DBRS Ratings of Fulton Financial Unchanged after 1Q13 Results – Senior at A (low); Stable Trend

DBRS, Inc. (DBRS) has today commented that its ratings for Fulton Financial Corporation (Fulton or the Company), including its A (low) Issuer & Senior Debt rating, are unchanged following the release of 1Q13 results. The trend on all ratings is Stable. For 1Q13, Fulton reported earnings of $39.2 million, down 2.5% from $40.2 million for 4Q12. Specifically, lower earnings were attributable to a 7.7% decrease in total revenues, partially offset by a 4.8% decrease in non-interest expense and a 14.3% decrease in provisions for loan loss reserves.

Despite the difficult business environment, the Company’s balance sheet fundamentals remain sound, reflecting loan growth and continued stabilization in asset quality. Furthermore, despite the repurchase of approximately 4.2 million common shares during the quarter, Fulton’s capital position remains robust.

In light of the slow growth economy, Fulton’s revenues remain pressured. Lower QoQ revenues reflected a 20.6% decrease in non-interest income and a 1.9% decline in net interest income. The decrease in non-interest income was in part due to the non-recurrence of the 4Q12 $6.2 million gain on sale of the Company’s Global Exchange Group division. Furthermore, lower non-interest income reflected a $4.6 million, or 36.2%, decrease in mortgage banking income, a $2.6 million, or 23.8%, decrease in other service charges and fees, and a $1.5 million, or 9.8%, decrease in service charges on deposit accounts. Narrower sale margins led to lower mortgage banking income, while the decline in other service fees and deposit service charges were attributed to seasonal declines. Meanwhile, lower spread income was mostly due to two fewer days in the quarter.

The Company’s expense base remains well managed. Indeed, Fulton’s non-interest expense decreased 4.8% sequentially. Lower expenses were mostly attributable to the non-recurrence of the 4Q12 $3.0 million FHLB prepayment penalty.
During 1Q13, average earning assets increased by 2.4%, reflecting a 2.1% increase in average loans and a 5.5% increase in average investment securities. With the exception of real-estate construction and consumer loans, Fulton reported loan growth in all loan segments.

Despite the challenging business environment, DBRS views Fulton’s asset quality as sound and improved. Specifically, non-performing assets continued to contract and represented a manageable 1.87% of loans and OREO, at March 31, 2013, down from 1.95%, at December 31, 2012. Meanwhile, net charge-offs decreased to 0.62% of average loans for 1Q13, from 0.91% for 4Q12. Finally, DBRS notes that Fulton’s allowance for credit losses remained solid at 1.8% of total loans and 106% of non-performing loans.

The Company’s sound funding profile is underpinned by a high level of core deposits, which mostly funds the loan portfolio. During the quarter, average deposits contracted by 1.4%, yet the mix improved, as demand deposits were up 0.6%, while time deposits decreased by 4.4%. The Company’s securities portfolio, which represents 17.0% of total assets, and access to the Federal Home Loan Bank and the Federal Reserve round out its liquidity profile. DBRS notes that Fulton’s securities book consists mostly of good quality CMOs and MBS.

With a tangible common equity ratio of 9.46%, capital remains ample providing the Company with the ability to increase its dividend, grow assets (both organically and through acquisitions) or continue to buyback stock. During 1Q13, Fulton announced that its board of directors had approved the repurchase of up to eight million shares, or approximately 4.0% of the Company's outstanding shares. Currently, 3.8 million shares remain authorized for repurchase under this plan.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on June 25, 2014 to remove unnecessary disclosures.]