Q2 2024 FB Financial Corp Earnings Call
Good morning and welcome to the FB Financial Corporation second quarter 2024 earnings conference call.
Operator: 2024 Earnings Conference Call Hosting the call today from FB Financial are Mr. Chris Holmes, President and Chief Executive Officer, and Mr. Michael Mettee, Chief Financial Officer. Also joining the call for the question and answer session is Mr. Travis Edmondson, Chief Banking Officer. Please note that FB Financial's earnings release, supplemental financial information, and this morning's presentation are available on the investor relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. This 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.
Speaker Change: Hosting the call today from FB Financial are Mr. Chris Holmes, President and Chief Executive Officer, and Mr. Michael Mettee, Chief Financial Officer. Also joining the call for the question and answer session is Mr. Travis Edmondson, Chief Banking Officer.
Speaker Change: Please note, FB Financial's earnings release, supplemental financial information, and this morning's presentation are available on the investor relations page of the company's website at www.firstbankonline.com.
Speaker Change: and on the Securities and Exchange Commission's website at www.sec.gov.
Speaker Change: 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 open for questions after the presentation.
Operator: The call will open for questions after the presentation. During the presentation, FB Financial may make comments that constitute forward-looking statements under the federal securities laws. Forward-looking statements are based on management's current expectations and assumptions and are subject to risk and uncertainties and other factors 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. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements.
Operator: A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in the presentation, whether as a result of new information, future events, or otherwise. In addition, these comments may include certain non-GAAP financial measures as defined by SEC Regulation G-8.
Speaker Change: During the presentation, FB Financial may take comments which constitute forward-looking statements under the federal securities laws.
Speaker Change: Forward-looking statements are based on management's current expectations and assumptions and are subject to risk and uncertainties and other factors 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.
Speaker Change: Many of such factors beyond FB Financial's ability to control or predict end listeners are cautioned not to put undue reliance on such forelooking statements.
Speaker Change: A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC.
Speaker Change: Including FB Financial's most recent Form 10-K , except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in the presentation, whether as a result of new information, future events, or otherwise.
Speaker Change: In addition, these remarks may include certain non-GAAP financial measures, as defined by SEC Regulation G, a presentation of the most directly comparable GAAP financial measures, and a reconciliation of the non-GAAP measures to comparable GAAP measures, as available in FB Financials.
Operator: A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial Corp.'s earnings release, supplemental financial information, and this morning's presentation, which are available on the Investors Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and Chief Executive Officer. Please go ahead, sir.
Speaker Change: earnings release, supplemental financial information, and this morning's presentation, which are available on the Investors Relations page of the company's website at www.firstbankonline.com
Speaker Change: and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and Chief Executive Officer. Please go ahead, sir.
Christopher T. Holmes: All right. Thank you, Chuck. We appreciate that. And good morning. And thank you for joining us. We appreciate your interest in FB Financial. For the quarter, we reported EPS of $0.85 and adjusted EPS of $0.84. We've grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 13.4% since our IPO. We reported an adjusted return on average assets of 1.28% and an adjusted PPNR return on average assets of 1.7%. Adjusted earnings per share was relatively flat with the prior quarter and up 9% year-over-year, while adjusted PPNR increased by 2.3% from the prior quarter and 16% year-over-year.
Christopher T. Holmes: All right. Thank you, Chuck. We appreciate that, and good morning, and thank you for joining us this morning. We appreciate your interest in FB Financial.
Speaker Change: For the quarter, we reported EPS of $0.85 and adjusted EPS of $0.84. We've grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 13.4% since our IPO.
Speaker Change: We reported an adjusted return on average assets of 1.28% and an adjusted PPNR return on average assets.
Speaker Change: of 1.7%. Adjusted earnings per share was relatively flat with the prior quarter and up 9% year-over-year, while adjusted PPNR increased by 2.3% from the prior quarter and 16% year-over-year.
Christopher Marinac: The past few quarters, I have emphasized our operating foundation, our earnings momentum, and the strength of our balance sheet, and this quarter continues those themes. Operationally, we continue to perform well. Our support areas are enabling our relationship managers to be responsive to our customers. We have a platform that will help us realize the benefits of scale and allow us to grow the balance sheet and revenue with limited additional near-term investments in the back office. For earnings momentum, we saw an inflection point in our margin last quarter, and this quarter saw incremental improvement as it expanded by 15 basis points to 3.57%.
Christopher T. Holmes: In the past few quarters, I have emphasized our operating foundation, our earnings momentum, and the strength of our balance sheet, and this quarter continues those themes. Operationally, we continue to perform well. Our support areas are enabling our relationship managers to be responsive to our customers.
Speaker Change: The past few quarters, I have emphasized our operating foundation, our earnings momentum, and the strength of our balance sheet, and this quarter continues those themes.
Speaker Change: Operationally, we continue to perform well. Our support areas are enabling our relationship managers to be responsive to our customers.
Christopher T. Holmes: We have a platform that will help us realize the benefits of scale and allow us to grow the balance sheet and revenue with limited additional near-term investments in the back office. For earnings momentum, we saw an inflection point in our margin last quarter, and this quarter saw incremental improvement as it expanded by 15 basis points to 3.57%. With that expansion of the margin, net interest income grew by 3% from the prior quarter.
Speaker Change: And we have a platform that will help us realize the benefits of scale and allow us to grow the balance sheet and revenue with limited additional near-term investments in the back office.
Speaker Change: For earnings momentum, we saw an inflection point in our margin last quarter, and this quarter saw incremental improvement as it expanded by 15 basis points to 3.57%. With that expansion of the margin, net interest income grew by 3% from the prior quarter.
Christopher William Marinac: With that expansion of the margin, net interest income grew by 3% from the prior quarter. Mortgage had a reasonable quarter in light of the interest rate environment, with a pre-tax contribution of $700,000, while the banking segment delivered solid core fee income of $11.8 million. And we continue to focus on efficiency as our core banking segment efficiency ratio compliant to decline to 53.8% for the quarter. And finally, on the strength of our balance sheet, our capital ratios are exceptionally strong with tangible common equity to tangible assets of 10.2%. A CET-1 ratio of 12.7% and a total risk-based capital ratio of 15.1%.
Christopher T. Holmes: Mortgage had a reasonable quarter in light of the interest rate environment with a pre-tax contribution of $700,000, while the banking segment delivered solid core fee income of $11.8 million. We continue to focus on efficiency as our core banking segment efficiency ratio declined to 53.8% for the quarter.
Speaker Change: Mortgage had a reasonable quarter in light of the interest rate environment with a pre-tax contribution of $700,000 while the banking segment delivered solid core fee income of $11.8 million.
Speaker Change: And we continue to focus on efficiency as our core banking segment efficiency ratio declined to 53.8% for the quarter.
Christopher T. Holmes: And finally, on the strength of our balance sheet, our capital ratios are exceptionally strong, with tangible common equity to tangible assets of 10.2%, a CET1 ratio of 12.7%, and a total risk-based capital ratio of 15.1%. As we've built our capital ratios, we have also continued to manage our CND and CRE concentrations within a range that gives the company an attractive lower risk profile, especially when you consider the economic growth of our geography. Today, our C&D concentration ratio is 78 percent, while our CRE concentration ratio is 249 percent.
Speaker Change: And finally, on the strength of our balance sheet, our capital ratios are exceptionally strong with Tangible Common Equity to Tangible Assets of 10.2%, a CET1 ratio of 12.7%, and a Total Risk-Based Capital Ratio of 15.1%. As we've built our capital ratios,
Christopher Marinac: As we've built our capital ratios, we've also continued to manage our C&D and CRE concentrations with an array that gives the company an attractive lower risk profile, especially when you consider the economic growth of our geography. Today, our C&D concentration ratio is 78% of our CRE concentration ratio is 240%. At the same time, we've also reduced our exposure to rate sensitive public funds from 2.3 billion in the second quarter of 2022 to 1.5 billion today, or 35%. Michael will discuss in more detail, but almost 100% of our remaining relationships there keep checking accounts with us, and our customers within we have strong working relationships.
Speaker Change: We have also continued to manage our C&D and CRE concentrations within a range that gives the company an attractive lower risk profile.
Speaker Change: Especially when you consider the RC&D concentration ratio is 78% while our CRE concentration ratio is 249%.
Christopher T. Holmes: At the same time, we've also reduced our exposure to rate-sensitive public funds, from $2.3 billion in the second quarter of 2022 to $1.5 billion today, or 35%. Michael will discuss in more detail, but almost 100% of our remaining relationships there keep checking accounts with us and our customers with whom we have strong working relationships. So while our balance sheet hasn't grown materially in recent quarters, it's been remixed so that it is safer, more profitable, and more valuable. Looking forward.
Speaker Change: At the same time, we've also reduced our exposure to rate-sensitive public funds from $2.3 billion in the second quarter of 2022 to $1.5 billion today, or 35 percent.
Michael M. Mettee: Michael will discuss in more detail, but almost 100% of our remaining relationships there keep checking accounts with us.
Michael M. Mettee: and our customers with whom we have strong working relationships. So while our balance sheet hasn't grown materially in recent quarters, it's been remixed so that it is safer, more profitable, and more valuable.
Christopher William Marinac: So, while our balance sheet hasn't grown materially in recent quarters, it's been remixed so that it is safer, more profitable, and more valuable.
Christopher William Marinac: Looking forward, we continue to explore how to most effectively deploy the capital that we've built. Our first priority for that capital is always organic growth. While net loading deposit growth, we're basically flat this quarter. We expect some muted growth in the low to mid-single digit range over the second half of the year. And there are a few trends that give us confidence in returning to our 10% organic growth targets next year. One trend is that we have increasing success in attracting new relationship managers. We've brought on 14 senior relationship managers in 2024, in addition to 11 revenue producers in our wealth management mortgage groups.
Christopher T. Holmes: We continue to explore how to most effectively deploy the capital that we've built. Our first priority for that capital is always organic growth. While net loan and deposit growth were basically flat this quarter, we expect some muted growth in the low to mid-single-digit range over the second half of the year. And there are a few trends that give us confidence in returning to our 10% organic growth targets next year.
Speaker Change: Looking forward.
Michael M. Mettee: We continue to explore how to most effectively deploy...
Michael M. Mettee: most effectively deploy the capital that we've built. Our first priority for that capital is always organic growth.
Michael M. Mettee: While net loan and deposit growth were basically flat this quarter, we expect some muted growth in the low to mid-single-digit range over the second half of the year, and there are a few trends that give us confidence in returning to our 10% organic growth targets next year.
Christopher T. Holmes: One trend is that we have increasing success in attracting new relationship managers. We've brought on 14 senior relationship managers in 2024, in addition to 11 revenue producers in our Wealth Management and Mortgage Group. Our story is simple and consistent.
Michael M. Mettee: One trend is that we have increasing success in attracting new relationship managers. We've brought on 14 senior relationship managers in 2024 in addition to 11 revenue producers in our wealth management and mortgage groups.
Christopher Marinac: Our story is simple and consistent. You can count on us being here for the long term, and this is a great team that will help you advance your career. We are conservatively and we're on, make a strong return and have a deep management team with a long runway. We also think you enjoy working with us. We have a familiar culture, a local authority model, and full care capabilities to allow you to serve your clients. A second factor supporting this year's growth, to point next year's growth, is that we've managed our real estate portfolios to levels that are sustainable.
Christopher T. Holmes: You can count on us being here for the long term. And this is a great team that will help you advance your career. We are conservatively in the run, make a strong return, and have a deep management team with a long runway. We also think you'll enjoy working with us. We have a familial culture, a local authority model, and full capabilities to allow you to serve your clients.
Michael M. Mettee: Our story is simple and consistent.
Speaker Change: You can count on us being here for the long term, and this is a great team that will help you advance your career.
Speaker Change: We are a conservatively run, make a strong return, and have a deep management team with a long runway. We also think you'll enjoy working with us. We have a familial culture, a local authority model, and full capabilities to allow you to serve your clients.
Christopher T. Holmes: A second factor supporting this year's growth and next year's growth is that we've managed our real estate portfolios to levels that are sustainable. These portfolios will no longer be shrinking and won't be headwinds for growth. For reference, excluding our C&D decline this quarter, we would have shown annualized organic loan growth of approximately 4%. Additionally, year over year, excluding our net construction decline, we've grown loans by approximately 5%. The last factor that supports our future growth is our comfort with the credit environment in our market.
Speaker Change: The second factor supporting this year's growth, supporting next year's growth,
Speaker Change: is that we've managed our real estate portfolios to levels that are sustainable. These portfolios will no longer be shrinking and won't be headwinds for growth.
Christopher Marinac: These portfolios will no longer be shrinking and won't be headwinds for growth. For reference, excluding our C&D decline in this quarter, we would have shown annual lives organic loan growth of approximately 4%. You're over a year, excluding our net construction decline, we've grown loans by approximately 5%. The last factor that sports our future growth is our comfort with the credit environment in our markets. We expect charge-offs for the industry to move more towards historical trends over the next 18-24 months. And we're seeing some one-off situations in our own portfolio that are the by-product of the slowing economy.
Speaker Change: For reference, excluding our C&D decline this quarter, we would have shown annualized organic loan growth of approximately 4%. Year-over-year, excluding our net construction decline, we've grown loans by approximately 5%.
Speaker Change: The last factor that supports our future growth is our comfort with the credit environment in our markets.
Christopher T. Holmes: We expect charge-offs for the industry to move more towards historical trends over the next 18 to 24 months, and we're seeing some one-off situations in our own portfolio that are the byproduct of a slowing economy. However, with most of our struggling loans, we have significant collateral and guarantees and don't see much loss content. And on the whole, we feel confident about our existing credit quality. With continued migration, continued in-migration, investment in development, and corporate relocations, we have plenty of attractive growth opportunities.
Speaker Change: We expect charge-offs for the industry to move more towards historical trends over the next 18 to 24 months, and we're seeing some one-off situations in our own portfolio that are the byproduct of a slowing economy. However,
Christopher William Marinac: However, with most of our growing credits, we have significant collateral and guarantees and don't seem much lost content. And on the whole, we feel confident about our existing credit quality. We've continued integration, we've continued in migration, investment, in development and corporate relocations. We have plenty of attractive growth opportunities. Our governing factor on asset growth will be the rate which we generate quarter-positives. Our loaned deposit ratio of currently 89% and currently we are comfortable operating in much higher level than that.
Speaker Change: With most of our struggling credits, we have significant collateral and guarantees and don't see much loss content. And on the whole, we feel confident about our existing credit quality.
Speaker Change: With continued in-migration, investment in development, and corporate relocations, we have plenty of attractive growth opportunities.
Christopher T. Holmes: Our governing factor on asset growth will be the rate at which we generate core deposits. Our loan-to-deposit ratio is currently 89%, and we aren't comfortable operating at a much higher level than that. Our second priority for the deployment of capital is Opportunistic Acquisitions.
Speaker Change: Our governing factor on asset growth will be the rate at which we generate core deposits. Our loan-to-deposit ratio is currently 89%, and currently we aren't comfortable operating at a much higher level than that.
Christopher William Marinac: Our second priority for the employment of capital is our opportunistic acquisitions. We continue to be interested in the handful of names that we believe would be additive to our franchise and are ready to act when those banks are able to find a partner. When I start priority for a capital for the employment, that's continuing to continue our marginal improvement in earnings through balance sheet optimization. Michael, this team continued to execute on additive transactions. This quarter that looked like stocked by a back, as we purchased approximately 350,000 shares for $12.6 million.
Speaker Change: Our second priority...
Speaker Change: for Deployment of Capital is Opportunistic Acquisitions. We continue to be interested in a handful of names that we believe would be additive to our franchise and are ready to act when those banks are ready to find a partner.
Christopher T. Holmes: We continue to be interested in a handful of names that we believe would be additive to our franchise and are ready to act when those banks are ready to find a park or when our third priority for capital deployment, which is continuing to deliver our marginal improvement in earnings through balance sheet optimization, is met. Michael and his team continue to execute on additive transactions. This quarter, those looked like stock buybacks as we purchased approximately 350,000 shares for $12.6 million. So to summarize, I'm very proud of our team for the results this quarter.
Speaker Change: On our third priority for capital deployment, that's continuing our marginal improvement in earnings through balance sheet optimization. Michael and his team continue to execute on additive transactions.
Speaker Change: This quarter that looked like stock buybacks as we purchased approximately 350,000 shares for $12.6 million.
Christopher William Marinac: So to summarize, I'm very proud of our team for the results this quarter. We continue to enhance our profitability metrics. We feel like we've done well in optimizing the balance sheet, and we've added some really strong revenue producers that are going to help us grow in the platform that we've built.
Speaker Change: So, to summarize, I'm very proud of our team for the results this quarter.
Christopher T. Holmes: We continue to enhance our profitability metrics. We feel like we've done well in optimizing the balance sheet, and we've added some really strong revenue producers that are gonna help us grow on the platform that we've built. Now I'm gonna let Michael go into the financial results in some more detail. Thank you, Chris. And good morning, everyone.
Speaker Change: We continue to enhance our profitability metrics. We feel like we've done well in optimizing the balance sheet and we've added some really strong revenue producers that are going to help us grow in the platform that we've built. Now I'm going to let Michael go into the financial results in some more detail.
Michael M. Mettee: Now I'm going to let Michael go into the financial results in some more detail.
Michael M. Mettee: I'll first take a minute to walk through this quarter's core earnings. We reported net interest income of $102.6 million, and reported non-interest income was $25.6 million.
Michael M. Mettee: Thank you, Chris, and good morning, everyone. I'll first take a minute to walk through this quarter's core earnings. We reported net interest income of 102.6 million. Reported nine interest income was 25.6 million. Adjusting for a 2.1 million cash life insurance benefit, 300,000 in loss on sell of assets. Core nontrisid nine interest income was 23.8 million, of which 11.8 million came from the banking world. We reported non-interest expense of 75.1 million. Adjusting for a million in separation cost, core nontrisid expense was 74.1 million, 61.3 million of which came from the banking segment. And all together, adjusted PPNR earnings for 52.4 million.
Michael M. Mettee: Thank you, Chris, and good morning, everyone. I'll first take a minute to walk through this quarter's core earnings.
Michael M. Mettee: We reported net interest income of $102.6 million, reported non-interest income was $25.6 million. Adjusting for a $2.1 million cash life insurance benefit, $300,000 in loss on sale of assets,
Michael M. Mettee: Adjusting for a $2.1 million cash life insurance benefit and $300,000 in loss on sale of assets, core non-interest income was $23.8 million, of which $11.8 million came from the banking world. We reported non-interest expense of $75.1 million, adjusting for a million in separation cost. Core non-interest expense was $74.1 million, $61.3 million of which came from the banking segment, and altogether adjusted PPNR earnings for $52.4 million. Going into more detail on the margin, we grew net interest income by 3.1 million, or 3% for the quarter, despite a slight decline in average earning assets.
Michael M. Mettee: Core non-interest income was $23.8 million, of which $11.8 million came from the banking world.
Michael M. Mettee: We reported non-interest expense of $75.1 million, adjusting for a million in separation cost. Core non-interest expense was $74.1 million, $61.3 million of which came from the banking segment.
Michael M. Mettee: And all together adjusted PPNR earnings for $52.4 million.
Michael Mettee: Going into more detail on the margin, we grew net interest income by 3.1 million or 3% for the quarter, despite a slight decline in average earning assets. We reap the benefit of our securities restructuring activities in the first quarter as yield on securities increase by 58 basis points, and interest income on the securities portfolio was up 2.5 million dollars. We also allowed some higher cost deposits to leave the bank, which helped us hold on to our cost of interest bearing deposits to a 3 basis point increase over the first quarter. That 3 basis point increase in cost of interest bearing deposits compared to a 5 basis point increase in contractual yield on loans help for investment.
Michael M. Mettee: Going into more detail on the margin, we grew net interest income by 3.1 million or 3% for the quarter, despite a slight decline in average earning assets.
Michael M. Mettee: We reaped the benefit of our securities restructuring activities in the first quarter, as yield on securities increased by 58 basis points, and interest income on the securities portfolio was up $2.5 million. We also allowed some higher-cost deposits to leave the bank, which helped us hold on to our cost of interest-bearing deposits at a three basis point increase over the first quarter. That three basis point increase in cost of interest-bearing deposits compared to a five basis point increase in contractual yield on loans held for investment marks the third straight quarter that we have grown our contractual yield by more than our cost of interest-bearing deposits. For the month of June, our contractual yield on loans held for investment was 6.62%, and our yield on new commitments in June came in around 8.1%.
Michael M. Mettee: We reaped the benefit of our securities restructuring activities in the first quarter as yield on securities increased by 58 basis points, and interest income on the securities portfolio was up $2.5 million.
Michael M. Mettee: We also allowed some higher-cost deposits to leave the bank, which helped us hold on to our cost of interest-bearing deposits to a three basis point increase over the first quarter.
Michael M. Mettee: That three basis point increase in cost of interest-bearing deposits compared to a five basis point increase in contractual yield on loans held for investment It marks the third straight quarter that we have grown our contractual yield by more than our cost of interest-bearing deposits
Michael Mettee: It marks the third straight quarter that we have grown our contractual yield by more than our cost of interest-bearing deposits. For the month of June, our contractual yield on loans held for investment was 6.62%, and our yield on new commitments in June came in around 8.1%. Half of our loan portfolio remains floating rate, with 2 billion of those variable rate loans repricing immediately, with a million rates, and 1.9 billion of those loans repricing within 90 days of a change in interest rates. Of our 4.7 billion at fixed rate loans, we have 314 million to mature over the remainder of 2024 with a yield of 6.93%, and in 2025 we have 412 million maturing with a yield of 5.57%.
Michael M. Mettee: For the month of June , our contractual yield on loans held for investment was 6.62%, and our yield on new commitments in June came in around 8.1%.
Michael M. Mettee: Half of our loan portfolio remains floating rate, with $2 billion of those variable rate loans repricing immediately with a moving rate, and $1.9 billion of those loans repricing within 90 days of a change in interest rates. Of our $4.7 billion in fixed-rate loans, we have $314 million that mature over the remainder of 2024 with a yield of 6.93 percent, and in 2025, we have $412 million maturing with a yield of 5.57 percent. For the month of June, the cost of interest-bearing deposits was 3.56% versus 3.52% for the quarter.
Michael M. Mettee: Half of our loan portfolio remains floating rate with 2 billion of those variable rate loans repricing immediately with a move in rates and 1.9 billion of those loans repricing within 90 days of a change in interest rates.
Michael M. Mettee: Of our $4.7 billion in fixed-rate loans, we have $314 million that mature over the remainder of 2024 with a yield of 6.93%. And in 2025, we have $412 million maturing with a yield of 5.57%.
Michael Mettee: For the month of June, the cost of interest-bearing deposits is 3.56% versus 3.52% for the quarter. As I've noted previously, we now have a significant amount of index deposits that will repricen immediately with a change in the Fed Funds target rate. Those balances stood at about 2.7 billion at the end of the second quarter.
Michael M. Mettee: For the month of June , cost of interest bearing deposits was 3.56% versus 3.52% for the quarter. As I've noted previously, we now have a significant amount of index deposits that will reprice immediately with a change in the Fed Fund's target rate.
Michael M. Mettee: As I've noted previously, we now have a significant amount of index deposits that will reprice immediately with a change in the Fed Fund's target rate. Those balances stood at about $2.7 billion at the end of the second quarter. While I'm discussing our deposit base, I want to spend some time giving detail on our public funds relationships. As Chris mentioned, we've made a concerted effort over the past two years to minimize our exposure to rate-sensitive accounts that act more like broker deposits than true customer relationships. As of the second quarter, we had $1.5 billion in public funds outstanding.
Michael M. Mettee: Those balances stood at about $2.7 billion at the end of the second quarter.
Michael M. Mettee: Our cost of interest-bearing public funds accounts in the second quarter was 4.37% compared to 3.52% for our overall cost of interest-bearing deposits. 97% of our public funds customers have checking accounts with us, and 78% of our public funds balances are in checking accounts. We also process payroll for nearly every public funds customer that keeps a checking account with us, which we view as indicative of our being those customers' primary banking relationship.
Michael Mettee: While I'm discussing our deposit base, I want to spend some time giving detail on our public funds relationships. As Chris mentioned, we've made a concerted effort over the past two years to minimize our exposure to rates instead of accounts that act more like broker deposits than true customer relationships. As of the second quarter, we had 1.5 billion in public funds outstanding. Our cost of interest bearing public funds accounts in the second quarter was 4.37% compared to 3.52% for our overall cost of interest bearing deposits. 97% of our public funds customers had checking accounts with us, and 78% of our public funds balances are in checking accounts.
Speaker Change: While I'm discussing our deposit base, I want to spend some time giving detail on our public funds relationships. As Chris mentioned, we've made a concerted effort over the past two years to minimize our exposure to rate-sensitive accounts that act more like brokered deposits than true customer relationships.
Speaker Change: As of the second quarter, we had $1.5 billion in public funds outstanding. Our cost of interest-bearing public funds accounts in the second quarter was 4.37 percent compared to 3.52 for our overall cost of interest-bearing deposits.
Speaker Change: 97% of our public funds customers have checking accounts with us, and 78% of our public funds balances are in checking accounts.
Michael Mettee: We also process payroll for nearly every public funds customer that keeps the check in account with us, which we view as indicative of our being those accounts' primary banking relationship. For the remainder of the year, we expect margin to settle more into a 3.47% to 3.53% range, and for net interest income to be relatively stable to modestly higher, as we concentrate on creating core relationships across the footprint. Moving to non interest income at 11.8 million, core banking segment non interest income are stronger than typical, driven by swap fees. For the remainder of the year, we would expect to be more in our 10 to 11 million dollar range for quarter than we've been experiencing recently.
Speaker Change: We also process payroll for nearly every public funds customer that keeps a checking account with us, which we view as indicative of our being those accounts primary banking relationship.
Michael M. Mettee: For the remainder of the year, we expect margin to settle more into a 3.47% to 3.53% range and for net interest income to be relatively stable to modestly higher as we concentrate on creating core relationships across the footprint. Moving to non-interest income, at $11.8 million, core banking segment non-interest income was stronger than typical, driven by swap fees. For the remainder of the year, we would expect to be more in our $10 to $11 million range per quarter than we've been experiencing recently. Mortgage had another profitable quarter with a total pre-tax contribution of $700,000, which was a reasonable result given the challenges in the housing market and the volatility of the current rent environment.
Speaker Change: For the remainder of the year we expect margin to settle more into a 3.47% to 3.53% range and for net interest income to be relatively stable to modestly higher as we concentrate on creating core relationships across the footprint.
Speaker Change: Moving to non-interest income, at $11.8 million, core banking segment non-interest income are stronger than typical, driven by swap fees.
Speaker Change: For the remainder of the year, we would expect to be more in our $10 to $11 million range per quarter than we've been experiencing recently.
Michael Mettee: Mortgage had another profitable quarter with a total pre-tags contribution to 700,000, which was a reasonable result given the challenges in the housing market and the volatility of the current right environment.
Speaker Change: Mortgage had another profitable quarter with a total pre-tax contribution of $700,000, which was a reasonable result given the challenges in the housing market and the volatility of the current rate environment.
Michael M. Mettee: Our non-interest expense continued to see the benefit of operational changes that we discussed on prior calls, and core banking segment expense was $61.3 million for the quarter as compared to $59.8 million in the first quarter and $65.2 million in the second quarter of 2023. We would still expect banking segment expenses of $250 million to $255 million for 2024 as we expect performance to drive an increase in our short-term incentive compensation. We also continue to focus on recruiting talented and experienced relationship managers to the First Bank team.
Speaker Change: Our non-interest expense continued to see the benefit of operational changes that we discussed on prior calls, and core banking segment expense was $61.3 million for the quarter as compared to $59.8 million in the first quarter and $65.2 million in the second quarter of 2023.
Speaker Change: We would still expect banking segment expenses of $250 million to $255 million for 2024, as we expect performance to drive an increase in our short-term incentive compensation.
Speaker Change: We also continue to focus on recruiting talented and experienced relationship managers to the First Bank team.
Michael M. Mettee: On the allowance for credit loss and credit quality, credit remained fairly benign this quarter as we experienced two basis points of charge-offs. That said, we did have one relationship that we added an additional $5 million specific reserve and a total of $6.7 million against, and we expect resolution on that credit in the third or fourth quarter. Speaking more about the allowance, our allowance credit loss to Loans Helper Investment increased by a further four basis points during the quarter to 1.67%.
Speaker Change: On the allowance for credit loss and credit quality, credit remained fairly benign this quarter as we experienced two basis points of charge-offs.
Speaker Change: That said, we did have one relationship that we added an additional $5 million specific reserve and a total of $6.7 million against and would expect resolution on that credit in the third or fourth quarter.
Speaker Change: Speaking more to the allowance, our allowance credit loss to loans helper investment increased a further four basis points during the quarter to 1.67%. The economic environment would have kept us reasonably flat relative to the first quarter and the specific reserve I mentioned led to the majority of that increase in the ratio.
Michael M. Mettee: The economic environment would have kept us reasonably flat relative to the first quarter, and the specific reserve I mentioned led to the majority of that increase in the ratio. However, total provision expense was again impacted by a release on reserve fund commitments of $1.7 million due to the continued decline in those balances.
Speaker Change: Total provision expense was again impacted by a release on reserve fund commitments of $1.7 million due to the continued decline in those balances.
Michael M. Mettee: On capital, and as Chris mentioned, we have developed very strong capital ratios with TCE tangible assets of 10.2% and a common equity tier one ratio of 12.7%. We continue to focus on the best way to deploy that capital to deliver consistent long-term growth and earnings per tangible book value. I'll now turn the call back over to Chris.
Speaker Change: On capital, and as Chris mentioned, we have developed very strong capital ratios with TCE tangible assets of 10.2% and a common equity Tier 1 ratio of 12.7%.
Christopher T. Holmes: We continue to focus on the best way to deploy that capital to deliver consistent long-term growth and earnings in tangible book value.
Christopher T. Holmes: All right. Thank you, Michael. And just to conclude our prepared comments, as we're certainly pleased with the progress that we continue to make, our balance sheet is in a good position, and our profitability is trending in the right direction. So, we actually think we've got some momentum here, and I think the best is yet to come. So with that, we will open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.
Christopher T. Holmes: I'll now turn the call back over to Chris.
Christopher T. Holmes: All right, thank you, Michael. And just to conclude our prepared comments, as we're certainly pleased with the progress that we continue to make, our balance sheet is
Christopher T. Holmes: in a good position and our profitability is trending in the right direction so and we actually think we've got some momentum here and I think the best is yet to come so with that
Speaker Change: We will open the line for questions.
Speaker Change: Thank you. We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assume our roster.
Operator: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star, then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Brett Rabatin with the HubView Group. Please go ahead. Hey guys, good morning. Good morning, Mr. Rabatin.
Speaker Change: And the first question will come from Brett Rabatin with the HubView Group. Please go ahead.
Brett D. Rabatin: Good morning, Brad. I'm good. Wanted to start on deposits, and you referenced in the press release the three depositor relationships. Can we talk about the net versus the gross? You know, how much those might have moved out relative to those larger deposit relationships? And then maybe any mix shift change?
Brett D. Rabatin: Hey guys, good morning.
Brett D. Rabatin: Morning. Morning, Mr. Rabat. Good morning, Brad.
Brett D. Rabatin: Yeah, I'm good
Brett D. Rabatin: I wanted to start on deposits and you referenced in the press release the three depositor relationships. Can we talk about the net versus the gross, how much might have moved out relative to those larger deposits?
Unknown Executive: It was interesting that your interest-bearing checking was up quite a bit; your money market was down. You know, was there any reclassification or maybe talk about the net versus the gross trends in the quarter? Hey, Brett, good morning.
Speaker Change: relationships and then maybe any any mixed shift change it was interesting that your your interest bearing checking was up quite a bit your money market was down you know was it was there any reclassification or maybe talk about the net versus the gross trends in the quarter thanks
Unknown Executive: Yeah, those three relationships, Yeah, caught 225 at 250 million. One of the companies was acquired, but the other two are still relationships with the company and could come back as we move forward, depending on kind of both sides of how we want to manage that. Mixed shift; we did see a non-interest bearing kind of hold in pretty well for the quarter, relatively flat. Interest-bearing to money market; there wasn't a reclassification or anything like that.
Brett D. Rabatin: Hey, Brett. Good morning. Yeah, those three relationships was, yeah, caught $225-$250 million.
Brett D. Rabatin: One of the companies was acquired, but the other two are still in relationships with the company and could come back.
Brett D. Rabatin: As we move forward.
Speaker Change: depending on kind of both sides of how we want to manage that.
Speaker Change: Mixed shift, we did see a non-interest bearing kind of hold in pretty well for the quarter, relatively flat.
Speaker Change: Interest bearing to money market there wasn't a reclass reclassification or anything like that just
Unknown Executive: Just some of the funds from some of our counterparts are in interest checking now instead of money market funds; it's a little bit more transactional. And so that product works better for some of our clients than a money market fund. Yeah.
Speaker Change: Some of the funds from some of our counterparts are in interest checking now instead of a money market funds It's a little bit more transactional Basis and so that product works bill better for some of our clients than a money market fund
Unknown Executive: Hey, Brett, I'll just add in on those accounts, on that, those funds that moved, again, they're folks that we know very well, have long-term relationships with, and moved out money on a short-term basis at 75 basis points plus more than we were willing to offer. And so that's the scenario. Okay, that's helpful. And then what's your strategy? You know, from here?
Brett D. Rabatin: Yeah. Hey, Brett, I'll just add in on those accounts, on those funds that moved, again, they're folks that we know very well, have long-term
Brett D. Rabatin: relationships with and and moved out money on a short-term basis at at 75 basis points plus more than we were willing to more than we were willing to to offer and so so that's that's the scenario.
Unknown Executive: I mean, you're, you're, you're, the cost of funds is still a little bit lower than some peers. And I know some banks have said that they've been able to maybe tweak down, you know, their highest rate offerings. But I still see locally here in Nashville, you know, around 5%, you know, CD money, et cetera.
Speaker Change: Okay, that's helpful. And then what's your strategy, you know, from here? I mean, you're, you're, you're...
Speaker Change: Cost of funds is still a little bit lower than some peers and I know some banks have said that they've been able to maybe Tweak down, you know their highest rate offerings, but I still see locally here
Speaker Change: In Nashville, you know, around 5%, you know, seeding money, etc. You know, what's your strategy and is the margin guidance for it to be a little bit lower?
Unknown Executive: You know, what's your strategy and is the margin guidance for it to be a little bit lower, slightly lower in the back half of the year? Is that due to you expecting continued increases or increases? and the cost of funds relative to your stability in the second half of the year. Yeah, there's two or three pieces on the margin.
Speaker Change: Slightly lower in the back half of the year. Is that due to you expecting continued increases or increases in the cost of funds relative to your stability in the second quarter?
Unknown Executive: I'll let Michael comment there. I'll just comment on the strategy to move forward. We talked about kind of, I mentioned in my comments, the remix of the balance sheet, kind of where we stand on the strength of the balance sheet. We're actually really pleased with the strength of the company balance sheet wise, again, personnel wise, momentum wise. And so we need to, And we've been, reemphasizing growth. You know, we have been cautious during this recession. I'll see you tonight.
Speaker Change: Yeah, there's two or three pieces on the on the margin. I'll let Michael comment there. I'll just comment on strategy moving forward. We talked about kind of
Michael M. Mettee: I mentioned in my comments, remix of balance sheet, kind of where we stand on strength of balance sheet. We're actually really pleased with...
Michael M. Mettee: the strength of the company balance sheet wise, again, personnel wise, momentum wise. And so we need to
Michael M. Mettee: and we've been...
Michael M. Mettee: re-emphasizing growth. You know, we have been cautious during
Speaker Change: I'll say, uh,
Christopher T. Holmes: As we've gone through economic times where we didn't know exactly where credit was headed, you know, we've been fairly cautious and cautious on growth. And so we feel much better strategically as we go forward just with where we sit and with our economies and the economy in general. Again, we, as I said, we expect the industry to revert back to a more normalized charge operation. But, We're not really expecting it to be much worse than that.
Speaker Change: As we've gone through economic times where we didn't know exactly where credit was headed, you know, we've been fairly cautious and cautious on growth.
Speaker Change: And so we feel much better strategically as we go forward just with where we sit and with our economies and the economy in general. Again, we, as I said, we expect the industry to revert.
Speaker Change: back to more normalized charge-off rates.
Christopher T. Holmes: And so, and if it is, by the way, we'll prepare for that. And so we're looking at it. We're getting a lot of opportunities with recruiting. And so we're ready.
Speaker Change: But we're not really expecting it to be much worse than that, and if it is, by the way, we'll prepare for that.
Speaker Change: And so, we're looking at it, we're getting a lot of opportunities with recruiting, and so we're ready. And as we talk about the margin, kind of,
Christopher T. Holmes: And as we talk about the margin kind of holding in from here, that's because we will use some bullets as we get into the last half of the year to grow some, even if it costs us a little bit of margin. And by the way, we haven't been giving up much of a margin in the last six months, so. Yeah, I think you nailed it. And you're right, Brett.
Speaker Change: coding in from here. That's because we will use some bullets.
Speaker Change: As we get into the last half of the year to grow some, even if it costs us a little bit of margin. And by the way, we haven't been giving up much of a margin in the last six months. Yeah, I think you nailed it. And you're right, Brett.
Michael M. Mettee: The cost of deposits to grow is still 5%, give or take. And we've made some tweaks on the edges down as well, but mainly because you don't want to add a whole lot of terms on deposit costs if you believe rates are going down over the next 12 to 24 months.
Speaker Change: The cost of deposits to grow is still 5%, give or take, and we've made some tweaks on the edges down as well, but mainly because you don't want to add a whole lot of term on deposit costs if you believe rates are going down over the next...
Michael M. Mettee: And I think that's the broad view. Not sure how much, but yeah, we've moved some of those longer-term rates down. But quite frankly, we weren't getting a whole lot of new business and that term CD stuff anyway. So, still competitive, maybe not as bad on a core basis.
Speaker Change: 12 to 24 months. And I think that's the broad view. Not sure how much, but so yeah, we, we've moved some of those longer term rights down, but quite frankly, we weren't getting a whole lot of new business and that.
Speaker Change: Yeah, term CD stuff anyway. So, still competitive.
Michael M. Mettee: And that's, but Chris mentioned some scenarios where we were certainly more competitive than we expected. And so, growth will be challenged. You have to add some higher-priced deposits to grow. Yeah. Hey, I will add one more thing.
Speaker Change: Maybe not as bad on a core basis, but Chris mentioned some scenarios where it certainly was more competitive than we expected.
Speaker Change: And so growth will be challenged. You have to add some higher price deposits to grow. Yeah. Hey, I will add one more thing. And we talk about this. We don't.
Christopher T. Holmes: And we talked about this. Um, we don't place a lot of leverage on our deposit base through wholesale funding, funding, and so we always have those outlets, and no different than this quarter. We're not going to do that today.
Speaker Change: place a lot of leverage on our deposit base through wholesale funding, corporate funding, and so we always have those outlets. And no different than this quarter, we're not going to, today, we're not going to pay six percent.
Christopher T. Holmes: We're not going to pay six percent on a one-year kind of term deposit. We're just not, you know, we're not gonna generally do that, because we can go out and we can fund it at 5%. And so we bet that's something that we won't do for the sake of growth.
Speaker Change: On a one-year kind of term deposit, we're not going to generally do that because we can go out and we can fund it at 5%. And so that's something that we won't do for the sake of growth.
Brett D. Rabatin: Okay. That's great. If I could sneak in one last one, just, you know, Chris, you sound, I would say, overall, more optimistic, thematically, maybe economically, about your prospects.
Speaker Change: General. Okay.
Speaker Change: That's great. If I could sneak in one last one just you know Chris you sound I would say overall more optimistic thematically maybe economically about your prospects.
Christopher T. Holmes: On capital, will you guys continue to buy back stock? I mean, obviously, you've got excess capital, or maybe you hold it with some monitoring of the political landscape, potentially giving you opportunities with M&A, you know, if there might be a regime change later this year? Yes, so we are on the capital front.
Speaker Change: On capital, will you guys continue to buy back stock? I mean, obviously, you've got...
Speaker Change: Access Capital, or maybe do you hold it with some watching of the political landscape, potentially giving you opportunities with M&A, you know, if there might be a regime change later this year?
Speaker Change: Yes, so we are on the capital front.
Christopher T. Holmes: We certainly have the dry powder, and we have the approval to go out and buy it back. And, as you know, we hate diluting tangible book value. And so we're careful where we buy back, you know, if you calculate the price at which we have bought back in this quarter, it looks like a pretty good transaction at this point. And so a lot of it is a function of what happens to the stocks moving forward is an important piece of that. But we certainly have the capability to apply it there.
Speaker Change: We certainly have the dry powder, and we have the approval to go out and buy back. As you know us, we hate diluting tangible book value, and so we're careful where we buy back.
Speaker Change: Calculate the price at which we bought back in this quarter.
Speaker Change: It looks like a pretty good transaction at this point, and so a lot of it is a function of what happens to the stocks.
Speaker Change: Moving forward is an important piece of that, but we certainly have the capability to apply it there. And then on what happens...
Christopher T. Holmes: And then on what happens with the M&A market. We were prepared to, You know, for us, it's more, it's as much about when things become available as anything. And so we're, we're, sitting ready because we don't think there are that many really attractive balance sheets out there on banks. And so we are, but when there is, we're ready. When there's one and it's available, and the culture fits us, we're ready. That's a great color.
Speaker Change: You know, for us, it's more, it's as much about when things become available as anything. And so we're, we're, we're sitting ready, because we don't think there are that many really attractive.
Speaker Change: balance sheets out there on banks. And so we are, but when there is, we're ready.
Speaker Change: Okay.
Brett D. Rabatin: Thanks so much, guys. All right. Thanks, Brett. The next question will come from Christopher Marinak with Jannie Montgomery Scott. Please go ahead.
Speaker Change: That's great color. Thanks so much, guys.
Brett D. Rabatin: All right, thanks, Brett.
Speaker Change: The next question will come from Christopher Marinak with Jannie Montgomery Scott. Please go ahead.
Christopher William Marinac: Hey, thanks, good morning. Chris, I want to go back to the public funds and the comments that you and Mike made. You know, if you think about them as sources of payroll, the other payroll clients that you have, they're not public funds. Do you pay them a similar rate? Or do you pay them less?
Christopher Marinak: Hey, thanks. Good morning. Chris, I want to go back to the public funds and the comments that you and Mike had made. If you think about them being sources of payroll, the other payroll clients that you have that are not public funds, do you pay them a similar rate or do you pay them less? Because I'm curious if you can replace those public funds down the road with either new customers or certainly merger partners that you find in the next several years.
Christopher William Marinac: Because I'm curious if you can replace those public funds down the road with either new customers or certainly merger partners that you find in the next several years. Yeah, good morning. This is Travis.
Christopher Marinak: Yeah, good morning. This is Travis. Generally speaking, our payroll accounts for non-public funds are much cheaper than the public funds payroll accounts.
Travis K. Edmondson: Generally speaking, our payroll accounts for for non-public funds are much cheaper than the public funds payroll accounts. Generally, on public funds, you look kind of at the all-in rate, including transactional accounts. Yes, yeah, that excess interest, Chris, on top of the payroll. And so that's generally multiple accounts that kind of make that up. I think the back half of that question is, can we replace them? I think we're pretty comfortable with, like I said, ninety seven percent of our public funds are what we consider clients. Right. And so we value those partnerships. We think part of being a community bank is being in your community and partnering with those municipalities.
Mike: Generally, on the public funds, you look at the all-in rate, including the transactional accounts. Yes, you have that excess interest, Chris, on top of the payroll, and so there's generally multiple accounts that make that up. And I think the back half of that question is...
Speaker Change: Can we replace that? I think we're pretty comfortable with like I said 97% of our public funds are
Christopher T. Holmes: What we consider clients, right? And so we value those partnerships. We think part of being a community bank is.
Christopher T. Holmes: being in your community and partnering with
Christopher T. Holmes: those municipalities. And so we expect to continue that. If it's excess interest, you know, we may partner with them to find some alternatives. And yeah, I think our focus every day is on growing treasury management and small business and operating accounts.
Travis K. Edmondson: And so we expect to continue that. If it's excess interest, you know, we may partner with them to find some alternatives. And yeah, I think our focus every day is on growing treasury management, small business, and operating accounts. It takes a while, as you know, to build those up.
Christopher William Marinac: But that's really where our focus is, getting those core operating accounts, not necessarily to replace, but to augment and grow the company. Great, thank you both for that. I appreciate it.
Christopher T. Holmes: It takes a while, as you know, to build those up, but that's really where our focus is, is getting those core operating accounts, not necessarily to replace, but to augment and grow the company.
Michael M. Mettee: And then just a quick reserve question. What do you see from the external factors that kind of help you build reserves? Do you see anything even in the month of July that would support more reserve building this quarter? Yeah.
Speaker Change: Great. Thank you both for that. I appreciate it. And just a quick reserve question, what do you see from the external factors that kind of help you build reserves? Do you see anything even in the month of July that would support more reserve build this quarter?
Michael M. Mettee: So we used a kind of looked at the May, June scenario, and commercial real estate on the baseline for Moody's was worse than the first quarter. So that's kind of where that growth really came from than the individually evaluated loan. I think we feel really good about our position and that we have the right reserve for the unknown economic scenarios that are out there. There's nothing specific in July or anything else that we're seeing that says, hey, you should be increasing materially from here.
Speaker Change: yeah
Speaker Change: So we we used a kind of looked at May-June scenario and commercial real estate on baseline for Moody's was worse than the first quarter. So that's that's kind of where that
Speaker Change: Growth really came from the individually evaluated loan.
Speaker Change: I think...
Speaker Change: Like, we feel really good about our position and that we have the right reserve for the un...
Speaker Change: Unknown Economic Scenarios that are out there. There's nothing specific in July or anything else that we're saying that says, hey, you should be increasing.
Michael M. Mettee: As Chris mentioned, our markets seem pretty good. There's some economic things that pop up on CNI, and you deal with them. But overall, I think we are in a really good spot. Yeah, I would just add one amplification of what Michael said.
Speaker Change: materially from here.
Speaker Change: As Chris mentioned, our markets seem pretty good. There's some things economically that pop up on C&I and you deal with it. But overall, I think we are in a really good spot.
Christopher T. Holmes: When we look at our, and this is credit, just credit related, when we look at our portfolio, we've had a few things that we've had to deal with in commercial real estate. But as we've dealt with those, we just found that there hadn't been lost content in them. I mean, they're just things that we've had to deal with and continue to deal with, but generally, plenty of equity and generally guarantors. And so they haven't resulted in us looking at it and going, man, we've got a future loss there.
Christopher T. Holmes: Yeah, uh, I-I-I...
Speaker Change: I would just add one.
Speaker Change: Amplification, what Michael said. When we look at our, and this is just credit related, when we look at our portfolio, we've had a few things that we've had to deal with on commercial real estate.
Speaker Change: But but as we've dealt with those We've just found that there hadn't been lost content in there I mean, it's just just things that we've had had had to deal with and continue to deal with but
Christopher T. Holmes: Where you could have, we're, And I think this just goes industry-wide. I think everybody should be watching C&I because those can pop up in tougher economic times when you have the inflation we've had. And you don't have on those; your collateral is different.
Speaker Change: Generally, plenty of equity and generally guarantors. And so they haven't resulted in us looking at it and go, man, we've got a future loss there. Where you could have, we're...
Speaker Change: And I think this just goes industry-wide.
Speaker Change: I think everybody should be watching CNI because those can pop up in tougher economic times when you have the inflation we've had.
Christopher T. Holmes: And sometimes you might not have guarantees. And so you might get more lost content out of the C&I buckets. That specific reserve that we made reference to is actually a C&I credit, not a CRE. Great, Chris.
Speaker Change: And you don't have on those, your collateral is different, and sometimes you might not have guarantees, and so you might get more loss content out of the C&I buckets. That specific reserve that we made reference to is actually a C&I credit, not a CRE credit.
Christopher William Marinac: Thank you, Michael, very much. I appreciate it. The next question will come from Steve Moss with Raymond James. Please go ahead. Good morning.
Speaker Change: Shook.
Speaker Change: Great, Chris. Thank you, Michael, very much. Appreciate it.
Speaker Change: That's great.
Speaker Change: The next question will come from Stephen Moss with Raymond James. Please go ahead.
Stephen M. Moss: This is David Morton. Hey, guys, maybe just start here by going back to the margin for a moment. Does your guidance here for the second half of the year assume any rate cuts? Excuse me.
Stephen M. Moss: Good morning.
Steve: Hey Steve, good morning.
Steve: Hey guys, maybe just start here with going back to the margin for a moment. Does your guidance here for the second half of the year assume any rate cuts?
Michael M. Mettee: Yes, Steve, we think there's about 25 basic points or rate cuts coming, maybe one late in the year. But we've had September kind of targeted as the first cut for, I guess, since we did our budget last year. And so it does contemplate a 25 basis point cut. We'll see if that happens or not. But it certainly has that in there.
Speaker Change: Excuse me, yes, Steve, we think there's about 25 basis points or rate cuts coming, maybe one late in the year, but we've had September .
Speaker Change: kind of targeted as the first cut for I guess since we did our budget last year and so it does contemplated a 25 basis point cut we'll see if that happens or not but
Michael M. Mettee: Okay, and just judging by, you know, the balance sheet remixing, especially on the deposit side, are you guys more asset sensitive today than maybe a year ago? I'd say we're more neutral. Yeah, we still lean towards being a little bit asset sensitive. But a lot of the work we've done on indexing deposits was to remove some of that risk from a repricing down from the overall net interest income. Okay.
Speaker Change: It certainly has that in there.
Speaker Change: Okay, and just judging by, you know, the balance sheet remixing, especially on the deposit side, are you guys more asset sensitive today than maybe a year ago?
Speaker Change: Actually, I'd say we're more neutral. Yeah, we still lean towards a little bit asset sensitive. But a lot of the work we've done on indexing deposits,
Speaker Change: was to remove some of that risk from a repricing down from the overall net interest income.
Michael M. Mettee: And then in terms of on the lending side, I noticed in, you know, on the loans by market, your specialty lending bucket continues to build. I'm just kind of curious, you know, maybe some color on the underlying drivers there.
Speaker Change: Okay.
Speaker Change: Great, appreciate that. And then in terms of on the lending side, I noticed in, you know, on the loans by market, your specialty lending bucket continues to build. I'm just kind of curious, you know, maybe some color on the underlying drivers there.
Christopher T. Holmes: Yeah, on specialty lending, it's been up, it's, It's a consistent producer for us. And we've probably, We've ramped up the retail side of that a little bit. And just to describe what that is, that's what we call the retail side of that anyway, what that is, when we're loaning on a manufactured home directly to the purchaser of that home, the typical average balance will be somewhere between, I guess in the portfolio, it's around $6,000. On a new loan, it's higher than that, say $90,000-ish. I would say $90,000 to $100,000.
Speaker Change: Yeah, on specialty lending, it's been up, it's...
Speaker Change: It's a consistent producer for us, and
Speaker Change: We've probably, we've ramped up the retail side of that a little bit.
Speaker Change: And just to describe what that is, that's what we call the retail side of that anyway, what that is, is when we're loaning on a manufactured home directly to the purchaser of that home. Typical average balance will be somewhere between
Speaker Change: I guess in the portfolio, it's around $60,000 on a new loan. It's higher than that, say $90,000-ish, I would say $90,000 to $100,000.
Christopher T. Holmes: And that's been the bucket that has actually grown for us. And it's pretty much a steady month-over-month producer. Travis, would you add anything?
Speaker Change: That's been...
Travis K. Edmondson: The bucket that has actually grown for us, and it's pretty much a steady month-over-month producer. Travis, would you add anything?
Travis K. Edmondson: No, I think you described it well. We have seen an uptick in the retail portion of that business over the last few months, just tweaking some of our offerings to make sure we're competitive in the marketplace and having good relationships with the retailers out in the various states in which we operate. Okay, great. I appreciate that color there.
Speaker Change: No, I think you described it well. We have seen an uptick in the retail portion of that business over the last few months, just tweaking some of our offerings to make sure we're competitive in the marketplace and having good relationships with
Speaker Change: The retailers out in the various states in which we operate.
Speaker Change: Okay, great. I appreciate that color there.
Christopher T. Holmes: And then, Chris, you mentioned earlier you hired, you know, 14 producers, you know, still looking for additional talent. I'm just curious, like, what does that pipeline of talent look like to you today? Is it bigger and, you know, just kind of thinking about managing or thinking about expenses beyond your guidance for them? Yeah, so the pipeline, I would describe it as consistent. It hasn't been – it's consistent, but interestingly, we probably get more inbound calls today from folks just around our geography.
Speaker Change: And Chris, you mentioned earlier you hired, you know, 14 producers.
Speaker Change: I'm still looking for additional talent, you know, I'm just curious, like, what is that pipeline of talent look to you today? Is it bigger and, you know,
Speaker Change: Just kind of thinking about...
Speaker Change: Managing, or thinking about expenses beyond your guidance for this year.
Christopher T. Holmes: Yeah, so the pipeline, I would...
Speaker Change: described as consistent. It hasn't been
Christopher T. Holmes: We're not big on – no offense to recruiters, but we're not big on recruiters calling us with people that want to move to Nashville from St. Louis or Albuquerque or San Diego, and there are a lot of those, and we get a lot of those, but frankly, that's not – we don't hire many of those.
Speaker Change: It's consistent, but...
Speaker Change: Interestingly, we probably get more inbound calls today from folks just around our geography. We're not big on, no offense to recruiters, but we're not big on recruiters calling us with people that want to move to Nashville from...
Speaker Change: St. Louis or Albuquerque or San Diego and there are a lot of those and we get a lot of those but but frankly that's not we don't hire many of those what we're
Christopher T. Holmes: What we're – we're interested in folks that we know, frankly, that aren't coming through a recruiter, and so that's really more the recruiters – the recruiting that we do. They're in geography, and they have some experience in a portfolio, and that's it. The things I made reference to were actually with some intent; the things that I made reference to, people view us as being, a consistent place that that is a good place to work, and it's going to be here for the long term.
Speaker Change: We're interested in folks that we know, frankly, that aren't coming through a recruiter. And so that's really more the recruiters, the recruiting that we do. They're in geography, and they...
Speaker Change: have some experience in a portfolio, and that's really what we're talking about. And so it is.
Speaker Change: The things I made reference were actually with some intent, the things that I made reference to, people view us as being
Speaker Change: A consistent
Speaker Change: place that that that is a good place to work and is going to be here for the long term and so that's what many folks are seeking and so that's really what is
Christopher T. Holmes: And so that's what many folks are seeking. And so that's really what, You know, any turmoil that takes place in any part of our footprint, whether that's Memphis or Birmingham or Knoxville or anywhere else, we tend to benefit from. Yeah, just a couple points to add.
Speaker Change: You know, any turmoil that takes place in any part of our footprint, whether that's Memphis or Birmingham or Knoxville or anywhere else, we tend to benefit from that.
Travis K. Edmondson: We're seeing the same momentum already in the third quarter of talking to really talented people in our geography, so we're excited about the prospects of continuing to bring on RMs. And one thing I'll note, what Chris is referencing is our favorite people to bring on our team, people that we've known for a long time. And those are long sales cycles.
Speaker Change: Yeah, just a couple points to add. We're seeing the same momentum already in the third quarter of talking to really talented people in our geography, so we're excited about the prospects of continuing to bring on RMs. And one thing I'll note, what Chris is referencing is...
Speaker Change: Our favorite people to bring on our team of people that we've known for a long time and those are long sales cycles and what we're seeing is just
Christopher T. Holmes: And what we're seeing is just some of those people that we've been talking to for many, many quarters, for one reason or another, are ready to come over to a different bank, and more specifically, the first bank here in recent times. Okay. Great. I appreciate all that color there.
Speaker Change: Some of those people that we've been talking to for many, many quarters, for one reason or another, are ready to come over to a different bank, and more specifically, the first bank here in recent times.
Stephen M. Moss: And maybe just one last one here for me, you know, going back to the loan portfolio, construction balances have come off quite a bit, you know, just kind of curious, you know, maybe how much lower they could go and color around that. Yeah, well, Steve, I think... We're kind of at the, we're not actively trying to reduce construction balances as much. What we're focused on is relationships, and so if that happens to be some construction business with existing or new relationships that bring deposits and everything, you know, we're in that business. We're not looking to grow it back to anywhere where we were.
Speaker Change: Okay, great. I appreciate all that color there. And maybe just one last one here for me. You know, going back to the loan portfolio, you know, construction balances have come off, you know, quite a bit.
Speaker Change: I'm just kind of curious, you know, maybe how much lower could they go?
Speaker Change: call around that would be great.
Speaker Change: Yeah, well Steve, I think...
Speaker Change: We're kind of at the, we're not actively trying to reduce construction balances as much, what we're focused on is relationships.
Speaker Change: And so if that happens to be some construction business with existing or new relationships that bring, you know, deposits and everything, you know, we're in that business, we're not looking to grow it back to
Michael M. Mettee: We're comfortable where we are, and so it's more about relationships and how it balances out to us. And so that's kind of where our focus is. I don't expect them to be materially lower or materially higher.
Speaker Change: Anywhere where we were, we're comfortable where we are. And so it's more about relationships than it is balances to us. And so that's that's kind of where our focus is. I don't expect them to move.
Michael M. Mettee: But we kind of take opportunities as they come, as we can add new business and new relationships. Yeah, well stated Michael. I will say to say this as well, Steve, that in that, that is on. As we think about construction, it is that relationship-driven piece for us.
Speaker Change: materially lower or materially higher, but we kind of take opportunities as they come as we can add new business and new relationships.
Speaker Change: Yeah, well stated, Mike. Well, I will say this as well, Steve, that in that, that is on...
Christopher T. Holmes: And we think about our own risk tolerance, our own risk, our own portfolio, and what level of risk we're willing to accept. And we're really comfortable where we are right now. That being said, one other thing we have to keep an eye on is regulatory guidance and the regulatory threshold, especially in the current regulatory environment. And you also have to keep in mind that, let's say we did have some type of transaction out there, capital would likely drop some.
Speaker Change: As we think about construction, it is that relationship-driven piece for us, and we think about our own risk tolerance, our own risk profile.
Speaker Change: portfolio and what level of risk we're willing to accept and we're really comfortable where we are right now. That being said, one other thing we have to keep an eye on is the regulatory guidance and the regulatory thresholds, especially in the current regulatory environment.
Speaker Change: and you also have to keep in mind.
Speaker Change: Let's say we did have some type of transaction out there that capital would likely drop some.
Christopher T. Holmes: And so you have to keep that in mind as well, that that could come down. And so, depending on what you'd be taking on, you want to make sure you, again, you've got room for whatever you would have the opportunity to do there, and that doesn't become a barrier to you. Great. I appreciate all the cars and everything.
Speaker Change: And so you have to keep that in mind as well, that that could come down, and so and depending on what you'd be taking on, you want to make sure you, again, you've got room for whatever you would have the opportunity to do there, and that doesn't become a barrier to you.
Speaker Change: Great. I appreciate all the color and everything. Thank you very much.
Stephen M. Moss: Thank you very much. Good. The next question will come from Catherine Miller with KBW. Please go ahead. Thanks. Good morning.
Speaker Change: The next question will come from Catherine Mealor with KBW. Please go ahead.
Catherine Fitzhugh Summerson Mealor: Thanks, good morning.
Paul Keller: Paul Keller
Paul Keller: [inaudible]
Catherine Fitzhugh Summerson Mealor: A big piece of the security yield going higher, but maybe just talk to us about your outlook for where that yield's going, cash flows towards the back half of the year, and maybe anything else you did to the bond book this quarter to push yields up pretty much.
Catherine Fitzhugh Summerson Mealor: [inaudible] Yeah, good morning, Catherine. I think there are a couple 100 million that will reprice or come mature throughout the back half of the year. And so one of the benefits in the second quarter is that we saw some treasuries reprice and went from call it a 2% to a 5%, 6% reinvestment yield. So there is certainly some benefit to that. Obviously, we don't have as much lower yielding stuff maturing at this point because we've cycled through a lot of what I called the dogs a couple quarters ago. We took the bite out of the apple and reinvested. So probably not as much benefit.
Speaker Change: Yeah, good morning Catherine. So, I think there's a couple hundred million that repriced or come matured throughout the back half of the year. And so,
Speaker Change: One of the benefits in the second quarter is we saw some treasuries reprice and, you know, went from a call it a 2% to a
Speaker Change: 5-6% reinvestment yield. So there is certainly some benefit to that.
Speaker Change: Obviously, we don't have as much lower-yielding stuff maturing at this point because we've cycled through a lot of what I've...
Speaker Change: I called it a couple quarters ago, the dogs. We took the bite of the apple and reinvested, so probably not as much benefit. I don't think you're going to be seeing 50 basis point tops.
Michael M. Mettee: I don't think you're going to be seeing 50 basis point tops. So a lot more consistency from here forward. That being said, we do continue to look at capital deployment and reinvestment opportunities. We didn't do any restructuring this quarter other than, as you mentioned, kind of just maturing and reinvesting. And then back to the C&I credit that you added a specific reserve for. Can you talk a little bit about that? I know you mentioned that it was a C&I credit, and we saw your C&I reserve go up, so that makes sense.
Speaker Change: So, a lot more consistency from here forward. That being said, we do continue to look at capital deployment and reinvestment opportunities. We didn't do any restructuring this quarter other than, as you mentioned, kind of just maturing and reinvesting.
Speaker Change: Okay, great.
Speaker Change: And then back to the C&I credit.
Speaker Change: that you added a specific reserve for. Can you talk a little bit about?
Speaker Change: I know you mentioned that it was a C&I credit, and we saw your C&I reserve go up, so that makes sense. So maybe the size of the credit, maybe the type of industry it's in, and then outside of that one credit, have you seen any other migration within credit size classifieds or any other migration within your portfolio?
Michael M. Mettee: So just tell me the size of the credit, maybe the type of industry it's in, and then outside of that one credit, have you seen any other migration within credit size categories or any other migration within your portfolio? Yeah, good morning.
Michael M. Mettee: On the particular credit, it's in the service industry, and it was a service provider to another specific industry. And not to get too in the weeds, but this was one where there were some changes in the dynamics of what they had to do for licensing that added a substantial burden to the company that was unforeseen. And also, there was some fraud, which combined forced the company into bankruptcy. And so that's what happened to that one without getting too specific.
Speaker Change: Yeah, good morning. On the particular credit, it's in the service industry, and it was a service provider to another specific industry, and not to get too in the weeds, but this was one where there was some
Speaker Change: Some changes in the dynamics of what they had to do for licensing that added a substantial burden to the company that was unforeseen and Also, there was some fraud which
Speaker Change: combined forced the company into bankruptcy. And so that's what happened to that one without getting too specific. And yeah, we do see some migration.
Michael M. Mettee: And yeah, we do see some migration. We see stuff going in, we see stuff coming out of various buckets, adversely classified, and we see things getting better. But on the whole, we've just seen a little bit more going into the adversely classified buckets than we're seeing coming out. But we are still seeing quite a bit of movement in our credits. Like we always do, I guess that's what I'm saying. And Catherine, on that C&I credit, you asked about the size of it. Yeah, it's in bankruptcy, so there's a little bit of a rub there.
Speaker Change: We see stuff going in, we see stuff coming out of various buckets, adversely classified, we see things getting better, but on the whole, we've just seen a little bit more going into the adversely classified buckets than we're seeing coming out. But we are still seeing quite a bit of movement in our credits.
Speaker Change: Like we always do, I guess.
Speaker Change: What I'm saying
Catherine Fitzhugh Summerson Mealor: And Catherine, on that CNI credit, you asked about the size of it. Yeah, it's in bankruptcy, so there's a little bit of rub there, but...
Michael M. Mettee: But we're fully reserved on the credit that's not collateralized, as we should be. We're fully reserved on the credit that's not collateralized by real estate.
Catherine Fitzhugh Summerson Mealor: We're fully reserved on the credit that's not collateralized, so we should be... We're fully reserved on the credit that's not collateralized by real estate. Right.
Michael M. Mettee: Right. Yes. So, I think if you're asking, is there going to be additional reserve based on that? I wouldn't foresee it, and what and that's the current size of the credit is, it's a, let's see, 7 million-ish. Now, it's, it's, well, all the related ones are, are roughly 10. Yeah. Approximately. Just the shade under 10.
Speaker Change #100: Yes, so so I think if you're if you're asking is there going to be additional reserve based on that I wouldn't foresee it Yeah
Speaker Change #101: Okay. And what's the current size of the credit?
Speaker Change #102: The current size of the credit is, it's a, let's see, 7 million-ish. Well, all the related ones are roughly 10, approximately. Yeah, just the shade under 10. And, yeah.
Michael M. Mettee: And, yeah. All right. Very helpful.
Speaker Change #103: Great. Okay. All right. Very helpful. Thank you.
Catherine Fitzhugh Summerson Mealor: Thank you. The next question will come from Alex Lau of J.P. Morgan. Please go ahead. Hi, good morning.
Speaker Change #103: The next question will come from Alex Lau with J.P. Morgan. Please go ahead.
Alex Lau: Morning, Alex. Chris, can you confirm if the low to mid-single digit outlook for the second half of the year was for loan growth specifically? And where do you expect net loan growth to come from for the back half of the year? Yes, we're really targeting loan and deposit growth there with those numbers so that we're kind of keeping the balance sheet in check. And where does it come from if you...
Alex Lau: Hi, good morning.
Speaker Change #105: Morning, Alex.
Alex Lau: Chris, can you confirm if the low to mid-single digit outlook for the second half of the year was for loan growth specifically? And where do you expect net loan growth to come from for the back half of the year?
Speaker Change #106: Yes, we're really targeting loan and deposit growth there with those numbers so that we're kind of keeping the balance sheet in check.
Christopher T. Holmes: Remember that we think of ourselves as a community bank. So it comes from multiple geographies, and it comes from multiple loan types. And so it is.
Speaker Change #107: And where does it come from?
Speaker Change #108: Remember that we think of ourselves as a community bank, so it comes from multiple geographies and it comes from multiple loan types.
Christopher T. Holmes: [inaudible] We hope and think that CNI is probably the biggest single contributor. And so that's going to come from multiple industries. There could be a little bit of real estate, but not a lot.
Speaker Change #108: We hope and think that CNI is probably the biggest single contributor.
Speaker Change #108: and so that's going to come in from multiple multiple industries.
Speaker Change #108: There could be a little bit of real estate, but not a lot, and then, again, continued on progress with specialty lending, Travis, anything else that we've...
Travis K. Edmondson: And then, again, continued progress with specialty lending. Travis, anything else that we've... No, no, we don't target a specific industry or specific geography to hang our growth on. We really look to the entire footprint and the entire portfolio to get that growth. As Chris referenced in his opening remarks, we've grown roughly 5% without trying to get the ADC down. So that's basically continued to do what we've been doing without the headwinds of getting down the ADC bucket is another way to think about it.
Travis K. Edmondson: No, no, we don't target a specific industry or specific geography to hang our growth on. We really look to the entire footprint and the entire portfolio to get that growth. You know, as Chris references his opening remarks, we've grown roughly 5% absent trying to get the ADC down. So that's
Christopher T. Holmes: Basically continue to do what we've been doing without the headwinds of getting down the ADC bucket is another way to think about it.
Christopher T. Holmes: Yeah, the other thing I would say is, and so, as we like our portfolio to be on both the loan and deposit side, it'll be fairly granular. And so, and I'll tell you what it won't be, it won't be going out and buying syndicated deals, it will not be buying participations, it will not be, you know, if we can't get our usual solid relationship customers, then. The growth rate will be lower than that, but that's what will make it up. That's a great color.
Christopher T. Holmes: Yeah.
Speaker Change #109: The other thing I would say is, we like our portfolio to be on both the loan and deposit side.
Speaker Change #110: fairly granular, and so
Speaker Change #111: And I'll tell you what it won't be. It won't be going out and buying syndicated deals. It will not be buying participations. It will not be, you know, if it, if we can't get our usual solid relationship customer, then
Speaker Change #111: The growth rate will be lower than that. That's what will make it up.
Alex Lau: And how much runoff in construction loans are you assuming in that outlook? Yeah, relatively flat from here forward. Thank you. And then just on the commitment side of it, the construction loan commitments were down about $70 million.
Speaker Change #112: That's great color. And how much runoff in construction loans are you assuming in that outlook?
Speaker Change #113: Yeah, relatively flat from here forward.
Speaker Change #114: Thank you. And then just on the commitment side of it, the construction loan commitments were down about $70 million. How do you expect the pace of this decline in commitments in the quarters ahead, or is that similar to your balance outlook?
Alex Lau: How do you expect the pace of this decline in commitments in the quarters ahead, or is that similar to your balance outlook? I think it's similar to our balanced outlook. I think you're not going to see the commitments decline as rapidly as they have in the past few quarters. Yeah, we're, you know, we're down 600 million year over year and have unfunded commitments in that bucket. And so I'd say most of that is kind of normal operating business at this point stabilized. Thank you.
Speaker Change #115: I think I think it's similar to our balanced outlook. I think you're not going to see the commitments decline as rapidly as they have in the past few quarters.
Speaker Change #116: Yeah, we're down $600 million year-over-year in unfunded commitments in that bucket, and so I'd say most of that is kind of normal operating business at this point, stabilized.
Michael M. Mettee: And then just a follow-up on the public funds. Last quarter, you were expecting it to peak at $1.7 billion, $1.8 billion. You know, given the recent customer actions this quarter, how has this changed your expectations for peak deposits this year? And do you expect any seasonal increase in the third quarter? No, I think we're experiencing almost the same story as construction.
Speaker Change #117: Thank you. And then just a follow up on the public funds. Last quarter you were expecting it to peak at $1.7 billion, $1.8 billion. You know, given the recent customer actions this quarter, how has this changed your expectations for peak deposits this year? And do you expect any seasonal increase in the third quarter?
Michael M. Mettee: I think we expect stability in that bucket from here. You know, as Travis mentioned, the 5% loan growth kind of overcoming that construction, deposit growth, or flattishness has overcome kind of the $650 million decrease in public funds. And so I expect that kind of bogeyman to be gone at this point as well.
Speaker Change #118: No, I think it's almost the same story as construction. I think we expect stability in that bucket from here.
Speaker Change #118: As Travis mentioned, the 5% loan growth is kind of overcoming that construction, you know, deposit growth or flattishness has overcome kind of the $650 million decrease in public funds, and so I expect that kind of bogey to
Speaker Change #119: to be gone at this point as well. But we also have to remember in the public funds, there is an actual seasonality to public funds, regardless if we're adding or declining clients. So third and fourth quarter usually is, kind of gets to the low point of what they're holding on balance because taxes come in at the start of the year, then they pay all the expenses and all their...
Speaker Change #119: Things that they have to pay for until the next tax season.
Alex Lau: Great. And just one follow-up on the revenue producers being added this year. How does this pace of investing in revenue producers compare to, say, last year? And what type of contribution are you expecting from this year's outlook? Yeah, so certainly, it's higher than last year, Frankly, I don't remember, in terms of exact data, what it looked like at the same time last year, but we have two places I'd say where it has an impact.
Speaker Change #120: Great, and just one follow-up on the How does this pace of investing in revenue producers compare to, say, last year? And what type of contribution are you expecting to this year's outlook?
Speaker Change #120: Thanks.
Speaker Change #121: Yes, certainly it's higher than last year. Frankly, I don't remember in terms of exact data what it looked like at the same time last year, but we
Alex Lau: One, we will continue to add folks of the caliber that we're getting the chance to add. It does add to our expense base, and we're very disciplined and mindful of the expenses and how much it takes us to run the company on a business as usual basis. And so we stick to that and have stuck to that very rigidly throughout this year.
Speaker Change #122: Two places I'd say where it has an impact. One is we will continue to add folks of the caliber that we're getting the chance to add. It does add to our expense base.
Speaker Change #122: And we're very disciplined and mindful of the expenses and how much it takes us to run the company.
Speaker Change #122: on a business as usual basis. And so we stick to that and have stuck to that very rigidly throughout this year. We consider this to be on top of that. And so we do consider this to be on top of that. We did allow for some
Christopher T. Holmes: We consider this to be on top of that, and so we do consider this to be on top of that. We did allow for some, as we thought about our budget, but but, this is on top of what we call business as usual. Yeah, I mean, another way to say that is we're very diligent in our expense initiatives, but we're not going to pass on good revenue producers to make that expense.
Speaker Change #122: As we thought about our budget, but this is on top of what we call business as usual expenses.
Speaker Change #122: Yeah, I mean, another way to say that is we're very diligent on our expense initiatives, but we're not going to pass on good revenue producers to make that expense number. We would take on the additional expense of any good revenue producer.
Christopher T. Holmes: Number, we would take on the additional expense of any good revenue producer as long as we can get them. Yeah, and Alex, on your growth aspect, a lot of that's right in 25, right? So as people come on board, typically they've been at other competing institutions, and so, yeah, there are some agreements there, and we honor those agreements. And so the growth is further out in the year. It's not necessarily a back half of 24, 25, 26.
Alex Lau: Yeah, and Alex, on your growth aspect, a lot of that's right in 25, right? So as people come on, typically they've been at other competing institutions, and so there's some agreements there, and we honor those agreements.
Speaker Change #123: and so the growth is farther out in the year. It's not necessarily a back half of 24, 25, 26. We're not necessarily counting on these producers.
Alex Lau: We're not necessarily counting on these producers to make the numbers that we've talked about. We're not counting on them to be what makes that happen for us. Any help we get, we're certainly grateful for, and I'm sure there will be some, but it's not absolutely reliant on all that panning out. As Michael said a lot of times, there are agreements in place, and we absolutely 100% abide by those, so we don't count on that. Great. Thanks for taking my question. Thanks, Alex. Again, if you have a question, please press the star, then one. Our next question will come from Russell Gunther with Stevens. Please go ahead. Hey, good morning, guys.
Speaker Change #123: to make those numbers that we've talked about. We're not counting on them to be what makes that happen for us. Any help we get, we're certainly grateful for, and I'm sure there will be some, but it's not absolutely reliant on all that panning out. As Michael said, a lot of times
Michael M. Mettee: There are agreements in place, and we absolutely 100% abide by those, and so we don't count on that.
Speaker Change #127: Great. Thanks for taking my questions.
al: Thanks, Alan. Thanks, Al.
Speaker Change #125: Again, if you have a question, please press star, then 1. Our next question will come from Russell Gunther with Stevens. Please go ahead.
Russell Elliott Teasdale Gunther: I just had a couple follow-up questions. The first on the glide path to that, the Loan Growth Number in 25. You guys just parse that a little bit in terms of how much that would be driven by the new revenue producers versus, no longer declines in some of the construction balances versus a willingness to just grow legacy with the producers we currently have. Yeah, so we count on the bulk of it to come from the producers we currently have. We do count on nice additions because there's no net runoff from the producers that are coming on. And there's an unknown, well, frankly, all of that has a bunch of assumptions in it.
Russell Gunther: Hey, good morning, guys.
Russell Gunther: Good morning. I just had a couple follow-up questions at this point. The first on the glide path to that 10%...
Speaker Change #139: Loan Growth Number in 25, you guys just parse that a little bit in terms of, you know, how much that would be driven by the new revenue producers versus
Speaker Change #128: No longer declines in some of the construction balances versus a willingness to just grow legacy with the producers you currently have.
Speaker Change #129: Yeah, so.
Speaker Change #130: We count on the bulk of it to come from the producers we currently have.
Speaker Change #131: We do count on nice additions because there's no net runoff from the producers that are coming on and there's an unknown, well frankly all of that has a has a bunch of assumptions in it so I guess it's all unknown.
Christopher T. Holmes: So I guess it's all unknown. But you also, you could lose some producers along the way. So we, you know, there are a lot of variables that are going into that. So you count on the bulk of that to come from, of the force of relationship managers that we have, is how I look at it, and I'm getting nods of agreement from the other two guys sitting here at the table. Very good.
Speaker Change #131: But you also, you could lose some producers along the way, so we, you know, there are a lot of variables that are going into that, so you count on the bulk of that to come from the force of relationship managers that we have.
Speaker Change #132: I'm getting nods of agreement from the other two guys sitting here at the table.
Michael M. Mettee: And then, you guys have done a great job on the expense side of things. Trends were favorable again this quarter, and I reiterated your full year core bank expectations. And if I recall, that guide does not assume a significant increase in new revenue producers. So I'm just trying to figure out, based on the guys you've already added and your current expectations for the back half of the year, would you expect to be, you know, within that current guide? Or does the pipeline suggest the potential to punch out? [inaudible] Yeah, I appreciate those comments, Russell. Yeah, I mean, we expect it to be in the current guide.
Speaker Change #133: Very good. And then...
Speaker Change #137: You guys have done a great job on the expense side of things, trends were favorable again this quarter, reiterated your full year core bank expectations.
Speaker Change #135: And if I recall, that guy does not assume a significant increase in new revenue producers. So I'm just trying to parse.
Speaker Change #134: Based on the guides you've already added and your current expectations for the back half of the year, would you expect to be, you know, within that current guide, or does the pipeline suggest the potential to punch outside?
Christopher T. Holmes: But as Travis mentioned, like, yes, a lot of this, this is quarters, months, years worth of your conversations and recruiting. And so just like when banks, Chris, talking about Yeah, tracking bank acquisitions, we don't always get to choose the timing. And so, but we certainly have to manage how we bring people in and when they do, but when they're ready, and Yeah, they bring value to us, and we bring value to them, then we accept them. So I wouldn't, I'm not going to turn away top-tier talent because of a number that I've put on these guys.
Speaker Change #136: Yeah, I appreciate those comments, Russell. Yeah, I mean, we expect it to be inside the current guide, but as Travis mentioned, look, yes, a lot of this, this is quarters, months, years worth of, you know, conversations and recruiting. And so, just like when Bank, Chris talked about
Christopher T. Holmes: Tractive Bank Acquisitions. We don't always get to choose the timing, but we certainly have to manage how we bring people in and when they do, but when they're ready and
Speaker Change #138: They bring value to us, and we bring value to them, and we accept it, so I'm not going to turn away top-tier talent because of...
Christopher T. Holmes: Yeah, I think Michael says it well, and I'm going to put it slightly more succinctly to say, hey, today we think we'll be within that guidance as we continue to get opportunities. We're not going to shy away from them. If that causes us to go outside that guidance, we think it's a very, very, very good investment in the future. So today we feel pretty good about being within.
Speaker Change #138: A number that I've put on these guys. Yeah, I think Michael says it well, and I'm going to put it slightly more succinctly to say, hey, today we think we'll be within that guidance.
Speaker Change #140: As we continue to get opportunities, we're not going to shy away from them. If that causes us to go outside that guidance, we think it's a very, very, very good investment in the future. So today, we feel pretty good about it.
Christopher T. Holmes: If we get the right opportunities to continue to hire things that are long-term, instructive for our company, we're going to do that, and we'll certainly update you on that as we do. Understood. Thank you, guys. And then just switching to the excess capital deployment. We saw the benefit of a prior securities repositioning in the numbers this quarter. You guys were active with the buyback. I understand you evaluate both on a quarterly basis just because we looked at 3Q.
Speaker Change #140: being within. If we get the right opportunities to continue to hire things that are long-term constructive for our company, we're going to do that and we'll certainly update you on that as we do.
Speaker Change #141: Understood. Thank you guys. And then just switching to the excess capital deployment, we saw the benefit of a prior securities repositioning in the numbers this quarter. You guys were active with the buyback. I understand you evaluate both on a quarterly basis just as we looked at 3Q.
Christopher T. Holmes: What does the opportunity set look like? Where would you expect to be more? Yeah, I mean, it's probably more on the balance sheet right now than it is share repurchase with the run-up. But we're, we're on the ready. If, if there were backup, that being said, you just kind of evaluate it on a daily basis.
Speaker Change #142: What does the opportunity set look like?
Speaker Change #143: Where would you expect to be more active?
Speaker Change #144: Yeah, I mean, it's probably more in balance sheet right now than it is share repurchase with the run up, but we're
Speaker Change #145: We're on the ready, if there were backup. That being said, you just kind of evaluate it on a daily basis. You said quarterly. I'll probably get back to my desk and there'll be a
Michael M. Mettee: You said quarterly, and I probably get back to my desk, and there'll be a couple scenarios waiting for me to evaluate on the security side. So there's probably more there than share repurchase at this point. But we'd love to spend it organically. Number one is these recruiting and team building activities that we've been discussing. That's, that's where we'd love to spend it. Got you. Okay, great. And then last one on the M&A front.
Speaker Change #145: A couple scenarios waiting on me to evaluate on the security side, so it's probably more there than share repurchase at this point, but we'd love to spend it organically. That's number one.
Speaker Change #146: Recruiting and team liftouts that we've been discussing, that's where we'd love to spend it.
Russell Elliott Teasdale Gunther: You reminded us of the interest in a handful of names. Could you just also remind us in terms of your targeted asset size? Desire Geography. Yeah, our targeted asset size geographies, you know, I'd call it $1 to $5 billion would be asset size, and so that's kind of a wide range, so I'd take kind of the center point of that of maybe $2 to $4 would be preferable, $1 to $5.
Speaker Change #147: Got you. Okay, great. And then last one on the M&A front, you reminded us of the interest in a handful of names.
Speaker Change #148: Could you just also remind in terms of your targeted asset size and desired geographies?
Speaker Change #149: Yeah, our targeted asset size hierarchies, you know,
Speaker Change #149: Call it 1 to 5 billion would be asset size and so that's that's kind of a wide range so I'd take kind of the center for that of maybe 2 to 4 would be preferable, 1 to 5.
Christopher T. Holmes: We'll expand out to that. Geographically, contiguous to our existing geography or our existing geography, the state of Alabama is a place that we have a good but very young presence, and we would do things. If we got a chance to expand and add to that, we would love to. State of Georgia, same. North and South Carolina, same. Mostly, I'd say the western side of those of the Carolinas would be the places that we'd be the most interested, maybe even in, say, a western part of Virginia.
Speaker Change #149: We'll expand out to that.
Speaker Change #149: Geographically...
Speaker Change #149: contiguous to our existing geography or our existing geography. The state of Alabama is a place that we have
Speaker Change #149: a good but very young
Speaker Change #149: Presence and we would do things if we got a chance to expand and add there we would love to. State of Georgia, same
Speaker Change #149: North and South Carolina, same. Mostly, I'd say on the western side of the Carolinas, would be the places that we'd be the most interested.
Christopher T. Holmes: Those are, South Carolina technically is not a contiguous state, and Virginia technically is, but there's not much overlap with Virginia, and we just barely miss South Carolina, so we consider all those to be our friendly neighbors, and those are the places where we're most interested. And we continue to be, you know, northeast Tennessee is a place where we're not, and those are the places where we understand the culture, at least we think we do, and have a lot of friends up there, and then other places in the state where we'd either love to grow or where we don't currently exist.
Speaker Change #149: Maybe even, say, a western part of the world.
Speaker Change #149: Virginia, those are our...
Speaker Change #149: South Carolina technically is not a contiguous state, and Virginia technically is, but there's not much overlap with Virginia, and we just barely miss South Carolina, so we consider all those to be our friendly neighbors, and those are the places where we are most interested. And we continue to be, you know, northeast Tennessee is a place where we're not, and that's a place where
Speaker Change #149: Those are a place where we understand the culture and at least we think we do and have a lot of friends up there and then other places in the state where we'd either love to grow or where we don't currently exist.
Russell Elliott Teasdale Gunther: Gotcha. Okay, great, guys. Thank you very much for taking my questions. Thanks, Russ. This concludes our question and answer session. I would like to turn the conference back over to Mr. Chris Holmes for any closing remarks. Please go ahead.
Speaker Change #150: Got you. Okay, great, guys. Thank you very much for taking my questions.
Russ: Thanks, Russ.
Speaker Change #152: This concludes our question and answer session. I would like to turn the conference back over to Mr. Chris Holmes for any closing remarks. Please go ahead.
Christopher T. Holmes: So thank you very much. We always appreciate everybody's interest. We appreciate you joining us this morning, and we look forward to Q3. And if we don't talk to you before, we'll talk to you on this call again next quarter. Thanks. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Christopher T. Holmes: Yes, so thank you very much. We always appreciate everybody's interest. We appreciate you joining us this morning. And we look forward to Q3. And if we don't talk to you before, we'll talk to you on this call again next quarter. Thanks.
Speaker Change #153: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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