Q2 2025 FB Financial Corp Earnings Call
Operator: Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer, and Michael Mettee.
Good morning and welcome to FB Financial corporations. Second quarter 2025 earnings conference call.
Operator: FB Financial Also joining the call for the question and answer session is Travis Edmondson, chief banking Please Note, FB Financial's earnings release supplements 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.
And Michael mati Chief Financial Officer.
Also, joining the call for the question and answer session is Travis Edmonson.
Speaker Change: Chief banking officer.
Speaker Change: Please note FB financials 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
Operator: 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.
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 financials website, approximately an hour. After the conclusion of the call,
Operator: The call will be open for questions.
At this time, all participants have been placed in a listen-only mode.
Speaker Change: The call will be open for questions after the presentation.
Operator: During this presentation, FB Financial may make comments which constitute for the under the Federal Securities Law. Forward-looking statements are based on management's current expectations. and are subject to risks on. 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 funds. Many 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 data.
During this presentation, FB Financial may make comments which constitute forward-looking statements under the federal Securities Law.
Speaker Change: Forward-looking statements are based on Management's, current expectations, and assumptions. And our subject to risks, uncertainties, and other factors that may cause actual results and performance or achievements of FB Financial to different material from any results, expressed or implied by 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 including FB Financial's most recent form, 10K.
Speaker Change: Many such factors are Beyond, FB, financials ability to control or predict and listeners are cautioned not to put undue Reliance on such forward-looking statements.
Operator: except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking whether as a result of new information, future events or other In addition, these remarks may include certain non-GAAP financial measures, as defined by SEC Regulations. 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's earnings release, Supplemental Financial Information. and this morning's presentation. which are available on the investor relations page of the company's website at www.firstbankonline.com. and on the SEC's website at www.sec.gov.
Speaker Change: A more detailed description of these, these and other risks, that may cause actual results to materially differ from expectations, is contained in FB financials periodic and current reports filed with the SEC, including FB financials most recent forms 10K.
Speaker Change: Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation.
Speaker Change: whether as a result of new information, future events or otherwise,
In addition, these remarks may include certain non-gaap Financial measures as defined by SEC. Regulation, G.
Speaker Change: 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 SB financials. Earnings release supplemental financial information and this morning's presentation
which are available on the investor relations page of the company's website at www.firstbankonline.com
Chris Holmes: I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and CEO. Right.
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 financials president and CEO.
Chris Holmes: Good morning, Betsy, and thank you to everyone for joining us on the call this morning, and thank you for your interest in FB Financial. For the quarter, we reported EPS of $0.06 and adjusted EPS of $0.88. We've grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 12.2% since our IPO.
Chris Holmes: Right? Uh, good morning. Uh, Betsy and thank you to everyone for joining us on the call this morning. Uh and thank you for your interest in FB Financial
Chris Holmes: The second quarter turned out to be a very busy quarter at First Bank and across the industry. At First Bank, the quarter began on the heels of our merger announcement with Southern States on March 31st. The very next day, our teams hit the ground running and we quickly deployed our integration working group, began the regulatory application process and started mapping out systems, processes and people across the two organizations. I'm particularly proud of the teams from both companies and their responsiveness and ability to execute in such a short period of time, in such a short time frame.
Chris Holmes: For the quarter, we reported EPS of 6 cents and we had and adjusted EPS of 88 cents. We've grown our tangible Book value, uh, for share excluding the impact of aoci at a compound, annual growth rate of 12.2%. Since our IPO
The second quarter turned out to be a very busy quarter at First Bank, and across the industry.
Chris Holmes: Within approximately 90 days, we announced the merger, applied for and received regulatory approval, and legally closed the transaction. In addition to closing the transaction, we put ourselves on track to fully convert systems, rebrand locations and markets, and integrate teams by the end of Q3. During this quarter's execution, we're also very diligent about continuing to update our acquisition playbook, so we're compounding knowledge from each transaction. We're set up very well to continue to pursue opportunities like the one with Southern States.
Chris Holmes: Uh at First Bank the quarter began on the heels of our merger announcement with Southern States on March, 31st. The very next day, our teams hit the ground running and we quickly deployed our integration working group uh began the regulatory application process and started mapping out systems processes and people across the 2 organizations and particularly proud of the teams from both companies and their responsiveness and ability to execute in such a short period of time and such a short time frame.
Chris Holmes: Within approximately 90 days, we announced the merger applied for and received regulatory approval and legally closed the transaction. In addition closing the transaction, we put ourselves on track to fully convert systems, Rebrand locations, and markets and integrate teams by the end of Q3
Chris Holmes: Simultaneously to the efforts on the transaction, April 2nd brought some major news for global economies and markets in our communities. Policy announcements out of Washington, dubbed Liberation Day, began impacting trade policy and financial markets with the announcement of reciprocal tariffs across a broad range of goods and impacting a host of nations that trade with the U.S. Financial markets saw increased volatility on the news, and we began reviewing and dissecting customer profiles to identify those that might be impacted by these policies. As the U.S. engaged in trade negotiations and made announcements of tariff delays and newly negotiated deals, we saw increased speculation in markets and volatility during the quarter.
Chris Holmes: During this quarter's execution. We're also very diligent about continuing uh about continuing to update our acquisition Playbook. So we're compounding Knowledge from each transaction. Uh we're set up very well to continue to pursue opportunities like uh the 1 with Southern States.
Chris Holmes: Today, it seems like financial markets have digested this activity along with other geopolitical events and have become a bit more optimistic on the path forward, and our view matches that optimism.
Chris Holmes: As I stated in the last quarter, whether we're faced with prosperity or uncertainty, we stick to our core beliefs, and our mission remains to build a better future for our customers, associates, communities, and shareholders. History shows that times of uncertainty or change bring the greatest opportunities, some of the greatest opportunities for success for those that are disciplined and prepared. Our teams are smart and capable. Our foundation is solid and our geography is favorable. It's because of these things that we have confidence, regardless of the economic conditions or financial landscape.
That might be impacted by these policies, uh, as the US engaged in trade negotiations and made announcements of tariff, delays. And newly negotiated deals, we saw increased speculation in markets, uh, in volatility here in the quarter. Uh, today, it seems like the financial markets, have deadest digested, this activity, along with other geopolitical events, and have become a bit more optimistic on the path forward. Uh, and our view matches that optimism. As I stated in the last quarter, whether we're faced with prosperity or uncertainty, we stick to our core beliefs, uh, and our mission remains uh, to build a better future for our customers Associates, communities, and shareholders.
Chris Holmes: In the midst of quarter filled with distractions and heavier workloads across our executive, administration, administrative, and operational teams, At the front line, we were still able to deliver a solid order of operating results. In addition to the activities I've acknowledged, we also executed a significant securities transaction in the quarter, selling approximately $266 million of our investment securities at a pre-tax loss of $60 million. The impact of this transaction seen in our GAAP, throughout our GAAP results from quarter where we reported pre-tax, pre-provisioned net revenue of a negative $4.4 million and net income of $2.9 million.
Chris Holmes: History shows that times of uncertainty or change, bring the greatest opportunity, some of the greatest opportunities for Success, uh, for those that are disciplined and prepared, our teams are smart and capable. Our foundation is solid, and our geography is favorable. It's because of these things that we have confidence. Regardless of the economic conditions, uh, or financial landscape.
Chris Holmes: In the midst of quarter filled with distractions and heavier workloads across our executive Administration, administrative and operational teams.
At the front line, we were still able to able to deliver a solid quarter of operating results. In addition, to the activities I've acknowledged, we also executed a significant Securities transaction in the quarter selling approximately 266 million of our investment Securities at a pre-tax loss of 60 million dollars.
Chris Holmes: the impact of this transaction seen in our Gap, uh, throughout our Gap results from the quarter
Chris Holmes: on an adjusted basis. which primarily emanates from the one-time events like the securities trade. Our pre-tax, pre-provision net revenue was $58.6 million, which was a PPNR ROA of 1.81% and net income of $40.8 million. During the quarter, we grew both sides of the balance sheet on a period-ending basis. We grew loans at an annualized rate of 4.2% and deposits at an annualized rate of 7.2%. Of growth numbers, while better than most, we consider to be pedestrian, but we continue to be optimistic about the second half of 2025 and 2026 given the economic outlook, market strength, and pipeline activity.
Chris Holmes: where we reported pre-tax pre-provision net revenue of a negative -4.4 million in net, income of 2.9 Million,
Chris Holmes: On an adjusted basis.
Chris Holmes: Which is, which primarily emanates with the 1 time events, like the security trade. Our pre-tax pre-provision, net revenue was 58.6 Million, uh, which, uh, which was a ppnr Roa of 1.81%, uh, and net income of 44.8 million during the quarter. We grew both both sides of the balance sheet on a period ending basis. We grew loans at an annualized rate of 4.2% and deposits in an annualized rate of 7.2% of the growth numbers, uh, while better than most. Uh, we considered to be pedestrian, but we continue to be optimistic about the second half of 25 and 2026. Given the economic Outlook Market strength and Piper.
Chris Holmes: Our annualized growth through the first six months of the year was 5.6% in loans, helper investment, and 3.4% in total deposits. And we remain on track for the mid- to high-single-digit growth targets we have for ourselves.
Chris Holmes: Plan activity.
Chris Holmes: As I look forward to the second half of the year in 2026, I'm very bullish on three key areas for the company. Our earnings profile, our growth prospects, and our balance sheet strengths, all of which enable us to grow value for our shareholders. First, on our earnings profile, in the near term, the transaction with Southern States adds immediate scale and accretive earnings to the company. And with our speedy deal execution, we'll begin to see positive impacts from the deal in the third quarter. In the long term, this deal strengthens our franchise in key cities where we operate today, principally Birmingham and Huntsville, while also expanding our franchise contiguously into new markets in Georgia and Alabama.
Chris Holmes: Our annualized growth of the first 6 months of the year was 5.6%. In loans helper investment and 3.4% in total deposits. And we remain on track for the mid to high single digit growth targets. We have for ourselves.
Chris Holmes: Because I look forward to the second half of the year and the 2026. I'm very bullish on 3. Uh key areas for the company, our earnings profile, our growth prospects, and our balance sheet strings. All of which, and it was, uh, to grow value for our shareholders, uh, first on our, on our earnings profile,
Chris Holmes: In the near term. The transaction was Southern States as immediate scale and a Creed of earnings to the company.
And with our Speedy deal execution. Uh we'll begin to see positive impacts from the deal in the third quarter.
Chris Holmes: where these markets, these markets, these new markets actually include a number of communities with strong growth prospects, benefiting from their adjacency to Metro Atlanta. Additionally, this quarter, securities restructure transaction further adds to our earnings momentum for both the second half of 2025 and 26.
Chris Holmes: In the long term, this deals strengthens our franchise and key cities where we operate today, principally Birmingham and Huntsville. Uh while also expanding our franchise contiguously into new markets in Georgia and Alabama,
Where these markets, uh, these markets, these new markets actually include a number of communities with strong growth, prospects, benefiting from their adjacency to Metro Atlanta.
Chris Holmes: Secondly, our growth prospects, growth is one of the foundations of success in banking and it broadly comes in two forms, organic and inorganic. and we're bullish on both forms. Organically, our markets continue to present us with opportunities to hire talented professionals and grow our new relationships. We also see opportunities on the horizon to capitalize on market disruption coming from upstream M&A activity across the industry. These put us in an enviable position. Inorganically, we're in a favorable position to see additional opportunities similar to the deal we just closed in July, earlier this month. And finally, we continue to be in a solid position on capital, liquidity, and credit.
Additionally, this quarter Securities, restructure transaction further adds to our earnings momentum, for both the second half of 2025 and 26.
The secondly, our growth prospects. Growth is 1 of the foundations of success and banking in a broadly comes in 2, forms organic and inorganic
Chris Holmes: And we're bullish on both forms organically, our markets continue, uh, to present us with opportunities to hire talented professionals, and grow our new relationships. Uh, we, we also see opportunities on the horizon to capitalize on Market, disruption coming from Upstream m&a activity across the industry.
These put us in an enviable position inorganically, we're in a favorable position to see additional opportunities similar to the deal. We just closed in July the earlier this month.
Chris Holmes: As a result, We're able to be on our toes and playing offense at a time when competitive market forces remain challenging to navigate for banks, the regulatory environment is reasonable, and bank valuations could get closer to historical levels.
Chris Holmes: We continue to be in a solid position on Capital liquidity and credit as a result.
Chris Holmes: We think these conditions present opportunities, and we're excited about them as possible.
Chris Holmes: With that, I'm now going to turn it over to Michael Mettee, our CFO, to provide a deeper look at our financial results for the quarter, as well as commentary around our guidance going into the second half of the year. Michael?
Chris Holmes: We're able to be on our toes and playing offense at a time when competitive market forces remain challenging to navigate. For banks, the regulatory environment is reasonable and Bank valuations. Could get closer to historical levels. We think these conditions present opportunities and we're excited about those possibilities.
Michael Mettee: Thank you, Chris.
Speaker Change: With that. I'm now going to turn it over to Michael me, our CFO, to provide a deeper. Look at our financial results for the quarter, as well as commentary around our guidance, going into the second half of the year Michael.
Michael Mettee: And good morning, everyone. As Chris mentioned, it's been a busy quarter at First Bank. I'll take a few minutes to walk through this quarter's earnings and then I'll provide some forward-looking commentary on the second half of the year. Net income on a reported basis for the quarter was $2.9 million or $40.8 million on an adjusted basis, the large disparity being the securities loss that Chris referenced earlier. On net interest income and margin, we reported net interest income of $111.4 million, which represents a 3.5% increase from the prior quarter and an 8.6% increase from the same quarter last year.
Michael Me: Thank you, Chris and good morning everyone. As Chris mentioned it's it's been a busy quarter. Uh, at First Bank,
I'll take a few minutes to walk through this quarter's earnings and then I'll provide some forward-looking commentary on the second half of the year.
Michael Me: Net income on a reported basis for the quarter was 2.9 Million or 40.8 million on an adjusted basis. The large, the large disparity, being the Securities, loss that Chris referenced earlier.
Michael Mettee: On a tax equivalent basis, we expanded our margin by 13 basis points in the quarter from 3.55% to 3.68%. We achieved this through a mix of loan growth and a cost of funds management, namely through managing down, higher cost, non-relationship based deposits. And on a dollar basis, we also benefited from an additional day in the quarter.
Michael Me: On that interest income and margin. We reported net interest income of 111.4 million which represents a 3 and a half percent increase from the prior quarter and a 8.6% increase from the same quarter last year.
Michael Me: On a tax equivalent basis. We expanded our margin by 13 basis points in the quarter, from 3.55% to 3.68%
We achieved this through a mix of loan growth and a cost of funds management namely through managing down higher cost non relationships.
Michael Mettee: and non-interest income. We reported a loss of $34.6 million and that's a result of the $60 million securities trade. Absent the loss, our core non-interest income was $25.8 million, which represents a 9% increase over last quarter and an 8% increase over the same quarter last year. These gains were led by stronger swap fees, higher mortgage banking revenue, and a number of other increases across our fee categories. On the security sale, we decided to sell a group of securities that were earning 1.6% or so in aggregate. We'll do a couple things with those proceeds. First, we'll look to redeem our sub-debt and our trust preferreds in the third quarter.
Michael Me: And on a dollar basis, we also benefited from an additional day in the quarter.
Michael Me: And non-interest income, we reported a loss of 34.6 million and that's a result of this 60 million security trade.
Michael Me: After the loss are core, non-interest income was 25.8 Million, which represents a 9% increase over last quarter and an 8% increase over the same quarter last year.
These games were led by a stronger swap fees, higher Mortgage Banking revenue, and a number of other increases across our fee categories,
Michael Me: on the security sale. Uh, we decided to sell a group of Securities that were earning 1.6% or so, in aggregate,
And we'll do a couple things with those proceeds.
Michael Mettee: And second, we'll retain the remaining capital in cash as a way to sort of front run our loan growth needs going into the second half of 2025. Towards the end of June, new loan yields were coming in north of 7%. So all in, we estimate this transaction in our planned deployment of funds to give us a yield pickup of approximately 6% with a payback period of less than four years.
First we'll look to redeem our sub debt and our trust preferred than the third quarter. And second will retain the remaining capital in cash is a way to sort of front run our loan growth needs going into the second half of 2025.
Michael Mettee: Looking at expenses, we reported total non-interest expense of $81.3 million or $78.5 million on an adjusted basis. Our reported number includes $2.7 million of merger and integration costs, and you can expect to see that line item peak in the third quarter as we've now closed the transaction and will soon convert and integrate Southern States and First Banks systems onto a unified platform. On an adjusted basis, our core efficiency ratio improved to 56.9% from last quarter's 59.9%. In the same quarter last year, we reported 58.3%. Last quarter, we had some seasonal HR-related expenses for stock compensation, and those did not repeat this quarter.
Michael Me: Towards the end of June new loan yields were coming in north of 7%. So all in we estimate this transaction and our plan deployment of funds to give us a yield pickup of approximately 6% with a payback period of less than 4 years.
Michael Me: Looking at expenses.
Michael Me: We reported total non-interest of expense of 81.3 million or 78.5 million on an adjusted basis.
Michael Me: Our reported number includes 2.7 million of merger integration costs. And you can expect to see that line item peak in the third quarter, as we've now closed. The transaction and will soon convert and integrate Southern States. And First Bank systems on the unified platforms.
Michael Me: On an adjusted basis. Our core efficiency ratio improved to 56.9% from last quarter is 59.9%
And the same quarter last year, where we reported 58.3%.
Michael Mettee: This was partially offset by increased salary expense for the first full quarter of annual merit and increased headcount production-based roles within the organization.
Michael Me: Last quarter, we had some seasonal HR related expenses for stock compensation and those did not repeat this quarter.
This was partially offset by increased salary. Expense for the First full quarter of annual Merit and increased headcount production based roles within the organization.
Michael Mettee: Moving on to credit, I first want to highlight, and you'll see the mention in our deck, that we migrated to a new allowance model during the quarter. Our new model is designed to increase the granularity of our inputs, improve the precision of our forecast, and enhance our ability to review and challenge modeled results. will account for this change in estimate and you can expect to see the disclosures effect in our 10-Q filing in August. While there were some movements between the underlying components, in the aggregate, the model change had a net impact to the company's reserves of approximately $395,000.
Moving on to credit. I first want to highlight and you'll see the mentioned in Our Deck uh that we migrated to a new allowance model during the quarter, our new model is designed to increase the granularity of our inputs. Improve the Precision of our forecasts and enhance our ability to review and challenge Model results.
Michael Me: Well, account for this change. Um, an estimate and you can expect to see the disclosures affecting our 10q filing in August.
Michael Mettee: Provision expense for the quarter was $5.3 million, which includes the $395,000 for the model change. The remaining amount was driven by loan growth in the quarter, along with updated forecast assumptions in the model. The ending balance of the allowance for loan losses was $149,000,000 or 1.51% for our Loans Helper Investment Balance compared to $151,000,000 or 1.54% last quarter. The ending balance in the Reserve for unfunded commitments was $12.9 million and the increase was largely driven by the model change. Charge-off levels were muted this quarter as we reported 481,000 in net charge-offs or an annualized net charge-off rate of about two basis points.
Michael Me: While there were some movements between the underlying components and the aggregate, the model change had a net impact to the company's reserves of approximately 395,000.
Michael Me: Provision expense for the quarter was 5.3 million, which includes the 395,000 for the model change.
Michael Me: The remaining amount was driven by loan growth, in the quarter along with updated forecasts assumptions in the model.
The ending balance of the allowance for loan. Losses was 149 million or 1.51% for our loans helper investment balance compared to 151 million or 1.54% last quarter.
Michael Me: Charge off levels were muted this quarter as we reported 481,000, and net charge offs or an annualized, net charge off rate of about 2 basis points.
Michael Mettee: Non-performing loan balances did increase this quarter as we had three large credits migrate into that classification. We've been monitoring these credits for a few quarters now, each is well secured, and we believe the lost content within each of those to be negligible.
Non-performing loan balances did increase this quarter as we had 3, large credits, migrate into that classification.
We've been monitoring these credits for a few quarters now, each is well, secured. And we believe the loss content within each of those to be negligible.
Michael Mettee: To close out my commentary on the income statement, I'll take a minute to touch on taxes for the quarter. This quarter, our total tax number was a benefit driven by a few key components. First, our reported pre-tax income figure for the quarter was negative as a result of the $60 million securities loss that I previously touched on, which created a tax benefit. Second, we had a one-time tax benefit of approximately $10.7 million in our tax line related to the statute of limitations expiring on an amended tax filing. The filing was handed properly and in a timely manner by the company, but ultimately was not accepted by the IRS, resulting in the return of funds to the company.
Michael Me: To close out my commentary on the income statement. I'll take a minute to touch on taxes for the quarter.
Michael Me: This quarter our total tax number was a benefit um, driven by a few key components first, a reported pre-tax income figure for the quarter was negative, as a result of the 60 million dollar Securities, loss that I previously touched on which created a tax benefit.
Michael Me: Second, we had a 1-time tax benefit of approximately 10.7 million in our tax line related to the statute of limitations expiring on an amended tax filing.
Michael Mettee: In total, the return amount was $8.7 million, and additionally, we released $2 million in accrued interest on the previously owed amount, which we released through tax expense upon the closure of the matter.
Michael Me: The filing was handed properly and in a timely manner by the company, but ultimately, it was not accepted by the IRS, uh, resulting in the return of funds to the company.
Michael Me: In total, the return amount was 8.7 million. And additionally, we released 2 million in the crude interest on the previously owed amount, which we released through tax expense upon the closure of the matter.
Michael Mettee: Looking at the balance sheet, we did see both loan and deposit growth during the quarter on an ending balance basis, but we expected more. As Chris outlined, this quarter did bring unexpected macroeconomic headwinds, and as a result, we did see a number of deals in our pipeline get pushed in the second half of 2025, as many customers took a temporary wait-and-see approach to the uncertain and volatile market conditions. Loan growth in the quarter was concentrated within residential mortgage buckets as one of four family and lines of credit increased $56 million in aggregate, as well as commercial real estate non-owner occupied balances, which increased $45 million.
Chris Holmes: Looking at the balance sheet, we did see both loan and deposit growth during the quarter on an ending balance basis, but we expected more as Chris outlined. This quarter did bring unexpected macroeconomic headwinds and as a result, we did see a number of deals in our pipeline, get pushed in the second half of 2025. As many customers took a temporary wait and see approach to the uncertain and volatile market conditions.
Michael Mettee: On deposits, we saw an uptick in both non-interest bearing and money market accounts as our community and metro banking teams continued to focus on growing relationships across the footprint. And broker deposits were up in the quarter, which was largely a product of our liquidity management strategy. And interest bearing checking was down as we deliberately managed down a pool of higher cost non-relationship deposits. Looking at average balances in the quarter, we did see the balance sheet shrink as we saw a decline in both total assets and total liabilities, primarily due to the timing of balance movements within the quarter.
Chris Holmes: Loan growth in the quarter was concentrated within Residential Mortgage buckets as 1 to 4 family and lives of credit increased 56 million in aggregate as well. As commercial real estate non-owner occupied balances, which increase 45 million.
Chris Holmes: On deposits. We saw an uptick in both non interest bearing and money market accounts is our community and Metro banking teams continue to focus on growing relationships across the footprint.
And broker deposits were up in the quarter which was largely a product of our liquidity management strategy.
Chris Holmes: And interest bearing checking was down. As we deliberately managed down a pool of higher costs. Non-relationship deposits.
Michael Mettee: Averages were impacted by the deliberate runoff of higher-cost deposits that I just mentioned, which also drove the average balance decline in cash. Conversely, ending balances were impacted in large part by a large short-term public funds deposit that we retained in cash due to its short-term nature. Also reflected in cash were the proceeds from the security sale, which we'll deploy in due time. Both of those transactions took place right near quarter end.
Chris Holmes: Looking at average balances in the quarter. We did see the balance sheet shrink as we saw a decline in both total assets and total liabilities primarily due to the timing of balance movements within the quarter.
Averages were impacted by the deliberate runoff of higher cost deposits that I just mentioned. Let's also drove the average. Balance decline in cash.
Chris Holmes: Conversely ending balances were impacted in large part by a large short-term, public funds deposit that we retain in cash due to its short-term nature.
Also reflecting in cash with a proceeds from the security sale which will deploy in due time. Uh both of those transactions took place right, near quarter end
Michael Mettee: All right, so I'll take a moment to provide some thoughts on full year 25 with the completion of the Southern states merger on July 1st. Our view going forward will be on a combined basis. And obviously we'll be working through some combination, the most efficient, effective way possible. So the timing of the levers we're pulling may vary as we get into conversion. On net interest margin, we expect our net interest margin to be in the $3.70 to $3.80 range in the back half of the year. That includes the reinvestment of proceeds from the security sale this quarter and the incorporation of Southern States balance sheet.
Speaker Change: All right, so I'll take a moment to provide some thoughts on Phil full year, 25, with the completion of the southern states murder on July 1st, our view going forward, will be on a combined basis and obviously, we'll be working through some some combination of the most efficient effective way possible. So, the timing of the levers, we're pulling Mayberry as we get into, uh, into conversion.
Michael Mettee: The team at Southern States obviously was also very busy in the quarter and they restructured their investment portfolio using the funds to pay off wholesale and broker deposits and optimizing capital treatment associated with their investment portfolio. The remaining proceeds from the investment sales will be utilized in the combined company to reinvest into loan growth. In non-interest income, we expect to see modest growth across various lines as we remain focused on increasing total relationships. And from a non-interest expense standpoint, we continue to have confidence in our modeled cost saves that equate to approximately 25% of Southern states annual non-interest expense.
Speaker Change: On that interest margin. We expect our net interest margin to be in the 37380 range back half of the year that includes the reinvestment of proceeds from the security, sell this quarter and the incorporation of Southern States, balance sheet.
Speaker Change: Uh the team in southern states, obviously was also very busy in the quarter and they they restructured their Investment Portfolio, using the funds to pay off wholesale, and broker deposits, uh and optimizing Capital treatment associated with their Investment Portfolio.
Speaker Change: The remaining proceeds from the investment sales will be utilized in the combined company to reinvest into loan growth.
Michael Mettee: As a result, our banking non-interest expense should land between $285 million to $295 million for the full year 25. On a combined First Bank and Southern States basis, we anticipate our core banking efficiency ratio to be in the low 50s by the fourth quarter and achieve our targeted 50% efficiency ratio in 2026. So the standalone efficiency ratio is historically lower than ours, and in the near term, we'll also begin to see the benefits of deal synergies that we previously modeled. Simultaneously, in our legacy First Bank franchise, we continue to drive our teams toward internal expense goals, which are more aggressive than some of the outside expectations.
Speaker Change: Uh and non-interest income, we expect to see modest as we remain focused on increasing total relationships and from a non-interest expense standpoint. We continue to have confidence in our modeled cost saves that equate to approximately 25% of Southern States, annual 956 expense.
Speaker Change: As a result, our banking non-interest expense should land between 285 million to 295 million for the full year 25.
Speaker Change: On a combined. First Bank in southern states basis, we anticipate our core Banking and efficiency ratio to be in the low 50s by the fourth quarter and Achieve our targeted. 50% efficiency ratio in 2026.
Southern States, stand alone, efficiency ratios historically, lower than ours. And in the near term, we'll also begin to see the benefits of deal synergies that we previously modeled.
Simultaneously in our Legacy, First Bank branch, as we continue to drive our teams toward internal expense goals, uh, which are more aggressive than than some of the outside expectations.
Michael Mettee: Acknowledging that we did have extra noise in our tax line item this quarter, I want to reiterate a forecasted effective tax rate in that 21 to 23 percent range for the remainder of the year. On the balance sheet, we'll continue with our strategy of working down non-core high-cost deposits, which will weigh on our average earning assets and, by year-end, will be offset by core loan and deposit growth. And then finally, on capital and liquidity, we'll continue to deploy our excess capital in meaningful ways to drive shareholder value while continuing to maintain a safe and sound position for our company.
Speaker Change: Acknowledging that we did have uh extra noise in our tax line item this quarter. I I want to reiterate a forecast that effective tax rate in that 21 to 23% range for the remainder of the year.
On the balance sheet will continue to with our strategy of working down, non-core high-cost deposits uh which will Ray on it weigh on our average earning assets. And by year end will be offset by core loan and deposit growth.
Chris Holmes: And with that, I will pass the call back to Chris. All right, thanks for the call, Michael. And as you just heard, we did have a lot of moving pieces in the quarter. Even with the added layers of various one-time items, our team was able to deliver strong core earnings all while preparing for the closing of a large transaction. I'm proud of the way our team was able to walk and chew gum this quarter, and you'll continue to see that versatility from our team as we move forward.
Speaker Change: And then finally, on Capital and liquidity, we'll continue to deploy our excess Capital meaningful ways to to drive shareholder value while continuing to maintain a safe and sound position for our company.
Chris Holmes: And with that, I will pass the call back to Chris.
Chris Holmes: All right, thanks for the call Michael and as you just heard we did have a lot of moving peaches in the quarter. Uh even with the added layers of various 1 time. Items are our team was able to deliver strong core earnings all, while preparing for the closing uh, of a of a large transaction.
Operator: Thank you, again, for your interest in FB Financial and Operator.
Operator: At this time, we open it for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been addressed and you would like to withdraw your question, please press star 3. At this time, we will pause momentarily to assemble our...
Chris Holmes: I'm proud of the way our, our, our team uh, was able to walk into gum this quarter, uh and you'll continue to see that versatility from our team that we move forward. Uh thank you. Uh again for your interest, in FB financial and operator. Uh at at this time, we open it for questions.
Chris Holmes: 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,
Chris Holmes: If you are using a speaker-phone, 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
Chris Holmes: At this time, we will pause momentarily to assemble our roster.
Catherine Mealor: The first question today comes from Catherine Mealor with KBW. Please go ahead. Morning, Catherine.
The first question today comes from Katherine Mueller with KBW, please go ahead.
Thanks, good morning.
Catherine Mealor: My first question was just to circle back on your margin guide of the 370 to 380. So, just kind of thinking about how I model the balance sheet going into next quarter. So, it's So it looks like you said from SSBK, you've restructured or sold most of that bond book. And then, of course, we'll have the reduction in securities from your own restructuring this quarter. So is it fair to say, in terms of bonds? bring over basically any securities from SSBK and then model kind of reduction from the bond sale and then all those proceeds are going.
Morning.
Catherine Mealor: lower borrowings, you know, and then. Is that an appropriate way to think about that?
Michael Mettee: Yeah, that's right, Catherine. And we're bringing over virtually no, nothing from the investment portfolio, other than the small slug of held to maturity that we're moving to AFS. Keep in mind, their investment portfolio had a yield of around 440, which is basically where it's sitting in cash. So it's much more about paying down brokered. The risk weighting on the investment portfolio was a little bit higher than we typically have it at FBK. And so there was some capital optimization.
Uh, my first question was just to Circle back on your margin guide of the 370 to 380. So, um, just kind of thinking about how I model the balance sheet going into next quarter. So it it so, it looks like you said, from ssbk you've, you've restructured, or sold most of that Bond book. And then, of course, we'll have the reduction and security is from your own restructuring. This quarter. So is it, is it fair to say in terms of bonds, where like we shouldn't bring over, basically any Securities from ssbk and then model kind of reduction from the bond sale and then all those proceeds are going to lower borrowing, you know and then up until loan growth is that an appropriate way to think about that?
Michael Mettee: And then over the back half the year, pending the timing on loan growth is where we'll deploy the rest of those funds and ours.
Chris Holmes: Yeah, that's right. Katherine and uh, we're bringing over virtually. No. Nothing from the Investment Portfolio, other than the small slug of uh, held to maturity that we're moving to AFS. Um, keep in mind their Investment Portfolio had a had a yield of around 440, which is basically where it's sitting in cash. So, it's much more about paying down brokered, um, that the risk waiting on the Investment Portfolio was a little bit higher than we typically have at at fbk and so there was some Capital optimization and then over the the back half the year, pending the timing on loans on loan growth is where we'll deploy the rest of those funds and and Ours.
Chris Holmes: Great, and then on loan growth, can you talk a little bit about, you reiterated the mid to high single-digit growth, can you just talk a little bit about the pipeline, and I know, Chris, you mentioned. Credits that you thought would close in the second quarter but got pushed to the back half of the year. Are these still credits that you think will fund? It's just kind of a timing thing? I'd love to hear just kind of your commentary. Yeah, so... We continue, we really haven't changed our outlook from conversations that we've had with either on previous calls or with different times we've met with investors during investor meetings.
Speaker Change: Okay, that's great. And then and then on loan growth, can you talk a little bit about you? You reiterated the mid to high single-digit growth? Can you just talk a little bit about the pipeline and and I know Chris you mentioned a few credits that you thought would close in the second quarter but got pushed to the back half of the year. Are these still credits that you think will fund? It's just kind of a timing thing or just would love to hear just kind of your commentary on what your clients are doing right now.
Chris Holmes: Yeah. So
Chris Holmes: We continue. We, we really haven't changed our Outlook from conversations that we've had with on either on previous calls or, uh, with different. Um,
Chris Holmes: We still think we're kind of a mid to high single digit. You know, quarters, as you all know, I mean, quarters come with a cutoff. And on any given day, if you cut it off at a different, you know, five days later, five days earlier, the numbers are gonna look different when you're comparing period ending balances. So we did have a few things. We had, you know, a payoff or two in the quarter that were high, not unanticipated. Again, you're just not sure when they're gonna come and they're pretty big dollars. But then also, so that's not unusual.
Chris Holmes: In the same way on some fundings. So we did see a little bit of activity push where folks are just not quite as anxious to close it as maybe they would have been 12 months ago or maybe not 12 months ago is a bad, let me put it this way, in December or January. How about that? And so they don't mind if it delays a little bit. But in general, we're still seeing good customer activity. Customers. feel good about, again, generalizing, generally feel good about continuing to move forward with business and projects.
Times we've met with investors during during investor meetings. Uh, we still think we're we're kind of a mid to high single digit, you know, quarters as, as you all know, I mean, quarters come with a cut off and on any given day if you cut it off with a different, you know, 5 days later, 5 days earlier, the numbers are going to look different when you're compared period ending balances. So so, uh, we did have a few things we, we had a, um, you know, a pay opportunity in the quarter that was uh, that were that were high, not not unanticipated. Again you just not sure when they're going to come and they're and they're and they're pretty big dollars but then also and so that's not unusual. Uh in the same way on some fundings. Uh so uh we did see a little bit of activity push where folks are just he not quite as anxious to close it, as maybe they would have been
Chris Holmes: Step of that. And and and so they uh don't mind if it delays a little bit. But in general we're still seeing uh, good customer activity uh customers.
Chris Holmes: feel good about, um,
Travis Edmondson: Yeah, Captain, this is Travis. I would agree with Chris. And what I would say that to supplement that is our activities are actually, were very strong in the second quarter, as far as new loan originations. What we didn't anticipate was some of these, these payoffs that Chris alluded to, we expected them eventually, but not in the second quarter. And our pipeline remains strong. What we can't forecast in what we're trying to just understand is, is the payoffs going to at a more rapid pace than they have historically. And that was encouraging, Michael, that you said that you're still getting Yeah, that's right.
Again, generalizing generally feel good about uh, continuing to move forward with uh, business and projects. So
Chris Holmes: Yeah, Kevin, this is Travis I would agree with Chris. Um, and what I would say to to supplement that is our activities are. Actually we're we're very strong in the second quarter, as far as new loan originations. Uh, what we didn't anticipate was some of these, these payoffs that Chris alluded to we, we expected them, um, eventually but not in the second quarter and our pipeline remains strong, what we can't forecast. And and what we're trying to just understand is, is the, the payoffs going to continue at a at a more rapid pace. And they have historically,
Chris Holmes: Great.
Speaker Change: And that was encouraging uh Michael. That you said that you're still getting new loan yields over 7%. That's correct. Is that?
Chris Holmes: that was that number you gave
Travis Edmondson: And we've actually seen it tick up slightly higher in July. The yield curve is an interesting dynamic. It changes, as you know, every 30 seconds. Doesn't look like a whole lot of relief for longer term rates. We'll see what happens on the short end, but the team's doing a good job. And of course, the Southern States team traditionally has had a higher yielding portfolio as well, and so we're pretty optimistic. Great, great quarter. Thanks for the. Thanks, Kevin.
Chris Holmes: Yeah, that's right. And we actually assume pick up slightly higher in July. So yeah, the
The yield curve is is interesting, Dynamic. It changes as you know, every 30 seconds. So um
Chris Holmes: Doesn't look like a whole lot of relief for longer term rates. We'll see what happens on the short end but the team's doing a good job and of course, if Southern States team, traditionally has had a higher yielding portfolio as well. Um and so we're we're pretty optimistic
Speaker Change: Great great quarter. Thanks for the um commentary.
Speaker Change: Thanks Catherine. Thanks Gavin.
Brett Rabatin: from Brett Rabatin with. Please go ahead. Hey guys, good morning.
Speaker Change: The next question comes from, Brent rabbitin. With hoffy group, please go ahead.
Brett Rabatin: Warn it. Wanted to start on the mortgage banking numbers and the higher provision this quarter and the comment in the slide deck about some higher LTVs making a provision for those. Can you elaborate a little bit further on the provision for mortgage in 2Q and just, you know, also wanted to hear if, you know, that change in the ACL, if that was driven by anything in particular.
Brent Rabbitin: Hey guys. Good morning.
Speaker Change: Morning morning.
Brett Rabatin: Yeah, Brett. Good, good pickup there.
To start, um, on the Mortgage Banking numbers and the commentary or the, you know, the higher provision this quarter and the comment, and the slide deck about some higher ltvs, um, making a provision for those, can you elaborate a little bit further on on the provision for Mortgage in 2q? And just, you know, we'll also wanted to hear if, um, you know, that that change in the ACL. If, if that was driven by anything in particular,
Michael Mettee: So the beauty of the new model, right, is we get more granular and some of our loan portfolio that The previous version, right, economic model through Moody's versus where Cabrigo model is now just kind of cash flow. And so we split out our higher LTV residential mortgage portfolio from our traditional one to four in the modeling. And so a couple of things right this quarter, if you looked at we still use the Moody's forecast plus Bloomberg, plus a couple others, MBA, and you see home price appreciations kind of flatlined as we're kind of experiencing. You know, I know you're here.
Yeah, Brett, uh, good good pick up there. Uh, so the beauty of the new model, right? Is we get more granular and uh some of our loan portfolio that
Speaker Change: They are the previous version. Right? Economic model through Moody's versus where it could bring a model is now just kind of cash flow. And so we split out uh our higher LTV Residential Mortgage portfolio from our traditional 1 to 4 in the modeling.
Michael Mettee: You see that across the country, home price flatlined. And then then the unemployment forecast ticked up kind of really the back half of the year. And so those are two main drivers around the high LTV portfolio and that you can see losses start to escalate. And so that's what that additional reserve was in mortgage banking. You know, we want our mortgage team focused on pre-provision net net revenue and profitable operating business. Obviously, you don't want to put a bunch of loans on the books with with lost content. But these are older 100 percent loans that we did in the last three to four years.
Michael Mettee: You aggregate every time. So that was kind of the modeling difference there. We didn't add a bunch of 100 percent loans in the second quarter that created a lot of reserve. Okay, that's helpful.
Speaker Change: And so a couple of things, right, this quarter, if you looked at, we still use the middies forecast, plus Bloomberg. Plus a couple others MBA and you see home price appreciation. It's kind of Flatline, uh, as we're kind of experiencing, you know, I know you're here. You see that across the the country home price, Flatline, uh, and then then the, uh, unemployment forecast, ticked up kind of really the back half of the year. And so those are 2 main drivers around a high LTV portfolio and that you can see losses start to escalate. Uh, and so that's what that additional reserved was and Mortgage Banking, you know, we we want our mortgage team focused on pre-provision uh net, net revenue and and go profitable operating business. Uh obviously you don't want to put a bunch of loans on the books with uh with loss content. But these are older 100% loans that we did in the last 3 to 4 years. You you aggregate over time. Uh, so that was kind of the modeling difference.
Speaker Change: There we didn't add a bunch of 100% loans in the second quarter. That created a lot of uh, Reserve
Brett Rabatin: And then, Chris, I assume you anticipated this question, but you sound pretty optimistic on continued activity, you know, in Bankland for M&A. You know, any updated thoughts maybe on how you see the environment playing out for you guys? And, you know, you're going to be closer to $20 billion post-SSBK, you know, just trying to frame the size. Size spectrum for what you might be interested in from here. Yeah, yeah, Brett, I can give you a A few thoughts on kind of where we see it going from here, you know, there was a transaction announced yesterday, and I think I think you're going to see a lot of activity across the deal spectrum.
Speaker Change: Okay um that's helpful and then Chris I I I assume you anticipated this question but you sound pretty optimistic on continued activity, you know in Bank land for for m&a you know any updated thoughts maybe on how you see the environment playing out for you guys and you know you're going to be closer to 20 billion. Um post ssbk you know um just trying to frame the size.
Speaker Change: Size Spectrum for, for what you might be interested in from here.
Speaker Change: so, I think you're going to see a lot of
Chris Holmes: You know, there's a Category 4 bank, and so, you know, I think you're going to see a lot of activity across the deal spectrum. I think that's positive for the industry. I think it's positive for multiples. And so then you come down to, you know, what does that mean for us? I think a couple of things, you referenced 20 billion. The transaction we just did with Southern States I think is important because it gives us a... some more scale post 10 billion. So we felt like we needed to get to 1617 to really begin to get the returns that keep us happy with ourselves and generally keep shareholders happy as well.
Speaker Change: Activity across the deal Spectrum. Uh, you know, there was a category 4 Bank, uh, and so, you know, I think you, I think you're going to see a lot of activity across the deal Spectrum. Um,
I think that's positive for the industry, I think it's positive for multiples and so then you come down to you know, what does that mean mean for us? I think uh a couple things you you referenced 20 billion the the the the transaction we just did was some of the states I think is important because it gives us a a
Chris Holmes: So if you look at and forecast our numbers, you'll see that now we're in an ROA that's going to be somewhere in the, we'll call it the 1.4-ish range. And so that feels pretty good. But, and so we think you know, $20 billion plus, there's a lot of room to run. And so we think we've got a lot of potential to do transactions like we just did. So I'll say in the $3 billion to $5.6 billion-dollar, seven-billion-dollar range in terms of total assets. There are a lot more opportunities in the $3 billion range than there are in the six or seven.
Speaker Change: Uh, some more scale Post 10 billion. So we we felt like we needed to get to 1617 to, really begin to get the returns that that keep us happy with ourselves and and generally keep shareholders happy as well. So, if you look at in forecast, our numbers, you'll see that that now we're in a, an Roa, that's going to be somewhere in the, we'll call it the 1 porch range. Uh, and so that feels pretty good.
Speaker Change: um, but and so we think
Speaker Change: You know, 20 billion plus there's a lot of room to run and so we think we've got a lot of uh potential to do transactions. Like we just did. So I'll say in the the 3 billion to 56
Speaker Change: Uh, billion dollar 7 billion dollar range in terms of total assets.
Chris Holmes: And so I'd say there's probably going to be more opportunities and probably more activity both for us and the industry there. You know, if bigger things come along, then we, you know, we're all obligated to think about those and we think about how we how we move forward with with an opportunity that that's, you know, that's north of that. And so.
Speaker Change: Uh, there aren't most of the there, a lot more opportunities in the 36 or 7. And so, uh, that I'd say there's probably going to be more opportunities and probably more activity both for us and the industry there. Uh, and then
Chris Holmes: But then as a part I would add for this, that is maybe a little more specific to First Bank is is we do think particularly in just in our market with well situated. to take advantage of. upstream activities that that could occur. And so as in the really larger banks continue to shape their strategy and make moves. We think we're sitting in a great position to be able to take advantage of that organically. So in that that being another tailwind. So that's where we'll be. That's where we'll be focusing is on make sure we're prepared for the organic opportunities that come from disruption upstream, and continuing to do things similar to what we did with Southern States down.
Um, you know, if if bigger things come along then we, you know, we're all obligated to think about those and we think about, how we, how we move forward with with an opportunity that that's, you know, that's north of that. And so,
But then as a part I would add for this, that is maybe a little more specific to First Bank is, is we do think, particularly in just in our Market with well situated to to take advantage of Upstream activities uh, that that could occur. And so as
In the, the really larger Banks, uh, continue to shape their strategy and make moves. We think we're sitting in a great position to be able to take advantage of that organically. So again, that that being another Tailwind. So that's where we'll be. That's where we'll be focusing is on and make sure we're prepared for uh the organic opportunities that come from disruption upstream and continuing to do things similar to what we did with Southern States. Downstream
Brett Rabatin: Okay, that's helpful.
Brett Rabatin: If I could sneak in one last one on a related topic, you know, any update on what you guys are doing organically from a hiring perspective, just what quarterly trends might have been in terms of pickups of banking associates. Yeah. in terms of the actual changes in banking associates. I'll say this. I'm not sure, Travis, I'm going to let Travis and Michael comment on the numbers there, but we continue recruiting efforts. Again, thinking about potential disruption coming down the line, we just continue to try to make sure that we are the right landing place. Again, a lot of our markets, we're large enough to have a large balance sheet to be able to accommodate really successful, experienced bankers that have larger clients, but we're also nimble enough to, and with our community focus, we were able to actually take advantage from some of the smaller folks in our geography team.
Speaker Change: Okay. That's helpful. Um, if I could sneak in 1 last 1 on a related topic, you know, any any update on what you guys are doing uh organically from a hiring perspective. Just what what quarterly Trends might have been in terms of pickups of of banking Associates.
Speaker Change: Yeah. Uh, um
Speaker Change: in terms of the actual changes in banking Associates, I I was I'll say this, um,
Brett Rabatin: Yeah, and just from a pure numbers standpoint, Brett, we hired four new revenue producers in the second quarter. Okay. Great. Preach all the color, guys. Thanks for it.
Speaker Change: I'm, I'm not sure Travis. I'm gonna let Travis Michael comment on the numbers there, but we continue recruiting efforts, uh, again thinking about potential, disruption coming down the line. Uh, we we just continue to try to make sure that we are the right Landing Place. Uh, again a lot of our markets, we're large enough to have a have a large balance sheet to be able to accommodate really successful experienced Bankers that have a larger clients. But we're also uh, Nimble enough uh, to and and with our community focused, we we're able to actually take advantage from the sum of the smaller uh folks in our geography too. So
Speaker Change: Yeah. And just from a pure number standpoint uh Brett, we hired 4 new Revenue, producers in the second quarter.
Speaker Change: Okay.
Speaker Change: Great. Preach. All the color guys.
Russell Gunther: The next question comes from Russell Gunther with Stephen. Please go ahead. Hey, good morning, guys. Hey Russell, how are you?
Speaker Change: Thanks Brett.
The next question comes from Russell. Gunther with Stevens. Please, go ahead.
Russell Gunther: Hey, good morning, guys.
Russell Gunther: Maybe just starting on the margin, it would be helpful to get a sense as to the puts and takes between the low and kind of high end of that guide. Helpful to get a sense of whether you guys are contemplating any rate cuts in there as well as the ability to continue to lower deposit costs from here should those rate cuts not materialize. And then, Michael, any thoughts on sort of where the securities yield may be? kick things off in 3Q given the actions taken both here and at SSP. Yeah, good morning, Russell. So we've been pretty steadfast in our rate forecast from a We've had two in all year.
Russell Gunther: Maybe just starting on the margin, um, would be helpful to get a sense as to the puts and takes between the low and kind of high end of that guy. Um, helpful to get a sense of whether you guys are contemplating any rate Cuts in there, as well as the ability to continue to lower deposit costs from here. Should those rates Cuts not materialize and then Michael any thoughts on sort of where the Securities yield May?
Speaker Change: Yeah. Um, good morning Russell. So
we've been pretty steadfast in our
Speaker Change: rate forecasts from a
Michael Mettee: They've been in September and December. So we haven't changed that, mainly because, yeah, I'm not smart enough to know when they're actually gonna come. So that's where we've been. And yeah, who knows what actually happens there. I think. You know, we'll continue to. ebb and flow as the winds blow, I guess, externally. That being said, you know, we do have indexed deposits to Fed funds. So, you know, the day that those go, that they do get cut, if they do get cut, you know, we would see roughly 35-40% of our deposits repriced lower. So and that's, that's consistent with where we have been in the past.
Speaker Change: Fed funds perspective. We've had 2 in all year, they've been in uh September and December
so we we haven't changed that mainly because
Yeah, I'm not smart enough to know when they're actually going to come. So that's that's where we've been and you know who knows what actually happens there. I think uh,
Speaker Change: you know, we'll, we'll continue to
Speaker Change: EB and flow, as the as the winds blow, I guess. Externally, um,
Michael Mettee: We are seeing some higher costs, you know, there's still people out there earning high cost deposits. And so, you know, we're still trying to grow. So you can see some pressure on margin as our loan growth accelerates, you know, typically, when you're dealing with what we call take it business, you gotta go take it from somebody else. You know, part of it is you pay up a little bit while you earn their operating accounts. And so, you know, teams doing that. And we're working hard at it. And so, so that's why there's probably a broad range.
Speaker Change: That being said our, you know, we have, we do have index deposits to Fed funds. So, you know, the day that those that they do get cut, if they do get cut, you know, we would see roughly 35, 40% of our, uh, deposits re repriced lower. Um, so and that's, that's consistent with where we have been in the past.
We are seeing some uh, higher costs. You know, there's still people out there earning high cost deposits and so, you know, we're still trying to grow, uh, so you can see some pressure on margin uh, as our loan growth accelerates. You know, typically when you're dealing with uh, what we call take it business, you got to go take it from somebody else.
Michael Mettee: And then got it, plus you layer on both, both companies in the balance sheet, and then we work through organizing that in the most efficient way possible.
Michael Mettee: And then the guidance on the investment portfolio, we're still, we're still working through a good bit of that the transaction happened really late in the quarter. And so how we reinvest what that looks like, you know, we're going to go mostly into loans, but paying off sub debt and trust preferreds. will be the focus in the short term. And then really, you're taking, on our side, $266 million at roughly 1.6%, just straight out of the number of... but the numerator and denominator, I guess the denominator. So you'll see a subsequent yield increase incremental on that side.
Speaker Change: You know, part of it is you pay up a little bit while you earn their operating accounts. And so, you know, teams doing that. And we're, we're working hard at it. And so, so that's why there's probably a broad range in Nim guidance. Plus you layer on both both companies and the balance sheet and we work through uh organizing that the most efficient way possible? Um,
Speaker Change: And then the the guidance on uh the Investment Portfolio. We're still we're still working through a good bit of that. The transaction happened, really late in the quarter. Uh and so how we reinvest what that looks like. You know we're going to go mostly in the loans but paying off the subject and Trust preferred. Um,
Speaker Change: Would be would be the the focus in the short term.
And then really you're taking on our side 266 million.
Speaker Change: at, uh, roughly 1.6% just straight out of the number, uh, of
Speaker Change: Both the numerator and denominator I guess the denominator. Uh, so you'll see a subsequent yield increase incremental on that side.
Russell Gunther: Got it, okay. Thank you, very helpful.
Russell Gunther: And then you just mentioned kind of deposit cost competition as loan growth accelerates. You guys are talking about kind of mid to high single digits, but I also think characterize this quarter's result as pedestrian. So I guess how should we think about you guys kind of bigger picture going forward? Is it mid to high on this size, of a balance sheet going forward? Can you sustainably be in the high single digits with some clarity on the macro front? Just trying to get a sense for... Figure picture how you're thinking about the growth rate going forward.
Speaker Change: Got it. Okay. Uh, thank you very helpful and then, um, you just mentioned, it's kind of deposit cost competition is loan growth accelerate. You guys are talking about, kind of mid to high single digits. Um, but I also think characterize this quarter's result as as pedestrians. Um, so I guess, how should we think about you guys kind of bigger?
Speaker Change: Picture going forward is is it mid to high uh on this size? You know of a balance sheet? Going forward. Um, can you sustainably be in the high single digits with some clarity on the macro front? Uh just trying to get a sense for bigger picture. How you thinking about the growth rate going forward?
Chris Holmes: Yeah Yeah, mid to high is how we, how we be, we continue to feel. Good about that going forward. Keep in mind, we got a lot of adjustments going on here with taking in southern states. And for instance, you know, their second quarter, their Their loan growth rate was approximately 10% on an annualized basis. Their deposit growth rate actually... brokered was just a little high after approximately 12%. And so, again, we're figuring that in, we're looking at our historical growth rates, we're trying to factor in unloans, we're looking at our pipelines. And so we do actually feel pretty good about that.
Speaker Change: Um, yeah. Um
yeah, mid to high is how we how we be, we continue to feel, uh,
Speaker Change: Good about that, going forward.
Speaker Change: Uh, keep in mind, we got a lot of adjustments going on here. Uh, with with taking in southern states and for instance, uh, you know their second quarter
Speaker Change: uh, their
Chris Holmes: And then as we go forward, and we think about, you know, markets and economies, we think that's pretty good, even moving past the next couple of quarters in terms of what we anticipate. That's the bar we've set for ourselves today. And And frankly, we're pretty optimistic about that. I guess I'm not optimistic and confident about that. And then there are times when we hope for it to be even higher. There's some times when things get really slow with it, you know, it'd be lower. But we we think we can do that, Russell, longer term. at the News and Geek Show, even with the larger balance.
Speaker Change: Their loan growth rate was approximately 10% on an annualized basis, uh, their deposit growth rate x. Uh, brokerage was just a little higher that high that after approximately 12%. And so again, we we we're we're figuring that in, we're looking at our historical growth growth rate. We're trying to factor in unloads, we're looking at our pipelines and so we do actually feel pretty good about that. And then as we go forward, and we think about
Uh, you know, markets and economies, uh, we we think that's, uh, uh, pretty good. Even even moving past the next couple of quarters in terms of what we anticipate, that's the that's the the bar we've set for ourselves today. Uh, and um,
Speaker Change: And frankly, we're we're, we're pretty optimistic about that. I guess my optimistic and confident about that. And then, um, there are times when we hope for it to be even higher, there's some times when things get really slow that, you know, it'd be lower, but we
Speaker Change: Uh, we think we can do that. Russell longer term.
At the new even with the larger balance sheet.
Speaker Change: Uh, or where the pace of m&a, discussion stands for you guys. And when we might see another transaction out of fpk,
Michael Mettee: No, I'd say not really. If you look at our capital ratios, they're still strong. You know, our CET1 still going to be 12% plus. And our TCETAs, again, going to be really strong. And so so we, we feel really good about where we sit moving forward if if opportunities pop up for us. Great. All right, guys. That's it for me. Thanks for taking my questions.
Speaker Change: No, uh, I did say not. Not, not really. We we we if you look at our Capital ratios, there's still a strong. Um, you know, our cet1, uh, still going to be 12% plus and and uh, our tcas again.
Going to be really strong. And so, so we, uh, we feel really good about where we sit moving forward. If if opportunities pop up for us,
Great. All right, guys. That's it for me. Thanks for taking my questions.
Stephen Scouten: The next question comes from Stephen Scouten with Piper Sandler. Please go ahead. Hey, good morning, everyone. I guess I wanted to follow back around kind of on this M&A and potential upstream M&A activity discussion.
Speaker Change: The next question comes from. Stephen Scout with Piper Sandler. Please go ahead.
Chris Holmes: And I'm just kind of curious, if you have like a real preference to that end, like, you guys have managed expenses phenomenally well, but if it was, you know, team lift outs and other things from from upstream activity, obviously, there'd be an expense bill, but just to kind of wondering how you're thinking about the balance of that versus through WholeBank, M&A, and if you would have a preference, and if there'd be any kind of limitations. how much activity I guess you would pursue if there was upstream. Yes, so no preference, you know, no preference. We take it as it comes, and we don't make those calls, so no preference there.
Hey, good morning everyone. Um, I guess I wanted to follow back around kind of on this m&a. Um and potential Upstream m&a, activity discussion. And I'm just kind of curious if you have like a real preference to that end. Like you guys have managed expenses phenomenally well, but if it was, you know, team lifted out and other things from, from Upstream activity. Obviously, there'd be an expense build but just so kind of wondering how you're thinking about the the balance of of that versus true.
Speaker Change: Through hole Bank m&a. Um, and if you would have a preference and if there'd be any kind of limitations on, how much activity, I guess you would pursue, if there was Upstream m&a in your markets,
Chris Holmes: But I would say this, whether it's Part of the reason we're excited about it is, whether it's the really largest banks, you know, they're all in our market. And to whether it's the really largest banks, whether it could be activity, whether it's the banks that are our peers, or I'll say the super regionals, or our peers in the regional space. We just feel like we're probably in a great position for any of those. And then in terms of the magnitude, we think actually that could be the magnitude could be significant. I mean, we think about our capital position and we look at, of course, when we think about an M&A transaction, we're generally going to be issuing shares with that.
Yeah, so so no preference uh you know, no no no preference. We we um, we take it as it comes and we don't make the we don't make those calls but so so no preface area. But I I would say say this whether it's, uh,
Speaker Change: Part of the reason we're excited about it is whether it's the, the, the, the really largest banks, you know, they're all in our markets. And so whether it's the really largest banks where they could be activity, whether it's the banks that are our peers and that we are the, I'll say, the super regionals or, you know, our peers in the in the in the regional space.
Speaker Change: uh, we just feel like we're probably in a great position for any of those and and then in terms of the magnitude, we think, actually, that could be, uh,
Chris Holmes: And so we think we have right, good capital for most of the things that would pop up. We think we have enough capital for that. You know, then the one thing that should challenge that over time is we could get enough movement from those type transactions that, you know, it does begin to in an ideal world where there's a lot of movement. That's where we think about how we how we spread the capital. And we would love to have that challenge. And we. aren't sure if you roll the calendar forward for the next, let's say, three, four, five years.
Speaker Change: Uh, the magnitude could be significant. I mean, again we think about our our Capital position and we look at and of course, when we think about an m&a transaction, we're generally going to be issuing shares with that. And so we we we think we have uh, right, good capital for most of the things that would pop up. We think we have have enough capital for that, you know, and then the 1 thing that could challenge that over time is, we could get enough movement from those type of transactions that, that, you know, it does begin to
Speaker Change: Uh, in in, in an ideal world where there's a lot of movement.
Speaker Change: Uh that's that's where the that we think about how we, how we spread the capital and uh, we would love to have that challenge. And um, and we
Stephen Scouten: Again, that's where we think we have a lot of wind in our back. And that's where an earlier question about size and 20 million. That's where we think we're actually probably at an ideal size because we think we can run on our platform from 20 million for a long time. In terms of asset 20, I'm sorry, 20 billion. We think we can go for a long time and just continue to add and build scale and improve our return metrics. So. That's how we're thinking about it. Yeah, that makes a lot of sense. Thank you.
Speaker Change: Uh, aren't sure if if you if you roll the calendar forward for the next. Let's see. 345 years. We, we
Speaker Change: we again, that's where we think we have a lot of when that when in our back. Um, and that's where we got an earlier question about size and 20 million. That's where we think we're actually probably at an ideal size because we think we can run on our platform from 20 million for a long time. In terms of asset 20. I'm sorry, 20 billion. Uh, uh, uh, we think we can go.
Speaker Change: Uh, for a long time.
Speaker Change: Uh, and and just continue to add and build scale and improve our uh, return metrics. So
Uh, that that's how we're thinking about it.
Stephen Scouten: And then going kind of digging into the loan growth in the quarter, can you give any color around actual originations maybe versus previous quarters? There was obviously a higher provision related to unfunded, and I'm not sure if that had to do more with the CECL methodology change or if there was an uptick in unfunded loan production and just kind of if that is any part of the longer-term confidence that you guys have. The production was really not different in terms of where it came from in product type. So it continues to be spread across the board.
Speaker Change: Yeah, that makes a lot of sense. Thank you. And then, um, go and kind of digging into the loan growth in the quarter. Can you give me any color around actual originations maybe versus, um, previous quarters? Because it,
Speaker Change: there was obviously a higher provision related to unfunded and I'm not sure if they had to do more with the Cecil methodology change or if there was an uptick in in unfunded Loan Production and just kind of, if that is any part of the the longer term confidence that you guys have in Gross,
Chris Holmes: That's a reason for optimism is we're not reliant on any particular product type. So it's spread. We continue to not be overly reliant on loan production and CRE. So it's coming, I said, across the board. That's a piece of it, but it's not the, it's not the piece. And in terms of the impact. Yeah, Stephen, the unfunded. Yeah, it was model change, assumption updates. Yeah, I mentioned home price appreciation and unemployment earlier. That's, that's had impacts on kind of our draw assumptions, I would say on HELOCs and C&I. If you were to see a slowdown in the economy, you have these unfunded lines that may increase and then turn into actually funded, and so there's a little bit larger reserve, but also it gets back to the methodology change and the granularity that we're able to really get at.
Speaker Change: Yeah, it was it was model change assumption update, you know, mentioned home, price appreciation. And then uh, unemployment earlier those those had impacts on kind of our draw assumptions. I would say on
Speaker Change: But he locks and see. And I, you know,
Chris Holmes: So really improved methodology, and we're pretty excited about it. Got it. That's really helpful.
If, if you were to see a Slowdown in the economy, you have these unfunded lines, uh, that may increase and then turn into actually funded. And so it's a little bit larger Reserve, uh, but also it gets back to the methodology change and the granularity, um, that we're able to, to really get at. So really improved methodology and we're pretty excited about it.
Travis Edmondson: And then just last point of clarity around the multifamily lending. I know you guys noted there were several large payoffs. What are you seeing in that space? And it's not a big part of your loan book, but what are you seeing in terms of new product Yeah, good morning.
Got it. That's really helpful. And then just last uh point of clarity around the the multi family lending. I know you guys noted there were several large payoffs what are you seeing in that space? And it's not a big part of your loan book, but what are you seeing in terms of new, uh, new product?
Speaker Change: Demand in that space and where you think that that book of business could go?
Travis Edmondson: This is Travis. We're still seeing quite a bit of demand, but nothing like we did two, three, four years ago. It seemed to have slowed down with a lot of new inventory coming in, a lot of the markets in which we operate. But we have a handful of really, in our view, really top-notch apartment operators that we continue to see new opportunities with that we will continue to grow with them. And a couple of them are the ones that we did see payoffs, and we fully expect to do another project with them as they see the opportunities arise.
Yeah, good morning. This is Travis um, we're still seeing uh, quite a bit of demand, but nothing like we did, 2 3 4 years ago. It it seemed to have slowed down um with a lot of new inventory coming in a lot of the markets in which we operate, but we have a handful of really world or in our, in our view, really top-notch apartment. Um, operators that we continue to see new opportunities with that, we will continue to, to grow with them. And that's the ones a couple of them is, are the ones that we did see payoffs and we
Speaker Change: fully expect to to do another project with them as as as they see the opportunities arise
Stephen Scouten: Got it. Extremely helpful. Thanks for all the color. Appreciate the time.
Got it, extremely helpful. Thanks for all the color. Appreciate the time.
Steve Moss: The next question comes from Steve Moss with Raymond James. Please go ahead.
Speaker Change: The next question comes from Steve Moss with Raymond James, please go ahead.
Operator: All of my questions have been asked and answered. Thanks, Dave. As a reminder, if you would like to ask a question, please press star, then 1, to join the question.
All of my questions have been asked and answered, thank you.
Dave: Thanks Dave.
Christopher Marinac: The next question comes from Christopher Marinac with Channie. Please go ahead. Hey, good morning.
Speaker Change: As a reminder, if you would like to ask a question, please press star. Then 1 to join the question queue.
Speaker Change: The next question comes from Christopher Mirren with Janie. Please go ahead.
Christopher Marinac: Chris and Michael, I wanted to ask about the growth and the unfunded commitments, particularly in C&I. Is that a good Yeah, and Chris, we couldn't quite pick it up, but I think you were asking about the potential for growth going forward coming from our unfunded commitments on C&I. And that is a potential, because we continue to be not at terribly high levels of funding there. If you look at where we are historically, we haven't, frankly, picked up that much going all the way back to post-COVID in terms of seeing those really on a utilization statistic.
Hey, good morning. Um, Chris and Michael wanted to ask about the growth and the unfunded commitments to clean cni is that a good, uh, alternative angle to look at kind of new growth, coming down the road and, and obviously, just the timing differences that what didn't hit the balance sheet this quarter?
Yeah, and uh, Chris, we couldn't quite pick pick it up, but I think you were asking about the potential for uncon for, for growth going forward coming from our unfunded commitments, on cni. Uh, and uh, that is a potential because we we continue to be non at at terribly, high levels of funding there. If you look at where we are historically, uh, we we haven't frankly picked up up that much going all the way back to to post coid in terms.
Speaker Change: Terms of of seeing those really.
Michael Mettee: They haven't picked up that much. And so we do think that that could be... We're not heavily relying on it, but I think, again, when we... you know, if you pick up optimism, that's one of a dozen or more factors that we think, huh, you know, this could help us going forward. It could be some tailwind for us going forward.
Speaker Change: Uh, on a utilization, uh, statistic, they, they haven't picked up that much. And so we do think that that could be, uh, we're not, we're not heavily relying on it, but I think it again, when we
Michael Mettee: Yeah, Chris, interesting. You know, we actually had more line decreases than increases during the quarter. Not new origination decreases, but just people paying down. We're in the mid-30s on line utilization. Pre-COVID, we'd have been, you know, upper 40s. So, even going back, you know, three or four years, we're in the low to mid-40s. So, yeah, definitely an opportunity there. We think about that when we think about our loan growth guides. And so, there's certainly opportunity there. Great.
Uh, you know, if you pick up optimism, that's that's 1 of of a dozen or more factors that we think, huh? You know, this could, this could help us going forwards. Could be some Tailwind for school. Yeah, Chris the interesting. Yeah, we actually had board line decreases that increases uh during the quarter. Not, not new origination decreases but just people paying down, we're in the mid-30s online. Utilization preco we'd have been, you know, upper 40s. So, even even going back, you know, 3 or 4 years, we're in the, the low to mid 40s. So, uh, yeah, definitely opportunity there, we think about that. And we think about our loan growth guides, um, and so there, there are certain opportunity
Chris Holmes: And then just a quick follow up on kind of logistics on sort of how you, you know, queued up the systems conversion that I'm curious if that calendar is going to get more busy. Yeah, so it's always a factor. It's not the factor, but it's a factor. And that's why I made In the prepared comments, I made note that, you know, we would handle that in Q3, and so we were doing that during the quarter, so by the end of the quarter, we'll be fully converted in Q3. And so that's those are important steps for us.
Great. And just a quick follow-up on kind of logistics on sort of how you um, you know, queued up the systems conversion. That's pending I'm just curious if that calendar is going to get more busy, um, as you look Beyond, um, you know, this transaction and you know, other opportunities in the future is that a factor as you consider other m&a.
Speaker Change: Yeah, it's always, it's always a factor. It's not a d Factor but it's a factor. And, uh, that's why I I made like in the, in the prepared comments, I made note that, you know, we we would handle that in in Q3 and so we, we, we were doing that during the quarter. So by the end of the quarter we'll be fully converted in Q3. And, um,
Chris Holmes: And so we try to really think of those ahead of time. Matter of fact, we typically have weekends planned out before we even have have transactions sometimes because we would like to be prepared for that. And so we. It is a factor, it's not the factor, but. But having that process go smoothly, efficiently, and as quickly as possible is critical. It's a critical component of the success of a transaction. And so, I've also made reference to how the teams are really busy working towards that, particularly our operational teams, our administrative teams are really busy working towards that.
Speaker Change: Fact we, uh, typically have weekends planned out before we even have have transactions sometimes because we, uh, would like to be prepared for that. And so we,
Speaker Change: it is a factor, it's not the factor but but
Speaker Change: But uh having that process go smoothly, efficiently and as quickly as possible is critical, it's a critical component of the success of a transaction. And so, uh,
Operator: And so, that'll be a continued, as we go forward, it is not a limiting factor on us moving forward right now because we're able to get it done quickly with the strong teams that we have. Great. Thanks again for hosting us. All right. Thanks, Chris.
Speaker Change: I, I've also made reference to how the teams are really busy, uh, working towards that, particularly our operational teams, uh, administrative teams, uh, are are very busy working towards that. And so that'll that'll be a continued, uh, as we go forward. Uh, it's, it is not a limiting factor on us moving forward right now because we're able to move able to get it done quickly with, uh, with the strong teams that we have.
Speaker Change: Great. Thanks again for hosting us this morning.
Speaker Change: All right. Thanks Chris.
Operator: This concludes our question and answer session. I would like to turn the conference back over for any closing Okay, thank you all very much. We really appreciate the questions. We appreciate you joining us, and hope everybody has a great earnings season. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. © BF-WATCH TV 2021
This concludes our question and answer session, I would like to turn the conference back over for any closing remarks.
Okay, thank you all very much. We really appreciate the questions. We appreciate you joining us. Uh, and hope. Uh, everybody has a great earnings season. Thank you.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect