LANCASTER, Pa.–()–Fulton Financial Corporation (NASDAQ:FULT) (the “Corporation”) reported net income of $58.1 million, or $0.33 per diluted share, for the fourth quarter of 2018, and net income of $208.4 million, or $1.18 per diluted share, for 2018.

“Overall, 2018 was another good year for Fulton as we continued to execute on our growth strategies and benefited from multiple interest rate hikes from the Federal Reserve which translated into record levels of revenue and earnings,” said E. Philip Wenger, Chairman and CEO. “I’m extremely proud of our team’s hard work this year, and continued focus on driving shareholder value. We look forward to 2019 and believe we are well-positioned for an even better year.”

Net Interest Income and Margin

Net interest income for the fourth quarter of 2018 increased $2.8 million, or 1.8%, from the third quarter of 2018 and net interest margin increased two basis points, to 3.44%. The average yield on interest-earning assets and the average cost of interest-bearing liabilities each increased nine basis points. The nine basis point increase in the average yield on interest-earning assets was primarily due to a ten basis point increase in loan yields. The nine basis point increase in the average cost of interest-bearing liabilities reflected an 11 basis point increase in the cost of interest-bearing deposits.

For the year ended December 31, 2018, net interest income increased $55.1 million, or 9.6%, from 2017. Net interest margin increased 12 basis points, to 3.40%. The average yield on interest-earning assets increased 29 basis points and the average cost of interest-bearing liabilities increased 22 basis points from 2017.

Balance Sheet

Total average assets for the fourth quarter of 2018 were $20.5 billion, an increase of $238.9 million from the third quarter of 2018. Average loans, net of unearned income, increased $103.5 million, or 0.7%, in comparison to the third quarter of 2018. Average loans and yields, by type, for the fourth quarter of 2018 in comparison to the third quarter of 2018 are summarized in the following table:

    Three Months Ended    
December 31, 2018   September 30, 2018 Growth
Balance   Yield (1) Balance   Yield (1) $ %

 

(dollars in thousands)

Average Loans, net of unearned income, by type:
Real estate – commercial mortgage $ 6,343,024 4.57 % $ 6,309,663 4.46 % $ 33,361 0.5 %
Commercial – industrial, financial and agricultural 4,329,937 4.51 % 4,304,320 4.36 % 25,617 0.6 %
Real estate – residential mortgage 2,209,993 4.01 % 2,142,977 3.96 % 67,016 3.1 %
Real estate – home equity 1,459,647 5.19 % 1,474,011 4.99 % (14,364 ) (1.0 %)
Real estate – construction 931,724 4.63 % 969,575 4.58 % (37,851 ) (3.9 %)
Consumer 406,436 4.57 % 375,656 4.50 % 30,780 8.2 %
Leasing 274,134 4.63 % 276,456 4.66 % (2,322 ) (0.8 %)
Other   10,742 N/A     9,485 N/A     1,257   13.3 %
Total Average Loans, net of unearned income $ 15,965,637 4.54 % $ 15,862,143 4.44 % $ 103,494   0.7 %
 
(1) Presented on a fully-taxable equivalent basis using a 21% federal tax rate and statutory interest expense disallowances.
N/A – Not applicable

For the year ended December 31, 2018, average loans increased $578.7 million, or 3.8%, compared to 2017. Ending loans at December 31, 2018 increased $240.7 million, or 1.5%, compared to September 30, 2018 and increased $397.6 million, or 2.5%, compared to December 31, 2017.

Total average liabilities increased $226.3 million, or 1.3%, from the third quarter of 2018, while average deposits increased $445.8 million, or 2.8%. Average deposits and interest rates, by type, for the fourth quarter of 2018 in comparison to the third quarter of 2018 are summarized in the following table:

    Three Months Ended    
December 31, 2018   September 30, 2018 Growth
Balance   Rate Balance   Rate $ %
(dollars in thousands)
Average Deposits, by type:
Noninterest-bearing demand $ 4,321,776 % $ 4,298,020 % $ 23,756 0.6 %
Interest-bearing demand 4,225,157 0.70 % 4,116,051 0.61 % 109,106 2.7 %
Savings and money market deposits   4,979,712 0.78 %   4,718,148 0.64 %   261,564 5.5 %
Total average demand and savings 13,526,645 0.50 % 13,132,219 0.42 % 394,426 3.0 %
Brokered deposits 164,280 2.34 % 162,467 2.05 % 1,813 1.1 %
Time deposits   2,722,141 1.46 %   2,672,548 1.34 %   49,593 1.9 %
 
Total Average Deposits $ 16,413,066 0.68 % $ 15,967,234 0.59 % $ 445,832 2.8 %

For the year ended December 31, 2018, average deposits increased $351.4 million, or 2.3%, compared to 2017. Ending deposits at December 31, 2018 increased $127.1 million, or 0.8%, compared to September 30, 2018 and increased $578.6 million, or 3.7%, compared to December 31, 2017.

Asset Quality

Non-performing assets were $150.2 million, or 0.73% of total assets, at December 31, 2018, compared to $130.8 million, or 0.64% of total assets, at September 30, 2018 and $144.6 million, or 0.72% of total assets, at December 31, 2017.

Annualized net charge-offs for the quarter ended December 31, 2018 were 0.17% of total average loans compared to 0.08% for the quarter ended September 30, 2018. The allowance for credit losses as a percentage of non-performing loans was 121% at December 31, 2018, as compared to 140% at September 30, 2018 and 131% at December 31, 2017.

During the fourth quarter of 2018, the Corporation recorded an $8.2 million provision for credit losses, compared to a $1.6 million provision for credit losses in the third quarter of 2018. For the year ended December 31, 2018, the provision for credit losses was $46.9 million, an increase of $23.6 million from 2017.

The increases in non-performing loans and the provision for credit losses during the fourth quarter of 2018 were primarily the result of a single relationship, including commercial loans and leases.

Non-interest Income

Non-interest income in the fourth quarter of 2018, excluding investment securities gains, decreased $1.5 million, or 2.9%, in comparison to the third quarter of 2018. This decline was due primarily to decreases in commercial loan interest rate swap fees and merchant fees. The decline was partially offset by gains in investment management and trust services income and small business administration (SBA) lending income.

For the year ended December 31, 2018, non-interest income, excluding investment securities gains, decreased $3.4 million, or 1.7%, primarily due to a $5.1 million net gain recognized upon the settlement of litigation in 2017 and decreases in commercial loan interest rate swap fees, overdraft fees, SBA lending income and mortgage banking income, which included a $1.3 million mortgage servicing rights valuation allowance reversal in 2017. Partially offsetting these decreases were increases in investment management and trust services income, merchant fees, and credit and debit card income.

Non-interest Expense

Non-interest expense increased $5.3 million, or 3.9%, in the fourth quarter of 2018, compared to the third quarter of 2018. Amortization of tax credit investments increased $4.9 million, due to the amortization of a tax credit investment that generated a corresponding credit to income taxes in the quarter. The $2.4 million increase in other expenses, due primarily to branch consolidation costs and other real estate owned expense, was partially offset by a decrease in marketing expense.

For the year ended December 31, 2018, non-interest expense increased $20.5 million, or 3.9%, compared to 2017. This increase was primarily due to increases in salaries and employee benefits, other outside services, data processing and software, net occupancy expense and professional fees.

Income Tax Expense

The effective income tax rate for the fourth quarter of 2018 was 8.6%, as compared to 11.5% for the third quarter of 2018. The decrease in the effective income tax rate resulted mainly from the aforementioned tax credit and lower income before income taxes.

The effective income tax rate for the year ended December 31, 2018 was 10.5% compared to 26.7% in 2017, due primarily to the new federal corporate income tax rate, which became effective January 1, 2018.

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

Safe Harbor Statement

This news release may contain forward-looking statements with respect to the Corporation’s financial condition, results of operations and business. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the use of words such as “may,” “should,” “will,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “projects,” the negative of these terms and other comparable terminology. These forward looking statements may include projections of, or guidance on, the Corporation’s future financial performance, expected levels of future expenses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in the Corporation’s business or financial results.

Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, they are based on current beliefs, expectations and assumptions regarding the future of the Corporation’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements related to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Corporation’s control, and actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Any forward-looking statement is based only on information currently available and speaks only as of the date when made. The Corporation undertakes no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A discussion of certain risks and uncertainties affecting the Corporation, and some of the factors that could cause the Corporation's actual results to differ materially from those described in the forward-looking statements, can be found in the sections entitled “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, which have been filed with the Securities and Exchange Commission and are available in the Investor Relations section of the Corporation's website (www.fult.com) and on the Securities and Exchange Commission's website (www.sec.gov).

Non-GAAP Financial Measures

The Corporation uses certain non-GAAP financial measures in this earnings release. These non-GAAP financial measures are reconciled to the most comparable GAAP measures in tables at the end of this release.

 
FULTON FINANCIAL CORPORATION
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
in thousands, except per-share data and percentages
Three Months Ended
Dec 31   Sep 30   Jun 30   Mar 31   Dec 31
  2018     2018     2018     2018     2017  

Ending Balances

Investments $ 2,686,973 $ 2,635,413 $ 2,593,283 $ 2,592,823 $ 2,547,956
Loans, net of unearned income 16,165,800 15,925,093 15,792,969 15,696,284 15,768,247
Total assets 20,682,152 20,364,810 20,172,539 19,948,941 20,036,905
Deposits 16,376,159 16,249,014 15,599,799 15,477,103 15,797,532
Shareholders' equity 2,247,573 2,283,014 2,245,785 2,235,493 2,229,857
 

Average Balances

Investments $ 2,646,266 $ 2,596,414 $ 2,601,705 $ 2,556,986 $ 2,566,337
Loans, net of unearned income 15,965,637 15,862,143 15,768,377 15,661,032 15,560,185
Total assets 20,512,130 20,273,232 20,063,375 19,876,093 20,072,579
Deposits 16,413,066 15,967,234 15,517,424 15,420,312 16,056,789
Shareholders' equity 2,281,669 2,269,093 2,246,904 2,224,615 2,237,031
 

Income Statement

Net interest income $ 162,944 $ 160,127 $ 156,067 $ 151,318 $ 149,413
Provision for credit losses 8,200 1,620 33,117 3,970 6,730
Non-interest income 49,523 51,033 49,094 45,875 56,956
Non-interest expense 140,685 135,413 133,345 136,661 138,452
Income before taxes 63,582 74,127 38,699 56,562 61,187
Net income 58,083 65,633 35,197 49,480 34,001
Pre-provision net revenue(1) 78,320 77,370 73,449 62,150 69,361
 

Per Share

Net income (basic) $ 0.33 $ 0.37 $ 0.20 $ 0.28 $ 0.19
Net income (diluted) 0.33 0.37 0.20 0.28 0.19
Cash dividends 0.16 0.12 0.12 0.12 0.14
Tangible common equity(1) 10.08 9.95 9.75 9.71 9.70
Weighted average shares (basic) 174,571 175,942 175,764 175,303 175,132
Weighted average shares (diluted) 175,473 177,128 176,844 176,568 176,374
 

Asset Quality

Net charge-offs to average loans (annualized) 0.17 % 0.08 % 1.01 % 0.10 % 0.14 %
Non-performing loans to total loans 0.86 % 0.75 % 0.78 % 0.86 % 0.85 %
Non-performing assets to total assets 0.73 % 0.64 % 0.67 % 0.73 % 0.72 %
Allowance for credit losses to loans outstanding 1.05 % 1.05 % 1.07 % 1.12 % 1.12 %
Allowance for loan losses to loans outstanding 0.99 % 0.99 % 0.99 % 1.04 % 1.08 %
Allowance for credit losses to non-performing loans 121.29 % 139.74 % 136.77 % 130.73 % 130.67 %
Allowance for loan losses to non-performing loans 114.93 % 131.40 % 126.11 % 121.22 % 126.08 %
Non-performing assets to tangible shareholders' equity

and allowance for credit losses(1)

7.97 % 6.81 % 7.16 % 7.73 % 7.71 %
Total delinquency rate 1.08 % 1.15 % 1.18 % 1.19 % 1.24 %
 

Profitability

Return on average assets 1.12 % 1.28 % 0.70 % 1.01 % 0.67 %
Return on average shareholders' equity 10.10 % 11.48 % 6.28 % 9.02 % 6.03 %
Return on average shareholders' equity (tangible)(1) 13.17 % 14.99 % 8.23 % 11.85 % 7.91 %
Net interest margin 3.44 % 3.42 % 3.39 % 3.35 % 3.29 %
Efficiency ratio(1) 62.2 % 62.5 % 63.3 % 67.5 % 64.2 %
 

Capital Ratios

Tangible common equity ratio(1) 8.52 % 8.83 % 8.73 % 8.78 % 8.71 %
Tier 1 leverage ratio(2) 8.92 % 9.34 % 9.20 % 9.20 % 8.93 %
Common equity Tier 1 capital ratio(2) 10.24 % 10.80 % 10.60 % 10.70 % 10.38 %
Tier 1 capital ratio(2) 10.24 % 10.80 % 10.60 % 10.70 % 10.38 %
Total risk-based capital ratio(2) 12.74 % 13.34 % 13.20 % 13.30 % 13.02 %
 

Financial information, as adjusted (3):

Net income $ 49,635
Net income per share, diluted $ 0.28
Return on average assets 0.98 %
Return on average shareholders' equity 8.80 %
Return on average shareholders' equity (tangible) 11.55 %
 
(1) Please refer to the calculation on the page titled “Reconciliation of Non-GAAP Measures” at the end of this document.
(2) Regulatory capital ratios as of December 31, 2018 are preliminary and prior periods are actual.
(3)Excluding the re-measurement of net deferred tax assets of $15.6 million, which is considered a Non-GAAP financial measure. Please refer to the calculation and management’s reasons for using this measure on the page titled “Reconciliation of Non-GAAP Measures” at the end of this document.
             
FULTON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED ENDING BALANCE SHEETS (UNAUDITED)
dollars in thousands
    % Change from
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Dec 31
  2018       2018       2018       2018&g

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