DBRS Confirms Fulton Financial Corporation at A (low); Trend Stable

DBRS, Inc. (DBRS) confirmed the ratings of Fulton Financial Corporation (Fulton or the Company), including the Company’s Long-Term Issuer Rating of A (low). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, Fulton Bank, N.A. (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is “A”, while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
Fulton’s ratings confirmation and continuation of the Stable trend reflect the Company’s solid community banking franchise and sound asset quality that is supported by conservative loan underwriting and a fairly granular loan portfolio. Additionally, the Company exhibits good core deposit funding, as well as a solid capital position. Fulton’s ratings also consider the Company’s somewhat concentrated position in commercial real estate loans (CRE). Positively, Fulton’s outstanding regulatory consent orders related to BSA/AML compliance have begun to be lifted. This will provide Fulton with greater flexibility to consolidate its bank charters, optimize the branch network, as well as potentially grow through bank acquisitions.

RATING DRIVERS
DBRS considers Fulton’s current ratings as well placed. Over the longer term, a sustainable improvement in the level and diversity of earnings, including reducing the reliance on commercial real estate lending, could lead to a positive rating action. Conversely, sustained weaker profitability metrics, a perceived increase in risk appetite, or aggressive capital management could result in a negative rating action.

RATING RATIONALE
Over the last few years, Fulton’s investment in adding lenders, especially in some of its larger markets, has generated solid loan growth, increased revenues and enhanced the franchise. Additionally, net interest margin expansion and the benefit from U.S. tax reform have led to positive earnings momentum as well as improved returns and efficiency.

This strong revenue growth has enabled Fulton to generate positive operating leverage, despite continued investments in BSA/AML, technology and other growth initiatives. DBRS notes that the BSA/AML-related consent orders have been lifted for most of the Company’s subsidiary banks, with just one bank subsidiary and the holding company remaining.

Consistently strong asset quality has remained a key strength for the Company. However, during 2018, the Company experienced a loss from a single large commercial lending relationship due to fraud. Despite this uptick in losses, overall loss levels remain low, reflecting in part the benign credit environment. DBRS considers Fulton’s relatively high level of CRE and construction loans, which represented approximately 46% of total loans at YE18, a concentration risk. Somewhat reducing this risk, is the highly granular exposure limits the Company has maintained for both borrowers and projects, as well as a large percentage of owner-occupied CRE exposures that are typically less risky.

DBRS views the Company’s funding and liquidity as solid with deposits, which have grown in tandem with loans, fully funding the loan portfolio. Fulton’s capital position remains conservatively managed and a strength for the Company. During 2018, the Company increased its common stock dividend and repurchased approximately $95 million of common stock. Still, at December 31, 2018, Fulton reported solid capital ratios, including a tangible common equity to tangible assets ratio of 8.5% and a CET1 Ratio of 10.2%. Management expects capital levels in 2019 to remain consistent with the levels at YE18.

Lancaster, Pennsylvania-based Fulton Financial Corporation reported $20.7 billion in assets at December 31, 2018.

The Grid Summary Grades for Fulton Financial are as follows: Franchise Strength –Strong/Good; Earnings Power –Strong/Good; Risk Profile –Strong/Good; Funding & Liquidity –Strong/Good; Capitalisation – Strong/Good.

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

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (July 2018), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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