Fulton Financial (NASDAQ:FULT) Q3 2021 Earnings Call

0:00 Good day, everyone, and welcome to the Fulton Financial third quarter 2021 results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session, and our instructions will be given at that time. If during your conference call today you do require operators assistance, please press star then zero, and an operator will be happy to assist you. As a reminder, this conference call may be recorded. It is now my pleasure to hand the conference over to Mr. Matt Joswak, Director of Investor Relations. You may proceed.

0:31 Good morning and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the third 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 in the presentations page under our investor relations website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations, and business.

1:24 These statements are not guaranteed. Thank you. Thank you. Thank you. 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 in slides 10 and 11 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures.

2:16 Now I'd like to turn the call over to your host, Phil Winger. Thanks, Matt. Good morning, everyone. I'll begin with some overall thoughts on the quarter, and then Curtis Myers will discuss our business performance, and Mark McCollum will share the details of our financial performance. And after that, we'll answer any questions you may have. Holton's performance was again solid in the third quarter of 2021. Earnings per share of 45 cents was an Thank you for joining us today. As I noted last quarter, we have seen several mergers and acquisitions in and around our footprint and that trend has continued in the third quarter.

3:33 Fulton has taken a look at select opportunities that might be a good fit for us and we remain interested in supporting our future growth through M&A. We're particularly interested in those companies which would be a good fit for Fulton's strategy and our community-oriented style of banking. Thank you for joining us. Throughout the past year, I've referenced the challenges brought about by COVID-19.

4:33 Now, as vaccination rates continue to rise throughout the markets we serve, I focus moving forward with our previously announced plans to begin bringing more of our team members back to on-site work beginning the week of November 1st. We are really proud of how our team members have adapted to constantly changing circumstances, and we are pleased to have provided an essential service that our customers could depend on throughout the pandemic. As we reunite our team, we remain focused on achieving our three main priorities of growing the company, achieving operational excellence, and sustaining effective risk management and compliance.

5:23 Now I'll turn things over to Kurt to discuss our business performance. Thank you, Phil, and good morning, everyone.

5:30 As Phil noted, our third quarter performance produced solid results, and I'd like to share some detail on several key areas. Strong loan growth from residential mortgage lending, moderate loan growth from consumer loans, and growth in certain commercial lending areas led to approximately $205 million in total loan growth, or about 4.5% annualized when excluding the impact of PPP forgiveness. Starting with consumer lending, loan balances grew $186 million, or 3.5% length quarter, and 14% on a annualized basis. This growth was driven primarily by strong residential mortgage and residential construction lending, with other consumer loan categories also contributing to the growth this quarter.

6:18 Overall, mortgage banking business remains strong as we continue to experience origination activity above pre-pandemic levels and see opportunities to either sell our conforming mortgages in the secondary market at healthy spreads or increase our balance sheet at beneficial yields. As noted in prior quarters, our asset-sensitive balance sheet provides room to continue to grow this segment of high-quality, in-market, residential mortgage loans. and we continue to evaluate our opportunities to do so. Residential mortgage originations for the quarter were $659 million, a decrease of 25% from the prior quarter, but purchase activity counted for approximately 70% of the total residential mortgage originations during the quarter, up from 60% in the second quarter.

7:09 At September 30, the mortgage pipeline remains at approximately two times our pre-pandemic levels. As I noted before, residential construction also had a strong quarter, increasing 21 million or 14% length quarter. Finally, in consumer banking, a new fintech partnership for student loan refinance business contributed to consumer loan growth this quarter. The overall consumer loan growth was partly offset by continued headwinds in home equity lending line utilization. Turning to commercial loans, we saw pockets of growth driven by increased line utilization, strong commercial construction lending, and growth in our core C&I business. However, we saw continued pressure in our floor plan business as dealers continued to struggle to get inventory. This kept total commercial loans flat for the quarter.

8:03 During the quarter, commercial line utilization increased 46 million, the first increase we've seen since the beginning of 2020. This is an encouraging sign of business growth and activity. Commercial construction loans grew as well, up 2.1% length quarter, or 8.4% annualized. C&I loans were down 7 million, however, excluding floor plans, C&I loans were up 0.5% length quarter, The commercial pipeline has been relatively consistent over the past few quarters and ends the quarter flat on a length quarter year-to-date and year-over-year basis. Turning to deposits, growth for the quarter continued as we saw expected seasonal inflow of municipal balances. Total deposit balances increased $350 million, or 1.6% length quarter.

8:59 We're pleased with a strong quarter as fee income increased $11 million. Strong results in wealth management and mortgage banking and solid performance in consumer fee businesses drove this increase. A wealth management business continues to perform very well, driven by its strong equity markets, solid sales efforts, and good client retention. Assets under management and administration grew to $14 billion in the third quarter, up from $13.7 billion at the end of the second quarter, and $11.8 billion at the end of the year-ago period.

9:47 These trends grow quarterly wealth management income to record levels for the fourth quarter in a row. Mortgage banking delivered another strong quarter on solid loan sales and wider gain-on-sale margins. Even when exploiting a positive change in the mortgage servicing rates valuation, which Mark will discuss, fee income was up on a rent-to-quarter basis. Continuing with consumer banking, consumer transactional fees were up 8.7% rent-to-quarter as customer activity continues to grow. This increase was across the board in the majority of the consumer products. Overall commercial banking fees were down modestly for the quarter. We saw a sizable increase in capital markets and recorded modest growth in merchant banking and card fee income. Offsetting these categories was a slight decline in cash management and a sizable one quarter decline in SBA gain on sale fees.

10:43 Capital markets activity, which is primarily commercial loan interest rate swaps, increased in the third quarter. We expect capital markets revenue to return to more historic trends over time. However, this will continue to depend on customer preferences, commercial loan demand, and interest rate expectations. SBA gain on sale fees declined in the quarter, coming off a very strong second quarter. In summary, we remain encouraged by the increased activity within our commercial business during the period. Moving to credit, asset quality remains stable. Delinquency remains low. and deferrals and full balance continue to decline. Non-performing loans declined $3.5 million late quarter and remained relatively stable since prior to the beginning of the pandemic.

11:32 During the quarter, we saw a net recovery of $2.3 million or five basis points. This compares to $6.9 million or 15 basis points of annualized net charge-offs in the second quarter. Historically, we have included a detailed slide on COVID loan deferrals.

11:49 However, you will notice we have removed that from the presentation as COVID deferrals and forbearance continue to decline, ending the quarter at only $65 million.

11:58 Overall, our credit outlook remains cautiously optimistic for the remainder of 2020, 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 a little more detail.

12:17 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 second quarter of 2021. Starting on slide three, earnings per deleted share of this quarter were $0.45, or net income available to common shareholders of $73 million. This represents an increase of $0.07 per share versus the prior quarter. Our strong third quarter performance included increases in net interest income and non-interest income, as well as a negative provision for the quarter, offset by high operating expenses, which I'll cover more detail later in my comments. Moving to slide four, our net interest income was $171 million, a $9 million increase one quarter. This was due to a pickup in fees earned when PPP loans were given during the third quarter versus the second quarter, Moderate loan growth and higher yields on earning assets during the quarter, coupled with a relatively sizable decline in interest expense.

13:20 First, I'll provide some more detail around our PPP program. At the end of the second quarter, we had $1.1 billion of outstanding PPP loans and $36 billion of unearned fees. During the third quarter, our PPP loan forgiveness was $526 million and fees earned were $18 million. Thank you for joining us. We did see an increase in deposits with other institutions by about $450 million during the quarter, but we would expect this to decline a bit in the fourth quarter if deposit patterns are consistent with prior years.

14:26 Turning to deposits, total deposits grew by approximately $350 million on an ending balance basis. and as Curt noted, we lowered our cost of deposits for the quarter from 15 basis points to 12 basis points and we expect this to migrate modestly lower in future periods. The third quarter traditionally represents the peak inflow of our municipal deposit balances and we would expect the CEDARS balances begin to outflow in the fourth quarter and into next year. Non-municipal deposits increased approximately $60 million during the quarter, whereas municipal deposits represented $290 million of our overall quarterly increase. Our average loan-to-deposit ratio declined from 86.9% in the second quarter to 83.2% in the third quarter from a combination of increased deposits as well as a significant decline in PPP loans.

15:24 Our net interest margin for the third quarter was 2.82% versus 2.73% in the second quarter. The nine basis points of link quarter expansion resulted from higher PPP loan fee recognition as well as higher earning asset yields and a continued decline in deposit costs. Turning to credit on slide 5, our third quarter provision for credit losses was a negative $600,000 compared to a negative $3.5 million last quarter and a negative $5.5 million in the first quarter. Year to date, due to solid performance, including a net recovery in the third quarter and an improving view on asset quality, it has been appropriate to release reserves throughout 2021.

16:11 Slide 5 shows our quarterly credit quality metrics. We recorded a net recovery of previously charged off loans of $2.3 million for the quarter, and non-performing loans to total loans declined, whether including or excluding PPP loans. The allowance for credit losses, excluding PPP loans, remained flat on a length quarter basis, down 15 basis points since the end of last year, and currently stands at 1.45%. As always, our allowance for credit loss trends could change in future periods based on loan origination volumes, loan mix, net charge-off activity, and longer-term economic projections.

16:57 Moving to slide six, non-interest income, I will touch on just a few items that Kurt did not cover in a little bit more detail. Mortgage banking revenues were driven by strong mortgage loan sales and widening gain-on-sale spreads. which were 194 basis points this quarter versus 185 basis points last quarter. During the third quarter, consistent with this year, we have chose to portfolio saleable mortgage product and have now put approximately $288 million of saleable mortgages on our balance sheet thus far this year. Keeping more mortgage production on our balance sheet has impacted mortgage banking revenues modestly for 2021 but may provide a significant long-term benefit to net interest income versus the purchase of lower-yielding investment securities.

17:49 Lastly, during the quarter, we recorded a valuation to the valuation allowance of our mortgage servicing rights asset of $3.5 million due primarily to the higher interest rate environment. Our MSR asset was $32.9 million on balance sheet at September 30th. This balance is net of a $3.1 million mortgage servicing rights valuation allowance, which remains as of quarter end. Lastly, in fee income, other fee income increased by $2.6 million in court. This was primarily due to gains of $2.1 million on equity investments, as we have seen an investment in a fintech fund generate very strong returns recently.

18:37 Moving to slide seven. Non-interest expenses were approximately $145 million in the third quarter, up $4 million in the quarter. This increase was driven by the following factors. The day count in the third quarter accounted for about $1.6 million of the increase. And we saw increased benefits costs of $1.6 million for the quarter that were due to increased health care costs. As a reminder, we are self-funded for our health care. and we saw employees hitting their deductible limits. We would expect these costs to revert to historic trends in the fourth quarter and then decline in early 2022 as deductibles reset.

19:22 We also saw higher variable code costs due to both higher pretax earnings as well as higher commissions in our wealth management area. and lastly on expenses we saw higher data processing costs occur during the quarter due to various technology initiatives across the company. These increases, some of which are not expected to recur, were offset in part by sales of real estate related to our branch closings earlier in the year and also one sale leaseback transaction which when combined reduced other expenses approximately $1.4 million. Turning to taxes, our effective tax rate was 16% for the quarter, consistent with the second quarter. Slide 8 gives you more detail on our capital ratios.

20:10 As of September 30th, we maintained strong cushions over the regulatory minimums, and our bank and parent company liquidity remained very strong. During the quarter, we repurchased approximately 1.7 million shares, on an average price of $15.43 and have utilized approximately one-third of our $75 million share repurchase authorization. On slide nine, we provide our updated guidance for 2021. We expect our net interest income to be in the range of $655 to $665 million. We now expect our provision for credit losses to be negative for the year. We expect our non-interest income, excluding securities gains, to be in the range of $230 to $235 million.

21:03 And we expect operating expenses, excluding charges related to our balance sheet restructuring, to be in the range of $570 to $575 million for the year. Included in this number... are some planned expenses in the fourth quarter related to COVID vaccine bonuses as well as a contribution to our Fulton Forward Foundation. Lastly, we are aware that many of you look at Pre-Provision Net Revenue, or PPNR, as a key metric to assess the profitability of key operations. We also know that many of you calculate this metric differently. We have 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.

21:52 First, PPP fees earned have increased $6 million from the second quarter to the third quarter. And also, MSR evaluation allowance adjustments resulted in a $5.7 million swing from a $2.2 million increase to the allowance in the second quarter to a $3.8 and a $5 million decrease in that valuation allowance in the third quarter. When we removed the impact of these items, we believe our PPNR has shown continued improvement each quarter in 2021 as a result of our first quarter balance sheet restructuring, earning asset growth, core margin stabilization and continued cost containment efforts. With that, I'll turn the call over to our operator for questions.

22:38 Ryan? Thank you. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. Again, at this time, if you would like to ask a question over the phone, that is star and then one. Our first question will come from the line of Frank Chiraldi with Piper Sandler. Your line is now open.

22:59 Morning. Hey, Frank. Hey, Piper. Just, uh, Kurt, you mentioned the pipeline, commercial pipeline has been pretty stable, and I wondered if you could, um, follow up a little bit on your comments about the dealer floor plan utilization you know the mechanic there in terms of it sounds like it was slower again or reduced again in the third quarter just wondering your thoughts about 4Q and going forward and just if you could quantify the size of that and where utilization rates are right now yeah sure Frank just a little more color on the Just one word overall. Originations were pretty consistent quarter to quarter. Pipeline remained steady as well.

23:50 So I think we feel that originations will remain steady as we look forward into the fourth quarter. We do see increased business activity overall.

24:03 I think the overall commercial line utilization growth was a really encouraging factor. So as we look forward, we expect originations to continue to accelerate and the stable pipeline we think is positive at this point. Specifically on dealer, that headwind for the quarter was $24 million. Essentially, we're maintaining that business and even growing that business, but car dealers just can't get cars. Almost all of our dealers, all their new cars are pre-sold, so they're in and off the line very, very quickly. That business overall for us is about $350 million.

24:55 Okay, great. Thank you for all the color. And then just lastly, you also mentioned the FinTech partnership on the consumer side. I think you said student loans. And so I would think that that refi business is actually pretty slow right now. And just wondering your thoughts on growth or really what this partnership We are looking at fintech partnerships on the origination side. We have not been in the student loan business. and it was a good way to get into that business.

25:49 We have specific originations that we'll accept under that program and it is very modest at this point. It's ranging two to four million of originations per month but we think we'll continue to grow and we are looking at other partnerships that can accelerate our overall origination activity on the consumer side.

26:16 Okay, great. Thanks. And if I could just sneak in one more in terms of the mark on the expenses. You talked about the investment in digital as being sort of a partial offset to cost saves you got in elsewhere. You talked about that running maybe, you know, data and software running maybe one to two million higher in terms of expense year over year. It seems like that, you know, is holding true and already in one rate. I'm just wondering if Is that still a pretty good bogey to think about in the 4Q? And, you know, is that still something that you ramp up through 2022 as well?

26:54 Yeah, I think what you've seen on the data processing line is consistent with the guidance that we gave at the beginning of the year. You know, I would expect to see that, you know, probably continue to creep higher. I mean, just when you think about the continued digitization of our industry, you know, as well as the way, you know, the accounting changed on that bank where, you know, previously you could buy a piece of software and amortize it over seven years but with so much more going to the cloud, you know, and things being subscription-based. I think that's also going to see that line to go up a little bit higher discreetly. I guess while we're talking on expenses, the one comment I guess I'll also make on just our overall expense base, if you look at our expenses year-to-date and if you take out the debt extinguishing costs, that takes our expenses year-to-date to $431 million.

27:50 and that's up from a little under $425 million over the same period a year ago. Now that's about $6.5 million or about a 1.5% increase year over year but when you then look at the reasons for that the principal reason really just comes down to the fact that we're making more money this year. If you take between management related incentive bonuses as well as specific commissions within our wealth area which is produced through nine months 10 million dollars of year-over-year additional revenue. Those incentive accruals and wealth commissions account for 7.6 million. So more than 100% of a year-over-year increase.

28:35 So when you strip that out, the fact that we're making a little bit more pre-tax, we think we have delivered on the cost savings program that we put in place last year. Okay. Thanks for all the color. You guys, thanks for the questions, Frank. Thank you. And our next question will come from the line of Daniel Tomeo with Raymond James. Your line is now open.

29:00 Thanks. Good morning, everyone. So maybe just starting on, I just want to make sure I heard this comment right. You made a comment about an expected decline in deposits. Was that... In the fourth quarter, was that overall deposits? You talked about the municipals peaking in the third quarter, but did I catch a comment on overall deposit decline in the fourth quarter?

29:24 Yeah, Danny, so this is Mark. If you think about our normal trends in our municipal deposit business, third quarter is always a high watermark. and if you look back in prior years we would have between you know five to six hundred million between the peaks and the valleys of that business with the peak always occurring in the third quarter. You know I think one of the questions that the whole industry is sort of wondering right now you know on top of that then you had these surge deposits during the beginning of COVID and you know we're The journey is really still out as to how much of that is served versus how much of that is going to stick around. But typically for us, from the third quarter to the first quarter, so over that six-month period of time, is when you see that movement from the peak to trough, which again has historically been in the $500 to $600 million range.

30:23 Okay, great, that's helpful. Thanks for that. And then not to be a dead horse here, but on the expense guidance, maybe we could talk just a little bit about What's going to be the, you know, it sounds like there's a lot of moving parts in the fourth quarter where you provided guidance, but how much of the fourth quarter number is going to be kind of one time in nature on either side and just to try and help us get a base as we start 2022 modeling?

30:55 Yeah, I think some of the items that I mentioned in the scripting, I think, you know, that could be in the, in the $3 to $5 million range, depending on what overall pre-tax earnings end up being. But I think those then would not recur into next year unless we would have another year similar to this one in terms of pre-tax profitability.

31:28 Okay, so that's related to the $3 to $5 million I apologize for repeating, but just some of what those would be and then I'll drop off.

31:41 Thank you. Yeah, you were saying a little bit on the call there, Danny, but I think you're just asking for a little bit more detail on that three to five. And again, it comes down to the two items I mentioned, which is specifically we are encouraging our employees to receive a vaccine and we're offering for those employees who are fully vaccinated by November 1st Thank you. And our next question will come from the line of Chris McGrady with KBW. Your line is now open. Good morning.

32:35 Hey, Mark, a question on just the composition of the balance sheet. How should we think about earning asset growth or remixing from here? Is it more likely, I know it's dependent on deposit growth, but is it more likely to shift into more profitable assets or outright grow in the next few quarters? Well, again, a lot of that depends on supply chain issues in our country and how fully things open. As Kurt referenced in his script, we did see some signs of optimism with an increase in commercial line utilization. I would also say that when you look at within our fee income, you may have noticed our overdrafts were actually up $700,000, which We're still not back to pre-pandemic levels of overdraft fees, but we do think when we got into the details of that, we saw a 17% increase in the incidence of overdrafts one quarter, which may be a sign.

33:45 One quarter does not clearly make a trend, but we think that may be a sign. Thank you for joining us. Thank you for joining us. You know, exactly what percent, you know, of that and what percent of loan growth, you know, we'll be speaking to that certainly on our fourth quarter earnings call when we set our guidance for 2022.

34:38 That's great. Thank you for that call. Just a clarification on the dealer floor plan. I think you said it was around 350. What was the peak in that portfolio?

34:49 I don't have the balances, the historical balances, but it's off about $100 million. It was like $70 million linked quarter in the first and second quarter, and then it was another $24 million. So it's easily $100 million off of what we would expect.

35:11 Okay.

35:12 And then maybe if I could on the M&A comments, Phil, and your prepared marks, could you just refresh us the size?

35:18 I know it sounds like in-market cultural fits, but I think in the past you said minimum of a billion, but just kind of an update on potential range of what you might consider. Thanks.

35:30 Yeah, I think we're still looking at a billion to – Thank you. And our next question will come from the line of Russell Gunther with DA Davidson. Your line is now open. Hey, good morning, guys.

35:55 I just, you know, a bit of a piggyback to Chris's question and following up on the loan growth conversation.

36:00 So, you know, appreciate the color on the commercial pipeline originations, you know, pockets of growth you haven't seen in prior quarters, which also detailed some headwinds.

36:09 So as we tie all of this together, you know, is that four, four and a half percent annualized XPPP the right way to think about Fulton near term or are there, you know,

36:21 additional tailwinds or optimism that we're not seeing that you guys are expecting over the next couple quarters? Yeah, well, so, Kurt, you know, we are expecting that range, you know, 4% to 6%. I mean, if you look at historically, the organic growth has been in that range, you We are doing some things like the FinTech partnership and some other things to accelerate origination.

36:53 So, you know, we want to be kind of at the top end of that range, all things being equal where they are right now. Certainly a pickup in business activity and we'll drive that growth without adding new customers. You know, we look at, you know, growing the business by adding new customers and we think there's a significant tailwind at some point when we just get back to normal business activity in our commercial book the commercial construction utilization we referenced as well that just shows that those construction mortgages are being done, they're funded, they're moving forward I think that's a positive sign as well I think it really just depends on how quickly that happens Okay, so very helpful. I appreciate it, Kurt.

37:45 And then just on the securities portfolio, so you mentioned the growth this quarter as well as some of the deposit inflow dynamics this quarter and over the next couple. But how should we think about that near term in terms of overall growth and investment appetite? Yeah, you know, we, you know, think of our investment portfolio primarily, you know, for liquidity. And you know while it's grown a little bit this year you know that's really you know largely commensurate with just you know overall balance sheet growth you know there was some opportunity here obviously late in the quarter you know when rates went up a little bit to maybe put a little bit more in the investment portfolio but for a good chunk of the quarter you know the longer end was down and you know it just didn't seem attractive to us I mean you know ideally for us As I said earlier, we would like to see a lot of that excess liquidity be put into higher-yielding asset classes and classes that are supporting our customers.

38:48 And so I would not expect on a percentage basis for you to see our investment portfolio increase more than what it has historically. But to the extent that the overall balance sheet grows, then you could expect to see the investment portfolio to grow commensurately. Okay, great. Thanks, Mark. And thanks, everyone, for taking my question. Thank you. Thanks, Russell. Thank you. And just as a reminder, if you'd like to ask a question, that is star and then one on your telephone keypad. Our next question will come from Matthew Breezy with Stevens, Inc. Your line is now open. Good morning. Good morning.

39:30 What's your current outlook for PPP balances and forgiveness from here? When do you think it's totally off the balance sheet and along those same lines? How do you expect the cadence of recognizing the $18 million remaining fees?

39:43 Yeah, so of that, of the $18 million in fees and the $500 million in balances that remain, you know, our assumption is we're going to be, there's going to be somewhere, you know, around, 10-15% of that might remain on the books and actually go out to become a term loan but the majority of it we expect to be forgiven and we expect that majority to be forgiven by the end of the first quarter of next year so of that 18 million in fees while there's been some fits and starts with the SBA I think in general we would expect Two-thirds, or around $12 million of that, to be recognized in the fourth quarter, and then one-third, or around $6 million, to be recognized in the first quarter of next year.

40:39 Phil, you mentioned due to in-market M&A and disruption that there were opportunities on the hiring front. Could you just give us some more color on the extent of those opportunities? Are you talking lenders in terms of individuals or teams? Just wanted to get a sense for what kind of needle-moving opportunity that could be. Yeah, so, I mean...

41:06 We're looking for teams and lenders all the time. I think when there are acquisitions, the opportunity can become greater, but we're looking for those folks everywhere throughout our footprint.

41:31 Two more for me. The first one is just, you know, I noticed that common shares outstanding were down quarter over quarter. I didn't see you mention that you repurchased stock in the release. I just wanted to get a sense for whether or not you actually did repurchase stock this quarter, what price. I know you've mentioned there was some remaining authorization, but did you actually buy back stock this quarter?

41:52 Yeah, we did. It was in our prepared remarks. We repurchased about 1.7 million shares at a price of $15.43 on average.

42:11 This is a recurring topic, but I wanted to get your thoughts on, you know, this year in particular we've seen a lot of deals in the buyer stocks have not performed great. And as you've looked at, you know, other deals in your markets where, you know, buyer stocks have not performed well, could you just share with us some of the items you think are critical to a deal being successful and well received by shareholders versus not?

42:36 Yeah, I think... This is Mark. First, right now, certainly tangible book value dilution and earn back has a heightened focus. I always think it's important to look at those two together because you can accept maybe a little bit higher earn back up front if you have a really strong company that you're buying, so then that earn back Thank you for joining us. on that earnback.

43:33 And then EPS accretion for us, it's always important in the first year of combined operations that you show EPS accretion. Again, how much accretion you show is also going to be a function of the relative size of the entities. And then we also focus on internal rate of return and make sure that the IRR of the deal is higher than the target's cost of capital. and we focus on the targets cost of capital because with a smaller entity there could be more risk embedded there than with a larger entity with a more diversified revenue stream so we always want to have an IRR in excess of the targets cost of capital as well. And then on top of that I'm telling you that in non-financial terms I mean I just talked about all the financial stuff as a CFO but the most important thing really is that there's a good cultural fit and You know, a great financial deal with a bad culture threat will ultimately end up being a bad deal for shareholders.

44:37 Great. That's all I had. Thank you for taking my questions. Appreciate it. Thank you. Thanks, Matt. Thank you. And our next question comes from Eric Zwick with Bondine Scattergood. Your line is now open.

44:49 Good morning, guys. Good morning, Eric. I appreciate all the color commentary already on the near-term expense outlook. Maybe thinking a little bit more kind of mid- or longer-term outlook, there's obviously been a lot of press about inflationary pressures and labor markets. Curious, if you guys are seeing any pressure either as you look to recruit new lenders or other associates from external sources or anything internal from employees, asking for increases, and then maybe the second part of the question, can you just remind me when you typically award merit increases and how inflation is maybe considered in those decisions?

45:31 Sure. This is Phil. There is intense pressure on wages at every level of our company, and as we talk to our businesses, I think it's Every business. The biggest problem that everyone has is getting employees and it's a very tough environment to hire people. And I think for all industries, we see wages continuing to climb.

46:17 and we see permanent inflation.

46:24 That's helpful. And when do you typically kind of award annual increases? April. and then maybe just switching gears a little bit, Mark, I appreciate the calling out, tracking the PPNR and that's been growing year over year. If we think about that from a profitability standpoint relative to average assets or even looking at ROA and ROE, where are there opportunities today within the organization to pull levers to gradually increase that outside of considering M&A or a steepened yield curve or improved interest rate environment?

47:04 Yeah, the most obvious area to focus on is that excess liquidity we're sitting on. You know, right now we've got, you know, $1.8 billion that effectively is earning about 15 basis points. You know, so that, you know, when you think about, like, I know there are, you know, some of the analysts on this call, I know, you know, strip out our PPPs, which we understand and think is appropriate to get down to core PPNRs. But when we strip out the impact of PPP on our margin and our loan yields, we think you also need to then strip out the impact of that excess liquidity. Because as you get back to a more normalized environment, a more normalized environment for our company is a long-term loan deposit ratio between 95% and 100%.

47:54 And so when you get back to that level, you know, that, you know, redeploying that excess liquidity kind of gives you back about the same amount as what the PPP fees, you know, are actually pulling the leg. So we think that's by far the, you know, biggest levering opportunity for our company. Thanks for taking my questions today. You bet. Thank you. Thank you, and I'm showing no further questions at this time, so now it is my pleasure to hand the conference back over to Phil Wagner, Chairman and Chief Executive Officer, for closing comments and remarks.

48:34 Well, thank you again for joining us today, and we hope you will be able to be with us when we discuss the fourth quarter results in January 2022. Thank you. Thank you. Everyone, this concludes our conference call today. Everyone have a wonderful day.