After paying dividends on its government capital and hiking its provision for loan losses, Fulton Financial Corp. in Lancaster, Pa., said late Tuesday its first-quarter profit fell 81% from a year earlier, to $8.1 million, or 5 cents a share.

On average, analysts had expected the company to post a profit of 8 cents a share, according to Thomson Reuters.

The $16.5 billion-asset Fulton increased its provision 346% from a year earlier, to $50 million, because of rising nonperformers.

The company also paid $5 million of dividends on the preferred shares that it issued to the Treasury Department under the Troubled Asset Relief Program.

Nonperforming assets were $269.2 million, or 1.63% of total assets, as of March 31, up from $144.7 million, or 0.90%, a year earlier.

The increase in nonperformers included $65.3 million of construction loans, $29.7 million of commercial mortgage loans, and $15 million of commercial loans.

Chargeoffs climbed 85 basis points from a year earlier, to 1% of average total loans.

"Despite experiencing good deposit growth and very strong mortgage refinancing activity, first-quarter earnings were slowed by credit related charges," R. Scott Smith Jr., Fulton's chairman and chief executive officer, said in a press release issued after the market closed Tuesday. "Our noninterest income was up significantly due to secondary market mortgage sale gains. In addition, our ongoing promotional efforts led to particularly strong certificate of deposit growth. However, the relatively higher funding costs associated with that growth, combined with lower earning asset yields, negatively impacted our net interest margin."

Fulton's net interest income slipped 1.4% from a year earlier, to $1.8 million, as its net interest margin contracted 13 basis points, to 3.45%. Total deposits jumped 13.6%, to $11.4 billion.

Excluding investment securities gains, noninterest income rose 21%, to $7.6 million. Fulton attributed the increase to gains on the sale of mortgage loans, as refinance activity surged.

Loans, net of unearned income, climbed 5.4%, to $12 billion. Fulton said commercial mortgages went up $471.0 million, or 13.1%; commercial loans, $160.2 million, or 4.6%; home equity loans, $126.3 million, or 8.2%; and residential mortgages, $68.3 million, or 7.8%. Offsetting those increases, construction loans shrank by $123.5 million, or 9.4%, as did consumer loans, by $72.2 million, or 16%.

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