Fulton Financial Management Discusses Q2 2012 Results - Earnings Call Transcript

Fulton Financial (FULT)

Q2 2012 Earnings Call

July 18, 2012 10:00 am ET

Executives

Laura Wakeley

R. Scott Smith - Chairman, Chief Executive Officer, Member of Executive Committee and Ex-officio Member of Risk Management Committee

E. Philip Wenger - President, Chief Operating Officer, Director, Member of Executive Committee and Ex-officio Member of Risk Management Committee

Charles J. Nugent - Chief Financial Officer and Senior Executive Vice President

Analysts

Casey Haire - Jefferies & Company, Inc., Research Division

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

David Darst - Guggenheim Securities, LLC, Research Division

Frank Schiraldi - Sandler O'Neill + Partners, L.P., Research Division

Richard D. Weiss - Janney Montgomery Scott LLC, Research Division

Nicholas Karzon

Mike I. Shafir - Sterne Agee & Leach Inc., Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Russell Gunther - BofA Merrill Lynch, Research Division

Mac Hodgson - SunTrust Robinson Humphrey, Inc., Research Division

Blair C. Brantley - BB&T Capital Markets, Research Division

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the Fulton Financial Corporation Announces Second Quarter Earnings Conference Call. This call is being recorded. I would now like to turn the call over to Laura Wakeley, Senior Vice President of Corporate Communications.

Laura Wakeley

Thank you, and good morning. Thank you for joining us for Fulton Financial Corporation's conference call and webcast to discuss our earnings for the second quarter of 2012. 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 at 4:30 yesterday afternoon. These documents can be found on our website at fult.com by clicking on Investor Relations and then on News.

On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations and business. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Fulton's control and difficult predict -- to predict and which could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Fulton undertakes no obligation other than required by law to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In our earnings release, we've included our Safe Harbor statement on forward-looking statements, and we refer you to this section of that release and we incorporated into today's presentation. For a more complete discussion of certain risks and uncertainties affecting Fulton, please see the sections entitled, Risk Factors and Management Discussion and Analysis of Financial Condition and Results of Operations set forth in Fulton's filings with the SEC.

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

R. Scott Smith

Thanks, Laura, and good morning, everyone. We're pleased that you were able to join us today. Before Phil Wenger discusses credit and Charlie Nugent covers the financial details, I have a few comments on the quarter. When we conclude, we'll be happy to take your questions.

We reported diluted net earnings per share of $0.20, up 5.3% over the first quarter and up 11.1% over last year. Our return on average assets also increased, and as you know from previous calls, ROA improvement is one of our key priorities. While we experienced success on a number of fronts in the second quarter, 2 in particular standout: continued improvement in our credit quality and strong other income growth. Looking first at credit and Phil will provide more detail. We were pleased to see further decrease in the provision for credit losses. Nonperforming loans also decreased due in part to the sale of a group of non-accruing loans. We continue to see overall improvement in our credit quality in what, from our perspective, is still a less than robust business environment. Total loans outstanding increased modestly at the end of the quarter. We would like to think this may be an indicator of a pickup in loan demand, but our expectations remain tempered by persistent customer uncertainty. We continue to expand the foundation for potential future loans growth by growing our retail and commercial account base again in this quarter. While we do not share actual account growth metrics for competitive reasons, our recently completed retail deposit promotion generated higher than normal new account activity when compared to the same period last year.

Turning to noninterest income. Sales gains from residential mortgage loan activity were again strong, and as long as interest rates remain low, this area will likely continue to make a solid contribution to income. We also saw a healthy increase in deposit account related birth for each [ph] revenues linked quarter.

Earnings pressure came largely from 2 areas: net interest margin contraction and higher expenses. While I would like to say that both items are specific to this quarter, I do not believe that to be the case. Given the current and anticipated rate, regulatory and competitive environments, these areas will present continued challenges and will receive close management scrutiny.

On the margin, we -- lower interest rates produced another reduction from -- in our funding costs. We have shown consistent decreases in our cost of funds over the last several quarters, as we adjusted our mix some time to lower cost core deposits. Those past actions have been effective. However, during the second quarter, the rate of decline on earning asset yields accelerated and put greater downside pressure on the margin.

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