Thank you, and good morning, everyone. We appreciate you joining us today for FB Financial's second quarter 26 earnings conference call.

Joining me on the call this morning is Christopher T. Holmes, President and Chief Executive Officer and Michael Mettee, Chief Financial and Operating Officer.

Before we begin, I would 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, 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.

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 second quarter 26 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 will turn the call over to Mr.

Christopher T. Holmes.

Alright. Thank you, Rachel and thanks to everybody for joining us on the call this morning and for your interest in FB.

We reported EPS of $1.13 and 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 11.2% since our IPO in 2016. Our net income was $58.6 million and $58.9 million on an adjusted basis.

And our pretax pre provision net revenue increased to $83.3 million, which represents an increase of approximately 8% in the quarter. This improves our PPNR 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 and 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. What I am most excited about is the sustainable momentum that we are 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 are 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 is 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. We remain focused on getting better every day by improving our execution, raising our level of client service and deepening our presence in the markets across Southeast.

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

Approximately 2-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. 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 these significant organic opportunities already in front of us. So with that, I am going to turn the call over to our Chief Financial and Chief Operating Officer, Michael Mettee for more color on the quarter.

Thank you, Christopher and good morning everyone. I will 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%. Our teams continue to focus, continue 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, Huntsville, 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.

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 are 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 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%.

Ultimately, these results reinforce what we have long believed that building deep long term customer relationships remains the best path to creating sustainable value for our shareholders. 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 expectations 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. 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.

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 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 2.6 to 2.70 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 1 rate hike in the third quarter of 26. 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.

Between those 2 factors, we remain comfortable with our full year net interest margin forecast excluding loan accretion of 3.7 to 3.8%. 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.

Non interest income declined 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 strengthened broader customer relationships by creating additional opportunities for deposits and other banking services.

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.

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 the second half 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.

Accordingly, we are maintaining our banking segment noninterest 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%.

Majority of the reserve build was associated with loan growth with the remainder driven by specific reserves on 2 individually evaluated credits and a modest portion of the increase resulted from somewhat softer economic forecasts incorporated into our allowance for credit loss estimation process. Non performing loan and non performing asset ratios both increased during the quarter and were driven almost entirely by 3 relationships.

2 of those relationships are the 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 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. 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. 1 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 will 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 heirs ownership. And 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 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%.

In closing, I would 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.

With that, I will turn the call back over to Christopher.

All right. Thank you, Michael, and thanks to everybody for tuning into the call this morning and for your interest in FB Financial.

Operator, at this time, I would like to open the line for questions.

Thanks. Good morning.

Good morning, Catherine. Morning.

I wanted to start on deposit cost. It was great to see the deposit cost decline 1 basis point this quarter.

Just I know you mentioned that new production is coming on around $2.60 to $2.70, but just wanted to see if you could give a little bit more color around just deposit flows, confidence in still being able to grow deposits at a mid single digit pace, And maybe just from a big picture perspective, where you think overall deposit cost trend for the rest of the year? Is this kind of a couple bps kind of increase per quarter, that kind of thing?

Or how should we just kind of think of the trajectory of the overall deposit cost for the next couple of quarters? Thanks.

Hey, Catherine and good morning. And this is Christopher, and I am going to take the first, just kind of overall I would say this deposits have been -- have been challenging but, that is almost I do not think we even have to say that anymore.

As I tell our team, every day, I said, today is going to be the easiest day of your career to get deposits. Because tomorrow it is going to be a little harder.

I just I think that whole world is continuing. You have heard me say this before and if we have private conversations.

I think it is going to continue to be a challenge 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 are aware of that.

We continue to adjust our strategy to meet that. And so that is a big picture.

When you narrow that in over the next couple of quarters, I am going to let Michael talk a little bit more specifically about our flows. But we saw success, obviously, this quarter, Non interest bearing, as you saw, we had a nice increase in non interest bearing.

that is a focus for us. We also did a little bit more in broker than we usually do, but that is because it was just cheaper.

that is not something that we would like to use to fund our balance sheet, but when it is cheaper, we will use it. as long as it swings and it is no longer so more expensive.

So we think it is it is a focus, going to continue to be a focus. And it is going to be tough, but we think we can do similar to what we did in the second quarter.

We think we can do, you know, close to that. Throughout the balance of the year.

So, Michael, I will let you take it from there.

Yeah. Good morning, Catherine.

And as well said, Christopher, I think you know, the decrease modest decrease in deposit costs is actually driven more by mix. Than it was competition as you noted.

And I mentioned, Catherine, that 62 to $2.70 range blended on new deposits. I think money market rates have continued to move higher from a competitive perspective.

And at the same time, we have seen CD rates modestly decline in our book, but hold pretty steady. So you kind of have a tale of 3 different types of deposits between non interest bearing money market and CDs and customers are kind of moving in and out of where they are most comfortable whether that is locking in duration.

Or wanting liquidity. So it is interesting.

I think you do see deposit costs move higher just because as Christopher mentioned, it is never going to get easier than now. Your Fed funds has been relatively stable for 6 months or so and so that is helped with our index deposits, which remain flat, but we are seeing new money market in that 4%+ range from a lot of competitors.

So I think you continue to see new deposits come on at a at a higher cost. And it is just the cost of customer acquisitions going up.

And, you know, the way you keep deposit cost 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.

Hey. And can I just say 1 other thing?

We say deepening relationships, we mean having an operating account. And we do not mean you know, getting relationships that become lazy and we do not pay them a market rate.

That we do not that is not what we mean. We when we say getting relationships, in our language, that means getting the operating account.

That makes sense.

And that and to be clear, that $2.60 to $2.70, that is blended total. So that includes an NIB growth you had, the kind of 4% money market you are talking about of yours and then also the kind of maybe more stable CDs?

Is that a way to think about that?

100%. Yes.

I mean, so blended right, if our cost of deposits of 2.26%, even on a blended basis, new deposits are coming in higher than our deposit costs.

And 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? And is there still enough back book repricing opportunity to still be able to offset the higher deposit cost with, you know, higher asset yields on the loan side.

Well, I mean, I would say loans are really almost just as competitive as deposits. I think it is important on the relationship side that you are getting first shot with your clients.

To help them get with financing, whether it is refinancing or new projects. And I think we are getting our fair share of those.

Being around $6.40 ish for June really is what I would say is kind of spot rates, but we are seeing that start to feel a little bit of pressure as well And so, I mean, it is it is 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 yeah, we have had quite a bit reprice from kind of that 2021 vintage.

And there is probably, a $1 billion or so to go. The back half of the year.

But I think you have got a couple of things going on. You got a yield curve steepening, which is actually good for us.

You got 50%, 52% of our book is floating. So theoretically that is repriced higher, but it is coming on at tighter yields than we would expected if we started the year looked at repricing.

So it is a little bit of a squeeze there as well, which is why we kind of have a blended margin reduction of a couple of basis points a quarter through the end of the year.

Got it. That makes sense.

Thanks. Great quarter, guys.

Appreciate it. Thanks, Catherine.

Just wanted to dig into the loan growth here a little bit. Obviously, very strong and helped by you all retaining more of the resi mortgages.

I am just wondering if moving forward, that is likely to be a continued strategy and just, you know, with growth being led by Resy and seemingly non owner occupied CRE, is that also composition wise what we should expect to see, or would you hope that would be weighted more towards C and I potentially in the future?

It should be a little more weighted towards C and I. We certainly do not mind those categories that you mentioned, but we likely get some nice C and I between now and the end of the year.

And on the mortgage, generally, originate to sell. We will keep some things that are, that are from time to time, we will 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 have sold every loan but still, our strategy is to sell those But, you know, from time to time, we may keep.

Some pieces Yeah.

I mean, this Steve, good morning. Just to dive into that a little bit, I think you know, where the secondary market is, when you sell loan, a lot of the servicing is getting sold away because of you know, what third parties are willing to pay for servicing.

So we are disrupting the client a little bit and our ability to grow deposits off that business is a little more complicated. So, first quarter into the second quarter, we got a little bit more aggressive on our portfolio rates.

Which is created a lot of customer relationship opportunities, turning mortgage clients into full bank clients, which is a focus. Been really successful.

I will say, like, the headline number you mentioned, a 145 million or so on residential real estate. About $60 million of that is actually kind of 1 to 4 families.

50 million is multifamily. And then, you know, you have some line of credit things that are part of that as well.

So it is not all coming specifically from the mortgage division. it is across the banking footprint.

it is a little bit of point of clarity that I could probably point to versus converting the mortgage pipeline.

Got it. Makes sense.

And then kind of the guide to the lower end of the growth rate to mid to high single digits I think you said, you know, currently trending towards the lower end of that range. what is the expected kind of constraint there?

Because it seems like maybe you are kind of at the mid to higher end of that range currently. So is that more loan to deposit ratio getting to a point where funding becomes more essential?

Is it slowdown in the pipeline? Just kinda context on why you think that might be towards the lower end Yes, I am glad you asked that question, Steve, because I obviously did not communicate that well.

Loan growth we are we are we are saying mid to high single digits. I think we are feel good about where loan growth is.

For deposits, it is more of a competitive kind of way that we are thinking about it in that mid single digits. As Chris mentioned, funding kind of was a lot cheaper from a brokered perspective.

You know, it is cheaper to borrow. it is cheaper Those things have kind of flipped.

And so, know, you got to make sure you are always getting core relationships. So I think the beauty of our balance sheets, we got a lot of optionality to take advantage of opportunities as they arise because we have such a low brokered percentage and we can fund the bank in a lot of different ways.

While we build core relationships. So clarity, it was the deposit piece that is that kind of mid single digits loan growth, we think, is that higher single digit number.

I am sorry. I am 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, maybe that was 2 thirds. So I guess ex that, it would have been around 500 thousand 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 do we think about that capital return from here?

Yeah. So your approximations are right.

You know, outside of that large repurchase, it would have been plus or minus half 1 million shares. And think you are thinking of it correctly Of course, we are we are price sensitive when we think about re repurchase, at least to some degree.

And but we anticipate that we can repurchase it is gonna continue to be an option for us to repurchase the open market or to maybe make some bulk repurchases from time to time that could become an option for us. As well.

It should maintain should be maintained as an option for us as well.

Got it. Thanks so much for the color.

Really nice quarter. Sounds like a lot of things are going well.

Appreciate it. Thanks, Stephen.

Appreciate it.

Hey, good morning, guys. Quick just 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?

And if so, directionally, geographically, where might that take you?

So anytime we do an LPO, we are doing that with intent to be in the market with a full banking offering. And we usually do that by going in commercial first and then over time, we will get a little more retail, but that is usually a long period of time.

And so we and when we think about that, usually, we have described the geographies that we are interested in, and they are generally around our current geographies, mostly east and south of where we are. And we are actually think of that by the bankers first We have this targeted geography, but when we get it is a little like even an acquisition.

We think through those beforehand. We got folks that we are looking at, thinking about in different places.

And if we get the opportunity, then we will do it. And so it is it is it is you know, the old phrase banks are sold.

They are not bought. Bankers are a little bit the same way.

They come available for whatever reason, and you that is when we tend to make the move. Got it.

Okay. Thanks, Christopher.

And then, just 1 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.

Yeah. Russell, good morning.

Yes. Russell, good morning.

We are slightly asset sensitive. So incrementally, you would think that a rate hike would actually help, because loan yields were variable.

52%. Our investment portfolio, while small, it is mighty with floating rate of 55-60%.

So higher rates actually helps that. To the tune of a couple of million dollars.

it is just maybe from being in the hand to hand combat every day. I see what our teams are dealing with and feel like that is pretty much offset by the deposit growth story.

And where rates are headed on that. So yeah, we might see incremental improvements, but I think the competition kind of eats into that a bit.

We are probably, I would say, 40% indexed on total deposits and yes, 67% if you think about money market, give or take.

Great. Okay.

Thank you both for taking my questions. Thanks, Russell.

Hey, good morning, Dave. 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? And what is stopping you guys from hitting the top end of that mid to high singles range given the momentum you are seeing?

Yeah, David. Good morning.

I said, so insightful question there. I mean, I will give you an example.

We had 1 of the largest production quarters we have had a long time out of the Nashville market. I mean, it is really, really strong, but we actually ended up you if you look just at Nashville, it is flat.

Because of payoff activity and hundreds of millions of dollars on both sides. So in a lot of our markets, you are still seeing payoff activity, especially in highly competitive ones like this 1.

So I think that is kind of what we are trying to deal with. But then you saw the 11% ish growth because you know, we have contributors across the footprint.

We have, really strong economies and so that is why we are really bullish and the teams are out working hard every day to acquire new clients. And provide value to those prospects.

So, the pipeline, I tell you, that pipeline is just as big as when it was when we started the second quarter. And that was so that is after you have seen the growth so that is why we are pretty bullish We have been really successful on a couple of recent customer competitive situations.

And, that gives us a lot of confidence in where we are headed as well.

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 have had?

And just give an update on how you are 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.

Yeah. Thanks.

Thanks, David. So on a tracking 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. I do not know if we look at it like everybody.

For us, it is long term. And so we are you know, our key metric is revenue growth.

And so when we are tracking talent We are really thinking about the right talent. That fits us and is gonna be here long term.

And so we are trying to make good decisions there. And so we do not view that as a as a quarterly metric.

We view that as long term. And so we some folks we have been talking to for years, And you know, at the right time, we feel like we feel like we will we will those folks will come over.

We added some during the quarter, Frankly, it is a lot like when we are reporting quarterly earnings. You know, you got a June 30 cutoff, We probably added more in the last, I do not know, 2 weeks.

Than we did the last 2 months. And so it is again, you do not really control that pace.

At least that is not the way we look at it. We look at it like, hey.

We are gonna do what we do and continue to attract talent for the right reasons because they, you know, they look at us and they want to be here. And so and we think we will win that battle short term and long term.

And so that is that is that is how we that is how we view it. it is important for our leaders to be talking to peers every day.

And to be recruiting every day. And so that is that is just part of that is part of how we do business and how we go about it.

Will go back and say 1 other thing that Michael was talking about on and I think you were you asked a good question on, you know, bullish where we sound pretty bullish but we said high single digits If and I think Mike was making a really good point. If you look at where our growth came from, and most people think, man, it is gonna 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 look at places like Birmingham, which is it continues to do really well. If you looked at places like Auburn where, we are doing really well.

Columbus you know, doing well. Columbus, Georgia, Some places in West Tennessee, man, are doing really well.

A lot of our smaller communities are net contributors. And, that is why we are bullish around the footprint because we continue to have some pretty big payoffs the Nashville market.

That but we are getting good production there. So that is that is the reason that we are bullish.

And certainly, we could exceed that, but right now, we are comfortable with that high-single-digits is what we are what we are talking about.

Sounds good. Appreciate all the color.

Thanks. Sure.

Hey, guys. Good morning.

Hey, good morning, Brett. Wanted to hey, guys.

Wanted to talk about maybe some of the components of the loan growth from here and I noticed that construction continued to be a little bit softer. Linked quarter, you know, when you guys kind of got back into the market late last year and we are doing some more stuff.

You know, any thoughts on the construction pipeline, if you guys are looking maybe to add on the construction or if that is an area that you are avoiding just given you know, credit risk or maybe a hot market and some aspects. And then just wanted to hear on the specialized lending side, talked about SBA last quarter, if there is anything else that you guys were taking a look at and if you expect that the specialized lines to maybe help grow as well?

Yes, Brent. So first off on construction.

No, we are not avoiding construction. At all.

And I think you are there is probably some risk element buried in the question there. Are we scared of that risk?

No. We are we are really not scared of that construction risk and our markets continue to form well.

So we are confident there. We of course, we manage our construction concentration and have and will continue to, but it is really where the opportunities come from.

We do have a couple of construction projects in the pipeline that will span next I mean, several quarters. and even years.

And so those will be owner occupied type construction as opposed to non-owner-occupied type construction, but they are they are large and they spend time. So they spend over quarters.

And so again, excited about kind of where that sits, but we are certainly not avoiding it. In terms of an of an asset class for us.

And then on the specialty lending group, which is mostly made up of manufactured housing, We continue to we continue to wanna grow that line as well. We and we keep a we keep a watch on the concentration, but we are underneath our concentration levels.

That we that we have set for ourselves. So we have got room to grow, and we will continue to grow it.

Okay. And then just wanted to see if there was any additional color you could provide on those 2 credits and how much more in specific reserves for those 2?

And then I assume they were the non-owner-occupied commercial real estate bucket, just kind of given Slide 13. But just want to hear if there is anything interesting about those 2 credits that might have might have caused them to be assessed, so to speak.

Those 2 credits yeah, both real estate related different geographies. 1 of them came to us through acquisition.

And I guess that came to us through acquisition The other 1 originated by an officer that we fired and is and we are working through it. And so and both again, neither of them construction, both completed projects, and small I smaller Michael in terms of the specific reserves, not huge, but It was about 3.5 in total on those 2 Yeah.

The 1 that was more organic, I think it is really strong guarantors. The project's just struggling a little bit, but really strong guarantors.

I still feel pretty confident in that. But numbers have not penciled out yet.

The other 1, we are working through. And like Christopher said, could not be further away in geography.

So they are completely unrelated instances.

Okay. Okay.

Makes them pretty isolated things. Okay.

Great. Appreciate the color, guys.

All right, Brett.

Curious, Christopher or Mike, if you could remind us maybe on your near term intermediate term capital targets. Just curious how that how they stand in relation to where you exited the quarter at?

Yeah. I mean good morning, David.

We, we are comfortable with where we are on our capital ratio today. I mean, you know, for example, we look at TCE, we follow that very closely.

And it is around 9% would be our target. So pretty comfortable.

We have built, we build back capital very quickly. And we will build it back from these repurchases.

In the next 2 quarters as well. So we really look at, we keep a close eye on ratio.

We like for it to hover around the 9% right now. it is been above that, still above that.

We also we also look CET 1 ratio constantly and consistently, and we want it to be 10% plus and again, so it is And so we are we are comfortable. With where we are.

Got it.

And then 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, 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? Just curious what are you penciling out as sort of a good run rate in terms of the back half of the year?

Yeah. Gosh.

that is a that is a tough question because I would say the cost of, employees, especially on the revenue side, is more than single digit inflation. Fair value changes every day.

And so it is pretty aggressive. I think that you know, there is probably a little bit of conservatism, thoughtfulness, just making sure that we are hitting on all cylinders and protecting the team, but also able to go out and hire people that Christopher mentioned we have been talking to for years.

When you have been dating this long, you wanna make sure that, you are not losing out because of a couple dollars. And so that is really where that expense guidance comes from.

The team's done really well across the bank, both back office and front office. But that is where that guide is coming from.

it is a little bit of feel on top of math it is just a feel for where the where the numbers are going, where the hiring is going.

Got it. Then maybe, 1 housekeeping item.

I know the tax rate has jumped around here the past few quarters. what is a good effective tax rate to use moving forward.

Yes. Low 20%, 20% or so, so slightly higher, but not materially higher.

Great. Appreciate the color.

Yes, sir. Thank you.

Good afternoon, guys or good morning, guys. I am sorry.

Yeah, it feels like afternoon. Sorry.

it is been a busy morning. Most of my questions have been asked and answered here.

I guess just 1 cleanup for me. The purchase accounting number here.

Is this a good run rate at this lower level? Or, you know, are more like 6 million ish plus a quarter?

Yeah. I think it is as this is a good run rate.

Yes, think about it as 14, 15 basis points on margin, which way you get to that 73, 83 range on core. Obviously, will decline 1 basis point or so.

A quarter in there. Yeah.

But as the book maybe not a quarter, but a year, a couple of basis points. But, yeah, it is a good number, Steve.

Okay. Great.

Appreciate that color and all the color you guys provided on the call here today. Thank you very much.

Thank you. Thanks, Steve.

Hey. Good morning, and thanks for taking all of our questions today.

Just want to go back to deposits and I am curious on how if you see changing behaviors on deposits. I know we talked a lot about the rate and the impact earlier, but just curious if you are seeing more rate shopping.

Are you having more exception requests? Just wanted to delve a little bit more on behavior.

Yeah.

Christopher, I would not say we see any more any real change in behaviors. At least not material.

I think I think relationships still matter. I do think competitive if there is any change in behavior, I would say there is I do not think it is rate environment driven.

I think it is more some of the different types of competitors, the continuing changes in technology, that maybe get people more aware of different play of again, different ways and different places to hold the money. And so you see maybe a little bit of that, but I do not know that it really impacts us that much in day to day relationships.

So 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. And I think that is it that carries the day.

Yeah. And, Christopher, I would say, you know, we empower our frontline to be able to take care of clients and retain and attract new business with rate authority.

But we are we do track on a daily basis exceptions and we have not seen a material increase. You know, it ebbs and flows.

Sometimes we will see CDs, from competitors out 12 months and we are only out 6 that you can you can see some slight price fluctuations. But in general, it is been pretty consistent And yeah, I think I think you continue to see a competitive environment but people are empowered to take care of their clients.

Hey. 1 other thing I would mention, Christopher, listen to Michael answer that question is that remember, our deposit cost is actually a little bit higher than peers.

Yeah. And so that I frankly would say that may impact some others more than it does us because we have empowered the front line for a long time now to be able to be competitive you know, at point of contact for that relationship.

And, we are already gonna be offering them a fair rate, but if they get offered some special rate, we get the frontline empowered to be able to counter that. And so that is intentional on our part.

And so that behavior has not changed for us. Okay.

Great. that is very helpful.

Thank you both for that.

And then 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? Yes.

I think you are talking about in terms of maybe an acquisition opportunity. Is that what you are asking?

Christopher?

Yes, In terms of price So I would say that the opportunities are ample. Right now, and they generally run smaller in terms of the size of the institution.

They are generally going to be we see a lot of opportunities at less than $2 billion And on the pricing there, yes. I would say, notice we have not done anything in that size in a while, but that is because of, you know, our view on pricing has been that for us, it needs to bring strategic value and financial value.

And the disruption is very hard for us to justify because of our organic opportunity and our organic momentum that disruption doing an acquisition is hard for us to justify. So unless there is real strategic value and real financial value, we do not think it is worth the disruption.

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. And, consequently, you have not 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 our in our from our perspective.

And we see that impacting what we think institutions, the way we value institutions, and consequently, you have not seen us do a lot. Great.

And obviously, those deals are not done by somebody else. So that says a lot.

Yeah. Yes.

I agree. It says a lot.

Great. Thanks again for taking my questions.

All right, Christopher.

Alright. Well, listen, we really appreciate everybody joining us, to cover the quarter.

I always appreciate your interest in the company. And if there are any, any of you need to speak to us directly, we are available after the call.

Thanks.