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Executives

Laura Wakeley – Vice President and Corporate Communication Manager

Scott Smith, Jr. – Chairman and Chief Executive Officer

Charles Nugent – Senior Executive Vice President and Chief Financial Officer

Philip Wenger – President and Chief Operating Officer

Analysts

Frank Schiraldi – Sandler O'Neill.

Craig Siegenthaler – Credit Suisse

Matthew Clark – Keefe Bruyette & Woods, Inc.

Richard Weiss – Janney Montgomery Scott LLC

Matthew Schultheis – Boenning & Scattergood

Collyn Bement Gilbert – Stifel Nicolaus & Co

Andy Stapp – B. Riley & Company

Fulton Financial Corp. (FULT) Q2 2009 Earnings Call July 22, 2009 10:00 AM ET

Operator

Good day everyone and welcome to the Fulton Financial second quarter 2009 earnings results conference call. This call is being recorded. At this time, I’d like to turn the conference over to Vice President of Corporate Communications Manager, Ms. Laura Wakeley. Please go ahead.

Laura J. Wakeley

Good morning and thank you for joining us for Fulton Financial Corporation's conference call and webcast to discuss our earnings for the second quarter of 2009.

Your host for today's conference call is Scott Smith, Chairman and Chief Executive Officer of Fulton Financial. Joining him are Phil Wenger, President and Chief Operating Officer; and Charlie Nugent, Senior Executive Vice President and Chief Financial Officer.

Our comments today will refer to the financial information included with our earnings announcement, which we released yesterday at 4:30. These documents can be found on our website at fult.com by clicking on Investor Information and then on News.

Please remember that during this webcast, representatives of Fulton Financial may make certain forward-looking statements regarding future results or future financial performance of our company. Such forward-looking statements reflect the Corporation's current views and expectations, based largely on information currently available to its management, and on its current expectations, assumptions, plans, estimates, judgments, and projections about its business and its industry, and they involve inherent risks, contingencies, uncertainties and other factors.

Although the Corporation believes that these forward-looking statements are based on reasonable estimates and assumptions, the Corporation is unable to provide any assurance that its expectations will, in fact, occur or that its estimates or assumptions will be correct and actual results could differ materially from those expressed or implied by such forward-looking statements and such statements are not guarantees of future performance. The Corporation undertakes no obligation to update or revise any forward-looking statements. Accordingly, investors and others are cautioned not to place undue reliance on such forward-looking statements.

Many factors could affect future financial results including, without limitation, acquisition and growth strategies; market risk; changes or adverse developments in economic, political or regulatory conditions; a continuation or worsening of the current disruption in credit and other markets, including the lack of or reduced access to, and the abnormal functioning of markets for mortgage and other asset-backed securities and for commercial paper and other short-term borrowings.

The effect of competition and interest rates on net interest margin and net interest income; investment strategy and income growth; investment securities gains; declines in the value of securities which may result in charges to earnings; changes in rates of deposit and loan growth; asset quality and the impact on assets from adverse changes in the economy and in credit and other markets and resulting effects on credit risk and asset values; balances of risk-sensitive assets to risk-sensitive liabilities; salaries and employee benefits and other expenses; amortization of intangible assets; goodwill impairment; capital and liquidity strategies; and other financial and business matters for future periods.

Fulton Financial does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made.

Now I'd like to turn the call over to your host Scott Smith.

Scott Smith Jr.

Good morning. Thank you Laura, and thanks for everyone who are joining us here this morning. We have a few prepared remarks. We’d like to share before responding to your questions and my comments will focus on the areas of growth and capital. Then I’ll turn the call over to Phil Wenger to discuss credit, after which Charlie Nugent will cover our second quarter financial performance.

We reported diluted net income per share of $0.05 for the second quarter equaling the $0.05 we’ve reported in last quarter. While we are not pleased with our current performance we continue to prudently build reserves.

Our goal is to be ahead of the curve when the credit cycle turns towards more of positive results. I’d like to share, like to highlight some of the positives that we saw in the second quarter. First, we saw very strong deposit growth, a combined result of aggressive promotional activities, increased focus on deposits from our commercial relationship managers, as well as an overall increase in the flow of deposits to the industry.

Consequently, we were able to reduce our reliance on wholesale funding. Deposits are a much better fit to our relationship banking strategy and provide a more stable and consistently cost effective funding base over the long-term. We are also pleased with the change in our deposit mix this quarter, with core demand and savings balances increasing at a greater rate than time deposits, which will help to reduce our funding cost.

In addition, a significant amount of our certificates of deposits will be maturing over the next six months. Assuming most of these funds remain with us because of our commitment to building customer relationships, and to increase personal contact with single service CD customers they will reprice well below current rates. Our experience to-date in retaining these CDs has been encouraging.

The reduction in rate along with our reduced reliance on brokerage CD’s should help our net interest margin.

While we do not make it public our household growth numbers for competitive reasons, monthly internal tracking shows we are growing core household. Despite the soft economy we are seeing organic growth. We realize however that some of our strong time deposit growth is a result of customers not being comfortable with the equity markets.

We strongly believe that our business model of local community banks in the local markets creates value, particularly in light of the customer promise that we’ve made to care, listen, and understand, and deliver.

Our new listening is just the beginning brand introduction launched at the end of 2008, is now positioned consistently throughout our five state footprint. We are seeing more market share opportunities as potential customers absorb our branding message. We also know however that we must choose these new business opportunities very carefully, adhering to our conservative underwriting standards.

As you saw in the release, our net interest margin dropped slightly, however net interest income improved. We would like to be lending more right now, since loans are - yields are attractive relative to investments. However, we are at the same time experiencing the age-old industry problem of being relatively deposit-rich when customers have little interest in borrowing.

In fact, many businesses have postponed expansion plans or canceled them outright. When business loans pipeline improves and consumers decide to more actively borrow, we are positioned well to meet those needs from a funding standpoint

Another bright spot was our residential mortgage activity. We had meaningful sale gains in the second quarter, particularly when compared to last year. The business is still strong although rising rates tempered with new application activity somewhat – with new activity somewhat - tempered at new application activity somewhat in the last few weeks.

A more important indicator is the rising number of purchase mortgages relative to refinancing over the last few months. To give you some idea of how the mix has changed, for the first six months of the year, refinancing comprised 80% of our activity with purchase comprising the other 20%.

Current pipeline however shows a 62% refinance and 38% purchase ratio, and if we look solely at our activity in June, refinancing requests fell to 43% and purchase money increased to 57%. People are buying homes again. Bargain prices, low rates, and buyer incentives are all helping to stimulate some activity in the housing markets.

Mortgage sale gains although down from prior quarters still contributed meaningfully to our non-interest income, but that’s only part of the story. We saw growth in a number of non-interest income producing business lines. Deposit related fee income remains strong as to debit and credit cards fees.

You will recall that even though we sold our credit card portfolio last year, we continue to receive income on a residual basis. Expenses remained very well controlled as a result of a corporate-wide commitment to reduce spending wherever possible. Here again, expenses would have been down even more if we had not had the FDIC special assessment this quarter and the auction rate security charges in the first quarter.

I would conclude my comments and my prepared remarks with a few thoughts on capital. Our capital ratios remained strong with or without the capital purchase money. We are constantly evaluating our capital position and the role of capital purchase money is the key focus of our discussion.

As we all know, the best way to grow capital is by retaining earnings generated from profitable organic growth. Historically Fulton and its people have been able to do that quite effectively and we fully expect to do it again.

I thank you for your attention and now I’ll turn the call over to Phil and he will review our loan quality.

Philip Wenger

Thanks Scott. There is no question that credit quality has been and continues to be a significant challenge. However, we believe we are managing it effectively in what continues to be an extremely difficult economic environment. We are focused on staying ahead of potential early warning signals within each sector and on individual credits.

Let me share a few key developments that we saw in the second quarter. Overall, loan balances dropped and then on an ending linked-quarter basis by a $140 million. There are two key reasons for this decline. First, we are in an economic environment that produces low loan demand. Secondly, reducing our construction loan portfolio has been and continues to be a management priority.

Construction loans dropped a $143 million, or 11.8% on a linked-quarter basis and $260 million or 19.6% year-over-year. There was very little new development and existing development is experienced some increased absorption, especially in the under $300,000 price tier. Our commercial loan and commercial mortgage portfolios were up only slightly during the quarter as our lenders continue to report weak demand.

We continue to increase the allowance for credit losses by recording a $50 million loan loss provision. While I don’t mean to downplay the size of that number, it was at the level we anticipated and remains stable relative to first quarter. As a result, our allowance at the end of the quarter stood at 1.86% of outstanding loans, up from 1.67% at the end of the first quarter.

Our allowance coverage of non-performing loans increased from 81% to 83% linked-quarter. Total non-performing loans increased by $21 million linked-quarter. This increase is $29 million less than the increase we saw between December 31st of ’08 and March 31st of ’09. The numbers show that we experienced a notable slowing in the rate of credit deterioration during the second quarter.

Annualized charge offs to loans fell by three basis points. Before continuing our discussion on charge offs, non-performing loans, and delinquency rates, I thought it might be helpful to update the geographic distribution of our loans throughout our footprint.

As of June 30, approximately 54% of our loans are domiciled in Pennsylvania, 21% in New Jersey, 13% in Maryland, 9% in Virginia, and 3% in Delaware. Of the $29 million in net charge offs this quarter, approximately $10 million came from our New Jersey banks, $8.5 million from our Maryland banks, $6.5 million from our Pennsylvania banks, $4 million from Fulton banks Virginia division, and $500,000 from our Delaware bank.

By loan category, we charged off $11 million from the construction portfolio, $6 million from the commercial portfolio, and $6 million from the commercial mortgage portfolio. We also had six loans charged off this quarter in excess of $1 million, two residential developments, one in Delaware and one in Maryland. Two loans in Pennsylvania, one a healthcare related credit and one a golf course. And two loans in New Jersey one an income producing property, and one a commercial mortgage development.

As of June 30, total non-performing assets were $292 million, $267 million of that number in non-performing loans, and $25 million of ORE. Approximately $88 million or 30% are in Fulton Bank’s Virginia division, $77 million or 26% are in our New Jersey banks, $67 million or 23% are in our Pennsylvania banks, $54 million or 18% are in our Maryland banks, and $6 million or 2% are in our Delaware bank.

I’d now want to give you a snapshot of total delinquency trends linked-quarter. Our total delinquencies stood at 3.22% on June 30, up from 3% on March 31st. 30-day delinquency increased from 59 basis points to 72 basis points. 60-day delinquency dropped from 38 basis points to 30 basis points. And 90-day increased from 204 basis points to 220 basis points.

Commercial loan delinquencies saw a slight decrease, all other categories showed increases with the largest increase coming in the construction loan area, delinquencies, increased there from 8.78% to 10.36%.

However, as would be expected the majority of the percentage increase was due to shrinkage of the portfolio. Commercial mortgage delinquency remains under 2%, within this portfolio, while we do have performance risk, we do not have a great deal of refinancing risk.

Our consumer portfolio continues to hold up very well in this environment, with a total delinquency rate of 1.36% on our direct loans. Within our open-end home equity outstandings, 43% are first lien positions. Current average credit score across the same portfolio is a very strong 744, and our current overall loan-to-value ratio is a conservative 56%. While we saw an uptick in residential mortgage delinquency this quarter from 6.88% to 7.36%, losses from that portfolio have been relatively small, compared to overall loan outstandings.

We continue to watch both the automotive related and agricultural sectors of our portfolio for signs of weaknesses, we have very few credit issues within the automotive area, our agricultural delinquency is a modest 76 basis points on a portfolio of $550 million. Anecdotal information from lenders throughout our footprint indicates that new pipeline – new loan pipeline, while showing some activities it’s still soft.

In addition housing inventories appear to be decreasing somewhat in most markets, the Northern Virginia data shows residential housing inventories have fallen below the six-month level.

With that said however, it does not appear that any of our markets are seeing signs of a meaningful economic rebound. Although there is a general sense that we maybe at, or nearing the bottom of the cycle. Another concern is how other components of our portfolio will perform outside of the construction category, and again while signs of economic recovery are peering on the horizon, it is going to take time for us to continue to work through the credit issues brought on by this economic downturn.

We are looking forward to showing some incremental improvement soon, but that obviously depends on the economy.

At this time, Charlie will cover the details of our second quarter financial performance and we will be happy to respond to your more specific credit related questions in our question-and-answer session. Charlie?

Charles Nugent

Okay. Thank you Phil, and good morning everyone. Thank you for joining us today. Unless otherwise noted, comparisons are this quarter’s results with the first quarter. As Scott mentioned, we reported net income available to common shareholders of $8.1 million or $0.05 per share in the second quarter, which was the same as we reported in the first quarter. Our second quarter earnings were negatively impacted by the $7.7 million FDIC special assessment.

We are pleased to see a number of positive items impacting our earnings, including a 3% increase in net interest income, a 3% increase in other income, and a decrease in core operating expenses. The $3.8 million or 3% improvement in net interest income was a result of an increase in earnings assets, offset by a slight decline in the net interest margin.

Total average earning assets grew $376 million or 2.5%, as Phil discussed, average loans were down $81 million or seven-tenths for a percent, while average investments increased $470 million or 15%.

The increase in average investments is primarily result of our strong deposit growth. In addition over the first part of the year we invested the capital purchase program funds we received at the end of last year. We also repurchased the remaining $100 million of auction rate securities that were held in customer accounts.

On the funding side, total deposits grew $662 million or 6% of growth in all categories. We are pleased to report that most of our deposit growth is in core demand and savings accounts, which grew $470 million or 8.6%.

Noninterest-bearing demand deposits increased $155 million or 9% with almost 80% of that increase occurring in business accounts. Interest-bearing demand grew $65 million from 4% with personal balances making up over 80% of that growth. In the savings category, we saw $249 million or 12% growth, 58% of this growth was in personal accounts, a $138 million in state and municipal accounts, and $50 million in business accounts.

The growth in business accounts was impacted by businesses having to keep more balances on hand to offset service charges, as well as a movement out of cash management products due to the current low rates. The municipal accounts reflecting these same factors along with the seasonal impact related to the tax collection process.

The net interest margin declined 2 basis points this quarter. This slight decline was due primarily to a shift in asset composition. Yields on earning assets decreased 12 basis points while the cost of interest-bearing liabilities decreased only 10 basis points.

Through the remainder of this year, we have the opportunity to reprice a significant amount of time deposits, and Federal Home Loan Bank advances, which should have a positive effect on the net interest margin.

Over the next six months, $3.1 billion of time deposits mature at a weighted average rate of 2.61%, while $210 million of Federal Home Loan Bank advances mature at a weighted average rate of 4.31%.

Excluding security gains, our other income improved $1.3 million or 3% to $45.3 million. Most of this increase was in the other service charge and fees category, and includes very strong growth from our merchant business and debit card fees, as well as increases in letter of credit fees and foreign exchange revenues.

Service charges on deposits cash were up slightly, with growth in overdraft income offset by decline in cash management fees. We normally see an increase in overdraft fees between the first and second quarters.

As noted before, we’ve had customers who have cash management due to the available rates not offsetting the cost of being in the program. Total gains on the sale of mortgage loans remains strong at $7.4 million in the second quarter, compared to $8.6 million for the first quarter.

Total loans sold increased to $650 million from $550 million with refinances comprising 80% of origination volume. The spread on sales decreased from a 157 basis points to a 114 basis points, due to the greater volatility in rates that existed in the second quarter, particularly in the month of June. The increase that you see in the other income line is a result of non-reoccurring items, primarily gains on the sale of fixed assets and other real estate.

Operating expenses increased $1.4 million from 1.3%. The increase because of the $7.7 million special FDIC assessment was partially offset by the decrease in operating risk loss in the first quarter.

In the first quarter, we recognized the $6.2 million charge related to our agreement to repurchase auction rate securities held in customer accounts. As of June 30 virtually all of those securities have been repurchased from customer accounts and are reflected in investment securities. Without those charges in each period, operating expenses would have shown a decline.

Salaries and benefits show an increase of only $495,000 or nine-tenths for a percent. Full-time salaries were up $740,000 or 1.9%, with about half of that increase due to the extra day in the quarter and the remainder due primarily to the lower personnel turnover we are seeing. As of March 1 of this year salary increases were frozen.

The decrease in occupancy expense is due to seasonal factors and the significant decline in marketing cost is due to the timing of expenditures and cost control efforts. Investment security gains are $77,000 in the second quarter, compared to $2.9 million in the first quarter.

In the second quarter realized security gains were $3.5 million, primarily on the sale of debt securities. These gains were offset by $3.4 million and other than temporary impairment charges. Of those charges, $800,000 related to One Bank stock and $2.6 million related to pooled trust preferred securities.

Thank you for your attention and for your continued interest in Fulton Financial Corporation. Now we will be glad to answer any questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) We'll go first today to Frank Schiraldi with Sandler O'Neill. Please go ahead sir. Your line is open.

Frank Schiraldi – Sandler O'Neill

Okay, couple questions here. First on the construction loan portfolio being down 11.8% linked-quarter, is that reflect to paydowns or is any of that reflect loans that where constructions are going into either permanent financing or going into one-to-four family bucket?

Philip Wenger

Frank, almost all of it relates to pay down.

Frank Schiraldi – Sandler O'Neill & Partners

Okay, and is that generally in the Maryland area?

Philip Wenger

It’s across the footprint. I think it would be in proportion to the percent of the outstandings.

Frank Schiraldi – Sandler O'Neill & Partners

Okay, and then in terms of tangible common equity, I mean, that’s up 5.8% right now. Is that’s something you look at in terms of where you want apple levels to be? Is that a place you are comfortable with? And then as a follow-on where does paying back TARP weigh in terms of priority?

Scott Smith

Frank, this is Scott. I think we feel okay about that, about that number relative to peers. I think it’s fine. We always we want to continue to grow that. As far as paying back the capital purchase program money, we are continually analyzing that as I’m sure most banks are, and looking at that whole situation and we’ll have a comment when our decision is finalized, but for now we continue to watch it.

Frank Schiraldi – Sandler O'Neill & Partners

Okay and then just finally in terms of the dividend that you pay on the TARP money is that, have you been able to offset that through the investment income that you plough that capital into?

Charles Nugent

Frank, this is Charlie. I guess we’ve been able to partially offset it, but it’s a 5% dividend. It’s, in the quarter it was over $5 million and we can’t stuff that from a tax standpoint. So the effective yield is like 7.4%. So you can try to offset it but you can’t offset it.

Frank Schiraldi - Sandler O'Neill

Right. Has there been any leverage put on, on that capital in order to offset it? Or is that not a program that you are…?

Charles Nugent

I don’t think it’s leverage, but when we receive the funds, as Phil mentioned our loans were down, so we put it into the investment portfolio. And it’s an agency securities that are relatively short.

Frank Schiraldi - Sandler O'Neill

Okay. Thank you.

Charles Nugent

You’re welcome.

Operator

And we’ll take our next question from Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler – Credit Suisse

Thanks and good morning.

Philip Wenger

Good morning, Craig.

Charles Nugent

Good Morning, Craig.

Craig Siegenthaler – Credit Suisse

First just on delinquencies. In the March quarter, the residential mortgage and construction delinquency ratios are both in kind of the 7% to 9% range. I’m just wondering how they trended in the second quarter?

Charles Nugent

I have those numbers for you. Total delinquency trended up from 3% to 3.22%. Construction went from 8.78% to 10.36%. Now as I mentioned in my prepared comments, Craig, the majority of that increase in percentage was due to the fact that the outstandings in the portfolio decreased.

Craig Siegenthaler – Credit Suisse

Went down, yeah.

Charles Nugent

And the residential mortgage increased from 6.88% to 7.36%.

Craig Siegenthaler – Credit Suisse

Got it. Second question I had is, it looks like a big driver in terms of net charge-offs has been Maryland and specifically Maryland Construction, I guess we saw how Maryland did this quarter, but do you have any detail around the Maryland Construction portfolio in terms of sequential charge-offs or sequential delinquencies? So actually I guess I’m more looking for charge-offs as how they change quarter-to-quarter?

Charles Nugent

Yeah, I think I have it, one second.

Craig Siegenthaler – Credit Suisse

And maybe any, qualitative commentary around that portfolio too in terms of how that’s performing?

Charles Nugent

The total charge-offs in Maryland in quarter one were a $10 million, these are gross charge-offs and in quarter two, $9 million.

Craig Siegenthaler – Credit Suisse

And that’s construction loans?

Charles Nugent

No that’s total.

Craig Siegenthaler – Credit Suisse

Okay, total.

Charles Nugent

No the large percent are constructions. I mean, I don’t have the exact number, but from quarter-to-quarter, but the large percentage in both quarters were construction Craig.

Craig Siegenthaler – Credit Suisse

Because last quarter Maryland Construction was about 7.4 total Maryland was 10.

Charles Nugent

Right.

Craig Siegenthaler – Credit Suisse

So, yeah, it looks like improved a little bit. Great, thank you for taking my questions.

Charles Nugent

Craig it was 6.4.

Craig Siegenthaler – Credit Suisse

It was 6.4 is just Maryland Construction.

Charles Nugent

That's right.

Operator

Thank you. And we will take our next question from Matthew Clark with KBW.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Hey, good morning guys.Just a few questions, maybe the first one, do you guys have any TDRs or restructured loans, troubled debt restructuring loans and just if you do what were they this quarter and what were they last?

Philip Wenger

Very, very minimal. It is not a significant number.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay. Okay and as it relates to loan-to-deposit ratio, obviously liquidity is much less of an issue today than it was back in the third quarter of ’08. It’s down to a 101%. Just curious about your reinvestment opportunities these days. We obviously saw securities, a bunch of securities growth from some outside deposit growth. Any desire to curtail some of that promotional deposit growth and cut rates maybe more meaningfully to while it's great to, obviously pay down some borrowings like you did this quarter you still have some excess that could cause some margin to come at risk if we don’t have those loan opportunity for example?

Philip Wenger

Yeah we continue want to be aggressive in outstanding core deposits and I would say our CD pricing right now we want to remain competitive. I think in the third and fourth quarters, we probably were more towards the top of the market. And so we probably pulled back a little on CD side.

Matthew Clark – Keefe Bruyette & Woods, Inc

And how much do you have, how much do you have coming due in the third and fourth quarter and at what rate? And what’s the new rate that you are offering?

Charles Nugent

I think for the rest of the year from July 1st to December 31st is $3.1 billion and rate coming off is 2.61 and we are growing that to CDs and right now at our lead bank and this is very similar for all the other banks, our lead bank has offered for 90 for 9 months, it’s 90 basis points and for a year it’s a 175. And you know what the - I don’t think we are going to turn off the deposit growth because most of it is core deposits and there are very low rates and even these CD, the CD customers it’s relatively good rates. And we will put it in the investment portfolio and we will buying collateralized mortgage obligations that are very short and are agency guaranteed so.

Matthew Clark – Keefe Bruyette & Woods, Inc

Okay.

Charles Nugent

We want to turn off enough deposits. We want that to keep on going.

Matthew Clark – Keefe Bruyette & Woods, Inc

Yeah, okay, I guess some, I guess I was more concerned about the promotional savings product at the variable rate should rates rise.

Charles Nugent

That’s good point.

Matthew Clark – Keefe Bruyette & Woods, Inc

Okay and then lastly on the construction book, you guys are obviously making some good headway here. I think the balances are down about 26% from the peak and I think you’ve incurred about cum losses on the order of 3% or so. You’ve got - I was just curious what the reserve is that you have set aside on the construction book today. I think it was 266 last quarter?

Charles Nugent

We may have to get back to you on that one. We are not coming up with that number quickly.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay, well I had a specific reserve of approximately $32 million at the end of the first quarter?

Charles Nugent

Yes.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay

Charles Nugent

Yeah, that's exactly it was $32 million, what it is, I can’t guess.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay. And then I guess your expectation for the loss and reserving in that book, I assume they are both going to grow given what we are seeing in non-accruals and delinquencies?

Charles Nugent

In the construction portfolio?

Matthew Clark – Keefe Bruyette & Woods, Inc.

Yeah

Scott Smith

Well that’s a hard – it’s hard to look forward and guess. It's easy to tell you what the numbers are in the past and in the quarter but it's hard.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay

Scott Smith

And this is hard to guess, there are so many variable affecting that.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay and then just a point of clarification, the delinquency numbers, on the construction side of 10.36%, much of that’s already is in the non-accrual amounts?

Charles Nugent

That’s correct.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay. And then one more commercial construction, the size of that book, I think it looks commercial loans to the construction industry, if we can get an update on that I think, that's been an area of concern and I think that book was approximately $445 million last quarter just curious as to what you are seeing there in terms of, in terms of balances, in terms of non-accruals and delinquencies?

Charles Nugent

You know it was 11% of our commercial loans at the end of the first quarter. We don’t have that number yet, but we will put that, we are going to – we’ll put out another updated Investor Presentation, that number will be in there and so will the allocated reserves in the construction portfolio. We don’t have that right now.

Scott Smith

And I would be surprised that that percentage has changed much.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay. But what you said – is there is – I guess within that the increase in C&I, non-accruals, would you – is there some of that?

Philip Wenger

I don’t think.

Matthew Clark – Keefe Bruyette & Woods, Inc.

From that...

Philip Wenger

I don’t think that. On the C&I side, it’s really across a number of different areas. I would not pinpoint that to the construction business.

Matthew Clark – Keefe Bruyette & Woods, Inc.

Okay, thank you.

Operator

And we will take our next question from Rick Weiss with Janney.

Richard Weiss – Janney Montgomery Scott LLC

Hi, good morning.

Unidentified Company Representative

Good morning Rick.

Unidentified Company Representative

Good morning Rick.

Richard Weiss – Janney Montgomery Scott LLC

I was wondering, if you could just talk a little bit I know you said, you’ve been paying down borrowings. It looks like the total average went down during the quarter but it picked up again at the end of the June quarter. I was wondering, are you planning on adding more leverage is that – that’s what’s going on?

Charlie Nugent

You know at the end of the month usually, Rick, we have big deposit flows at the beginning of the month. So security pensions, it seems like a lot of people are paid, at the beginning of the month and our deposit balances go up and usually Fed funds goes down, but if you look I guess six months to six months, we paid down our Fed funds or if they are half of what they were…

Richard Weiss – Janney Montgomery Scott LLC

Right.

Charlie Nugent

Last year I think, they were $1.2 billion last year and are down to just over $600 million now and that’s just a function of the deposit flows. Good deposit flows that are coming in and the reduction in our loan-to-deposit ratio.

Richard Weiss – Janney Montgomery Scott LLC

So it’s better to look at it on a six-month change rather than linked-quarter you think?

Charlie Nugent

Yeah. And if you look at our total borrowings on a six-months to six-months were down $910 million and 26%, so.

Richard Weiss – Janney Montgomery Scott LLC

Okay, so it’s good being a trend. That was just a blip you would think.

Charlie Nugent

It’s good to pay it down, but it’s like a double-edged sword because deposits are coming in and Fed Fund rate still a quarter. So that’s hurting our margin a little bit, but it certainly have – rather than have deposits especially core deposits as opposed to borrowings.

Richard Weiss – Janney Montgomery Scott LLC

Okay. And let me ask you, probably I just didn’t catch you when you said that you have I guess CDs and are borrowings that are repricing. Did you say is that within one year or or was that in 2009?

Charlie Nugent

That was from July 1st to December 31st, from the last six months of the year.

Richard Weiss – Janney Montgomery Scott LLC

Okay, got it. Hey thank you very much.

Charlie Nugent

You are welcome, Rick.

Operator

And we’ll take our next question from Matt Schultheis with Boenning & Scattergood.

Matthew Schultheis – Boenning & Scattergood

Two quick questions, on a linked-quarter basis, other assets increased from $350 million to $501 million, what’s in this?

Charlie Nugent

And the biggest thing in there is we sold some securities at the end of the quarter and you book the trade based on a trade date and then, the money didn’t come in yet it came in over the quarter. So I think a $142 million of that increase had to do with securities sales, is that what we have.

Matthew Schultheis – Boenning & Scattergood

Okay. Of course has a doubt in offsetting increase in your short-term borrowings, from a dollar basis, if you look at it. Gains on sale of fixed assets in real estate?

Charlie Nugent

Right.

Matthew Schultheis – Boenning & Scattergood

That was this quarter, right?

Charlie Nugent

Yeah, I mean, this quarter.

Matthew Schultheis – Boenning & Scattergood

What are the dollar figures on that and what type of real estate fixed assets that we are looking at?

Charlie Nugent

We did notice that.

Matthew Schultheis – Boenning & Scattergood

All right.

Charlie Nugent

It was - yeah, the gain on ORE was $151,000.

Matthew Schultheis – Boenning & Scattergood

Okay.

Charlie Nugent

Yeah, that was last quarter and it went up to $882,000 this quarter.

Matthew Schultheis – Boenning & Scattergood

Okay.

Charlie Nugent

And then on the sale of, it would be on other fixed assets it went from a 152,000 to 249,000.

Matthew Schultheis – Boenning & Scattergood

Okay. So it's not branch sales or anything like that?

Charlie Nugent

Yeah. No.

Philip Wenger

Residential properties.

Matthew Schultheis – Boenning & Scattergood

Okay. Well thanks for your time.

Charlie Nugent

You’re welcome.

Operator

(Operator Instructions) We will go next to Collyn Gilbert with Stifel Nicolaus.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Thanks good morning guys.

Charlie Nugent

Good morning Collyn.

Philip Wenger

Hi, Collyn.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Just a couple of questions. First on the leasing portfolio, it looks the credit quality is kind of deteriorating pretty rapidly in the portfolio, are you still growing it? Can you just talk a little bit about the strategy there and sort of what you see also on the credit side going forward?

Philip Wenger

Yeah. We have - first off the portfolio is not that large. So when you have a one or two situations it can impact those numbers, but we’ve had a couple of leases that to healthcare related companies that we’re working through the credits.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay. So, you still intend to grow the business you’re comfortable with the type of credit that you are putting in there?

Philip Wenger

Yes

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay. Okay and then just quickly, do you guys have any SNC credits? I can’t remember. Shared National Credits?

Philip Wenger

Yes, we have, I believe 12 and they are all customers that are headquartered in our footprint and that we do some other business with. I don’t think they are a typical SNCs, but they meet the definition of a SNC, which is three or more banks and how - I’m not sure what the volume amount is but…

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay.

Philip Wenger

That’s volume what’s in that portfolio.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay. Are you a lead on those relationships? Are you the lead bank on those participations?

Philip Wenger

We are the lead bank on, I would say the majority, not all.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay, okay and what’s that you said 12 credits, but you have the total outstanding balance of those?

Philip Wenger

I can get that for you Collyn.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay. But I presume that the portfolio is performing fine, and you are not seeing issues yet?

Philip Wenger

That is correct.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay, okay. And then one other thing, on the home equity growth, I know you basket that in with residential mortgage. But what is the - what’s been that the growth like on the home equity lines on a linked-quarter basis. I know you are seeing line usage increase or any sense there on that segment?

Philip Wenger

Yeah, on a linked-quarter, home equity is actually down at 2% or $30 million.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay and any dramatic change in line usage?

Philip Wenger

No, it’s been fairly flat.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay. Okay and then just a final question on loan pricing. What are you seeing out there in the market in terms of some of your loan pricing, and kind of the spread improvement that you’re seeing, on new business that’s coming in, versus what rolling off? And I know, it’s going to vary among products, but let me – I guess speaking mostly just on the commercial side?

Philip Wenger

I think, just generally speaking, loan pricing has improved and margins are much better on loan side, on both floating and fixed rate and lines of credits pricing has increased. And, there is just not a lot of new demand.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay.

Philip Wenger

Our opportunities are in capturing market share, we’re getting some of those, but we are being very selective.

Collyn Bement Gilbert – Stifel Nicolaus & Co

Okay. Okay, I think that was all I had. Thanks.

Operator

And we will take our next question from Andy Stapp with B. Riley & Company.

Andy Stapp – B. Riley & Company

Good morning. I think all of my questions have been asked except for one, and that’s do you have the 30 to 89 day delinquencies at quarter end?

Charles Nugent

We do. Yes, 30-day delinquencies were 72 basis points and 60-day delinquencies were 30 basis points.

Andy Stapp with B. Riley & Company

Okay, all right. Thank you.

Operator

And gentlemen, we have no further questions at this time. Mr. Smith, I will turn the call back to you for any additional or closing remarks.

Scott Smith

Thank you and thank you all for joining us today. We hope, you will able to be with us again third quarter for our conference call, which is scheduled for October 21st at 10:00 AM. We will talk to you then. Thank you again.

Operator

Thank you. And that does conclude today’s conference call. Thank you for your participation.

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Source: Fulton Financial Corporation Q2 2009 Earnings Call Transcript
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