Fulton Financial's Margin Holds Up as Blue Foundry Deal Closes
Fulton Financial (FULT) grew net interest income to $284.3 million in the second quarter as the Blue Foundry Bancorp acquisition padded loan and deposit totals while organic commercial lending kept softening.
Fulton Financial (FULT), the Lancaster, Pennsylvania-based regional bank, posted net interest income of $284.3 million in the second quarter, up $22.2 million from $262.0 million in the first quarter, with $17.5 million of that gain attributable to the April 1 close of its Blue Foundry Bancorp acquisition. Net interest margin expanded 2 basis points sequentially to 3.60%, extending a 13-basis-point improvement from 3.47% a year earlier, as higher loan and securities yields outran rising deposit and borrowing costs.
That funding pressure showed up clearly in the deposit book. Total interest-bearing deposit costs rose to 2.23% from 2.20% quarter over quarter, and total deposit costs ticked up to 1.81% from 1.78%, even though both figures remain below year-ago levels of 2.49% and 1.98%. The mix shifted in a less favorable direction too: deposits grew $1.5 billion to $28.3 billion, with $1.2 billion coming from Blue Foundry, but organic growth of $249.2 million was concentrated in brokered deposits (+$257.4 million) and savings (+$189.4 million) while noninterest-bearing and interest-bearing demand balances both declined.
Loan growth told a similar story of acquisition math masking organic softness. Average net loans climbed $1.66 billion to $25.9 billion, but Blue Foundry supplied $1.6 billion of that increase, leaving organic growth of just $102.6 million. Consumer and residential mortgage lending rose $132.3 million and home equity added $48.7 million, offset by declines in commercial and industrial loans (-$54.9 million), commercial construction (-$29.7 million) and CRE mortgages (-$18.8 million), pointing to continued caution in Fulton's commercial book beneath the acquisition-boosted headline.
Capital continued to build even as Fulton funded the deal and returned cash to shareholders. The preliminary CET1 ratio rose to roughly 12.1% from 11.9% in the first quarter, the fifth straight quarterly increase from 11.3% a year ago, while the bank repurchased $11.1 million of stock in the period.
Credit quality sent a more mixed signal. Provision expense fell sharply to $4.9 million from $14.4 million, but annualized net charge-offs rose to 0.34% of average loans from 0.25%, the highest level in five quarters and up from 0.20% a year earlier, suggesting credit costs are migrating from reserve builds toward realized losses. The allowance for credit losses grew to $382.6 million, though its ratio to net loans slipped to 1.48% from 1.51% as $28.7 million of Day 1 CECL allowance tied to Blue Foundry loans diluted the denominator rather than reflecting underlying credit improvement. Non-performing assets rose to $187.1 million, including $16.4 million from the acquired book, even as the NPA ratio continued its longer-run improvement to 0.54% of total assets from 0.67% a year ago.
Non-interest income jumped $9.5 million to $79.3 million, but the increase leaned heavily on a $7.3 million rise in equity-method investment income that included a $6.9 million gain on a sold equity stake, a one-time item rather than a repeatable fee trend; mortgage banking income rose a more modest $1.0 million. On the expense side, non-interest expense increased $30.7 million to $231.0 million, driven by $11.2 million of acquisition-related costs and $10.3 million of higher salaries and benefits, including $6.2 million from Blue Foundry and $3.5 million of higher incentive compensation. The efficiency ratio worsened to 57.3% from 56.7%, and expense as a share of average assets rose to 2.71% from 2.54%, as integration costs outpaced revenue gains.
Underlying profitability nonetheless improved. Operating EPS rose to $0.60 from $0.55, operating ROA climbed to 1.39% from 1.30%, and operating ROTCE increased to 15.71% from 14.76%, a sharper move than the GAAP EPS gain to $0.52 from $0.51, which absorbed the acquisition and merger costs directly.
Fulton completed the legal merger of Blue Foundry into Fulton Bank on July 11, closing the loop on a deal that added roughly $2.1 billion in assets, $1.6 billion in loans and $1.5 billion in deposits at preliminary fair value. With integration costs now largely behind it and organic commercial lending still soft, the next several quarters should show whether Fulton's margin gains can outrun the expense drag the deal has left behind.