Prepared remarks
Hello. Welcome to Fulton Financial second quarter 2026 conference call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to hand the conference over to Pat Lafferty. Sir, you may begin.
Good morning. Thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the second quarter ending June 30th, 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 fulton.com by clicking on Investor Relations and then on News. These slides can also be found on the Events and Presentations page under Investor Relations on our website. Today's conference call will contain forward-looking statements. These statements represent our expectations about the future and are subject to risk and uncertainty. Our actual results may differ materially from these statements. Please refer to our earnings release and related slide presentation under the heading Forward-Looking Statements for a discussion of the factors that could cause actual results to differ. 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 26 through 33 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. Good morning, everyone. For today's call, I'll share a few details on our second quarter performance and provide some observations on current business trends. Rick will review our financial results in more detail and discuss our outlook for the remainder of 2026. After our prepared remarks, we'll be happy to take any questions you may have. The second quarter represented continued strong performance for Fulton. We delivered strong financial results. We maintained focus on supporting our customers, team members, and communities. We are proud of the positive impact we're making within our company and throughout our markets. We encourage you to view our recently published corporate social responsibility report, which is available on our investor relations website. This report highlights the many ways our company makes a positive impact. Our strong performance reflects the dedication of our team members and the disciplined execution of our strategy, which continues to guide our decisions and position the company for long-term success. We continue to focus on growing the company, delivering effectively for customers, and operating with excellence so that we can continue to serve all of our stakeholders. We made meaningful progress in each of these areas during the quarter. Operating earnings improved as growth was solid. Capital levels continued to grow and overall credit performance was favorable. Our teams continued to deepen customer relationships and delivered exceptional service while identifying new opportunities for growth across our footprint. We also achieved an important milestone during the quarter with the successful completion of the Blue Foundry acquisition on April 1st and the subsequent merger and integration of Blue Foundry Bank on July 11th. This transaction advances our strategy by expanding our presence in Northern New Jersey, enhancing our community banking model, and increasing our ability to serve customers in an attractive and growing market. We believe the combination creates meaningful opportunities for growth and long-term value creation. I want to thank our team for their effort throughout this process. Completing this transaction in such a timely manner requires a tremendous amount of work, teamwork, and collaboration and positions us for continued growth. Our results this quarter reflect strong performance across a number of key areas. Profitability was a record high for the quarter. Operating net income available to common shareholders grew to $115.9 million or $0.60 per diluted share. Operating earnings on average tangible common equity improved to 15.71%. Operating return on average assets increased to 1.39%, and tangible book value per share grew 13% linked quarter annualized. Loan growth was solid during the quarter, including the positive effect from Blue Foundry. Organic growth was driven primarily by our consumer business. Overall loan activity remains broad-based and across all of our markets. Our team members continue to have productive discussions with customers regarding growth, investment, and capital needs. We believe Fulton is well positioned to support those opportunities and to continue to generate disciplined growth moving forward. Deposit balances increased from the prior quarter, including the benefit from the Blue Foundry transaction. Organic deposit trends were as expected on a seasonal basis. Deposit competition within our market has been consistent with recent quarters, and we continue to benefit from strong customer relationships and a diversified funding base across our consumer, wealth management, and commercial businesses. Additionally, our non-interest income business continued to generate steady fee income, further diversifying revenue sources and strengthening overall financial performance. Compared to the prior quarter, commercial fee income increased 9%, consumer fee income increased 8%, and wealth management assets under management and administration reached a record $18.4 billion at quarter end. Our capital position further strengthened during the quarter. We repurchased $11.1 million of common stock while increasing tangible book value and improving our common equity Tier 1 ratio to approximately 12.1%. Our solid capital position provides meaningful flexibility to support customer growth, execute strategic initiatives, and drive long-term shareholder value. Finally, I'd like to touch on the credit environment. Our credit performance remains solid, and overall asset quality metrics remain favorable. As we move through the second half of the year, we remain focused on executing on our strategy and building on the strong performance delivered this quarter. With that, I'll turn the call over to Rick to review our second quarter financial results in more detail.
Thank you, Curt, and good morning, everyone. Fulton delivered another quarter of strong financial performance, highlighted by record operating earnings and continued balance sheet growth. For the second quarter, net income available to common shareholders was $99.9 million or $0.52 per diluted share. Operating earnings were $115.9 million, or $0.60 per diluted share, up from $0.55 per diluted share in the first quarter. The improvement in operating performance was driven primarily by higher net interest income, expanded fee revenue, and continued disciplined balance sheet management. Net interest income increased $22.2 million, or approximately 8% linked quarter to $284.3 million. The majority of this growth was attributable to the Blue Foundry acquisition, which contributed approximately $17.5 million during the quarter. Total loan interest income increased by $32.6 million, reflecting both acquisition-related growth and higher average balances. We also benefited from $5.2 million of purchase accounting accretion from the acquired Blue Foundry loans, in addition to $9.9 million of accretion associated with the Republic acquisition. Our net interest margin expanded to 3.6%, up two basis points from the first quarter and up 13 basis points from the year-prior period. The second quarter NIM was impacted by one basis point due to carrying overlapping subordinated debt expense for a portion of the period. Overall, this performance demonstrates our ability to maintain strong earning asset yields while effectively managing funding costs. Deposit costs increased modestly during the quarter, and overall funding costs remained well controlled. Ending loans totaled $25.9 billion, an increase of $1.7 billion from March 31. Approximately $1.6 billion of the increase came from the acquired Blue Foundry balances. Excluding the acquisition, organic loan growth was approximately $103 million. Within the portfolio, we continue to see strength in consumer-related lending, including residential mortgage and home equity production, while commercial loan balances declined modestly during the quarter. Deposits increased $1.5 billion during the quarter to $28.3 billion, mostly attributable to the Blue Foundry acquisition. Our deposit franchise remains a key competitive advantage and continues to support profitable balance sheet growth. Non-interest income increased to $79.3 million, up $9.5 million from the first quarter. The largest driver was a $7.3 million increase in income from equity method investments, including approximately $6.9 million of gain related to an investment sold during the quarter. Mortgage banking revenue also improved by approximately $1 million, reflecting stronger production activity. Across our fee businesses, treasury management, card services, and commercial banking revenues increased and continued to provide meaningful diversification to our revenue stream. Total non-interest expense was $231 million, compared with $200.3 million in the prior quarter. Operating non-interest expense was $210.6 million. Items excluded from operating results included $13.8 million of acquisition-related expenses, $5.9 million of intangible amortization, and approximately $0.8 million of debt extinguishment costs associated with the redemption of subordinated debt. Notably, a $2.1 million pension plan charge was recorded during the quarter and is included in operating non-interest expense. As Curt mentioned, the Blue Foundry system conversion was completed successfully on July 11, and we remain focused on realizing anticipated cost savings and operational efficiencies going forward. Credit quality remains sound and generally consistent with our expectations. Provision expense totaled $4.9 million, compared with $14.4 million in the first quarter. The allowance for credit losses on loans ended the quarter at $382.6 million, representing 1.48% of total loans. The quarter included the establishment of approximately $31 million of initial allowance for credit losses on acquired Blue Foundry loans. Annualized net charge-offs were 0.34% of average loans, up from 0.25% in the previous quarter. Non-performing assets totaled $187.1 million, or 0.54% of total assets, remaining relatively stable as a percentage of assets. Overall, portfolio performance remains healthy, reserve coverage is strong, and our credit outlook remains stable. Our capital position remains a significant source of strength. Common equity tier one ratio of approximately 12.1% increased from 11.9% in the prior quarter. Tangible common equity improved to 8.8%, up 26 basis points quarter-over-quarter. During the quarter, we issued $300 million of fixed-to-floating rate subordinated notes due 2036, and redeemed $195 million of subordinated notes due 2030, enhancing our capital structure while maintaining balance sheet flexibility. We also continue returning capital to shareholders through share repurchases, buying back 525,000 shares during the quarter at an average price of $21.19 per share, representing approximately $11.1 million of capital. Total repurchases under the 2026 authorization reached $35.6 million through June 30. We have approximately $115 million remaining under the current program. Looking ahead to the remainder of 2026, our outlook remains positive. Given our performance during the first half of the year, we are making some minor adjustments to guidance to reflect performance through the midpoint of the year. We are narrowing our range for net interest income to $1.12 billion to $1.135 billion and adjusting our full year loan growth to low single digits. We are lowering our range for loan loss provision to $40 million to $60 million. We are raising the low end of the non-interest income range to $290 million from $285 million. We are tightening our range for operating non-interest expense to $810 million to $830 million. There is no change to our full year tax range. With that, I'll turn the call back to Curt.
In summary, the second quarter results reflect strong execution across the organization. We generated record operating earnings, expanded our balance sheet through the Blue Foundry acquisition, maintained solid asset quality, increased capital levels, and successfully completed a major integration effort. As we move forward into the second half of 2026, our focus will be on capturing the strategic and financial benefits of Blue Foundry, continuing disciplined organic growth, maintaining credit quality, and delivering sustainable shareholder value. Thank you for your continued interest in Fulton. Now operator, I'll turn the call over to you for questions.
Questions and answers
Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Daniel Tamayo with Raymond James. Your line is open.
Thank you. Good morning, everyone.
Good morning, Danny.
Yeah, maybe starting just on the balance sheet growth side, specifically on the loans. I guess reducing the guidance for the back half to low single-digit range. As we think about, well, I guess first, what's the driver of that? Second, as we think about a more normalized growth rate for you guys in 2027 and just overall, what would it take to be able to accelerate back into the mid-single-digit type range for you guys?
Yeah, Danny. We're really modifying the annual guidance. It's reflective of the performance in the first six months. We had more modest growth in the first six months, and we expect the back half growth to return to previous expectations. The moderation in the annual target is simply reflective of first-half performance. We remain disciplined on credit terms and defending the margin on pricing. This can impact individual loan originations. The key thing is we have good customer retention. We're adding people, we're adding customers. The moderation in the target is just reflective of the first quarter being seasonally slower and the second quarter including the integration. We expect the second half to trend back to our expectations. On an annual basis, that moderates it to low single digits; that's really all that's there.
Okay. All right. Well, thank you for that clarification then. It sounds like expectations still in kind of that mid-single-digit range going forward, which is great. I guess my second question was a little bit framed around potentially a slower revenue growth, but maybe that's not the case given the loan growth. Just your thoughts on being able to generate positive operating leverage going forward, assuming, and I'm sure we'll get into the margin with someone else, but assuming maybe a tighter margin path from the increase in competition that we've been seeing.
As we look forward, we think we will continue to generate positive operating leverage. We have some benefits in the back half of the year as we complete the full integration and realize cost savings from Blue Foundry. We expect organic growth to trend up from the first half of the year. The change in guidance reflects six months of actual results and our attempt to give a feel for what the full year looks like from here.
Sorry, if I can just go back to the loan growth guide quickly, then I'll step back. Just on the—I don't know if I saw a number of pay downs or payoffs in the second quarter. If you have what those were and what you're assuming in the back half, that'd be helpful as well.
Yeah, Danny. Actual payoffs in the second quarter were running around $250 million a month, which includes amortization and pay downs. Then you have another, call it, $100 million a month of prepayments. We would expect that to remain fairly constant, potentially accelerating a little bit in the third quarter because of some larger loans known to be maturing. It's been pretty steady.
Okay. That's helpful. Thanks, Rick. All right, I'll step back. Appreciate the color, guys.
Thank you. Please stand by for our next question. Our next question comes from the line of David Bishop with Hovde Group. Your line is open.
Yeah. Good morning, gentlemen.
Morning.
Hey, I was wondering if you could speak to maybe what you're seeing in terms of the funding side of the balance sheet, deposit pricing competition. Just curious where you see the direction in terms of overall funding costs moving into the second half of the year. Thanks.
A bit on the market overall: we had a pretty good quarter on deposit growth, although municipal balances tend to trend down within the quarter. On an overall basis, we were pleased with funding and deposit flows in the second quarter. We're effectively competing in the marketplace, and our relational strategy and the diversification of our deposit base are serving us well. We feel it's a real strength, and it was a good quarter. As we look forward on pricing, it's a competitive market and we ticked up a few basis points. That trend likely continues. I'll let Rick provide a bit more detail on pricing and impact.
Yeah. Ending the quarter, deposit costs were about two basis points higher than the average. We would expect a similar trend in deposit costs from what you saw in the second quarter into the third quarter. There are some benefits we see; the second quarter tends to be a low in municipal balances, and often the offset to that is funding with some shorter-term, higher wholesale balances. That will reverse in the third quarter, which helps a little on incremental funding. Generally speaking, a similar trend to what we saw in 2Q is a reasonable expectation going forward.
Got it. A follow-up maybe, Curt, in terms of M&A focus, with Blue Foundry in the rearview mirror. Just curious if less size or maybe inclusive of size and regions that might whet your appetite more than others. Thanks.
Our strategy remains the same. We've talked about it: $1 billion to $5 billion community banks are a focus, and Blue Foundry is a good example. It gives us great opportunities to expand in certain markets and sets us up for accelerated growth as we add people and capabilities. We saw that in Philadelphia after the Republic acquisition, where we gained momentum across business lines. We see the same potential in Northern New Jersey. We're also interested in $5 billion to $15 billion companies, though there are fewer of them. We want to be ready to look at attractive opportunities when they're available. That strategy has worked well for us and will continue.
Thank you. Our next question comes from the line of David Konrad with KBW. Your line is open.
Hey, good morning. Just a quick one from me. Just a follow-up on the back half on the loan growth. Just curious if that includes, or are there any headwinds from Blue Foundry? I know they have that structured consumer book. I don't know if you guys are growing that or maybe letting that roll off. Just curious on the Blue Foundry side, if there are any headwinds in your loan growth.
In the first quarter of operating the business, deposit and loan flows have been as expected and as we modeled. There's always some headwind on any integration just with change, but it's been positive to date and we would expect any impact to be immaterial from an overall standpoint as we look at the back half of the year.
Okay, perfect. Thank you.
Thank you. Please stand by for our next question. Our next question comes from the line of Manuel Navas with Piper Sandler. Your line is open.
Hi, good morning.
Good morning.
Just want a little bit more color on the rise in net charge-offs. They picked up to 34 basis points. Is that some from Blue Foundry? What kind of drove that?
Overall in credit, we feel really good about the numbers. Credit metrics continue to trend in the right direction and remain at historically strong levels. The pickup in charge-offs is really timing on resolutions and updated information on identified accounts. There are no newly identified issues driving that; it's timing. We would expect charge-offs to be in our normal operating range as we look at the full year and quarter-to-quarter going forward.
Okay. I appreciate that. With growth potentially accelerating in the back half being better than the first half, does that change the pace of buybacks at all? What should be the right pace for buybacks?
I would point to our capital position. We have strong capital levels and we are generating strong capital on a quarterly basis. That gives us the opportunity to support any level of organic growth and continue executing on our buyback program. At our current stock price, buybacks remain a good use of capital.
I appreciate that. You talked a little bit about the funding side of the NIM. What are you seeing on new loan yields? What are some expectations on the asset side going forward in terms of back book repricing and ways that the direction of asset yields can go from here?
Hey, Manuel. There's a positive trend. Over the next 12 months, on the loan side, we have roughly $5 billion of assets that will reprice. If current origination levels hold, those would imply approximately 70 basis points of improvement. New loan originations are in the low sixes overall, while many existing assets are in the sub-five-and-a-half level right now, so there's a positive tailwind. On the other assets side, there's opportunity with securities and cash. Our securities portfolio maturing over the next year has a yield of roughly 3.85%, so there's over 100 basis points of repricing opportunity as well. Overall, that implies a stable to slightly higher margin over the next couple of quarters. We feel good about that trend.
I appreciate the commentary. I'll step back into the queue.
Thank you. Our next question comes from the line of Matthew B. with Stephens. Your line is open.
Hey, good morning.
Morning, Matt.
A few from me. Rick, maybe just on deposit costs and mix. Blue Foundry was obviously a little heavier on brokered money and CDs, not as strong as you on the deposit front. Could you just talk a little bit about what you expect to work off on their end versus retain? I noticed some more aggressive promotional deposit offerings from Fulton this quarter. I think there were a couple of four-handle promotional rates. Is that kind of working towards remixing some of Blue Foundry's stuff? Maybe talk a little bit about that.
Yeah. They were a bit more reliant on wholesale. On a combined basis, we were able to bring brokered deposits down a little quarter-over-quarter. Since the acquisition, we've worked and paid off a majority of their wholesale. On a quarter-over-quarter basis, municipal deposits in the second quarter were down $240 million, while customer deposits growth was very strong. You are correct that we've had some targeted promotions in certain markets, including Northern New Jersey, as an entry rate to acquire customers. When you consider the all-in cost of acquisition, it's often more attractive to do it that way. As we focus on direct originations on the commercial side in that market—where Blue Foundry had less presence—there's an opportunity to improve mix as we gain customers. We're approaching it from multiple directions and feel good about the underlying customer growth we saw during the quarter.
Got it. Curt, you had mentioned the Blue Foundry, New Jersey markets allow for stronger growth through team hires and client acquisition and maybe a well-positioned balance sheet for those markets. Maybe talk about that and how it sets you up for 2027 and beyond from a loan growth perspective. Historically, Fulton has been kind of low to mid-single-digit growth all-in organically. Do these new markets make you firmly mid-single digits, or might we see something better given the footprint there?
We look at it across loans, deposits, and fees. Using the market as an example: we had four financial centers and a couple of commercial bankers there; now we have more than 20 financial centers. That allows us to hire more commercial bankers and investment advisors because we now have a base of customers and products that were previously not available. When we do this, we see broad-based growth in wealth, fees, deposits, and loans. We have strong proof points in Philadelphia after the Republic acquisition where this approach drove momentum across business lines. We expect similar results in Northern New Jersey and believe we can be a strong player in that market.
You had mentioned wealth. Investment management fees for the quarter were down a little bit, which I was surprised at, considering equity markets were pretty strong. Is that just a function of timing? Did you waive some stuff for Blue Foundry folks? Not that they had a big investment management presence. I'm trying to make heads or tails of that.
Timing and market dynamics. The brokerage business, which is a material part of our business, has quarterly fees at quarter end. If you recall, balances were down from fourth quarter to first quarter last year. From first quarter to second quarter, AUM increased by $1.3 billion up to $18.4 billion. Certain fees hit in the first quarter and the billing timing affects quarter-to-quarter comparisons. We feel good about momentum in the business and expect consistent performance.
Got it. Okay. Rick, one for you, longer term on the NIM. It sounds like stable to up near term. As we think about longer term 2027 and maybe 2028, thinking about those repricing dynamics for the industry, we saw loan yields kind of peak out in 2023. As that stuff rolls off, do we start to see the NIM more in the stable to down scenario, or do you think you can maintain kind of an up and to the right in 2027 to 2028?
You're challenging the crystal ball out to 2028. I think steady to up in the near term is reasonable. A lot will depend on broader market dynamics, what the Fed does, and deposit pricing. I do think through 2027 at least, given the current environment, a stable margin is a reasonable expectation. There could be modest downward repricing over an 18-month horizon, but it would likely be within the range we've seen over recent quarters.
I appreciate that. I know it's far out. I'm just thinking big picture. Thank you, everybody.
Got it. Thanks.
Thank you. Our next question comes from the line of Casey Haire with Autonomous Research. Your line is open.
Yeah, great. Thanks. Good morning, guys. I wanted to touch on expenses. If we use the midpoint of the guide, it basically assumes the run rate holds at this level, maybe a little bit of pressure on the back half. The high point and the low point of the range imply some decent leverage if you hit the low end and a little bit of pressure if you hit the high end. What are the swing factors that deliver those extremes?
I can take this. The third and fourth quarter would imply something pretty constant relative to where we are. In the operating non-interest expense number of $210.6 million this quarter, there was a $2.1 million pension merger charge which was non-recurring. On a standalone basis, we expect a little upward pressure, but we also have Blue Foundry cost saves coming through the year. We recorded $10.5 million of Blue Foundry costs this quarter on a standalone basis, and that will decline to below $7 million by fourth quarter. We're at roughly a 24% cost save run rate today and will be above a 50% run rate by fourth quarter. The extremes of the range relate to hiring more teams and timing: the top end reflects potential hiring and higher spend, while the low end reflects greater cost saves and timing of some spend into 2027. The midpoint is where we're guiding you toward.
Okay, great. Just last one from me. The ACL came down a little bit. It's still pretty strong relative to your risk profile and peer group. Any updated thoughts on whether we can get more leverage there and whether that ratio can drive lower?
Some of that will depend on growth going forward. Given current trends and a modestly higher loan growth scenario, directionally I think there is some room for that ratio to move lower, but it will depend on loan growth, delinquency trends, and macro conditions. With the data we see now, there's probably some modest room there.
Great. Thank you.
Sure.
Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Curt Myers for closing remarks.
Well, thank you again for joining us today. We hope you'll be able to join us to discuss third quarter results in October. Thank you all.
That concludes today's conference call. Thank you for your participation. You may now disconnect.