Fulton Financial Corporation

Hi, good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the fourth quarter and year-ended December 31st, 2023. Your host for today's conference call is Kurt Myers, Chairman and Chief Executive Officer. Joining Kurt is Mark McCollum, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released yesterday afternoon. These documents can be found on our website at fult.com by clicking on investor relations and then on news. The slides can also be found on the presentations page under investor relations on our website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations, and business. These statements are not guarantees of future performance and are subject to risks. uncertainties and other factors and actual results could differ materially. Please refer to the safe harbor statement on forward looking statements in our earnings release and on slide two of today's presentation for additional information regarding these risks, uncertainties and other factors. Fulton undertakes no obligation other than as required by law to update or revise any forward looking statements. In discussing Fulton's performance, Representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday in slides 16 through 20 of today's presentation for reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Now I'd like to turn the call over to your host, Kurt Myers.

Thanks, Matt, and good morning, everyone. For today's call, I'll be providing some high-level thoughts on the year. I will discuss our fourth quarter business performance and share some key objectives for us in 2024. Then Mark will review our financial results in more detail and step through our guidance for 2024. After our prepared remarks, we will be happy to take any questions you may have. Our performance in 2023 was a result of an extraordinary effort by our team in what was an unprecedented year. In 2023, Our commitment to our customers was on display as we adapted quickly to customer needs and delivered on their expectations. As a result, in a very challenging environment, we grew customer households and now serve more than 534,000. We continue to invest in growing our market presence and enhancing the customer experience. We added four new financial centers, two new loan production offices, and talented team members throughout our company to support our continued growth. We continue to invest in and develop our customer digital experience with customers now using our digital solutions over 6 million times a month. We also made tremendous positive impact on the communities we serve. In 2023, we launched our diverse business banking program, accelerating our outreach to businesses that have been traditionally underserved by our industry. Through this program, we are adding new customers and new revenue for our company while making a difference in our communities. For more information on our overall community impact, please review our 2022 Corporate Social Responsibility Report that was issued in 2023. In this report, you can see how we are changing lives for the better. Our 2023 financial performance was very solid. Pre-provision net revenue eclipsed $400 million, a new record. And our operating EPS of $1.71 was the second best in the long history of our company. While continuing our strong focus on pricing, profitability, and credit strength, loan growth exceeded $1 billion for the second year in a row. We increased our liquidity during the year, maintaining $8 billion in committed liquidity at year end. Our net interest margin expanded 15 basis points during the period of significant interest rate volatility. We managed and deployed capital with discipline. During the fourth quarter, we increased our common dividend for a second time during the year, returning 64 cents in common dividends to our shareholders in 2023. In addition, we repurchased just over 5 million shares of Fulton stock throughout the year at a blended cost of $15.15. Even with these capital actions, we maintain strong capital ratios. We also navigated the credit environment effectively in 2023 as performance was even better than we anticipated at the beginning of the year. And as a result, we delivered a 15% return on tangible common equity in 2023. Overall, we were pleased with our performance and the results our team generated this year. We look forward to continuing to execute on our corporate strategy to grow the company by delivering effectively for customers and operating with excellence. so that we can serve all of our stakeholders. Now let me turn to our quarterly performance with particular emphasis on growth, credit, and our forward outlook. Operating earnings per share for the quarter was 42 cents. Loan growth moderated as we anticipated during the quarter to 174 million or 3% on an annualized basis. Deposit growth was modest, as total deposit balances grew $116 million, or 2%, on an annualized basis during the quarter. Our loan-to-deposit ratio ended at 99.1%, relatively stable with the last quarter, and well within our long-term operating target of 95% to 105%. Turning to our non-interest income, diversity in our fee income businesses continues to serve us well. Non-interest income was $59.4 million, with wealth, commercial, and consumer and small business continuing to deliver solid results on an overall basis. Moving to credit, the provision for credit losses was $9.8 million, down slightly from $9.9 million last quarter. We saw some migration in our credit quality metrics during the quarter and remain focused on how higher interest rates and higher costs are impacting our customers. We're cautious in our outlook for 2024. Now looking forward, this year will be full of opportunity for us. Our focus remains on growth and profitability, actively managing credit, and taking action on improving efficiency overall. Even with solid results for the quarter and the year, we acknowledge the need to grow appropriately in this market and improve our productivity and efficiency in 2024. As you saw in our press release, we took implementation charges related to a new initiative we launched in the fourth quarter. This initiative, named Fulton First, is a process to evaluate and improve all aspects of how we operate. To support our continued growth, we recognize and have begun to act on the need to streamline operations, create efficiencies, and leverage our significant investment in technology. We have three key tenets driving our strategic transformation. simplicity, focus, and productivity. We are very excited about Fulton First and believe that over the next several years, it will accelerate our growth rates and improve our operating efficiency on a sustained basis. We will have more discreet details to share with you during the year. The 2024 impact of Fulton First will be most visible in our expense line items as it will help us meet the limited expense growth rate in our guidance. Longer term, Fulton First will also support accelerated growth. Mark will step you through the 2024 guidance in a moment. These high priority initiatives and the leadership team that we have in place will drive performance and deliver the next phase of long term success for our company. Now I'll turn the call over to Mark to discuss our financial performance and 2024 guidance in more detail.

Thank you, Kurt, and good morning to everyone on the call. Unless I know it otherwise, the quarterly comparisons I will discuss are with the third quarter of 2023. And the loan and deposit growth numbers I will be referencing are annualized percentages on a link quarter basis. Starting on slide six, operating earnings per diluted share this quarter were 42 cents on operating net income available to common shareholders of 68.8 million. This compares to 43 cents of operating EPS in the third quarter of 2023. Moving to the balance sheet, as Kurt noted, loan growth was modest during the quarter, growing $174 million, or 3% annualized. Commercial lending contributed $120 million of this growth, or 3% annualized. Construction lending grew $142 million, driven by additional draws and new originations during the quarter. Commercial real estate lending growth slowed to 22 million, or 1% annualized, and C&I lending declined modestly, down 32 million, or 3%. Consumer lending produced growth at 54 million, or 3% during the quarter. While at a slower pace, we continued to originate in portfolio adjustable rate mortgages. Total deposits increased 116 million during the quarter. growth in CDs and broker deposits more than offset seasonal outflows in our municipal deposits business of approximately 220 million. Our non-interest-bearing DDA balances ended the year at 5.3 billion, or 24.7% of total deposits, which was modestly better than we anticipated during our third quarter earnings call. Our shift from non-interest-bearing deposits to interest-bearing was 552 million for the second half of 2023, versus a shift of $1.1 billion in the front half of the year. Our NII guidance for 2024 assumes we'll continue to see migration from noninterest-bearing deposits into interest-bearing products throughout 2024, but at a slower pace than we saw in 2023. We currently expect noninterest-bearing deposits to end 2024 at approximately 22 percent of total deposits. Our investment portfolio was relatively flat for the quarter, closing at $3.7 billion. During the quarter, we did repurchase a small portion of subordinated debt, $5 million, which generated a $750,000 gain reflected in other expense. This gain was offset by a similar level of securities losses as we sold 120 million of securities yielding 1.4%, using the proceeds to pay down overnight borrowings at 5.35%. This very small repositioning will add modestly to our net interest income and net interest margin in 2024 and is included in the guidance, which I'll step through in a few minutes. Putting together all of these balance sheet trends on page or on slide eight, our net interest income was $212 million, a $2 million decline linked quarter. We were pleased with how well our net interest margin held up, declining only four basis points to 3.36%. versus 3.4 percent last quarter. Loan yields expanded 11 basis points during the period, increasing to 5.83 versus 5.72 percent last quarter. Cycle to date, our loan beta has been 49 percent. Our total cost of deposits increased 23 basis points to 179 basis points during the quarter. Cycle to date, our total deposit beta has been 34 percent. Turning to asset quality, non-performing loans increased 12.7 million during the quarter, which led to our NPL to loans ratio increasing from 67 basis points at September 30th to 72 basis points at year end. Net charge-offs of 8 million, or 15 basis points, were diversified, with no individual charge-off greater than $2 million. Overall, loan delinquency increased modestly but remains at a low level, increasing to 1.19%. Our allowance for credit loss as a percent of loans was relatively flat at 1.37% at year end. Turning to non-interest income on slide 10, wealth management revenues were $19.4 million, consistent with the third quarter. As a reminder, wealth management represents about a third of our fee-based revenues, with over 80% of these revenues recurring. The market value of assets under management and administration increased over $500 million during the quarter to $14.8 billion at year end, a new record for our company. Commercial banking fees increased $1 million to $20.8 million as capital markets and SBA revenue increases drove the quarter. Consumer banking fees of $12.1 million were consistent with the third quarter in all areas and continued to deliver a very consistent fee income stream. Mortgage banking revenues declined $900,000 to $2.3 million and were driven by a seasonal decline in mortgage originations as well as a decline in gain-on-sale spreads. A net market value change of $1.1 million in other fee income was recorded during the period related to the LIBOR to SOFR transition. Moving to slide 11, Non-interest expenses on an operating basis were $171 million in the fourth quarter, in line with the prior quarter. Material items excluded from operating expenses were charges of $6.5 million for the special FDIC assessment and $3.2 million related to our Fulton First initiative. Additionally, our operating expenses were impacted by a $1.6 million increase in marketing expense and a $700,000 gain on the aforementioned debt extinguishment. Turning to slides 12 and 13, we're providing you with updates on our capital base. As of December 31, we maintain solid cushions over the regulatory minimums, and our bank and parent company liquidity remains strong. We've also provided you with an alternative view of our regulatory ratios, including the impact of AOCI. Our tangible common equity ratio improved to 7.4% at year end, a 60 basis point increase during the quarter, driven by solid earnings and a material decrease in AOCI due to lower interest rates. Our accumulated other comprehensive income balance on the available for sale portion of our investment portfolio and derivatives is currently $299 million versus $480 million last quarter. On slide 13, including the loss on our held immaturity investments, which is $140 million after tax on an HDM portfolio of $1.3 billion, our tangible common equity ratio would still be 7% at December 31st, representing $1.9 billion of tangible capital. On slide 15, we are providing guidance for 2024. Our guidance assumes a total of 75 basis points of Fed funds decreases occurring in the second half of the year. Our 2024 guidance is as follows. We expect our net interest income on a non-FTE basis to be in the range of $790 to $820 million. We expect our provision for credit losses to be in the range of $45 to $65 million. We expect our non-interest income, excluding securities gains, to be in the range of $235 to $250 million. We expect non-interest expenses on an operating basis to be in the range of $670 to $690 million. This estimate excludes any potential charges we may incur as a result of Fulton First throughout the year. And lastly, we expect our effective tax rate to be in the range of 17% to 18% for the year. With that, we'll now turn the call over to the operator for your questions.