Q2 2021 FB Financial Corp Earnings Call
Good morning, and welcome to S. P Financial Corporation second quarter 2021 earnings Conference call.
And the call today from SB financial is Chris Holmes, President and Chief Executive Officer. He is joined by Michael Martin Chief Financial Officer, Greg Bowers, Chief Credit Officer, and Web Evans President of FB ventures, who will be available during the question and answer session.
Please note FB Financial's earnings release supplemental financial information and this morning's presentation are available on the Investor Relations page the company's website at Www Dot first bank online dot com and on the Securities and exchange Commission's website at Www Dot S E T.
<unk> Dot Gov.
Today's call is being recorded and will be available for replay on FB Financial's website, approximately an hour after the conclusion of the call.
At this time, all participants have been placed in a listen only mode.
The call will be opened for questions. After the presentation.
With that I would like to turn the call over to Robert.
And director of corporate Finance. Please go ahead.
Thank you Chad.
During this presentation FB financial May make comments, which constitute forward looking statements under the federal Securities laws. All forward looking statements are subject to risks and uncertainties and other facts that may cause actual results and performance or achievements of FB financial to differ materially from any results expressed or implied by such forward looking statements.
Such factors are beyond FB financial's ability to control or predict and listeners are cautioned not.
Not to put undue reliance on such forward looking statements and <unk>.
For detailed description of these and other risks is contained in FB financial's periodic and current reports filed with the SEC and cleaning FB financials ministries and form 10-K.
That is required by law FB financial disclaims any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information future events or otherwise and.
In addition, these remarks may include certain non-GAAP financial measures as defined by SEC regulation G.
Presentation of the most directly comparable GAAP.
Measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available on equity financials of earning their earnings release supplemental financial information and this morning's presentation, which are available on the Investor Relations page of the Companys website at Www Dot first bank online dot com and on the SEC's website.
At Www SEC Gov.
And I would like to turn the presentation over to Chris Holmes FB.
Financial President and CEO.
Thank you Robert and good.
Morning, everybody and thank you for joining us we always appreciate your interest and if the financial and.
And we had a great quarter, and we delivered annualized loan growth of 13, 9% from when you exclude PPP.
Adjusted EPS and 88 cents adjusted return on average assets of 1 for 3%.
Adjusted return on tangible common equity of 15, 8% and grew our tangible book value per share to $20.43.
Or a 16.4% annualized pace.
Back in April we had our last call economic activity and our markets had started picking back up and folks across our footprint. We are returning or had already return to their normal schedules.
He felt that they were.
Uh huh.
And we felt that this return to normal.
Coming through and our numbers last quarter as we had loan growth of 1.8% annualized most of which came in March. We also had a 19 basis point release, and our adjusted allowance deferrals declining to $152 million and net charge offs of 5 basis points this quarter.
Our markets have really been buzzer on.
People have almost universally return to work and our customers are transacting business again this.
And this quarter's results reflect our footprint rebound and as loan growth ex PPP was a stellar 240 million, we saw 26 basis point release, and our adjusted allowance or deferrals or down to $74 million and net charge offs for only 2 basis points.
Our loan growth this quarter is a sign of the strength of our markets as well as the quality and capacity of our relationship managers.
Our growth came from across the board.
<unk> continues to show show very strong economic activity.
And our teams and Knoxville, and North Alabama had some nice wins this quarter, but we're also seeing stronger performance out of Birmingham, which delivered $40 million on loan growth.
We just recently received FERC approval for a full branch location and Birmingham. So we look forward to continued momentum from that team.
Our Memphis team has given us approximately $90 million of loan growth since we added several new relationship managers and that market last year and has a stronger pipeline and relationships that they are converting to first bank customers.
Our relationship managers and the payout we're excited about the opportunities they have and proud of them and the pipeline remains strong for you.
Feel good about our own growth for 2021 and at this point for changing our guidance to high single digit growth for 2021, and we could potentially reach double digit growth that we have some expected payoffs come and that.
Gotta make 10% and hard to achieve.
And so on the liability side of the balance sheet. We brought on we brought down our cost of interest bearing deposits by 12 basis points. This quarter I believe we still have some room for improvement on our cost of deposits will continue to press our team to find pockets.
Where it's appropriate for us to lower our range.
We also continue to tackle operational and technology and customer experience initiatives that create scalability and position us for the future.
And we're committed to executing our customer focused organic growth strategy and a way that creates the highest performing bank and the southeast following on Franklin combination and our growth over the last few quarters from $7 billion and assets to 12 billion.
We focused on integrating teams associate retention and satisfaction and building out scalable credit and risk management platforms and.
Client retention and satisfaction.
And these initiatives are.
These initiatives and ensure that we have the people and the infrastructure in place to execute on organic growth and acquisition opportunities in front of us without sacrificing card customer focused local authority based community banking model that we believe will be a key differentiator for us over the coming years.
We believe that if you're not currently executing at a high level, then you're wasting shareholder resources by adding scale do a less than optimal organization.
We see this frequently and bank M&A, but we're determined that it would happen to us all day by day, the universe of traditional banks continue to.
And to shrink.
Scarcity value is real and given the relatively for.
For your quality banks that provide scale and geographies that are attractive to us.
We keep a list of those banks and will be a factor if they choose to seek a merger partner.
At the right time, we will also pursue opportunistic M&A, which I define as banks that aren't necessarily on our radar at the moment, but it would be additive to our footprint or funding profile or a complementary business line.
Till then.
We operate with great teams and great marketing and can produce organic growth as this quarter shows.
On mortgage our results were in line with guidance, we provided last quarter, but.
Yeah.
At a $500000 for less than we would like.
And as we look and a third quarter. Our forecast has moved around significantly over the past 60 days and what the market moving and yesterday, we were re forecasting again.
Our best estimate right now is 2 million for $4 million of contribution for the third quarter and I will let Mike will give additional color on the current mortgage backdrop and his section.
So to summarize we had a very strong quarter of logos that we believe reflects the strength of our markets and the quality of our team and our focus on execution.
We expect that growth to continue over the remainder of 2021 mortgage faces a challenging environment should but should provide an improved contribution.
We continue to improve our funding cost and we think that we have some more room, there and <unk>.
Most importantly, we have the people the systems and the process is to capitalize on the strong growth prospects and we have in front of us.
And I'll turn the call over to Greg to discuss credit.
Thanks, Chris and good morning, everyone.
And as you're going the same way and scaled back our credit disclosures this quarter as our local economies continue to improve we are keeping an eye on COVID-19 case counts with the Delta Varian and picking up some steam across the country.
And the absence of further widespread outbreaks and related shutdowns, we feel positive overall about how the portfolio has performed over the past 15 months.
While we have not issued an all clear memo yet we are cautiously optimistic about how things unfold.
On slide 11, you can see that our overall deferrals are down to less than 30 loans with roughly 74 million outstanding of those as we've highlighted in the past the bulk.
49 million are actually on an interest only payment schedule with the remainder $25 million on a full principal and interest deferral on.
<unk> can take and be the largest component, but most of our operators are reporting improving trends, especially those more seasoned managers, who benefit from newer properties and better flags.
We're actually had 1 of our smaller hotel loans and we had circled on it as a concern payoff this quarter, so that helps our outlook as well.
Also on slide 11, you can see and update for the industry and we had viewed as most at risk at the onset of the pandemic. We continue to monitor these industries, but feel fairly comfortable with the current operating environment for each of them at this point.
No 1 specific segment stands out and our list, but as noted in our first quarter call. We did have a pick up in health care and health care segments classified loans last quarter with a couple of assisted living properties, having challenges due to COVID-19 outbreak. We continue to monitor that was close rate and saw improvements and performance during the.
Quarter.
I'll close with slide 12, which displays our overall credit metrics across the board our numbers and improved this quarter and we feel pretty comfortable with the health of our loan portfolios.
Classified loans nonperforming loans and the NPA as each move down 11 basis points quarter over quarter, and lastly charge offs were minimal this quarter at 2 basis points and.
As highlighted and Chris's comments on 2 in place to say the pickup and our loan book as our teams continue to compete aggressively across the markets. Our associates are identifying good opportunities and our people continue to be diligent and balancing growth and asset quality to achieve long term profitability.
Which is the core of our company and its historic success.
I'll now turn the call over to Michael Thank.
Thank you, Greg and good morning, everyone sticky and first to mortgage and illustrated on slides 6 mortgage performed as we expected for the quarter achieving a contribution of approximately $550000. We continue to see margin compression and reduced volumes due to excess capacity and the industry refinance fatigue, and a shortage of housing and our mark.
Right.
We expect the housing shortage to be a continued headwind and margin compression will be a concern until we see capacity exit the mortgage industry.
However margins have stabilized over the last couple of weeks and.
Additional guidance from Chris's comments are somewhat challenging given the recency of changes and the rate environment and renewable and the adverse market for you by FHFA on.
On refinancing and both of which could lead to more replay of activity, but it's too early to tell.
Moving on and net interest margin, we saw a headline number remained essentially flat at $3, 1, 8% and the second quarter compared to $3, 1.9% and the first quarter.
We were able to bring down our concentrated on deposits by 10 basis points. This quarter, we continue to focus on lowering our funding cost and we see room for continued improvement.
Our CD repricing is slowing as we made it through the majority of the higher cost deposits from our 2018 campaign, but.
But we do have approximately $330 million repricing and the third quarter and a weighted average cost of around 85 basis points.
Our contractual yield on loans, excluding PPP dropped by 11 basis points to for 37% and the second quarter for for 4.8% for the first quarter as pricing and competition remains fierce.
Yield on new originations during the quarter came in at 3.8% to 39% range and that pricing has continued to be the first few weeks for the third quarter.
We would expect to see expect to continue to see contractual yields compress until we see rates begin to rise.
And when rates do rise, we have approximately 2 billion and variable rate loans should reprice immediately.
We traditionally have kept our fixed rate loans shorter dated as we know that longer term fixed rate paper at low rates can become a credit risk. In addition day and interest rate risk as a result, our balance sheet remains fairly asset sensitive.
Despite our strong loan growth for the quarter.
And we continue to have a tremendous amount of excess liquidity, we have begun deploying a portion of that liquidity and enter into our securities portfolio Opportunistically.
For the benchmark 10 year U S treasury yield increased by approximately 83 basis points and the first quarter.
And for $265 million on security purchases runoff from Paydowns and market value changes our securities portfolio increased by 179 million and the second quarter.
The average yield on securities during the quarter as and the estimated 146%.
We continue to be conservative with duration risk within security purchases as we add to the portfolio.
And the absence of rate increases we would expect the margin to stay on the same relative band that we've been and for the past couple of quarters with positive changes and the balance sheet mix being relatively offset by continually to crown and earning asset yields.
Our cost of funds should also continue to have small declines.
We will focus on continuing to grow net interest income for the near term through earning asset growth rate.
And as and Securities and maintained the longer term outside of our asset sensitive balance sheet.
And.
Moving to diesel and our allow us with our release of $13.8 million this quarter as economic forecast continues to improve.
As we have mentioned previously the improving economic forecast from the first and second quarter have caused us to begin to increase our qualitative factors in order to maintain what we feel is a prudent level of reserve.
Going forward, we will continue to weigh the improving forecast for Q factors that are necessary to pinpoint any risks that still gets through and not reasonably picked up and our model.
We would currently expect further releases over the next few quarters, assuming outlets continued to improve.
And as an update on our non core commercial held for sale portfolio with our exposure declined by an additional $50 million during the quarter with these pay downs and improving economic conditions, we saw a gain of $1.4 million on our portfolio as compared to an $853000 loss from the first quarter and $1.4 million gain in the fourth quarter of 2020.
$9 million gain and the third quarter of 2020.
We continue to market the portfolio, while maintaining our hurdle price and we feel that the portfolio and appropriately and adequately mark for the remaining risk and.
So on the buyer hits, our bid we expect continued paydowns and small gains or losses as the portfolio is mark to market each quarter.
And speaking to our expenses our banking expenses were higher than we had anticipated as we implemented systems and took advantage of hiring opportunities each of which support our growth.
We don't expect our banking expenses to exceed the current quarter's level over the remaining 2 quarters of the year and we expect next year that expense growth to be in the low to mid single digit range.
I'll turn the call back over to Chris to close.
Thanks, Greg and micro for the color.
And certainly we believe and we delivered propylene and performance this quarter and we're pleased with the team's results, particularly our loan growth and that concludes our prepared remarks. Thank you everybody for your interest and FB financial and operator at this point, we'd like to open the line for questions.
Thank you Sir we will now begin the question and answer session.
Ask a question you May press Star then 1 on your telephone keypad.
If you're reasonably speaker phone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good morning, everyone.
Good morning, David.
So just maybe start with loan growth here, a little bit obviously, I think the 14% level was very impressive number we'll see how other peer shake out, but I don't think there'll be anywhere near that level. So I'm wondering you know other than just the strength of the markets. You spoke to were there any other nuances that led to that growth and it seemed like maybe there was more residential real estate.
State.
Growth. So can you talk to that was that maybe just hold more on balance sheet or what are the dynamics there.
Yes.
We can certainly speak to it.
And I'll go first but.
You know really David and it came across the board and to.
And 2 components to the it's a net growth number so it came across the board and if we look at our funded.
And our fundings.
Surprisingly balanced I mean, and you couldn't actually you could and balance it anymore across C&I and CRE.
<unk>, both owner occupied and no don't aren't bad multifamily multifamily is probably the biggest area of it was the biggest area of growth for us.
And we had good originations, but we just frankly had fewer pay downs.
And it was an impressive well I appreciate you, calling it an impressive growth.
Growth number.
And at a weighted return turned and good performance.
But actually it is.
Probably even more.
And remarkable for US was the level of pay downs as well, we had greater originations and continue to get some pay downs and and we didn't get many and multifamily and that's what led to higher growth and that particular segment, but residential as well we had some growth in that area. So.
It was really balanced across the board.
Yes anything for it.
Credit Chris I'd also add on that.
Ballast point is key and I saw it and the long dollar size as well and and there a lot of.
Q3, and $4 million deals, but good representative across the footprint.
And we talked to and.
We thought once really things open back up we would see a lot of activity and certainly.
If you could walk down Broadway and Nash for Steven.
8 o'clock in the morning on a Tuesday and you'd be surprised.
See a lot of activity and and.
Not only dashboards, it's across the mortgage yes, Steve and as Mike I'd add and your point about putting more residential and balance sheet that is 1 of the benefits and the mortgage division and if we choose to do that we have the ability to chew portfolio mortgage loans and sometimes we do deploy that option. So that is out there.
Okay, and I guess with EBIT is that a strategy shift and general or just not me take advantage of this quarter and what kind of production are you keeping on balance sheet is it.
Arms or shorter term or.
Yeah, I'd say, it's not really a strategy shift I mean very little production.
We're still selling.
97% of our mortgages and the secondary market.
On a go forward basis, we do see some jumbo customer stuff that we'll put on.
She pet but.
Yeah, and give customers and footprint type of business, but it's not a big piece of our business at this point yeah, Okay and.
Net of payoffs.
It was a contributor but I would say is this.
And not a huge contributor.
Got it it makes sense, Okay, and then and maybe thinking about capital deployment and it felt like you were maybe a little more.
I dunno aggressive about your commentary in terms of the ability to deploy capital and you mentioned, maybe a handful of M&A targets that you guys would be active and if they came came to market can you give us a feel for.
How many of those targets might be out there and what kind of potential asset sizes would be that you might look at and then if M&A doesn't come about maybe how aggressive could you be on the share repurchase, especially with the stock having pulled back somewhat.
Yes.
On the M&A front and we.
We've taken a position.
Well, we always think about that and you've got on thank you can do what we do and not at least have a plan and have that in mind, and we always have and plans have that and mine.
We have not been.
Aggressively.
Out pursuing M&A.
Partly for for a couple of reasons, 1 I've referenced quite often some of our internal initiatives that we feel like and.
And that we've been focused on that and really just enhance the quality of everything we do including our associate experience and our customer experience and so we've had a really significant focus on them.
Company has grown significantly over the last.
18 months and and a double in size over the last 18 months and so we've had a lot of for a lot of focus on that and that.
Part of it is we don't want to disrupt a lot of momentum and I.
Quarters like this you can see that because you can have.
It shows true and so.
But we do keep a you know.
And a small list of names.
Names in and around our footprint.
And not hit the double digit.
Uh huh.
Digitally.
For us because that's.
You know weak.
And I mentioned scarcity when it comes to really high quality franchise made there are some out there that are fantastic, but they're just not that many of them and so.
And some of them may.
Reach out sometime soon and some of them may not reach out for another 3 or 4 or 5 years, which is all which is completely fun for us and.
And so.
And so that's a matter of timing.
You know we don't.
Anticipate anything and the in the immediate future for me.
And those names.
But on the way.
As you know, we will get reached out to or will get called on by.
Investment bankers with opportunities that sometimes a pretty good opportunity, that's not that or not.
On.
That are opportunistic for us and it's not 1 of those names and and we'll consider those 2 we just consider those a little less aggressively and we would you know we wouldn't go down to for 500 million in terms of size.
And then on the on the upside we go up to 2 or 3.
And maybe even 4 billion would be and that's like 5 billion and under and we wouldn't do anything big and they have we.
And Oh, and we will really wouldn't even get to that that level, but somewhere in that range is where our targets would be.
As we think about how to grow the franchise, we wouldn't get any bigger than that in terms of and acquisition because it just gets debate and too much and at that point.
Okay. Yeah, that's really helpful. And then maybe just following up on the share repurchase thoughts down to 1.5 and tangible book, obviously would be the math gets a little more attractive and you guys mentioned you have a lot more excess capital now so how do you how do you think about that today.
Yeah, I'm sorry, David.
Yeah.
No.
Rep is that and and it's a it's a thought and youre exactly right on all accounts, we're accumulating a lot of capital we could we expect that to continue.
A buyback of shares as a as a possibility.
And you can move forward over the over the next couple of quarters.
And we certainly are.
At 1 and a half times tangible.
Sort of scratching their head and so that makes sense that makes the buyback and look more attractive and so for it.
As a consideration for us.
Okay, great well, thanks for the color and congrats on a great quarter.
Alright, and I appreciate it David.
And our next question will come from Brett rapidly with Hep D Group. Please go ahead.
Hey, good morning, everyone.
And Brett.
I wanted to first ask on the mortgage the guidance for the 2 to 2 to 4 million and contribution force. Rick you can can you talk maybe about the assumptions for that is that does that assume 1 that the current rate down draft. We got here does that mean that it snacks or that's your assumption and then just may.
And we talk about how you're assuming and gain on sale margins trend from here.
Yeah, Brad this is Michael.
So.
Really as we looked at that.
Quarter and doesn't include some of this recent rate rally I'd say the last couple of days the 2 to 4 really frame before that.
And honestly 10 years been pretty volatile here.
And we think that maybe there's some tailwind behind this lower rate environment.
<unk> and so I would not include that but it's really just too early to tell how long that sticks and really have mortgages followed and.
And then from a margin perspective on slide 6 if you look at kind of that $2.40 range, which is where our pipeline is that's really where margins have been coming in and on a kind of a weighted.
Weighted average if you look at the mix and our consumer direct and retail businesses and said, it's been pretty consistent over the last couple of weeks, which is a nice thing is we've seen them contracting for quarter over quarter here. So <unk> seen some stabilization and we'll see how that plays out amongst competition here and the next couple of years.
But for now we're pretty comfortable on that and that space.
Okay I appreciate the color there and then the other thing was just you highlighted the hires and expansion and I've talked about Birmingham, but you also mentioned that you Wouldnt expect to the core bank and expenses to grow from here or are you sort of accomplish what you wanted to in terms of adding talent for for her for the near.
Term and you know what on what other.
<unk>, you might look at and what markets might not be on equity.
Yeah, and so we'd never never recruiting is a 7 day, a wait and $3.65.
And the opportunity for us and so weak and always opportunistically and either teams for individual revenue producers is as we get opportunities to do that.
And <unk> and so with that that'll be something we'll continue to pursue when we you know.
There's always things falling out of the expense side and things getting added to the expense side and so that's a constant roll forward and as we look at it and we think about big expenses in terms of say new systems or and Ah.
Big personnel moves or things and things like that we think are there.
That's where that statement comes from.
And so.
We don't see anything that's going to cause us to be significantly higher and we know of a few new expenses. They go and that that get actually reduced and in the quarter, but we're allowing also for some for some ads and personnel we continue to.
We continue to.
And look for kind of on not only on the revenue producing side of the business, but you know we've made some really key ads.
And the financial area.
You know we've made some.
We make some key ads and the risk area and so you know when we have the chance to upgrade our talent, we're going to do.
<unk> continued to add to our talent, we're going to continue to do that.
Okay, Great and just 1 of the current positioning and structure yeah, yeah, but.
Thank you Brett we think we can do that within our within our existing expense structure for the next couple of quarters.
Okay.
Alright.
Your next question.
Will come from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Good morning, Kevin.
Just just another follow on question on mortgage so from looking at I'm, just looking at the components of.
Mortgage banking income what's gone on.
Page 12 of the supplement and so when I think about it.
And revenue.
Hum.
And what could be happening going forward would it be reasonable to assume that that fair value.
Hit of about $17.6 million this quarter its going to youre, assuming that's going to come lower but that will also be some additional pressure on the gain and fees.
From originations what is that.
Fair assumption.
And Kevin Good morning, Yeah. That's fair you know you're seeing the pipeline come down call it 30% quarter over quarter.
And so that really drives and the new day rate lock volume drives that.
Net fair value Mark and so we've seen some stabilization there.
Back to the earlier question was what have we figured a little bit of growth from this rate move and refinance activity.
Net purchase activity continues to be under pressure, but for the housing so don't expect a whole lot out of it and unfortunately.
But your assumption is correct.
Gain on sale, obviously, our volume that we would sell would go down because it follows that smaller pipeline and it's our opportunity to pick up some paintings, there shrinks with lower volume.
Great Great. Thank you and.
Just wanted to just more of a housekeeping thing on the loan growth guidance, taking it up to a high single digit as it previously was a mid to high single digit and is that correct.
That's correct it was previously and mid to high and and.
They were saying should be high for sport.
Okay.
Okay.
And then.
If you could just remind us you and I appreciate the the outlook for further reserve releases and Youre still out of a very strong level here and you referenced the day, 1 and seasonal level can you remind us what that is.
On a combined basis, what you consider that level and when you might approach it or is it something you're assuming.
The outlook and the indicators you're looking at Ste.
Continue to be where they are or even improve from here or are we looking at more of a 2 year window more of a 1 year window and what would that level roughly day.
Yeah.
And probably the least.
And you don't want me, Yeah, I can comment, but it's probably better for mortgage.
Well yeah.
Kevin It was around 140 to $1.50, originally but I, but I don't really think about it like that because.
And the business has changed and I'm not sure Chris referenced going from 7 billion to $12 billion for combination.
On the changed environment.
Tough to think about on day, 1 and so.
Kind of look forward and and obviously will move.
And if things continue down the path that they're moving down and we would expect it to move down over the next couple of quarters I wouldn't expect it all happened and the third and fourth quarter, others, it's likely pushes into 2020.2 as we get a grasp on that.
Our economy and the Delta variant and all that stuff. So I don't think it's and immediate move down.
But we are such a different look than day 1.
And that's kind of on the.
Asset.
Yeah, No that's exactly why and why I asked about it because I didn't want to.
Place too much weight on that number when it was you guys for a much different bank at that point.
Exactly and I think.
That's a good.
That's a good summary on it.
It's been a frustrating year, let's say so and.
And we've put a lot in and and they always get it slowed and coming back out a lot of and the allowance for that suddenly coming back out and I suppose that's the way it's for and.
And but if it doesn't make it hard to.
Zero in on a core earnings from quarter to quarter and that's what you try to do it for what we tried to do too and so.
And we're trying to be it is.
Transparent and Mccann when we say look we expect future releases based on if things continue as we expect them to be.
We would expect our.
And we don't have any goal in mind that we're trying to get to.
And so it's a little I get for.
And because we can't answer the questions as well.
Publish accordingly, as we'd like to be able to and from Kevin, but we tried and it can be as transparent on it every day.
Yeah, that's all very fair Chris.
And just just 1 last 1 for me so on the M&A.
I appreciate the kind of dip.
Differentiating between the targets that are in and around your markets that you would have on this list versus some more and more a strategic opportunistic targets and in.
I'm, assuming that maybe some of those or not.
And maybe those are outside of the current footprint and if that includes those kind of scenarios are there certain markets, where you would be more open to looking at such as maybe the Carolinas or northern Georgia.
Assume Birmingham is a market you'd be interested and if targets came up given the de novo, but just any anything you're comfortable sharing on that from thanks, Yeah and you got the you.
Read it pretty well.
With eggs with 1 thing I would say is that that list is all in and around our geography, okay. It's not it's not taking us.
And 2 significantly into new geography, and that's all in and around our geography, and we would call and northern Georgia and energy.
Agra fees today and we'd call.
Anything Birmingham, and north and our geography today.
We don't have any any any physical presence and the western part of the Carolinas, but that wouldn't be a range for us.
Yeah.
If you wait and just as the Crow flies and we say in here and the South East.
We're really close to North Carolina and at this point anyway.
On a few mountains that are a barrier to to travel.
But we're really close to that western western part of the Carolinas and so we don't really consider that to be out of geography, that's kind of and our targeted zone and those.
Are the types of areas.
Outside of all of our targets would be within those types of areas would be within those areas.
And outside of those.
Yeah. That's helpful. Kevin that's perfect that's perfect. Thanks very much.
Okay.
Yeah.
The next question will be from Catherine Mealor with K B W. Please go ahead.
Thanks, Good morning.
Good morning, Adam.
Wanted to just follow up on bank level expenses and fees just want to make sure that your guidance is is that we're having.
We're hearing you right. So youre, saying that you think core expenses.
We'll grow from here and so what kind of I remember last quarter, you had kind of taken and fourth quarter.
On your run rate and annualize that and that was about 212 million and had guided for that to be kind of a low to mid single digit growth rate. This year. It seems like that guidance is coming up a little bit. This quarter can you just kind of talk about what's changed.
Within that and then is that a growth rate that you're thinking.
Specific to just 2021, and we should see that growth rate, maybe pull back and normalize on a little bit I forgive me for next year.
<unk>.
Yeah, Catherine and good morning, its Michael.
Good morning.
So.
Rest of the year, we don't think for third and fourth quarter will be as high as the second quarter was right.
We actually expect that number to normalize or stabilize and maybe some slight.
Slight downward pressure on expenses.
The guidance around low single digit was for 2020.2.
And may not have been clear on my comments, but.
We do expect to see some stability and expenses and a slight decrease for the remainder of the year.
Great. Okay. So your core expenses come down from this quarter and and the low single digit growth rate and is expected for next year off of that day.
That's right.
Perfect, Okay, great and just wanted to clarify that and then what's the difference between the gain on sale margin and our consumer direct business first and it's just the and footprint.
And a core and mortgage business.
Yeah.
Catherine this is weird.
Youre looking into consumer direct space somewhere and 175 to 190 range.
And on the retail for a front, you look and probably $3.20 to $3.40.
Okay great.
Thanks, Thats all I got I appreciate it good quarter.
Thank you thanks Catherine.
The next question is from Matt Olney with Stephens. Please go ahead.
Hey, great. Thanks, Good morning, guys.
Or.
More on moving back on the loan growth I think you're pretty clear as far as the pay downs and how those ease quite a bit and <unk>, but.
Potentially a return and a second half of the year, what about your utilization rates.
How does the <unk> levels compared to the trough levels and and how these compare to what we saw pre pandemic.
Yeah. So.
And you couple of things that we did have actually in the quarter and I may not have been clear we did have significant pay downs and the second quarter.
And still and we're able to produce the 14% loan growth. So we our originations were really significant and the second quarter.
And our new originations and then when we look at it fundings.
And so.
Moving to fundings, and we got a little bit of help.
Particularly and Oh.
And I say, particularly we didn't get much help to be honest with you and with fundings on our lands.
Just are in the call. It 20 million ish I would say on the on our C&I loans in terms of where existing loans that were funded this quarter above where they were last quarter. So we did get some help and utilization there.
But it wasn't it wasn't a huge contributor for us.
Yeah and then.
Phil.
Below pre pandemic for sure specifically.
Specifically on that.
2019.
No.
From probability just around 5% probably round number if you go back to early 'twenty early first quarter second quarter.
For.
Fourth quarter and 19 actually if you go back all the way back into 19, and we're still probably 7 or 8% below.
Utilization rates.
Okay.
Okay. That's that's helpful.
And then so.
Going back to the mortgage discussion.
I wanted to drill down on 1 of the issues that you mentioned and that is that the housing supply shortages and some of your core markets.
And I kind of appreciate it and that's a shorter term problem that we need a few more months and some more.
More reasonable commodity prices to get beyond what's a longer term problem that we're gonna be talking about for for several more years and your core markets.
Yeah, It's a great question.
I don't think it's a short term it's not there's not 1 of them will come out at 52, a month, we'll talk about it longer than that.
On it.
Don't know if we'll be talking about it 5 years from now, but we'll be talking about it for us.
At least several core.
And you you hit on it before Chris in your conversations about all the jobs that we've seen and so, especially in the middle Tennessee section of our footprint I think that's going to be something that that you know and it's frankly is a little bit of a good problem with and migration and a build up and the economy, yeah, it's going to be something it and it depends on the market.
And it, particularly and the Nashville market.
We're gonna be we'll be talking about this for a long time.
Because it's out of balance and it's going to really be hard to get back in balance for another 2 or 3 or 4 quarters and even when it does.
It's going to be tight I mean, and I don't see.
How given the strength of the economy that we won't be talking about this for a few years and in.
In Nashville in particular on the.
The other markets not quite as robust, but still strong and the economy of Tennessee as a whole.
And is very good and and and it's probably it's the best of the states that we operate in at least where we operate but Huntsville.
And is another 1 and it's it's it's quite good.
Birmingham is a is also good.
And it's also a strong and so I think of the migration across the southeast is going to have with us talking about this at least I'd say, it's an intermediate term topic and maybe even longer term and some places.
Okay.
Well, we'll keep an eye on that and then just lastly, a housekeeping question saw some strong ATM interchange fees. This quarter any drivers of that particular and then.
As you rollout forecast for 2023 to remind us of the Durbin impact and and when do you expect that to be and and and what you think the the amount should be thanks.
Yeah, So hi, yeah, just pick up and economic activity more and more slides for the car and more transactions drove for that million dollar increase quarter over quarter.
Yes, it too.
Too early to tell I guess is that they are reoccurring trend and we certainly we certainly hope so as we sit here and the economy continue to improve and.
Urban or head and at 630 and next year.
And we're talking about this and other day and as soon as we get this optimized we'll get that nailed with DARPA and and so the number will be quite tangible.
Yeah actually set on 1 of the things that you haven't we lose at the 637.1.
And you know, it's you know, it's basically 40% of the number.
Of what.
We booked a day.
Yeah.
And basically 40% of that number comes out so.
And it's not that difficult for them of math and net.
You know for better or worse I suppose it's a good thing net number continues to grow for us.
We do have a pretty good retail presence.
And a lot of our markets and so that and that's a growing continually grow and number for us. Unfortunately.
And 7 water for next year, only 60% of it will be growing so.
And all that.
So that's what that means to us.
Okay. Thank you.
Yeah.
Thank you.
Once again, if you have a question. Please press Star then 1.
The next question will be from Alex Lau with J P. Morgan. Please go ahead.
Hi, good morning.
And I'm worried about.
Could you provide some color on and what you're hearing from customers on the commercial side on loan demand and.
And what are your thoughts on the Delta Varian and if it could have any material impact on confidence of your business customers. Thanks.
Yeah.
And so we're hearing confidence from our on the commercial side.
You know, we're here and confidence we were hearing it from the first half of the year.
On a lot of optimism about the last half of the year and as we've gotten sort of at the inflection point, we hear a lot of confidence.
And as things have reopened.
And businesses have reopened and are really ramped up to full.
Force theater near for speed.
We hear confidence there's still some challenges with the labor force, there's challenges with supply chain, we hear both of those as being.
Obstacles.
But but.
But they hope that certainly goes I hope and Labor force is a short shorter term obstacle and supply chain and intermediate term obstacle, but but a lot of a lot of optimism.
On the Delta variant.
And of course, we hear the same news reports of everybody hears and we were.
No.
Sure.
And we're watching closely.
And I don't know what concerned is the right word, but were certainly interested and watching and and and monitoring for the impact on our markets impact on on what's happening with our health care system Hospital stays and and how that's going on.
And so we are we have certain things internally that are Oh, we have a group that's monitoring across our markets on what that.
And what the level of what the case accounts are and where our where we are and like most of the country, we've seen them increase.
And so.
Today.
No impact.
But when we think about things for instance, when Michael was talking about our seasonal Q factors at 1 of the things. We go Conservative on is on you know in case, we do face another shutdown or and gateway.
And it becomes a material and back so.
But I will say.
Practically speaking it can walk down the street and most of our markets. It would it would.
It would be business as usual and it would be life as normal and people are out and doing.
Both both.
Leisure.
And business activities as normal.
Yeah.
On the confidence factor and 1 of the things that we again middle Tennessee has really benefited from from the and migration of like the Amazons and the Oracle announcements the spinoffs from that and that's that's impacting a lot of confidence and the warehouse side of the market logistics and.
And panning out quite nicely and I'd say, there's a lot of confidence on that yeah.
There's calling for overall.
And I'm, a little hesitant and reference but I will.
Uh huh.
If you followed I mean, we have the.
So going back to confidence I think it's a reflection I think we have the largest fourth of July celebration.
And the country for 350000 people and downtown Nashville, and so I don't think there was a high degree of concern around that.
And I didn't.
And didn't participate but Oh C V I didn't see any mask and.
And so again I think.
Competence of the general population is high I think the business community is high.
Everybody has got.
A wait and cover on a sort of a watch and see and and it's got some concern over the delta variant and and potentially other variance they come to us on that.
And.
On.
And Oh with Covid and so we certainly don't declare it as we here at FB financial conduct declare it as it is.
Over and we believe we.
We keep an eye on it every day.
Thank you and on your deposits on a period and basis it was down quarter over quarter could you touch on the moving pieces on this decline anything lumpy going on offsetting growth. Thanks.
Yeah, a little bit.
Some of it.
Firms are and.
And our traditional cycle.
Public fund deposits is where they they they tend to swell and the first quarter, and then come down and all that and the second quarter.
So actually sometimes they can come and they can swell a lot and the first quarter and come down a lot and the second quarter.
They have not come down quite as they have to come down some but not quite as much.
In the second quarter as they normally would and it.
And would a normal year, just because so many public and these are so flushed with cash.
And and so we were effectively flat.
In deposits for the quarter, but noticed we also decreased our cost.
Fairly significantly in the quarter and those 2 things as you know can can and.
Operate.
And.
And then the inverse relationship and so that.
And frankly, that's not where we're sitting on as much cash and liquidity as we have.
We're happy right now and the tree lower rate for a little less.
And balance.
Thanks for taking my question.
Sure Alex.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Chris Holmes for any closing remarks.
Alright, Thank you very much and Chad and thank you for all of all of you for joining us as more and always appreciate the interaction and the questions are if there's anything that we didn't cover was glad to do that and and follow up calls and and everybody have a great.
A great rest of your day, and I hope, you're earning season and is good.
Thanks.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Yeah.
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Okay.
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