Fulton Financial (NASDAQ:FULT) Q2 2021 Earnings Call

0:01 Good morning, ladies and gentlemen, and welcome to the Fulton Financial's second quarter 2021 results conference call. At this time, all participants are in enlisted LA mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host, Mr. Mark Joswak, Director of Investor Relations.

0:35 Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the second quarter of 2021. Your host for today's conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil are Kurt Myers, President and Chief Operating Officer, and Mark McCollum, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcements, which we released yesterday afternoon. These documents can be found on our website at fult.com by clicking on Investor Relations and then on News. The slides can also be found on the Presentations page under our Investor Relations website.

1:21 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 if actual results could differ materially. Please refer to the safe harbor statement on forward-looking statements in our earnings release and on slide two 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.

2:06 Please refer to supplemental financial information included with Fulton's earnings announcement released yesterday and slides 10 and 11 of today's presentation for 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 Hager.

2:28 Well, thanks, Matt. Good morning, everyone. I'll begin today's call by making a few high-level remarks about our performance for the quarter and factors affecting the markets we serve. And then Kurt will discuss our business performance, and Mark will share the details of our financial performance. And after that, we'll answer any questions you may have. Fulton's performance continued to be solid in the second quarter of 2021. Following our record-setting earnings per share of 43 cents in the first quarter, our second quarter earnings per share of 38 cents tied our previous record high. We saw growth in certain segments of our business, as Kurt and Mark will discuss, and asset quality remains stable.

3:20 Economy and the markets we serve are showing improvement. Unemployment is in decline and the communities are reopening. In fact, as of July 4th, the governments in the five states in which we operate have lifted mask requirements for everyone. As the economy continues to open and business activity moves closer to normal, we are increasingly optimistic about the future. In recent months, we have seen several mergers and acquisitions in and around our market. Fulton has taken a look at a few of these opportunities, and we remain interested in supporting our growth through M&A.

4:06 We will continue to evaluate future opportunities to identify those which would be a good fit for our strategy and our community-oriented style of bank. As always, we remain focused on our shareholders and will remain disciplined on pricing. To the end of the second quarter, we have not repurchased any shares under the $75 million share repurchase authorization approved by the Board in February, but we continue to assess share repurchase opportunities. Throughout the past year, I've referenced the challenges brought about by COVID-19, I'm extremely proud of how our entire team adapted to these challenges.

4:54 Through their efforts, we were able to support our customers through the most challenging of times. Now, more than a year after the pandemic began, we are pleased to see more people becoming fully vaccinated, our communities reopening, and life starting to return to some sense of normalcy. Given this improvement, we are now looking forward to bringing more of our own team back to on-site work in early September. While some employees will be permanently remote, most will return to some level of on-site or hybrid work. The ability to connect in person strengthens relationships and our culture, which quite frankly sustained us. During the pandemic, it allowed us to continue to focus on our customers.

5:50 Now I'll turn things over to Kurt to discuss our financial performance.

5:55 Well, thank you, Phil, and good morning. As Phil noted, our second quarter performance produced solid results, and I'd like to share some detail on several key areas. Loan growth for the quarter was approximately $170 million, or about 4%. Thank you for joining us. and 690 million originated in the first quarter.

6:45 Our average Wave 3 processing fee was 4.5%, which was also well above what we had originally anticipated. While the PPP program has ended for new originations, we continue to focus on loan forgiveness needs of our small business customers. In the second quarter, we processed 639 million of PPP forgiveness requests and have remaining wave one and two outstanding balances of approximately 360 million. In total, we have 1.1 billion in outstanding PPP loans as of June 30 and 35 million in processing fees yet to be earned.

7:30 Turning to commercial loans, commercial real estate showed modest growth while other commercial categories declined, resulting in an overall decline in the commercial balances of $127 million on a linked quarter basis. When excluding PPP loans, we continue to experience commercial loan headwinds due to persistent low line utilization and prepayment activity. Our commercial loan pipeline is down linked quarter, but consistent with year-end levels. Recent weeks, we have experienced growth in the pipeline consistent with all of our markets reopening. We remain cautiously optimistic that commercial loan demand will improve as business activity and customer confidence increase.

8:17 In consumer lending, our loan balances grew $284 million, or 5.8% length quarter, on an ending balance basis. This growth was driven primarily by residential mortgages. As noted in prior quarters, our asset-sensitive balance sheet provides room to continue growing this segment of high-quality, in-market residential mortgage loans. Overall, we anticipate loan origination levels to continue at a rate that is adequate to support the annual net interest income guidance in our outlook. Turning to deposits, growth for the quarter was modest. However, total deposit balances are up 4.3 billion or 25% since pre-pandemic levels.

9:02 During the quarter, we continued to actively manage our deposit costs down, and we are encouraged by the work of our team and the loyalty of our customer base. Our total cost of deposits for the quarter was down to 15 basis points. Moving on to fee income, wealth management, commercial banking and consumer banking fee based businesses all delivered growth in revenue on a length quarter and year over year basis. Our wealth management business continues to perform very well. During the quarter, We purchased a small investment advisory firm which helped support the growth of our wealth business. Our assets under management and administration grew to $13.7 billion at quarter end, up from $13.1 billion last quarter and $11.1 billion at the end of the second quarter of 2020.

9:56 These trends drove record quarterly wealth management income for the third quarter in a row. Turning to mortgage banking business, Originations were $875 million for the quarter, an increase of 22% from the first quarter. However, a significant decline in gain-on-sale spreads combined with continuing to hold an elevated amount of loans on the balance sheet led to an overall decline in mortgage banking revenue length quarter. In addition, the decline in longer-term rates also led to a $2 million increase in to our mortgage servicing rights valuation allowance, further reducing overall mortgage banking income.

10:44 Overall, the mortgage banking business remains strong as we continue to experience solid origination activity and opportunities to either sell our conforming loans in the secondary market or increase our balance sheet with this product. Purchase activity represents approximately 60% of total originations, and a steadily increase in recent quarters. The mortgage pipeline sits at $620 million, remaining more than two times our pre-pandemic levels. Capital markets revenue, which are primarily commercial loan interest rates swap fees, declined in the second quarter. This decline was partially driven by our willingness to provide longer-term balance sheet fixed rates.

11:30 We expect swap revenue to return to more historical levels as we move forward. However, this is dependent on customer preferences, commercial loan demand, and interest rate expectations. Moving to credit, asset quality remains stable. Delinquency remains low. Non-performing loans were flat-length quarter and remained relatively stable prior to the beginning of the pandemic. Net charge-offs were 6.9 million, or 15 basis points for the quarter. This compares to 6.2 million or 13 basis points of net charge-offs in the first quarter. On slide 13, we have again provided updated loan deferral trends through June 30, 2021.

12:16 Commercial deferrals further declined to approximately $122 million and stand at 0.9% of the commercial portfolio. Consumer loans on deferral and forbearance also declined and are now at $57 million, or 1.1% of the consumer loan portfolio. In previous calls, we noted selected industries we believe may be at more risk due to COVID-19. Slide 15 provides an updated summary of these selected industries. Overall, our credit outlook remains cautiously optimistic for the remainder of 2021. And as a result, we have further reduced our 2021 provision for credit loss outlook. Now I'll turn the call over to Mark to discuss our financial results in more detail.

13:06 Thank you, Kurt, and good morning to everyone on the call. Unless I knew it otherwise, the quarterly comparisons I will discuss are with the first quarter of 2021. Starting on slide three, earnings per diluted share this quarter were $0.38, when net income available to common shareholders is $62.4 million. This represents a decline of $0.05 per share versus the first quarter of 2021. Our second quarter performance included a slightly lower net interest income, as well as lower non-interest income, offset by negative provision expense and lower operating expenses, which I'll cover in more detail later in my comments. Moving to slide four, our net interest income was $162 million, a $2 million decline in the quarter, mainly due to less fees earned on PPP loans forgiven during the second quarter as compared to the first quarter.

14:00 Forgiveness for the quarter was $639 million, and this represents only Waves 1 and 2. Wave 3 is not expected to begin requesting forgiveness until late in the third quarter and into the fourth quarter of 2021. The latest wave of PPP loans also have a larger average fee, 4.5%, due to a smaller average loan size for this wave of funding. As of June 30th, we have approximately $35 million of PPP loan fees yet to be recognized. $4 million coming from the 2020 originations and $31 million from our first and second quarter originations this year. Turning to the investment portfolio, we selectively redeployed some of our excess cash into mortgage-backed securities and short-term money market instruments.

14:49 As a result, investments grew $308 million during the second quarter. As Kurt noted, we saw deposits grow by approximately $90 million on an ending balance basis, and our cost of deposits for the quarter was only 15 basis points, a decline of three basis points in one quarter. We would expect our deposit costs to still migrate moderately lower in future quarters, as we have approximately $660 million of CDs maturing over the next two quarters at a cost of approximately 80 basis points, which is significantly higher than current market replacement costs. Our average loan and deposit ratio declined during the quarter from 89.9% in the first quarter to 86.9% in the second quarter.

15:38 As I discussed last quarter, Fulton completed a balance sheet restructuring which reduced our interest rate risk and improved several of our performance metrics going forward. This restructuring was fully reflected in the second quarter and is incorporated into the updated guidance I will provide at the end of my remarks. Our net interest margin for the second quarter was 2.73% versus 2.79% in the first quarter. The six basis point decline in quarter was largely a result from lower PPP loan fee recognition as well as additional cash on our balance sheet. Turning to credit, On slide five, our second quarter provision for credit losses was a negative $3.5 million versus a negative $5.5 million for the first quarter and a positive $20 million a year ago. Compared to the year-ago period, the initial impact of COVID had a significant impact on our allowance for credit losses in the first half of 2020.

16:39 But as the economic outlook continues to improve, the amount required in our allowance for credit losses has declined. As always, this could change in future periods based on new loan origination volumes, loan mix, net charge-off activity, and economic projections. Slide 5 also shows our normal quarterly credit metrics. Our allowance for credit losses excluding PPP loans has declined 14 basis points since the end of last year and currently stands at 1.46%. Moving to slide 6, Non-interest income, excluding securities gains, was $52 million, down $10 million from last quarter and down $1 million from a year ago.

17:24 Our fee-based revenues showed modest increases in wealth management, commercial banking, and consumer banking, but were outweighed by a decline in mortgage banking revenues. Mortgage banking revenues were impacted by a decline in gain-on-sale spreads of 114 basis points linked quarter, down to 1.85%, after spending much of the past year at approximately 3%. We also elected a portfolio of about $230 million of saleable mortgages onto our balance sheet thus far this year. This has impacted our short-term mortgage banking revenues but may provide a significant long-term benefit to net interest income versus the purchase of investment securities. Lastly, our MSR asset was $36 million on the balance sheet at June 30th.

18:14 This balance is net of a $6.5 million mortgage servicing rights valuation allowance. As Kurt noted, during the quarter, we recorded an addition to the valuation allowance of $2.2 million due to a decline in longer-term interest rates. Wealth management revenues were $17.6 million for the quarter, an increase of 1.7% from the first quarter and an increase of 31% from the prior year. Moving to slide 7, non-interest expenses were approximately $141 million in the second quarter, down $38 million late quarter. This decline was largely due to $32 million of debt extinguishment costs we recorded in the first quarter related to our balance sheet restructuring.

19:03 Excluding those items, our remaining expenses declined approximately $5 million, primarily due to lower salaries and benefits expenses compared to the prior quarter. This was due to lower bonus accruals, the full quarter impact of our cost reductions, and the absence of a one-time COVID bonus paid to frontline personnel in the first quarter of 2021. We also saw seasonal declines in occupancy expense of approximately $1.5 million. Our effective tax rate was 16% for the quarter, consistent with the first quarter. Slide 8 gives you more detail on our capital ratios. As of June 30th, 2021, we maintain strong cushions over the regulatory minimums, and our bank and parent company liquidity remain very strong.

19:53 On slide 9, we provide our updated guidance for 2021. We expect our net interest income to be in the range of $640 to $660 million. We expect our provision for credit losses to be in the range of $10 to $20 million. We expect our non-interest income to be in the range of $220 to $230 million. And we expect operating expenses, excluding charges related to the balance sheet restructuring, to be in the range of $560 to $570 million for the year. Lastly, we are aware that many of you look at pre-provisioned net revenue, or PPNR, as a key metric to assess the profitability of core operations. We also know that many of you calculate this metric differently.

20:40 We've included our version of this metric in the financial tables of our press release. We would also like to point out a couple of additional items to consider as you assess our PPNR results. First, our PPPs earned have declined $7.5 million from the first quarter to the second quarter. Also, MSR evaluation allowance adjustments resulted in an $8.3 million swing from a $6.1 million decrease in the valuation allowance in the first quarter to a $2.2 million increase to the valuation allowance in the second quarter. When considering these additional items, we believe our PPNR has shown marked improvement from the first quarter to the second quarter as a result of our first quarter balance sheet restructuring, earning asset growth, and better cost containment.

21:31 With that, I'll now turn the call over to the operator for questions. Ashley? At this time, if you have a question, please press star to the number one on your telephone keypad. And your first question comes from Frank Chiraldi with Piper Sandler.

21:49 Morning. Morning, Frank. I just wondered, you know, I realize that there hasn't been any change to NII guides. Just wondering about some of the moving parts there. And I wondered if you could talk a little bit about Outlook for loan growth and within that commercial loan growth in the back half of the year.

22:13 Yeah, Frank, for the NII guide, there is, as you've seen so far this year, we've recognized $19.5 billion and $11.5 billion in PPP fees in the first two quarters of the year. We still have we still have $35 million to go and the timing of that we have our own estimates as to when that will be recognized which may differ from yours but we would anticipate to possibly see a slight decrease in PPP fees in the third quarter and then have that step back up again in the fourth quarter just based on the timing of this third wave of PPP recognition and then we Seeing results now through the first half of the year, we would expect business results to improve in the back half of the year, and Kurt can give you more color on that.

23:14 Yeah, Frank, we looked at originations, commercial originations, in the first two quarters. They were pretty consistent. The second quarter, we saw elevated prepayment activities, so I think the growth as we look forward would be based on what prepayment activity is, The pipelines have been building over the last six weeks. And as things reopen and business activity increases, we do think pipelines will continue to grow. So we think we have more momentum in the second half. I think the growth will depend, though, on those prepayment factors. Just as an additional information, car dealers.

24:00 Our floor plan portfolio linked quarter was down $70 million because car dealers can't get cars. So floor plans are not as utilized as they were. So things like that can provide us some momentum in the second half.

24:19 Okay. And then, you know, you mentioned, Phil, you looked at some of the deals in terms of M&A that have taken place in market. You know, is it fair to say that you feel you can more – actively pursue deals in the back half of the year, given your confidence level now in macro environment. And I wondered if you could just remind us of what's sort of too small in terms of asset size to pursue in terms of whole bank deals. Thanks.

24:51 Yeah, I mean, I think we'll be as active as there are opportunities, Frank. And I think they'll continue in the second half of the year. You know, we'd like to be looking at banks over a billion dollars, but it wouldn't be impossible that we could look at something smaller that was really strategically positioned well within our footprint.

25:25 Great. Okay. Thank you. Yep. Your next question comes from Daniel Cameo with Raymond James.

25:35 Good morning, guys. Maybe if I could dig into the NII from the NIM side a little bit. What is your assumption for excess cash levels? It sounds like they increased again in the second quarter. What is your assumption for those levels within the guidance for the rest of the year?

25:58 and our guidance is that they tick up a little bit again during the third quarter because that's when we tend to see our muni business at its high watermark for the year and then coming back down a little bit in the back half but candidly we don't see much decline in the excess cash levels because I think as an industry we've been wrong as an industry as to deposit levels. And deposit levels continue to stick around longer than we anticipate. So while we'd like to run with a lower level of cash than we currently have, I think the expectation is going to remain elevated certainly through the end of the year.

26:47 Okay. Thanks for that. And then switching over to fee income, I heard a comment you made about the interest rate swaps within capital market income going back to normal. What kind of environment do you need for that? Do you need rates to go up from here? Do you think this level of swaps would be kind of the run rate assuming we don't get an interest in rates or even without that you think that this was a depressed level in the second quarter?

27:20 Just a little more color there. The second quarter was a light quarter for us. We were putting more fixed rate loans on the balance sheet. We are continuing to offer that. It really comes down to a loan recognition mix and larger deal mix and types of loans. So we do think a linked quarter as we look at the third quarter will be Your next question comes from Russell Gunther with DA Davidson.

28:19 Hey, good morning, guys. Hey, Russell. Hey, I saw a follow-up on expense comments earlier. Let's see if I caught this right. So you guys have done a really nice job keeping a lid on that and the recent initiatives. Can you just remind us, you know, of those previously announced? Are they fully in the run rate now as of the second quarter, or is there more to come?

28:42 Yeah, they are. They are fully in the run rate, but remember, Russell, when we announced that $25 million, we did say that we were going to invest a portion of that into some of our digital technology initiatives. So if you look at our income statement, you can see on the category for data processing and software, you can see the first two quarters of this year, that's been running anywhere from $1 to $2 million higher per quarter than what our run rate was in the prior year. So that's going to be the one offset to those cost savings. But other than that, yes, you should expect them to be fully in the run rate.

29:19 Okay, that's helpful, Mark. And then I guess as you look out and start thinking about 2022, do you contemplate additional initiatives to continue to keep a tight lid on expenses? Are there opportunities to do something similar going forward?

29:36 I think there will be constant reinvestment in our franchise, but I don't anticipate there being investment in the franchise that's going to change the trajectory of our expense levels. I would expect at this point that there would be not nominal increases in certain categories, but nothing materially off the run rate that you've seen. Okay.

30:02 That's great. And then just switching gears, Phil, you touched on the buyback a bit in prepared remarks and with the discussion around M&A. How should we think about you guys being active We're not with repurchases. Is it more of a hope to land a deal, and so we shouldn't expect to see in the market, or how are you guys contemplating that?

30:24 I'd say, Russell, it would be driven more by the price of our stock. So we do think we have enough capital to do a deal and buy back, but we want to do both of them at the right price.

30:43 Okay, understood. And so thanks for that. And then just a reminder as to sort of what that, you know, price of tangible book multiple or earn back is for repurchases for you guys.

30:55 Yeah, so, you know, if you look at, you know, kind of current levels for us right now, you know, that ends up being a QVD dilution earn back of about 2.2 to 2.5 years, you know, if you're kind of in the mid-15s right now, which is fairly attractive relative to certain M&A transactions. So it would be kind of equivalent to buying a bank that's kind of in that more 120 to 130 tangible book club.

31:25 Yeah, absolutely. Okay, guys. Well, thanks for taking my questions. That's it for me.

31:30 Okay. Your next question comes from Eric Zwick with Boning & Scuttergood.

31:39 Good morning, guys. Good morning, Eric. First question, I guess for Mark, maybe on your comments about the gain on sale margins declining for the residential mortgage. I think you said from kind of that 3% range down to about 185 or so. Now, curious, is that largely just market dynamics or has there just been a change with you holding more of those loans on your balance sheet and what you're putting into the secondary market? Curious what's impacted that? and then I guess second part would just be, you know, do you think those gain on sale margins settle out here in this range or is there more downward pressure as we move through the year?

32:16 Yeah, I think it's more been, I mean, while we have shifted, you know, the mix a little bit in terms of our originations, you know, have shifted a little bit from last quarter. They were about 49% purchase, 51% refi to this quarter. They were 60% purchase, 40% refi. You know, so there's been a little bit of a shift, you know, in terms of product type. But, you know, I would say it's more just demand for product, you know, has driven down gain on sale margins. And if you look back to where we were, you know, sort of first quarter of 20 and earlier, so going back to pre-pandemic, you know, you had a four or five quarter stretch there where our gain on sale spreads were fairly tightly banded between about 135 basis points and 155 basis points. We would expect, in our original expectations internally, was that it was going to migrate back to that by the end of the year. I think things came down a little bit more quickly than we anticipated in the second quarter, but I think where we're going to end up by the end of the year is still going to be in line with our expectations for spreads.

33:25 That's great detail. Thank you. And then the second question for me, Phil, I believe in your prepared remarks, you mentioned that you're bringing more of your workforce back to the office starting in September, but there'll still be a component that works remotely. Curious what that ultimate kind of percentage of employees that will work remotely will be kind of compared to pre-pandemic levels and how that just makes you think about your real estate needs going forward over the mid to long term.

33:52 Yeah, so pre-pandemic, I'd say we had a few people who worked remotely. As we are moving forward, I'd say 6% to 10% of our staff will be fully remote. A big chunk will be hybrid. So we will be looking at all our real estate. and I would suspect over time it would decrease.

34:27 Great. Thanks for taking my questions today. Yep. Again, for any questions, please press star to the number one in your telephone keypad. And your next question comes from Matthew Priest with Stevens Inc. Good morning.

34:44 Morning. Hey, I was hoping for a little bit more detail on the on the interest rates into your loan portfolio. So last quarter you provided that I think you had $12.6 billion of loans either tied to Prime or LIBOR. How much of that is subject to floors where you wouldn't benefit from higher rates until rate hike two or three? And maybe talk a little bit about the last rate cycle where we really didn't see loan yields inflect until the second or third hike along the way. Any differences this time do you expect?

35:20 Yeah, so Matt, we have about $2.5 billion of loans that are currently at their floors. We have total loans with floors is about $4.8 billion. But we have no loans that are below their floors. So, you know, your question really gets to if there's a rate increase, would we need to see two before a rate impact? You know, the answer is really no. On that, we would see, you know, sort of the full reset of that, you know, with rate increases.

35:51 Okay, so we wouldn't see the same delay as last time.

35:54 We would not.

35:56 And then the other question I had is, you know, residential loans continue to drive or a big portion of the recent loan growth. Balance is there up to 19% of total loans. You know, at what point do we start to see you take your foot off the gas pedal, you know, where exposure is enough and where you, you know, you sell more of the production versus retaining it?

36:18 Yes, so we continue to be, you know, asset sensitive, one of the more asset sensitive banks, you know, that we track in our peer group. So we think there's still room, you know, to continue putting, you know, high quality, you know, customer based mortgages on our balance sheet. You know, we have, you know, we have based on our current origination levels. I mean, I think there's capacity to at least through the balance of this year, you know, to continue to do that. And your trade off, is that, again, right now, if you're, you know, year-to-date, we've taken $230 million of production that we haven't sold. We just said in the second quarter, our average gain on sales spread was, you know, 185 basis points. You know, so there's a real short-term impact, you know, right there, about, you know, $3.5 to $4 million in mortgage banking gains.

37:08 When you put those loans on your books, you have a year-one reserve that you have to put on those residential loans under CECL. But then if you assume... you know, that those loans are going to stick around on your books for five or seven years, you know, then there's going to be a very material, you know, positive impact to your NII having those mortgages on the books versus, you know, say the alternative right now with that 1.4, 1.5 billion in cash we have and deploying that into MBS, you know, let's just say, you know, versus, you know, those residential mortgages.

37:40 Okay. And could you talk a bit about the securities portfolio outlook for the balance of the year?

37:46 Yeah, I think I would expect it to stay pretty rain-bound from where we ended up in the second quarter. You know, we, you know, did, I mean, a lot of that depends on obviously, you know, where the tenure goes, and the last couple days it's been going the opposite direction. But, you know, we, as I said in my prepared comments, I mean, we selectively redeployed some of that excess cash in MBS, you know, as longer-term rates went up. will continue to be opportunistic to maybe put some of it there. But we don't want to extend duration too much in the investment portfolio because our investment portfolio is primarily there as a liquidity tool. And ultimately, we want that excess cash balance to be redeployed into loans as opposed to investment securities.

38:35 Understood. Okay. Last one for me. Exclude commercial swap fees, the other commercial fee income line items, so merchant card income, cash management, other commercial banking, all really nice quarters up sequentially. What were the drivers behind those type of fee income improvements?

39:02 I would just point to increased business activity and underlying transactional activity as well as effectively managing the earnings credit that would offset any of those fees on the treasury business. But we're seeing increased activity in business in all those categories.

39:24 Do you feel like these kinds of levels are sustainable or levels you can grow off of from here?

39:30 Yeah, we expect them to continue to grow. You know, we'll see what pace they grow and it will really be tied to kind of underlying business activity of our customers, but we do anticipate them continuing to grow.

39:45 Okay.

39:46 That's all I had.

39:47 Thanks for taking my questions. Thanks. At this time, there are no further questions. I'll hand the call back for closing remarks.

39:58 Well, thanks everyone again for joining us today. We hope you'll be able to be with us when we discuss third quarter results in October.