalized.
- Liquidity: At year-end, the Bank reported approximately $4.6 billion of remaining FHLB borrowing capacity, $2.3 billion of federal funds lines with $0.2 billion drawn, and $1.3 billion of FRB discount-window capacity with no amount drawn. Estimated uninsured deposits were $7.0 billion, down from $7.8 billion.
Material changes versus the prior comparable period
- Rising rates helped lift loan yields and net interest margin, while also increasing deposit and borrowing costs. Average total deposit cost increased to 0.20% from 0.14%; average cost of interest-bearing deposits rose to 0.31% from 0.21%.
- Loan balances grew, while deposits contracted and borrowings increased substantially. Average deposits fell 1.2%; year-end deposits fell 4.3%.
- The Prudential Bancorp acquisition added approximately $933.4 million in assets at closing. Consideration was $119.1 million, approximately 80% stock and 20% cash; $16.3 million of goodwill was recorded. The acquired operation reported a $2.1 million net loss for the third quarter of 2022, including a $7.6 million credit-loss provision.
- Unrealized losses on AFS securities contributed to a $412.9 million decline in AOCI and a reduction in reported equity. Management attributed the decline to rising interest rates and stated it did not intend, and did not expect to be required, to sell the securities before recovery.
- Common dividends were $0.66 per share in 2022, compared with $0.64 in 2021. No common shares were repurchased in the fourth quarter; a program authorizing up to $100 million of repurchases through December 31, 2023 was approved.
Outlook, commentary, risks and unusual items
- The filing provides no quantified earnings or revenue guidance. Management discusses rate sensitivity rather than formal forecasts: its year-end model estimated that an immediate +100 bp rate shock would increase annual net interest income 2.6%, while a -100 bp shock would reduce it 3.8%. These are model scenarios, not guidance, and depend on assumptions about customer behavior and balance-sheet repricing.
- Key stated risks include recession or weaker regional economies, commercial real estate and construction credit exposure, changing rates and deposit competition, liquidity and funding costs, cybersecurity and third-party vendor incidents, regulatory change, and execution/integration risk related to the Prudential acquisition. Management reported no material climate-related losses to date, while noting possible future impacts.
- In January 2023, the Corporation terminated $1.0 billion notional of cash-flow hedges. Because the forecasted hedged transactions remained probable, associated AOCI losses are expected to reduce future interest income; the filing estimated a further $38.5 million reclassification over the next 12 months.
- The company disclosed routine pending and threatened legal matters and said potential liabilities were not expected to have a material adverse effect on its financial condition. A previously disclosed wage-and-hour class action was settled and dismissed in November 2022; settlement terms were described as not material.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The collective loan allowance valuation was identified as a critical audit matter because it relies on models, economic forecasts and management judgments.
Important facts for investors to verify
- How deposit balances, deposit pricing and reliance on FHLB and other wholesale funding evolve as competition and interest rates change.
- Whether net interest margin and earnings hold up under actual rate movements versus the filing’s modeled scenarios, including the future effect of terminated hedge losses.
- Credit quality trends in commercial real estate, construction and other commercial loans; non-performing assets rose even as criticized and classified commercial loans declined.
- The adequacy and sensitivity of the $269.4 million loan ACL to economic forecasts, loan growth and realized credit losses.
- Whether the Prudential integration delivers expected cost savings and strategic benefits, and whether further merger-related or other integration costs arise.
- The effects of unrealized securities losses, deposit outflows and capital distributions on liquidity, tangible equity and the ability to sustain dividends or repurchases.