Fulton emerges from regulatory gantlet. Is M&A in its future?

After five years, Fulton Financial in Lancaster, Pa., is finally free of regulatory orders.

The $21 billion-asset company now has a wide array of opportunities open to it, and management has had years to mull over the course it will set.

The priority is to complete a plan to merge all of the company's bank units. Lafayette Ambassador Bank in Bethlehem, Pa. — released last week from an order tied to Bank Secrecy Act compliance — and Columbia Bank in Columbia, Md., will be absorbed by the company's Fulton Bank unit by the end of this year. Columbia Bank was freed from its own set of BSA-related orders in January.

“It’s more efficient to invest in one brand name,” said Curtis Myers, Fulton Financial's president and chief operating officer and chairman of Fulton Bank. It should cost Fulton $5.5 million to $7.5 million this year to complete the charter consolidations.

The final order's removal also sets Fulton up to revisit bank acquisitions — something it hasn’t done since February 2006, when it bought Columbia.

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While it may not be planning an immediate return to M&A, Fulton is ready “to consider acquisitions within our five-state footprint,” Myers said. Those operations extend from central Pennsylvania and southern New Jersey to Virginia’s Hampton Roads area.

A renewed ability to pursue acquisitions is “the most meaningful takeaway” from news of the Lafayette order's termination, Sandler O’Neill analyst Frank Schiraldi wrote Friday in a note to clients. He added that Fulton would likely focus on relatively modest “fill-in deals” in southeast Pennsylvania, Baltimore and New Jersey, with probable targets ranging from $1 billion to $7 billion in assets.

Fulton is unlikely to emerge as "the most aggressive" buyer "but they're probably looking and having discussions," said Joe Gladue, an analyst at Alden Securities. He said the company's core markets in central Pennsylvania, along with Philadelphia, Baltimore and Washington, would be areas to consider.

Baltimore is a particularly intriguing option. Fulton, which is preparing to open its second branch in Maryland’s largest city, is laying plans for several more over the next few years. It’s also expanding around Philadelphia.

Myers, however, cautioned that the company is prioritizing expansion without acquisitions.

One opportunity could come from the pending merger of BB&T and SunTrust. While Fulton was dealing with regulators, BB&T entered Pennsylvania by buying Susquehanna Bancshares and added scale with the purchase of National Penn Bancshares.

“We’re first and foremost focused on organic growth,” Myers said. “Day in, day out, we think that’s our most [productive] activity. Even if we did a deal, we’d need to be able to grow those assets post-merger.”

Still, the fact Fulton can meaningfully discuss M&A represents a huge step forward for a company that’s been limited by regulatory concerns in recent years.

Three Fulton bank units were hit with regulatory orders from the Office of the Comptroller of the Currency in July 2014. Two months later, Lafayette Ambassador and Fulton Financial were sanctioned by the Federal Reserve.

While Fulton was one of many banks snagged by BSA issues, having multiple charters compounded its difficulties. For years, Fulton labored to extricate itself from a thicket of orders from federal and state banking agencies.

“We had a lot of regulators given our structure,” Myers said.

“We've spent a lot of time, money and effort to build a very strong BSA program," he added. "It’s great to have all the regulators give us their stamp of approval."

The lengthy process of getting out from under its enforcement actions had one positive. Fulton used the situation to undertake a series of technology and operations upgrades, including online account opening and business loan originations. It also added a new mortgage banking platform.

Those improvements have laid a foundation for significant growth, Myers said.

“The BSA situation gave us the reason to really inspect and think about all of our processes across the board,” he said. “BSA touches every part of any bank. … We took a comprehensive look and solved for multiple items that were overdue.”

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