FULTON FINANCIAL CORP Q2 FY2024 earnings call

• Thanked Republic and Fulton teams for their efforts. • Operating earnings of $0.47 per diluted share was strong, with year-to-date results outpacing expectations. • Steady balance sheet growth with organic loans and deposits growing as expected, plus growth from the Republic transaction. • Net interest margin increased 11 basis points, net interest income grew $35M, non-interest income grew nearly $9M, operating net income grew $17M. • Executed sale leaseback transaction and investment portfolio restructuring, adding $8.5M annual interest income. • Moved forward on financial center consolidations and issued 2023 CSR Report. • Maintained healthy capital levels, increased tangible book value, and delivered value to shareholders.

For the second quarter, legacy Fulton deposits grew $254 million (4.6% annualized) excluding high-cost broker deposits. Total deposits increased $3.8 billion (17.6% linked quarter) attributable to the Republic transaction. Organic loan growth was $124 million, while total loan growth, including the Republic transaction, was $2.7 billion (12.4% linked quarter). Commercial lending contributed $1.8 billion growth (13% linked quarter net of purchase accounting marks), and consumer lending grew $909 million (12% linked quarter net of purchase accounting marks). The total acquired loan portfolio had a yield to Fulton exceeding 7.5% for the quarter.

• Revised operating earnings guidance; net interest income expected to be $925M-$950M non-fully tax equivalent. • Provision for credit losses expected to be $40M-$60M (excluding non-PCD provision). • Non-interest income expected to be $240M-$260M (excluding security gains and bargain purchase gain). • Non-interest expense expected to be $750M-$770M operating basis. • Effective tax rate expected to be 16%-18%.

• Deposit runoff from Republic related to municipal relationships. • Interest rate changes affecting net interest margin. • Challenges in integrating the Republic transaction, including potential deposit runoff and talent retention. • Credit risks, though core portfolio metrics remain stable but monitored closely.

Q: Could you provide more detail on net interest margin guidance?

A: Fulton does not give forward guidance on net interest margin, but notes continued migration of non-interest-bearing to interest-bearing deposits and one rate cut in the forecast, with asset sensitivity impacting margin.

Q: What's the impact left from investment portfolio restructurings?

A: The funds from the sale-leaseback and investment portfolio restructure have been fully reinvested, and the positive net interest income impact is in the guide.

Q: Any expected incremental runoff from Republic relationships?

A: Deposit runoff from Republic is diminishing and aligns with original estimates of $600M runoff over time.

Q: How do you expect expense saves from the Republic integration to play out?

A: Targeting $60M run rate cost saves by January 2025, with integration efforts ongoing and cost saves expected to be implemented by then.

Q: What about loan pipeline and loan growth expectations?

A: Loan pipeline is steady with modest organic growth expected, around low single-digit growth for legacy Fulton, and growth from the Republic portfolio as integration progresses.

Q: Can you update on the loan portfolio's rate sensitivity?

A: About 68% of the portfolio is tied to the short end of the curve (one year or less), and 30% is fixed rate; overall, the portfolio is asset-sensitive but less so currently.