Good day, and thank you for standing by. Welcome to the Fulton Financials’ First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Jozwiak, Director of Investor Relations. Please go ahead.

Good morning, and thanks for joining us for Fulton Financials’ conference call and webcast to discuss our earnings for the first quarter ended March 31, 2024. Your host for today's conference call is Curt Myers, Chairman and Chief Executive Officer. Joining Curt today is Betsy Chivinski, Interim 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 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 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 17 through 20 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Now I'd like to turn the call over to your host, Curt Myers.

Well, thanks Matt, and good morning, everyone. For today's call, I'll be providing high level thoughts on our performance for the quarter and provide a few comments on the company. Then I'll turn the call over to Betsy Chivinski, Interim Chief Financial Officer, to review our financial results in more detail and step through our guidance for 2024. After our prepared remarks, we will be happy to take any questions you may have. We were pleased with our first quarter results. Operating earnings of $0.40 per share were a solid start to the year. We saw both deposit and loan growth. The net interest margin was in line with our expectations. We continue to have stable asset quality metrics, and our capital position remains strong. During the quarter, we also increased our committed liquidity by $1 billion. We repurchased 1.9 million shares of Fulton stock. I'd like to note that with this repurchase, we've now repurchased all 6.2 million shares of common stock issued in connection with the Prudential Bancorp Inc. acquisition in 2022. As of March 31, $95 million remains from our $125 million 2024 repurchase authorization. Turning to growth for the quarter, first quarter deposits outpaced loan growth at $204 million, or 4% annualized. Pricing, growth, and mix remain our focus as we continue to position our product offering to support and grow our customer base. Loan growth, as we anticipated, moderated to $93 million, or 2% on an annualized basis. Profitable growth and prudent credit decisions remain our focus. Our loan-to-deposit ratio ended the quarter at 98.6%, a linked quarter decline and well within our long-term operating target of 95% to 105%. Despite ongoing market pricing pressures, net interest margin remained in line with our expectations, drifting lower by 4 basis points to 3.32%. Our non-interest expense income was solid at $57.1 million. We delivered record results in wealth management that helped offset a decline in customer interest rate swap income this quarter. Overall, we are pleased with our fee income performance and continue to benefit from the diversification of this revenue stream. Now, let me provide some comments on credit. The provision for credit losses was $10.9 million, up slightly from $9.8 million last quarter and in line with our expectations. While overall credit metrics remain historically strong, we saw some migration in certain credit metrics during the quarter. Criticized and classified loans drifted modestly higher. This migration is not specific to any particular industry, portfolio, or region, and we continue to focus on how higher interest rates and higher costs are impacting our customers. We remain cautious in our outlook for 2024. Now looking forward, as I mentioned last quarter, our Fulton First initiative is an internal process to evaluate and improve how we operate. Three key tenets of this initiative to drive our strategic transformation are simplicity, focus, and productivity. During the quarter, we made good progress on this initiative with more work ahead of us. We anticipate sharing more details as appropriate in coming quarters. Overall, a solid start to the new year. Now I'll turn the call over to Betsy to discuss our financial performance and 2024 guidance in more detail.

Thank you, Curt, and good morning. Unless stated otherwise, the quarterly comparisons I mentioned are with the fourth quarter of 2024, and the loan and deposit numbers I'll reference are annualized percentage growth on a linked quarter basis. Starting on Slide 8, operating earnings per diluted share this quarter were $0.40, with operating net income available to common shareholders of $65.4 million. This compares to $0.42 of operating EPS in the fourth quarter of 2023. As Curt noted, loan growth was modest during the quarter, increasing by $93 million, or 2%. Commercial lending contributed $73 million of this growth, or 2%. The primary contributors included commercial real estate growth of $124 million, or 6%, and construction loan growth of $24 million, or 9%, offset by a decline in C&I loans of $78 million, primarily due to slightly lower line utilization. Our CRE growth was well diversified across various categories and geographies. Consumer lending produced growth of $20 million, or 1%, during the quarter, with a $70 million increase in residential mortgages, primarily adjustable rate, offset by decreases in other categories. Total deposits increased by $204 million during the quarter. Growth in time deposits, mostly with maturities under one year, offset the seasonal outflows in municipal deposits of $137 million. Non-interest-bearing DDA balances ended the quarter at $5.1 billion, or 23.4% of total deposits, in line with our expectations. Our net interest income guidance for 2024 assumes continued migration from non-interest-bearing to interest-bearing products throughout the year, but at a slower pace than last year. Our investment portfolio increased modestly for the quarter, closing at $3.8 billion, or 13.7% of assets. During the quarter, we purchased $210 million of MBS and CMO securities. These balance sheet trends are summarized in Slide 10. Net interest income was $207 million, a $5 million decline linked quarter, primarily driven by a modest change in our deposit portfolio mix. As a result, net interest margin declined by 4 basis points to 3.32% compared to 3.36% last quarter. Loan yields increased by 7 basis points during the period, rising to 5.9% from 5.83% last quarter, and cycle to date, our loan beta has been 50%. Our cost of total deposits increased 16 basis points to 195 basis points during the quarter, and cycle to date, our total deposit beta has been 36%. Regarding asset quality in Slide 11, non-performing loans increased by $2.8 million during the quarter, leading to a slight increase in the NPL to loans ratio from 72 basis points at the end of December to 73 basis points at quarter end. Net charge-offs were $8.6 million, or 16 basis points, with gross charge-offs of $11 million being fairly granular. Our largest charge was $2.5 million on a C&I loan. Our allowance for credit losses as a percentage of loans increased slightly to 1.39% at quarter end. Turning to non-interest income on Slide 12, wealth management revenues reached $20.2 million, up $766,000 compared to the fourth quarter, marking the first time surpassing the $20 million mark in company history. Wealth management accounts for about a third of our fee-based revenues, with over 80% of those being recurring. Additionally, the market value of assets under management and administration rose over $700 million to $15.5 billion at March 31, another record for our company. Commercial banking fees declined by $2 million to $18.8 million due to a drop in customer swap revenue, which is heavily reliant on new originations compared to a strong fourth quarter. Consumer banking fees also saw a decline of about $400,000 to $11.7 million. First-quarter seasonality contributed to this linked quarter decline, but our consumer banking business continues to provide a consistent income stream. Mortgage banking revenues increased by $802,000 to $3.1 million, driven by a seasonal uptick in mortgage originations and gains on sales spreads rebounding from a low last quarter. We recorded a loss of $1.6 million on several investments accounted for under the equity method, reflected in the other income line. Moving to Slide 13, non-interest expenses on an operating basis were $170 million, consistent with the prior quarter and within our guidance. We excluded certain material items from operating expenses, including $1 million for a special FDIC assessment, $3.6 million related to the closure of some financial centers, $2.5 million in consulting expenses, and $200,000 in severance expenses. Slide 14 provides a snapshot of our capital base, showing that as of March 31, we maintained solid cushions over the regulatory minimums. Additionally, liquidity improved for both the bank and parent company during this quarter. On Slide 16, we are reiterating our guidance for 2024. Our guidance assumes that a total of 75 basis points of Fed funds decreases will occur in the second half of 2024. We expect net interest income on a non-FTE basis to range from $790 million to $820 million. The provision for credit losses is expected to be in the range of $45 million to $65 million. Non-interest income, excluding security gains, is projected to be between $235 million and $250 million. We anticipate non-interest expenses on an operating basis to fall within the range of $670 million to $690 million for the year, which excludes potential non-operating charges that may arise as we advance through the year. Lastly, we expect our effective tax rate to range from 17% to 18% for the year. With that, we'll now turn the call over to Abigail for questions.

Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from Frank Schiraldi with Piper Sandler. Please proceed with your question.

Good morning.

Good morning, Frank.

Regarding the Fulton First initiative, I understand it is still a work in progress and you're seeking efficiencies across the board. I assume this includes some cost savings as you close financial centers and so forth. Could you remind us when we look at the guidance? I know you exclude non-operating items, but in terms of ongoing expenses, does that reflect any benefits from Fulton First? Is it your best estimate at this point, or is that something that might change and potentially lower the expense guidance as the year progresses?

Yeah, Frank. We have certain expense savings in the back half of the year as we begin to implement Fulton First. So we really are in the analysis stage and building our plan. So the overall plan is really driven to accelerate growth in certain areas as we focus even more in those areas. But we do expect to see benefits from operating efficiencies and doing things a little differently as well. So there are some expense components to the savings. I'd just like to remind everybody that the Fulton First initiative is really an 18 month to 24 month journey, and we're in that four or five months of that work. So what you're really seeing right now is the investment or spend to develop the plan for implementation. And when we get to the point of implementing, we'll be able to share more details with you around expected benefits.

Okay. And then, on the loan growth, just looking at your guide on NII, is it fair to say, does that just assume sort of 1Q like loan growth spread across the year? And then, as a follow-up to that, if you could just remind us what the, on the deposit side, what the muni outflows were this quarter and how the time frame goes to flow back in?

Yeah. Let me talk a little bit about loan growth, then I'll give it to Betsy for the municipal outflows, just the seasonality to that. So on loan growth, we've talked about our long-term organic growth targets in the 4% to 6% range. I think in this environment, we're going to be at the low end or maybe even under the low end of that long-term range. So I think the growth in the first quarter, we may exceed that as we look forward, but it's going to be in the same ballpark. We are being prudent and disciplined on pricing and credit as we originate loans moving forward.

And the municipal outflows were $137 million. So with at least in certain of our areas, certain taxes are paid in the second quarter, we should see a blip up, not huge, in the second quarter. And then the third quarter is where we tend to see those spike.

Got you. Okay. Thanks for the color.

Thanks, Frank.

One moment for our next question. Our next question comes from Daniel Tamayo with Raymond James. Please proceed with your question.

Thanks. Good morning, everyone.

Good morning, Danny.

Maybe first, just on the NII guidance, reiterated from last quarter and you kept the three rate cuts assumed, which I understand given where we were at the end of the quarter. But maybe if you could give us your best guess as to what that guidance might look like without the June cut and if there's any kind of other details in terms of how you're thinking about the impact of fewer rate cuts on that guidance, that would be helpful.

So Dan, this is Betsy. We've modeled that out. For our loans that reprice immediately, we project an annualized impact of $25 million. Protecting deposits is more challenging. However, we have accounted for this, and with no rate cuts anticipated, we expect to lean towards the higher end of our projected range, possibly even a bit more. Nonetheless, the effects will be felt later in the year, so the overall impact will be moderated.

Okay. All right. That's with no cuts, high end of the range. Okay. All right. And then switching gears here if I can, just to the office portfolio. I appreciate all the detail you guys put in the deck on that. Just wanted to know if you had within that group of loans what the amount that's either substandard or criticized or classified or however you think about the early stage for that, I'm just curious how that portfolio is trending relative to the rest of your book.

Yes, Danny. We've observed that the overall portfolio balances are stable. We have moved some loans out or paid them off. We didn't have many originations this past quarter, but we did have some in the fourth quarter, so that portfolio remains quite stable. We are transparent about what we have in classified and criticized categories, and it has shown stability as of now.

Okay. All right. Understood. All right. Appreciate you taking my questions.

You bet, Danny.

One moment for our next question. Our next question comes from Feddie Strickland with Janney Montgomery Scott, Research Division. Your line is open.

Hey. Good morning, everybody.

Good morning, Feddie.

I wanted to follow up on the last question regarding the office. I appreciate the detail included in the presentation. However, I noticed that there is $146 million situated in the central business districts. Is this amount fairly distributed across different regions, or is it concentrated more in Philadelphia or Washington, D.C., or other areas? I'm trying to understand which specific central business districts are included.

Yeah. Our largest is Philadelphia, and it's not a lot of loans or getting handy here, it's seven loans, and Philly is the biggest portion. And then actually, the next biggest portion as we look at the distribution is spread throughout, and then D.C. and Baltimore would be less than half of what we have in Philadelphia. And again, those numbers overall are pretty granular. Philadelphia is $255 of that total. So none of those are a significant portion. It's pretty diversified and spread out.

Got it. That's helpful. And switching gears for a second, it's great to see credit relatively stable this quarter. Your net charge-offs were actually lower than what I had modeled. Can you talk about what you're seeing in terms of trends in criticized and classified?

Yeah. So criticized and classified is moving up slightly. I think the number is about $77 million linked quarter. So not a significant move, but it is trending up a little. We are adding, so there's generation there, and then there's resolution as well. So we're watching that very closely. When you look at the loans that are moving into criticized and classified, like they're pretty diversified and granular around C&I, CRE. So we don't see any specific thing in the migration that gives us concern about any individual portfolio. It really comes down to the individual borrower being able to navigate or being in a position to handle the current economic environment.

Got it. I appreciate the color. One last quick one. Forgive me if I missed this, but what was the balance of AOCI this quarter?

Let me see if we have that handy here quick. Sure, we do. You don’t have handy? We’ll follow up with you, Feddie, to give you that specific number. We don’t have the reconciliation right here in front of us.

No problem. Thanks so much for taking my questions.

Sure.

One moment for our next question. Our next question comes from Chris McGratty with KBW. Please proceed with your question.

Hey. How is it going? This is Andrew Leischner on for Chris McGratty.

Good morning, Andrew.

Hi. How is it going? So just on the NII guide, just wondering what assumptions you're using for deposit mix and down beta on those rate cuts to get to your low and high end of the guide?

So on the deposit mix, we are assuming some continued decline in the percentage of non-interest-bearing deposits. We feel like we've been conservative in those projections relative to the longer-term history. The data on that is probably, I don't want to quote that, but I think we're going to see a relatively low beta on that just based on competition.

We are seeing a stabilization in deposits as we approach CD rollovers. Looking ahead, the pressure from pricing on CD rollovers is decreasing and starting to stabilize. There are several stabilizing factors we can anticipate moving forward. The most significant impact will come from the shift in deposits from non-interest bearing to interest-bearing accounts, which is slowing down but still ongoing.

Okay. Great. Thank you. And do you have the amount of CDs that are maturing this year and what those are rolling off that compared to what you're offering today?

So through the end of this year, there's probably about $1.9 billion, and the weighted average rate for the next 12 months is approximately 440. On average, the rate we've been applying to new CDs over the past couple of months is also around 440. As we approach the end of the year, unless there are other changes—which we anticipate—we are not expecting to see a significant impact from those renewals or new CDs.

Yes. So we feel really good about how we've managed the duration in that book. And each month, as we move forward, we get again to that roll being a more stabilizing impact on the overall balance sheet.

Got it. Thank you. I appreciate the quick math there. And then just last one, if I can. With that, you repurchased 1.9 million shares, you have $95 million remaining on the authorization. Are you still comfortable with the operating environment and your current capital levels to contemplate further buybacks? Thanks.

Yeah. Great question. And we continue to evaluate that. Our priority is to support organic growth, first. Second priority would be any corporate initiatives that we have that would require a capital, and then buybacks. So we would evaluate that environment, and we feel that, based on our capital levels, we could be active in our buyback throughout the remainder of the year, but we may not, depending on the situation. We have the authorization remaining for the $95 million. And if you look back over recent history, we've used that almost every quarter to some degree based on the environment that we see. But again, it is the last priority in our capital utilization.

All right. Thanks for taking my questions. I’ll step back.

Thanks, Andrew.

One moment for our next question. Our next question comes from David Bishop with Hovde Group. Your line is open.

Yeah. Good morning.

Good morning, David.

Hey, Curt. Going back to my earlier question, I understand you focused on the expense side, but are there potential revenue enhancements that could result from this project in the long term?

The main focus of that initiative is to boost growth in areas where we provide significant value to customers, have key differentiators, and believe we are performing well while also identifying opportunities for improvement with certain strategies we are considering. Our top priority is to effectively grow the company moving forward. We believe there are opportunities for acceleration, but there are also factors related to efficiency, the operating environment, and technology that will improve productivity. However, the main emphasis is on growth.

Got it. I understand there was some disruption this quarter due to some branch closures. Did that affect occupancy expenses? I noticed occupancy expenses increased, and I'm not sure if that was due to weather or related to that initiative. I thought those expenses were categorized differently. Can you provide any guidance on the run rate regarding occupancy expenses?

I'll let Betsy take this one because she loves this expense item.

I'm sorry, we're laughing here. Yes, the increase in occupancy was weather related. So snow removal costs. So that should moderate.

It's life in the Northeast.

Yeah. We've got to love it up here, you never know what's going to hit. Also maybe a high-level question, Curt, just in terms of capital allocation. Appetite for more M&A, I know the Provident Lakeland deal had some interesting appendages to it. I don't know if that sobers your outlook for additional M&A. And maybe how comfortable you'd be maybe looking at maybe some distressed bank sales out there, just curious your M&A appetite at this point? Thanks.

Our M&A strategy remains unchanged. We are examining opportunities in two categories: community banks between $1 billion and $5 billion, which we see as a strong addition to our organization, and banks in the $5 billion to $15 billion range, with $15 billion being the maximum size we would consider for a strategic partnership. We believe there are opportunities in both areas. We actively evaluate M&A prospects whenever they arise, and if we identify a situation that would benefit our shareholders in the long term, we would definitely pursue it.

Got it. Appreciate the color.

You bet.

One moment for our next question. Our next question comes from Manuel Navas with D.A. Davidson. Please proceed with your question.

Hey. Good morning. Can you just go into a little bit more detail on what's kind of driving the, I guess, slower end of the guide on loan growth. I understand the pricing side. Does borrow demand at high rates also have an impact? And just is deposit gathering also slowing it at all?

We are effectively gathering deposits, and that is not hindering our growth. In fact, it presents an opportunity for us to enhance our growth. Our commercial loans pipeline has increased both quarter-over-quarter and year-over-year. However, we are experiencing challenges with the pull-through rate on that pipeline. Customers are being cautious, leading to delays in projects due to rising costs and interest rates. The main factors affecting our growth are borrowers deciding whether to proceed with projects or expenditures and ensuring that we offer the right pricing and credit terms.

I appreciate that. Does that mean that no cuts would get you to the high end of the net interest income range, but perhaps we might see an increase in loan demand if the Fed cuts rates? Is that the right way to think about it? And what scenario would make you the happiest?

We like stability, that's the easiest thing to navigate. So just some level of stability would be good. We really positioned the company to effectively perform no matter what happens. We have puts and takes on rates up or rates down, rates up, we benefit in some ways and have more pressure in some ways. Rates down, we benefit in certain ways and have more pressure in certain ways. So there are a lot of different variables, and what we really focus on is having the company in a position that we perform effectively no matter what happens to rates.

I have one last kind of like more specific modeling question. I had that you expected the non-interest-bearing mix getting around 22% by year-end. Has that changed at all with a little bit more outflows this quarter, is that still right around the same mix that you end the year at?

So we ended the quarter at 23.4%. I think for your modeling, 22%, certainly a reasonable. If you look back over the past 15 years, that’s a good range. You have to go way back to get much slower than that.

Okay. I appreciate that. Thank you very much.

Thank you, Manuel.

One moment for our next question. Our next question comes from Matthew Breese with Stephens. Your line is open.

Good morning, everybody.

Good morning, Matt.

Hey. I wanted to go back to Fulton First. How much more one-time costs do you expect and over what time frame do you think the majority of those one-time costs are going to occur?

Yeah. So we do expect increased one-time costs as we get into implementing the changes that we're designing and working on right now. So right now, we just have the spend to develop the plan. And then, as we implement that plan, there certainly would be one-time costs from contracts and other things that we would consider efficiencies overall. So we do have those planned, and we would be disclosing those as we move forward. Our real goal is to get to showing everyone the plan, what costs we have, and what benefits we're going to drive. We're just not there yet. But we wanted to be transparent that we're spending money and investing money to figure that plan out.

Okay. But should we expect kind of this quarter's $6.4 million in one-time costs to recur for at least the near term or is that an elevated figure in your view?

Yeah. We really have those planned out. Again, it's an 18 month to 24 month project overall, the one-time cost would be concentrated more at the front end of that. So thinking over the next couple of quarters, we would have more of the one-time costs, and then we would be getting the benefits then over the full 24 months. So I think you're thinking about it the right way, Matt.

Okay. I want to go back to the office portfolio. You have eight office relationships over $20 million. You discussed kind of the three in the central business districts. But I was hoping within the eight you could talk about maybe the three or four largest relationships? What are the sizes there? How are they performing maturity schedules and any sort of details on kind of LTV, debt-service coverage ratios for just overall color on the biggest stuff?

Yeah. So the top five borrowers there are in the $25 million to $30 million range in balance. Our largest deal is about $30 million in balances. We don't have any maturities that are coming up that we either aren't comfortable with or don't have a resolution for. So we feel good about the position of those largest borrowers at this point. And we are paying close attention to every office loan we have from the $400,000 one we originated in the first quarter to our largest one of $30 million.

Are they...

Yes.

Okay. And then, you had a $3.1 million loss on asset disposals this quarter. What was in there?

Those were five branches that we have committed to close, I believe they're closing at the end of this month.

Yeah. Next week, they would close.

Okay. And then the last one is just on commercial swap activity. My gut here is with slower growth that will remain kind of at a depressed level. But I wanted your thoughts on whether we can get back to kind of a north of $3 million run rate there.

It really comes down to the mix of origination versus overall growth. When there is higher overall growth, the mix improves as well, leading to volume in every category. The numbers are primarily driven by larger originations, specifically large commercial and industrial and large commercial real estate originations. We have a solid core recurring business, which is why there seems to be a baseline for fee income each quarter. However, to achieve the $3 million to $4 million quarters we have seen in the past, we need to have a few larger originations or derivatives from swaps related to those.

Got it. Okay. That’s all I had. I appreciate taking my questions. Thank you.

Thanks, Matt.

That concludes the question-and-answer session. At this time, I would like to turn the call back to Curt Myers for closing remarks.

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

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.