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Fulton Bank, National Association -- Moody's affirms Fulton Financial's ratings (long-term senior unsecured Baa1), outlook remains stable

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Rating Action: Moody's affirms Fulton Financial's ratings (long-term senior unsecured Baa1), outlook remains stableGlobal Credit Research - 25 Feb 2021New York, February 25, 2021 -- Moody's Investors Service (Moody's) has affirmed the long-term debt and deposit ratings, and assessments of Fulton Financial Corporation (Fulton, long-term senior unsecured debt Baa1) and its subsidiaries, including the baseline credit assessment (BCA) of its bank subsidiary Fulton Bank, National Association (long-term deposits A1, long-term issuer rating Baa1, BCA a3). The ratings outlook remains stable. A complete list of affected ratings and entities can be found at the end of this press release.The ratings affirmation resulted from Moody's unchanged assessment of the bank's credit fundamentals, as expressed by its a3 BCA, which is equal to the average of rated US banks.RATINGS RATIONALEThe affirmation of Fulton's ratings and BCA reflects its strong liquidity profile, characterized by high deposit funding modestly offset by an average amount of liquid assets held on its balance sheet compared to its US peers with a BCA of a3. Its high commercial real estate (CRE) concentration is its key credit challenge. Profitability has been constrained by low interest rates and elevated provision expense, but Moody's expects it to improve over the next 12-18 months. Fulton's capitalization has been stable and sound historically, but is the weakest driver of its financial profile.Fulton's key credit strength is its liquidity, which is driven by its low reliance on confidence-sensitive market funding, resulting in limited refinancing risk. Over the last year through 31 December 2020, its deposit growth has outpaced loan growth. Most of its average loan growth was from loans originated under the Paycheck Protection Program, which are likely to be forgiven in 2021 and would improve its liquidity profile, if not replaced by other loans. Its market funds/tangible banking assets ratio was a low 5.8% as of 30 September 2020, reflecting the bank's large deposit base and consistent with its year-end 2019 levels. The bank's liquid resources equaled 18.5% of tangible banking assets as of 30 September 2020, modestly higher than 15.9% at year-end 2019.Fulton's key credit challenge has historically been its concentration in CRE (including farmland), which equaled about 27% of loans or 2.9 times its Moody's tangible common equity (TCE) as of 30 September 2020. Positively, the construction portion, which has typically experienced higher loss severity under stress, is modest in size equaling 5% of loans as of the same date. Fulton's credit losses were lower than most US peer during the financial crisis of 2008-09 indicating conservative underwriting standards. The quality of Fulton's CRE portfolio has also been supported by the geographic distribution of properties in more stable markets in suburban, rural areas and small towns throughout Pennsylvania, New Jersey, Maryland, Delaware and Virginia. Fulton has provided regular updates on its CRE and commercial lending exposures, which may be more sensitive to the effects of the coronavirus pandemic. The aggregate of these exposures are small and Fulton's deferrals, which the bank has primarily granted to borrowers in these sectors, equaled 2% of commercial loans as of 31 December 2020, which is a limited amount, in Moody's view.Fulton's profitability in 2020 was pressured by low rates and elevated credit provision, but is likely to improve in 2021. Its Q4 2020 net interest margin of 2.75% was 47 basis points (bp) lower than a year ago, though 5 bp higher than Q3 2020. The increase from Q3 was primarily driven by forgiveness of loans issued under the Paycheck Protection Program, which will likely continue through the early part of 2021. Its 2020 noninterest income was boosted by strength in mortgage banking, which is still expected to be strong in the coming year though not to the same degree. Fulton intends to use expense control to offset the revenue pressure. It recognized charges in 2020 related to branch consolidation, organizational restructuring, and other initiatives, which will reduce 2021 expense. With the improving, though uncertain economic outlook, Moody's expects that credit provision expense will be lower than the elevated levels of 2020.Fulton's capitalization is sound, but a relative weakness compared to its performance on other financial metrics. Its common equity tier 1 ratio was 9.5% as of 31 December 2020, about 20 bp lower than a year earlier. As of 30 September 2020, Moody's TCE ratio was 9.3%. Moody's ratings incorporate the expectation that Fulton's TCE ratio will remain above 9%.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSA reduction in its CRE concentration and strengthening of Fulton's capitalization could create upward pressure on its standalone BCA and ratings. Lower reliance on market funding or higher liquidity resources would also be positive for the ratings.The most likely source of downward pressure on its standalone BCA and ratings would be a decline in the company's capitalization or a significant and sustained deterioration in asset quality or profitability relative to same-rated peers. A higher concentration in CRE or the construction component would also be negative for the BCA and the ratings.Affirmations:..Issuer: Fulton Financial Corporation....LT Issuer Rating, Affirmed Baa1, Stable....Pref. Stock Non-cumulative, Affirmed Baa3(hyb)....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1, Stable....Subordinate Regular Bond/Debenture, Affirmed Baa1....Pref. Shelf Non-cumulative, Affirmed (P)Baa3..Issuer: Fulton Bank, National Association....Adjusted Baseline Credit Assessment, Affirmed a3....Baseline Credit Assessment, Affirmed a3....LT Counterparty Risk Assessment, Affirmed A2(cr)....ST Counterparty Risk Assessment, Affirmed P-1(cr)....LT Counterparty Risk Rating (Local Currency), Affirmed A3....ST Counterparty Risk Rating (Local Currency), Affirmed P-2....LT Counterparty Risk Rating (Foreign Currency), Affirmed A3....ST Counterparty Risk Rating (Foreign Currency), Affirmed P-2....LT Issuer Rating, Affirmed Baa1, Stable....LT Bank Deposits, Affirmed A1, Stable....ST Bank Deposits, Affirmed P-1Outlook Actions:..Issuer: Fulton Financial Corporation....Outlook, Remains Stable..Issuer: Fulton Bank, National Association....Outlook, Remains StableThe principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Rita Sahu, CFA VP - Senior Credit Officer Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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