Good morning and welcome to the F.N.B Corporation Third Quarter 2015 Quarterly Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matthew Lazzaro. Please go ahead sir.

Thank you. Good morning everyone and welcome to our earnings call. This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements. Please refer to the forward-looking statement disclosure contained in our earnings release, related presentation materials, in our reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until October 29 and a transcript and the webcast link will be posted to the Shareholder and Investor Relations section of our corporate website. I will now turn the call over to Vince Delie, President and Chief Executive Officer.

Good morning and welcome to our quarterly earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer and Gary Guerrieri, our Chief Credit Officer. I will provide highlights of the quarter's results and cover the recent developments since our last call. Gary will review asset quality and Vince will provide further detail on our financial result and then open the call up for any question. We’re very pleased with both the quarter's results and our performance throughout the first nine months of 2015 highlighted by 10% year-over-year growth and earnings per share. Operating net income available to common shareholders was 38.9 million and produced $0.22 per diluted share for the third consecutive quarter. This translates into a 106 basis point return on average tangible assets and a 14% return on average tangible common equity. For the first nine months of 2015, our operating earnings per share of $0.66 represents an increase of $0.06 per share or 10% from the year ago period. The year-to-date performance is a result of the continued successful execution of our acquisition and organic growth strategy, as we have gained significant scale while generating meaningful earnings growth and improved efficiency. This is an outstanding accomplishment considering the industry's elevated regulatory cost and net interest margin pressures the mid to current operating environment. The high quality performance for the third quarter reflected positive operating leverage, solid organic loan and deposit growth, a stable net interest margin and positive asset quality results. The quarter's record high revenue of 168 million marked the 11th consecutive quarter of total revenue growth. Our third quarter core non-interest income was an all time high for the Company which is impressive considering the growing number of regulatory and industry challenges placed on generating consumer banking fees. Our success during the quarter…

Thank you, Vince, and good morning everyone. We had another solid performance for the third quarter of 2015 which was evidenced by credit quality results that remained at consistently good levels. We are very pleased with this quarter's performance which was highlighted by slightly improved overall NPLs and OREO, favorable delinquency levels, and good net charge off performance of 19 basis points annualized on a GAAP basis. I’d now like to walk you through some of the quarterly highlights for our two books of business, the originated loan portfolio and our acquired portfolio. Following my remarks, I will then share with you our credit philosophy and our approach to managing risk in the loan book. Let's now take a look at the originated portfolio. The level of NPLs and OREO improved by $2.8 million in the quarter ending September down six basis points at 0.99%. Originated delinquency remains at exceptionally good levels ending the third quarter at a very solid 89 basis points. Net charge offs totaled $5.9 million or 22 basis points annualized which is slightly better than our targeted levels for the period and remains in line with our performance over the last several quarters. The originated provision at $11.3 million covered net charge offs and stronger originated loan growth during the quarter, as well as the slight migration of a few commercial credits related to softening in the energy and metals markets. The ending originated reserved position was nearly flat at 1.22%. Turning next to the acquired portfolio, we ended September at $1.3 billion of outstanding loans purchased at fair value. Contractual delinquency remained relatively flat for the period up only slightly on a linked quarter basis at $52 million, as we continue to diligently manage this book of business. The ending acquired reserve total $6.6 million…

Thanks, Gary. Good morning, everyone. Today I will discuss our third quarters operating performance and comment on guidance for the remainder of the year. Let's begin with results for the quarter. On a linked quarter basis, total average organic loan growth was $231 million or 8% annualized, with the commercial and consumer portfolios, both contributing solid growth. On a linked quarter basis, average commercial growth totaled $112 million or 6.9% annualized. The linked quarter growth in the consumer portfolio totaled $117 million or 9.3% annualized, led by good organic growth in mortgage and indirect auto loans. Average organic growth and mortgage loans was $52 million, as we began to gain more traction in the metro markets of Pittsburg, Baltimore, and Cleveland, which have attractive consumer demographics. On a linked quarter basis, organic growth in total average deposits and customer repos totaled $57 million or 1.8% annualized, led by demand deposit growth of $104 million or 14.9% annualized, partially offset by a slight decline in time deposits. The demand deposit growth was driven by organic growth and seasonally higher average business account balances. Total growth in transaction deposits in customer repos totaled $84 million or 3.3% annualized. At the end of the quarter, our funding position continued to strengthen, as 80% of total deposits and customer repos were transaction based. From a total funding perspective, our relationship of loans to deposits and customer repos was improved at 91%. As mentioned earlier, we successfully converted five Bank of America branches in September. Not only did this expand our retail delivery channel but also gave us a low cost funding source moving forward particularly since we have grown loans organically for period of over six consecutive years. Additionally, the Metro and Fifth Third deals will also provide us with a solid deposit base…

[Operator Instructions] And the first question comes from Sandler O'Neill.

Hi guys, this is Frank. How you're doing? Just a couple of questions. One, first, I'm sorry if I missed it, but in terms of guidance, previously you guys had guided to mid-to-high single digit core fee income growth I think for the year, I'm just wondering given the strength you're seeing here if there was any change that I might have missed or if you commented on that?

Yes, we just reaffirmed the guidance we gave last quarter which is what you just stated, Frank.

Okay. But I guess looking at fee income results, how do we think about it in this low interest rate environment, is it fair to assume that fee income revenue outpaces spread income growth here.

Yes, I mean it's hard to say. We'll see how things play out from an interest rate perspective but when we look at the investment we've made, we've made significant investments in prior periods in personnel and systems, in a number of areas, and particularly mortgage, international banking, and capital markets. So, we're starting to experience the benefits of making those investments and I would expect that fee income and those categories would continue to accelerate over time. So, if we're in a flat rate environment, the strategy was just augment lack of growth in net interest income with faster paced growth in the fee income categories particularly those high value product areas that I mentioned.

Okay. And I'm sorry if I missed it, but it looks like there was some significant strength and service charges on deposits in the quarter. Is that - what does that reflect sudden change in pricing, was that just strength overall?

It was just a good quarter overall. There was quite a bit - there's just increased debit card usage, it's pretty much across the Board.

There is no change in pricing. The volume -

It really is a testament to the consumer bank's ability to gain households over the primary bank for the household. So we're seeing it across the Board in a number of categories which has helped that area.

Okay, great. And then on just on capital, TCE ratio is around 7%, I think - correct me if I'm wrong but that will be headed down to the sort of 6.5% with the metro deal and the branch deal and just wanted to gauge how comfortable you are with TCE at those levels and do you think you need to buffer that at all in terms of common equity, how should we think about that here?

I would comment, as we've stated in the past kind of 6.5% to 7% range for TCE is where we're comfortable. So, we're comfortable throughout that entire range. As you know, we manage capital very efficiently and we will continue to do that. The capital raise we did in 2013, really restacked the entire capital base for us, put us in a very good position to be fully compliant with 2019 Basel III, and I think the key thing that we've talked about is just with our lower risk profile, the strength of the underwriting that we have, we continue to be very comfortable managing at those levels. And as we roll forward to kind of looking ahead to early 2016, once we bring in Metro and the Fifth Third branches, very comfortable with our projected capital ratios where we would end up there, the $100 million in sub-debt is designed to support the organic growth between now and then as well as the acquisitions once they come on our balance sheet.

I think Frank we've also experienced some very solid profitability metrics over time where you may see growth in earnings per share, it's linked to reserve release or some other capital debilitating activity as you move through the cycle, that's not the case for us. So as we continue to gain scale, we're able to generate internal capital that more than supports our growth objectives and our investment pieces. I hope that helps.

Yes, it does, great. Thanks. Got it.

Thank you. And the next question comes from Bob Ramsey with FBR.

Hi good morning, guys. To follow up I guess on Frank's question about the service charges, fee income line, really was a good number. I know you all mentioned better traction to consumer bank. Did the Bank of America branch deal have a material impact there or is it really a pretty clean organic growth quarter-over-quarter?

They had very, very little impact that occurred at the end of September towards to the middle to end of September. And it had very minimal impact, it was more about superior performance in the core consumer portfolio. So, increased utilization of products and services, and I think it's - I've mentioned the FDIC statistics on growth and we've had some pretty good growth in the consumer segment over the last six months or so and it's really starting to help us.

Yes, as an organization we've been focusing on household acquisition growth, deeper penetration into the various products, with the mortgage business growing, cross-selling products to those customers. So, I think it's a bunch of things that are contributing and we expect those to continue to contribute.

Great. So, I guess you're telling the expectation be to continue to build off of this level.

Absolutely.

I know you all provided a little bit of net interest margin outlook at the start of the call and said you expect a slight narrowing of core margin at least until rates rise. Is it fair, the core margin was only down a basis point this quarter and you really don't have much left to loose on a purchase account accretion? Is something in couple of basis point range just to get nothing to a couple of basis points, is that what slight narrowing means?

Yes, I would say with rates where they are at this point, we're looking for one to two basis points compression off of that core 338, which is very, very slight. I think it's driven by a few things, if you look at our cost to funds, it's locked in at 33 basis points, very attractive level but it's been kind of locked in at that level. When you look at the reinvestment rates on our securities portfolio, it's now basically a push. The total yield on investments as a whole actually went up a basis point this quarter to 224 on $3 billion, that obviously supports the margin. And then the impact on the total loan portfolio yield of kind of yields on new loans versus those that are paying off has lessened, as I commented on. So that obviously helps support the margin. And that over time, that gets close to the point where it's just a push, but it did narrow this quarter and that helps to support the margin too. That all kind of is baked into that one to two very slight margin compression.

Perfect. Then, lastly, I was hoping maybe you could talk a little bit about the Fifth Third branch deal that you guys announced this quarter. The branches look like they're at a size that they probably don't make a lot of money as they stand today, and previously you comment on any thoughts around consolidation or beyond just sort of building out the deposit franchise, how are you really going to kind of monetize these additional deposits given you've already got a reasonably low loan to deposit ratio?

I think I can comment on that. We've looked at that transaction both financially and strategically. And when you drill down into the financial analysis there, it does make good sense for us to - it did make good sense for us to pursue the transaction. We're very pleased that we were successful in that endeavor. There are opportunities to take cost out and integrate into our system. There are number of branches that sit in very close proximity to our delivery channel. And the objective was to gain entry into certain markets in Pittsburg where we would have had the noble in because we had gaps in our delivery channel. So, even though we are still continuing to evaluate our overall delivery channel or optimize that channel in Pittsburg, there were areas in the city where we had no presence. So this really filled the void for us and it gives us an opportunity to consolidate five to six locations and take the cost out. So overall it's a tremendous opportunity for us. And with the growth that we've mentioned and the growth we've experienced over time that only further enhances our ability to continue to gain share in the Pittsburg market.

Great. And then as far as consolidating these locations, does that happen pretty soon after you guys close the deal or what does the timeline look like?

It's almost simultaneous. And there are pretty obvious instances where we have a branch couple of doors down, that's a no brainer. I mean we're not talking about consolidating branches that are great distances apart, these are almost next to each other. So –

Sure.

There is a great opportunity to do it and to do it when we convert. So –

And out of curiosity, what have you guys modeled in terms of deposit attrition on branch deal like this?

We really didn't disclose the financial details. But I would apply typical attrition rates. We've looked to see, there'll be some loss but given the coverage that we have in Pittsburg the fact that Fifth Third is exiting the market, the attrition rate should be significantly lower in this instance. So, we're very excited about the opportunity and I think it really does round out our delivery channel, and it actually positions us to continue to evaluate optimization opportunities and efficiency opportunities down the road.

Our sale was good example in this market where we modeled certain level of attrition and we actually went out once we combined it in with the rest of our footprint.

Okay. Great, thank you, guys.

Thanks.

Thank you. And the next question comes from Preeti Dixit with JPMorgan.

Hi good morning everyone. I just have follow- up on the fee income questions, and for the growth on the swap fees this quarter.

Give me a second there Preeti. I don’t have that right at my fingertips.

Sure, no problem. Maybe more you are looking that up just looking at the mortgage banking can you give us some color on what your volumes and gain on sale did in the quarter and then maybe your outlook there given what rates are.

First of all the mortgage banking business, the investments occurred in prior periods. So it positioned us to benefit during this low rate environment with mainly purchase money opportunities. So the majority of the originations that we have and I have said this in the past they are largely purchased money. I can't remember - 79% is purchase money. So when we evaluated our mortgage banking operation several years ago, we looked at it relative to the changing regulatory climate and our lack luster performance in that area is very, very small originations and gain on sale. We made the strategic decision to invest because we felt that given our market penetration and some of these larger MSAs, we weren’t getting our fair share of the purchase money market and we brought consultants and they did a similar analysis confirmed what our conclusions were and we moved forward the investment. So the gain on sale that we're experiencing here is very little refinance activity. We changed our model slightly so we were able to retain servicing. We no longer sell our mortgage loans with servicing released which caused issues with cross-sell and some of the elevated statistics within our consumer bank is directly correlated to increase production in that mortgage banking operation. So, the mortgage truly is the lynchpin product for other product penetration and household. So that’s all working and gain on sale as mentioned is up significantly over the prior period. So I don't know if we drilled down into the detail of actual margins, but the margins are little better.

Margins are comparable from last quarter

And the gain on sale is good there.

And Preeti on the swap fee income it was up $860,000, second quarter and third quarter.

Okay, got it. That's helpful color. And then Gary it looks like the credit trends are stable in the quarter, but the provision rate bumped up a little are you seeing any signs of softening in any segment. And then how should we think about your reserve from hearing, I know you had 122 basis points or are you just going to provide with loan growth or maybe though some additional reserves.

Preeti as mentioned in the call, we see a little softening in the metals in the energy markets. We have always taken a very conservative position here. We recall our energy related portfolio is extremely small. At the end of the quarter it was $180 million or about 1.5% of the portfolio. The Marcellus and Utica related was $145 million of that or about 1.2% of that. We also touched on the call on the concentration management and how aggressive we do manage those positions and specifically relating to metal whole sellers, which is where we are seeing a little softness. Our portfolio there at the end of the quarter was only $33 million. So it’s very small comparatively speaking.

And in the energy space we are supply chain lenders not direct into the development.

And those clients don’t just support the energy space. They support a variety and diversity of industries. So that few credit migration that I referenced Preeti is very normal. It’s part of the normal economic cycle and as I mentioned, we feel like we are being prudent in just building a very tiny reserve against a few of those credits. That being said, they are generally ABL credits with asset based controls around them and good solid collateral coverage’s. So just a normal part of the cycle. One final comment therefore you in total, the weighted average risk ratings across that energy related portfolio continue to be better than a satisfactory level rating. So, we feel very good about it.

Okay. That's helpful. I'm sorry if I missed it, but what was the dollar amount in provision associated with that book this quarter?

It was about $1.07 million or so.

$1 million or so. Okay. That's helpful, thank you so much. And then last question for Vince. Given short term rates are tracking lower than I guess your prior internal outlook and the risk out there for low for a while here, are you thinking about shifting strategy at all when it comes to managing the securities book or maybe your tolerance to add some more fixed rate assets here to pick up yield?

I think that this philosophy we've used over time to manage to really to a neutral, not taking bets on interest rates is serving us well. I don't think this is a time to start to change our investment strategy and go long and just take more risks. So, I'm very comfortable, Scott, and I talk a lot about how we manage that portfolio and very comfortable with how we've been managing it. I think it's still the right thing.

And we essentially have addressed that and we talked a little bit about the investment we've made in fee based businesses. From our standpoint that is a hedge, the investment we've made, the expense burden has already been incurred and now we're realizing the benefits of expanded revenue in international banking in our capital markets platform with our syndications area and the investment we've made in derivatives, mortgage banking, that is our hedge. So, we're not going to change strategy from here but I'm very pleased with our Group's ability to think forward during the strategic planning sessions and really drive investment in those areas that are paying off now when we need it.

Okay, great. Thanks for all the color guys.

Thank you. And the next question comes from Casey Haire with Jefferies.

Hi, good morning, guys. Wanted a follow up on the fee guide. If my math is right and so the fees - if fees were to hold flat in the fourth quarter, that would put fees up, core fees up 11% on the year and yet the guide still is mid-to-high single digits which presumes that you guys are expecting a slide in core fees in the fourth quarter, also sounds like service charges has momentum. So, I'm just wondering, do I have that right and if so what are the drags sequentially in the fourth quarter on fees?

There aren't any drags Casey, mid-to-high single digits goes all the way up to just under 10, the insurance revenue that you had for the quarter, there's always, third quarter is a strong insurance quarter because of the renewals that occur in the third quarter. So, that gives you a little extra revenue on the insurance side. And then the other category should continue to show some nice growth. So it's mid-to-high which is a pretty broad range. But I think, I'm not questioning your math in any way.

Vince often accuses me of overanalyzing, I think you're in the same boat as me.

Okay.

I think he's trying to give you conservative guidance on fee income and as you said, I don't anticipate any, there's no significant seasonal weakness or any other factors that we can think of that would change the outcome.

Okay. And it I - it's core fees, right? So it strips out securities gains?

Correct, yes.

Okay. All right, and then just switching towards the M&A outlook, obviously metro come here and the Pittsburg branches, but are you guys on the sidelines for now as you look to close these deals, are you still out there and pursuing opportunities?

As we've looked at it here internally, we have - we really only have one significant M&A event occurring. We've done as many as three, balancing at different points in time. So, I would say that we have a pretty solid strategy relative to M&A, we have a select group of targets that we've added with our Board. We actually have a strategic planning process centered around M&A because it is a part of our culture here, I mean you can't hide from it, we've done a number of transactions since I've gotten here, in 2005, we've done many. So, it is part of our culture and we're very aware of capacity levels. We're very cognizant of infrastructure build that's required to grow with the acquisitions and we're very selective in terms of targets. So, what we can't control is when financial institutions become available. So, that's all I can really tell you. There's still capacity, we're not rushing out to do anything but we're going to be very deliberate in what we do.

Okay. Thank you.

Thank you. And the next question comes from Collyn Gilbert with KBW.

Thanks, good afternoon, guys. I definitely do not want to be the dead horse in the sea, but - because it just seems like to Casey's point that fees have almost have to drop in the fourth quarter, which is clear what you're indicating not to have happen. So, when you're giving your guidance, is it linked quarter annualized single digit growth or should we just assume bottom line you guys are going to beat the fee projection and leave it at that?

You could assume whatever you would like to assume.

All right.

I think that we've been pretty clear about where we are.

Okay. All right, you're going to beat on fee.

I'll leave it there.

Very good. Okay. So then Vince, one other thing, just to clarify on your guidance, when you – you had indicated obviously that your original Fed fund assumption was 75 basis point at year end, now you're looking at 50 basis points by year end, your NIM guidance that you're talking about. Again, is that regardless of rates or that includes 50 basis points hedge fund rate by the end of the year?

That would include the 50 basis points.

Okay.

It is one to two basis points and remember it's - you're talking in December, so really not much impact in the quarter.

Right, right.

Minimal impact to the fourth quarter.

Yes, it really has not much impact at all.

Yes, okay.

So, essentially you'd be looking at –

It's where we are.

It's really our run rate.

Okay. Very good. And then just in general, you guys have done a really good job of kind of keeping expenses sort of in check, can you just give sort of - is it kind of - your expectation for where things should go from here consistent with what you've done historically, are there any other big investments that you see coming in the - coming down the pipe or is this really kind of what we should expect going forward?

No, I think we've made the - we continuously make investments in the Company. We make that pretty clear there's actually a slide in our investor deck and we track the level of investment that's been going on over the last five or six years here, I think it goes back at least five years. So, we're very focused on making strategic investments. It has not been easy to invest in growth, in this environment I think we've been very, very good at picking the spots and our e-delivery platform we built out over time, we launched a new website with really great, with a really great ability to take applications online for consumer banking. So, we've enhanced those capabilities tremendously. We've made tremendous investment in a number of areas, the mortgage banking business, the wealth business, the insurance business over time. So what I think we've done a good job is managing both capital investment and human resource investment in areas that drive revenue growth that keeps our efficiency ratio in-check and keeps us with positive operating leverage, and that's evident. This is quarter-after-quarter that we've talked about this. So, I think as we look forward, we've said it before, we're in a pretty good place and we're starting to see some of the benefits of making those investments in particular fee based areas and I would expect that the overall investment we've made from an M&A perspective in the larger metros that we moved into to continue to help us as well.

Okay. That's helpful.

I hope that's helpful. There's no huge looming issue for us. We've also invested in infrastructure from a risk management perspective significantly. So we've been able to accomplish that as well and the M&A strategy that we pursued helps us as Vince, mentioned, gains scale and maintain efficiency despite the fact that we have to add a lot of people in compliance and risk management along the way.

And that's part of how we model it, when we look at acquisitions, we model ad bags into that model, so we kind of invest some of the accretion in the folks we need to continue to add in the risk related area. We've added - since 2009 we've added 113 people in the risk related areas, which was a 50% increase. So, and that' been consistently every year as we've grown. So, I think to keep in pace is part of the philosophy that we've always had and will continue to have.

Okay. That's great. That's helpful. And then just one quick final housekeeping question. Do you guys know when metros reports earnings?

In the next couple of days.

Soon.

Okay. Super. All right, thanks guys.

Thank you. And the question comes from Brian Martin with FIG Partners.

Thanks, most of my questions were answered. Just one thought and just going back to the M&A for a minute, just with the rate outlook staying lower for longer, I guess when you guys look at the M&A opportunities anymore slang towards doing something from a non-depository standpoint just to kind of keep enhancing the fee income business or is that, is it equally weighted between both banks and non-banks? Just curious.

I would say in the fee based category we focus more on organic growth because we had such significant opportunities in the markets that we've moved into. So, from our standpoint when we evaluate an acquisition in that space relative to building out the capability ourselves, because the multiples tend to be so much higher in those fee based business units. It makes more sense for us to build out personnel and capitalize on the investments we've made in the banks we've acquired in the new markets. So that's what's working very well for us. That doesn't rule out a non-bank acquisition that could enhance that. It's just that it's been more feasible for us from a return perspective to invest organically in those business units. But we are open to looking at opportunities and have from time to time.

Okay. That's helpful. And just maybe one last thought, just kind of the efficiency on the expenses you just talked about. Fair to think about it, any material improvement from kind of the curved run rate on the efficiencies is more going to be a function of rates [created] [ph] and maybe just incremental improvement from here for this lower rate environment for a bit of time more?

Well, I would say that from normal operation, yes, and then as we look ahead to bringing metro on, when we model the acquisitions, that scale that that has created allows us to continue to improve the efficiency ratio. So, I would expect you still get some benefit when you bring that into the fold in early 2016. But from normal operations you still have some, I think the way you characterized it is a good way to characterize it.

Okay. And then maybe just lastly, just kind of asset sensitivity, how does that change with metro in the equation?

It's not going to change materially, I mean we're overall asset sensitive. I mean if you look at where we are kind of today at the end of September, I mean up 100 ramp is 1% increase in net interest income, up 200 is 2.1%, and in the shock scenario it's 1.6% and 3.1%, up 100, up 200. Metro would materially change that.

Okay. Thanks very much guys.

Thank you. And this does conclude the question-and-answer session. So, I would like to turn the call back over to Management for any closing comments.

Yes, I would like to thank everybody for calling in. We had a lot of great questions, I appreciate the interest. And again I'd like to reiterate, this is a very solid quarter for F.N.B. I believe we've been able to accomplish quite a bit with revenue growth in this challenging operating environment for a number of consecutive quarters. The EPS expansion has been nice and really is directly related to execution of those M&A opportunities a few years ago. So, again, thank you everybody for calling in and we look forward to our next call.

Thank you. This does conclude the conference call. You may now disconnect your lines. Thank you for attending.