Fulton Financial Corporation (NASDAQ:FULT) (“Fulton” or the “Corporation”) reported net income available to common shareholders of $59.3 million, or $0.37 per diluted share, for the fourth quarter of 2021 and $265.2 million, or $1.62 per diluted share, for the year ended December 31, 2021.

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"2021 was a very good year for Fulton — a result of our continued successful execution of our relationship banking strategy," said E. Philip Wenger, Chairman and CEO of Fulton Financial Corporation. "Despite a difficult operating environment, the Fulton team did an outstanding job in helping our customers through some very challenging times. Our employees served as trusted financial advisors and delivered a wide variety of financial products and services. These activities, coupled with our success in keeping credit costs down and maintaining expenses, translated into record earnings per share for 2021. We are encouraged by many of the core business trends we saw during the year, particularly in the second half of 2021, and believe we are well-positioned to continue to advance our strategic priorities and deliver shareholder value in 2022."

Net Interest Income and Balance Sheet

Net interest income for the fourth quarter of 2021 was $165.6 million, $5.7 million lower than the third quarter of 2021. Net interest margin for the fourth quarter of 2021 decreased 5 basis points, to 2.77%, from 2.82% in the third quarter of 2021. The quarter-over-quarter decreases in net interest income and net interest margin were primarily due to a decrease in loan fees related to Paycheck Protection Program ("PPP") loans, which were $10.0 million in the fourth quarter of 2021 compared to $17.7 million in the third quarter of 2021, partially offset by a lower cost of deposits. The PPP loan balance as of December 31, 2021 was $301.3 million.

For the year ended December 31, 2021, net interest income was $663.7 million, an increase of $34.5 million in comparison to the year ended December 31, 2020. Net interest income for 2021 included $59.0 million in PPP loan fees. The yield on average interest-earning assets and the rate on average interest-bearing liabilities both declined 34 basis points in 2021 in comparison to 2020. The net interest margin in 2021 was 2.78% compared to 2.86% in 2020.

Total average interest-earning assets for the fourth quarter of 2021 were $24.3 billion, a decrease of $0.3 billion from the third quarter of 2021, driven by decreases in PPP loans of $0.4 billion and deposits with other banks reflected in other interest-earning assets of $0.2 billion, partially offset by increases in residential mortgage loans of $0.1 billion and tax-exempt investment securities of $0.1 billion.

Total average interest-earning assets for the year ended December 31, 2021 were $24.4 billion, an increase of $1.9 billion from 2020. Average loans, net of unearned income, were $18.6 billion, an increase of $0.4 billion from 2020. Included in average loans were PPP loans that had an average balance of $1.1 billion, a decrease of $0.1 billion from 2020. The increase in average loans was mainly driven by a $0.6 billion increase in the residential mortgage loan portfolio.

Total average interest-bearing liabilities decreased $0.3 billion, to $15.5 billion, in the fourth quarter of 2021 compared to the third quarter of 2021, driven by decreases of $0.2 billion in wholesale deposits reflected in demand deposits and $0.1 billion in time deposits. Average noninterest-bearing deposits increased $0.1 billion in the fourth quarter of 2021.

Total average interest-bearing deposits for the year ended December 31, 2021 increased $0.8 billion from 2020, driven by increases in demand and savings deposits. Average noninterest-bearing deposits increased $1.5 billion for the year ended December 31, 2021.

The Corporation repurchased 1.1 million shares and 2.8 million shares of Fulton common stock during the fourth quarter of 2021 and for the year ended December 31, 2021, respectively, at a cost of $17.8 million and $43.9 million, respectively. As of December 31, 2021, up to an additional $31.1 million of Fulton's common stock may be repurchased through March 31, 2022 under the $75 million share repurchase program originally announced in February 2021.

Asset Quality

In the fourth quarter of 2021, a negative provision for credit losses of $5.0 million was recognized, as compared to a negative provision for credit losses of $0.6 million recognized in the third quarter of 2021. The negative provision for credit losses for the fourth quarter of 2021 was recorded to adjust the allowance for credit losses as a result of improved economic conditions. For the year ended December 31, 2021, the negative provision for credit losses was $14.6 million compared to a provision for credit losses of $76.9 million in 2020. A $6.2 million provision for credit losses was recognized in the fourth quarter of 2020.

Non-performing assets were $153.9 million, or 0.60% of total assets, at December 31, 2021, compared to $152.1 million, or 0.58% of total assets, and $151.3 million, or 0.58% of total assets, at September 30, 2021 and December 31, 2020, respectively.

Annualized net charge-offs (recoveries) for the quarter ended December 31, 2021, were 0.07% of total average loans, compared to (0.05)% and (0.07)% for the quarters ended September 30, 2021 and December 31, 2020, respectively.

Non-interest Income

Non-interest income in the fourth quarter of 2021 was $63.9 million, an increase of $1.3 million, or 2.1%, from the third quarter of 2021. The increase in non-interest income was primarily due to a $1.6 million increase in income from equity method investments reflected in other income.

Compared to the fourth quarter of 2020, non-interest income in the fourth quarter of 2021 increased $8.3 million, or 14.9%, from $55.6 million, primarily due to an increase of $3.9 million in income from equity method investments, a $2.6 million increase in wealth management income due to growth in managed assets, and increases of $1.7 million and $1.3 million in commercial banking income and consumer banking income, respectively. These increases were partially offset with a $2.1 million decrease in mortgage banking income, primarily due to a decline in income from loan sales for the period.

For the year ended December 31, 2021, non-interest income, excluding investment securities gains, was $240.2 million, an increase of $13.9 million, or 6.1%, from 2020. The increase was primarily due to increases of $12.7 million in wealth management, $7.1 million in income from equity method investments and $3.9 million in consumer banking income, offset by declines of $8.7 million in mortgage banking income, due to a $29.2 million decline in income from loan sales, offset by a net favorable pre-tax income change attributable to the mortgage servicing rights valuation allowance as compared to 2020 of $20.4 million. Specifically, Fulton increased the mortgage servicing valuation allowance by $10.5 million in 2020. The Corporation reduced the valuation allowance by $9.9 million in 2021. As of December 31, 2021, the mortgage servicing rights valuation allowance remaining was $0.6 million.

During both 2021 and 2020, Fulton completed balance sheet restructurings involving sales of investment securities and corresponding prepayments of FHLB advances. During 2021, the balance sheet restructuring involved gains on sales of Visa, Inc. Class B restricted shares of $34.0 million that were offset in non-interest expense by debt extinguishment of costs of $33.2 million.

Non-interest Expense

Non-interest expense was $154.0 million in the fourth quarter of 2021, an increase of $9.4 million, or 6.5%, compared to the third quarter of 2021. The increase was primarily due to increases in salaries and employee benefits of $2.8 million during the fourth quarter of 2021 as a result of higher incentive compensation and bonuses, charitable contributions of $2.5 million, reflected in other expense, and other outside services expense of $1.7 million, driven by technology-related services.

Compared to the fourth quarter of 2020, non-interest expense decreased $0.7 million, or 0.5%, in the fourth quarter of 2021, primarily due to a write-off in the prior year period of $4.8 million for fixed assets and $5.8 million of lease termination charges, partially offset by increases of $2.7 million in data processing and software and $1.3 million in other outside services. In addition, salaries and employee benefits increased $1.6 million, primarily due to an increase of $6.8 million for incentive compensation and bonuses, partially offset by a $4.4 million decrease in employee severance expense. During the fourth quarter of 2021, the Corporation made a $1.0 million contribution to the Fulton Forward Foundation.

Total non-interest expense increased $38.4 million to $617.8 million, or 6.6%, in 2021 in comparison to 2020. Non-interest expense, excluding debt extinguishment costs of $33.2 million, was $584.6 million, an increase of $21.3 million, or 3.8%, compared to non-interest expenses of $563.2 million in 2020, which excludes expenses associated with cost savings initiatives of $16.2 million. Excluding the net decrease in severance costs of $5.9 million, the increase in non-interest expense over 2020 was primarily due to increases in salaries and employee benefits of $10.6 million, attributable to a $12.7 million increase in incentive compensation and bonuses. Also contributing to the increase in non-interest expense were $8.4 million in data processing and software and $2.8 million in other outside services expense, partially offset by a $3.2 million decrease in professional fees.

Income Tax Expense

For the year ended December 31, 2021, the effective tax rate was 17.6% compared to 12.0% in 2020. The increase was a result of higher income before income taxes.

Additional information on Fulton is available on the Internet at www.fultonbank.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, including future credit losses, 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, the statements 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 relate 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, 2020, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021, and other current and periodic reports, which have been or will be filed with the Securities and Exchange Commission and are or will be available in the Investor Relations section of the Corporation's website (www.fultonbank.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.