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 its Long-Term Issuer Rating at 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 the Support Assessment remains SA1. The Company’s Support Assessment is SA3 and Fulton’s Long-Term Issuer 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 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 increased revenues, which has offset net interest margin (NIM) pressure. DBRS expects that continued loan growth, higher market interest rates, a lower corporate tax rate and modest credit costs will contribute to positive earnings momentum during 2018.

Quarterly revenues grew year-over-year over the last nine quarters and growth has been accelerating in recent quarters, including double digit growth over the last three quarters. This strong revenue growth has enabled Fulton to generate positive operating leverage despite continued investments in BSA/AML, the addition of new lending officers and other growth initiatives. Despite generating positive operating leverage, operating efficiency still remains higher than some peers. DBRS notes that the BSA/AML consent orders were lifted in October 2017 for three of the Company’s six subsidiary banks, including its lead bank, Fulton Bank.

Asset quality remains a key strength for the Company, with a declining level of non-performing assets and low credit losses. DBRS considers Fulton’s relatively high level of CRE and Construction loans, which represented approximately 48% of total loans at YE17, 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 2017, the Company increased its common stock dividend and grew its balance sheet by almost 6%. Still, at December 31, 2017, Fulton reported solid capital ratios including a tangible common equity to tangible assets ratio of 8.7% and a CET1 Ratio of 10.4%.

Lancaster, Pennsylvania-based Fulton Financial Corporation reported $20 billion in assets at December 31, 2017.

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.

RATING DRIVERS
While DBRS considers Fulton’s current ratings as well-placed, a sustainable improvement in the level and diversity of earnings, including further diversifying the loan portfolio, over the longer-term could lead to positive rating actions. Sustained weaker profitability metrics, an inability to grow revenue or aggressive capital management could result in negative rating actions.

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

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (May 2017), 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 – Global FIG
Rating Committee Chair: Lisa Kwasnowski, Senior Vice President – Global FIG
Initial Rating Date: 19 January 2005
Last Rating Date: 15 February 2017

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.