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Fulton Financial (FULT) Ratings, Outlook Affirmed by Moody's

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Ratings of Fulton Financial Corporation (FULT - Free Report) and its bank subsidiary, Fulton Bank, National Association, have been affirmed by Moody's Investors Service. Outlook for the company remains stable.

Fulton Financial’s long-term senior unsecured and subordinated debt ratings have remained unchanged at Baa1. Further, the company has a standalone baseline credit assessment (BCA) of a3 and is rated A1/Prime-1 for long-and short-term bank deposits.

Reasons Behind Affirmation

The affirmations are based on Fulton Financial’s solid funding and liquidity profile, which is supported by large deposit base. However, Moody’s believes that major challenge for the company is its high exposure in commercial real estate (CRE) sector and big lending relationships.

Fulton Financial’s strong liquidity position, mainly driven by large and growing deposit base not by “confidence-sensitive market funding,” is a credit positive. Further, the company lowered its Federal Home Loan Bank advances through balance sheet restructuring in second-quarter 2020. With deposit growth outpacing loan growth, its liquid resources were 16.8% of tangible banking assets as of Jun 30, 2020.

Additionally, while Fulton Financial’s profitability is under strain due to low rates and rise in credit costs (owing to implementation of the current expected credit loss (CECL) accounting standard and uncertainty related to the coronavirus), it has remained almost in line with the peers. Fall in pre-provision profitability in the first six months of 2020 was offset by strength in mortgage banking business and relatively stable non-interest expenses.

Nevertheless, the rating agency believes that a major challenge to Fulton Financial’s profits is high CRE concentration (including farmland). This equaled almost 25% of loans or 2.8X Moody's tangible common equity (TCE) as of Jun 30, 2020.

While the company’s CRE portfolio is supported by geographical diversification, its large single client relationships pose a big concern. The company recorded a borrower fraud in second-quarter 2020, with “then two less material credit issues in the fourth quarters of 2018 and 2019.” These matters pertained to single client relationships.

What Can Trigger Change in Ratings?

Fulton Financial’s ratings will likely be upgraded if the company is able to lower CRE concentration and further strengthen its capital levels. Also, low reliance on market-based funding will be a positive.

However, the ratings could be downgraded if the profitability declines and asset quality worsens. A high single client concentration will impact the company’s ratings negatively.

Price Performance & Zacks Rank

So far this year, shares of Fulton Financial have lost 47.5% compared with a 44.1% decline of the industry.

Currently, Fulton Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rating Actions on Other Banks

In the past couple of months, Moody’s affirmed ratings for many banks. Amid the coronavirus pandemic and the resultant economic uncertainties, the rating agency affirmed ratings for TCF Financial Corporation (TCF - Free Report) , Associated Banc-Corp (ASB - Free Report) and Bank of Hawaii (BOH - Free Report) .

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