Fulton Financial Announces Second Quarter 2021 Results

Fulton Financial Corporation

LANCASTER, PA —Fulton Financial Corporation (NASDAQ: FULT)  reported net income available to common shareholders of $62 million, or $0.38 per diluted share, for the second quarter of 2021.

“In the second quarter, Fulton Financial again achieved solid performance,” said E. Philip Wenger, Chairman and CEO of Fulton Financial Corporation. “Our results reflect stable to improving core business trends, a disciplined operating environment, growth in wealth management revenues and stable asset quality.”

Net Interest Income and Balance Sheet

Net interest income for the second quarter of 2021 was $162 million, $2 million lower than the first quarter of 2021. Net interest margin for the second quarter of 2021 decreased 6 basis points, to 2.73%, from 2.79% in the first quarter of 2021. The decreases in net interest income and net interest margin in comparison to the first quarter of 2021 were primarily due to lower fee income recognized related to the Paycheck Protection Program (“PPP”) loans, which were $12 million in the second quarter of 2021 compared to $19 million for the first quarter of 2021, as well as lower yields on loans.

Total average interest-earning assets for the second quarter of 2021 were $24 billion, a decrease of $2 million from the first quarter of 2021, driven by a decline in PPP loans and other interest-earning assets, partially offset by growth in the commercial and residential real estate loan portfolios as well as investment securities. Average Net Loans1, which include loans originated under the PPP, were $18.9 billion, a decrease of $74 million compared to the first quarter of 2021. Average PPP loans were $1.5 billion for the second quarter of 2021 compared to $1.7 billion for the first quarter of 2021. Second quarter loan balances were impacted by the net effect of $639 million of PPP loans forgiven and $60 million of new loans originated under the third phase of the PPP in the second quarter of 2021.

___________________________________
1
Loans and lease receivables, (net of unearned income)

Average loans and yields, by type, for the second quarter of 2021 in comparison to the first quarter of 2021 are summarized in the following table:

Three months ended

June 30, 2021

March 31, 2021

Growth

Balance

Yield (1)

Balance

Yield (1)

$

%

(dollars in thousands)

Average Net Loans by type:

Real estate – commercial mortgage

$

7,177,622

3.16

%

$

7,128,997

3.15

%

$

48,625

0.7

%

Commercial and industrial(2)

5,445,160

2.58

%

5,722,080

2.57

%

(276,920)

(4.8)

%

Real estate – residential mortgage

3,396,690

3.39

%

3,183,585

3.52

%

213,105

6.7

%

Real estate – home equity

1,139,558

3.71

%

1,175,218

3.75

%

(35,660)

(3.0)

%

Real estate – construction

1,054,469

3.05

%

1,054,718

3.09

%

(249)

(0.0)

%

Consumer

451,486

3.89

%

459,038

4.13

%

(7,552)

(1.6)

%

Equipment lease financing

256,248

3.74

%

266,405

4.11

%

(10,157)

(3.8)

%

Other(3)

(14,677)

N/A

(9,455)

N/A

(5,222)

55.2

%

Total Average Net Loans

$

18,906,556

3.32

%

$

18,980,586

3.53

%

$

(74,030)

(0.4)

%

(1) Presented on a fully-taxable equivalent basis using a 21% Federal tax rate and statutory interest expense disallowances.

(2) Includes average PPP loans of $1.5 billion and $1.7 billion for the three months ended June 30, 2021 and March 31, 2021, respectively.

(3) Consists of overdrafts and net origination fees and costs.

Total average liabilities decreased $98 million, to $23.3 billion, in the second quarter of 2021 compared to the first quarter of 2021 driven by decreases in short-term and long-term borrowings, partially offset by increases in average deposits. Average deposits and interest rates, by type, for the second quarter of 2021 in comparison to the first quarter of 2021 are summarized in the following table:

Three months ended

June 30, 2021

March 31, 2021

Growth

Balance

Rate

Balance

Rate

$

%

(dollars in thousands)

Average Deposits, by type:

Noninterest-bearing demand

$

7,203,696

$

6,672,832

$

530,864

8.0

%

Interest-bearing demand

5,979,855

0.06

%

5,832,174

0.08

%

147,681

2.5

%

Savings

6,280,629

0.09

%

6,137,084

0.10

%

143,545

2.3

%

Total average demand and savings

19,464,180

0.05

%

18,642,090

0.06

%

822,090

4.4

%

Brokered

297,815

0.34

%

324,364

0.49

%

(26,549)

(8.2)

%

Time

2,003,606

1.09

%

2,150,570

1.23

%

(146,964)

(6.8)

%

Total Average Deposits

$

21,765,601

0.15

%

$

21,117,024

0.18

%

$

648,577

3.1

%

Asset Quality

In the second quarter of 2021, a negative provision for credit losses of $4 million was recognized, as compared to a negative provision for credit losses of $6 million recognized in the first quarter of 2021. A $20 million provision for credit losses was recognized in the second quarter of 2020. Consistent with the first quarter of 2021, improved economic forecasts and a decrease in specific allocations within the allowance for credit losses for loans evaluated individually reduced the level of the allowance for credit losses determined to be necessary at the end of the second quarter of 2021.

The $20 million provision for credit losses in the second quarter of 2020 reflected expected credit losses based on economic forecasts as of the end of the second quarter of 2020 and the assessment of the estimated impacts of the COVID-19 pandemic at that time.

Non-performing assets were $157 million, or 0.60% of total assets, at June 30, 2021, compared to $156 million, or 0.60% of total assets, and $145 million, or 0.59% of total assets at March 31, 2021 and June 30, 2020, respectively.

Annualized net charge-offs for the quarter ended June 30, 2021 were 0.15% of total average loans, compared to 0.13% and 0.09% for the quarters ended March 31, 2021 and June 30, 2020, respectively.

Non-interest Income

Non-interest income in the second quarter of 2021, excluding investment securities gains, was $52 million, a decrease of $10 million, or 16%, from the first quarter of 2021, primarily driven by decreases of $11 million in mortgage banking income and a $1 million decrease in capital markets income. The decrease in mortgage banking income was due to lower mortgage sales and gain-on-sale spreads on loans sold, as well as a $2 million addition to the valuation allowance for mortgage servicing assets. The $1 million decrease in capital markets income was the result of lower commercial loan interest rate swap revenues.

Compared to the second quarter of 2020, non-interest income, excluding investment securities gains, in the second quarter of 2021 decreased $1 million, or 2%, from $53 million, primarily driven by a $7 million decrease in mortgage banking income, resulting from a combination of lower mortgage sales gains and higher rates. During the second quarter of 2020, mortgage banking income was higher as a result of lower mortgage interest rates which drove an increase in activity. The decrease in mortgage banking income was partially offset by a $4 million increase in wealth management income and a $2 million increase in consumer banking income.

Net investment securities gains were $33 million lower compared to the first quarter of 2021. In the first quarter of 2021, Fulton completed a balance sheet restructuring involving gains on sales of Visa, Inc. Class B restricted shares of $34 million, which were offset in non-interest expense by corresponding debt extinguishment costs of $32 million, other securities losses of $0.4 million and a write-off of $1 million recognized in net interest income in connection with the purchase of certain of the Corporation’s outstanding senior and subordinated notes and the prepayment of term Federal Home Loan Bank advances.

Non-interest Expense

Non-interest expense was $141 million in the second quarter of 2021, a decrease of $38 million compared to the first quarter of 2021, with the decrease driven by costs recognized during the first quarter of 2021 associated with the aforementioned balance sheet restructuring.

Compared to the second quarter of 2020, non-interest expense decreased $2 million, or 2%, in the second quarter of 2021, due primarily to a decrease in salaries and employee benefits and debt extinguishment costs. In the second quarter of 2020 a $3 million prepayment penalty on redemption of FHLB advances was incurred. These decreases were partially offset by increases in multiple other non-interest expense categories.

Income Tax Expense

The effective income tax rate (ETR) was 16% for both the second and first quarters of 2021 as compared to 14% for second quarter of 2020. The increase was a result of higher income before income taxes, while net favorable permanent differences were relatively the same compared to the second quarter of 2020.

Additional information on Fulton is available on the Internet at www.fult.com.

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