Fitch Affirms Fulton Financial Corporation's Ratings; Outlook Remains Stable

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed the long-term and short-term Issuer Default Ratings (IDRs) of Fulton Financial Corporation's (FULT) and related subsidiaries at 'A-' and 'F1' respectively. The Rating Outlook remains Stable. A complete list of ratings is included at the end of this release.

Fitch's rating actions are indicative of FULT's proven track record during the challenging macroeconomic environment, significantly enhanced capital levels, and manageable credit costs. The company's prudent risk management, disciplined underwriting, and level of granularity in the loan portfolio have served the company well, helping to keep credit costs on a comparative basis contained. While asset quality has weakened from previously low strata, non performing assets (NPAs) and net charge-offs (NCOs) have been controllable, residing at 2.86% and 0.97%, respectively, at June 30, 2010. Furthermore, the successful $230 million common stock raise during the second quarter of 2010 (2Q'10) enabled the company to repay the $377 million in preferred stock issued under the Treasury's Capital Purchase Program (CPP) in July 2010, which helped eliminate roughly $19 million in annual interest expense while significantly enhancing tangible common equity (TCE) to 8.15%.

Providing additional rating support are FULT's sturdy balance sheet fundamentals, consistent earnings, and strong operating efficiency. Profitability metrics have continued to trend upward over the past six consecutive quarters, bolstered by a healthy net interest margin (3.76% for 2Q'10) and reduced provision levels. Fitch also believes the company's liquidity is managed to prudent levels for this rating category. Predominantly funded through core deposits, FULT has greatly reduced its reliance to brokered CDs over the past 18 months.

Although credit stress has been manageable, the company does possess a large concentration in commercial real estate (CRE), which represents approximately 40% of total loans. However, a large portion of CRE consists of owner-occupied properties, and given that FULT operates in relatively more stable markets of the Mid-Atlantic. Fitch expects additional asset quality pressure to remain measured, with ample reserve coverage in place to absorb future losses. Furthermore, the economies in the majority of FULT's footprint have not experienced the rapid growth in real estate and consequently have been less susceptible to the significant declines in value being realized in many other parts of the U.S. Based on Fitch's existing CRE stress tests (as articulated in the agency's special report 'U.S. Bank CRE Exposure Review' dated Nov. 16, 2009), Fitch believes FULT's capital levels provide robust coverage for any potential CRE asset quality deterioration and are consistent with the respective ratings. A sizeable level of home equity exposure also exists (roughly 13% of total loans). Nonetheless, credit stress has been well contained. Incorporated in this analysis, Fitch employed various home equity stress scenarios as articulated in the 'U.S. Banks' Home Equity Portfolios: A Revisit' special report, dated June 9, 2010; the results of which all fall well below peer median stress levels.

Also imbedded in today's rating action, is the reduced regulatory capital treatment for the company's trust preferred securities under the Dodd-Frank Act, which is anticipated to reduce capital modestly upon full phase in.

Fitch notes that FULT's ratings are solidly situated at the higher end of their potential range. While the credit quality is anticipated to remain pressured, FULT's financial performance is expected to remain steady with sustained profitability. A balance sheet less skewed by CRE exposure with enhanced earnings growth beyond recent trends, could also have positive rating implications. Conversely, should NPA levels exceed beyond recently averaged growth percentages, creating pressure on earnings and/or capital levels, negative rating actions could ensue.

With $16.7 billion in assets, headquartered in Lancaster, PA, FULT is a financial holding company operating through eight community bank subsidiaries located across Pennsylvania, Maryland, Delaware, New Jersey, and Virginia.

This rating action reflects the application of Fitch's current criteria which is available on Fitch's website at 'www.fitchratings.com'.

The following ratings are affirmed with a Stable Outlook.

Fulton Financial Corporation

-- Long-term IDR at 'A-';

-- Short-term IDR at 'F1';

-- Individual rating at 'B/C';

-- Subordinated debt at 'BBB+';

-- Support at '5';

-- Support Floor at 'NF'.

Fulton Bank

-- Long-term IDR at 'A-';

-- Long-term deposits at 'A';

-- Short-term IDR at 'F1';

-- Short-term deposits at 'F1';

-- Individual rating at 'B/C';

-- Support at '5';

-- Support Floor at 'NF'.

Columbia Bank (The)

-- Long-term IDR at 'A-';

-- Long-term deposits at 'A';

-- Short-term IDR at 'F1';

-- Short-term deposits at 'F1';

-- Individual Rating at 'B/C';

-- Support at '5';

-- Support Floor at 'NF'.

Lafayette Ambassador Bank

-- Long-term IDR at 'A-';

-- Long-term deposits at 'A';

-- Short-term IDR at 'F1';

-- Short-term deposits at 'F1';

-- Individual rating at 'B/C';

-- Support at '5';

-- Support Floor at 'NF'.

The Bank

-- Long-term IDR at 'A-';

-- Long-term deposits at 'A';

-- Short-Term IDR at 'F1';

-- Short-Term deposits at 'F1';

-- Individual rating at 'B/C';

-- Support affirmed at '5';

-- Support Floor at 'NF'.

Fulton Capital Trust I

-- Preferred stock at 'BBB'.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Revisiting U.S. Banks' Home Equity Portfolios: Have Losses Abated or Is More Pain in Store?', June 9, 2010;

--'Global Financial Institutions Rating Criteria', Aug. 16, 2010;

--'Bank Holding Companies', Dec. 30, 2009;

--'U.S. Banking Quarterly, 1Q10', June 2, 2010;

--'U.S. Bank CRE Exposure Review', Nov. 16, 2009.

Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

Revisiting U.S. Banks￢ﾀﾙ Home Equity Portfolios: Have Losses Abated or Is More Pain in Store?

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=531687

Bank Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493324

U.S. Banking Quarterly 1Q09

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=441126

U.S. Bank CRE Exposure Review (Midsized Regional Banks Most at Risk)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=485006

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