DBRS: Fulton’s 3Q14 Earnings Lower on Mortgage Banking

Summary:
• Fulton reported 3Q14 net income of $38.6 million, reduced from the $39.6 million earned in 2Q14, largely due to lower mortgage banking income.
• DBRS views the quarterly results as sound, with the Company reporting lower expenses despite heightened compliance-related costs, reflecting ongoing expense initiatives.
• 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) 3Q14 earnings as relatively sound, despite the impact of headwinds from continued net interest margin (NIM) pressure, and the costs associated with building out the Company’s risk regulatory compliance and IT infrastructures. For 3Q14, results equated to a still relatively sound 0.90% return on assets and a 9.88% return on average tangible equity, slightly lower than returns achieved in 2Q14.

Previous expense reduction initiatives helped offset the added costs from outside services, primarily related to risk management and compliance initiatives. A modest increase in net interest income reflected continued loan growth partially offset by NIM shrinkage, reflecting both the interest rate environment as well as competitive loan pricing pressures. The Company is well positioned for rising rates although near term modest NIM compression is expected to continue due to pressure on asset yields.

During the previous quarter, the Company’s board approved a 4.0 million common share repurchase program, representing 2.1% of outstanding shares which was completed this quarter. However, Fulton continued to report strong capital ratios, which included a tangible equity to tangible assets ratio of 9.25%.

Despite the impact of the BSA/AML Consent Order, DBRS sees Fulton’s financial profile as relatively sound as the Company’s asset quality has improved, and it continues to maintain substantial levels of capital and liquidity.

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