Prepared remarks
Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the fourth quarter ending December 31, 2025. 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 28 through 38 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, I'll be providing a few high-level comments as well as some operating highlights for the full year 2025. Unless I note otherwise, comparisons I discuss are with the full year of 2024 performance. Then Rick will review our quarterly financial results and provide our 2026 operating guidance. After our prepared remarks, we'll be happy to take any questions you may have. 2025 was another outstanding year for our company. I want to start by thanking all of our team members for their dedication to advancing our mission to change lives for the better and for generating strong operating results. Last year, we once again successfully executed our community banking strategy and delivered value for customers, career success for employees, and meaningful operating results for shareholders. Our goal going forward remains the same, creating long-term value by growing the company, delivering effectively for customers, and operating with excellence so that we can continue to serve all of our stakeholders. Our 2025 results were strong. Operating earnings per share of $2.16 set a new record. We also maintained a solid balance sheet and demonstrated disciplined expense management. Customer deposits grew by $449 million, and we're seeing momentum from our enhanced deposit initiatives which have increased customer engagement and driven a 25% growth in consumer demand deposit account openings year-over-year. Sales productivity is strong, and CD retention remains solid. This has resulted in good deposit growth and an ability to effectively manage the cost of funds over time. Our focused and expanded business banking team has generated great results, raising over $133 million in lower-cost operating deposits. Throughout the year, we highlighted some strategic actions that have offset organic loan growth. These actions represented more than an $800 million headwind during 2025. Even with these actions, our organic loan growth originations delivered overall net loan growth on a year-over-year basis. Over the course of 2025, we consistently drove growth in quarterly originations, creating a strong foundation for 2026 and beyond. To support this ongoing loan growth, we've been adding new team members. This expands our ability to serve small businesses and middle-market customers throughout the footprint. Accordingly, in 2026, we expect loan growth to return to our historical growth rates in the mid-single-digit range. We are also pleased with our noninterest income generating performance in 2025. When excluding the bargain purchase and investment securities gains and losses, noninterest income of $277 million was up almost 7%. Noninterest income continues to represent more than 20% of total revenue and underscores the strength of our diversified revenue model as we've grown both noninterest income and net interest income at a similar pace. The drivers of noninterest income growth were broad-based. Commercial fees grew overall by 8%, led by 17% growth in cash management revenue. Fulton Financial Advisors continues to be a meaningful contributor to overall fee income. Wealth assets under management and administration surpassed $17 billion in 2025, and referrals from financial centers to our advisers increased 17% or almost $50 million year-over-year. This strong level of activity was supported by significant new opportunities from legacy Republic First financial centers. This highlights our strategy to bring new product and value to acquire customers and grow our overall revenue base. Turning to expenses. We continue to realize benefits from strategic initiatives driving positive operating leverage for the year. Our operating expenses grew by a modest 1.9% in 2025. When normalizing for a full year of Republic First expenses in 2024, our operating expenses would have been down 2.7% year-over-year, a meaningful contributor to profitability and efficiency. Our profitability, liquidity profile, and capital position all further improved during 2025. Our operating return on assets improved by 17 basis points to 1.28% as we continue to drive greater efficiencies across the bank. We ended the year with a loan-to-deposit ratio of 91%, allowing for continued balance sheet flexibility. Our teams work diligently to grow balances while also managing deposit costs. Our net interest margin was strong, increasing 9 basis points to 3.51% from the prior year. Net interest margin ended the fourth quarter at an even stronger position of 3.59% despite several Fed rate cuts. The consistent increase in net interest margin throughout the year demonstrated our relatively neutral interest rate profile. Our strong earnings also supported higher capital ratios helping to grow tangible book value per share by 15%. Our capital ratios ended the year at the highest level seen in more than a decade. Even after we increased our dividend and opportunistically repurchased $59 million of common stock. Credit metrics meaningfully improved throughout 2025. Nonperforming assets as a percent of total assets declined 11 basis points, ending the year at 58 basis points. Net charge-offs for the year remained historically low at 21 basis points as a percentage of average loans. Our allowance for loan losses ended the year at 1.51% of total loans. We believe we are well positioned moving forward. In November, we announced the acquisition of Blue Foundry Bancorp, a strategic move that strengthens our footprint and reinforces our community banking model. We're excited to have our new team members and customers join our organization as we expand our presence in several attractive markets. This expansion positions us to deliver even greater value to our customers and shareholders as we leverage shared strengths and deepen relationships in these communities. Looking forward, we're excited about the opportunities ahead. We're focused on making 2026 a year of continued strength, building on our momentum, driving growth, and delivering strong results for all stakeholders. Now I'll turn the call over to Rick to discuss our quarterly financial results and provide our 2026 operating guidance.
Thank you, Curt, and good morning. Unless I note otherwise, the quarterly comparisons I discuss are with the third quarter of 2025. Loan and deposit growth numbers I referenced are annualized percentages on a linked-quarter basis. Starting on Slide 5. Operating earnings per diluted share were $0.55 or $99.4 million of operating net income available to common shareholders. Net interest income grew 2.8% annualized from the previous quarter, while NIM expanded by 2 basis points despite 75 basis points of Fed rate cuts from September through December. Modest asset growth and positive credit trends, combined with prudent management of deposit costs and a relatively neutral interest rate profile drove much of the linked quarter performance. Total period-end loans increased $103 million during the quarter. Growth was driven across most loan categories and offset by declines in construction balances. As discussed throughout 2025, we continue to proactively work certain credits out of the portfolio that don't align with our long-term strategy. During the quarter, we saw a runoff of approximately $30 million of indirect auto and resolved an additional $211 million of adversely rated loans. In total, these strategic actions aggregated to a more than $800 million headwind for growth in 2025. Apart from the continued planned runoff of indirect auto, we expect the impact of these activities to moderate as we move into 2026. Accordingly, we expect to revert towards our long-term historical organic loan growth trends of mid-single digits. Total deposits grew $257 million or 3.9%. Growth was relatively balanced across categories as interest-bearing deposit balances grew by $137 million and noninterest-bearing grew by $120 million. Our consumer business was a key driver of deposit growth. Commercial deposits and the number of commercial accounts remain stable. However, this segment did see a rebound in noninterest-bearing balances of $40 million. Municipal deposits decreased $254 million, while other wholesale funding, including broker, declined $29 million. Finally, our loan-to-deposit ratio was unchanged, ending the quarter at 91%. Moving to the investment portfolio. Securities decreased $212 million as prepayments accelerated from previous periods. Investments as a percentage of total assets were 15%, a level that continues to provide balance sheet optionality moving forward. AOCI improved by $29 million. Net interest income on a non-FTE basis was $266 million, a $1.8 million increase linked quarter as net interest margin expanded 2 basis points to 3.59%. Loan yields declined 11 basis points to 5.82%. Fixed-rate asset repricing continues to provide some benefit to loan yields in the face of declining short-term rates as illustrated on Slide 22 of our earnings presentation. Over the next 12 months, we have approximately $5.7 billion of fixed and adjustable rate earning assets subject to repricing, currently at a blended yield of 5.01%. Of note, accretion interest was down $2.2 million linked quarter to $10.5 million. For the quarter, our average cost of total deposits decreased 10 basis points to 1.86%, while our total cost of funds declined 13 basis points due to quarterly wholesale repositioning aided by customer deposit growth. Through the current rate cutting cycle, our cumulative interest-bearing deposit beta has been 30%, while our total deposit beta has been 20%. Our deposit pricing strategy continues to balance the desire to fund future balance sheet growth while defending margins. Turning to Slide 7. Noninterest income for the quarter was stable at $70 million. While consolidated fees were flat, we saw strong linked quarter growth within our Wealth, Capital Markets, and SBA businesses. Noninterest income as a percentage of total revenue equaled 21% for the fourth quarter. Moving to Slide 8. Noninterest expense on an operating basis was $204 million, an increase of $12.7 million linked quarter. This increase is mostly attributable to salaries and benefits driven by higher accrual expense of $7.5 million related to variable compensation due to continued strong annual performance. Other noteworthy items in the quarter amounted to $2.5 million and included unseasonably high snow removal costs and elevated health care claims. As in these expenses, our quarterly and annual expenses would have been within our previously expected ranges. Of note, core salaries increased less than 1% from the prior quarter. Items excluded from operating expenses as listed on Slide 8 include charges of $5.4 million of core deposit intangible amortization, $2.8 million of Fulton first implementation and asset disposal, and $802,000 of acquisition-related expense. Turning to asset quality. Provision expense of $2.9 million was lower than last quarter and below our expected range. The quarterly provision was positively impacted by a $5 million recovery from a loan acquired in the Republic First Bank acquisition. As Curt mentioned, we saw positive trends throughout the book. Net charge-offs increased slightly to 24 basis points, while nonperforming assets to total assets improved 5 basis points to 0.58%. Our allowance for credit losses to total loans ratio decreased from 1.57% to 1.51%, while our ACL to nonperforming loan coverage increased to 198%. 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 1.1 million shares at a weighted average cost of $18.34. In December, our Board approved a new repurchase authorization of $150 million, which is in effect through January of 2027. Inclusive of share repurchases, internal capital generation was robust at $77 million. Our tangible common equity to tangible asset ratio increased to 8.5% while CET1 increased to 11.8%. On Slide 11, we are providing operating guidance for 2026. Our guidance assumes 125 basis point Fed cut in March and assumes our previously announced acquisition of Blue Foundry Bancorp closes early in 2Q '26. Our 2026 guidance is as follows: Net interest income of $1.120 billion to $1.140 billion. Our NII guide assumes an annual FTE adjustment of $16 million to $18 million. Loan loss provision expense of $55 million to $75 million. Noninterest income of $285 million to $300 million. Operating expense of $800 million to $835 million. An effective tax rate of 18.5% to 19.5%. Finally, nonoperating expenses of approximately $60 million, which includes $22 million of CDI and $36 million of merger-related costs.
Questions and answers
Our first question comes from Daniel Tamayo with Raymond James.
Maybe starting on the loan growth guide, the mid-single digits in '26. I appreciate your comments around the lenders that were hired recently and some of the headwinds that were there in '25 that are no longer there in '26. Maybe you could quantify that a bit for us. Just give us a sense for what that headwind won't be? And if there's a way you can quantify the lenders? And then if there's any number you could put around what you're assuming in paydowns as well.
Yes, Danny, to provide some context on that overall situation. Reflecting on last year, we faced over $800 million in challenges from strategic decisions aimed at mitigating risks in our portfolio to achieve our desired outcomes. We anticipate these challenges will diminish. Looking back, we estimate about 3.5% organic growth when excluding those headwinds, which gets us close to our long-term trends. Furthermore, we are enhancing productivity by adding personnel in nearly every segment of the company through our Fulton First initiative. We are steadily increasing our workforce, including bankers in commercial banking, business banking, and SBA. This approach involves adding a team member or two each quarter, allowing us to steadily build momentum. Throughout this year, we have seen a continuous rise in underlying originations each quarter, with a year-over-year increase in our pipeline as well. Today, we are optimistic about achieving that mid-single-digit growth range and maintaining our forward momentum.
And any commentary on the paydown assumptions relative to where you've been?
Yes. As we move forward, we've adjusted the maturities and made assumptions based on business activity. We don’t see any significant changes in portfolio paydowns or prepayments compared to previous years. The strategic actions we implemented in 2025 were the main challenges. Overall, we feel confident in our ability to predict prepayment activities.
Could you clarify your guidance on the loss provisions? I'm trying to understand the math for my model. It seems like either the net charge-offs need to decrease from the fourth-quarter levels or the reserves have to be reduced. Can you provide some insight into your thoughts on the provision for next year?
Yes. Danny, it's Rick. I believe that if conditions remain stable, we can expect mid-single-digit growth, which suggests that allowances would likely decrease slightly, assuming a consistent credit and economic environment. You're correct in noting that we anticipate charge-offs to remain relatively flat compared to this year.
Our next question comes from David Bishop with Hovde Group LLC.
I'm curious, as you talk about or think about the mid-single-digit growth rate next year, just curious, do you think the distribution of the loan mix changes materially in terms of the new hire? Or do you think that's going to come more out of the C&I book versus CRE? Just curious how you're thinking about production next year.
Yes. So overall, what served us really well over the long term is having a diversified loan book. So our strategy is to grow each of those segments. They do grow at different paces over time. We think we have opportunity in CRE, C&I, and business banking, all of those categories, we feel that that could be drivers to the accelerated organic growth, and we have a balance sheet mix that we can really lean in and grow any of those at normal pace or even an accelerated pace. You look at our CRE concentration, it's below 200%. We're selective, but it's a good position to be in, and we really want to grow all categories. But we think specifically in those three, we can do a little outsized growth year-over-year.
Got it. And then in terms of the OpEx guide, you mentioned some of the hiring you've done here. So excluding the Blue Foundry deal, do you think you're going to be more aggressive maybe in some of the New Jersey markets in terms of looking to add bankers up in that market relative to maybe some of the legacy Pennsylvania footprint?
Well, specifically on the guide on expenses, like we're always active in recruiting talented people to join the team. So there's really nothing specific in the guide other than normal opportunistic hires in the marketplace. That's an ongoing effort really in all year. So we have that baked into the normal run rate around continuing to be able to add to the team. There's nothing in the guide that's outsized in expenses for new hires.
Our next question comes from the line of Matthew Breese with Stephens Inc.
I was hoping you could help us out with deposits. We'd love your thoughts around deposit growth for this year, including some composition thoughts? And then, Rick, if you have it either at the period end or most recent cost of deposits, just to give us some sense of trajectory on the overall cost of funds.
Yes, we believe we have good momentum in deposit growth. We're seeing strong results from our account opening and customer engagement initiatives. This is particularly true for consumers and small businesses. The treasury performance has been notable, contributing to a good generation of low-cost operating deposits, which we noted had a 17% impact on fee income. Overall, we are seeing positive trends in core consumer banking and excellent momentum in business banking. Additionally, treasury and cash management on the corporate side is also showing strong growth, and these are the areas where we feel the teams are effectively driving growth.
Yes, Matt, regarding your spot question, we finished December at 1.80%, which is about 6 basis points lower than the quarterly average.
Got it. Okay. And then, Curt, I heard you on the pipeline sounds strong. I would love any sort of percentage comparison. I know I think you said it was up year-over-year. And then I heard you talk a little bit about kind of more diversified loan growth as you integrate Blue Foundry. Curious, geography-wise, given their geography in Northern New Jersey, what are your thoughts on kind of inching into the Metro New York City market for commercial real estate? And I just love your thoughts around that.
Yes. So first, on the pipeline. So I was specifically referencing the commercial pipeline, and that's up more than 10% year-over-year. So it's a marked improvement. We've seen a little improvement in the pull-through rate too. You've heard me talk about that before, not just things in the pipeline, but customers actually spending the money and moving forward with the project or purchase. We see a little positive momentum there as well. So a couple of those factors, I think, really help us be confident in that momentum as we move forward. Then on geography, we really like the Northern New Jersey market. We're in that market. This acquisition fills out gives us a good franchise there, crossing the state lines there is not within our strategy.
Great. And then last one, I guess for Rick or Curt, just a couple of nitpicky questions on fee income. Could you help me out with, first of all, your thoughts around commercial interest rate swap income. It's a bit all over the place, but the fourth quarter was stronger than I was anticipating. What's a good run rate there? Or what are you expecting there? And then the other one is just other fee income dropped quite a bit this quarter, and I'm curious what you're expecting for run rate there as well?
Well, Matt, first, on the swap income, that really tracks with originations, and it's typically the larger deals that would have a swap versus a fixed rate, so that you're right, that does bounce from quarter-to-quarter and it really ties and correlates to originations and some larger originations. So it's natural as you're seeing growth and origination accelerate in the fourth quarter. That's pretty in line with what we would expect from the derivatives too.
And regarding the other component, I would say that one factor contributing to the quarterly volatility is the income from equity method investments. Throughout the year, we saw a couple of these improve in valuation. However, in the fourth quarter, one declined by about $1.7 million. So, likely $2.5 million is a reasonable normalized level for that.
Great. I'll leave it there. Thank you.
Thank you. And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Curt Myers for closing remarks.
Well, great. Thank you, everyone, for joining us today. Hopefully, you'll be able to be with us when we discuss first quarter results in April. Thank you.
This concludes today's conference. Thank you for your participation. You may now disconnect.