Release Date: October 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fulton Financial Corp (FULT, Financial) reported record operating earnings of $0.50 per diluted share for the third quarter, showcasing strong financial performance.
- Deposit growth exceeded expectations, driven by the Republic deposit portfolio, with a 12% annualized increase excluding brokered deposits.
- Net interest income and net interest margin both exceeded expectations, with a $16 million increase in net interest income and a 6 basis point rise in net interest margin.
- The company successfully integrated Republic Bank, achieving significant cost savings and expecting full integration benefits by year-end.
- Fulton First initiative is progressing well, with strategic realignments and leadership appointments aimed at enhancing growth and efficiency.
Negative Points
- Loan growth was modest at $70 million or 1% annualized, slightly below recent periods, partly due to the exit from the indirect auto lending channel.
- Non-performing loans increased by $30 million, raising concerns about certain borrowers struggling in the higher interest rate environment.
- Operating non-interest expense increased by $1.3 million, reflecting the full quarter of Republic expenses despite a decline in Fulton organic expenses.
- The company anticipates continued pressure on net interest income due to expected interest rate cuts, despite efforts to manage deposit costs.
- Provision expense remained relatively high at $11.9 million, indicating ongoing challenges in credit quality management.
Q & A Highlights
Q: Can you explain why the Net Interest Income (NII) is expected at the high end of the range despite anticipated rate cuts?
A: Richard Kraemer, Chief Financial Officer Designee, explained that the early rate cuts in September have a near-term impact, but the company's sensitivity to rate changes has decreased significantly. The Republic transaction and adjustments in the investment securities portfolio have helped reduce asset sensitivity by about 45% year-to-date, moving the company closer to a neutral position.
Q: Regarding the Fulton First initiative, are the $25 million in expense savings for 2025 all cost saves, or do they include revenue enhancements?
A: Curtis Myers, Chairman and CEO, clarified that the $25 million impact for 2025 is purely from cost savings as part of the Fulton First initiative. The initiative is both a growth and efficiency strategy, and revenue targets will be incorporated into future guidance.
Q: How should we think about the expense outlook for 2025 compared to 2024?
A: Richard Kraemer stated that the operating expenses for 2025 are expected to remain largely in line with the total operating expenses for 2024, excluding core deposit intangible amortization. The savings from the Fulton First initiative will be realized progressively throughout 2025.
Q: What is the expected seasonal impact on deposits in the fourth quarter?
A: Curtis Myers noted that there will be a seasonal runoff of approximately $300 million in municipal deposits in the fourth quarter, following a $400 million growth in the third quarter.
Q: With the current neutral interest rate positioning, when do you expect Net Interest Income (NII) to trough?
A: Curtis Myers indicated that the timing of the NII trough is dependent on future rate cuts. The company has moved to a more neutral position to minimize fluctuations in earnings, but the exact timing will depend on the pace and magnitude of rate changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
