Fulton Financial Corporation

Good day, and thank you for standing by. Welcome to the Fulton Financial third quarter 2025 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Matt Joswak, Director of Investor Relations. Please go ahead.

Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the third quarter ending September 30th, 2025. Your host for today's conference call is Kurt Myers, Chairman and Chief Executive Officer. Joining Kurt is Rick Kramer, 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 or subject to risks, uncertainties and other factors and actual results could differ materially. Please refer to the safe harbor statement and 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 30 through 37 of today's presentation for a 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, Curt Myers.

Well, thanks, Matt, and good morning, everyone. For today's call, I'll be providing a few high-level comments as well as some operating highlights for the quarter. Then Rick will review our financial results in more detail and discuss updates to our 2025 operating guidance. After our prepared remarks, we'll be happy to take any questions you may have. We were pleased with our strong third quarter operating results. Our community banking strategy and regional scale continue to deliver customer value and strong results for our shareholders. Operating earnings of $101.3 million, or $0.55 per share, demonstrate the impact of positive operating leverage, strong profitability, and a diversified balance sheet. Total revenue increased link quarter as we grew both net interest income and fee income while we continued to show strong expense discipline. All of these positive factors combined to generate quarterly trends that drove our efficiency ratio down to 56.5%. delivered an operating ROA of 1.29% and resulted in an operating ROTCE of 15.79%. These are all strong results for the quarter. Touching on capital, we repurchased 1.65 million shares during the quarter at a weighted average cost of $18.67 per share. We routinely evaluate all of our capital deployment options and found opportunity to repurchase shares at attractive levels. We plan to continue to use our share repurchase authorization. Even with this quarter's repurchase activity, we grew our tangible book value per share 18% on a linked quarter annualized basis. Our strong performance, disciplined approach to balance sheet management, and our diversified business model provides us financial flexibility and positions the company for continued success. Now let me provide a few operating highlights on the quarter. Deposit growth outpaced loan growth at $194 million for the quarter. Deposit growth was primarily driven by targeted sales campaigns and seasonal net inflows of municipal deposits. During the quarter, total demand and savings balances grew $387 million, offset by declines in brokered and time deposits. We were able to drive this growth while maintaining a disciplined and targeted pricing strategy. Turning to loans, originations were up length order as well as compared to the prior period. Total loan balances grew 29 million for the quarter as increased originations were offset by the impact of strategic actions we have been executing on throughout the year. Year to date, these actions represented more than a $600 million headwind to our loan balance growth. Moving forward, we expect these actions to moderate and loan growth to return to our long-term growth trends. Turning to the income statement, revenue growth was driven by a strong net interest margin and a solid linked quarter increase in our non-interest income. As a result, total quarterly revenue hit an all-time high. Our non-interest income as a percentage of revenue ended the quarter at 21%, with our fee-generating businesses growing nicely, and we are positioned well for continued growth. Lastly, let me touch on credit. While we remain cautious on credit given general economic and geopolitical uncertainty, we continue to see steady performance in our portfolio. During the quarter, we saw improvement in non-performing loans and charge-offs. Additionally, we saw improved risk rating migration and a continued reduction in classified and criticized loans. The provision for loan losses remained favorable to expectations, and the allowance ratio was stable compared to the prior quarter. Overall, we are encouraged by the trends we're seeing, but always remain focused on identifying and managing any potential areas of weakness that may arise. Now let me turn the call over to Rick to discuss the details of our financial results and provide comments on our 2025 operating guidance in more detail.

Thank you, Kurt, and good morning. Unless I note otherwise, the quarterly comparisons I discuss are with the second quarter of 2025. Loan and deposit growth numbers I reference are annualized percentage on a linked quarter basis. Starting on slide five, operating earnings for diluted share was 55 cents or 101.3 million of operating net income available to common shareholders. Net interest income growth driven by a strong NIM and a stable balance sheet combined with increasing fee income helped to more than offset the anticipated increase in operating expenses. We are encouraged by the improved positive operating leverage we generated when compared to the previous quarter and on a year-over-year period basis. Total end of period loans increased $29 million during the quarter. Residential and commercial mortgage drove growth, offset by declines in C&I. We continue to proactively work certain credits out of the portfolio that don't align to our long-term strategy. During the quarter, we saw runoff of approximately $32 million of indirect auto and sold approximately $40 million of small ticket equipment finance loans. Additionally, we saw about $40 million in note sales and resolved an additional $139 million of CNC loans. Combined, these actions accounted for over $250 million of loan balance headwinds during the quarter. With the exception of the continued planned runoff of indirect auto, we expect the impact of these activities to moderate as we move into 2026 and expect growth to revert towards our long-term historical organic growth trends. Deposits grew 194 million, or 3%. Growth of 387 million in demand and savings products offset a 192 million decline in time deposits. which included a $108 million decline in broker deposits. A primary driver of growth was a seasonal increase in municipal balances of $450 million, in line with expectations. We anticipate outflows in municipal balances in the fourth quarter, similar to historical trends. Our non-interest-bearing balances trended lower, ending the quarter at 19.5% of total deposits. The decline of balances appears to be driven by normal corporate customer activity as our number of commercial accounts remains stable. As a result, our loan-to-deposit ratio ended the quarter at 91%. Moving to investments, securities purchases lagged cash flows by about $100 million, partially offset by an improvement in AOCI. Investments as a percentage of total assets were 15.8%. a level that provides balance sheet optionality moving forward. Net interest income on a non-FTE basis was $264.2 million, a $9.3 million increase linked quarter, while net interest margin increased 10 basis points to 3.57 percent. Loan yields increased seven basis points to 5.93 percent. Fixed-rate asset repricing represented a tailwind during the quarter. We believe this will continue to provide some cushion for margin in the face of declining short-term rates, as illustrated on slide 21 of our earnings presentation. Over the next 12 months, we have approximately $5.4 billion of fixed and adjustable rate earning assets subject to repricing, currently at a blended yield of 5.08 percent. Our net interest margin further benefited from a modestly higher level of accretion interest which was up $1.3 million linked quarter to $12.7 million. For the quarter, our average cost of total deposits decreased two basis points to 1.96%, while our total cost of funds declined four basis points due to quarterly wholesale repositioning aided by municipal inflows. Through the current rate-cutting cycle, our cumulative interest-bearing deposit beta has been 33%, while our total deposit beta has been 22%. Our deposit pricing strategy continues to balance the desire to fund future balance sheet growth while defending margin. Turning to slide seven, non-interest income for the quarter was $70.4 million. The linked quarter increase was driven by our wealth and consumer businesses and aided by modest gains from asset sales. Non-interest income as a percentage of total revenue equaled 21% for the third quarter. Notably, our wealth management business, Fulton Financial Advisors, reached $17 billion in assets under management and administration and continues to be a material driver of fee income growth. Moving to slide eight, non-interest expense on an operating basis was $191.4 million, an increase of $3.8 million linked quarter. This was mostly attributable to an increase in salaries and benefits driven by one extra day in the quarter, a lower level of deferred loan origination costs, and outside service spend related to planned internal projects. Items excluded from operating expenses as listed on slide eight include charges of $5.4 million of core deposit intangible amortization and $207,000 benefit of other items. Turning to asset quality, provision expense of $10.2 million was slightly higher than last quarter, however, well within the guidance we provided last call. As Kurt mentioned, we saw positive trends throughout the book. Net charge-offs declined to 18 basis points, while non-performing assets to total assets improved four basis points to 0.63%. Our allowance for credit losses to total loans ratio remained at 1.57%, while our ACL to non-performing loan coverage increased to 189%. Slide 10 shows a snapshot of our capital base. we maintain a healthy capital position that provides us with balance sheet flexibility. During the quarter, we repurchased 1.65 million shares at a weighted average cost of $18.67. As of September 30th, we had remaining buyback authorization of 86 million under the current plan. Inclusive of the share repurchases, internal capital generation was robust at 84 million. This was driven by a combination of strong earnings and a $44 million benefit to AOCI from the impact of lower interest rates. Our tangible common equities to tangible asset ratio increased to 8.3%, while CET1 increased to 11.5%. On slide 11, we are updating our operating guidance for 2025. Considering the recent Fed action and associated dot clock, We have updated our rate forecast to include the recent 25 basis point cut in September, one 25 basis point cut in October, and an additional 25 basis point cut in December. Given these macro assumptions and our strong year-to-date performance, we have made the following adjustments to our guidance with emphasis on the midpoint of the ranges. We are increasing net interest income to a range of $1,025,000,000 to $1,035,000,000. We are lowering and tightening provision expense to a range of $45 million to $55 million. We are raising the bottom end of fee income tightening to a range of $270 million to $280 million. We are lowering the top end of operating expense to a range of $750 million to $760 million. We are modestly increasing our effective tax rate to a range of 19% to 20%. And last, lowering our estimate of non-operating expenses from 10 million to 7 million. And with that, we'll now turn the call over to the operator for some questions.

Thank you. As a reminder, to ask a question at this time, please press star 1 1 or your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster Our first question comes from the line of Daniel Tamayo with Raymond James. Your line is now open.

Thank you. Good morning, guys. Good morning, Kurt. Good morning, Rick. Maybe first on the net interest income guidance being revised higher, it looks like it implies some margin compression, if that's correct, in the fourth quarter, presumably related to the rate cut. Just curious for your thoughts around The impact, if that's correct, the impact of this first cut that we had last quarter relative to future cuts, if there's kind of a rebound or less impact after, you know, with future cuts going forward. Thanks.

Yeah, thanks for the question, Danny. Yeah, no, you're right. Interpretation's right. I mean, that would imply a little bit of margin pressure in 4Q. I'll say this. For every 25 basis points on an annualized basis, it's about $2 million of annualized NII headwind. That said, as we continue to manage the deposit side of this and try to reach for higher betas, that does offset some of that over time. But there's a lag to that. So for every 25 bps that happens, you really don't catch up on the interest expense side for probably about three months. all in. So there will be some kind of near-term pressure, but you're right. If the Fed stops or when the Fed stops cutting, you will start to level out several months after that.

Got it. Okay, helpful. And then maybe one more high level for you, Kurt. Just curious of your thoughts on positive operating leverage in 2026. You know, it sounds like the rate cuts could certainly have an impact on that, but I'm just curious how you're thinking about if that's a possibility for the company, if it's likely, and if there is some kind of break-even point in terms of cuts, how you're thinking through that. Thanks.

Yeah, so, I mean, we're focused on continuing to generate organic growth so that we can drive positive operating leverage. You know, there's a lot of components, expense levels, revenue levels, some things within our control and some things that are not, you know, but we're going to manage to a point that we are, our goal is to generate positive operating leverage on a consistent basis. To Rick's point in your prior question around impact rate cuts, I mean, we are more neutral on our balance sheet than we have been in prior periods, and we think that will help. and then we will manage the other components of that operating leverage calculation to focus on generating that.

Okay, helpful. All right, well, I appreciate the call, guys. I'll step back.

Thank you. Our next question comes from the line of Casey Hare with Autonomous. Your line is now open.

Yeah, great. Thanks. Good morning, guys. I guess one more follow-up on sort of the NIM outlook, Rick. The cumulative interest-bearing deposit beta I think you mentioned was 33%. Just where do you expect that to trend as the Fed cuts?

Yeah, I think that's a level we aim to maintain, if not try to get a little bit more, obviously. You know, as we start to revert to more normalized loan growth, that could be some pressure. But I think around that 30% level is really the target.

Okay, very good. And on the asset side of things, fixed rate asset repricing was a nice tailwind. You know, can you – any color on where new money yields are versus, I think you mentioned, that 508 coupon on what's coming – what's maturing in the next year?

Yeah, new originations during the quarter were right around 6.5%, just, I think, a couple of bips below that, like 648.

Okay, great. And just lastly on – On capital management, so you guys have been one of the banks that has been openly kind of looking for deals. It feels like it is active in that part of the market, that $1 to $5 billion asset bank crowd. Just wondering why we haven't seen a deal from you. Is it bid-ask, lack of targets, just some color there?

Yeah, so our strategy remains the same, and that, as you referenced and I've previously referenced, that $1 billion to $5 billion community bank that would be an infill to give us greater market penetration in our five-state market is the focus. We feel we continue to have opportunities there, and we want to be positioned to always be able to move forward with the things that we want to move forward with, and it is an active strategy for us.

Thank you. Our next question comes from the line of Christopher Marinak with Janie Montgomery Scott. Your line is now open.

Yes, good morning. Kurt, I want to extend on your answer there and just look further at sort of your organic opportunities in Virginia, Maryland, and even Philadelphia, and how much more opportunity do you see there in the next several quarters?

Yeah, we definitely have opportunity for organic growth. So, you know, primarily we drive that by winning customers each and every day. We also drive that by adding to our commercial banking team, our wealth team, and we're always focused on talent recruitment, on strategy. And then, you know, we have Fulton First. strategies around small business to enhance growth there. We have a lot of levers for organic growth and I think what you've seen this year is we have decent originations and we've had some strategic headwinds that have offset balances this year. So underlying, we're really focused on those organic originations right throughout the company. but in those areas where we have a lot more growth potential with more limited market share.

Good. Thank you for that. And then just to follow up on the commercial fee income line from your commercial deposits, does that track typically with the growth of those deposits, or do you see other opportunities, even if those balances were to be flat, to grow the fee income side?

Yeah, so there's a lot of components to that. So on the account level, cash management and account level fees, they track with account growth and then activity expansion, you know, within or contracting within those accounts like the activity volume. You know, we also have our swap fees are in that that are tied to originations as well. So it's a real mix of transactional account level growth than things that are more tied to originations. And, you know, we've had steady performance overall and feel good about the overall fee income or commercial fee income trajectory.

Great. Thank you for taking my questions this morning.

You're welcome. Thank you. Our next question comes from the line of Matthew Breeze with Steven Zink. Your line is now open.

Hey, good morning. Rick, in your opening remarks, I thought you had mentioned a little bit of a mismatch in securities purchases versus maturities, and maybe there's some optionality there going forward. Could you just talk a little bit about to what extent we might see securities purchases and maybe some framing for where you want cash and securities as a percentage of total assets?

Yeah, I think we've, you know, we kind of positioned in the past, we probably coming into the year, we're a little light from a liquidity perspective on security. So we've moved that higher. I think managing around that 16 to 17% level of assets is about right for investments where we are. We've been fairly opportunistic and kind of pick our points when we want to invest and when we have additional liquidity. I think there's The expectation, obviously, we mentioned earlier is that you'll get some municipal headwinds in the fourth quarter, so those deposit balances will be down a little bit. I think just managing for those balances really depends on when we buy, but like I said, 16% to 17% long-term is probably the right target.

And looking at securities yields, 370 today, I'm guessing what you're putting on the books has either a high four, maybe low five handle on it. That's right. When might we see a more pronounced acceleration in securities yields? Is there a cash flow year that's better than others and work towards that? that 4% and 5% level. Sorry to interrupt you. Thank you.

No, no, sorry. Yeah, I think you're right on the yield. And more recently, it's been in the high 4s. But no, there really isn't a pronounced cash flow. It's pretty steady stream, barring any acceleration in prepayments. So I think that's kind of the wild card, which we haven't really seen a material pickup yet. But no, it's pretty steady now. And we gave a little bit of additional color. I think it's on slide 21 of our deck. on some of that fixed repricing, fixed and adjustable repricing schedule. So when you go out beyond 12 months, so basically everything right at that left column, the weighted average yields on those segments combined are around 4.5%. That just gives you some idea of upside in the outer years as well, assuming elevated rates.

Okay. And then also in both your opening remarks and Kurt's, you made reference to loan growth headwinds dissipating. You talked about reverting to kind of longer-term levels of loan growth. Could you just talk a little bit about the pipeline, strength of pipeline, where you're expecting to see growth over the next few quarters, and is it fair to say that that longer-term average is kind of low to mid-single digits? If you had to pick a side, low or mid, where would you lean over the next few quarters? Thank you.

Yeah, so the long-term trends have been 4% to 6%. And I think we're trying to climb back to that 4%. We've been below that given the headwinds and strategic actions we've taken. So we want to first get to the low end of that and see where we go from there. The pipelines are up a little bit year over year, and we've had an increasing trend. But the pull-through rate is still lower than historical norms. Customers still remain cautious in spending. So we do see improvement, but it's modest at this point. Overall, where we want the growth, having a very diversified balance sheet has served us really well over time, and we want to grow in all categories, and we feel like we're positioned that we can grow in all categories. You know, even CRE, you know, our position relative to the market is good, so we can, you know, really attract high-quality borrowers, high-quality projects there. So really across the board, you know, we're trying to get organic growth because we want to win customers, and that really is the engine behind the growth over the long haul.

Great. And then just last one for me. Kurt, as you climb back to that 4% loan growth threshold, does that leave room in kind of the capital stack for continued repurchases? Or what are your capital priorities as you get to a 4% loan growth rate? That's all I had. Thank you.

Yeah. So thanks, Matt. The priorities are the same. Organic growth, then corporate activities, whether it be M&A or asset purchases or uses of capital, and then buybacks. And I think you saw this in this last quarter that in the absence of those first two things and really strong capital generation, we lean more into the buyback. I think if those things persist like we think over the next couple quarters, then we'll probably be more in that buyback We have 86 million, I believe, left in the authorization, and then we typically look at that each year, but we still have 86 million remaining on the buyback that we have in place.

Matt, and maybe just to add, I mean, you made reference to climbing back to 4%. I want to just reiterate that the strategic actions we took this year As Kurt said earlier, we're over 600 million. It's about 3.5% annualized growth if you added that back in. So I think moving from 3.5% to 4% is not that big of a lift here. So we are seeing the growth. It's just obviously we're masking that with some very strategic runoff.

Thank you. Our next question comes from the line of David Bishop with Havadi Group. Your line is now open.

Hey guys, good morning. This is actually Kyle Gehrman asking questions on behalf of Dave. So with the recent scrutiny around loans to NDFIs, could you update us on your current exposure levels and how you think about this sector?

Yeah, so we have very low levels, pretty de minimis levels of NDFI overall. And the primary in that is loans to bank holding companies, community bank holding companies in our market. We put them in that bucket if they're non-rated debt issuances. So that's the primary. So we really are not heavily engaged in that activity.

Yeah, it's tier two sub-debt structured as notes. because they're non-rated, non-QFIP institutions.

That's the primary thing in our NDFI disclosures, as you would see in the call report.

Thank you. That was helpful.

Thank you. Our next question comes from the line of David Conrad with KBW. Your line is now open.

Real quick follow-up for me, and I think Ricky already answered this one a little bit, but Deposit costs came down for BIPs quarter-over-quarter as you paid off the broker CDs. With the municipality seasonality in the fourth quarter, is the 245 a good jumping-off point, or will you increase your broker CDs, or will it just be a reduction in cash and a smaller balance sheet?

Yeah, so we did, we ran off some broker during the quarter, obviously. We also had some declines in FHLB as well. So I think, you know, as we look towards fourth quarter and run out, typically, you know, we saw about 450 come in in municipal during third quarter. We usually see 40 to 50% of that move out. So we'll look, we'll look towards the most cost effective way to manage that and, and It could also be customer deposits and specials on that end, too. So, you know, we're going to continue to manage our loan deposit ratio appropriately, but any of those alternatives work for us. Okay, perfect.

Thank you.

Thank you, and I'm currently showing no further questions at this time. I'd like to turn the call back over to Kirk Myers for closing remarks.

Well, thank you again for joining us today. We hope you'll be able to be with us when we discuss fourth quarter results and year-end results in January.

This concludes today's conference call. Thank you for your participation. You may now disconnect.