Fulton to unlock more earnings power by restructuring target's balance sheet

Lancaster, Pa.-based Fulton Financial Corp. is bolstering its presence in Philadelphia with its first bank deal in nearly 17 years.

The addition of Philadelphia-based Prudential Bancorp Inc. will double Fulton's Philadelphia lending portfolio and increase its total deposits in the market 5x, President and COO Curtis Myers said on a conference call to discuss the transaction. Prudential's more than $650 million in total deposits in Philadelphia County will also boost Fulton to 12th in deposit market share in the county from 21st, according to Federal Deposit Insurance Corp. data as of June 30, 2021.

"This fits into the heart of our franchise," Myers said. "It adds meaningfully to the existing balance sheet that we have in the Philadelphia market and accelerates our current Philly market initiative."

Fulton had about $500 million in loans and $140 million in deposits in the Philadelphia market at Dec. 31, 2021.

Fulton plans to restructure Prudential's balance sheet in order to boost earnings by repricing time deposits, selling bonds and paying off Federal Home Loan Bank advances, CFO Mark McCollom said.

"We think the core earnings of the company, once you go through that balance sheet restructuring, goes from that $6.5 [million] to $7 million range to some number closer to $11 million to just a little bit north of $11 million," McCollom said.

Upon repricing the time deposits between now and deal close, Fulton estimates that Prudential's time deposits will decline by about $25 million and the cost of those deposits will decline to about 0.9% from 2.6%, according to McCollom.

The deal marks a return to M&A for Fulton, which has not announced a whole-bank deal since 2005, and the company is open to more M&A, executives said on the call. The deal is relatively small with Prudential's $1.08 billion in total assets as of Dec. 31, 2021, making up only about 4% of Fulton's $25.80 billion in total assets as of the same date.

"We still think we have capital we'd like to put to use," Chairman and CEO Phil Wenger said on the call. "If strategic opportunities come along we'll continue to look at them." However, "there not a whole lot of deals that are out there," he added.