Executive Summary / Key Takeaways

• Strategic Transformation Underway: Fulton Financial is actively reshaping its future through the successful integration of Republic First Bank and the "FultonFirst" initiative, a comprehensive program designed to streamline operations and boost productivity.
• Record Performance & Robust Outlook: The company delivered record operating earnings of $0.55 per diluted share in Q2 2025, marking its first $100 million operating net income quarter. This strong performance, driven by growth in net interest income and all-time high fee income in wealth management and commercial banking, underpins an optimistic, albeit cautiously managed, 2025 guidance.
• Disciplined Balance Sheet Management: FULT maintains a strong liquidity position and robust capital levels, evidenced by a conservative loan-to-deposit ratio and strategic investment portfolio restructuring, providing crucial financial flexibility in a volatile market.
• Technological Imperative for Competitiveness: Strategic investments in digital customer experience and operational technology, highlighted by a new Chief Operations and Technology Officer appointment, are vital for FULT to enhance efficiency and compete effectively against larger regional banks and agile fintechs.
• Cautious Credit & Competitive Headwinds: While credit quality remains stable, management's cautious outlook reflects ongoing economic and geopolitical uncertainties, coupled with intensifying competition for deposits and pressure on new loan origination yields.

A Community Bank's Strategic Pivot in a Dynamic Landscape

Fulton Financial Corporation, a venerable institution founded in 1882 and headquartered in Lancaster, Pennsylvania, has long served as a cornerstone community bank across the Mid-Atlantic region, encompassing Pennsylvania, Maryland, Delaware, New Jersey, and Virginia. Its core business revolves around providing a full suite of consumer and commercial financial services, built on a foundation of attracting and retaining valuable local customers. This deep-rooted community focus has historically fostered strong customer loyalty, translating into stable deposit bases and recurring revenue streams.

The regional banking industry, however, is a fiercely competitive arena. Fulton Financial operates alongside formidable direct competitors such as PNC Financial Services Group (PNC), M&T Bank Corporation (MTB), Citizens Financial Group (CFG), and Truist Financial Corporation (TFC). These larger rivals often leverage economies of scale, broader geographic footprints, and substantial investments in digital infrastructure to drive growth and efficiency. Indirect threats also loom large from agile fintech companies like PayPal (PYPL) and Block (SQ), as well as online banks such as Ally Financial (ALLY), which offer highly accessible, user-friendly digital platforms and often lower costs, challenging traditional banking models.

Against this backdrop, Fulton Financial's overarching strategy centers on maintaining a diversified loan book, prioritizing customer-centricity, and pursuing prudent organic growth, supplemented by strategic mergers and acquisitions. The company's strength lies in its localized operational execution and personalized customer relationships, which can provide a distinct advantage in niche markets where larger, more impersonal institutions may struggle to connect. However, FULT's smaller scale and historical gaps in digital technology present vulnerabilities that could impact its efficiency and ability to attract tech-savvy customers, particularly when compared to the advanced digital capabilities of PNC or CFG.

Technological Advancement: A Strategic Imperative

In an industry increasingly shaped by digital innovation, Fulton Financial recognizes the critical need to enhance its technological capabilities. The company's approach is not centered on proprietary hardware or software invention, but rather on the strategic adoption and leveraging of leading technology to optimize its operations and elevate the customer experience. This strategic intent is a cornerstone of its "FultonFirst" transformation initiative.

The "FultonFirst" program, initiated over a year ago, is designed to simplify the operating model, focus on core strengths, and significantly enhance productivity across the bank. A key component of this transformation involves improving operational effectiveness through technological enhancements. These investments are crucial for closing digital gaps with competitors, streamlining internal processes, and ultimately reducing operational costs. For instance, improved digital platforms can lead to faster loan processing, more efficient customer onboarding, and enhanced self-service options, all of which contribute to a better customer experience and improved efficiency ratios.

Further underscoring this commitment, Fulton Bank recently appointed Kevin Gremer as Senior Executive Vice President and Chief Operations and Technology Officer, effective August 25, 2025. His mandate is clear: to "leverage leading technology to provide the best digital customer experience." This leadership appointment signals a dedicated focus on driving digital transformation, ensuring that FULT remains competitive in an evolving financial landscape. For investors, these strategic technology investments are paramount. They are not merely discretionary spending but rather essential for building a sustainable competitive moat, improving financial performance through enhanced efficiency and potentially higher customer retention, and securing long-term growth in a market where digital prowess is increasingly a differentiator.

Strategic Growth and Operational Excellence

Fulton Financial's recent history is marked by a series of decisive strategic moves aimed at expanding its market presence and optimizing its operational framework. A pivotal event was the acquisition of substantially all the assets and assumption of deposits and certain liabilities of Republic First Bank from the FDIC on April 26, 2024. This transaction significantly bolstered Fulton Bank's footprint, particularly in the strategically important Philadelphia, Pennsylvania, and New Jersey markets. The integration of Republic First Bank was executed with remarkable speed, culminating in the completion of systems conversion and integration efforts by Q4 2024, with cost savings already being realized in line with initial assumptions. The financial settlement process for this acquisition concluded on April 25, 2025, without further adjustments to the preliminary gain on acquisition.

Complementing this inorganic growth, the "FultonFirst" initiative represents a profound internal transformation. This program aims to simplify the operating model, sharpen the focus on core strengths, and enhance productivity across the entire banking enterprise. Management reported a net realized benefit of approximately $8.5 million from FultonFirst in Q2 2025, indicating the initiative is "well on track" to achieve its target of $25 million in net savings for 2025, with an anticipated annual recurring cost save benefit of more than $50 million fully realized by 2026. These savings are strategically reinvested, with over $10 million earmarked for future growth initiatives, demonstrating a balanced approach to efficiency and expansion.

Beyond these major initiatives, Fulton Financial has actively managed its balance sheet to enhance earnings power and liquidity. In May 2024, the company executed a strategic restructuring of its investment portfolio, selling $345.7 million of available-for-sale (AFS) securities at a pre-tax loss of $20.3 million. The proceeds were promptly reinvested into higher-yielding securities of similar type and duration, a move designed to improve future interest income. The company has also employed hedging strategies to manage interest rate risk, aiming for a more neutral interest rate risk profile.

Financial Performance: A Story of Resilience and Growth

Fulton Financial's financial performance in the first half of 2025 reflects a compelling narrative of resilience and strategic execution amidst a dynamic economic backdrop. The company achieved a record operating earnings of $106 million, or $0.55 per diluted share, in the second quarter of 2025. This milestone marked the first time FULT delivered a $100 million operating net income quarter, driven by consistent positive operating leverage, robust revenue growth, and effective expense management.

Net interest income (NII), the company's primary revenue driver, demonstrated solid growth. For the three months ended June 30, 2025, NII reached $254.9 million, a 5.5% increase from $241.7 million in the same period of 2024. The six months ended June 30, 2025, saw NII climb to $506.1 million, a substantial 12.8% increase from $448.7 million in the prior year. This growth was supported by an improved net interest margin (NIM), which rose by 4 basis points linked quarter to 3.47% in Q2 2025 and by 8 basis points to 3.45% for the first half of 2025 compared to H1 2024. The increase in NII was primarily attributable to higher average net loans, partly due to the Republic First Transaction, despite a decline in yields on loans and other interest-earning assets. Interest expense decreased by $10.9 million in Q2 2025, driven by lower interest rates, though partially offset by increased volumes in average time deposits and savings/money market deposits, also influenced by the Republic acquisition. Accretion interest from the acquired Republic portfolio, however, saw a linked-quarter decline of $1.7 million to $11.4 million in Q2 2025, partially moderating the benefits from fixed-rate asset repricing.

Non-interest income also made a significant contribution, with all categories growing linked quarter in Q2 2025. Excluding investment securities losses/gains and acquisition gain, non-interest income increased by $3.3 million (5.0%) in Q2 2025 and $13.4 million (10.9%) for the first half of 2025 compared to the prior year. Wealth management revenues hit an all-time high in Q2 2025, increasing by $1.3 million due to higher assets under management. Commercial banking fees also reached an all-time high, with cash management fees up $1.4 million as commercial customers shifted funds to interest-bearing accounts. Non-interest income consistently represented 21% of total revenue in Q1 and Q2 2025, highlighting the success of Fulton Financial's diversified business model.

Operating non-interest expense demonstrated effective management, decreasing by $6.5 million (3.3%) in Q2 2025 when excluding non-operating items. This reduction was primarily driven by decreases in salaries and employee benefits, data processing and software, FDIC insurance, and net occupancy costs, largely attributed to cost savings realized from the Republic First Transaction and the FultonFirst initiative. The company's operating efficiency ratio stood at a healthy 57.1% in Q2 2025.

From a broader financial perspective, Fulton Financial's latest trailing twelve months (TTM) ratios indicate solid profitability: a Gross Profit Margin of 64.65%, Operating Profit Margin of 21.05%, and Net Profit Margin of 16.90%. The company generated $416.56 million in operating cash flow (TTM).

The balance sheet remains robust, characterized by strong liquidity and capital. Total loans grew by $150 million (2.5% annualized) in Q2 2025, successfully offsetting strategic runoff in the indirect auto portfolio and managed reductions in certain commercial loans. Deposits experienced a modest decline in Q2 2025 due to seasonal trends, with municipal balances decreasing by $135 million and noninterest-bearing balances by $98 million. However, this was partially mitigated by growth of $120 million in money market balances and $89 million in wholesale channels. Noninterest-bearing deposits constituted 20% of total deposits at quarter-end. The loan-to-deposit ratio ended Q2 2025 at 92%, comfortably below the company's long-term operating target of 95% to 105%, providing ample balance sheet flexibility. On-balance sheet liquidity was further strengthened by adding $117 million of securities in Q2 2025, with new purchases yielding approximately 5.44% and an effective duration of 3.2 years. Capital levels are strong, with the Common Equity Tier 1 (CET1) ratio increasing to 11.3% in Q2 2025. Tangible book value per share grew 9.5% on a linked-quarter annualized basis. The company also repurchased 522,000 shares at a weighted average price of $16.9 in Q2 2025 under its 2025 Repurchase Program.

Outlook and Guidance: Charting the Course Ahead

Fulton Financial's updated operating guidance for 2025 reflects a strategic blend of cautious macroeconomic assumptions and confidence in its internal initiatives. Management has revised its interest rate forecast to anticipate two 25 basis point Fed rate cuts in 2025, occurring in September and December, a reduction from the four cuts previously assumed.

For the full year 2025, Fulton Financial has provided the following concrete guidance:

• Net Interest Income (non-FTE basis): Expected to be in the range of $1.005 billion to $1.025 billion. This upward revision from previous guidance reflects the company's ability to manage its NIM effectively, despite competitive pressures and the impact of declining accretion interest from the Republic portfolio.
• Provision for Credit Losses: Lowered to a range of $50 million to $70 million, signaling management's confidence in the stable performance of its loan portfolio and appropriate allowance for credit losses (ACL) coverage.
• Non-Interest Income: Maintained at a range of $205 million to $280 million, anticipating continued strong contributions from wealth management and commercial banking, though acknowledging potential market-dependent headwinds.
• Operating Expense: Lowered to a range of $750 million to $765 million. This reflects the accelerating benefits of the "FultonFirst" initiative, which is on track to deliver $25 million in net savings for 2025. Management expects quarterly operating expenses for the latter half of 2025 to land below the midpoint of the $190 million to $195 million range, allowing for some optionality for new initiatives.
• Effective Tax Rate (ETR): Increased to a range of 18.5% to 19.5%.
• Non-Operating Expenses: Lowered from $14 million to $10 million, indicating a winding down of one-time integration and transformation costs.

Loan growth is projected to be in the low single-digit range for the year. This outlook is influenced by strategic portfolio adjustments, such as the planned runoff of the indirect auto portfolio, and a cautious lending environment where customer "pull-through rates" on new projects remain below historical norms due to broader economic uncertainty. Despite this, pipelines are up, and the company is committed to diversified, prudent growth across all loan categories. On the deposit front, Fulton Financial is positioned for long-term growth, with municipal balance inflows expected to align with historical trends in Q3. Quarterly accretion income from the acquired Republic portfolio is expected to be in the $11 million to $12 million range.

Capital deployment priorities remain consistent: supporting organic growth first, followed by corporate initiatives, and then opportunistic share repurchases. While the company executed buybacks in Q2 2025, this remains the third priority. The M&A strategy continues to focus on in-market community banks in the $1 billion to $5 billion range, with a disciplined approach, though no M&A is anticipated until 2025 at the earliest.

Risks and Challenges: Vigilance in Volatile Times

Despite its strategic progress and strong performance, Fulton Financial operates within an environment characterized by several pertinent risks and challenges. Management maintains a cautious outlook, citing general economic and geopolitical uncertainty, which continues to impact both consumers and businesses. This macro volatility, including potential shifts in trade policies and tariffs, could influence loan demand and credit quality, particularly in competitive segments like commercial and industrial (C&I) lending.

Credit quality, while currently stable, requires continuous vigilance. An uptick in nonaccrual loans in Q2 2025 was primarily attributed to one specific mixed-use commercial construction project, which is appropriately reserved for, rather than a broader systemic issue. However, management anticipates that Moody's forecasts may become incrementally negative, potentially impacting overall reserves. The company's granular loan portfolio and robust internal risk rating processes are crucial for timely identification and management of potential problem loans. Legal proceedings also present a risk, with potential for material impact on results of operations and significant additional expenses, though the company believes current liabilities are not materially adverse.

The competitive landscape for deposits remains intense, with increased competition across the board. This could lead to upward pressure on funding costs, even as the company aims to manage deposit costs prudently. Similarly, new loan origination yields are experiencing compression of an "eighth to a quarter" due to industry and competitive pressures, which could impact future net interest income. The repricing of $195 million of subordinated debt from a fixed 3.25% to a floating rate of approximately 6.6% in late March 2025 also introduces an additional $6 million in annual interest expense, highlighting interest rate sensitivity. Furthermore, the company estimates an additional $13.9 million in unrealized losses from terminated cash flow hedges will be reclassified as a decrease to net interest income over the next twelve months.

Conclusion

Fulton Financial Corporation is executing a compelling strategic evolution, transforming its operating model and expanding its market reach while delivering record financial performance. The successful integration of Republic First Bank and the ongoing "FultonFirst" initiative are central to this narrative, driving operational efficiencies and setting the stage for sustained growth. The company's disciplined approach to balance sheet management, robust liquidity, and strong capital position provide a solid foundation to navigate the prevailing macroeconomic uncertainties.

While the competitive landscape, marked by aggressive rivals and agile fintechs, presents ongoing challenges, Fulton Financial's strategic investments in digital customer experience and operational technology are critical for enhancing its competitive standing. The appointment of a new Chief Operations and Technology Officer underscores a clear commitment to leveraging technology to improve efficiency and customer engagement. Investors should recognize FULT's ability to generate strong operating earnings and its proactive management of both growth opportunities and inherent risks. The updated 2025 guidance, with increased net interest income and lowered operating expenses, signals management's confidence in its strategic direction and the potential for continued value creation, underpinned by a clear roadmap for technological advancement and operational excellence.