FULTON FINANCIAL CORP [FULT] Filings

10-Q 1 fult-20220331.htm 10-Q fult-20220331

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 March 31, 2022, 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. 001-39680

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

P. O. Box 4887

Lancaster,

Pennsylvania

17604

(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	FULTP	The Nasdaq Stock Market, LLC

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 –160,756,012 shares outstanding as of April 29, 2022.

FULTON FINANCIAL CORPORATION

FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2022

INDEX


Description		Page



Glossary of Terms		3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

(a)	Consolidated Balance Sheets - March 31 , 202 2 and December 31, 202 1	5

(b)	Consolidated Statements of Income - Three months ended March 31 , 2022 and 2021	6

(c)	Consolidated Statements of Comprehensive Income - Three months ended March 31 , 2022 and 2021	7

(d)	Consolidated Statements of Shareholders’ Equity - Three mon ths ended March 31, 2022 and 2021	8

(e)	Consolidated Statements of Cash Flows - Three months ended March 31 , 2022 and 2021	9

(f)	Notes to Consolidated Financial Statements	10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		39

Item 3. Quantitative and Qualitative Disclosures about Market Risk		57

Item 4. Controls and Procedures		60

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		60

Item 1A. Risk Factors		60

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		64

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		65

Signatures		66


FULTON FINANCIAL CORPORATION
GLOSSARY OF DEFINED ACRONYMS AND TERMS

ACL						Allowance for credit losses
AFS						Available for sale
ALCO						Asset/Liability Management Committee
AOCI						Accumulated other comprehensive income
ARC						Auction rate security
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
ATM						Automated teller machine
Bank Merger						The proposed merger of Prudential Bank with and into Fulton Bank
BHCA						Bank Holding Company Act of 1956, as amended
bp or bps						Basis point(s)
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
Corporation or Company						Fulton Financial Corporation
COVID-19						Coronavirus
Directors' Plan						Amended and Restated Directors’ Equity Participation Plan
Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act

Employee Equity Plan						Amended and Restated Equity and Cash Incentive Compensation Plan
ESG						Environmental, social and governance
ETR						Effective tax rate
Exchange Act						Securities Exchange Act of 1934
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Fed Funds Rate						Target federal funds rate
Federal Reserve Board						Board of Governors of the Federal Reserve System
FHLB						Federal Home Loan Bank
FOMC						Federal Open Market Committee
Foreign Currency Nostro Accounts						Foreign currency with international correspondent banks
FRB						Federal Reserve Bank
FTE						Fully taxable-equivalent
Fulton Bank or the Bank						Fulton Bank, N.A.
GAAP						U.S. Generally Accepted Accounting Principles
HTM						Held to maturity
LIBOR						London Interbank Offered Rate
Management Discussion						Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger						The proposed acquisition by the Corporation of Prudential
Merger Agreement						Agreement and Plan of Merger, dated as of March 1, 2022, between the Corporation and Prudential
Merger Consideration						For each share of Prudential common stock, $3.65 in cash and 0.7974 of a share of the Corporation’s common stock
MSRs						Mortgage servicing rights
Net loans						Loans and lease receivables (net of unearned income)
NIM						Net interest margin
N/M						Not meaningful
OBS						Off-balance-sheet


OCI						Other comprehensive income
OREO						Other real estate owned
Pension Plan						Defined Benefit Pension Plan
Postretirement Plan						Postretirement Benefits Plan
PPP						Paycheck Protection Program
Prudential						Prudential Bancorp, Inc.
PSU						Performance-based restricted stock unit
RSU						Restricted stock unit
SBA						Small Business Administration
SEC						United States Securities and Exchange Commission
TCI						Tax credit investment
TDR						Troubled 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)


	March 31, 2022		December 31, 2021
	(unaudited)
ASSETS
Cash and due from banks	$	161,462	$	172,276
Interest-bearing deposits with other banks	996,503		1,466,338
Cash and cash equivalents	1,157,965		1,638,614
FRB and FHLB stock	57,729		57,635
Loans held for sale	27,675		35,768
Investment securities:
AFS, at estimated fair value	3,324,333		3,187,390
HTM, at amortized cost	964,341		980,384
Net loans	18,476,119		18,325,350
Less: ACL - loans	(243,705)		(249,001)
Loans, net	18,232,414		18,076,349
Net premises and equipment	218,257		220,357
Accrued interest receivable	55,102		57,451
Goodwill and net intangible assets	537,877		538,053
Other assets	1,022,617		1,004,397
Total Assets	$	25,598,310	$	25,796,398
LIABILITIES
Deposits:
Noninterest-bearing	$	7,528,391	$	7,370,963
Interest-bearing	14,012,783		14,202,536
Total Deposits	21,541,174		21,573,499



Short-term borrowings	452,440		416,764
Accrued interest payable	4,713		7,000
Long-term borrowings	556,494		621,345
Other liabilities	473,954		465,110
Total Liabilities	23,028,775		23,083,718
SHAREHOLDERS’ EQUITY
Preferred stock, no par value, 10.0 million shares authorized; Series A, 0.2 million shares authorized and issued as of March 31, 2022 and December 31, 2021, liquidation preference of $1,000 per share	192,878		192,878
Common stock, $2.50 par value, 600.0 million shares authorized, 224.0 million shares issued as of March 31, 2022 and 223.9 million issued as of December 31, 2021	560,045		559,766
Additional paid-in capital	1,524,110		1,519,873
Retained earnings	1,320,076		1,282,383
Accumulated other comprehensive (loss) gain	(158,855)		27,411
Treasury stock, at cost, 63.3 million shares as of March 31, 2022 and 63.4 million shares as of December 31, 2021	(868,719)		(869,631)
Total Shareholders’ Equity	2,569,535		2,712,680
Total Liabilities and Shareholders’ Equity	$	25,598,310	$	25,796,398

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(in thousands, except per-share data)	Three months ended March 31
	2022		2021
Interest Income
Loans, including fees	$	149,737	$	163,985
Investment securities:
Taxable	15,213		13,691
Tax-exempt	7,140		5,653

Loans held for sale	241		471
Other interest income	670		1,136
Total Interest Income	173,001		184,936
Interest Expense
Deposits	5,605		9,602
Short-term borrowings	121		188
Long-term borrowings	5,965		10,698
Total Interest Expense	11,691		20,488
Net Interest Income	161,310		164,448
Provision for credit losses	(6,950)		(5,500)
Net Interest Income After Provision for Credit Losses	168,260		169,948
Non-Interest Income
Commercial banking	16,008		16,342
Consumer banking	11,674		10,754
Wealth management	19,428		17,347
Mortgage banking	4,576		13,960
Other	3,551		3,519
Non-Interest Income Before Investment Securities Gains	55,237		61,922
Investment securities gains, net	19		33,475
Total Non-Interest Income	55,256		95,397
Non-Interest Expense
Salaries and employee benefits	84,464		82,586
Net occupancy	14,522		13,982
Data processing and software	14,315		13,561
Other outside services	8,167		8,490
Equipment	3,423		3,428
FDIC insurance	3,209		2,624
State taxes	3,037		4,505
Professional fees	1,792		2,779
Marketing	1,320		1,002
Intangible amortization	176		115
Debt extinguishment	—		32,163
Merger-related expenses	401		—
Other	11,152		13,149
Total Non-Interest Expense	145,978		178,384
Income Before Income Taxes	77,538		86,961
Income taxes	13,250		13,898
Net Income	64,288		73,063
Preferred stock dividends	(2,562)		(2,591)
Net Income Available to Common Shareholders	$	61,726	$	70,472

PER SHARE:
Net income available to common shareholders (basic)	$	0.38	$	0.43
Net income available to common shareholders (diluted)	0.38		0.43
Cash dividends	0.15		0.14
See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three months ended March 31
	2022		2021

Net Income	$	64,288	$	73,063
Other Comprehensive (Loss)/Income, net of tax:
Unrealized gains (losses) on AFS investment securities
Unrealized (loss)/gain on securities	(153,860)		(39,999)
Reclassification adjustment for securities gains included in net income	15		377
Amortization of net unrealized losses on AFS securities transferred to HTM	436		1,787

Net unrealized gains (losses) on AFS investment securities	(153,409)		(37,835)
Unrealized (losses) gains on interest rate swaps used in cash flow hedges
Net unrealized holding (losses) gains arising during the period	(31,376)		(1,835)
Reclassification adjustment for net (losses) gains realized in net income	(1,506)		128
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges	(32,882)		(1,707)
Defined benefit pension plan and postretirement benefits


Amortization of net unrecognized pension and postretirement items	25		289
Other Comprehensive (Loss)/Income	(186,266)		(39,253)
Total Comprehensive (Loss) Income	$	(121,978)	$	33,810

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except per-share data)


	Preferred Stock			Common Stock			Additional		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
	Shares	Amount		Shares	Amount		Paid-in Capital
Three months ended March 31, 2022
Balance at December 31, 2021	200	$	192,878	160,490	$	559,766	$	1,519,873	$	1,282,383	$	27,411	$	(869,631)	$	2,712,680
Net income									64,288						64,288
Other comprehensive loss											(186,266)				(186,266)
Common stock issued				179	279		1,602						912		2,793
Stock-based compensation awards							2,635								2,635

Preferred stock dividend									(2,562)						(2,562)
Common stock cash dividends - $0.15 per share									(24,033)						(24,033)
Balance at March 31, 2022	200	$	192,878	160,669	$	560,045	$	1,524,110	$	1,320,076	$	(158,855)	$	(868,719)	$	2,569,535

Three months ended March 31, 2021
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									73,063						73,063
Other comprehensive loss											(39,253)				(39,253)

Common stock issued				167	199		1,082						1,187		2,468
Stock-based compensation awards							1,902								1,902

Preferred stock dividend									(2,591)						(2,591)
Common stock cash dividends - $0.14 per share									(22,762)						(22,762)
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
























See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(in thousands)	Three months ended March 31
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	64,288	$	73,063
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	(6,950)		(5,500)
Depreciation and amortization of premises and equipment	7,510		6,870
Net amortization of investment securities premiums	3,356		3,716

Investment securities gains, net	(19)		(33,475)
Gain on sales of mortgage loans held for sale	(3,026)		(8,656)
Proceeds from sales of mortgage loans held for sale	169,010		294,478
Originations of mortgage loans held for sale	(157,891)		(236,028)
Intangible amortization	176		115
Amortization of issuance costs and discounts on long-term borrowings	206		1,146
Debt extinguishment costs	—		32,163
Stock-based compensation	2,635		1,902
Change in deferred federal income tax	(55,200)		(11,846)
Change in accrued salaries and benefits	(15,924)		(3,750)
Change in life insurance cash surrender value	(27,347)		(1,772)


Other changes, net	(88,605)		90,986
Total adjustments	(172,069)		130,349
Net cash (used in) provided by operating activities	(107,781)		203,412
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS securities	108,961		59,342
Proceeds from principal repayments and maturities of AFS securities	92,338		134,684
Proceeds from principal repayments and maturities of HTM securities	25,688		29,066
Purchase of AFS securities	(335,199)		(304,493)
Purchase of HTM securities	(9,541)		(227,687)
Sale of Visa Shares	—		33,962
Sale (purchase) of FRB and FHLB stock	(94)		25,920
Net increase in loans	(149,715)		(96,347)
Net purchases of premises and equipment	(5,410)		(4,425)

Net change in tax credit investments	(15,951)		(977)
Net cash (used in) provided by investing activities	(288,923)		(350,955)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings deposits	38,376		971,180
Net (decrease) increase in time deposits	(70,701)		(176,549)
Net (decrease) increase in short-term borrowings	35,676		(109,077)

Repayments of long-term borrowings	(65,057)		(703,165)
Net proceeds from issuance of common stock	2,793		2,468

Dividends paid	(25,032)		(23,270)

Net cash (used in) provided by financing activities	(83,945)		(38,413)
Net (decrease) increase in Cash and Cash Equivalents	(480,649)		(185,956)
Cash and Cash Equivalents at Beginning of Period	1,638,614		1,847,832
Cash and Cash Equivalents at End of Period	$	1,157,965	$	1,661,876
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	13,978	$	25,235
Income taxes	7,926		477
Supplemental Schedule of Certain Noncash Activities:
Transfer of AFS securities to HTM securities	$	—	$	376,165

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, 2021. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The Corporation evaluates subsequent events through the date of filing of this Form 10-Q with the SEC.

Significant Accounting Policies:

The significant accounting policies used in preparation of the Consolidated Financial Statements are disclosed in the Corporation's 2021 Annual Report on Form 10-K. Those significant accounting policies are unchanged at March 31, 2022.

CARES Act and 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. On December 27, 2020, the 2021 Consolidated Appropriations Act was signed into law and this Act extended the relief for TDR treatment that was set to expire on December 31, 2020 to the earlier of 60 days after the national emergency termination date or January 1, 2022. The Corporation applied the option under the CARES act for all loan modifications that qualified.

Recently Adopted Accounting Standards

On January 1, 2022, the Corporation adopted ASC Update 2021-06 Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (SEC Update). The Corporation adopted this standards update effective with this March 31, 2022 quarterly report on Form 10-Q and it did not have a material impact on the consolidated financial statements.

Recently Issued Accounting Standards

In March 2022, FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method ("ASU 2022-01"). This update addresses questions regarding the last-of-layer method arising from the issuance of ASU 2017-12 and permits more flexibility in hedging interest rate risk for both variable-rate and fixed-rate financial instruments and introduces the ability to hedge risk components for non-financial hedges. The Corporation will adopt ASU 2022-01 on January 1, 2023. The Corporation does not expect the adoption of ASU 2022-01 to have any impact on its consolidated financial statements.

In March 2022, FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This update reduces the complexity of accounting for TDRs by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Corporation will adopt ASU 2022-02 on January 1, 2023. The Corporation does not expect the adoption of ASU 2022-02 to have a material impact on its consolidated financial statements.

Reclassifications

Certain amounts in the 2021 consolidated financial statements and notes have been reclassified to conform to the 2022 presentation.

NOTE 2 – Restrictions on Cash and Cash Equivalents

Cash collateral is posted by the Corporation with counterparties to secure derivatives and other contracts, which is included in "interest-bearing deposits with other banks" on the consolidated balance sheets. The amounts of such collateral as of March 31, 2022 and December 31, 2021 were $64.5 million and $202.8 million, respectively.

NOTE 3 – Investment Securities

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


	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale	(in thousands)
U.S. Government securities	$	376,986	$	88	$	(3,357)	$	373,717

State and municipal securities	1,192,156		3,870		(51,380)		1,144,646
Corporate debt securities	401,142		1,517		(7,062)		395,597
Collateralized mortgage obligations	175,270		153		(4,159)		171,264
Residential mortgage-backed securities	295,590		326		(20,314)		275,602
Commercial mortgage-backed securities	1,024,224		235		(60,952)		963,507


Total	$	3,465,368	$	6,189	$	(147,224)	$	3,324,333

Held to Maturity

Residential mortgage-backed securities	$	384,675	$	1,686	$	(21,097)	$	365,264
Commercial mortgage-backed securities	579,666		—		(55,941)		523,725
Total	$	964,341	$	1,686	$	(77,038)	$	888,989


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale	(in thousands)
U.S. Government securities	$	127,831	$	—	$	(213)	$	127,618

State and municipal securities	1,139,187		50,161		(678)		1,188,670
Corporate debt securities	373,482		13,009		(358)		386,133
Collateralized mortgage obligations	206,532		3,581		(754)		209,359
Residential mortgage-backed securities	231,607		1,224		(3,036)		229,795
Commercial mortgage-backed securities	974,541		6,141		(9,534)		971,148
Auction rate securities	76,350		—		(1,683)		74,667
Total	$	3,129,530	$	74,116	$	(16,256)	$	3,187,390



Held to Maturity

Residential mortgage-backed securities	$	404,958	$	11,022	$	(7,067)	$	408,913
Commercial mortgage-backed securities	575,426		—		(18,472)		556,954
Total	$	980,384	$	11,022	$	(25,539)	$	965,867

During the first quarter of 2022, all ARCs were sold.

Securities carried at $2.3 billion at March 31, 2022 and $2.5 billion at December 31, 2021 were pledged as collateral to secure public and trust deposits.

The amortized cost and estimated fair values of debt securities as of March 31, 2022, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without call or prepayment penalties.


		March 31, 2022
		Available for Sale				Held to Maturity
		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(in thousands)
Due in one year or less		$	163,165	$	163,187	$	—	$	—
Due from one year to five years		262,405

FULTON FINANCIAL CORP [FULT] Filings

FULTON FINANCIAL CORP [FULTP] Filings