DBRS Confirms Ratings of Fulton Financial Corporation at A; Trend Remains Stable

DBRS has today confirmed the Issuer and Senior Debt rating of Fulton Financial Corporation (Fulton or the Company) at A, with a Stable trend. The ratings of Fulton’s related entities have also been confirmed with Stable trends. The ratings action follows a detailed review of the Company’s operating results and financial fundamentals.

Fulton’s ratings are based on above-peer core earnings, a robust community deposit franchise and strong asset quality. The confirmed ratings also take into account the Company’s weak organic growth, elevated commercial real estate (CRE) and construction concentrations and an increasing reliance on wholesale funding. DBRS notes that an improvement in Fulton’s core earnings performance, including a strengthening of fee income and strong expense discipline, could result in positive ratings implications. Alternatively, a significant increase in its CRE portfolio and a material deterioration of holding company fundamentals could result in negative rating implications.

In 2006 and during the first three months of 2007, Fulton struggled in a difficult operating environment which negatively affected its margins and contributed to slow loan and deposit growth. Asset quality continues to remain strong with record low levels of net charge offs. However, in Q1 2007, the company recorded a $5.5 million contingent loss from the repurchase requests of an Alt-A investor of 80/20 mortgages housed at the Resource Bank affiliate. Given Fulton’s decision to discontinue the origination of these types of mortgages and the active monitoring of the situation, DBRS does not expect any further significant charges.

Fulton’s core earnings power and efficiency, while gradually declining, are generally superior to its peers. Acquisitions have become the primary driver of growth; however, DBRS believes the Company also needs to grow organically to succeed. Modest fee income levels augment earnings and are primarily generated from wealth management and investment services.

DBRS notes that Fulton’s five-state deposit franchise provides core deposits that fund 88% of its loans at a deposit cost below the average of its asset-sized peers. The Company’s franchise has been built through a string of 23 acquisitions in the last 15 years. Fulton’s footprint is located outside major metropolitan areas and has been migrating toward higher growth markets along the mid-eastern U.S. coast. Asset quality continues to remain strong and has met or exceeded those of peer banks for the past five years. Fulton has demonstrated a superior ability to manage their loan portfolios over time, as evidenced by consistently low non-performing loans and net charge-offs.

Although Fulton has been able to expand mainly through acquisitions, it faces the challenge of growing organically. The Company’s decentralized structure (with 13 bank charters) creates difficulties, particularly in the difference between products, strategies and promotions which are important to retention and growth. Much of Fulton’s loan growth has focused on CRE and construction lending. In a significant regional real estate downturn, Fulton’s earnings would be under pressure. The CRE concentration is mitigated by a healthy amount of owner-occupied properties and consistently good asset quality over many years through difficult real estate market cycles.

Including acquisitions, loan growth has exceeded deposit growth in each of the past four years increasing the Company’s reliance on wholesale funding. Moreover, competition for deposits along with deposit migration to higher yielding products has intensified Fulton’s need to identify alternative funding sources. Nonetheless, Fulton retains more than ample borrowing capacity for short- and long-term borrowing and liquidity needs. However, limited resources at the parent holding company level may somewhat limit its financial flexibility relative to its peers.

Fulton Financial Corporation, a community financial services company headquartered in Lancaster, Pennsylvania, with offices in five contiguous eastern states, reported $14.7 billion in assets and $10.2 billion in deposits at March 31, 2007.

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