Good morning, ladies and gentlemen. Welcome to the Fulton Financial Third Quarter Results Conference Call. This call is being recorded. I would now like to turn it over to Senior Vice President, and Director of Corporate Development, Jason Weber. Please go ahead, sir.

Thanks, Camille. Good morning. Thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the third quarter of 2016. Your host for today's conference call is Phil Wenger, Chairman, President and Chief Executive Officer of Fulton Financial Corporation. Joining Phil is Pat Barrett, Senior Executive Vice President and Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released at 4:30 pm yesterday afternoon. These documents can be found on our website at fulton.com by clicking on Investor Relations and then on News. The slides can also be found on the Presentations page under Investor Relations on our website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations and business. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors and actual results could differ materially. Please refer to the Safe Harbor statement on forward-looking statements in our earnings release and on Slide 2 of the presentation for additional information regarding these risks, uncertainties and other factors. Fulton undertakes no obligation, other than as required by law, to update or revise any forward-looking statements. In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental information included with Fulton's earnings announcement released yesterday and Slides 13 and 14 of the presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Unless otherwise noted, quarterly comparisons are with the second quarter of 2016. Now I'd like to turn the call over to your host, Phil Wenger.

Thanks, Jason, and good morning everyone. Thank you for joining us. I have a few prepared remarks before our CFO, Pat Barrett shares details of our third quarter financial performance and discusses our 2016 outlook. When he concludes, we will open the phone line for questions. We reported diluted per share earnings of $0.24 for the third quarter, an increase of 4.3% linked quarter. Pre-provision net revenue increased approximately $5.5 million or 10.4% linked quarter and approximately $9.4 million or 19% year-over-year. Our return on assets was 0.89% and our return on tangible equity was 10.38% for the quarter. Overall, we were pleased with the third quarter results. Despite the challenging interest rate and operating environment, we were able to grow revenues and reduce expenses. As a result, we generated meaningful positive operating leverage. The loan portfolio increased 6.7% linked quarter annualized, driven by growth in our residential and commercial real estate portfolios. In addition our commercial leasing portfolio continues to be a nice growth story. The residential mortgage portfolio increased 6.6% linked quarter and 11.6% year-over-year. Over the last year, we made a strategic decision to retain certain jumbo mortgages, driving growth in the portfolio. The commercial mortgage portfolio increased 3.3% linked quarter and 9% year-over-year. Our growth was spread throughout our footprint, but primarily in our Pennsylvania and Maryland market. Our C&I loan portfolio decreased 1.8% linked quarter, but increased 2.4% year-over-year. C&I loan demand is typically softer in the third quarter and our line borrowings declined by $30 million, reflecting this seasonality. In addition, we had some criticized credits pay off in amount of $29 million creating downward pressure on C&I loan balances. While our markets remain highly competitive, commercial originations and the commercial pipeline remain stable. We continue to focus on our calling efforts and on…

Thanks Phil and good morning everyone on the call. Starting on Slide 4, earnings per diluted share this quarter were $0.24 on net income of $41.5 million, an increase of 4.3%. Third quarter earnings reflect the improvements in net interest income, non-interest income, and non-interest expense, partially offset by a modest increase in provision for credit losses. Moving to Slide 5. We also had a modest increase in net interest income, driven by earning asset growth and an additional day in the quarter, partially offset by the impact of a six basis point decline in the net interest margin. This was driven by lower yields on interest earning assets as the cost of interest bearing liabilities was unchanged. Yield on interest earning asset declined by six basis point from the second quarter primarily driven by a five basis point decline point decline in loan yields, reflecting both the impact of lower yields on new originations as well as lower loan fees. This was combined with the seasonal impact of higher liquidity from municipal deposit input. Turning to credit on Slide 6, we reported a $4.1 million provision for credit losses, $1.6 million higher than the provision in the second quarter. The allowance for loan losses was essentially flat linked quarter at $165 million as the loan loss provision matched net charge-offs. The increase in the loan loss provision was due to growth in the loan portfolio. Net charge-offs at 11 basis point were relatively flat. Certain other credit metrics ticked up modestly. These increases were largely driven by a single $30 million credit that deteriorated during the quarter. Absent this deterioration, these metrics would have been relatively flat linked quarter. Moving to Slide 7, non-interest income, excluding securities gains, increased 4.5%, reflecting higher commercial loan interest rate swap fees as…

[Operator instructions] We’ll start with our first question from Frank Schiraldi with Sandler O'Neill.

Just a couple of questions. First I wanted to ask on the SBA business. Could you guys just summarize where you -- I know it's to ramp-up in the back half of this year, so just wondering how much ramp-up is taking place, where that is in terms of supporting revenue and income, and if that could accelerate again into the fourth quarter?

Morning Frank, it’s Phil. So I think in the first quarter our SBA fee income was pretty nominal. Second quarter it was in the $250,000 range. Third quarter we’re about $550,000 and we anticipate that going to $750,000 probably in the fourth quarter in that range.

Okay. Appreciate that. Thank you. And then secondly, just wondered if you could give any more detail, Pat, on that $13 million credit you indicated, moved NPAs higher just in terms of type of collateral, industry. Any color you can provide there would be helpful.

Yeah, I’ll defer to Phil to talk about that one.

So we believe were fully collateralized and it was -- it’s a C&I credit. I think that’s pretty much the information we’d like to provide.

Okay. And then I guess just finally on loan growth, I think in the past you've indicated that it's a 50/50 split in terms of growth being provided by increased demand. I think you said this last quarter actually, 50/50 split in terms of increased demand and dislocation on the market. Is that still a fair assessment? If you look at or you think about demand out there versus this location, what's the bigger, if there is one, driver of growth in this quarter and going forward?

So I think that percentage is still holding. We are seeing -- we did see C&I demand go down a little in the third quarter. I think that’s kind of what a lot of people are experiencing.

Sure. That’s consistent with [H]. Okay, great. Thank you.

Our next questions comes from Kevin Fitzsimmons with the Hovde Group

Hey, it's Hovde Group. How are you guys?

Good. How are you?

Good. Wanted to just follow on to the loan growth question a bit more. So can you give any color on what your -- whether it's increasing or consistent, the market share gain opportunity from the few large deals that you've seen in your footprint by an out of region player over the last few years and how that is playing out? Whether it's in line with your expectations, whether there's more to come. And then on that same topic, if you could touch on the commercial real estate regulatory thresholds on, I believe it's not an issue for you-all, but is it -- are you finding it as any opportunity? In other words, are there commercial real estate heavy banks in your footprint that are retrenching and maybe pricing or opportunities are looking appealing to you?

Yeah. So on the commercial real estate side, I would say that there is some less competition and pricing I think has stabilized and perhaps increased some. On the thresholds, we’re fine. And the first part of your question, Kevin.

Was about market share gains from those few large deals.

So as we look at our backlog, we’ve been experiencing an opportunity for market disruption and as we look at our backlog going into the fourth quarter, I think the percent of our backlog remains about the same when we look at what’s coming from market disruption. So we believe it will continue at least in the short term.

Okay, great. And one quick follow-up on -- I know there's not much specifically you can say on the BSA issues other than what you've said. But can I ask if -- when you talk about the progress, is it more event driven at this point? In other words, are there -- basically there are I would assume examinations scheduled for the sub banks and it's a matter of waiting for those to take place and get the results. Or is it more of an evolving waiting for them to sift through all the progress you've demonstrated to them? And again, I know you're dealing with different regulators with different timetables, but is it more an evolving thing or is it more of a waiting for these things on the calendar to occur?

Kevin, I would say it’s both. So we continue to make improvements and we’re certainly subject to the schedules that are set by the regulators.

Okay. All right, great, guys. Thanks.

Our next questions come from Chris McGratty with KBW.

Hey good morning. Thanks for taking the question.

Good morning, Chris.

Good morning, Phil. The C&I softness that you talked about with the seasonal was obviously a player in the third quarter. But if I look year to date, residential mortgage and commercial real estate have driven the lion's share of the net growth. I'm wondering if that's more the reason that the margin guidance is still down or is there other environmental factors? Maybe some color here on the mix of earnings assets, and then direction of the margin.

Hey Chris, this is Pat. So yes, you’re right about the actual shift in the mix, but the one thing we are seeing whether it’s C&I or CRE is a continued shift away from fix into floating. That trend probably is affected by the mix shift. Certainly from a resi perspective, the popularity of jumbo product is very much 15-year fixed. But as a percentage of total, it hasn’t had a huge impact on originations because those remain at historically low levels as well.

Okay. And maybe, Pat while I have you, the LIBOR move in the quarter, can you just remind us the exposure to one month and 3 month, and whether there was any benefit in the quarter?

Sure. So we’ve got at the total loan book, about 80% is non-fixed. Of that 10 billion or so, 40% is LIBOR, the rest being prime, I think $4 billion. And we’ve got about $2.5 billion of exposure within that 4 to LIBOR either on the swap curve or the one and two month.

Okay. Great.

It was not a meaningful impact though on the quarter on our NII.

Got it. Great. Maybe last one on the FDIC insurance. It came down. We’ve seen other banks this quarter that number has gone up. Is that a sustainable number or should we be thinking about going back to where we were last quarter for the FDIC insurance?

It is for a couple of quarters. We’ll see this kind of run rate, we were at -- let’s call it $3.2 million a quarter overall, pretty steadily historically, and that’s dropped down to about $1.9 million. That will continue for the fourth quarter and the first quarter, but then it will tick back up again. We’ll get back about 60% of that savings because Fulton Bank is over $10 billion. So we really just benefited from Fulton Bank because it went up to $10 billion early this year. But you have a four quarter average before you get to the large bank premium schedule. So it will be the same run rate for the next 2 quarters, then it will gradually increase. Once we consolidate all the banks, which over time we will return back to approximately the run rates that we’ve been experiencing of around 3.2 a quarter.

Great. And maybe I could ask one more. The evolution of the BSA, once that comes off, you guys have talked both about charter collapse and you've also talked about potentially doing deals. Obviously you're a few quarters away or a few months away. Is there a preference on when that occurs, what the shift or what the pivot will be strategically?

The charter consolidation will begin as soon as we can and we’ll do one bank at a time, so if when we are allowed and a strategic acquisition develops, we can delay the consolidation, but I would anticipate that we will begin it immediately or as quickly as we can and then complete it. If a strategic acquisition doesn’t develop or if it does, we can delay.

Great. Thanks a lot for taking the question.

Our next question comes from Joe Gladue, Gladue with Merion Capital Group.

Good morning. I think most of the stuff I was interested in has been answered, but wanted to touch on a few of the other expense categories. You had some noticeable declines in professional services as well as data processing fees, and wondering if, again, if those declines are sustainable and what's driving them.

Hey Joe, this is Pat. So I’ll take those in reverse order. So the DP reduction was meaningful this quarter, and it’ll probably be choppy and volatile certainly based on volume. But these are largely major technology contracts that don’t come due every year and every quarter. We are working hard to re-negotiate these for more favorable terms so we’re able to benefit from that this quarter. But that doesn’t necessarily mean that next quarter or the quarter after we won’t re-negotiate one that’s been in place for 10 years and have a higher rate on that. So we are going to work hard to sustain the level that we’ve dropped to, but I just wanted to highlight that, that it’s not necessarily as simple as yes, it’s sustainable.

Okay. Fair enough.

On professional services, that can be pretty volatile quarter to quarter, but I guess I’d tell you that if you look at the run rate that we’ve seen year to date or the run rate from last year full year, I think that’s maybe around $2.1 million a quarter, then that would be a good run rate to use. We are not going to try to give guidance on intra-quarter volatility based on timing and billings.

All right. That's it for me. Thanks.

Our next question comes from Matthew Keating with Barclays.

Yes, good morning. I was hoping you could help me with net interest margin trends. So obviously, you gave the guidance without rate hikes. Maybe if you could just quantify what impact the 25 basis point move in rates in December of this year might have on the bank's 2017 net interest margin? Thanks.

Hey Matt, this is Pat. So just general rule of thumb, we benefit by about $6 million of pre-tax NII on a full year run rate basis for every 25 basis points.

That's helpful. Thank you. Also I'd like to just ask about the performance at the bank by various geographies in the quarter, maybe both from a loan growth perspective and from a return on assets perspective. What are you seeing in the various markets in the last quarter? Thanks.

So Matt, the loan growth primarily came in our Pennsylvania and Maryland market and I don’t have the specific ROAs for the banks in front of me.

Is New Jersey still a market where profitability is below average relative to the group overall?

New Jersey would be below average, yes.

Okay. Can you can talk -- you mentioned obviously about the hiring this quarter of a Philadelphia market president. Can you size the bank's Philadelphia business so in Philadelphia and in southeastern Pennsylvania at this point? And maybe talk about the potential opportunity you see, at least on an organic basis for the bank over the intermediate term in growing that business?

Specifically in Philadelphia we’d be close to zero and we’d anticipate our move into Philadelphia to be an area that will provide growth for us.

Okay. So how many people are under that Philadelphia president market structure at this point?

So currently we have just one person that we hired who is in the market to hire additional lenders. And we now have 2 mortgage originators in Philadelphia.

Okay, great. Thanks very much. Appreciate it.

[Operator instructions]. Okay, I’m sorry. It actually looks like we have no more time for questions. I’ll turn the call back over to our speakers for closing remarks.

Thank you all for joining us today. We hope you’ll be able to be with us when we discuss fourth quarter results in January.

That does conclude today’s call. We appreciate your participation.