The Long and Short
Fulton Financial stands out among community banks
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Fulton Financial paper is trading in roughly the same context as much smaller, non-index deals from community banks that do not have the same investment grade ratings or size. In general, there is good opportunity in community bank paper, most of which has a 10NC5-year structure and more yield than index-eligible, larger regional bank notes with bullet maturities and similar duration.
Exhibit 1.
Source: Amherst Pierpont, Bloomberg/TRACE Indications
5MM+ FULT 3.25% 3/15/30 @ $95.375; YTC 5.07%
RECENT COMMUNITY BANK DEALS W/ SIMILAR STRUCTURES:
Fulton Financial Corp (FULT)
Bank holding company of Fulton Bank NA
CUSIP: 360271AL4
Amount outstanding: $200 million, Non-index
Subordinated rating: Baa1/BBB+(EJR)
Callable 03/15/25 @ par, SOFR+230 after
FULT is based in Lancaster, PA with an attractive footprint of over 200 branches throughout PA, NJ, MD, VA, and DE. The bank makes infrequent acquisitions, preferring to grow organically. Unlike some of the smaller, single-digit operators in the community banking segment, FULT is a formidable regional bank with $26 billion in total assets as of the first quarter of 2022. The bank has $22 billion in total deposits and $19 billion in total loans and leases.
FULT boasts a very well-diversified loan book with 32% in commercial real estate (CRE) plus 6% in construction & development loans, 30% residential, 13% C&I, 6% in other non-real estate loans, 4% in multifamily and 3% in consumer loans. Most of the banks in this segment are more heavily concentrated in CRE loan categories.
The bank is well capitalized with over $2 billion in Tier 1 Common Capital, leading to a CET1 ratio of 9.98%, which is more than sufficient for bank of its stature. The total Risk-based Capital Ratio is 13.85%.
FULT boasts low levels of non-performing loan categories. The current non-performing asset (NPA) rate in the first quarter of 2022 was just 0.65% of total assets. The Texas Ratio—which measures adjusted NPAs plus 90 days past-due loans as a percentage of tangible equity and loan loss reserves—is currently around 8.36% and has only modestly surpassed the 10% threshold over the past several years. We typically consider Texas Ratio results anywhere below 20% as manageable for small-to-mid-sized regional banks, and results under 10% as a strong indicator of liquidity versus credit quality.
The bank maintains a stable funding profile with a Loan/Deposit (%) ratio that is down to 86% as of the first quarter of 2022 (was over 100% back in 2017). Reliance on wholesale funding is also down to 5% as of the first quarter from double digits back in 2020, with no material exposure to higher-risk, short-term funding sources. FULT also utilizes negligible levels of brokered deposits.
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