DBRS: Fulton’s Earnings Down on NIM Compression; Credit Costs

Summary:
• Fulton reported 2Q15 net income of $36.7 million, down from the $40.0 million earned in 1Q15, largely due to an increased loan loss provision versus the negative provision in the linked quarter.
• DBRS views the quarterly results as sound, despite the ongoing challenges of NIM compression and heightened expenses for compliance and risk management.
• 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) 2Q15 earnings as relatively sound, despite the impact of headwinds from continued net interest margin (NIM) pressure, and the ongoing costs associated with building out the Company’s risk, regulatory, compliance, and IT infrastructures. For 2Q15, results equated to a 0.86% return on assets and a 9.83% return on average tangible equity; down from returns achieved in 1Q15 which were boosted by a negative loan loss provision.

A decrease in net interest income reflected NIM pressure and relatively flat levels of earning assets. DBRS views the Company as well-positioned for rising rates although near term modest NIM compression is expected to continue due to ongoing pressure on earning asset yields. Noninterest income, excluding securities gains, increased on overdraft fees and debit card, merchant, and commercial loan swap fees. Additionally, mortgage banking income increased on higher spreads. Expenses were down modestly quarter-on-quarter (QoQ) on seasonally lower snow removal and utilities costs and increased net gains on sales of OREO partially offset by increased outside services expenses.

While NCOs increased QoQ they remain at a manageable level and the Company continues to release reserves. NPLs remain relatively flat as compared to 1Q15.

During the quarter, the Company announced a $50 million share repurchase program and subsequently repurchased $19 million worth of stock. Fulton remains committed to returning capital to shareholders. Fulton continues, however, to report strong capital ratios, which included a tangible common equity to tangible assets ratio of approximately 8.9% at quarter-end.

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

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