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

DBRS, Inc. (DBRS) has today confirmed the ratings of Fulton Financial Corporation (Fulton or the Company), including its Issuer & Senior Debt rating at A (low) and Short-Term Instruments rating at R-1 (low). At the same time, DBRS confirmed the ratings of its banking subsidiaries, including its primary banking subsidiary, Fulton Bank, N.A. (the Bank). The trend on all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is “A”, while the Support Assessment remains SA3. The Company’s Support Assessment is also SA3 and its Issuer & Senior Debt rating is positioned one notch below the Bank’s IA.

Fulton’s ratings and Stable trend reflect the Company’s solid Mid-Atlantic focused community banking franchise, its sound asset quality and conservative loan underwriting, good core-deposit funding and healthy capital position. The ratings also take into consideration the Company’s pressured, although improving, earnings and concentration in commercial real estate loans (CRE). Positively, Fulton’s investment in adding lenders in many of its markets has helped generate solid loan growth and increase revenues, which has more than offset net interest margin (NIM) pressure. DBRS expects continued loan growth as well as higher market interest rates to maintain earnings momentum in 2017.

DBRS sees Fulton’s financial profile as improving and returning closer to historical levels, providing support for its ratings. Fulton has shown improvement in generating revenues. Adjusted revenue grew quarter-over-quarter for six of the last eight quarters and growth has been accelerating in recent quarters. The Company reported positive operating leverage year-over year for 2016. Expense initiatives have helped to offset elevated expenses from BSA/AML initiatives as well as NIM compression. The Company is projecting positive operating leverage in 2017 driven by ongoing loan growth, an improving NIM, mid to high single digit growth in non-interest income partially offset by low to mid-single digit growth in non-interest expense.

Additionally, asset quality has improved and the Company continues to maintain solid levels of capital and liquidity. DBRS considers Fulton’s relatively high level of CRE and Construction loans, which averaged 45% of total loans for 2016, 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.

Fulton’s capital position, remains conservatively managed and a strength for the Company. During 2016, the Company increased its common stock dividend and repurchased $18.6 million shares of stock and an additional $31.4 million repurchase authorization remains in effect under the current program. Still, at December 31, 2016, Fulton reported solid capital ratios including a tangible common equity to tangible assets ratio of 8.66% and a CET1 Ratio of 10.5%. DBRS notes that current capital ratios are around the median for similarly rated peers.

Lancaster, Pennsylvania- based Fulton Financial Corporation reported $18.9 billion in assets at December 31, 2016.

RATING DRIVERS
Given regulatory agreements related to BSA/AML issues, DBRS currently does not see any intermediate term positive rating pressure. Conversely, a reversion to weaker profitability metrics or an inability to grow revenue or more aggressive capital management could result in a negative rating action.

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

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (July 2016), DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2016) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2016), 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.

Lead Analyst: John Mackerey, Vice President
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: 19 January 2005
Most Recent Rating Update: 25 February 2016

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