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

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Zacks Equity Research
·4 min read
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Ratings of Fulton Financial Corporation FULT and its subsidiaries have been affirmed by Moody's Investors Service. Fulton Financial’s long-term senior unsecured debt has been rated as Baa1 and its bank subsidiary Fulton Bank, National Association long-term deposits have been affirmed at A1, including its a3 standalone Baseline Credit Assessment (BCA). The outlook has been left unchanged at stable.

Reasons Behind Ratings Affirmation

Per Moody’s, the Fulton Financial's key strength is its solid liquidity position, driven by high deposit funding. Also, though lower rates and rise in provisions hurt the company’s profitability in 2020, the same will likely improve gradually over the next few quarters. However, significant exposure of the company to commercial real estate (CRE) loans is a concern.

The strong liquidity profile is the result of Fulton’s low reliance on market funding and is, thus, leading to limited refinancing risk. The company’s deposit growth outpaced its loan growth in 2020. Per the rating agency, as most of the average loan growth attributable to loans originated under the Paycheck Protection Program, which are likely to be forgiven this year, it will enhance the bank’s liquidity position in the days to come.

Per Moody’s, although Fulton’s net interest margin (NIM) was under pressure last year due to lower rates, the same is likely to improve in 2021. This is already getting reflected in the company’s fourth-quarter 2020 NIM, which expanded 5 basis points sequentially to 2.75%. Also, Fulton’s solid mortgage banking business boosted non-interest income in 2020. This is anticipated to remain healthy in 2021 as well. Likewise, the rating agency expects provision expenses, which rose significantly last year, to be lower in 2021.

However, Fulton’s key challenge has been its high concentration of CRE loans, according to the rating agency. The CRE loans constitute nearly 27% of its total loans. Though the bank has been providing updates on CRE and commercial lending exposures as these are more sensitive to the impact of the coronavirus pandemic, high level of exposure could be a concern if the situation deteriorates.

Factors That Might Lead to Ratings Upgrade or Downgrade

A reduction in its CRE concentration and strengthening of Fulton's capital ratios besides lower reliance on market funding or higher liquidity resources could strain the bank’s standalone BCA and ratings. On the other hand, the same could be downgraded if the ratings agency finds a decline in the company's capitalization or a significant and sustained deterioration in asset quality.

Price Performance & Zacks Rank

Shares of Fulton have gained 57% over the past six months, marginally underperforming the industry’s rally of 57.2%. The stock currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Similar Action by Moody’s on Other Banks

In the current quarter, Moody’s has affirmed the ratings for many banks. Some of these are SVB Financial Group SIVB, Texas Capital Bancshares TCBI and Webster Financial Corporation WBS. Besides, the outlook for SVB Financial and Webster Financial has remained unchanged at stable, whereas for Texas Capital the outlook has been upgraded from negative to stable.

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