Fulton Financial Corporation (FULTP) Q1 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Fulton Financial First Quarter 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Pat Lafferty, Investor Relations Officer. Please go ahead.

Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the first quarter ending March 31, 2026. Your host for today's conference call is Curt Myers, Chairman, Chief Executive Officer and President. Joining Curt is Rick Kraemer, 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 Events and 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 2 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 and Slides 27 through 34 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Now I would like to turn the call over to your host, Curt Myers.

Well, thanks, Pat, and good morning, everyone. For today's call, provide a few high-level observations and some operating highlights for the first quarter of 2026. Then Rick will review our financial results in more detail and discuss our outlook for the remainder of the year. After our prepared remarks, we'll be happy to take any questions you may have. We are pleased with our start to the year. The first quarter reflects the strength of our foundation and the consistent execution of our strategy. We made continued progress against our strategic priorities by growing the company, delivering effectively and operating with excellence. As a result, we are effectively serving all of our stakeholders. We've maintained a clear focus on long-term value creation and the benefits of our community banking model are evident in our performance. Our teams across the organization remain focused on serving customers and operating efficiently in a dynamic environment. From a performance standpoint, first quarter operating earnings were $0.55 per diluted share. Profitability remained strong with an operating return on average assets of 1.30% and an operating return on tangible common equity of 14.76%. These results reflect solid execution across the business, disciplined balance sheet management and effective capital deployment as we repurchase shares while growing tangible book value. During the quarter, strong revenue generation and prudent expense management drove positive operating leverage, demonstrating the underlying earnings power of our business model. This execution resulted in an improvement in our efficiency ratio to 56.7% and supported strong pre-provision net revenue performance increasing $9.2 million linked quarter to $141 million. Our balance sheet and liquidity position gives us the flexibility to meet customer demand and proactively invest in growth opportunities. Our continued investment in talent and capabilities remain central to our strategy. Target hiring and selective team lifts continue to enhance our growth efforts as these new team members become productive and help expand pipelines. These investments are translating into stronger activity, higher productivity and deeper client engagement. Building our overall team is aligned with our long-term growth objectives. Loan activity during the quarter was solid, led primarily by growth in commercial mortgage, including an opportunistic purchase of an end-market commercial loan portfolio. That growth was partially offset by a decline in construction balances as well as the continued planned runoff of the indirect auto portfolio. Most importantly, origination activity remains healthy. Pipelines continue to build and overall demand fundamentals remain constructive. Commercial loan origination increased meaningfully in 2025, and early 2026 origination is running above prior year levels. Relationship manager productivity has further improved year-over-year, resulting in increased customer engagement and enhanced sales results. Given these trends, we believe we are well positioned to continue generating disciplined smart growth. On the funding side, deposit trends were also positive, reflecting strong engagement in each segment of our customer base, supported by effective sales execution and disciplined pricing. Our teams continue to focus on building deeper, meaningful relationships, which is driving results and further improving engagement. This momentum reflects the strength of our relationship banking approach and the continued impact of our customer experience initiatives. We remain focused on maintaining a balanced funding profile while carefully managing deposit costs in a highly competitive environment. Noninterest income was steady during the quarter and again represented more than 20% of total revenue, highlighting the benefits of our diversified business model. Revenue growth in wealth management was partially offset by normal seasonal declines in other fee categories. On a year-over-year basis, fee income grew more than 9% across all businesses compared to the first quarter of 2025. This was led by a 12% increase in wealth management. From an expense standpoint, we remain focused on cost discipline. Expense levels and underlying trends were consistent with our operating plans, as we continue to balance targeted investments with improved efficiency across the organization. Credit performance remained stable and was relatively in line with last quarter. Nonperforming assets improved to 55 basis points of total assets from 58 basis points in the fourth quarter. We are mindful of the broader landscape including ongoing geopolitical developments and their potential impact on economic conditions, customer sentiment and market volatility. These dynamics reinforce the importance of disciplined, balanced and prudent credit decision-making as we move throughout the year. We are also pleased to close the acquisition of Blue Foundry Bancorp on April 1. This marks an exciting milestone as we bring together 2 organizations. Our focus is on thoughtful integration, supporting customers aligning teams and building on the shared strength of our combined franchise. Integration planning is progressing well, and we look forward to completing these efforts later this summer. As we look ahead, our priorities remain unchanged. We will continue to focus on profitable growth, prudent risk management and disciplined capital allocation while delivering value for our customers, our team members, and our shareholders. With that, I'll turn the call over to Rick to review our first quarter financial results in a little more detail.

Thanks, Curt, and good morning, everyone. Unless I note otherwise, the quarterly comparisons I discuss are with the fourth quarter of 2025. For the first quarter, operating net income available to common shareholders was $99.7 million or $0.55 per diluted share, consistent with last quarter and reflective of solid execution across the business. On a GAAP basis, earnings were $0.51 per diluted share. The difference between GAAP and operating results was primarily driven by acquisition-related expenses for deposit intangible amortization and other nonoperating items detailed in our reconciliation tables. Net interest income totaled $262 million, declining approximately $4 million, driven largely by day count. Within that, interest income declined due to slightly lower loan and security yields while interest expense also declined, reflecting continued progress in managing deposit pricing and improved funding mix. The net interest margin was 3.58%, down just 1 basis point from the fourth quarter. Importantly, margin performance continues to reflect underlying structural stability rather than short-term tactical actions. Deposit pricing discipline continues to mostly offset asset yield pressure and funding mix improved as brokered balances declined further during the quarter. Our interest rate risk profile remains relatively neutral, providing stability throughout a volatile and less predictable rate environment. Deposit average balances were stable while ending balances increased $179 million during the quarter. This was driven by softer earlier quarter seasonal trends, which rebounded as the quarter progressed. Growth was driven by higher savings balances and an increase in noninterest-bearing demand deposits. Total cost of funds decreased 9 basis points, reflecting both pricing actions and favorable mix. Loan balances increased $121 million during the quarter with average loans also up modestly. Yield trends reflected ongoing repricing dynamics while credit spreads on originated loans remained stable. As always, we continue to emphasize disciplined pricing and return thresholds. Moving to the investment portfolio. Securities increased by $28 million, as investments as a percentage of total assets remained at 15%, a level that continues to provide balance sheet flexibility. Liquidity remains strong, supported by a well-diversified funding base. AOCI increased by $23 million during the quarter given the late March rise in interest rates. Noninterest income totaled $69.8 million, effectively flat with the prior quarter. Wealth management revenue increased during the quarter and was partially offset by modest declines in commercial and consumer banking fees, largely due to seasonality and 2 fewer days in the quarter. Fee income, again represented just over 20% of total revenue, which continues to enhance earnings stability. On the expense side, total noninterest expense was $200.3 million, down $12.7 million in the fourth quarter. The decline was driven primarily by lower incentive compensation and continued discipline across nonpersonnel costs, partially offset by $2.6 million of acquisition-related expenses. On an operating basis, expenses totaled $190.7 million and the efficiency ratio improved to 56.7%. We believe this level of efficiency is sustainable as we continue to invest selectively in people, systems and strategic priorities. Credit performance remained stable during the quarter. The provision for credit losses was $14.4 million, resulting in an allowance for credit losses of $367.5 million or 1.51% of total loans. Nonperforming assets improved to 55 basis points of total assets and net charge-offs were 25 basis points of average loans annualized. Our reserve levels continue to reflect a balanced and prudent assessment of portfolio performance, forward-looking economic assumptions and borrower and sector level analysis. Turning to capital. Our CET1 ratio increased to approximately 11.9% and the tangible common equity ratio improved to 8.6%. During the quarter, we repurchased approximately $24.5 million of common stock under our 2026 authorization. From a capital allocation standpoint, our priorities remain funding organic growth first, maintaining discipline around share repurchases and preserving flexibility for future opportunities. We closed the acquisition of Blue Foundry Bancorp on April 1, and the transaction will be reflected in our second quarter results. From a financial standpoint, the deal is expected to be immediately earnings and tangible book accretive, in line with previous expectations. Revenue enhancements are expected to be driven primarily by relationship expansion. We remain confident in both the strategic rationale and the financial benefits of the transaction. Looking ahead to the remainder of 2026, our expectations remain consistent. We are affirming our full year 2026 operating guidance with the only change being an update to our interest rate assumptions to reflect a 25 basis point cut in July rather than March. We continue to expect annualized mid-single-digit loan growth, controlled expense growth and strong capital generation. Overall, our first quarter performance reflects high quality, repeatable earnings supported by prudent risk management and disciplined execution. With that, operator, please open the line for questions.

[Operator Instructions]. Our first question will be coming from the line of Daniel Tamayo of Raymond James.

Maybe one for you, Rick, on the expenses to start things off just because it was, I think, a better quarter than expected in the first quarter from a core perspective, but then the guidance was reiterated. Help us kind of think about the pace of expense add and then cost savings as we go through the year and if you're -- as we think about kind of where we may shake out towards the end of the year, from a run rate basis post everything with the deal, if there's a number or a way to frame that, that would be helpful.

Yes. Thanks, Danny. So look, I think overall, I would still -- on the annual guidance, I think, still a lot of comfort right around that kind of middle of the range. So that would imply, obviously, progression higher kind of, call it, from that 191 operating base today on a stand-alone basis to something closer to 200 by the end of the year. And then you have to factor in that, that what we called out last time, we still feel very comfortable with that $27 million for the second, third and fourth quarter combined for Blue Foundry. So well, obviously, that will be a little bit heavier in call it, 2Q. We're not systems -- we're not planning for systems conversion until middle of July. But we think by the end of fourth quarter, we will be at our 50% cost save run rate. So hopefully, that helps.

Yes. I mean maybe I can try and put a little bit of -- well, I have to work through the model a little bit, but I think the number I'm looking at for the consensus. I apologize, I don't have it up here, but I had a number around the $215 million range, I believe, in the fourth quarter. Is that in the ballpark? Just trying to -- obviously, like we'll work through some stuff over the next couple of quarters, but -- and I appreciate the puts and takes that you just walked through, but is it possible to get that specific?

My gut reaction is that, that's a little high based on where we should be on a run rate basis and hitting that 50% cost saves.

All right. Do you have -- just give us some help on the classified and criticized in the quarter just directionally from where they ended in the year?

Yes. Danny, I mean classified and criticized continues to trend down, nonperformings trending down. So those credit metrics continue to either be stable or move in a positive direction.

Okay. And then, I guess, lastly, the deposits was a nice strong quarter of core deposit growth in the first quarter. Just give us your thoughts, if you can, on your ability to hold those levels, obviously not expecting maybe the same kind of growth going forward, but from a perspective of noninterest-bearing and just overall core deposit growth, how you're thinking about the trajectory from here?

Yes. I mean we don't see long-term trends changing. We did have a good first quarter. Core was up. There's seasonality, there's account flows in commercial and municipal, so those things will bounce around quarter-to-quarter, but those kind of trend lines, we see being pretty consistent as we move forward.

Danny, the only thing I would add to that is just keep in mind the composition of Blue Foundry deposits in the very near term, right? So we bring that on 2Q. They had obviously a very low concentration in noninterest bearing. So on a percentage basis, that's going to change the -- our pro forma a little bit. But on the balances, Curt spot on.

[Operator Instructions]. Our next question comes from the line of David Bishop of Hovde Group.

Curt, Rick, just curious, you guys definitely bucked the trend, same this quarter in Mid-Atlantic able to show loan growth here. Just curious what geographies maybe drove the growth? And -- just curious maybe what prepayments and payoffs look like this quarter relative to the last few?

Yes. Just kind of a couple of points on loan demand and growth, maybe overall might be helpful. We continue to expand the teams throughout the footprint. So we've been ramping that up as we talked about over the last couple of quarters. Pipelines meaningfully higher year-over-year and it's up even linked quarter. So fourth quarter, first quarter pipeline up, that's a good metric. You get to the end of the year, that typically tails off and then you rebuild in this year but were up linked quarter. We think we're generating the originations that we need to get the guidance. We reaffirm the guidance. There certainly are headwinds runoff in construction for us. The perm market is very competitive. So we're being prudent and pretty selective in what goes to permanent. So you see over the last 4 or 5 quarters, some headwind from that. And then borrower sentiment, they're a little apprehensive here in the first quarter. I think that's why that -- you see a little softer first quarter overall. We're feeling that as well, but we definitely have some good momentum. And just to be clear, I think we have the team in place, and we're winning business to the pace that we can get our guidance.

David, I might just add as a data point on construction, so the maturity schedule that we've seen -- the actual maturities we've seen over the past year versus what we see over the next 4 quarters. So it was double right? So we're looking at 50% or less of that maturity wall for construction to perm over the next 4 quarters. So that helps alleviate a lot of that future pressure as well.

Got it. That's good color. And a follow-up maybe on a capital planning perspective. Just curious, remind me if there is any target levels you guys are sort of managing to in terms of maybe CET1 or TCE that over and above, you would consider excess for share repurchases?

Yes. I mean, we don't manage to specific levels. We feel capital is pretty robust right now. We did -- we were pretty active in the buyback in the first quarter, so we feel well positioned to deploy capital. And again, that's organic growth, any corporate activities, whether it's a portfolio purchase or a bank or something like that. And then we'll use the buyback. So opportunistically we feel good about our capital levels, and I think that gives us a lot of opportunity and flexibility as we move forward.

Our next question will be coming from the line of Casey Haire of Autonomous Research.

This is Jackson Singleton on for Casey Haire. So Rick, I just wanted to touch on NIM in 2Q given the close of Blue Foundry. Any help you can give here just on what we can kind of expect directionally?

Yes, directionally higher, right? So obviously, we reaffirmed our NII guidance, but we feel good about the purchase accounting marks that we announced initially. So you'll start to see that purchase accounting accretion come through in 2Q. I would say, on the core margin, if you think about deposit repricing, I think that is starting to trough. So I would turn attention more towards -- I think it's actually Slide 21 of our deck on some of that fixed asset repricing and the back book. A lot of the maturities, so just on that $4.4 billion of loans we have that are repricing within the next 12 months, you'll see at current market rates and spreads anywhere, probably from 50 to 60 basis points benefit on that back book. So you really start to focus more on the asset repricing going forward. But feel good about the original estimates we had out there for Blue Foundry. So that will all start kicking in soon.

Got it. Okay. And then for my follow-up, have you guys done any work on just the Basel III proposal and the impact it could have on capital ratios?

Loosely. I think benefit -- obviously, there's some benefit to us because of the relative size of our residential portfolio. So -- but I don't have any specific numbers to say, but it is modestly beneficial.

Our next question will come from the line of Matthew Breese of Stephens Inc.

I had a few questions. I hope you don't mind, but I'll keep it tight. First one was just, Curt, I think you had mentioned maybe a portfolio purchase. What was that? What was the size of it in market, out of market? And are you considering additional portfolio purchases to get the guidance?

Yes, Matt. So it was a unique opportunity, I would say, commercial portfolio right in the heart of our franchise. So it's a really good opportunity. We purchased it from a high-quality institution that does business the way we do business. Granular, about $1.2 million average loan size in there. Overall portfolio was around $200 million. It's a pretty similar customer base to ours, again, right in the heart of our market. And I think we've referenced this a couple of times over the last couple of years that we want to be in a position opportunistically, whether it's a portfolio purchase, whether it's a bank M&A, things like that. So we're always looking for these opportunities, but it was unique and we are positioned well, and we feel really good about it.

Got it. Okay. And then I don't know if this belongs to Rick or you, Curt. But with Blue Foundry, you get geography-wise and deeper exposure to Northern New Jersey, which are economically more vibrant areas? How does that change the loan growth outlook for you all? Does it change commercial real estate growth dynamics? Is that a '26 or '27 event? And then maybe oppositely, is there anything on their books now that you have it that we should anticipate being in run-off mode?

Yes. So we feel really good about that market. It is a good market. We were in the market just with a handful of financial centers, and we had kind of teams covering that from further away. So it really gets us in that market in a bigger way. We feel really good about it. We've got the legal day 1 quickly. Integration is going well. Their team is energized. Our team is energized. We feel good overall about it. The market -- I mean I don't think it's going to move the overall dynamics for us. We're going to do business similarly there as we do throughout our footprint. Their book is very much a community banking book, small business and small real estate. So we have a lot of opportunity to go upmarket in real estate, which they couldn't, but do things that we typically do throughout the footprint. We're not looking to do anything different than we do. Our mortgage business, our wealth business. The synergy we got on the Republic transaction for our wealth business is pretty meaningful. And we think we're going to have those kinds of opportunities there. So we see upmarket commercial. We see wealth and then just a really good market overall driving all of our businesses. So we definitely see it as a net opportunity. From a runoff standpoint, like there's nothing on there that we're saying, "Hey, we don't do that business. We're going to run it off." Through transition, you get a little bit of runoff risk that will work really hard. But there's nothing that is specific and purposeful that will run off there. That's meaningful to the overall organization.

Yes. Matt, I might just add on. So a significant portion of the originations have been either brokered or third party. So we do have -- like on the residential side, we obviously have a pretty significant capability in origination. So we'll be able to replace not necessarily run off or replace that with Fulton-originated paper, which is going to help spreads and absolute yields in those portfolios as well. So I know it's a little bit of a nuance, but I don't think it's a runoff. It's more of us using our capabilities to replicate what they were doing.

Got it. Okay. Last one for me. Share repurchases, you've been at it now for, I think, consistently 5 or 6 straight quarters. It feels like we've kind of ended up in a range of $20 million to $30 million per quarter in buybacks. Is that something we should model at least the next couple of quarters, if not through the end of the year? Is that a good run rate?

We're always looking at that as an alternative. I think it really depends overall on a couple of things. So it depends on organic growth. And that's what we want to deploy capital with the most. And then other opportunities that we have that we might want to kind of hold on to capital. And then certainly, just market dynamics and pricing. Like we look at buybacks like we look at M&A or any other corporate activities. So we have hurdles and metrics that we look at to be active in the market. But there's typically opportunities within each quarter that we've been able to do some buybacks, and we would look for those opportunities as we move forward. We have $125 million remaining. So we have plenty of room, and we definitely are looking for those opportunities.

I would now like to turn the conference back to Curt Myers for closing remarks.

Well, great. Thank you all again for joining us today. We hope you'll be able to be with us when we discuss second quarter results in July. Thank you, everyone.

This concludes today's program. Thank you for participating. You may now disconnect.