DBRS: Fulton’s 1Q14 Earnings Flat QoQ; Improving Efficiency Despite Revenue Decline

Summary:
• Fulton reported 1Q14 net income of $41.8 million, relatively flat compared to the $42.1 million earned in 4Q13. For the quarter, lower expenses were offset by lower revenues and an increase in income tax expense.
• DBRS views Fulton 1Q14 results as solid.
• DBRS rates the Company’s Issuer & Senior Debt rating at A (low) with a Stable trend.

DBRS, Inc. (DBRS) considers Fulton Financial Corporation’s (Fulton or the Company) 1Q14 earnings as solid, despite the headwinds that continue to impact the industry. For 1Q14, results equated to a sound 1.01% return on assets and an 11.13% return on average tangible equity, roughly in-line with 4Q13. During the quarter, the Company completed a number of initiatives to reduce expenses, including a branch consolidation, which will help lower expenses in subsequent quarters. During 1Q14, revenues declined, stemming from a volume driven drop in mortgage banking and lower service charges on deposits quarter-on-quarter, in addition to a slight decline in net interest income reflecting a decline in average earning assets and lower day count this quarter. Meanwhile, expenses decreased primarily due to lower incentive compensation and health insurance expense.

During 1Q14, the Company repurchased 4.0 million shares of its common stock completing its outstanding share repurchase program. Still, at March 31, 2014, Fulton reported strong capital ratios, which included a tangible equity to tangible assets ratio of 9.32%, reflecting earnings and a flat balance sheet.
DBRS sees Fulton’s financial profile as returning to its more historical levels, providing support for its ratings, as the Company’s asset quality has improved and it continues to maintain substantial levels of capital and liquidity. Additionally, Fulton has seen relatively stable profitability despite the difficult interest rate environment and modest loan demand. The Company is keeping an eye on expenses in 2014, and has been focused on a number of efficiency initiatives to help fund a further investment in technology as well as increased regulatory costs.

DBRS rates FULT’s Issuer & Senior Debt at A (low) with a Stable trend.

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

[Amended on December 23th, 2014 to remove unnecessary disclosures.]