Fulton Financial Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Fulton is a regional bank holding company operating primarily in Pennsylvania, Delaware, Maryland, New Jersey, and Virginia. Comparisons with 2022 are affected by the Prudential Bancorp acquisition, completed July 1, 2022.
Financial performance and position
- Earnings: Net income was $284.3 million, down 0.9% from $287.0 million. Net income available to common shareholders was $274.0 million; diluted EPS was $1.64 versus $1.67. Return on average assets was 1.04% and return on average common equity was 11.24%.
- Revenue and margins: Net interest income increased 9.3% to $854.3 million; net interest margin rose 15 basis points to 3.42%. Total non-interest income was $227.7 million, essentially flat. The efficiency ratio was 60.5%, unchanged.
- Expenses and taxes: Non-interest expense rose 7.2% to $679.2 million. The effective tax rate increased to 18.5% from 17.3%.
- Loans and credit: Net loans grew 5.3% to $21.35 billion. Provision for credit losses was $54.0 million versus $28.0 million. Net charge-offs rose to $29.1 million from $7.4 million; the 2023 total included a $13.3 million commercial office loan charge-off. Non-performing assets declined to $154.2 million, or 0.56% of assets, from $177.7 million, or 0.66%. The loan allowance was $293.4 million, 1.37% of net loans.
- Funding and liquidity: Deposits increased 4.3% to $21.54 billion, while borrowings declined 13.4% to $2.49 billion. Noninterest-bearing deposits fell $1.69 billion, partly offset by growth in time and brokered deposits. Estimated uninsured deposits were $7.2 billion, about 33% of deposits. Cash and cash equivalents were $549.7 million. Fulton reported approximately $4.9 billion of remaining FHLB capacity, $2.6 billion of federal funds lines (with $0.2 billion drawn), and undrawn discount-window and Bank Term Funding Program capacity of $1.3 billion and $1.9 billion, respectively.
- Cash flow: Operating activities provided $363.0 million; investing activities used $809.2 million, largely reflecting loan growth; financing activities provided $314.0 million. Cash and cash equivalents decreased $132.2 million during the year.
- Debt and capital: Total borrowings were $2.49 billion, including $535.4 million of senior and subordinated debt. The Corporation’s total capital, Tier 1, CET1, and leverage ratios were 14.0%, 11.2%, 10.3%, and 9.5%, respectively; the Bank was well capitalized.
Material changes and notable items
- Higher asset yields and loan growth lifted net interest income, but rising deposit and borrowing costs substantially increased interest expense. Average interest-bearing liabilities’ cost increased to 2.32% from 0.54%.
- Average deposits declined 1.4%, including a $1.6 billion reduction in noninterest-bearing demand deposits; average borrowings and other interest-bearing liabilities increased $1.4 billion.
- Commercial mortgage and construction loans were approximately 43.9% of the portfolio. Criticized and classified commercial loans increased 23.0%; substandard-or-lower balances increased 54.4%, primarily in commercial and industrial and commercial real estate lending.
- Non-interest expense included a $6.5 million FDIC special assessment, accrued for the 2023 bank failures. The filing says the assessment is expected to be collected over eight quarterly periods beginning in 2024.
- Higher interest rates left AFS securities with $301.5 million of pretax unrealized losses at year-end; the related AOCI securities loss was $274.9 million after tax. HTM securities also had $195.7 million of unrealized losses. Management said it did not intend, and did not expect to be required, to sell the securities before recovery or maturity.
- The Corporation terminated $1.0 billion of cash-flow hedges in January 2023. Previously recorded losses continue to reduce interest income as forecast transactions occur; the filing estimates a further $25.4 million reduction over the next 12 months.
- Common shareholders received $0.64 per share in dividends. Fulton repurchased 5.0 million shares for $77.1 million in 2023 and authorized a 2024 repurchase program of up to $125 million, of which up to $25 million may be used for preferred stock or subordinated debt.
Outlook, risks, and contingencies
The filing provides no specific earnings, revenue, or margin guidance. Management describes results as sensitive to interest rates, deposit competition and funding costs, economic conditions, and credit performance. Its year-end interest-rate sensitivity analysis estimated net interest income would increase 4.2% under a +400 basis-point shock and decrease 13.8% under a -400-basis-point shock; these are model scenarios, not forecasts.
Key risks include commercial real estate exposure—particularly office properties and refinancing conditions—deposit outflows and uninsured funding, higher funding costs, credit deterioration, securities fair-value losses, operational and cybersecurity threats, regulatory changes, and execution of growth initiatives. Management reported no material cybersecurity incident known to it and no material climate-related losses to date. Legal matters are described as arising in the ordinary course; management did not expect their outcomes to have a material adverse effect on financial condition, while noting future-period results could be affected.
The company recorded $553.3 million of goodwill and reported no impairment in its 2023 annual test. Management identified the allowance for credit losses as a significant estimate; a hypothetical near-term economic slowdown scenario would increase the allowance by approximately $21.6 million. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether deposit mix, uninsured deposits, and funding costs stabilize or continue to pressure net interest margin.
- Commercial real estate and office loan performance, refinancing exposure, criticized/classified loan migration, and subsequent charge-offs or allowance changes.
- Whether loan growth and credit costs support earnings after the 2023 increase in provision and net charge-offs.
- The timing and earnings impact of cash-flow hedge loss reclassifications and the FDIC special assessment.
- Liquidity and capital capacity, including the availability and terms of contingent borrowing sources and any constraints on dividends or repurchases.
- Any subsequent developments in securities values, legal or regulatory matters, and the assumptions underlying goodwill and credit-loss estimates.