Q2 2026 FB Financial Corp Earnings Call

July 14, 2026

Operator: Good morning, everyone, welcome to the FB Financial Corporation Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call to questions. Please note that today's conference call is being recorded. At this time, I would like to turn the call over to Rachel Duresky, Financial Management Associate for FB Financial. Please go ahead.

Operator: Good morning, everyone, welcome to the FB Financial Corporation Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call to questions. Please note that today's conference call is being recorded. At this time, I would like to turn the call over to Rachel Deresky, Financial Management Associate for FB Financial. Please go ahead.

Speaker #1: Good morning, everyone, and welcome to the FB Financial Corporation's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker #1: Following the prepared remarks, we will open the call to questions. Please note that today's conference call is being recorded. At this time, I would like to turn the call over to Rachel Dureski, Financial Management Associate for FB Financial.

Speaker #1: Please go ahead.

Speaker #2: Thank you, and good morning, everyone. We appreciate you joining us today for FB Financial's second quarter 2026 earnings conference call. Joining me on the call this morning are Chris Holmes, President and Chief Executive Officer, and Michael Mettee, Chief Financial and Operating Officer.

Rachel Duresky: Thank you, good morning, everyone. We appreciate you joining us today for FB Financial's Q2 2026 earnings conference call. Joining me on the call this morning is Chris Holmes, President and Chief Executive Officer, and Michael Mettee, Chief Financial and Operating Officer. Before we begin, I'd like to remind listeners that during today's call, management may make forward-looking statements regarding the company's plans, expectations, and outlook. These statements are subject to risks and uncertainties, and actual results may differ materially from those discussed. Additional information regarding these risks and uncertainties, including risk factors that could cause actual results to differ, can be found in our earnings release, our most recent annual report on Form 10-K, and our subsequent filings with the Securities and Exchange Commission. FB Financial undertakes no obligation to update any forward-looking statements except as required by law.

Rachel Deresky: Thank you, good morning, everyone. We appreciate you joining us today for FB Financial's Q2 2026 earnings conference call. Joining me on the call this morning is Chris Holmes, President and Chief Executive Officer, and Michael Mettee, Chief Financial and Operating Officer. Before we begin, I'd like to remind listeners that during today's call, management may make forward-looking statements regarding the company's plans, expectations, and outlook. These statements are subject to risks and uncertainties, and actual results may differ materially from those discussed. Additional information regarding these risks and uncertainties, including risk factors that could cause actual results to differ, can be found in our earnings release, our most recent annual report on Form 10-K, and our subsequent filings with the Securities and Exchange Commission. FB Financial undertakes no obligation to update any forward-looking statements except as required by law.

Speaker #2: Before we begin, I'd like to remind listeners that during today's call, management may make forward-looking statements regarding the company's plans, expectations, and outlook. These statements are subject to risks and uncertainties and actual results may differ materially from those discussed.

Speaker #2: Additional information regarding these risks and uncertainties—including risk factors that could cause actual results to differ—can be found in our earnings release, our most recent annual report on Form 10-K, and our subsequent filings with the Securities and Exchange Commission.

Speaker #2: FB Financial undertakes no obligation to update any forward-looking statements except as required by law. In addition, today's discussion may include references to certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are available in our second quarter 2026 financial supplement, posted to the Investor Relations section of our website at www.firstbankonline.com.

Rachel Duresky: In addition, today's discussion may include references to certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are available on our Q2 2026 financial supplement posted to the investor relations section of our website at www.firstbankonline.com and on the SEC's website at www.sec.gov. With that, I'll turn the call over to Mr. Chris Holmes.

Rachel Deresky: In addition, today's discussion may include references to certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are available on our Q2 2026 financial supplement posted to the investor relations section of our website at www.firstbankonline.com and on the SEC's website at www.sec.gov. With that, I'll turn the call over to Mr. Chris Holmes.

Speaker #2: And on the SEC's website at www.sec.gov. With that, I'll turn the call over to Mr. Chris Holmes.

Speaker #3: All right. Thank you, Rachel, and thanks to everybody for joining us on the call this morning and for your interest in FB Financial. We reported EPS of $1.13, an adjusted EPS of $1.14, and have grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 11.3% since our IPO in 2016.

Chris T. Holmes: All right. Thank you, Rachel. Thanks to everybody for joining us on the call this morning and for your interest in FB Financial. We reported EPS of $1.13 and adjusted EPS of $1.14, have grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 11.3% since our IPO in 2016. Our net income was $58.6 million, $58.9 million on an adjusted basis. Our Pre-Provision Net Revenue increased to $83.3 million, which represents an increase of approximately 8% in the quarter. This improves our PPR return on average assets over 2%, which we consider to be our benchmark for returns. We grew loans at an annualized rate of 11.6% and deposits at 7.7% annualized. Growth this quarter was strong, which reflects the hard work, discipline, and execution of our teams across the company.

Chris Holmes: All right. Thank you, Rachel. Thanks to everybody for joining us on the call this morning and for your interest in FB Financial. We reported EPS of $1.13 and adjusted EPS of $1.14, have grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 11.3% since our IPO in 2016. Our net income was $58.6 million, $58.9 million on an adjusted basis. Our Pre-Provision Net Revenue increased to $83.3 million, which represents an increase of approximately 8% in the quarter. This improves our PPR return on average assets over 2%, which we consider to be our benchmark for returns. We grew loans at an annualized rate of 11.6% and deposits at 7.7% annualized. Growth this quarter was strong, which reflects the hard work, discipline, and execution of our teams across the company.

Speaker #3: Our net income was $58.6 million, and $58.9 million on an adjusted basis. Our pre-tax, pre-provision net revenue increased to $83.3 million, which represents an increase of approximately 8% in the quarter.

Speaker #3: This improves our PP&R return on average assets to over 2%, which we consider to be our benchmark for returns. We grew loans at an annualized rate of 11.6%, and deposits at 7.7% annualized.

Speaker #3: Growth this quarter was strong, which reflects the hard work, discipline, and execution of our teams across the company. As I reflect on the second quarter, our company is well-positioned, and our outlook is bullish.

Chris T. Holmes: As I reflect on the Q2, our company is well-positioned and our outlook is bullish. What I'm most excited about is the sustainable momentum that we're seeing across the franchise. This quarter was marked by strong balance sheet growth, stable Net Interest Margin, solid returns, and an improved financial position through thoughtful capital deployment, including meaningful share repurchases during the quarter. Just as importantly, the activity across our footprint gives us confidence in the road ahead. Our pipelines are healthy, our markets continue to perform well, and we're seeing continued momentum in attracting talent and winning new client relationships. What continues to differentiate FirstBank is that our success is not dependent on a single factor. It's the combination of award-winning customer service, strong and growing markets, disciplined execution, talented associates, and a strong financial position that allows us to invest in growth while maintaining a conservative risk profile.

Chris Holmes: As I reflect on the Q2, our company is well-positioned and our outlook is bullish. What I'm most excited about is the sustainable momentum that we're seeing across the franchise. This quarter was marked by strong balance sheet growth, stable Net Interest Margin, solid returns, and an improved financial position through thoughtful capital deployment, including meaningful share repurchases during the quarter. Just as importantly, the activity across our footprint gives us confidence in the road ahead. Our pipelines are healthy, our markets continue to perform well, and we're seeing continued momentum in attracting talent and winning new client relationships. What continues to differentiate FirstBank is that our success is not dependent on a single factor. It's the combination of award-winning customer service, strong and growing markets, disciplined execution, talented associates, and a strong financial position that allows us to invest in growth while maintaining a conservative risk profile.

Speaker #3: What I'm most excited about is the sustainable momentum that we're seeing across the franchise. This quarter was marked by strong balance sheet growth, stable net interest margins, solid returns, and an improved financial position through thoughtful capital deployment, including meaningful share repurchases during the quarter.

Speaker #3: Just as importantly, the activity across our footprint gives us confidence in the road ahead. Our pipelines are healthy, our markets continue to perform well, and we're seeing continued momentum in attracting talent and winning new client relationships.

Speaker #3: What continues to differentiate First Bank is that our success is not dependent on a single factor. It’s the combination of award-winning customer service, strong and growing markets, disciplined execution, talented associates, and a strong financial position that allows us to invest in growth while maintaining a conservative risk profile.

Speaker #3: We remain focused on getting better every day by improving our execution, raising our level of client service, and deepening our presence in the attractive markets across the Southeast.

Chris T. Holmes: We remain focused on getting better every day by improving our execution, raising our level of client service, and deepening our presence in the attractive markets across the Southeast. As we look ahead, we see sustainable opportunity and promise. Before turning the call over to Michael, I'd like to briefly cover our share repurchase activity during the quarter. Approximately two-thirds of our repurchase activity this quarter was completed through a single transaction with a charity that received shares as part of the administration of the estate of Jim Ayers. We remain a constructive partner with those responsible for the administration of the estate and its beneficiaries. This transaction, along with the other repurchases during the quarter, reiterates our commitment to investing in our business and deploying capital in a disciplined manner.

Chris Holmes: We remain focused on getting better every day by improving our execution, raising our level of client service, and deepening our presence in the attractive markets across the Southeast. As we look ahead, we see sustainable opportunity and promise. Before turning the call over to Michael, I'd like to briefly cover our share repurchase activity during the quarter. Approximately two-thirds of our repurchase activity this quarter was completed through a single transaction with a charity that received shares as part of the administration of the estate of Jim Ayers. We remain a constructive partner with those responsible for the administration of the estate and its beneficiaries. This transaction, along with the other repurchases during the quarter, reiterates our commitment to investing in our business and deploying capital in a disciplined manner.

Speaker #3: As we look ahead, we see sustainable opportunity in front of us. Before turning the call over to Michael, I'd like to briefly cover our share repurchase activity during the quarter.

Speaker #3: Approximately two-thirds of our repurchase activity this quarter was completed through a single transaction with a charity that received shares as part of the administration of the estate of Jim Ayers.

Speaker #3: We remain a constructive partner with those responsible for the administration of the estate and its beneficiaries. This transaction, along with the other repurchases during the quarter, reiterates our commitment to investing in our business and deploying capital in a disciplined manner.

Speaker #3: That transaction reflects both the strength of our capital position and our continued confidence in the long-term value and prospects of our company. To conclude my remarks, our capital, reserve, and liquidity positions remain strong, and we believe the franchise is well positioned to continue to deliver profitable growth and long-term shareholder value.

Chris T. Holmes: That transaction reflects both the strength of our capital position and our continued confidence in the long-term value and prospects of our company. To conclude my remarks, our capital reserve and liquidity positions remain strong, and we believe the franchise is well positioned to continue to deliver profitable growth and long-term shareholder value. We remain confident in our ability to grow organically through disciplined execution. While we evaluate strategic opportunities as they arise, our focus continues to be maximizing the significant organic opportunities already in front of us. With that, I'm going to turn the call over to our Chief Financial and Chief Operating Officer, Michael Mettee, for more color on the quarter. Thank you. Michael?

Chris Holmes: That transaction reflects both the strength of our capital position and our continued confidence in the long-term value and prospects of our company. To conclude my remarks, our capital reserve and liquidity positions remain strong, and we believe the franchise is well positioned to continue to deliver profitable growth and long-term shareholder value. We remain confident in our ability to grow organically through disciplined execution. While we evaluate strategic opportunities as they arise, our focus continues to be maximizing the significant organic opportunities already in front of us. With that, I'm going to turn the call over to our Chief Financial and Chief Operating Officer, Michael Mettee, for more color on the quarter. Thank you. Michael?

Speaker #3: We remain confident in our ability to grow organically through disciplined execution. While we evaluate strategic opportunities as they arise, our focus continues to be maximizing the significant opportunities already in front of us.

Speaker #3: So with that, I'm going to turn the call over to our Chief Financial and Chief Operating Officer, Michael Mettee, for more color on the quarter.

Speaker #3: Thank you. Michael.

Speaker #4: Thank you, Chris, and good morning, everyone. I'll begin my comments this quarter with the balance sheet. This quarter's results reflect the growth and momentum that we highlighted last quarter, with annualized loan growth of 11.6% and annualized deposit growth of 7.7%.

Michael Mettee: Thank you, Chris. Good morning, everyone. I'll begin my comments this quarter with the balance sheet. This quarter's results reflect the growth and momentum that we highlighted the last quarter with annualized loan growth of 11.6% and annualized deposit growth of 7.7%. Our teams continue to focus, executing at the highest level in an increasingly competitive environment, and our results demonstrate that our value proposition continues to resonate across our markets. We saw this most clearly in our loan portfolio, where growth was broad-based across our footprint in metro markets including Birmingham, Memphis, and Huntsville, and throughout our community markets like Lexington, Tennessee, Auburn, Tuscaloosa, and Florence in Alabama, and Columbus and Newnan in Georgia. This balanced growth reflects the strength of our teams and demonstrates our ability to execute consistently across our geography.

Speaker #4: Our teams continue to focus, continue to execute at the highest level in an increasingly competitive environment, and our results demonstrate that our value proposition continues to resonate across our markets.

Speaker #4: We saw this most clearly in our loan portfolio, where growth was broad-based across our footprint in metro markets, including Birmingham, Memphis, and Huntsville, and throughout our community markets like Lexington, Tennessee, Auburn, Tuscaloosa, and Florence in Alabama, and Columbus and Newnant in Georgia.

Speaker #4: This balanced growth reflects the strength of our teams and demonstrates our ability to execute consistently across our geography. We believe our ability to consistently deliver strong financial advice, trusted service, and a differentiated customer experience sets us apart.

Michael Mettee: We believe our ability to consistently deliver strong financial advice, trusted service, and a differentiated customer experience sets us apart. As the Southeast remains the most attractive part of the country to live and work, we're seeing increased competition in pricing, recruiting, and customer acquisition. Even so, our focus remains consistent, growing the franchise organically by delivering competitive products, responsive service, and making FirstBank the easiest institution to do business with. We strike a balance between growth and profitability. This quarter reflects that discipline. We produced strong balance sheet growth while maintaining a stable margin and generating strong returns with an adjusted return on average tangible common equity of 15% and a Pre-Provision Net Revenue return on average assets above 2%. Ultimately, these results reinforce what we've long believed, that building deep, long-term customer relationships remains the best path to creating sustainable value for our shareholders.

Speaker #4: As the Southeast remains the most attractive part of the country to live and work, we are seeing increased competition in pricing, recruiting, and customer acquisition.

Speaker #4: Even so, our focus remains consistent. Growing the franchise organically by delivering competitive products, responsive service, and making First Bank the easiest institution to do business with.

Speaker #4: We strike a balance between growth and profitability, and this quarter reflects that discipline. We produced strong balance sheet growth while maintaining a stable margin and generating strong returns, with an adjusted return on average tangible common equity of 15% and a pre-provision net revenue return on average assets above 2%.

Speaker #4: Ultimately, these results reinforce what we've long believed: that building deep, long-term customer relationships remains the best path to creating sustainable value for our shareholders.

Speaker #4: Looking ahead, we continue to see a healthy pipeline and remain encouraged by the level of business activity across our footprint. We remain comfortable with our expectation for full-year loan growth in the mid- to high-single-digit range. Deposits remain highly competitive, and our funding strategy continues to prioritize organically generated core deposits.

Michael Mettee: Looking ahead, we continue to see a healthy pipeline and remain encouraged by the level of business activity across our footprint. We remain comfortable with our expectation for full-year loan growth in the mid to high single-digit range. Deposits remain highly competitive and our funding strategy continues to prioritize organically generated core deposits. We expect full-year deposit growth to remain within our previously communicated range of mid to high single digits, but we currently anticipate those results trending towards the lower end of that range. Turning to earnings, we grew in both net income and pre-tax, pre-provision revenue during the quarter, totaling $58.6 million and $83.3 million respectively. Our results were driven by stable margin performance on a growing balance sheet, disciplined expense management, and a lower effective tax rate, partially offset by higher level of provision expense.

Speaker #4: We expect full-year deposit growth to remain within our previously communicated range of mid to high single digits, but we currently anticipate those results trending towards the lower end of that range.

Speaker #4: Turning to earnings, we grew in both net income and pre-tax pre-provision revenue during the quarter, totaling $58.6 million and $83.3 million, respectively. Our results were driven by stable margin performance on a growing balance sheet, disciplined expense management, and a lower effective tax rate, partially offset by a higher level of provision expense.

Speaker #4: Our net interest margin was 3.95% for the quarter, supported by stable contractual interest rates on loans and all-in loan yields of 6.48%. New loan production near quarter-end was coming in at the 6.35% to 6.40% range. Deposit costs declined modestly to 2.26%, while blended rates on new production around quarter-end were in the 2.60% to 2.70% range.

Michael Mettee: Our Net Interest Margin was 3.95% for the quarter, supported by stable contractual interest rates on loans and all-in loan yields of 6.48%. New loan production near quarter end was coming in in the 6.35% to 6.4% range. Deposit costs declined modestly to 2.26%, while blended rates on new production around quarter end were in the 260 to 270 range. Like the rest of the industry, we continue to monitor the outlook for benchmark interest rates closely. While the timing and magnitude of future rate actions remain uncertain, our current outlook assumes one rate hike in Q3 2026. As we move through H2 of the year, we expect elevated competitive dynamics on pricing as institutions compete for both loans and deposits. Between those two factors, we remain comfortable with our full-year Net Interest Margin forecast, excluding loan accretion of 3.70% to 3.8%.

Speaker #4: Like the rest of the industry, we continue to monitor the outlook for benchmark interest rates closely. While the timing and magnitude of future rate actions remain uncertain, our current outlook assumes one rate hike in the third quarter of 2026.

Speaker #4: As we move through the second half of the year, we expect elevated competitive dynamics on pricing, as institutions compete for both loans and deposits.

Speaker #4: Between those two factors, we remain comfortable with our full-year net interest margin forecast, excluding loan accretion, of 3.70% to 3.80%. We know that the environment can change quickly, but we believe that our balance sheet remains well positioned to perform across a variety of interest rate scenarios.

Michael Mettee: We know that the environment can change quickly, we believe that our balance sheet remains well positioned to perform across a variety of interest rate scenarios. Non-interest income declined modestly to $25.8 million during the quarter, but increased to $26.2 million on an adjusted basis. Recurring fee categories such as service charges, interchange income, and assets under management revenue all benefited from continued customer growth and the additional day in the quarter. Within mortgage banking, revenue declined $1.1 million, as a greater proportion of new lock production was retained in the portfolio rather than sold into the secondary market. While this mix shift reduces upfront gain-on-sale income, it has enhanced balance sheet growth, generated attractive loan yields, and strengthened broader customer relationships by creating additional opportunities for deposits and other banking services.

Speaker #4: Non-interest income declined modestly to $25.8 million during the quarter, but increased to $26.2 million on an adjusted basis. Recurring fee categories, such as service charges, interchange income, and assets under management revenue, all benefited from continued customer growth and the additional day in the quarter.

Speaker #4: Within mortgage banking, revenue declined $1.1 million, as a greater proportion of new lock production was retained in the portfolio rather than sold into the secondary market.

Speaker #4: While this mixed shift reduces upfront gain on sale income, it has enhanced balance sheet growth, generated attractive loan yields, and strengthened broader customer relationships by creating additional opportunities for deposits and other banking services.

Speaker #4: Non-interest expense totaled $91.5 million during the quarter, down approximately 4% from the first quarter, or approximately 2% on an adjusted basis. Expense trends benefited from normal seasonal compensation patterns, disciplined expense management, and the absence of merger-related costs.

Michael Mettee: Non-interest expense totaled $91.5 million during the quarter, down approximately 4% from Q1 or approximately 2% on an adjusted basis. Expense trends benefited from normal seasonal compensation patterns, disciplined expense management, and the absence of merger-related costs. As revenues expanded and expenses declined, we generated strong positive operating leverage during the quarter, highlighting the earnings power of the franchise when the balance sheet and fee businesses are performing well. As a result, our Efficiency Ratio improved to 52.3%, while our banking segment had a sub-50 Efficiency Ratio of 49.5%. Looking ahead, we continue to expect expenses to normalize during H2 of the year as we invest in talent and growth across the franchise. While we remain disciplined on expenses, we continue to see opportunities to create positive operating leverage as revenue growth outpaces expense growth.

Speaker #4: As revenues expanded and expenses declined, we generated strong, positive operating leverage during the quarter, highlighting the earnings power of the franchise when the balance sheet and fee businesses are performing well.

Speaker #4: As a result, our efficiency ratio improved to 52.3%, while our banking segment had a sub-50% efficiency ratio of 49.5%. Looking ahead, we continue to expect expenses to normalize during the second half of the year as we invest in talent and growth across the franchise.

Speaker #4: While we remain disciplined on expenses, we continue to see opportunities to create positive operating leverage as revenue growth outpaces expense growth. Accordingly, we are maintaining our banking segment non-interest expense outlook of $325 million to $335 million, and we continue to expect the consolidated efficiency ratio to finish the year at or around 50%.

Michael Mettee: Accordingly, we're maintaining our banking segment non-interest expense outlook of $325 million to $335 million, and we continue to expect the consolidated Efficiency Ratio to finish the year at or around 50%. Turning to credit, provision expense was $10.1 million for the quarter, an increase of approximately $7 million, and our allowance coverage ratio ended the period at 1.51%. The majority of the reserve build was associated with loan growth, with the remainder driven by specific reserves on two individually evaluated credits, and a modest portion of the increase resulted from somewhat softer economic forecasts incorporated into our Allowance for Credit Losses estimation process. Non-performing loan and non-performing asset ratios both increased during the quarter and were driven almost entirely by three relationships.

Speaker #4: Turning to credit, provision expense was 10.1 million for the quarter, an increase of approximately $7 million. And our allowance coverage ratio into the period at 1.51%.

Speaker #4: The majority of the reserve build was associated with loan growth, with the remainder driven by specific reserves on two individually evaluated credits. A modest portion of the increase resulted from somewhat softer economic forecasts incorporated into our allowance for credit loss estimation process.

Speaker #4: Non-performing loan and non-performing asset ratios both increased during the quarter, and were driven almost entirely by three relationships. Two of those relationships are the two individually evaluated credits that I just referenced, which led to specific reserves, while the third is a well-collateralized credit with a near-term workout plan in place.

Michael Mettee: Two of those relationships are the two individually evaluated credits that I just referenced that led to specific reserves, while the third is a well-collateralized credit with a near-term workout plan in place. Our teams remain actively engaged with these relationships, and based on our analysis, believe that these situations are borrower-specific and do not reflect broader weakness within the portfolio. Importantly, Net Charge-Offs remain low at six basis points annualized, which is generally consistent with our long-term performance and reflects both the strength of our underwriting discipline and our ability to effectively manage credit relationships when challenges arise. Our outlook for both our markets and our franchise remains positive. At the same time, we recognize that factors such as geopolitical developments, monetary policy decisions, and housing market conditions remain largely outside of our control and can influence our customers' environment and behavior.

Speaker #4: Our teams remain actively engaged with these relationships, and based on our analysis, believe that these situations are borrower-specific and do not reflect broader weakness within the portfolio.

Speaker #4: Importantly, net charge-offs remain low at 6 basis points annualized, which is generally consistent with our long-term performance and reflects both the strength of our underwriting discipline and our ability to effectively manage credit relationships when challenges arise.

Speaker #4: Our outlook for both our markets and our franchise remains positive. At the same time, we recognize that factors such as geopolitical developments, monetary policy decisions, and housing market conditions remain largely outside of our control and can influence our customers' environment and behavior.

Speaker #4: One of the advantages of our community banking model is the depth of our customer relationships. Which allows us to identify emerging risks early and respond quickly, and will continue to take a proactive approach as the macroeconomic environment evolves.

Michael Mettee: One of the advantages of our community banking model is the depth of our customer relationships, which allows us to identify emerging risks early and respond quickly, and we'll continue to take a proactive approach as the macroeconomic environment evolves. With respect to capital, we remain in a position of considerable strength, supported by robust capital ratios and a strong liquidity profile. As Chris mentioned, we completed another meaningful share repurchase transaction during the quarter from a charity that received shares from the Ayers' ownership. In total, we repurchased approximately 3% of our outstanding shares during the quarter. Our capital deployment strategy remains centered on supporting organic growth while maintaining the flexibility to pursue opportunities that enhance shareholder value, like the repurchase this quarter. We continually evaluate a range of capital allocation alternatives and move on the opportunities that are strategically compelling and economically attractive.

Speaker #4: With respect to capital, we remain in a position of considerable strength, supported by a robust capital ratio and a strong liquidity profile. As Chris mentioned, we completed another meaningful share repurchase transaction during the quarter from a charity that received shares from the Arizona ownership, and in total, we repurchased approximately 3% of our outstanding shares during the quarter.

Speaker #4: Our capital deployment strategy remains centered on supporting organic growth, while maintaining the flexibility to pursue opportunities that enhance shareholder value, like the repurchase this quarter.

Speaker #4: We continually evaluate a range of capital allocation alternatives and move on opportunities that are strategically compelling and economically attractive. As a result, our capital ratios remain well above the regulatory requirements, with a common equity Tier 1 ratio of 11%, a Tier 1 leverage ratio of 10.1%, and a total risk-based capital of 12.9%.

Michael Mettee: As a result, our capital ratios remain well above the regulatory requirements with a Common Equity Tier 1 ratio of 11%, a Tier 1 Leverage Ratio of 10.1%, and a Total Risk-Based Capital of 12.9%. In closing, I'd like to thank our associates for their hard work, dedication, and continued commitment to our customers. We enter the H2 of the year with strong momentum, healthy pipelines, and confidence in the opportunities ahead. With that, I'll turn the call back over to Chris.

Speaker #4: In closing, I'd like to thank our associates for their hard work, dedication, and continued commitment to our customers. We entered the second half of the year with strong momentum, healthy pipelines, and confidence in the opportunities ahead.

Speaker #4: With that, I'll turn the call back over to Chris.

Speaker #1: All right. Thank you, Michael, and thanks to everybody for tuning into the call this morning and for your interest enough to be financial. Operator, at this time, I'd like to open the line for questions.

Chris T. Holmes: All right. Thank you, Michael, and thanks to everybody for tuning in to the call this morning and for your interest in FB Financial. Operator, at this time, I would like to open the line for questions.

Chris Holmes: All right. Thank you, Michael, and thanks to everybody for tuning in to the call this morning and for your interest in FB Financial. Operator, at this time, I would like to open the line for questions.

Speaker #3: And at this time, we will open the line for questions. If you would like to ask a question, you may press star and then 1 using a touchstone telephone.

Operator: At this time, we will open the line for questions. If you would like to ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. We will pause momentarily to assemble the roster. Our first question today comes from Catherine Mealor from KBW. Please go ahead with your question.

Speaker #3: To withdraw your question, you may press star two. If you are using a speakerphone, we ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality.

Speaker #3: Once again, that is star, and then 1 to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Catherine Miller from KBW.

Speaker #3: Please go ahead with your question.

Speaker #2: Thanks. Good morning.

Michael Mettee: Good morning, Catherine.

Catherine Mealor: Thanks. Good morning.

Speaker #5: Good morning, Catherine.

Chris Holmes: Good morning, Catherine.

Speaker #1: Morning.

Speaker #2: I wanted to start on deposit cost. It was great to see the deposit cost decline a basis point this quarter. I know you mentioned that new production is coming on around 2.60% to 2.70%, but I just wanted to see if you could give a little bit more color around deposit flows, your confidence in still being able to grow deposits at a mid-single-digit pace, and maybe, from a big-picture perspective, where you think overall deposit costs will trend for the rest of the year.

Catherine Mealor: Morning.

Michael Mettee: Morning.

Catherine Mealor: I wanted to start on deposit costs. It was great to see the deposit costs decline 1 basis point this quarter. I know you mentioned that new production's coming on around 260 to 270, just wanted to see if you could just give a little bit more color around deposit flows, your confidence in still being able to grow deposits at a mid-single-digit pace. Maybe just from a big picture perspective, where you think overall deposit costs trend for the rest of the year. Is this kind of a couple bips increase per quarter kind of thing? How should we just think of the trajectory of the overall deposit cost in a couple of quarters? Thanks.

Catherine Mealor: Just give a little bit more color around deposit flows, your confidence in still being able to grow deposits at a mid-single-digit pace. Maybe just from a big picture perspective, where you think overall deposit costs trend for the rest of the year. Is this kind of a couple bips increase per quarter kind of thing? How should we just think of the trajectory of the overall deposit cost in a couple of quarters? Thanks.

Speaker #2: Is this kind of a couple bps kind of increase per quarter kind of thing, or how can we just kind of think of the trajectory of the overall deposit cost the next couple quarters?

Speaker #2: Thanks.

Speaker #1: Hey, Catherine, and good morning. I'm going to—this is Chris, and I'm going to take the first question, just kind of overall. I would say this: deposits have been challenging, but that's almost— I don't think we even have to say that anymore, as I tell our team every day.

Chris T. Holmes: Hey, Catherine, good morning. This is Chris. I'm going to take the first, just kind of overall. I would say this, deposits have been challenging, I don't think we even have to say that anymore. As I tell our team every day, I say, Today's going to be the easiest day of your career to get deposits, because tomorrow it's going to be a little harder. I think that whole world is continuing. You've heard me say this before, as we have private conversations, I think it's going to continue to be a challenge, just because of the many different payment streams that you have now and the many different ways to hold money. We're aware of that. We continue to adjust our strategy to meet that. That's a big picture.

Chris Holmes: Hey, Catherine, good morning. This is Chris. I'm going to take the first, just kind of overall. I would say this, deposits have been challenging, I don't think we even have to say that anymore. As I tell our team every day, I say, Today's going to be the easiest day of your career to get deposits, because tomorrow it's going to be a little harder. I think that whole world is continuing. You've heard me say this before, as we have private conversations, I think it's going to continue to be a challenge, just because of the many different payment streams that you have now and the many different ways to hold money. We're aware of that. We continue to adjust our strategy to meet that. That's a big picture.

Speaker #1: I said, today is going to be the easiest day of your career to get deposits, because tomorrow it's going to be a little harder.

Speaker #1: I think that whole world is and you've heard me say this before, and as we have private conversations, I think it's going to continue to be a challenge.

Speaker #1: Just because of the many different payment streams that you have now and the many different types different ways to hold money. And so we're aware of that.

Speaker #1: We continue to adjust our strategy to meet that. And so that's a big picture. When you narrow that in over the next couple of quarters, I'm going to let Michael talk a little bit more specifically about our flows but we saw success.

Chris T. Holmes: When you narrow that in over the next couple of quarters, I'm going to let Michael talk a little bit more specifically about our flows. We saw success, obviously, this quarter. Non-interest-bearing, as you saw, we had a nice increase in non-interest-bearing. That's a focus for us. We also did a little bit more in broker than we usually do, that's because it was just cheaper. That's not something that we like to use to fund our balance sheet, when it's cheaper, we'll use it. It swings, it swung down. It's a little more expensive. We think it's a focus, going to continue to be a focus, it's going to be tough, we think we can do similar to what we did in the Q2.

Chris Holmes: When you narrow that in over the next couple of quarters, I'm going to let Michael talk a little bit more specifically about our flows. We saw success, obviously, this quarter. Non-interest-bearing, as you saw, we had a nice increase in non-interest-bearing. That's a focus for us. We also did a little bit more in broker than we usually do, that's because it was just cheaper. That's not something that we like to use to fund our balance sheet, when it's cheaper, we'll use it. It swings, it swung down. It's a little more expensive. We think it's a focus, going to continue to be a focus, it's going to be tough, we think we can do similar to what we did in the Q2.

Speaker #1: Obviously, this quarter, non-interest bearing—as you saw—we had a nice increase in non-interest bearing. That's a focus for us. We also did a little bit more in broker than we usually do, but that's because it was just cheaper.

Speaker #1: That's not something that we like to use to fund our balance sheet, but when it's cheaper, we use it. It has swung. It swings, and it's swung now.

Speaker #1: It's a little more expensive, so we think it's a focus. It's going to continue to be a focus, and it's going to be tough, but we think we can do something similar to what we did in the second quarter.

Speaker #1: We think we can do close to that throughout the balance of the year. So Michael, I'll let you take it from there.

Chris T. Holmes: We think we can do close to that throughout the balance of the year. Michael, I'll let you take from there.

Chris Holmes: We think we can do close to that throughout the balance of the year. Michael, I'll let you take from there.

Speaker #5: Yeah, good morning, Catherine. And as well said, Chris. I think the decrease—the modest decrease—in deposit costs was actually driven more by mix than it was by competition, as you noted.

Michael Mettee: Yeah. Good morning, Catherine, and as well said, Chris. I think the modest decrease in deposit cost is actually driven more by mix than it was competition. As you noted, and I mentioned, Catherine, that 260 to 270 range blended on new deposits. I think money market rates have continued to move higher from a competitive perspective. At the same time, we've seen CD rates modestly decline in our book, but hold pretty steady. You kind of have a tale of three different types of deposits between non-interest-bearing money market and CDs. Customers are kind of moving in and out of where they're most comfortable, whether that's locking in duration or wanting liquidity. It's interesting. I think you do see deposit costs move higher, just because as Chris mentioned, it's never going to get easier than now.

Speaker #5: And I mentioned, Catherine, that 2.60% to 2.70% range, blended on new deposits. I think money market rates have continued to move higher from a competitive perspective.

Speaker #5: At the same time, we've seen CD rates modestly decline in our book, but hold pretty steady. So you kind of have a tale of three different types of deposits between non-interest-bearing, money market, and CDs.

Speaker #5: And customers are kind of moving in and out of where they're most comfortable. Whether that's locking in duration, or wanting liquidity. So it's interesting.

Speaker #5: I think you do see deposit costs move higher, just because, as Chris mentioned, it's never going to get easier than now. Fed funds have been relatively stable for six months or so, and so that's helped with our index deposits.

Michael Mettee: Your fed funds has been relatively stable for six months or so, that's helped with our index deposits remain flat. We're seeing new money market in that 4%-plus range from a lot of competitors. I think you continue to see new deposits come on at a higher cost, and it's just cost of customer acquisition is going up. The way you keep deposit costs modest is by deepening relationships and growing wallet share and creating value for customers. The team did a good job with that. We do understand that customer acquisition is going to be more expensive.

Speaker #5: Remain flat, but we're seeing new money market in that 4%+ range from a lot of competitors. So I think you'll continue to see new deposits come on at a higher cost, and it's just cost to customer acquisition going up.

Speaker #5: And the way you keep deposit costs modest is by deepening relationships and growing wallet share and creating value for customers. And so the team did a good job with that, but we do understand that customer acquisitions can be more expensive.

Speaker #1: Hey, can I just say, when we say 'deepening relationships,' we mean having an operating account, and we don't mean getting relationships that become lazy and we don't pay them a market rate.

Chris T. Holmes: Can I just say one other thing? When we say deepening relationships, we mean having an operating account. We don't mean getting relationships that become lazy, and we don't pay them a market rate. That is not what we mean. When we say getting relationships, in our language, that means getting the operating account.

Chris Holmes: Can I just say one other thing? When we say deepening relationships, we mean having an operating account. We don't mean getting relationships that become lazy, and we don't pay them a market rate. That is not what we mean. When we say getting relationships, in our language, that means getting the operating account.

Speaker #1: We don't that is not what we mean. When we say getting relationships, in our language, that means getting an operating account.

Speaker #2: That makes sense. And to be clear, that 260 to 270, that's blended total. So that includes the NIB growth you had, the kind of 4% money market you’re talking about, and then also the maybe more stable CDs.

Catherine Mealor: That makes sense. To be clear, that 260 to 270, that's blended total. That includes the NIB growth you had, the kind of 4% money market you're talking about, and then also the kind of maybe more stable CDs. Is that a way to think about that?

Speaker #2: Is that a way to think about that?

Speaker #5: 100%. Yeah. I mean, so blended right up our cost of deposit 226. Even on a blended basis, new deposits are coming in higher than our deposit costs.

Michael Mettee: A 100%. Blended rate of our cost deposit is 226. Even on a blended basis, new deposits are coming in higher than our deposit cost.

Speaker #2: And then maybe on the other side of the margin—just thinking about loan yields—can you talk about what the competition looks like on the lending side?

Catherine Mealor: Maybe the other side of the margin, just thinking about loan yields. Can you talk about what the competition looks like on the lending side? Is there still enough back book repricing opportunity to still be able to offset the higher deposit costs with higher asset yields on the loan side?

Speaker #2: And is there still enough backbook repricing opportunity to still be able to offset the higher deposit costs with higher asset yields on the loan side?

Speaker #5: Well, I mean, I'd say loans are really almost just as competitive as deposits. I think it's important, on the relationship side, that you're getting first shot with your clients.

Michael Mettee: Well, I'd say loans really almost just as competitive as deposits. I think it's important on the relationship side that you're getting first shot with your clients to help them with financing, whether it's refinancing or new projects, and I think we're getting our fair share of those. Being around 640-ish for June really is what I'd say is kind of spot rates. We're seeing that start to feel a little bit of pressure as well. It's equally as competitive, although the economic environment has allowed for growth in a lot of business across our markets for us and our competitors, I would say. Repricing, we've had quite a bit repriced from kind of that 2021 vintage, and there's probably $1 billion or so to go in the H2 of the year. I think you got a couple things going on.

Speaker #5: To help them with financing, whether it's refinancing or new projects. And I think we're getting our fair share of those. Being around 640-ish for June, really, is what I'd say is kind of spot rates.

Speaker #5: But we're seeing that start to feel a little bit of pressure as well. And so, I mean, it's equally as competitive, although the economic environment has allowed for growth in a lot of businesses across our markets, for us and our competitors, I would say.

Speaker #5: Repricing—yeah, we've had quite a bit repriced from kind of that 2021 vintage, and there's probably a billion or so to go in the back half of the year.

Speaker #5: But I think you've got a couple of things going on. You've got a yield curve steepening, which is actually good for us. You've got 50%—52% of our book is floating.

Michael Mettee: You got a yield curve steepening, which is actually good for us. You got 50%, 52% of our book is floating. Theoretically, that should reprice higher, it's coming on at tighter yields than we'd have expected if we started the year and looked at repricing. It's a little bit of a squeeze there as well, which is why we kind of have a blended margin reduction of a couple basis points a quarter through the end of the year.

Speaker #5: So, theoretically, that's repriced higher, but it's coming on at tighter yields than we'd expected if we started the year and looked at repricing. So it's a little bit of a squeeze there as well.

Speaker #5: Which is why we have a blended margin reduction of a couple of basis points a quarter, through the end of the year.

Speaker #2: Great, that makes sense. Thanks. Great quarter, guys. Appreciate it.

Catherine Mealor: Great. That makes sense. Thanks. Great quarter, guys. Appreciate it.

Speaker #1: Thanks, Catherine.

Michael Mettee: Thanks, Kevin.

Speaker #3: Our next question comes from Steven Scouten from Piper Sandler. Please go ahead with your question.

Operator: Our next question comes from Stephen Scouten from Piper Sandler. Please go ahead with your question.

Speaker #4: Yeah. Thanks, everyone. I just wanted to dig into the loan growth here a little bit. Obviously, very strong and helped by y'all retaining more of the residue mortgages.

Stephen Scouten: Yeah. Thanks, everyone. Just wanted to dig into the loan growth here a little bit. Obviously very strong and helped by y'all retaining more of the resi mortgages. I'm just wondering if moving forward, that's likely to be a continued strategy and just with growth being led by resi and seemingly non-owner occupied CRE, is that also composition-wise what we should expect to see? Would you hope that that would be weighted more towards C&I potentially in the future?

Speaker #4: I'm just wondering if, moving forward, that's likely to be a continued strategy. And just with growth being led by resi and seemingly non-owner-occupied CRE, is that also, composition-wise, what we should expect to see, or would you hope that that would be weighted more towards CNI potentially in the future?

Michael Mettee: Yeah. It should be a little more weighted towards C&I. We certainly don't mind those categories that you mentioned, we likely get some nice C&I between now and the end of the year. On the mortgage, generally, we originate to sell. We will keep some things from time to time, we'll keep a little bit, and we have gotten much better at making sure we convert those to full customers. Used to, we would sell every loan. Still our strategy is to sell those. From time to time, we may keep some pieces. Yeah. Stephen, good morning. Just to dive into that a little bit, I think, where the secondary market is, when you sell a loan, a lot of the servicing is getting sold away because of what third parties are willing to pay for servicing.

Speaker #5: Yeah, it should be a little more weighted towards CNI. We certainly don't mind those categories that you mentioned, but we'll likely get some nice CNI between now and the end of the year.

Speaker #5: And on the mortgage generally, we originate to sell. We would keep some things that are from time to time, we'll keep a little bit and we have gotten much better at making sure we convert those to full customers and so used to, we would sell every loan but still that our strategy is to sell those but from time to time, we may keep some pieces.

Speaker #5: Yeah. I mean, just Steven, good morning. Just to dive into that a little bit, I think where the secondary market is, when you sell a loan, a lot of the servicing is getting sold away because of what third parties are willing to pay for servicing.

Speaker #5: So we're disrupting the client a little bit, and our ability to grow deposits off that business is a little more complicated. So, in the first quarter into the second quarter, we got a little bit more aggressive on our portfolio rates.

Michael Mettee: We're disrupting the client a little bit, and our ability to grow deposits off that business is a little more complicated. In Q1 into Q2, we got a little bit more aggressive on our portfolio rates, which has created a lot of customer relationship opportunities, turning mortgage clients into full bank clients, which is a focus that's been really successful. I will say, like, the headline number you mentioned, $145 million or so on residential real estate, about $60 million of that's actually kind of 1 to 4 families, $50 million's multifamily. You have some line of credit things that are part of that as well. It's not all coming specifically from the mortgage division. It's across the banking footprint. It's a little bit of point of clarity that I could probably point to versus converting the mortgage pipeline.

Speaker #5: Which has created a lot of customer relationship opportunities, turning mortgage clients into full bank clients, which is a focus. It's been really successful. I will say the headline number you mentioned—$145 million or so on residential real estate.

Speaker #5: About $60 million of that is actually kind of one-to-four family. $50 million is multifamily. And then you have some line of credit things that are part of that as well.

Speaker #5: So, it's not all coming specifically from the mortgage division; it's across the banking footprint. That's a little bit of a point of clarity that I could probably point to versus converting the mortgage pipeline.

Speaker #4: Got it. Makes sense. And then, kind of the guide to the lower end of the growth rates and mid- to high-single digits—I think you said you're currently seeing towards the lower end of that range.

Stephen Scouten: Got it. Makes sense. Kind of the guide to the lower end of the growth range of mid to high single digits, I think you said currently sitting towards the lower end of that range. What's the expected kind of constraint there? Because it seems like maybe you're kind of at the mid to higher end of that range currently. Is that more loan-to-deposit ratio getting to a point where funding becomes more essential? Is it flow down in the pipeline? Just kind of context on why you think that might be towards the lower end there.

Speaker #4: What's the expected kind of constraint there? Because it seems like maybe you're kind of at the mid-to-higher end of that range currently.

Speaker #4: So, is that higher loan-to-deposit ratio getting to a point where funding becomes more essential? And is there a slowdown in the pipeline?

Speaker #4: Just some context on why you think that might be towards the lower end there?

Speaker #5: Yeah. I'm glad you asked that question, Steven, because I obviously didn't communicate that well. Loan growth, we're saying mid to high single digits. I think we feel good about loan growth is.

Michael Mettee: Yeah, I'm glad you asked that question, Stephen, because I obviously didn't communicate that well. Loan growth, we're saying mid to high single digits. I think we feel good about what loan growth is. Deposits, it's more of a competitive kind of way that we're thinking about it into that mid-single digits. As Chris mentioned, funding kind of was a lot cheaper from a brokered perspective. It's cheaper to borrow, those things have kind of flipped. You got to make sure you're always getting core relationships. I think the beauty of our balance sheets, we've got a lot of optionality to take advantage of opportunities as they arise because we have such a low brokered percentage. We can fund the bank in a lot of different ways while we build core relationships.

Speaker #5: Deposits, it's more of a competitive kind of way that we're thinking about it, in that mid-single digits. As Chris mentioned, funding was a lot cheaper from a brokerage perspective.

Speaker #5: It's cheaper to borrow. It's cheaper; those things have kind of flipped, and so you've got to make sure you're always getting core relationships. So I think the beauty of our balance sheet is we've got a lot of optionality to take advantage of opportunities as they arise because we have such a low brokered percentage.

Speaker #5: And we can fund the bank in a lot of different ways. While we build core relationships. So for clarity, it was the deposit piece that's that kind of mid single digits.

Michael Mettee: For clarity, it was the deposit piece that's kind of mid-single digits. Loan growth, we think, is that higher single-digit number.

Speaker #5: Loan growth, we think, is that higher single-digit number.

Speaker #4: Oh, I'm sorry. I'm sure you said it right; I probably just misheard it. Apologies there. And then, lastly for me, just on the repurchase—I think you kind of noted, obviously, the charity impact there.

Stephen Scouten: I'm sorry. I'm sure you said it right. I probably just misheard it. Apologies there. Lastly from me, just on the repurchase, I think you kind of noted, obviously, the charity impact there. Maybe that was two-thirds. I guess ex that, it would have been around 500,000 shares, give or take. Is that a way to think about the use of the remainder of the $175 million repurchase authorization moving forward, or would it be slowed down given the acceleration of that charity-related repurchase? Just how do we think about that capital return from here?

Speaker #4: Maybe that was two-thirds. So I guess X that it would have been around $500,000 shares, give or take. Is that a way to think about the use of the remainder of the 175 million repurchase authorization moving forward, or would it be slowed down given the acceleration of that charity-related repurchase, or just how do we think about that capital return from here?

Speaker #5: Yeah, so your approximations are right. Outside of that large repurchase, it would have been plus or minus half a million shares, and I think you're thinking of it correctly.

Michael Mettee: Your approximations are right. Outside of that large repurchase, it would have been ± half a million shares. I think you're thinking of it correctly. Of course, we're price sensitive when we think about repurchase, at least to some degree. We anticipate that we can repurchase. That it's going to continue to be an option for us to repurchase in the open market or to maybe make some bulk repurchases from time to time. That could become an option for us as well. Should be maintained as an option for us as well.

Speaker #5: Of course, we're price sensitive when we think about repurchase. At least to some degree. And but we anticipate that we can repurchase it's going to continue to be an option for us to repurchase in the open market or to maybe make some bulk repurchases from time to time.

Speaker #5: That could become an option for us as well. 'Should maintain' should be maintained as an option for us as well.

Speaker #4: Got it. Thanks so much for the color. Really nice quarter. Sounds like a lot of things are going well. Appreciate it.

Stephen Scouten: Got it. Thanks so much for the color. Really nice quarter. Sounds like a lot of things are going well. Appreciate it.

Speaker #5: Thanks, Steven. Appreciate it.

Chris T. Holmes: Thanks, Stephen. Appreciate it.

Michael Mettee: Thanks, Stephen. Appreciate it.

Speaker #1: Our next question comes from Russell Gunther from Stephens. Please go ahead with your question.

Operator: Our next question comes from Russell Gunther from Stephens. Please go ahead with your question.

Speaker #5: Hey, good morning, guys. Just a quick follow-up in terms of the morning. On the loan growth discussion, as you think about the organic opportunity going forward, are incremental LPOs something you guys would look to do?

Russell Gunther: Hey, good morning, guys. Quick just follow-up.

Chris T. Holmes: Hey, Russell.

Chris Holmes: Hey, Russell.

Russell Gunther: in terms of the morning on the loan growth discussion. As you think about the organic opportunity going forward, are incremental LPOs something you guys would look to do? If so, directionally, geographically, where might that take you?

Speaker #5: And if so, directionally, geographically, where might that take you? So any time we do an LPO, we're doing that with intent to be in the market with a full banking offering.

Chris T. Holmes: Anytime we do an LPO, we're doing that with intent to be in the market, with a full banking offering. We usually do that by going in commercial first, then over time we'll get a little more retail. That's usually a long period of time. When we think about that, usually, we've described the geographies that we're interested in, and they're generally around our current geographies, mostly east and south of where we are. We actually think of that by the bankers first. We have this targeted geography, but when we get, it's a little like even an acquisition. We think through those beforehand. We've got folks that we're looking at, thinking about in different places, and if we get the opportunity, then we will do it. It's the old phrase, banks are sold, they're not bought.

Chris Holmes: Anytime we do an LPO, we're doing that with intent to be in the market, with a full banking offering. We usually do that by going in commercial first, then over time we'll get a little more retail. That's usually a long period of time. When we think about that, usually, we've described the geographies that we're interested in, and they're generally around our current geographies, mostly east and south of where we are. We actually think of that by the bankers first. We have this targeted geography, but when we get, it's a little like even an acquisition. We think through those beforehand. We've got folks that we're looking at, thinking about in different places, and if we get the opportunity, then we will do it. It's the old phrase, banks are sold, they're not bought.

Speaker #5: And we usually do that by going in commercial first and then over time, we'll get a little more retail but that's usually a long period of time.

Speaker #5: And so, when we think about that, usually we've described the geographies that we're interested in, and they're generally around our current geographies.

Speaker #5: Mostly east and south of where we are. And we actually think of that by the bankers first. We have this targeted geography, but when we get it's a little like even an acquisition.

Speaker #5: We think through those beforehand. We've got folks that we're looking at—thinking about—in different places. And if we get the opportunity, then we will do it.

Speaker #5: And so it's the old phrase, banks are sold. They're not bought. Bankers are a little bit the same way. It comes they come available for whatever reason.

Chris T. Holmes: Bankers are a little bit the same way. They come available, for whatever reason, and that's when we tend to make the move.

Chris Holmes: Bankers are a little bit the same way. They come available, for whatever reason, and that's when we tend to make the move.

Speaker #5: And that's when we tend to make the move. Got it. Okay. Thanks, Chris. And then just one quick follow-up on the margin for me.

Russell Gunther: Got it. Okay. Thanks, Chris. Then, just one quick follow-up on the margin for me. You guys are dialing in a rate hike later this year or this quarter. Just in isolation, could you remind us of what that means to the margin for you guys and on the funding side, quantify where index deposits stand today?

Speaker #5: You guys are dialing in a rate hike, later this year or this quarter. Just in isolation, could you remind us of what that means to the margin for you guys?

Speaker #5: And on the funding side, quantify where index deposits stand today.

Speaker #2: Yeah, Russell, good morning. We're slightly asset sensitive, so incrementally, you would think that a rate hike would actually help because loan yields are variable—52%.

Michael Mettee: Yeah. Russell, good morning. We're slightly asset sensitive, incrementally, you would think that a rate hike would actually help, because loan yields were variable, 52%. Our investment portfolio, while small, it's mighty, with a floating rate of 55% to 60%. Higher rates actually helps that to the tune of a couple million dollars. Maybe it's the being in the hand-to-hand combat every day, I see what our teams are dealing with. We feel like that's pretty much offset by the deposit growth story, and where margin, where rates are headed on that. You'd see incremental improvements, but I think the competition kind of eats into that a bit. We're probably I would say 40% indexed on total deposits. I guess 67%, if you think about money market, give or take.

Speaker #2: Our investment portfolio—while small, it's mighty, with a floating rate of 55 to 60 percent. So, higher rates actually help that to the tune of a couple million dollars.

Speaker #2: We just maybe it's the being in the hand-to-hand combat every day. I see what our teams are dealing with. We feel like that's pretty much offset by the deposit growth story.

Speaker #2: And where margin, where rates are headed on that. So yeah, you'd see incremental improvements, but I think the competition kind of eats into that a bit.

Speaker #2: And we're probably, I would say, 40% indexed on total deposits, and 60–70% if you think about money market, give or take.

Speaker #5: Great. Okay. Thank you both for taking my questions. Thanks, Russell.

Russell Gunther: Great. Okay. Thank you both for taking my questions.

Michael Mettee: Thanks, Russell.

Chris T. Holmes: Thanks, Russell.

Chris Holmes: Thanks, Russell.

Speaker #1: Our next question comes from Dave Rochester from Canter. Please go ahead with your question.

Operator: Our next question comes from Dave Rochester from Cantor. Please go ahead with your question.

Speaker #4: Hey, good morning, guys.

Dave Rochester: Hey, good morning, guys.

Speaker #5: Good morning, Dave.

Chris T. Holmes: Good morning, Dave.

Chris Holmes: Good morning, Dave.

Speaker #4: On your loan outlook, it sounds like you guys are pretty bullish on the back half of the year, and you just wrapped up a solid quarter of growth across a number of buckets.

Dave Rochester: On your loan outlook, it sounds like you guys are pretty bullish on the back half of the year, and you just wrapped up a solid quarter of growth across a number of buckets. Can you just maybe give an update on any other paydown activity you may see coming up that you know about? What's stopping you guys from hitting the top end of that mid to high singles range, given the momentum you're seeing?

Speaker #4: Can you just maybe give an update on any other paydown activity you may see coming up that you know about? And what's stopping you guys from hitting the top end of that mid to high singles range given the momentum you're seeing?

Speaker #2: Yeah, Dave. Good morning. Actually, that's a encyclical question there. I mean, I'll give you an example. We had one of the largest production quarters we've had in a long time out of the Nashville market.

Michael Mettee: Yeah, Dave, good morning. Actually, that's an insightful question there. I'll give you an example. We had one of the largest production quarters we've had in a long time out of the Nashville market. It's really, really strong. We actually ended up bouncing. If you look just at Nashville, it's flat because of payoff activity and $hundreds of millions on both sides. In a lot of our markets, you're still seeing increased payoff activity, especially in highly competitive ones like this one. I think that's kind of what we're trying to deal with. You saw the 11%-ish growth, because we have contributors across the footprint. We have really strong economies, that's why we're really bullish. The teams are out working hard every day to acquire new clients, and provide value to those prospects.

Speaker #2: I mean, it's really, really strong. But we actually ended up bouncing. If you look just at Nashville, it's flat because of payoff activity and hundreds of millions of dollars on both sides.

Speaker #2: So in a lot of our markets, you're still seeing increased payoff activity, especially in the highly competitive ones like this one. So I think that's kind of what we're trying to deal with.

Speaker #2: But then you saw the 11%‑ish growth because we have contributors across the footprint. We have really strong economies, and so that's why we're really bullish.

Speaker #2: And the teams are out working hard every day to acquire new clients and provide value to those prospects. So, pipeline—I tell you, the pipeline is just as big as when we started the second quarter.

Michael Mettee: Pipeline, I tell you, the pipeline's just as big as when it was we started Q2. That's after you've seen the growth, that's why we're pretty bullish. We've been really successful on a couple recent customer competitive situations, that gives us a lot of confidence in where we're headed as well.

Speaker #2: And that's after you've seen the growth, so that's why we're pretty bullish. We've been really successful in a couple of recent customer competitive situations.

Speaker #2: And that gives us a lot of confidence in where we're headed as well.

Speaker #4: Sounds good. And you mentioned also success in attracting talent, and seeing more potential for that in the back half of the year. Can you just catch us up on those recent hires you've had, and just give an update on how you're thinking about the size of that opportunity to pick up more talent?

Dave Rochester: Sounds good. You mentioned, also success in attracting talent, and seeing more potential for that in H2 of the year. Can you just catch us up on those recent hires you've had and just give an update on how you're thinking about the size of that opportunity to pick up more talent, just given the stronger competitive pressures for talent out there with all the new entrants and whatnot? Thanks.

Speaker #4: Just given the stronger competitive pressures for talent out there with all the new entrants and whatnot. Thanks.

Speaker #2: Yeah, thanks. Thanks, Dave. So on attracting talent, we have had some wins there also. And so we continue to add and the way that we look at it is maybe individual to us.

Chris T. Holmes: Yeah. Thanks, Dave. On attracting talent, we have had some wins there also. We continue to add, the way that we look at it is maybe individual to us. I don't know that we look at it like everybody. For us, it's long-term. Our key metric is revenue growth. When we're tracking talent, we're really thinking about the right talent that fits us and is going to be here long term. We're trying to make good decisions there. We don't view that as a quarterly metric. We view that as long term. Some folks we've been talking to for years, at the right time, we feel like those folks will come over. We added some during the quarter. Frankly, it's a lot like when we're reporting quarterly earnings. You've got a 30 June cutoff.

Chris Holmes: Yeah. Thanks, Dave. On attracting talent, we have had some wins there also. We continue to add, the way that we look at it is maybe individual to us. I don't know that we look at it like everybody. For us, it's long-term. Our key metric is revenue growth. When we're tracking talent, we're really thinking about the right talent that fits us and is going to be here long term. We're trying to make good decisions there. We don't view that as a quarterly metric. We view that as long term. Some folks we've been talking to for years, at the right time, we feel like those folks will come over. We added some during the quarter. Frankly, it's a lot like when we're reporting quarterly earnings. You've got a 30 June cutoff.

Speaker #2: I don't know that we look at it like everybody. For us, it's long-term. And so, our key metric is revenue growth. And so when we're tracking talent, we're really thinking about the right talent.

Speaker #2: That fits us and is going to be here long-term. And so we're trying to make good decisions there. And so we don't view that as a quarterly metric.

Speaker #2: We view that as long-term. And so we some folks, we've been talking to for years. And at the right time, we feel like we feel like we'll those folks will come over.

Speaker #2: We added some during the quarter. Frankly, it's a lot like when we're reporting quarterly earnings. You've got a June 30th cutoff. We probably added more in the last, I don't know, two weeks than we did the last two months.

Chris T. Holmes: We probably added more in the last, I don't know, 2 weeks, than we did the last 2 months. Again, you don't really control that pace. At least that's not the way we look at it. We look at it like, "Hey, we're going to do what we do and continue to attract talent for the right reasons," because they look at us and they want to be here. We think we'll win that battle short term and long term. That's how we view it. It's important for our leaders to be talking to peers every day and to be recruiting every day. That's part of how we do business and how we go about it.

Chris Holmes: We probably added more in the last, I don't know, 2 weeks, than we did the last 2 months. Again, you don't really control that pace. At least that's not the way we look at it. We look at it like, "Hey, we're going to do what we do and continue to attract talent for the right reasons," because they look at us and they want to be here. We think we'll win that battle short term and long term. That's how we view it. It's important for our leaders to be talking to peers every day and to be recruiting every day. That's part of how we do business and how we go about it.

Speaker #2: And so it's again, you don't really control that pace, at least that's not the way we look at it. We look at it like, hey, we're going to do what we do and continue to attract talent for the right reasons because they look at us and they want to be here.

Speaker #2: And so and we think we'll win that battle short-term and long-term. And so that's how we that's how we view it. It's important for our leaders to be talking to peers every day.

Speaker #2: And to be recruiting every day. And so that's just part of—that's part of how we do business and how we go about it.

Speaker #2: I'm going to go back and say one other thing that Michael was talking about on the and I think you were you asked a good question on bullish where we sound pretty bullish, but we said high single digits.

Chris T. Holmes: I'm going to go back and say one other thing that Michael was talking about on the. I think you asked a good question on bullish, where we sound pretty bullish, but we said high single digits. I think Michael's making a really good point. If you look at where our growth came from, and most people think, "Man, it's going to all be in Nashville." It was actually just quite different than that. Nashville was flat and the growth came from all the other places. If you looked at places like Birmingham, which it continues to do really well. If you looked at places like Auburn, where we're doing really well. Columbus, doing well. Columbus, Georgia. Some places in West Tennessee, man, are doing really well.

Chris Holmes: I'm going to go back and say one other thing that Michael was talking about on the. I think you asked a good question on bullish, where we sound pretty bullish, but we said high single digits. I think Michael's making a really good point. If you look at where our growth came from, and most people think, "Man, it's going to all be in Nashville." It was actually just quite different than that. Nashville was flat and the growth came from all the other places. If you looked at places like Birmingham, which it continues to do really well. If you looked at places like Auburn, where we're doing really well. Columbus, doing well. Columbus, Georgia. Some places in West Tennessee, man, are doing really well.

Speaker #2: If and I think Michael's making a really good point. If you look at where our growth came from and most people think, man, it's going to all be in Nashville.

Speaker #2: It was actually just quite different than that. Nashville was flat and the growth came from all the other places. And if you look at places like Birmingham, which is it continues to do really well.

Speaker #2: If you look at places like Auburn, where we're doing really well, Columbus is doing well—Columbus, Georgia. Some places in West Tennessee, man, are doing really well.

Speaker #2: A lot of our smaller communities are net contributors, and that's why we're bullish around the footprint, because we continue to have some pretty big payoffs in the Nashville market.

Chris T. Holmes: A lot of our smaller communities are net contributors, and that's why we're bullish around the footprint because we continue to have some pretty big payoffs in the Nashville market, but we're getting good production there. That's the reason that we're bullish, and certainly, we could exceed that, but right now, we're comfortable with that high single digits is what we're talking about.

Chris Holmes: A lot of our smaller communities are net contributors, and that's why we're bullish around the footprint because we continue to have some pretty big payoffs in the Nashville market, but we're getting good production there. That's the reason that we're bullish, and certainly, we could exceed that, but right now, we're comfortable with that high single digits is what we're talking about.

Speaker #2: That's it, but we're getting good production there, so that's the reason that we're bullish. And certainly, we could exceed that, but right now, we're comfortable with that. High single digits is what we're talking about.

Speaker #4: Sounds good. Appreciate all the color. Thanks.

Dave Rochester: Sounds good. Appreciate all the color. Thanks.

Speaker #2: Sure.

Chris T. Holmes: Sure.

Chris Holmes: Sure.

Speaker #1: Our next question comes from Brett Rabbiton from StoneX Group. Please go ahead with your question.

Operator: Our next question comes from Brett Rabatin from StoneX Group. Please go ahead with your question.

Speaker #5: Hey, guys. Good morning.

Brett Rabatin: Hey, guys. Good morning.

Chris T. Holmes: Good morning, Brett.

Chris Holmes: Good morning, Brett.

Speaker #2: Hey, guys. I wanted to talk about maybe some of the components of the loan growth from here, and I noticed the construction was continuing to be a little bit softer.

Brett Rabatin: Hey, guys. Wanted to talk about maybe some of the components of the loan growth from here. I noticed that construction was continued to be a little bit softer linked quarter, when you guys kind of got back into the market late last year and were doing some more stuff. Any thoughts on the construction pipeline and if you guys are looking maybe to add on the construction or if that's an area that you're avoiding, just given credit risk or maybe a hot market in some aspects? Then just wanted to hear on the specialized lending side. You talked about SBA last quarter. If there's anything else that you guys were taking a look at and if you expected the specialized lines to maybe help growth as well?

Speaker #2: Link quarter. When you guys kind of got back into the market late last year and we're doing some more stuff. Any thoughts on the construction pipeline and if you guys are looking maybe to add on the construction or if that's an area that you're avoiding just given credit risk or maybe a hot market and some aspects?

Speaker #2: And then just wanted to hear on the specialized lending side. You talked about SBA last quarter. If there was anything else that you guys were taking a look at, and if you expected the specialized lines to maybe help grow as well.

Speaker #2: Yeah, Brett, so first off, on construction—no, we're not avoiding construction at all. I think there's probably some risk element buried in the question there.

Chris T. Holmes: Yeah, Brett. First off, on construction, no, we're not avoiding construction at all. I think there's probably a risk element buried in the question there is, are we scared of that risk? No. We're really not scared of that construction risk, and our markets continue to perform well. We're confident there. Of course, we manage our construction concentration and have and will continue to, but it's really where opportunities come from. We do have a couple of construction projects in the pipeline that will span the next, man, several quarters. Even years. Those will be owner-occupied type construction as opposed to non-owner occupied type construction. They're large, and they span time, so they span over quarters. Again, excited about kind of where that sits, but we're certainly not avoiding it, in terms of an asset class for us.

Chris Holmes: Yeah, Brett. First off, on construction, no, we're not avoiding construction at all. I think there's probably a risk element buried in the question there is, are we scared of that risk? No. We're really not scared of that construction risk, and our markets continue to perform well. We're confident there. Of course, we manage our construction concentration and have and will continue to, but it's really where opportunities come from. We do have a couple of construction projects in the pipeline that will span the next, man, several quarters. Even years. Those will be owner-occupied type construction as opposed to non-owner occupied type construction. They're large, and they span time, so they span over quarters. Again, excited about kind of where that sits, but we're certainly not avoiding it, in terms of an asset class for us.

Speaker #2: Are we scared of that risk? No. We're really not scared of that construction risk, and our markets continue to perform well, so we're confident there.

Speaker #2: We, of course, manage our construction concentration and have and will continue to. But it's really where opportunities come from. We do have a couple of construction projects in the pipeline that will span the next, man, several quarters.

Speaker #2: And so, even years. And so, those will be owner-occupied type construction as opposed to non-owner-occupied type construction. But they're large, and they span time.

Speaker #2: So they span over quarters. And so, again, excited about kind of where that sits, but we're certainly not avoiding it in terms of an asset class for us.

Speaker #2: And then, on the specialized specialty lending group, which is mostly made up of manufactured housing, we continue to want to grow that line as well.

Chris T. Holmes: On the specialty lending group, which is mostly made up of manufactured housing, we continue to want to grow that line as well. We keep a watch on the concentration, but we're underneath our concentration levels that we've set for ourselves, so we've got room to grow, and we'll continue to grow it.

Chris Holmes: On the specialty lending group, which is mostly made up of manufactured housing, we continue to want to grow that line as well. We keep a watch on the concentration, but we're underneath our concentration levels that we've set for ourselves, so we've got room to grow, and we'll continue to grow it.

Speaker #2: And we keep a watch on the concentration, but we're underneath our concentration levels that we've set for ourselves. So we've got room to grow, and we'll continue to grow it.

Speaker #1: Okay. And then just wanted to see if there was any additional color you could provide on those two credits, and how much of this—how much were specific reserves for those two.

Brett Rabatin: Okay. Just wanted to see if there was any additional color you could provide on those two credits and how much more specific reserves for those two. I assume they were in the non-owner occupied commercial real estate bucket, just kind of given slide 13. Just wanted to hear if there was anything interesting about those two credits that might have caused them to be assessed, so to speak.

Speaker #1: And then I assume they were in the non-owner-occupied commercial real estate bucket, just kind of given slide 13. But just wanted to hear if there's anything interesting about those two credits that might have caused them to be assessed, so to speak.

Speaker #2: Those two credits—yeah, both real estate related, different geographies. One of them came to us through acquisition. And I guess that's—one of them came to us through acquisition.

Chris T. Holmes: Those two credits, both real estate related. Different geographies. One of them came to us through acquisition. One of them came to us through acquisition. The other one originated by an officer that we fired, and we're working through it. Again, neither of them construction, both completed projects. At small Michaels, in terms of the specific reserves, not huge.

Chris Holmes: Those two credits, both real estate related. Different geographies. One of them came to us through acquisition. One of them came to us through acquisition. The other one originated by an officer that we fired, and we're working through it. Again, neither of them construction, both completed projects. At small Michaels, in terms of the specific reserves, not huge.

Speaker #2: The other one originated by an officer that we fired. And we're working through it. Again, neither of them are construction, both are completed projects.

Speaker #2: And small, Michael's in terms of the specific reserves, not huge, but.

Speaker #3: Yeah, it was about three and a half.

Michael Mettee: Yeah, it was about three and a half in total on those two.

Speaker #1: Half in total on those two.

Speaker #2: Yeah.

Chris T. Holmes: Yeah.

Chris Holmes: Yeah.

Michael Mettee: The one that was more organic, I think it's really strong guarantors project. Just struggling a little bit, really strong guarantors. Team feels pretty confident in that. Numbers haven't penciled out yet. The other one we're working through. Like Chris said, couldn't be further away in geography.

Speaker #1: The one that was more organic, I think it's really strong guarantors. Projects are just struggling a little bit, but really strong guarantors came to us pretty confident in that.

Speaker #1: But the numbers haven't penciled out yet. The other one we're working through. And like Chris said, it couldn't be further away, geographically. So they're completely unrelated instances.

Chris T. Holmes: Yeah.

Chris Holmes: Yeah.

Michael Mettee: They're completely unrelated instances.

Speaker #5: Okay. Sounds like some pretty isolated things. Okay, great. Appreciate all the color, guys.

Brett Rabatin: Okay. Sounds like some pretty isolated things. Okay, great. Appreciate the color, guys.

Speaker #2: All right. Great.

Chris T. Holmes: All right, great.

Chris Holmes: All right, great.

Speaker #1: Our next question comes from David Bishop from Hovde Group. Please go ahead with your question.

Operator: Our next question comes from David Bishop from Hovde Group. Please go ahead with your question.

Speaker #6: Hey, good morning, gentlemen.

David Bishop: Hey, good morning, gentlemen.

Speaker #2: Hey, David.

Chris T. Holmes: Hey, Dave.

Chris Holmes: Hey, Dave.

Michael Mettee: Hey, Dave.

Speaker #6: I'm curious Chris or Mike, you can remind us maybe on your near term and intermediate term capital targets. Just curious how that how they stand in relation to where you exited the quarter at.

David Bishop: Curious, Chris or Mike, you could remind us maybe on your near-term and intermediate-term capital targets. Just curious how they stand in relation to where you exited the quarter at.

Speaker #2: Yeah. I mean, good morning, David. We're comfortable with where we are in our capital ratios today. I mean, we look at TCE; we follow that very closely.

Michael Mettee: Yeah. Good morning, Dave. We're comfortable with where we are in our capital ratio today. We look at TCE. We follow that very closely. It's around 9%, would be our target. Pretty comfortable. We build back capital very quickly, and we'll build it back on these repurchases in the next two quarters as well.

Speaker #2: And it's around 9% would be our target, so we feel pretty comfortable. We've built back capital very quickly, and we'll build it back on these repurchases in the next two quarters as well.

Speaker #2: So yeah, we really look at—we keep a close eye on the TCE ratio. We like for it to hover around the 9% right now.

Chris T. Holmes: Yeah, we keep a close eye on TCE ratio. We like for it to hover around the 9% right now. It's been above that, still above that. We also look at CET1 ratio constantly and consistently, and we want it to be 10% plus. Again, it is. We're comfortable with where we are.

Chris Holmes: Yeah, we keep a close eye on TCE ratio. We like for it to hover around the 9% right now. It's been above that, still above that. We also look at CET1 ratio constantly and consistently, and we want it to be 10% plus. Again, it is. We're comfortable with where we are.

Speaker #2: It's been above that, and it remains above that. We also look at the CET1 ratio constantly and consistently, and we want it to be 10% plus. And again, it is, so we're comfortable with where we are.

Speaker #6: Got it. And then, circling back to the operating expense outlook—great expense control this quarter. You mentioned the hires, and there was pretty good loan growth here.

David Bishop: Got it. Circling back to the operating expense outlook. Great expense control this quarter. You mentioned the hires and pretty good loan growth here. Just curious maybe, I don't know if you can give us any sort of sense, from a dollar basis. Is there mid-single-digit inflationary pressure over H2? Just curious what are you penciling out as a good run rate in terms of H2?

Speaker #6: Just curious—maybe, I don't know if you can give us any sort of sense from a dollar basis—is there sort of mid-single-digit inflationary pressure over the second half of the year?

Speaker #6: Just curious, what are you penciling out as sort of a good run rate in terms of the back half of the year?

Speaker #2: Yeah, gosh, that's a tough question, because I would say the cost of employees, especially on the revenue side, is more than single-digit inflation.

Michael Mettee: Yeah. Gosh. That's a tough question because I would say the cost of employees, especially on the revenue side, is more than single-digit inflation. The fair value changes every day, it's pretty aggressive. I think that there's probably a little bit of conservatism, thoughtfulness, just making sure that we're hitting on all cylinders and protecting the team, but also able to go out and hire people that Chris mentioned we've been talking to for years. When you've been dating this long, you want to make sure that you're not losing out because of a couple of dollars. That's really where that expense guidance comes from. The team's done really well across the bank, both back office and front office. That's where that guidance is coming from. It's a little bit of feel on top of math.

Speaker #2: The fair value changes every day, and so it's pretty aggressive. I think that there's probably a little bit of conservatism and thoughtfulness—just making sure that we're hitting on all cylinders and protecting the team, but also able to go out and hire people that Chris mentioned we've been talking to for years.

Speaker #2: When you've been dating this long, you want to make sure that you're not losing out because of a couple of dollars. And so that's really where that expense guidance comes from.

Speaker #2: The team's done really well across the bank, both back office and front office. But that's where that guidance coming from. It's a little bit a feel on top of math.

Speaker #2: Just feeling where the numbers are going, where the hiring is going.

Michael Mettee: Just feeling where the numbers are going, where the hiring is going.

Speaker #6: Got it. Then maybe one housekeeping item. I know that the tax rate has jumped around here the past few quarters. What would be a good effective tax rate to use moving forward?

David Bishop: Got it. Maybe one housekeeping item. I know the tax rate has jumped around here the past few quarters. Good effective tax rate to use moving forward?

Speaker #6: Thanks.

Speaker #2: Yeah. Low 20, 20, 20% or so. So slightly higher, but not materially higher.

Michael Mettee: Yeah. Low 20s, 20% or so. Slightly higher, but not materially higher.

Speaker #6: Great. Appreciate the color.

David Bishop: Great. Appreciate the color.

Speaker #2: Yes, sir.

Michael Mettee: Yes, sir.

Chris T. Holmes: Thanks, Dave.

Chris Holmes: Thanks, Dave.

Speaker #1: Our next question comes from Steve Moss from Raymond James. Please go ahead with your question.

Operator: Our next question comes from Stephen Moss from Raymond James. Please go ahead with your question.

Operator: Our next question comes from Steve Moss from Raymond James. Please go ahead with your question.

Speaker #3: Good afternoon, guys. Or good morning, guys. I'm sorry.

Stephen Moss: Good afternoon, guys. Good morning, guys. I'm sorry.

Steve Moss: Good afternoon, guys. Good morning, guys. I'm sorry.

Chris T. Holmes: Yeah. Feels like afternoon. It's all right.

Chris Holmes: Yeah. Feels like afternoon. It's all right.

Speaker #2: Feels like afternoon. I'm sorry.

Speaker #3: It's been a busy morning. Most of my questions have been asked and answered here. I guess just one cleanup for me. The purchase accounting number here, is this a good run rate at this lower level, or are we more like 6 million-ish plus a quarter?

Stephen Moss: It's been a busy morning. Most of my questions have been asked and answered here. I guess just one cleanup for me, the purchase accounting number here. Is this a good run rate at this lower level, or are we more like $6 million-ish plus a quarter?

Steve Moss: It's been a busy morning. Most of my questions have been asked and answered here. I guess just one cleanup for me, the purchase accounting number here. Is this a good run rate at this lower level, or are we more like $6 million-ish plus a quarter?

Speaker #2: Yeah, I think it's a good run rate. Yeah, I'll think about it. It's 14 or 15 basis points on margin, which is why you get to that 370 to 380 range on core.

Michael Mettee: Yeah, I think this is a good run rate. I think about it as 14, 15 basis points on margin, which is why you get to that 370, 380 range on core. Obviously, it will decline a basis point or so a quarter in there. Maybe not a quarter, but a year, a couple of basis points. Yeah, it is a good number, Steve.

Speaker #2: Obviously, it'll decline a basis point or so, a quarter in there. But as the book, maybe not a quarter, but a year, a couple of basis points.

Speaker #2: But yeah, it's a good number, Steve.

Speaker #3: Okay, great. Appreciate that color and all the color you guys gave on the call here today. Thank you very much.

Stephen Moss: Okay, great. Appreciate that color and all the color you guys are giving on the call here today. Thank you very much.

Steve Moss: Okay, great. Appreciate that color and all the color you guys are giving on the call here today. Thank you very much.

Speaker #2: Thank you.

Chris T. Holmes: Thank you.

Chris Holmes: Thank you.

Speaker #6: Thanks, Steve.

Michael Mettee: Thanks, Steve.

Speaker #1: Once again, if you would like to ask a question, please press star, then one. To withdraw your question, you may press star, then two.

Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Christopher Marinac from Brean Capital. Please go ahead with your question.

Speaker #1: Our next question comes from Christopher Marinac from Bring Capital. Please go ahead with your question.

Speaker #2: Hey, good morning, and thanks for taking all of our questions today. I just want to go back to deposits, and I'm curious if you see any changing behaviors on deposits.

Christopher Marinac: Hey, good morning, and thanks for taking all of our questions today. Just want to go back to deposits, and I'm curious on how, if you see changing behaviors on deposits. I know we talked a lot about the rate and the impact earlier. Just curious if you're seeing more rate shopping. Are you having more exception requests? Just wanted to delve a little bit more on behaviors.

Speaker #2: I know we talked a lot about the rate and the impact earlier, but I'm just curious—are you seeing more rate shopping, or are you having more exception requests?

Speaker #2: Just wanted to delve a little bit more on behaviors. Yeah. Chris, I wouldn't say we see any real change in behaviors. At least not material.

Chris T. Holmes: Yeah, Chris, I wouldn't say we see any real change in behaviors. At least not material. I think relationships still matter. I do think competitive. If there's any change in behavior, I would say there is. I don't think it's rate environment driven. I think it's more some of the different types of competitors, the continuing changes in technology that maybe get people more aware of different ways and different places to hold the money. You see maybe a little bit of that, but I don't know that it really impacts us that much in day-to-day relationships. I think at the end of the day, it still comes down to being easy to do business with and have a great customer experience, is what it boils down to. I think that carries the day.

Chris Holmes: Yeah, Chris, I wouldn't say we see any real change in behaviors. At least not material. I think relationships still matter. I do think competitive. If there's any change in behavior, I would say there is. I don't think it's rate environment driven. I think it's more some of the different types of competitors, the continuing changes in technology that maybe get people more aware of different ways and different places to hold the money. You see maybe a little bit of that, but I don't know that it really impacts us that much in day-to-day relationships. I think at the end of the day, it still comes down to being easy to do business with and have a great customer experience, is what it boils down to. I think that carries the day.

Speaker #2: I think relationships still matter. I do think it's competitive. If there's any change in behavior, I would say there is. I wouldn't think—I don't think—it's rate environment driven.

Speaker #2: I think it's more some of the different types of competitors, the continuing changes in technology, that maybe get people more aware of different again, just different ways and different places to hold your money.

Speaker #2: And so you see maybe a little bit of that, but I don't know that it really impacts us that much in day-to-day relationships. I think at the end of the day, it still comes down to being easy to do business with and having a great customer experience is what it boils down to.

Speaker #2: And I think that carries the day.

Speaker #6: Yeah. And Chris, I'd say we empower our front line to be able to take care of clients and retain and attract new business with rate authority.

Michael Mettee: Yeah, Chris, I'd say we empower our front line to be able to take care of clients and retain and attract new business with rate authority. We do track, on a daily basis, exceptions, and we have not seen a material increase. It ebbs and flows. Sometimes you'll see CDs for competitors out 12 months, and we're only out six, that you can see some slight price fluctuations. In general, it's been pretty consistent. I think you continue to see a competitive environment, but people are empowered to take care of their clients.

Speaker #6: But we do track, on a daily basis, exceptions and we have not seen a material increase. It has inflows. Sometimes you'll see CDs.

Speaker #6: If a competitor is out 12 months and we're only out 6, you can see some slight price fluctuations. But in general, it's been pretty consistent.

Speaker #6: And I think you'll continue to see a competitive environment, but people are empowered to take care of their clients.

Speaker #2: Hey, one other thing I would mention, Chris, listen to Michael answer that question is that remember, our deposit cost is actually a little bit higher than peers.

Chris T. Holmes: Hey, one other thing I would mention, Chris, listening to Michael answer that question, is that remember our deposit cost is actually a little bit higher than peers.

Chris Holmes: Hey, one other thing I would mention, Chris, listening to Michael answer that question, is that remember our deposit cost is actually a little bit higher than peers.

Michael Mettee: Yeah.

Speaker #2: And so that, frankly, would tell you that that may impact some others more than it does us, because we've empowered the front line for a long time now to be able to be competitive.

Chris T. Holmes: I frankly would say that may impact some others more than it does us, because we've empowered the front line for a long time now to be able to be competitive at the point of contact for that relationship. We're already going to be offering them a fair rate, but if they get offered some special rate, we've got the front line empowered to be able to counter that. That's intentional on our part, and so that behavior hasn't changed for us.

Chris Holmes: I frankly would say that may impact some others more than it does us, because we've empowered the front line for a long time now to be able to be competitive at the point of contact for that relationship. We're already going to be offering them a fair rate, but if they get offered some special rate, we've got the front line empowered to be able to counter that. That's intentional on our part, and so that behavior hasn't changed for us.

Speaker #2: At the point of contact for that relationship, we're already going to be offering them a fair rate, but if they get offered some special rate, we've got the front line empowered to be able to counter that.

Speaker #2: And so that's intentional on our part, and that behavior hasn't changed for us.

Speaker #1: Okay. Great. That's very helpful. Thank you both for that. And then just a quick follow-up on just your strategic opportunities that you look at.

Christopher Marinac: Okay, great. That's very helpful. Thank you both for that. Just a quick follow-up on just your strategic opportunities that you look at. Do you see any shift in pricing, and is there anything that you need to do differently as you sort of review opportunities externally?

Speaker #1: Do you see any shift in pricing and is there anything that you need to do differently as you sort of review opportunities externally?

Speaker #2: Yeah, so I think you're talking about, in terms of, maybe an acquisition opportunity. Is that what you're asking, Chris? In terms of pricing? So I'd say that the opportunities are ample right now, and they generally run smaller in terms of the size of the institution.

Chris T. Holmes: Yeah. I think you're talking about in terms of maybe an acquisition opportunity. Is that what you're asking, Chris?

Chris Holmes: Yeah. I think you're talking about in terms of maybe an acquisition opportunity. Is that what you're asking, Chris?

Christopher Marinac: Yes.

Chris T. Holmes: In terms of pricing. I'd say that the opportunities are ample right now, and they generally run smaller in terms of the size of the institution. They're generally going to be, we see a lot of opportunities at less than $2 billion. On the pricing there, yes, I would say, notice we haven't done anything in that size in a while, but that's because of our view on pricing has been that for us, it needs to bring strategic value and financial value. Disruption is very hard for us to justify because of our organic opportunity and our organic momentum. That disruption of doing an acquisition is hard for us to justify. Unless there's real strategic value and real financial value, we don't think it's worth the disruption.

Chris Holmes: In terms of pricing. I'd say that the opportunities are ample right now, and they generally run smaller in terms of the size of the institution. They're generally going to be, we see a lot of opportunities at less than $2 billion. On the pricing there, yes, I would say, notice we haven't done anything in that size in a while, but that's because of our view on pricing has been that for us, it needs to bring strategic value and financial value. Disruption is very hard for us to justify because of our organic opportunity and our organic momentum. That disruption of doing an acquisition is hard for us to justify. Unless there's real strategic value and real financial value, we don't think it's worth the disruption.

Speaker #2: They're generally going to be—we see a lot of opportunities at less than $2 billion. And on the pricing there, yes, I would say we haven't done anything in that size in a while, but that's because, in our view, pricing has been that for us it needs to bring strategic value and financial value, and disruption is very hard for us to justify because of our organic opportunity and our organic momentum.

Speaker #2: That disruption of doing an acquisition is hard for us to justify. So unless there's real strategic value and real financial value, we don't think it's worth the disruption.

Speaker #2: And so, therefore, yes, we see quite a bit, but when we think about the financial cost and the opportunity cost, it really drives the price down for the seller.

Chris T. Holmes: Therefore, yes, we see quite a bit, but when we think about the financial cost and the opportunity cost, it really drives the price down for the seller. Consequently, you haven't seen us do a lot. I think the answer to your question is yes, we do see that impacting valuations from our perspective. We see that impacting what we think institutions, the way we value institutions, and consequently, you haven't seen us do a lot.

Chris Holmes: Therefore, yes, we see quite a bit, but when we think about the financial cost and the opportunity cost, it really drives the price down for the seller. Consequently, you haven't seen us do a lot. I think the answer to your question is yes, we do see that impacting valuations from our perspective. We see that impacting what we think institutions, the way we value institutions, and consequently, you haven't seen us do a lot.

Speaker #2: And consequently, you haven't seen us do a lot. And so I think the answer to your question is yes, we do see some we do see that impacting valuations from in our perspective.

Speaker #2: And we see that impacting what we think about institutions, the way we value institutions, and consequently, you haven't seen us do a lot.

Speaker #1: Great. And obviously, those deals are not getting done by somebody else, so that says a lot.

Christopher Marinac: Great. Obviously, those deals are not getting done by somebody else. That says a lot.

Speaker #2: Yeah. Yes, I agree. It says a lot. It really does say a lot.

Chris T. Holmes: Yes. I agree. It says a lot. It says a lot.

Chris Holmes: Yes. I agree. It says a lot. It says a lot.

Speaker #1: Great. Thanks again for taking my questions.

Christopher Marinac: Great. Thanks again for taking my questions.

Speaker #2: All right. Thanks, Chris.

Chris T. Holmes: All right. Thanks, Chris.

Chris Holmes: All right. Thanks, Chris.

Speaker #1: At this time, we will be concluding today's question-and-answer session. I would like to turn the floor back over to Chris Holmes for closing comments.

Operator: At this time, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Chris Holmes for closing comments.

Speaker #2: All right. Well, listen, we really appreciate everybody joining us to cover the quarter. We always appreciate your interest in the company. If there are any of you who need to speak to us directly, we're available after the call.

Chris T. Holmes: All right. Well, listen, we really appreciate everybody joining us to cover the quarter. I always appreciate your interest in the company, and if any of you need to speak to us directly, we're available after the call. Thanks.

Chris Holmes: All right. Well, listen, we really appreciate everybody joining us to cover the quarter. I always appreciate your interest in the company, and if any of you need to speak to us directly, we're available after the call. Thanks.

Speaker #2: Thanks.

Operator: With that, ladies and gentlemen, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.

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