LANCASTER, PA — Fulton Financial Corporation (NASDAQ: FULT) recenlty reported net income available to common shareholders of $65.8 million, or $0.39 per diluted share, for the first quarter of 2023, a decrease of $13.5 million, or 17.1%, in comparison to the fourth quarter of 2022.
“Our focus remains the same – the long-term financial wellbeing of our company, our customers and our communities,” said Curtis J. Myers, Chairman and CEO of Fulton. “During the quarter, we took actions to fortify our balance sheet, increase our liquidity, diversify our funding and enhance our reserves. By taking these actions, monitoring capital and communicating with customers, we’ve positioned ourselves to continue serving our stakeholders and growing our company.”
Net Interest Income and Balance Sheet
Net interest income for the first quarter of 2023 was $215.6 million, a decrease of $10.3 million in comparison to the fourth quarter of 2022. The net interest margin for the first quarter of 2023 decreased 16 basis points, to 3.53%, in comparison to 3.69% in the fourth quarter of 2022.
The linked-quarter decrease in net interest income was primarily due to a shift in funding mix from lower-cost demand deposits to higher-cost borrowings, time deposits and brokered deposits. An increase in the average balance for net loans of $458.6 million and higher loan yields in the first quarter of 2023 primarily contributed to an increase in interest income of $22.0 million to $289.8 million in comparison to $267.8 million in the fourth quarter of 2022. Interest expense from interest-bearing liabilities for the first quarter of 2023 increased by $32.3 million to $74.2 million in comparison to $41.9 million in the fourth quarter of 2022. The linked-quarter increase in interest expense in the first quarter of 2023 was primarily due to a decline in the average balance of noninterest-bearing deposits of $669.1 million and an increase in the average balance for higher-cost borrowings and other interest-bearing liabilities of $1.0 billion in comparison to the fourth quarter of 2022.
For the first quarter of 2023, net interest income was $215.6 million, an increase of $54.3 million, or 33.6%, in comparison to the first quarter of 2022. Interest income for the first quarter of 2023 increased by $116.8 million to $289.8 million in comparison to $173.0 million in the first quarter of 2022 primarily driven by rising interest rates resulting in increases in interest income from net loans, investment securities and other interest-earning assets of $110.9 million, $3.2 million and $2.7 million, respectively. Increases in the average balances for net loans and investment securities in the first quarter of 2023 of $2,080.0 million and $63.3 million, respectively, driven in part by the Prudential Bancorp, Inc. (“Prudential Bancorp”) acquisition, also contributed to the increase in interest income. Interest expense from interest-bearing liabilities for the first quarter of 2023 increased by $62.5 million to $74.2 million in comparison to $11.7 million in the first quarter of 2022 primarily driven by rising interest rates resulting in increases in interest expense from interest-bearing deposits and borrowings and other interest-bearing liabilities of $36.0 million and $26.5 million, respectively. An increase in the average balance for borrowings and other interest-bearing liabilities of $2.0 billion in the first quarter of 2023 in comparison to the first quarter of 2022 also contributed to the increase in interest expense.
Total average interest-earning assets for the first quarter of 2023 was $25.2 billion, an increase of $450.6 million from the fourth quarter of 2022 primarily driven by the aforementioned increase in average net loans of $458.6 million and an increase in average other interest-earning assets of $33.0 million, partially offset by a decrease in average investment securities of $41.0 million.
Total average interest-earning assets for the first quarter of 2023 increased by $1.3 billion from the first quarter of 2022. Average net loans for the first quarter of 2023 were $20.5 billion, an increase of $2.1 billion from the same period in 2022. Compared to the first quarter of 2022, average other interest-earning assets decreased $793.6 million and average investment securities increased $63.3 million in the first quarter of 2023.
Total average interest-bearing liabilities increased $1.2 billion, to $17.0 billion, in the first quarter of 2023 in comparison to $15.7 billion in the fourth quarter of 2022 driven by increases in the average balance for borrowings and other interest-bearing liabilities and the average balance for total interest-bearing deposits of $1.0 billion and $215.8 million, respectively.
Total average interest-bearing liabilities for the first quarter of 2023 increased $1.9 billion in comparison to $15.1 billion in the first quarter of 2022, driven by an increase in the average balance for borrowings and other interest-bearing liabilities of $2.0 billion.
Asset Quality
In the first quarter of 2023, a provision for credit losses of $24.5 million was recorded in comparison to a provision for credit losses of $14.5 million in the fourth quarter of 2022, and a negative provision for credit losses of $7.0 million in the first quarter of 2022. The linked-quarter increase in the provision for credit losses of $10.0 million was primarily due to loan growth and changes to the macroeconomic outlook.
Non-performing assets were $167.9 million, or 0.62% of total assets, at March 31, 2023, in comparison to $177.7 million, or 0.66% of total assets, at December 31, 2022, and $163.0 million, or 0.64% of total assets, at March 31, 2022.
Net charge-offs for the first quarter of 2023 were 0.27% of total average loans in comparison to 0.23% and negative 0.02% in the fourth quarter of 2022 and the first quarter of 2022, respectively. Net charge-offs of $14.0 million for the first quarter of 2023 were primarily due to a charge-off of $13.3 million for a commercial office loan due to credit-related concerns; the same loan that received a partial charge-off in the fourth quarter of 2022.
Non-interest Income
Non-interest income before investment securities gains in the first quarter of 2023 was $51.7 million, a decrease of $2.6 million, or 4.8%, from the fourth quarter of 2022. The decrease in non-interest income was driven primarily by decreases in commercial banking income, income from equity method investments, reflected in other income, and consumer banking fees of $1.1 million, $1.0 million and $0.9 million, respectively, partially offset by an increase in wealth management revenues of $0.5 million.
Compared to the first quarter of 2022, non-interest income before investment securities gains in the first quarter of 2023 decreased $3.5 million, or 6.3%, from $55.2 million. The decrease in non-interest income was primarily due to decreases of $2.6 million in mortgage banking income due to lower loan sale volumes and lower spreads, $1.4 million in wealth management revenues primarily due to market performance and $1.1 million from lower income from equity method investments, reflected in other income, partially offset by an increase of $1.5 million in commercial banking income.
Non-interest Expense
Non-interest expense was $159.6 million in the first quarter of 2023, a decrease of $7.0 million, or 4.2%, compared to $166.6 million in the fourth quarter of 2022, which excludes merger-related expenses of $1.9 million. The decline was primarily due to decreases of $3.5 million in salaries and employee benefits expense, $0.7 million in other outside services expense, $0.6 million in professional fees and $0.5 million in marketing expense, partially offset by a $1.6 million increase in FDIC insurance expense primarily due to the adoption of a final rule to increase base deposit insurance assessment rates effective January 1, 2023. Additional contributors of the decline in noninterest expense were decreases of $1.2 million in charitable contributions, $1.1 million in other real estate owned assets due to gains on sales recorded in the first quarter of 2023 and $0.8 million in contingent liabilities, in each case, reflected in other expense.
Compared to the first quarter of 2022, non-interest expense, excluding merger-related expenses of $0.4 million in the first quarter of 2022, increased $14.0 million, or 9.6%. The increase was primarily due to increases of $4.8 million in salaries and employee benefits expense, $2.0 million in other outside services expense, $1.6 million in FDIC insurance expense, primarily due to the adoption of a final rule to increase base deposit insurance assessment rates effective January 1, 2023, $1.5 million in data processing and software expense, $0.6 million in professional fees, $0.6 million in marketing expense and $0.5 million in intangible amortization expense due to the acquisition of Prudential Bancorp. Additional drivers of the increase in noninterest expense were an unfavorable change in owned asset expense due to a $1.5 million gain on sale recorded on owned assets in the first quarter of 2022 and a $0.8 million contingent liability recorded in the first quarter of 2023, in each case, reflected in other expense.
Income Tax Expense
For the first quarter of 2023, the effective tax rate was 17.9%, in comparison to 17.3% for the full-year of 2022.
Additional information on Fulton is available at www.fultonbank.com.
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