Fulton Financial (US:FULT)2022-08-07 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements reflect a decrease in total assets and shareholders' equity, primarily due to AOCI losses, despite increased Q2 net income Consolidated Balance Sheets Total assets decreased to $25.25 billion due to reduced cash, while shareholders' equity declined due to AOCI losses Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $449,674 | $1,638,614 | | Net loans | $18,672,386 | $18,076,349 | | Total Assets | $25,252,686 | $25,796,398 | | Total Deposits | $21,143,866 | $21,573,499 | | Total Liabilities | $22,781,593 | $23,083,718 | | Total Shareholders' Equity | $2,471,093 | $2,712,680 | - Accumulated other comprehensive loss increased significantly to $(304.2) million as of June 30, 2022, from a gain of $27.4 million at December 31, 2021, contributing to the decline in shareholders' equity12 Consolidated Statements of Income Q2 2022 net interest income increased to $178.8 million, with net income available to common shareholders rising to $67.4 million Income Statement Summary (in thousands USD, except per-share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $178,831 | $162,399 | $340,141 | $326,847 | | Provision for credit losses | $1,500 | $(3,500) | $(5,450) | $(9,000) | | Total Non-Interest Income | $58,391 | $51,890 | $113,647 | $147,287 | | Total Non-Interest Expense | $149,730 | $140,831 | $295,708 | $319,215 | | Net Income | $69,989 | $64,964 | $134,277 | $138,027 | | Net Income Available to Common Shareholders | $67,427 | $62,402 | $129,153 | $132,874 | | Diluted EPS | $0.42 | $0.38 | $0.80 | $0.81 | - Merger-related expenses of $1.0 million were recorded in Q2 2022, with no comparable expense in 202113 Notes to Consolidated Financial Statements Notes detail accounting policies, significant unrealized losses on investment securities, and the completed Prudential Bancorp merger Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights increased net interest income and NIM expansion, stable asset quality, and the completed Prudential Bancorp acquisition - The FOMC raised the Fed Funds Rate three times in H1 2022, totaling 150 basis points, which positively impacted the company's net interest margin153 - The acquisition of Prudential Bancorp, Inc. was completed on July 1, 2022, incurring merger-related expenses of $1.0 million and $1.4 million in Q2 and H1 2022 respectively154155 Key Performance Ratios | Ratio | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Return on average assets, annualized | 1.10% | 1.00% | | Return on average common shareholders' equity, annualized | 11.57% | 10.11% | | Net interest margin (FTE) | 3.04% | 2.73% | | Efficiency ratio | 61.4% | 63.8% | | Non-performing assets to total assets | 0.71% | 0.60% | Results of Operations Q2 2022 net interest income (FTE) increased by $16.8 million due to higher yields, while non-interest income and expenses also rose - Q2 2022 vs Q2 2021 FTE net interest income increased by $16.8 million (10.2%), and the net interest margin expanded by 31 bps to 3.04%, driven by higher yields on net loans163166168 - Non-interest income (excluding securities gains) for Q2 2022 increased by $6.5 million (12.6%) YoY, driven by a $2.2 million increase in fee income from commercial customer interest rate swaps and a $3.8 million increase in mortgage servicing income179180 - Non-interest expense for Q2 2022 increased by $8.9 million (6.3%) YoY, primarily due to a $7.0 million increase in salaries and employee benefits and a $1.1 million increase in net occupancy expense182 Financial Condition Total assets decreased to $25.25 billion due to reduced cash, offset by loan growth, while shareholders' equity declined from AOCI losses Loan Portfolio Composition (in thousands USD) | Loan Type | June 30, 2022 | Dec 31, 2021 | Change $ | | :--- | :--- | :--- | :--- | | Real estate – commercial mortgage | $7,417,036 | $7,279,080 | $137,956 | | Commercial and industrial | $4,173,114 | $4,208,327 | $(35,213) | | Real estate – residential mortgage | $4,203,827 | $3,846,750 | $357,077 | | Net loans | $18,920,950 | $18,325,350 | $595,600 | - Non-performing assets increased by $24.4 million to $178.3 million at June 30, 2022, representing 0.71% of total assets, up from 0.60% at year-end 2021152226 - Shareholders' equity decreased by $241.6 million in the first six months of 2022, primarily due to a $331.6 million decrease in AOCI from unrealized losses in investment securities and derivatives, partially offset by net income214235 Regulatory Capital Ratios | Ratio | June 30, 2022 | Dec 31, 2021 | Well-Capitalized Minimum (incl. buffer) | | :--- | :--- | :--- | :--- | | Common Equity Tier I | 9.9% | 9.9% | 7.0% | | Tier I Risk-Based Capital | 10.8% | 10.9% | 8.5% | | Total Risk-Based Capital | 13.7% | 14.1% | 10.5% | | Tier I Leverage Capital | 9.1% | 8.6% | 4.0% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk, showing asset sensitivity with projected NII increase from rate shocks, and maintains substantial liquidity Net Interest Income Sensitivity to Interest Rate Shocks (as of June 30, 2022) | Rate Shock (bps) | Annual Change in Net Interest Income | % Change in Net Interest Income | | :--- | :--- | :--- | | +400 | +$142.3 million | 17.6% | | +300 | +$107.3 million | 13.3% | | +200 | +$72.4 million | 8.9% | | +100 | +$36.4 million | 4.5% | - The company uses interest rate swaps designated as cash flow hedges to manage volatility in net interest income from floating-rate loans253 - As of June 30, 2022, the Corporation had significant available liquidity, including borrowing capacity of approximately $5.9 billion from the FHLB and $1.2 billion from the FRB discount window257258 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of June 30, 2022263 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls264 PART II. OTHER INFORMATION Legal Proceedings The company reached a preliminary settlement in the Kress v. Fulton Bank, N.A. class action lawsuit, with no material financial impact expected - In the Kress v. Fulton Bank, N.A. lawsuit, a settlement agreement was reached and received preliminary court approval on June 30, 2022, with final approval scheduled for November 2, 2022, and no material financial impact expected139 Risk Factors No material changes to previously disclosed risk factors were reported for the quarter - No material changes to risk factors were reported for the quarter268 Unregistered Sales of Equity Securities and Use of Proceeds A $75 million share repurchase program was authorized in March 2022, with no shares repurchased during Q2 2022 - A share repurchase program for up to $75 million was approved in March 2022269 - No shares were repurchased under the program during the three months ended June 30, 2022269 Exhibits This section lists exhibits filed with the Form 10-Q, including merger agreements and required CEO/CFO certifications