Fulton Financial Corp (FULT) Q2 2019 Earnings Call Transcript

FULT earnings call for the period ending June 30, 2019.

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Jul 17, 2019 at 3:23PM
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Fulton Financial Corp (NASDAQ:FULT)
Q2 2019 Earnings Call
Jul 17, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Fulton Financial Second Quarter 2019 Results Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. Jason Weber. Sir, you may begin.

Jason Weber -- Senior Vice President and Director, Corporate Development

Thanks, Daniel, and good morning. Thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the second quarter of 2019. Your host for today's conference call is Phil Wenger, Chairman and Chief Executive Officer of Fulton Financial Corporation. Joining Phil Wenger is Mark McCollom, Senior Executive Vice President and Chief Financial Officer.

Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released at 4:30 PM yesterday afternoon. These documents can be found on our website at www.fult.com by clicking on Investor Relations then on News. The slides can also be found on the Presentations page under Investor Relations on our website.

On this call, representatives of Fulton may make forward-looking statements with respect to Fulton financial condition, results of operations and business. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors and actual results could differ materially. Please refer to the Safe Harbor statement on forward-looking statements in our earnings release and on Slide 2 of today's presentation for additional information regarding these risks, uncertainties and other factors.

Fulton undertakes no obligation other than as required by law to update or revise any forward-looking statements. In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday and Slides 11 and 12 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures.

Now, I'd like to turn the call over to your host, Phil Wenger.

Phil Wenger -- Chairman and Chief Executive Officer

Thanks, Jason, and good morning, everyone. Thank you for joining us today. I have a few prepared remarks before our CFO Mark McCollom shares the details of our second quarter financial performance and discusses our 2019 outlook. When he concludes, we will open the phone line for questions.

Before I talk briefly about our second quarter performance, I want to highlight two important milestones we hit during the quarter. First, we consolidated our subsidiary bank, Fulton Bank of New Jersey into our largest banking subsidiary, Fulton Bank. And second, our last remaining BSA/AML consent order was terminated paving the way to finalize our strategic priority of consolidating all of our subsidiary banks into Fulton Bank. We plan on consolidating our remaining two subsidiary banks in September. Together achieving these milestones will not only help unify our brand, but also facilitate growth going forward.

Now, I'd like to talk about our second quarter performance. Overall, we were pleased with our results, which were driven by strong fee income and continued growth in our consumer business. Our consumer business, we continue to see strong growth in our residential mortgage and indirect auto portfolios. Residential mortgage portfolio has a balanced mix of footprint, fixed and adjustable rate mortgages with a weighted average borrowing credit score of approximately 715. And our indirect order portfolio is comprised of in footprint loans with a weighted average borrower credit score of approximately 795.

Our commercial business continues to be impacted by an extremely competitive lending landscape, and we're seeing competition from banks small and large, as well as non-bank lenders. Our commercial pipeline remains strong. So we are cautiously optimistic about our growth prospects for the remainder of the year.

Turning to credit, overall asset quality continues to be relatively stable despite a modest uptick in non-performing loans linked quarter. We believe the uptick in non-performing loans is not suggestive of a broader portfolio or macro trends. Our provision for credit losses was down slightly linked quarter and we also had net recoveries during the quarter.

Moving to fees, non-interest income growth was strong linked quarter and year-over-year reflecting seasonal growth, higher volumes and continued sales efforts. We saw growth across most non-interest income categories. Mortgage banking income increased linked quarter and year-over-year on both improving spreads and higher originations. As rates move down during the quarter, we did see a nice pickup in refinance activity in June.

Our investment management trust services income grew at a nice pace linked quarter and year-over-year due to both overall market performance and our continued asset gathering focus. Brokerage revenue increased 6.5% -- excuse me, 16.5% year-over-year and continues to be one of our fastest growing segments in the business. The increase also reflects the acquisition of a small wealth management business in the first quarter. Our commercial loan interest rate swap income was up linked quarter and year-over-year on increased volumes and larger deals.

Turning to expenses, we saw a linked quarter increase in our non-interest expenses, which was expected due to approximately $5.1 million in charter consolidation expenses. Excluding those expenses, charter consolidation expenses, the efficiency ratio for the second quarter would have been 61.9%, which is the lowest since the first quarter of 2013. On the capital front, we paid a quarterly common dividend of $0.13 per share in the second quarter. We repurchased approximately $58 million of common stock during the second quarter. We had approximately $48 million left in our current share repurchase program, which is authorized through December 31st, 2019.

At this point, I'd like to turn the call over to Mark McCollom to discuss our financial performance in more detail.

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Thank you, Phil, and good morning, everyone. Turning to our earnings, unless noted otherwise, the quarterly comparisons I will discuss for the first quarter of 2019. Starting on Slide 4, earnings per diluted share this quarter were $0.35 on net income of $59.8 million, an increase of $0.02 or 6.1% from the first quarter of 2019 and an increase of $0.15 or 75% from the second quarter of 2018. As you may recall, during the second quarter of 2018, we recorded a $36.8 million provision for credit losses related to a customer fraud from a single large commercial relationship. I will now dive a bit deeper into the components of our earnings and provide you with some additional color.

Moving to Slide 5, our net interest income was $164.5 million, an increase of $1.2 million linked quarter, driven mainly by an increase in interest earning assets and an additional day of interest accruals during the quarter, partially offset by the impact of a 5 basis point decrease in our net interest margin. In the second quarter, we saw our cost of funds increase at a higher rate than our yields on interest earning assets reversing the trend we've seen in preceding quarters. In prior quarters, increases in the Fed funds rate drove increases in our earning asset yields while increases in the cost of funds lagged.

In the second quarter of 2019, yields on earning assets increased 2 basis points while our cost of funds increased 6 basis points. Loan yields increased 4 basis points while the cost of interest bearing deposits increased 7 basis points. Everyone is aware of the volatility in interest rates we saw during the second quarter and that the likelihood of rate decreases in the second half of 2019 appears to be high at this point. I would note that some of the impact of declining rates is already reflected in our second quarter results as approximately $7 billion of our loans are tied to various points on the LIBOR curve, and this curve declined sharply during the second quarter.

I will provide more color on our net interest margin during our outlook discussion at the end of my comments. Growth in average loans linked quarter was $122 million for an annualized loan growth rate of 3%. Average deposits increased to $100 million or 2.5% linked quarter annualized.

Turning to Slide 6, our credit performance in the second quarter was mixed but overall relatively stable. We had net recoveries of $1.5 million for the quarter as compared to net charge-offs of $4.1 million in the first quarter of 2019. Non-performing loans increased $9 million to $148 million. Non-performing loans as a percentage of total loans increased to 90 basis points at the end of the second quarter as compared to 85 basis points at the end of the first quarter.

The provision for credit losses for the second quarter of 2019 was $5 million, slightly lower than the first quarter. The provision was $28.1 million lower than the second quarter of last year, which was driven by the aforementioned commercial relationship. The allowance for credit losses as a percent of loans increased linked quarter to 1.08% from 1.05% at the end of the first quarter. However, the coverage of the allowance to non-performing loans decreased to 120% from 123% last quarter.

Moving to Slide 7, we have a very strong quarter with respect to fees as our non-interest income, excluding security gains, grew $7.5 million or 16% linked quarter. Some of this increase was attributable to seasonality, particularly in consumer card income and overdraft fees as well as merchant and commercial card income. Mortgage banking income increased $1.8 million or 38% driven by increases in the volume of sold loans as well as improvements in spreads. Increases were also realized in commercial loan interest rate swap fees and also in SBA loan sale gains, which are included in other commercial banking income on our income statement.

Moving to Slide 8, non-interest expenses were $144.2 million, an increase of $6.3 million from the first quarter. Included in non-interest expense in the second quarter were expenses related to charter consolidation activities totaling $5.1 million with $1.6 million of this total in salary and benefits expense, $2.7 million in other outside services and the remainder in various expense categories. This compares to total charter consolidation cost of $1.5 million in the first quarter of 2019, which were primarily reported in other outside services. Excluding these charter consolidation costs from both periods, expenses would have increased $2.7 million or 2%, and our efficiency ratio for the second quarter would have been 61.9% as compared to the 64.2% reported.

Salaries and employee benefits increased $1.2 million or 1.6% as the aforementioned charter consolidation costs and increases resulting from normal merit increases during the quarter were partially offset by lower health insurance expense due to favorable claims experience. Increases were also seen in net occupancy expense, data processing and software as well as marketing expense. Professional fees decreased compared to the first quarter of 2019. For the second quarter of 2019, our effective tax rate was 14.2%, which has decreased from the first quarter of 2019.

Moving to Slide 9, Slide 9 displays our profitability and capital levels over the past five quarters. Returns on assets and equity were higher this quarter due to net income growth. Our tangible common equity ratio remained strong.

Lastly, we've included our guidance for the remainder of 2019 on Slide 10. This is unchanged from what we provided last quarter, except for net interest income and margin as well as our non-interest income outlook. For our net interest margin, we were pleased to start off the year with margin expansion in the first quarter stronger than we had guided. However, the outlook for near-term rate decreases and a significantly flatter yield curve caused us to be more tempered in our outlook for the balance of the year. Therefore, we're now expecting our net interest margin to increase 2 to 5 basis points for the full year 2019 versus our full year 2018 net interest margin, which was 3.4%.

We are also tempering our outlook for net interest income to a mid-single digit growth rate for the full year of 2019. Our non-interest income based on our year-to-date results through June and our expectations for the remainder of the year, we are tightening our outlook for a mid-single digit growth rate for non-interest income for the full year 2019.

And with that, I'll now turn the call over to the operator for questions. Daniel, your help please


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Questions and Answers:

Operator

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

Chris McGratty -- KBW -- Analyst

Hey, good morning.

Phil Wenger -- Chairman and Chief Executive Officer

Good morning, Chris.

Chris McGratty -- KBW -- Analyst

Mark, maybe I'd start with a margin question for you. The updated guidance, what does that assume? Is that assuming the forward curve or maybe timing of rate cuts?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah, we had assumed -- if you recall, Chris, going back, we have assumed in our guidance at the beginning of the year that there'd be two rate increases. We've now revised that in this revised guidance, we're assuming two 25 basis point decreases, one in July, one in September, is in this refreshed guidance.

Chris McGratty -- KBW -- Analyst

Okay. I just wanted to make sure. Thanks. And on the loan growth comment, Phil, you talked about cautious optimism for the back half of the year. Looking at the source of growth in the first half, it continues to be more biased toward resi mortgage. Could you speak to either conversations you're having with the borrowers and maybe the source of growth in the back half of the year or should we be expecting more of the growth will be kind of resi loaded? Thanks.

Phil Wenger -- Chairman and Chief Executive Officer

Yeah. So, our pipelines do continue to grow, Chris. We were -- our second quarter growth was again hampered by large payoffs. We did have a $50 million increase linked quarter in payoffs. About half of that actually was criticizing and plus 5 loans. So, going forward, I think we see the growth to be a little more mixed than it was in the second quarter. So we do expect to see continued growth on the consumer side, but we also expect to see C&I pick up.

Chris McGratty -- KBW -- Analyst

Okay. Great. And maybe a question on expenses. Just to sound clear, the guide for the year, is that of the reported number of $5.46 billion last year or are there any other adjustments that you, given the charter consolidation the branch charges that will be excluded from that starting point?

Phil Wenger -- Chairman and Chief Executive Officer

Yeah. As also reported number for last year and then excluding charter consolidation cost for this year.

Chris McGratty -- KBW -- Analyst

Okay. And year-to-date, those -- I don't have at my fingertips, Mark, the charter consolidation costs have been how much?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah. Year-to-date, we're at 6.6%. I would expect last quarter, we had given guidance here that that number would be about $9 million. I think that number is going to be closer to $11 million to $11.5 million, Chris, and that is principally due to, as we just dug a little bit deeper, we think there is going to be a little bit of expense savings, but that's going to require some upfront costs. And there's also going to be a very small write-off of an intangible asset as well.

Chris McGratty -- KBW -- Analyst

Okay. So, an additional $5 million in the back half of the year, but the guide is, the $5.46 billion ex that $11 million, OK.

Phil Wenger -- Chairman and Chief Executive Officer

Chris, most of that should be in the third quarter.

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Third quarter, yeah.

Chris McGratty -- KBW -- Analyst

Okay. Maybe last one on capital. Given the progress you made in the BSA, could you offer updated thoughts on acquisitions? Obviously bank stocks have been a little bit out of favor, but any kind of conversation you might be having and kind of strategy would be appreciated? Thanks.

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

So, we continue to be interested in looking at acquisitions, but we are also committed to remaining disciplined in that approach. So, we'll see -- we want to make strategic acquisitions inside of our footprint that enhances our market share. And so, as those opportunities come available, we'll be active, but again we will stay disciplined.

Chris McGratty -- KBW -- Analyst

Great, great. Thanks.

Operator

Thank you. And our next question comes from Frank Schiraldi with Sandler O'Neill. Your line is now open.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Good morning.

Phil Wenger -- Chairman and Chief Executive Officer

Hey, Frank.

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Hey, Frank.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Just a follow-up on the NIM, Mark, just based on your comments and the number of rate cuts you guys have now baked into expectations, just kind of back the envelope and thinking about trying to quantify what a given 25 basis point rate cut might be worth to you guys in bps and margin. Is it -- how you think about it? Is it fair to say 2 to 3 basis points perhaps comes off the margin for every -- for a 25 basis point cut, is that fair or just hoping to try and quantify that further?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah, you know Frank that I always hesitate to talk about any basis points because there's so many levers. We have -- obviously some of our loans are tied to LIBOR where we've already seen some of those decreases. We have $5.4 billion of loans tied to prime, which we'll reset depending on where we are in the cycle. We've got -- throughout the year, we've got $800 million to $1.1 billion of deposits that are also indexed and would reset immediately. And then the big question I think not just us but the entire industry is facing is that what do we do now with the backlog or deposits when we're now all of a sudden really getting whipsawed here in going from the possibility of rate increases to rate decreases. And we're looking at that very thoughtfully right now, but I think as a starting point, I think your number is not a bad place to start, but where it ends up is going to depend on how much we can pull those levers ultimately.

Frank Schiraldi -- Sandler O'Neill -- Analyst

I mean, as a thinking at this point when you get a rate cut that you try immediately to pass some of that on to deposit and see what sort of results you get in terms of attrition, is it sort of more of a wait-and-see approach? How do you think about that?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah. I won't say it's a wait-and-see approach because we've already -- again, I mean, some of the impact we have $5.5 billion of loans tied to one-month LIBOR, and you know what's happened to one-month LIBOR during the second quarter, right. So, some of the reasons for the change in our guidance is because of that impact. So we've been looking at that impact and addressing it currently.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay. And then, just as it pertains to buybacks, in the past, you've talked about buybacks depending upon growth opportunities, and it sounds like you guys have strong pipelines, but there's also significant competition out there. So just wondering how you guys are thinking about given how you see the environment currently, how you're thinking about buybacks in the back half of the year? Do you think you could be as aggressive as things stand now as you were in the second quarter or what's the thinking there?

Phil Wenger -- Chairman and Chief Executive Officer

Yeah. I think that we believe that we'll continue to be as aggressive as we've been in the second quarter.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay. All right. Great. Thank you.

Operator

Thank you. And our next question comes from Austin Nicholas with Stephens. Your line is now open.

Austin Nicholas -- Stephens Inc. -- Analyst

Hey, guys. Good morning.

Phil Wenger -- Chairman and Chief Executive Officer

Good morning.

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Good morning, Austin.

Austin Nicholas -- Stephens Inc. -- Analyst

Maybe just taking a look at the occupancy expense, I think it was a little bit higher than maybe I was looking for. Can you maybe just provide us some guidance on where we should see that number trending? I know you closed some branches in the first quarter, also have opened a few. So maybe if we kind of weigh those two things, how we should think about that number as we look forward?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah, sure. I think, your second quarter had some discrete items related to timing of invoices and those sorts of things. I would expect for the guide going forward look at maybe the prior four quarters and maybe just increase that a little bit to account for kind of net square footage increase across our platform, but I think going back to something that's just a little bit above where we were in the prior four quarters would be the guy.

Austin Nicholas -- Stephens Inc. -- Analyst

Got it. So there's not going to be a huge meaningful, I guess, cost save from the branch closures that were -- that already happened, I guess, kind of netted with the openings. Is that kind of fair to say?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah, correct. Remember, we obviously opened four branches. And so, the net impact would be not a large 5, yes, 5 that we built in.

Austin Nicholas -- Stephens Inc. -- Analyst

Got it. And then, just on the FDIC insurance, is that a good run rate here or is that going to be reevaluated a little higher given more assets under kind of $10 billion charter?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

No. I think that's a reasonable run rate for now.

Austin Nicholas -- Stephens Inc. -- Analyst

Okay, thanks. And then, maybe just broader picture on the balance sheet positioning, you've reduced your asset sensitive position a bit over the last several quarters. Can you maybe talk about how you're positioning for interest rates just on the balance sheet as a whole and maybe anything you're doing on the securities book?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah. I mean, we've been taking very mild steps to extend durations, which obviously helps us, and we're an asset sensitive overall book to bring that back to a more neutral posture. We're also evaluating opportunities where -- and again in small measured ways where -- when you have the curve flattening, the way it does, it creates opportunities that you might have small pockets of your wholesale portion of your balance sheet that's actually at close to zero or negative carries. So, in cases where that exist, we'll be opportunistic to take those off and either just shrink in a very small amount on a wholesale book or take some stuff off and then replace a higher spread.

Austin Nicholas -- Stephens Inc. -- Analyst

Got it. And then, maybe just one last one on -- I know you mentioned kind of $7 billion of loans tied to somewhere on the LIBOR core curve, but I guess more specifically what -- maybe what percentage of that is tied to 30-day? And then, on the -- maybe the deposit side, can you maybe provide for us the level of deposits that are maybe just indexed to short term 30-day rates?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yes. Yes. So we have about $5.5 billion tied to one-month LIBOR. We have $1.3 billion -- $1.2 billion to $1.3 billion tied to one-year LIBOR. But those will actually reset over the next year as those reset days come due. And then we have another $300 million outside of five-year LIBOR of same thing, which will reset during our next reset day but the commercial loans that are resetting. And then, on the liability side, really what we have is -- again, it's going to fluctuate throughout the year with our municipal deposit book, but it's going to be between $800 million and $1.1 billion that are indexed municipal rates.

Austin Nicholas -- Stephens Inc. -- Analyst

Got it. Great. Thank you. That's very helpful. Thanks for the questions.

Operator

Thank you. And our next question comes from Joe Gladue with Alden Securities. Your line is now open.

Joe Gladue -- Alden Securities -- Analyst

Good morning.

Phil Wenger -- Chairman and Chief Executive Officer

Hi, Joe.

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Good morning, Joe.

Joe Gladue -- Alden Securities -- Analyst

Just one more question on -- I guess, on net interest margin, more on the deposit side. As interest rates have gone up, we've seen a shift in the mix of deposits from the non-interest and other core deposits into brokered and CDs. Just wondering if in your guidance you assume any -- with interest rates, Fed rate cuts now, you see any change in that trend and move back to core deposits at all or is any of that assumed?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

No. We had assumed there are long-term rates, the guidance we've previously given, that was intact. We had tweaked our mix a little bit, but the overall growth rate on deposits we expect to remain the same.

Joe Gladue -- Alden Securities -- Analyst

All right. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Russell Gunther with D.A. Davidson. Your line is now open.

Russell Gunther -- D.A. Davidson -- Analyst

Hey. Good morning, guys.

Phil Wenger -- Chairman and Chief Executive Officer

Hey, Russell.

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Hey. Good morning, Russ.

Russell Gunther -- D.A. Davidson -- Analyst

Quick follow-up on the margin. So, embedded in the guidance beyond the funding that's tied to Fed funds, are you guys assuming an ability to reduce deposit costs?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yes. We are assuming -- again, some of that existing book that we are going to be testing, learning, adjusting, but there is an assumption certainly as rates decline that we're going to be opportunistic about that.

Russell Gunther -- D.A. Davidson -- Analyst

Okay, great. And then, switching to the expenses, so here you on the update on the charter consolidation, we're now looking for a total of $11 million to $11.5 million. You also mentioned though some related cost saves. So, could you quantify for us what the net impact would be, so gross upfront $11 million and $11.5 million, what would be kind of net out from related saves?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah. I think we've said in prior quarter, Russell, that most of the cost, I mean we've been operating as one bank for a long time within our back office. So, well, there will be some advisory board consolidations and very small savings there, but I mean I would put the total savings from our charter consolidations,some $4 cost savings to being a $1 million or less.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. No. I appreciate that, Mark. Thanks for clarifying. And then, on to the asset quality side, I hear you on the unchanged guidance there as we think about the provision going forward, but could you just give us an update on your Ag portfolio and sort of what's embedded in that stable asset quality outlook?

Phil Wenger -- Chairman and Chief Executive Officer

So, I would say that our Ag portfolio has stabilized. And so, we don't see it really having a major impact on our asset quality going forward.

Russell Gunther -- D.A. Davidson -- Analyst

Okay, perfect. And then just last one for me, on the commercial loan growth, you guys mentioned feeling better about the back half of the year with the pipeline there. Could you just give us a sense for sort of geographic or regional pockets of strength in that pipeline?

Phil Wenger -- Chairman and Chief Executive Officer

Yes. So, our strongest area in regards to the pipeline right now is Maryland, and that'll probably be followed by Pennsylvania, and then Virginia and New Jersey.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. Great, guys. That's it for me. Thanks for taking my questions.

Phil Wenger -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Matthew Breese with Piper Jaffray. Your line is now open.

Matthew Breese -- Piper Jaffray -- Analyst

Good morning, everybody. First, I wanted to just hone in on non-interesting income, the increase in fees this quarter, lot of different items there that all moved your way, a lot of which you kind of noted was seasonal. And so, thinking about the $7.5 million quarterly increase, if you had to gauge how much was seasonal and therefore subject to volatility or reduction, how much would you say that was versus what should be included on a run rate basis?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Well, just to be clear, that seasonality that we're talking about really applies to the first quarter. So, I don't think there is much effect for the remaining two quarters based on seasonality.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. Then maybe we can hone in on some of the items that were more profitable this quarter such as swap fees, merchant card income, just a ramp higher in terms of run rate -- like the $6.5 million from merchant cards, $3.5 million from commercial swap fees, are those figures we should expect at least in the near-term through year-end?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Yeah. Definitely on the merchant side, the swap side can be a little volatile based on volumes. But given our backlog right now, we feel comfortable that they'll hold.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. That's helpful. And then, Phil, just going to your initial comments, I mean it sounds like the loan growth environment just remains super competitive. And I wanted to get a sense for how that competition looks or if you're losing loans or you're losing them in terms of rate and structure or is it duration? And then, if you are losing loans, do you feel like your competitors are just taking lower levels of profits or are they actually putting at this point the cycle credit risk on the books?

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

I think the answer to every one of those is yes. So, rate terms, which would include duration, I think our folks are taking less profit and I also think they're taking on more risk.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. And then, thinking about your forward rate outlook on the potential for lower cost, are you yet seeing the opportunities to lower deposit cost or are there green shoots showing up on that front? And if so, could you just give us an idea of what those products are or are they the longer duration series, are you getting to the point where you can reduce money market rates in short duration kind of products?

Phil Wenger -- Chairman and Chief Executive Officer

Yeah. I comment on two fronts there, Matt. One, we are seeing opportunities now to do so. And when you look to -- where you first started to see signs of rates changing was really in the promotional money market rates. So -- and it was first really the online banks really started to lower their rates, and I think that allowed a lot of the other brick-and-mortar competitors to follow suit. On a go forward basis, we are looking at all categories of deposit rates. And selectively, again, you have sort of testing and evaluating if that changes attrition rates or new acquisition rates to lower them. So, the answer to your question is, yes, we're seeing opportunities across the board to do so.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. And then, just balancing that versus the NIM outlook, first quarter was a pretty high mark 3.49%, NIM were down 5 bps this quarter. I understand it can still be up year-over-year. But if we do start going into a Fed cutting environment, is it likely that the NIM is peak for this interest rate cycle?

Phil Wenger -- Chairman and Chief Executive Officer

That's hard to say. Because, again, we're all talking about a rate decrease, but we haven't seen a first rate -- actual rate cut yet, right. So we need to see how many. We need to see what customer psychology is around those rate cuts. And if some of the initial testing that we're able to do on deposits, whether that doesn't materially change our new acquisition rates and change our attrition rates that we might be able to do more. So I think it's early to answer that question, but it's something we're very focused on.

Matthew Breese -- Piper Jaffray -- Analyst

Understood, OK. Just my last one. CECL is very close at this point, and I would love any sort of updated commentary there. I think we're all anxious to hear where the pro forma allowance and go-forward provision, how those items will look. Can you provide any updated commentary and thoughts there?

Phil Wenger -- Chairman and Chief Executive Officer

Yeah, sure. We're not providing any commentary in terms of disclosure and any financial forecast yet for what that number will be. We are very far along and have had a team of people working really hard for the past year plus on this, and we had some third-party consultants signed to help us with pieces of that, they are going at this point. So our internal team is just finalizing things, and you can expect over the next six months once we get the position that we're ready to announce something in advance of the adoption date we'll do so.

Matthew Breese -- Piper Jaffray -- Analyst

Just curious, the consultants are out versus initial expectations, should we expect CECL to be kind of worse or better than what the industry had thought going into it?

Phil Wenger -- Chairman and Chief Executive Officer

Well, I think what I've seen from the largest banks that have reported is that there is still a very wide variance even for what would appear on the surface to be relatively similar books of business, right. So, we're being cautious in terms of any kind of numbers that we share with folks. And so, we've had ample time to really stress it. There are -- as you're, I'm sure, well aware, there are a lot of levers in that standard, and we just want to make sure that we've done sufficient stress testing around each of those levers before we're in a position to put out what our estimate will be.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. That's all I had. I appreciate taking my questions. Thank you.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Phil Wenger for any closing remarks.

Phil Wenger -- Chairman and Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Jason Weber -- Senior Vice President and Director, Corporate Development

Phil Wenger -- Chairman and Chief Executive Officer

Mark McCollom -- Senior Executive Vice President and Chief Financial Officer

Chris McGratty -- KBW -- Analyst

Frank Schiraldi -- Sandler O'Neill -- Analyst

Austin Nicholas -- Stephens Inc. -- Analyst

Joe Gladue -- Alden Securities -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Matthew Breese -- Piper Jaffray -- Analyst

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