DBRS Places Fulton Financial Corporation and Its Banking Subsidiaries Under Review with Negative Implications
Banking OrganizationsDBRS has today placed the long- and short-term ratings of Fulton Financial Corporation (Fulton or the Company) and its rated subsidiaries Under Review with Negative Implications, including Fulton’s “A” Issuer & Senior Debt rating. The rating action follows the Company’s announcement detailing several material impairments that will result in a large Q4 2008 loss.
The rating action reflects DBRS’s concern over the continuing financial performance and credit fundamental decline at Fulton. The decline includes significant increases in loan loss provisioning and various impairment charges taken on securities over the last several quarters. Consequently, Fulton’s credit metrics are now at or near the bottom of its “A”-rated peer group.
The Company announced several charges that will materially affect Q4 2008 earnings. The largest charge was a $90 million goodwill impairment related to Fulton’s The Columbia Bank reporting unit. While large, the impairment is a non-cash charge that does not affect regulatory capital ratios nor liquidity; however, it may be indicative of declining franchise value. Fulton will also take a $15 million pre-tax other than temporarily impaired (OTTI) charge related to its holdings of pooled trust preferred securities. Lastly, the Company expects to provision $65 million for loan losses in Q4 2008, primarily related to deteriorating economic conditions and real estate collateral values.
The Company’s ratings are underpinned by a robust community banking franchise and historically strong asset quality. The ratings also take into consideration elevated commercial real estate (including construction) concentrations and an increasing dependence on wholesale funding.
The review will focus on financial results and asset quality, particularly related to Fulton’s construction-related loan exposures and the potential for more OTTI charges on its securities portfolio. DBRS notes that Fulton has received approval for $375 million in preferred stock under the U.S. Treasury’s Capital Purchase Program, which will provide more of a cushion to help work through a deteriorating credit environment. The review will also focus on Fulton’s franchise strength, primarily looking at the retail deposit franchise, and its ability to fund the balance sheet with core deposits. DBRS expects its review to be completed after the Company’s Q4 2008 results are released in the first quarter of 2009.
In light of the extensive actions taken by the U.S. government to support the financial sector and improve the flow of credit, DBRS is also currently evaluating how these actions affect the ratings of individual banks, including Fulton, and their short-term obligations.
Fulton Financial Corporation, a bank holding company based in Lancaster, Pennsylvania, had $16.1 billion in assets at September 30, 2008.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The applicable methodology is Rating Banks and Bank Holding Companies Operating in the United States, which can be found on our website under Methodologies.
This is a Corporate (Financial Institutions) rating.
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