Fulton Financial Corporation Q2 FY2025 earnings call

Key Points

• Strong second-quarter operating earnings of $106 million or 55¢ per share, a record, with $0.03 linked quarter increase.
• Total loans grew $150 million or 2.5% despite strategic runoff of indirect auto portfolio and managed reductions in certain commercial loans, expecting low single-digit loan growth for the year.
• Deposits saw modest decline due to seasonal trends but positioned for long-term growth with prudent interest cost management.
• Revenue growth driven by strong net interest margin and solid linked quarter increase in noninterest income, with all noninterest income categories growing; wealth management and commercial banking fees hit all-time highs.
• Credit: Cautious due to economic and geopolitical uncertainty, but portfolio performance steady, charge-offs and provision expense down linked quarter, nonaccrual loans up but in line with recent periods.

Total loans grew $150 million or 2.5%. Deposits saw a modest decline in balances largely due to seasonal trends. Net interest income on a non-FTE basis was $254.9 million, a $3.7 million increase linked quarter, with net interest margin increasing four basis points to 3.47%. Noninterest income was $69.1 million, with all noninterest income categories growing linked quarter. Noninterest expense on an operating basis was $187.6 million, an increase of $4.8 million linked quarter. The company repurchased shares and saw tangible book value per share grow 9.5% on a linked quarter annualized basis. Loan revenue contribution: total loans growth $150M, 2.5%; Deposit revenue contribution: modest decline due to seasonality; Net interest income contribution: $254.9M, +$3.7M, 3.47% margin; Noninterest income contribution: $69.1M, all categories up; Noninterest expense contribution: $187.6M, +$4.8M

• Updated 2025 operating guide includes net interest income range $1.005 billion to $1.025 billion, lowered provision expense to $50 million to $70 million, fee income range unchanged $205 million to $280 million, lowered operating expense to $750 million to $765 million, increased effective tax rate to 18.5% to 19.5%, and lowered non-operating expenses from $14 million to $10 million.
• Rate forecast includes two 25 basis point rate cuts in 2025, one in September and one in December.

• General economic and geopolitical uncertainty impacting credit and business decisions.
• Competitive pressures affecting net interest margin and loan yields.
• Seasonal and interest cost management challenges for deposits.
• Macro economic factors changing loan demand and asset quality.

Q: Daniel Tamayo asked about expense guidance and fee income guidance.

A: Richard Kraemer said expense range $190M - $195M for back half with some optionality for second half initiatives, Curtis Myers said fee income strategies in place with consistent outperformance trending to top end of range.

Q: David Bishop asked about loan pipeline and M&A focus.

A: Curtis Myers said pipeline linked quarter up but pull-through rate below historical norms, M&A focus on community banks $1B - $5B in-market, disciplined in metrics and strategy.

Q: Matthew Breese asked about loan pipeline components, new loan spreads, accretable yield, and stock repurchase.

A: Curtis Myers said diversified loan book growth, Richard Kraemer said new origination spreads compressed, accretable yield $11M - $12M range, Curtis Myers said capital planning supports organic growth and opportunistic buybacks.

Q: Manuel Navas asked about consumer pipelines, Fulton First initiative, and credit trends.

A: Curtis Myers said consumer business has seasonality but solid growth, Richard Kraemer said Fulton First had net realized benefit in 2Q, Curtis Myers said credit metrics stable but cautious due to economic environment with one project causing NPL tick up