Good day, ladies and gentlemen and welcome to the Fulton Financial Fourth Quarter Results Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder today's conference is being recorded. I would now like to turn the call over to Jason Weber. Sir, you may begin.

Thanks, Sidney. Good morning. Thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for 2018. Your host for today's conference call is Phil Wenger, Chairman and Chief Executive Officer of Fulton Financial Corporation. Joining Phil Wenger is Mark McCollom, 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 fult.com by clicking on Investor Relations, 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 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 Statements on forward-looking statements in our earnings release and on slide 2 of today's 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 financial information included with Fulton's earnings announcement released yesterday and slides 13, 14, and 15 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Now, I would 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 Mark McCollum shares the details of our financial performance and discuss our 2019 outlook. When he concludes we will open the phone lines for questions. Overall it was another solid year for our company as we hit a record level of net income. Our net income surpassed $200 million for the first time in our history. Our financial results in 2018 reflected continued progress in executing our growth strategies and the benefit of multiple interest rate increases by the Federal Reserve. Our average loan portfolio increased 3.8% year-over-year which was in line with our 2018 outlook and was driven by growth in most of our loan portfolios and spread across our footprint. Average commercial loan growth lagged average consumer and mortgage loan growth year-over-year. Our commercial loan growth was impacted by higher repayments, lower line utilization, and slowing originations as the lending environment remained extremely competitive throughout 2018. However, loan growth accelerated towards the end of the fourth quarter and as a result period in loan balances increased $241 million linked quarter. We continue to grow in Philadelphia and Baltimore. Both markets have a team of commercial and consumer lenders serving the markets to help us take advantage of what we view as tremendous long-term growth opportunities. In Philadelphia, we opened a mortgage loan production office in May of 2018 and our plan is to open another LPO in Camden, New Jersey later this year. We opened a full-service branch in the beginning of January and have two more targeted to open by the end of the first quarter. In Baltimore, we opened a mortgage loan production office in January and have plans to open a full-service branch offices in…

Thanks Phil and good morning to everyone on the call. Unless I note otherwise the quarterly comparisons I will discuss are with the third quarter of 2018 and annual comparisons over 2017. Starting on slide 6 earnings per diluted share this quarter were $0.33 or net income of $58.1 million. Fourth quarter earnings in comparison to the third quarter reflect increase in net interest income and a decrease in income taxes. However this positive comparison was more than offset by the impact of a higher provision for credit losses, lower non-interest income, and higher non-interest expense and we'll step through each of these components in a moment. Moving to slide 7 our net interest income in the fourth quarter improved by $2.8 million or 2% linked quarter driven by a 2 basis point expansion in our net interest margin to 3.44% and a $230 million or 1% increase in average interest earning assets. In the fourth quarter our interest earning asset yield grew 9 basis points principally driven by a 10 basis point increase in average loan yields. On the funding side deposit cost increased 9 basis points but short and long-term borrowing costs remained fairly stable. Our overall cost of funds increased 8 basis points which was slightly lower than the yield increase on average interest earning assets. The 25 basis point Fed funds rate increases in each quarter of 2018 coupled with the increases we've seen in our interest bearing deposit rates have resulted in a year-to-date deposit beta of approximately 28%. This is slightly higher than 25% year-to-date deposit beta through September 30th but in line with our previous expectations. We anticipate that our net interest margin in the first quarter of 2019 should follow the macro themes of the last few quarters and that will benefit…

Thank you. [Operator Instructions]. And our first question comes from Austin Nicholas from Stephens Inc. You may proceed with your question.

Hey guys, good morning. Could you maybe talk about what kind of assumptions for Fed rate hike moves are embedded in that 0 to 3 basis points a quarter guide and maybe what drives you to the high end versus the low end there?

Yes sure. Good morning Austin. It's -- in our assumptions we assume an increase in June and we assume one in December of 2019. Now the one in December 2019 obviously had very little impact on 2019. The one in June we actually you know ran our forecast internally with and without it. And if we assume 0 rate increases it would impact our internal forecast by about 2 basis points. So said another way whether we see these rate increases or not we think we're still comfortable with the guidance of 0 to 3 basis points per quarter.

Got it, okay, that's very helpful. And then maybe just on the expense guidance, I guess does that include the I guess cost saves from the eight branches that are expected to close this quarter and then additionally is that excluding the tax credit amortization expense or is that including that number?

No, it includes the tax credit and amortization as the tax credit that occurred this quarter, you know a lot of our tax credits are either low income housing tax credits or their new markets tax credits which are amortized when you get that benefit and the amortization is over multiple years. The credit we realized in the fourth quarter is an energy credit where it's a one-time credit and a one-time expense. So going forward what you should expect to see next year is us getting back a little bit below even what the current run rate is. Expect about $1.3 million to $1.4 million per quarter in 2019 in that tax credit and amortization. That number is included in that expense guidance that we give and also included in that expense guidance is we generated this year between the third and the fourth quarter about $1.3 million of cost related to a branch closing that happened and we closed two in the fourth quarter, eight coming here in the first quarter. There's going to be some additional costs on that next year which are in our expense guidance but then there's also going to be savings unrelated to that and the earn back or those branch closures in terms of the one-time cost versus the savings are less than one year. That's about 10 months to invest.

Got it, okay and then maybe just one last one, I think that you spoke about the kind of provisioning for a specific credit this quarter and I believe it was in the agro business kind of vertical. I guess could you maybe speak about that overall agriculture portfolio and how you're thinking about it. I think in past quarters it's been brought up as stressed but that delinquencies have more or less stabilized to kind of decline. And if I look at your CNI or your commercial delinquencies they continue to come down. So, maybe any commentary on your comfort of that -- on that portfolio outside of the kind of downgrade that you saw this quarter?

Yeah, so we think it's still stabilizing. You exclude discredit and delinquencies and the right portfolio actually would have been down for the quarter. And so I think we continue to watch it closely but are pretty comfortable with it.

Okay, great, thanks for taking my questions.

Thank you. Our following question comes from Chris McGratty with KBW. Your line is now open.

Hey good morning. Question on the buyback, the slide deck she suggested capital levels you know at the levels through the next year. You got a stub of $5 million left, is it fair to assume that you're not looking to come back to the buyback given where stocks are trading because you are fairly aggressive so I am just trying to get a sense of whether the expectation is that you will go back to the Board and ask for more or is this kind of it for now?

So Chris, we talk with our Board every quarter about the uses of capital and it's possible that we could put another plan in place as we go through the year. I think a lot will depend on growth and other opportunities that we might see.

And then on the kind of alternative uses, so you've got another one of them lifted. Can you speak to kind of desire to do a deal in 2019, your stock has held up on a relative basis little better than the peers and just kind of interested if deals would be kind of climbing the ranks a priority for 2019?

Well we still have orders against the holding company and our subsidiary bank Lafayette Ambassador. So until they go away our deals are still impossible. But if the right strategic deal came along after those were lifted and it would work from a financial standpoint, we would have interest.

Okay, great and then maybe a last one if I could on credit, your understanding that second quarter was kind of idiosyncratic event and this quarter you had the inflow, I am wondering why -- it seems like you set a reasonably high bar for yourself for 2019 on the provision. And just given the concerns that are kind of permeating the market from a credit and economy, wondering why it seems to be a little of an aggressive guide on the provision, maybe you could speak to your confidence and what you're seeing that we may not be able to see from the outside? Thanks.

So overall we do not see softening in our overall portfolio and this past quarter even with that one large credit we would have been very close to this guidance. So we have confidence that the range that we again should hold up for now anyway.

Okay, thanks a lot. Appreciate it.

Thank you our next question comes from Joe Gladue from Merion Capital Group. Your line is open.

Hi, good morning.

Well good morning Joe.

Let me just follow up on one of the earlier questions on the interstate expectations, talked about what you're expecting for rate hikes to be. I was just wondering what your thoughts are on the slower yield curve and how that might be affecting your investment portfolio strategy and such?

Yeah, I would say it's having a lot of impact on our investment portfolio strategy. We have -- I mean our investment portfolio realize cash flows of around $23 million to $25 million a month and I mean we continue -- our investment portfolio is not used for earnings. I mean our investment portfolio is there for liquidity. And so with the size of that portfolio I would say that we're going to continue to buy relatively conservative mortgage backs and CMO's and occasional municipal investments as we have in the past. And -- but we're also have hit a pretty wide inflection point there where we see the yield on investments that are going off versus the investments that will buy on. I mean there's obviously a significant yield pick up on that.

Okay and just wondering I guess, you did get in early [indiscernible] stopped our prepayments just wondering if you could quantify that a little bit what you saw in the fourth quarter?

Yes, sure. We had highlighted each of the paths in the second quarter and the third quarter where we had emphasized there are prepayments specifically on our commercial business for about $100 million higher in 2Q and 3Q relative to what we saw in the first quarter of 2018. In the fourth quarter the numbers were $80 million higher than what we saw in the second and third quarters. So you take from the beginning of the year to now our prepayments have actually increased in the commercial space by $160 million. Now when you then look at our overall growth we have in the fourth quarter what it means is that we had a solid, really solid quarter relative to the last three link quarters for commercial originations. But we continue to see very high prepayment activity. You know amortization and just kind of normal loan book that's relatively flat, that's somewhere in $650 million per quarter range. But the prepayments have accelerated.

Alright, thank you.

Thank you. Our following question comes from Russell Gunther with Davidson. Your line is now open.

Hey, good morning guys. I wanted to follow up on some of the expense comments earlier. You made the remark that you had about 3.6 million in charter consolidation expense recognized in 2018, do you guys have a sense for what that could look like as you look ahead to 2019?

Yeah, we do. And I believe we've even said maybe in the last call, we have said that we expect it to be somewhere in the range of $2 million to $3 million per quarter and the timing of that is likely going to be heavier in the second and third quarter of next year. We would hope by the time we're into the fourth quarter of next year we should see those charter consolidation cost behind us.

Okay, I appreciate that Mark and then you had also said earlier that as part of some of the efficiency initiatives you see you mentioned the consolidation of the bank charters and kind of exiting the BSA/AML orders. So, how should we think about what would fall to the bottom line between incremental charter consolidation expense and some of those efficiencies you had talked about earlier?

Yeah, we have again we continue to look at a whole bunch of different ways to make ourselves more efficient. Obviously we just announced between two this quarter and eight in the first quarter, 10 store closings but we're also announcing in selected markets where we see good market opportunities growing branches as well. So, on a net basis you will continue to see us shrink in markets that aren't as desirable or where we have too many branches for changing customer preferences but you're going to see us open branches in markets where we see a market opportunity. As we've mentioned in prior calls much of the consolidation of our company despite running a separate bank charters we've had a largely consolidated back office for some time. And while we see there is going to be still some incremental savings as we get further past the charter consolidations and the BSA orders. We're not quantifying that as a hard dollar number at this time. I think -- but certainly the expectation is for a long-term positive operating leverage and with that we're really pleased with where we brought our efficiency ratio to for both this year and for the fourth quarter. But we're certainly aiming for further improvements in that going forward.

Okay, I appreciate that and then last one for me was just circling back to the agro business credit, is there any kind of further detail you could share on the specific credit, why that would -- why even with that you still feel okay with the rest of the portfolio and then should the current government shutdown kind of continue to carry on for a longer period of time. Does that potentially change your view or add any risk in that portfolio?

So, I don't think we want to provide any more specifics in regard to the one credit but overall on the Ag portfolio we spend a lot of time analyzing it, looking for trends, and it's definitely stabilized and any trend that we see in that portfolio is positive as compared to a negative. The shutdown on the government has had an impact for us with our SBA lending and it has some impact in the mortgage area. But to date we have not seen any impact in the agricultural portfolio.

Okay, thank you Phil. And then sorry sneak one more in there please. On the loan growth outlook, the low to mid single digits on average how do you expect that kind of mix still up, should we expect sort of similar drivers to 2018 or as you look out this year any particular loan bucket showing more restraint than others?

Well, I think you're going to see the same type of growth rates on the consumer side. And then I'd say on the commercial side we don't have quite as much confidence on exactly what's going to happen. So if that strengthens a little I think we will be more to the high end of the guidance and if it doesn't we'll be more in the middle to the low end.

Okay, thanks very much guys.

Thank you. Our next question comes from Matt Schultheis, Boenning. Your line is now open.

Hi, good morning. So just a quick follow up to Russell's question regarding the government shutdown, aside from ag or SBA. Have you seen any customer requests particularly on the retail side regarding delinquency or any sort of reach out from mortgage borrowers in Maryland or Virginia to sort of work with them as their full load or any increase in early stage delinquencies?

So, we've put a program in place for any of our customers that are impacted by the shutdown. So, we do have a -- on our credit card we work with our provider there and we have card specials at 0% for a period of months. We will offer a unsecured line of credit at 0% for up to three months. We're going to allow deferment of payments on consumer loans and we're offering some relief for the overdraft protection. To date we have not seen any weakness and have not had a lot of inquiries into those programs.

Okay, thanks for that. And just I know you don't want to give a lot of detail on this particular credit so, I understand that you may not answer this but I am going to ask, was there -- did this order come to the surface through any change to your policies and procedures regarding loan review following the fraud or was this something more borrower specific?

No, it was borrower specific and it's been a credit that we've been watching for some time.

Okay, thank you for your time today.

Thank you. Our following question comes from Matthew Breese with Piper Jaffray. Your line is now open.

Good morning everybody. Just to follow that thread there, just curious what was the total size of the relationship that went sideways this quarter, how long have you had that relationship and what was the nature of the agribusiness, was it poultry or dairy or other?

Well, we're not going to get into any more specifics in regards to the credit for confidentiality reasons. But the size of the credit was about $35 million and three or four years is how long we've had that credit?

And was it a syndicated loan or were you the only bank involved?

We were the only bank.

Okay, and I guess the other thing that was surprising or I wanted to learn more about was the increase in non-performing for the leases, 19 million increase and I wanted to get a sense for…?

So, approximately half of that credit is a C&I loan and the half are leases. So the increase that you see in the leasing category is related to that credit.

Right, and following that thread there was very little or not a huge increase in lease charge offs. So can you help me just get comfortable with the size of the NPA increase versus the lack of any charge off there and so when you looked at the collateral how did you get comfortable with that outcome?

So, we've looked at the collateral and net credit and we do not -- if the credit would continue to go south which we certainly are hopeful that it does, we don't see a large charge off and we didn't think it was appropriate to charge anything off at this time.

Okay, the last one on this subject was aside from the government shutdown there were some other things trade related this year that could impact the Ag business, did that play a role here? Lot of the farm bill only got passed later in the year than expected that would be one thing I was thinking?

I would say no, it is the easy answer to that question.

Okay, and then changing subjects a little bit, the tax rate guide 13% to 16% seems a little high versus what we saw this year, can you just give me an idea of what end you up on the low end versus the high end, is there anything in there that's tied to some of the New Jersey state tax laws that you might have a firmer grasp of now?

There's a little bit of that in there but that's really de minimis. I mean what it really comes down to is the post federal tax reform. We've historically been having investors and participants in low income housing tax credit transactions. Post tax reform we have capped that portfolio a little bit. And that's why you've seen the glide pass from 16 to 17 to 18 to 19 amortization absent this kind of one solar credit transaction that happened in the fourth quarter. You have seen glide path downward in the amortization on these tax credit deals. So, it's really as simple Matthew, when you have a constant level of tax preference items but you expect to see your pretax earnings going higher every year that's going to increase your effective tax rate. So, that's the reason.

Okay, understood. Can you share with us any of your early findings from CCIL and then as a follow up to that I know there's going to be some reliance on quantitative versus qualitative factors to get to your true-up reserve. Can you just help us better understand some of the qualitative factors that you'll use and to what extent you'll use them to come to that true-up reserve level?

We are -- we and I think the whole industry is not really disclosing a lot yet other than to tell you that we've been working very, very hard on internal on it. We are fully confident of our ability to comply with the new standard in the first quarter of 2020 and that we are again working very, very hard on model development and our methodologies throughout 2018. And if we get to a point that we think it's appropriate to disclose, we will certainly make a disclosure at that time but until then I can just assure you that we are spending a lot of time and effort and energy around this and have a great team working on it.

Understood. Just last one from me is on the branch closing effort, it sounded like there's more to go there beyond first quarter of 2019. As you think about potential branch closure costs and the expense run rate is that baked into your guidance?

It is, it is, yes so the two in the fourth quarter and the eight in the first quarter both the cost savings as well as the onetime costs are baked into the guidance we give.

Understood, that's all I had. Thanks for taking my questions.

Thank you. [Operator Instructions]. Our next question from Chris McGratty with KBW. Your line is open.

Thanks for the follow-up. Mark, I just want to make sure I got the expense. I know you got a lot of questions about it. The branch consolidation and the conversion cost what -- I guess what an aggregate should we expect in 2019. I understand that the low single digit growth rate off of 2018 but what -- can you just spell it out I think -- second and third quarter having but what's the total amount because I would imagine some of these are kind of deemed one point in time?

Yeah total amount, we have $3.6 million of charter consolidation cost in 2018. In 2019, we think that that number could be you know $4 million to $5 million higher. So you can be somewhere in the sort of $7 million and $9 million range, the majority of that we anticipate would be in the second and third quarters. And in terms of the branch consolidation costs we expense $1.3 million of that in 2018 related to either branches that closed in 2018 or branches to close in 2019 because once you reach that trigger point you start accelerating leasehold amortizations and such. There's going to be another $1.6 million that we're not carving out. That's just -- that's in our run rate on expenses $1.6 million in 2019 related to those branch closures. But then we anticipate that the earn back from that total, so there is $2.9 million to cost. The annualized savings on those we think should be $3.5 million so it is an earn back of about 9 to 10 months.

Okay, I appreciate it and then just in terms of the size just a follow up on the credit the -- did you minus the size like the internal limits on credits. I mean $35 is a little bit higher than I would've thought on a standalone basis post a club deal but could you remind us kind of internal limits on single relationship that you have in place.

Our internal limit is $55 million and I think that's a pretty conservative number.

Okay and so in terms of bank -- credits of this size of 30 to 40, I mean are we talking a couple handfuls or is it more than that in terms of just granularity?

Couple of handfuls.

Alright, thanks a lot. I appreciate it.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back to the Phil Wenger for closing remarks.

Well, thank you all for joining us today. We hope you'll be able to be with us when we discuss first quarter results in April. Thank you.

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.