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 September 30, 2019, 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. 0-10587

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	NASDAQ

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 –164,122,000 shares outstanding as of October 31, 2019.

1

FULTON FINANCIAL CORPORATION

FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

INDEX

Description		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a)	Consolidated Balance Sheets - September 30, 2019 and December 31, 2018	3
(b)	Consolidated Statements of Income - Three and nine months ended September 30, 2019 and 2018	4
(c)	Consolidated Statements of Comprehensive Income - Three and nine months ended September 30, 2019 and 2018	5
(d)	Consolidated Statements of Shareholders’ Equity - Three and nine months ended September 30, 2019 and 2018	6
(e)	Consolidated Statements of Cash Flows - Nine months ended September 30, 2019 and 2018	7
(f)	Notes to Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		40
Item 3. Quantitative and Qualitative Disclosures about Market Risk		66
Item 4. Controls and Procedures		69
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		70
Item 1A. Risk Factors		70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		70
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		71
Signatures		72

2

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS 

(in thousands, except per-share data)

	September 30, 2019			December 31, 2018
	(unaudited)
ASSETS
Cash and due from banks	$	120,671		$	103,436
Interest-bearing deposits with other banks	477,942			342,251
Cash and cash equivalents	598,613			445,687
Federal Reserve Bank and Federal Home Loan Bank stock	94,557			79,283
Loans held for sale	33,945			27,099
Investment securities:
Available for sale, at estimated fair value	2,315,541			2,080,294
Held to maturity, at amortized cost	390,069			606,679
Loans and leases, net of unearned income	16,686,866			16,165,800
Less: Allowance for loan and lease losses	(166,135		)	(160,537		)
Net loans and leases	16,520,731			16,005,263
Premises and equipment	237,344			234,529
Accrued interest receivable	60,447			58,879
Goodwill and intangible assets	534,178			531,556
Other assets	918,193			612,883
Total Assets	$	21,703,618		$	20,682,152
LIABILITIES
Deposits:
Noninterest-bearing	$	4,240,478		$	4,310,105
Interest-bearing	13,102,239			12,066,054
Total Deposits	17,342,717			16,376,159
Short-term borrowings	832,860			754,777
Accrued interest payable	9,622			10,529
Other liabilities	467,689			300,835
Federal Home Loan Bank advances and long-term debt	726,714			992,279
Total Liabilities	19,379,602			18,434,579
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value, 600 million shares authorized, 222.4 million shares issued in 2019 and 221.8 million issued in 2018	555,888			554,377
Additional paid-in capital	1,496,657			1,489,703
Retained earnings	1,059,517			946,032
Accumulated other comprehensive gain (loss)	6,081			(59,063		)
Treasury stock, at cost, 58.3 million shares in 2019 and 51.6 million shares in 2018	(794,127		)	(683,476		)
Total Shareholders’ Equity	2,324,016			2,247,573
Total Liabilities and Shareholders’ Equity	$	21,703,618		$	20,682,152
See Notes to Consolidated Financial Statements

3

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per-share data)	Three months ended September 30				Nine months ended September 30
	2019		2018		2019		2018
INTEREST INCOME
Loans and leases, including fees	$	186,001	$	175,068	$	558,055	$	503,029
Investment securities:
Taxable	15,565		13,956		46,935		41,039
Tax-exempt	3,673		3,035		10,222		8,933
Loans held for sale	466		388		1,056		888
Other interest income	2,709		1,601		6,879		4,016
Total Interest Income	208,414		194,048		623,147		557,905
INTEREST EXPENSE
Deposits	35,737		23,819		97,974		59,553
Short-term borrowings	4,156		2,002		12,200		7,079
Federal Home Loan Bank advances and long-term debt	7,260		8,100		23,854		23,761
Total Interest Expense	47,153		33,921		134,028		90,393
Net Interest Income	161,260		160,127		489,119		467,512
Provision for credit losses	2,170		1,620		12,295		38,707
Net Interest Income After Provision for Credit Losses	159,090		158,507		476,824		428,805
NON-INTEREST INCOME
Wealth management	13,867		13,066		41,259		38,740
Commercial banking	18,284		17,540		51,489		47,928
Consumer banking	13,333		12,665		37,077		36,005
Mortgage banking	6,658		4,896		18,023		14,252
Other	3,179		2,852		8,298		9,040
Non-Interest Income Before Investment Securities Gains	55,321		51,019		156,146		145,965
Investment securities gains, net	4,492		14		4,733		37
Total Non-Interest Income	59,813		51,033		160,879		146,002
NON-INTEREST EXPENSE
Salaries and employee benefits	78,211		76,770		234,959		227,457
Net occupancy	12,368		12,578		39,746		38,970
Other outside services	12,163		9,122		31,774		24,814
Data processing and software	11,590		10,157		33,211		31,083
Prepayment penalty on FHLB advances	4,326		—		4,326		—
Equipment	3,459		3,000		10,100		9,968
Professional fees	3,331		3,427		10,261		10,615
Marketing	3,322		2,692		8,345		7,277
State Taxes	2,523		2,707		7,005		7,463
Amortization of tax credit investments	1,533		1,637		4,516		4,911
Intangible amortization	1,071		—		1,285		—
FDIC insurance	239		2,814		5,603		8,430
Other	12,634		10,509		37,631		34,431
Total Non-Interest Expense	146,770		135,413		428,762		405,419
Income Before Income Taxes	72,133		74,127		208,941		169,388
Income taxes	10,025		8,494		30,391		19,078
Net Income	$	62,108	$	65,633	$	178,550	$	150,310
PER SHARE:
Net Income (Basic)	$	0.38	$	0.37	$	1.06	$	0.86
Net Income (Diluted)	0.37		0.37		1.06		0.85
Cash Dividends	0.13		0.12		0.39		0.36
See Notes to Consolidated Financial Statements

4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three months ended September 30						Nine months ended September 30
	2019			2018			2019			2018
Net Income	$	62,108		$	65,633		$	178,550		$	150,310
Other Comprehensive Income (Loss), net of tax:
Unrealized gain (loss) on securities	18,029			(12,531		)	63,244			(46,806		)
Reclassification adjustment for securities gains included in net income	(3,498		)	(11		)	(3,686		)	(30		)
Amortization of net unrealized losses on available for sale securities transferred to held to maturity	3,430			791			5,425			791
Non-credit related unrealized (loss) gain on other-than-temporarily impaired debt securities	—			—			(682		)	232
Amortization of net unrecognized pension and postretirement income	277			369			843			1,248
Other Comprehensive Income (Loss)	18,238			(11,382		)	65,144			(44,565		)
Total Comprehensive Income	$	80,346		$	54,251		$	243,694		$	105,745
See Notes to Consolidated Financial Statements

5

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except per-share data)

	Common Stock						Retained Earnings						Treasury Stock			Total
	Shares Outstanding		Amount		Additional Paid-in Capital					Accumulated Other Comprehensive Income (Loss)
Three months ended September 30, 2019
Balance at June 30, 2019	166,903		$	555,690	$	1,493,628	$	1,018,736		$	(12,157	)	$	(747,099	)	$	2,308,798
Net income							62,108									62,108
Other comprehensive income										18,238						18,238
Stock issued	157		198		919								1,043			2,160
Stock-based compensation awards					2,110											2,110
Acquisition of treasury stock	(3,024	)											(48,071		)	(48,071		)
Common stock cash dividends - $0.13 per share							(21,327		)							(21,327		)
Balance at September 30, 2019	164,036		$	555,888	$	1,496,657	$	1,059,517		$	6,081		$	(794,127	)	$	2,324,016
Three months ended September 30, 2018
Balance at June 30, 2018	175,847		$	553,958	$	1,484,185	$	871,192		$	(73,258	)	$	(590,292	)	$	2,245,785
Net income							65,633									65,633
Other comprehensive loss										(11,382		)				(11,382		)
Stock issued	147		188		1,121								922			2,231
Stock-based compensation awards	25		62		1,823											1,885
Common stock cash dividends - $0.12 per share							(21,138		)							(21,138		)
Balance at September 30, 2018	176,019		$	554,208	$	1,487,129	$	915,687		$	(84,640	)	$	(589,370	)	$	2,283,014
Nine months ended September 30, 2019
Balance at December 31, 2018	170,184		$	554,377	$	1,489,703	$	946,032		$	(59,063	)	$	(683,476	)	$	2,247,573
Net income							178,550									178,550
Other comprehensive income										65,144						65,144
Stock issued	701		1,511		1,496								806			3,813
Stock-based compensation awards					5,458											5,458
Acquisition of treasury stock	(6,849	)											(111,457		)	(111,457		)
Common stock cash dividends - $0.39 per share							(65,065		)							(65,065		)
Balance at September 30, 2019	164,036		$	555,888	$	1,496,657	$	1,059,517		$	6,081		$	(794,127	)	$	2,324,016
Nine months ended September 30, 2018
Balance at December 31, 2017	175,170		$	552,232	$	1,478,389	$	821,619		$	(32,974	)	$	(589,409	)	$	2,229,857
Net income							150,310									150,310
Other comprehensive loss										(44,565		)				(44,565		)
Stock issued	833		1,936		2,773								39			4,748
Stock-based compensation awards	16		40		5,967											6,007
Reclassification of stranded tax effects (1)							7,101			(7,101		)				—
Common stock cash dividends - $0.36 per share							(63,343		)							(63,343		)
Balance at September 30, 2018	176,019		$	554,208	$	1,487,129	$	915,687		$	(84,640	)	$	(589,370	)	$	2,283,014
See Notes to Consolidated Financial Statements
(1) The Corporation adopted the Accounting Standards Codification ("ASC") Update 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" in the first quarter of 2018 which permitted a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings of the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017, which changed the federal corporate income tax rate from 35% to 21%. As a result, $7.1 million of stranded tax effects were reclassified from AOCI to retained earnings during the first quarter of 2018.

6

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)	Nine months ended September 30
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	178,550		$	150,310
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	12,295			38,707
Depreciation and amortization of premises and equipment	20,984			21,423
Amortization of tax credit investments	24,608			25,093
Net amortization of investment securities premiums	6,861			6,153
Investment securities gains, net	(4,733		)	(37		)
Gain on sales of mortgage loans held for sale	(13,822		)	(10,158		)
Proceeds from sales of mortgage loans held for sale	672,314			608,561
Originations of mortgage loans held for sale	(665,338		)	(594,398		)
Intangible amortization	1,285			—
Amortization of issuance costs and discounts on long-term debt	632			606
Stock-based compensation	5,458			6,007
Other changes, net	(195,560		)	(19,576		)
Total adjustments	(135,016		)	82,381
Net cash provided by operating activities	43,534			232,691
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale	697,634			54,638
Proceeds from principal repayments and maturities of securities held to maturity	62,320			15,475
Proceeds from principal repayments and maturities of securities available for sale	169,380			237,624
Purchase of securities available for sale	(838,634		)	(459,799		)
Purchase of Federal Reserve Bank and Federal Home Loan Bank stock	(15,274		)	(5,165		)
Net increase in loans and leases	(529,974		)	(200,526		)
Net purchases of premises and equipment	(23,799		)	(29,857		)
Net cash paid for acquisition	(3,907		)	—
Net change in tax credit investments	(14,715		)	(47,096		)
Net cash used in by investing activities	(496,969		)	(434,706		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits	627,958			342,080
Net incre