Fulton Financial Corporation Q3 FY2025 earnings call

• Strong third-quarter operating results with operating earnings of $101.3 million or $0.55 per share, showing positive operating leverage, strong profitability, and diversified balance sheet. • Total revenue increased linked quarter with growth in net interest income and fee income, and expense discipline leading to an efficiency ratio of 56.5%. • Repurchased 1,650,000 shares during the quarter at a weighted average cost of $18.67 per share. • Deposit growth outpaced loan growth at $194 million, driven by targeted sales campaigns and seasonal municipal deposits. • Loan originations were up linked quarter, but total loan balances grew $29 million with strategic actions causing headwinds, expected to moderate in 2026. • Non-interest income was $70.4 million, with wealth management business reaching $17 billion in assets under management and administration. • Credit trends showed improvement in non-performing loans, charge-offs, risk rating migration, and reduction in classified/criticized loans, with provision expense slightly higher than prior quarter but within guidance.

Total revenue increased with growth in net interest income and fee income. Net interest income was $264.2 million, a $9.3 million increase linked quarter, with net interest margin increasing 10 basis points to 3.57%. Fee income had its top end tightened to a range of $270 million to $280 million. Deposits grew $194 million or 3%, with demand and savings products up $387 million offsetting a $192 million decline in time deposits. Total end-of-period loans increased $29 million during the quarter, with residential and commercial mortgage driving growth while C&I declined due to proactive runoff of certain credits.

• Increased net interest income to a range of $1.025 billion to $1.035 billion. • Lowered and tightened provision expense to a range of $45 million to $55 million. • Raised the bottom end of fee income to a range of $270 million to $280 million. • Lowered the top end of operating expense to a range of $750 million to $760 million. • Modestly increased effective tax rate to a range of 19% to 20%. • Lowered estimate of non-operating expenses from $10 million to $7 million.

• Economic and geopolitical uncertainty posing risks to credit performance. • Impact of rate cuts on net interest margin, with near-term margin pressure expected due to lag in deposit beta adjustment. • Potential outflows in municipal balances in the fourth quarter similar to historical trends as a risk to deposit growth.

Q: Good morning, guys. Good morning, Curtis. Good morning, Richard. Maybe, first on the net interest income guidance. Being revised higher, it looks like it implies some margin compression, if that's correct. And 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.

A: Yeah. Thanks for the question, Danny. Yeah. No, you're right. Interpretations, I mean, would imply a little bit of margin pressure in 4Q. Look, I'll say that for every 25 basis points on an annualized basis, it's about $2 million of annualized NII headwind. That said, you know, as we continue to manage the deposit side of this, you know, and try to reach for higher betas, that does offset some of that over time. But there's a lag to that. Right? So for every 25 bits that happens, you really don't catch up on the cost of 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.

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

A: Yeah. I think that's a level we aim to maintain, if not 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.

Q: Good morning. Curtis, I wanted 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?

A: 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. Strategy. And then, you know, we have Fulton First strategies around small business to enhance growth there and, you know, we really have a lot of levers for organic growth, and think what you've seen this year is we have, you know, 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.

Q: Hey. Good morning. Good morning, Matt. Richard, in your opening remarks, 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?

A: Yeah. I think we've, you know, we kinda 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 kinda pick our points when we want to invest and when we have additional liquidity. I think there's, you know, the expectation, obviously, we mentioned earlier is that you'll get some municipal headwinds in the fourth quarter, so deposits will those deposit balances will be down a little bit. I think just managing kind of for those, you know, for those really depends on when we buy. But like I said, 16 to 17% long term is probably the right target.

Q: Hey, guys. Good morning. This is actually Kyle Garmin asking questions on behalf of David. Morning, Kyle. So with the recent scrutiny around loans to NDFIs, could you update us on your current exposure levels and how you think about the sector?

A: 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, you know, are not heavily engaged in that activity.

Q: Real quick follow-up for me. And I think Richard already answered this one a little bit. But, you know, deposit cost came down four bps, quarter over quarter. As you paid off the broker CDs. With the municipality seasonality in the fourth quarter. Is the $2.45 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?

A: Yeah. We so we did we ran off brokered during the quarter, obviously. We also had some declines in SHLB as well. So I think, you know, as we look towards fourth quarter and run out, typically, we saw about $450 million come 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 it could also be customer deposits and specials on that end too. But any of those alternatives work for us.