Fulton Financial Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited consolidated results. The April 26 Republic First transaction and May 1 stock offering occurred after quarter-end and are not reflected in the quarter’s financial statements.
Key financial results
| Metric | Q1 2024 | Comparable period / prior date |
|---|---|---|
| Net interest income | $206.9 million | $215.6 million in Q1 2023 |
| Net interest margin, FTE | 3.32% | 3.53% in Q1 2023 |
| Net income | $61.9 million | $68.3 million in Q1 2023 |
| Net income available to common shareholders; diluted EPS | $59.4 million; $0.36 | $65.8 million; $0.39 in Q1 2023 |
| Provision for credit losses | $10.9 million | $24.5 million in Q1 2023 |
| Non-interest income | $57.1 million | $51.8 million in Q1 2023 |
| Non-interest expense | $177.6 million | $159.6 million in Q1 2023 |
| Operating cash flow | $152.9 million | $46.0 million in Q1 2023 |
At March 31, total assets were $27.6 billion, net loans were $21.1 billion, deposits were $21.7 billion, total borrowings were $2.3 billion, and shareholders’ equity was $2.8 billion. Cash and cash equivalents were $357.3 million, down from $549.7 million at year-end. The quarter’s net cash decrease was $192.4 million; investing activities used $299.9 million and financing activities used $45.4 million.
Regulatory capital ratios were 14.0% total risk-based, 11.1% Tier 1 risk-based, 10.3% common equity Tier 1, and 9.3% Tier 1 leverage. Management stated that the Corporation met applicable minimums including capital buffers, and Fulton Bank met the well-capitalized requirements. Available borrowing capacity included approximately $6.1 billion under FHLB facilities, $2.6 billion in federal funds lines with none drawn, and $1.2 billion at the FRB discount window.
Changes, performance drivers and credit
- Net interest income fell 4.0% year over year as interest expense rose faster than interest income. Higher deposit pricing and a shift toward time and brokered deposits contributed; the average cost of deposits rose to 1.95% from 0.82%. Average loans grew 4.4%, and their average yield increased to 5.90% from 5.21%.
- Fee income before securities gains increased 10.5%, led by wealth management, commercial banking and mortgage banking. Reported non-interest expense rose 11.3%; excluding $6.3 million of FultonFirst implementation costs and asset-disposal losses, it rose 7.3%. Items cited included higher compensation, technology, occupancy and FDIC insurance costs, including a $1.0 million special assessment.
- Nonperforming assets were $156.4 million, or 0.57% of total assets, versus $154.2 million at year-end. Nonaccrual loans rose to $129.6 million from $121.6 million; nonperforming loans were 0.73% of loans. Annualized net charge-offs were 0.16% of average loans, compared with 0.27% a year earlier. The allowance for loan losses was $297.9 million.
- Criticized and classified commercial loans totaled $1.0 billion, up from $925.0 million at year-end; substandard-or-lower balances increased, notably in commercial and industrial lending. Commercial real estate and construction loans represented approximately 44.3% of the loan portfolio; commercial office exposure was 3% of total loans.
- Investment securities totaled $3.8 billion. AFS securities had $323.4 million of gross unrealized losses and HTM securities $209.5 million at quarter-end. Management attributed the losses principally to interest rates, reported no intent or expected need to sell before recovery, and recorded no securities ACL.
Outlook, material events and risks
- The filing provides no specific quantitative earnings or operating guidance. Management cautions that Q1 results are not necessarily indicative of full-year results. Interest-rate sensitivity modeling showed estimated annual net interest income increasing 5.8% under a +400 bp shock and decreasing 14.6% under a −400 bp shock; actual outcomes may differ.
- On April 26, Fulton Bank acquired substantially all Republic First Bank assets and assumed substantially all deposits and certain liabilities from the FDIC. Preliminary estimates included $5.2 billion of assets, $5.6 billion of liabilities and $4.2 billion of deposits, plus $0.8 billion cash from the FDIC. Fulton sold all acquired investment securities and used $1.4 billion of proceeds to repay assumed borrowings and $250 million to repay its own wholesale funding. The transaction had no FDIC loss-sharing arrangement; acquired-asset values remain preliminary and subject to change.
- On May 1, the Corporation completed a common-stock offering of 19.17 million shares at $15 per share, with approximately $273.5 million net proceeds before transaction expenses. It intends to use proceeds for general corporate purposes, including opportunities related to Republic First.
- Key disclosed risks include integration and customer-retention challenges, uncertain fair values and potential undiscovered liabilities from Republic First, deposit competition and funding costs, interest-rate sensitivity, credit deterioration and loan-loss estimate uncertainty, and regulatory, legal, operational and cybersecurity risks. Management said pending legal and regulatory matters were not expected to have a material adverse effect on financial condition, while noting an unfavorable outcome could affect future-period results.
Important facts for investors to verify
- How Republic First’s final purchase accounting, asset quality, fair values and any subsequent adjustments compare with the preliminary estimates.
- Post-acquisition deposit retention, integration costs, realized synergies, and the effect of the transaction and stock issuance on capital, earnings per share and returns.
- Whether criticized/classified commercial loans and nonaccrual balances continue to rise, especially in commercial real estate and commercial and industrial portfolios.
- Deposit mix, pricing and funding requirements, and whether net interest margin stabilizes as rates and competition evolve.
- Liquidity and capital after the acquisition, repayments and equity offering; assess also the interest-rate exposure and unrealized securities losses.