Good morning and welcome to the FB Financial Corporation Second Quarter 2024 Earnings Conference Call. Hosting the call today from FB Financial are Mr. Chris Holmes, President and Chief Executive Officer; and Mr. Michael Mettee, Chief Financial Officer. Also joining the call for the question and answer session is Mr. Travis Edmondson, Chief Banking Officer. Please note FB Financial's earnings release, supplemental financial information, and this morning's presentation are available on the investor relations page of the Company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. At this time, all participants have been placed in a listen-only mode. The call will open for questions after the presentation. During the presentation, FB Financial may take comments, which constitute forward-looking statements under the federal securities laws. Forward-looking statements are based on management's current expectations and assumptions and are subject to risks and uncertainties and other factors that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with SEC, including FB Financial's most recent Form 10-K, except as required by law. FB Financial disclaims any obligation to update or revise any forward-looking statements contained in the presentation, whether as a result of new information, future events, or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G, a presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release. Supplemental financial information and this morning's presentation, which are available on the Investor Relations page of the Company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and Chief Executive Officer. Please go ahead, sir.

All right. Thank you, Chuck. We appreciate that and good morning and thank you for joining us this morning. We appreciate your interest in FB Financial. For the quarter, we reported EPS of $0.85 and adjusted EPS of $0.84. We've grown our tangible book value per share, excluding the impact of AOCI at a compound annual growth rate of 13.4% since our IPO. We reported an adjusted return on average assets of 1.28% and an adjusted PPNR return on average assets of 1.7%. Adjusted earnings per share was relatively flat with the prior quarter and up 9% year-over-year, while adjusted PPNR increased by 2.3% from the prior quarter and 16% year-over-year. In the past few quarters, I have emphasized our operating foundation, earnings momentum, and the strength of our balance sheet in this quarter continues those themes. Operationally, we continue to perform well. Our support areas are enabling our relationship managers to be responsive to our customers, and we have a platform that will help us realize the benefits of scale and allow us to grow the balance sheet and revenue with limited additional near-term investments in the back office. For earnings momentum, we saw an inflection point in our margin last quarter and this quarter saw incremental improvement as it expanded by 15 basis points to 3.57%. With that expansion of the margin, net interest income grew by 3% from the prior quarter. Mortgage had a reasonable quarter in light of the interest rate environment with a pre-tax contribution of $700,000, while the banking segment delivered solid core fee income of $11.8 million. We continue to focus on efficiency as our core banking segment efficiency ratio declined to 53.8% for the quarter. Finally, on the strength of our balance sheet, our capital ratios are exceptionally strong with tangible common equity to tangible assets of 10.2%, a CET1 ratio of 12.7%, and a total risk-based capital ratio of 15.1%. As we've built our capital ratios, we have also continued to manage our C&D and CRE concentrations within a range that gives the company an attractive lower-risk profile, especially when you consider the economic growth of our geography. Today, our C&D concentration ratio is 78%, while our CRE concentration ratio is 249%. At the same time, we've also reduced our exposure to rate-sensitive public funds from $2.3 billion in the second quarter of 2022 to $1.5 billion today, or 35%. Michael will discuss in more detail, but almost 100% of our remaining relationships keep checking accounts with us, and our customers with whom we have strong working relationships. So while our balance sheet hasn't grown materially in recent quarters, it's been remixed so that it is safer, more profitable, and more valuable. Looking forward, we continue to explore how to most effectively deploy the capital that we've built. Our first priority for that capital is always organic growth. While net loan and deposit growth were basically flat this quarter, we expect some muted growth in the low to mid-single digit range over the second half of the year, and there are a few trends that give us confidence in returning to our 10% organic growth targets next year. One trend is that we have increasing success in attracting new Relationship Managers. We brought on 14 Senior Relationship Managers in 2024, in addition to 11 revenue producers in our wealth management and mortgage groups. Our story is simple and consistent. You can count on us being here for the long term, and this is a great team that will help you advance your career. We are conservatively run, make a strong return, and have a deep management team with a long runway. We also think you'll enjoy working with us. We have a familial culture, a local authority model, and full capabilities to allow you to serve your clients. A second factor supporting this year's growth, supporting next year's growth is that we've managed our real estate portfolios to levels that are sustainable. These portfolios will no longer be shrinking and won't be headwinds for growth. For reference, excluding our C&D decline this quarter, we would have shown annualized organic loan growth of approximately 4%. Year-over-year, excluding our net construction decline, we've grown loans by approximately 5%. The last factor that supports our future growth is our comfort with the credit environment in our markets. We expect charge-offs for the industry to move more towards historical trends over the next 18 to 24 months, and we're seeing some one-off situations in our own portfolio that are the by-product of a slowing economy. However, with most of our strong credits, we have significant collateral and guarantees and don't see much loss content. On the whole, we feel confident about our existing credit quality. With continued migration, investment in development, and corporate relocations, we have plenty of attractive growth opportunities. Our governing factor on asset growth will be the rate at which we generate core deposits. Our loan-to-deposit ratio is currently 89%, and we aren't comfortable operating at a much higher level than that. Our second priority for deployment of capital is opportunistic acquisitions. We continue to be interested in a handful of names that we believe would be additive to our franchise and are ready to act when those banks are ready to find a partner. On our third priority for capital deployment, that's continuing to improve our earnings through balance sheet optimization. Michael and his team continue to execute on additive transactions. This quarter, that looked like stock buybacks as we purchased approximately 350,000 shares for $12.6 million. To summarize, I'm very proud of our team for the results this quarter. We continue to enhance our profitability metrics. We feel like we've done well in optimizing the balance sheet, and we've added some really strong revenue producers that are going to help us grow in the platform that we've built. Now, I'm going to let Michael go into the financial results in some more detail.

Thank you, Chris, and good morning everyone. I'll first take a minute to walk through this quarter's core earnings. We reported net interest income of $102.6 million; reported non-interest income was $25.6 million. Adjusting for a $2.1 million cash life insurance benefit and $300,000 in loss on sale of assets, core non-interest income was $23.8 million, of which $11.8 million came from the banking world. We reported non-interest expense of $75.1 million, adjusting for $1 million in separation costs. Core non-interest expense was $74.1 million, of which $61.3 million came from the banking segment, and altogether, adjusted PPNR earnings were $52.4 million. Going into more detail on the margin, we grew net interest income by $3.1 million or 3% for the quarter, despite a slight decline in average earning assets. We reaped the benefit of our securities restructuring activities in the first quarter as the yield on securities increased by 58 basis points and interest income on the securities portfolio was up $2.5 million. We also allowed some higher-cost deposits to leave the bank, which helped us hold our cost of interest-bearing deposits to a three basis point increase over the first quarter. That three basis point increase in cost of interest-bearing deposits compared to a five basis point increase in contractual yield on loans held for investment marks the third straight quarter that we have grown our contractual yield by more than our cost of interest-bearing deposits. For the month of June, our contractual yield on loans held for investment was 6.62%, and our yield on new commitments in June came in around 8.1%. Half of our loan portfolio remains floating rate, with $2 billion of those variable rate loans repricing immediately with a move in rates and $1.9 billion of those loans repricing within 90 days of a change in interest rates. Of our $4.7 billion in fixed-rate loans, we have $314 million that mature over the remainder of 2024 with a yield of 6.93%, and in 2025, we have $412 million maturing with a yield of 5.57%. For the month of June, cost of interest-bearing deposits was 3.56% versus 3.52% for the quarter. As I've noted previously, we now have a significant amount of indexed deposits that will reprice immediately with a change in the Fed funds target rate. Those balances stood at about $2.7 billion at the end of the second quarter. While I'm discussing our deposit base, I want to spend some time giving detail on our public funds relationships. As Chris mentioned, we've made a concerted effort over the past two years to minimize our exposure to rate-sensitive accounts that act more like brokered deposits than true customer relationships. As of the second quarter, we had $1.5 billion in public funds outstanding. Our cost of interest-bearing public funds accounts in the second quarter was 4.37% compared to 3.52% for our overall cost of interest-bearing deposits. Ninety-seven percent of our public funds customers have checking accounts with us, and 78% of our public funds balances are in checking accounts. We also process payroll for nearly every public funds customer that keeps a checking account with us, which we view as indicative of our being those accounts' primary banking relationship. For the remainder of the year, we expect the margin to settle more into a 3.47% to 3.53% range and for net interest income to be relatively stable to modestly higher as we concentrate on creating core relationships across the footprint. Moving to non-interest income, at $11.8 million, core banking segment non-interest income was stronger than typical, driven by swap fees. For the remainder of the year, we would expect to be more in our $10 million to $11 million range per quarter than we've been experiencing recently. Mortgage had another profitable quarter with a total pre-tax contribution of $700,000, which was a reasonable result given the challenges in the housing market and the volatility of the current rate environment. Our non-interest expense continued to see the benefit of operational changes that we discussed on prior calls, and core banking segment expense was $61.3 million for the quarter as compared to $59.8 million in the first quarter and $65.2 million in the second quarter of 2023. We would still expect banking segment expenses of $250 million to $255 million for 2024, as we expect performance to drive an increase in our short-term incentive compensation. We also continue to focus on recruiting talented and experienced relationship managers to the First Bank team. On the allowance for credit loss and credit quality, credit remained fairly benign this quarter as we experienced two basis points of charge-offs. That said, we did have one relationship for which we added an additional $5 million specific reserve, totaling $6.7 million against it, and we would expect resolution on that credit in the third or fourth quarter. Speaking more to the allowance, our allowance for credit loss to loans held for investment increased by another four basis points during the quarter to 1.67%. The economic environment would have kept us reasonably flat relative to the first quarter, and the specific reserve I mentioned led to the majority of that increase in the ratio. Total provision expense was again impacted by a release on reserve for unfunded commitments of $1.7 million due to the continued decline in those balances. As Chris mentioned, we have developed very strong capital ratios with TCE to tangible assets of 10.2% and a common equity Tier 1 ratio of 12.7%. We continue to focus on the best way to deploy that capital to deliver consistent long-term growth in earnings and tangible book value. I'll now turn the call back over to Chris.

All right. Thank you, Michael. And just to conclude our prepared comments, as we're certainly pleased with the progress that we continue to make, our balance sheet is in a good position and our profitability is trending in the right direction. We actually think we've got some momentum here and believe the best is yet to come. So with that, we will open the line for questions.

Thank you. We will now begin the question and answer session. The first question will come from Brett Rabatin with the Hovde Group. Please go ahead.

Hey, guys. Good morning.

Good morning, Mr. Rabatin.

Good morning, Brett.

I wanted to start by discussing deposits. You mentioned in the press release the three depositor relationships. Can we talk about the net versus gross? How much might have moved out in relation to those larger deposit relationships, and if there were any changes in the mix? It was interesting to see that interest-bearing checking increased significantly while the money market decreased. Was there any reclassification or could you elaborate on the net versus gross trends for the quarter? Thanks.

Hey, Brett. Good morning. Yeah, those three relationships were about $225 million to $250 million. One of the companies was acquired, but the other two are still relationships with the company and could come back as we move forward depending on kind of both sides of how we want to manage that. Mix shift-wise, we did see non-interest bearing hold in pretty well for the quarter, relatively flat interest-bearing to money market. There wasn't a reclassification or anything like that. Just some of the funds from some of our counterparts are in interest checking now instead of money market funds; it's a little more transactional. That product works better for some of our clients than a money market fund.

Yeah. Hey, Brett, I'll just add on those accounts, those funds that moved, again, they're folks that we know very well, have long-term relationships with, and moved out money on a short-term basis at 75 basis points more than we were willing to offer. So that's the scenario.

Okay, that's helpful. What is your strategy moving forward? Your cost of funds is still somewhat lower than some competitors, and I know some banks have mentioned that they have been able to reduce their highest rate offerings. However, I still notice around 5% for CDs in Nashville. What is your strategy, and is the margin guidance indicating a slight decrease in the second half of the year? Is that because you anticipate ongoing increases in the cost of funds compared to your stability in the second quarter?

Yes, there are a couple of points regarding the margin that Michael can address. I would like to focus on our strategy moving forward. We discussed the adjustments to our balance sheet and our current position regarding its strength. We are quite satisfied with the company's financial health, personnel, and overall momentum. We need to continue emphasizing growth. We've been cautious during uncertain economic times, particularly regarding credit trends, which has made us take a careful approach to growth. However, we feel more confident strategically as we progress, given our situation and the general economy. We anticipate that the industry will return to a more typical charge-off rate, but we don't expect it to worsen significantly. If it does, we are prepared for that. We are actively looking at opportunities for recruiting and other areas. Regarding the margin stability going forward, we plan to utilize some resources in the latter half of the year to drive growth, even if it impacts our margin slightly. It's important to note that we haven't compromised much on our margin over the past six months.

I believe you are correct. The cost of deposits is still around 5%. We've made some adjustments, but mainly because we don't want to increase term deposit costs if we expect rates to decline over the next 12 to 24 months, and that seems to be the general perspective. I'm uncertain about the extent, but we have lowered some of the longer-term rates, yet honestly, we weren't attracting much new business from those term CDs anyway. We're still competitive. It may not be as challenging on a core basis, but Chris pointed out some scenarios where it was definitely more competitive than we anticipated, which means growth will be difficult. To grow, we need to incorporate some higher-cost deposits.

Yeah. Hey, I will add one more thing. And we talk about this, we don't place a lot of leverage on our deposit base through wholesale funding, broker funding, and so we always had those outlets. No different than this quarter. We're not going to pay 6% on a one-year kind of term deposit. We're not going to generally do that because we can go out and we can fund it at 5%. And so that's something that we won't do for the sake of growth. Generally.

Okay. That's great. If I could sneak in one last one. Just, Chris, you sound overall more optimistic thematically, maybe economically, about your prospects on capital. Will you guys continue to buy back stock? I mean, obviously, you've got excess capital or maybe do you hold it while watching the political landscape, potentially giving you opportunities with M&A if there might be a regime change later this year?

Yes. So we are on the capital front. We certainly have the dry powder, and we have the approval to go out and buy back. Brett, as you know us, we hate diluting tangible book value, and so we're careful where we buy back. If you calculate the price at which we purchased this quarter, it looks like a pretty good transaction at this point. A lot of it is a function of what happens to the stocks moving forward is an important piece of that, but we certainly have the capability to apply it there. And then on what happens with the M&A market, we're prepared for that. For us, it's as much about when things become available as anything. So we're sitting ready because we don't think there are that many really attractive balance sheets out there on banks. So we are prepared, and when there is one available and the culture fits us, we're ready.

Okay. That's great color. Thanks so much, guys.

All right. Thanks, Brett.

The next question will come from Christopher Marinac with Janney Montgomery Scott. Please go ahead.

Hey, thanks. Good morning. Chris, I want to go back to the public funds and the comments that you and Mike had made. If you think about them being the sources of payroll, the other payroll clients that you have that are not public funds, do you pay them a similar rate or do you pay them less? Because I'm curious if you can replace those public funds down the road with either new customers or certainly merger partners that you find in the next several years.

Yeah. Good morning. This is Travis. Generally speaking, our payroll accounts for non-public funds are much cheaper than the public funds payroll accounts. Generally, on the public funds, you look at the all-in rate, including the transactional accounts.

Yes, that excess interest, Chris, is in addition to the payroll, and it's typically made up of multiple accounts. Regarding the second part of your question about replacing that, I believe we're fairly confident. As I mentioned, 97% of our public funds are what we consider clients. We value those partnerships and believe that being a community bank means engaging with our community and partnering with those municipalities. We plan to continue this approach. If there is excess interest, we might collaborate with them to explore alternatives. Our daily focus is on expanding treasury management and small business operating accounts. It takes time to build those up, but our main objective is to increase those core operating accounts, not just to replace but to enhance and grow the company.

Great. Thank you both for that. I appreciate it. And then just a quick reserve question. What do you see from the external factors that kind of help you build reserves? Do you see anything even in the month of July that would support a more reserve build this quarter?

Yeah, so we used a kind of looked at May-June scenario and commercial real estate on baseline for Moody's was worse than the first quarter. So that's kind of where that growth really came from than the individually evaluated loan. I think like we feel really good about our position in that we have the right reserve for the unknown economic scenarios that are out there. There's nothing specific in July or anything else that we're seeing that says, hey, you should be increasing materially from here. As Chris mentioned, our markets seem pretty good. There's some things economically that pop up on C&I, and you deal with it. Overall, I think we are in a really good spot.

Yeah, I would just add one amplification on what Michael said. When we look at our, and this is just credit-related, when we look at our portfolio, we've had a few things that we've had to deal with on commercial real estate, but as we've dealt with those, we just found that there hadn't been loss content in there. I mean, it's just things that we've had to deal with and continue to deal with, but generally plenty of equity and generally guarantors. So they haven't resulted in us looking at it and go, man, we've got a future loss there. I think everyone should be watching C&I because those can pop up in tougher economic times, especially with the inflation we've had. Sometimes you might not have guarantees, and so you might get more loss content out of the C&I buckets. The specific reserve that we referenced is actually a C&I credit, not a CRE credit.

Great, Chris. Thank you, Michael, very much. Appreciate it.

Thanks, Chris.

The next question will come from Steve Moss with Raymond James. Please go ahead.

Good morning.

Hey, Steve.

Good morning, Steve.

Hey, guys. Maybe just starting here with going back to the margin for a moment. Does your guidance here for the second half of the year assume any rate cuts?

Excuse me. Yes, Steve, we think there's about 25 basis points of rate cuts coming, maybe one late in the year. But we've had September kind of targeted as the first cut for, I guess, since we did our budget last year. So it does contemplate a 25 basis point cut. We'll see if that happens or not, but it certainly has that in there.

Okay. And just judging by, you know, the balance sheet remixing, especially on the deposit side, are you guys more asset-sensitive today than maybe a year ago?

Actually, I'd say we're more neutral. Yeah, we still lean towards a little bit asset-sensitive, but a lot of the work we've done on indexing deposits was to remove some of that risk from repricing down from the overall net interest income.

Okay, great. Appreciate that. And then in terms of, on the lending side, I noticed in, on the loans by market, your specialty lending bucket continues to build. I'm just kind of curious, maybe some color on the underlying drivers there?

On specialty lending, it has consistently performed well for us. We have increased the retail aspect slightly. Essentially, this involves providing loans for manufactured homes directly to the buyers. The average balance for a new loan is typically around $60,000, but it can be higher, between $90,000 and $100,000. This segment has seen growth for us and continues to produce steady results month after month. Travis, would you like to add anything?

No. I think you described it well. We have seen an uptick in the retail portion of that business over the last few months, just tweaking some of our offerings to make sure we're competitive in the marketplace and having good relationships with the retailers out in the various states in which we operate.

Okay, great. Appreciate that color there. And then, Chris, you mentioned earlier you hired 14 producers, still looking for additional talent. Maybe just curious, like what does that pipeline account look to you today? Is it bigger, and just kind of thinking about managing or thinking about expenses beyond your guidance for this year?

The pipeline is consistent. Interestingly, we are receiving more inbound calls from people in our geographical area. While we appreciate recruiters, we are primarily interested in candidates who are local and not those looking to relocate from places like St. Louis or San Diego. We tend not to hire many of those individuals. Instead, we focus on people we know who are already in the area and have relevant experience. This aligns with our view as a reliable and attractive workplace for the long term, which is what many candidates are seeking.

Yeah. Just a couple of points to add. We're seeing the same momentum already in the third quarter of talking to really talented people in our geography. We're excited about the prospects of continuing to bring on RMs. One thing I'll note, what Chris is referencing is, our favorite people to bring on are those that we've known for a long time. And those are long sales cycles. What we're seeing is that some of those folks that we've been talking to for many quarters, for one reason or another, are ready to come over to a different bank, more specifically the First Bank here in recent times.

Okay. Great. I appreciate all that color there. And maybe just one last one here for me, going back to the loan portfolio, construction balances have come off quite a bit, just kind of curious maybe how much lower could they go and any color around that would be great?

Yes, Steve, we're not actively trying to reduce construction balances. Our main focus is on building relationships. If that leads to some construction business with existing or new connections that generate deposits, we're open to that. We don't aim to return to previous levels; we're comfortable where we stand. For us, it's about relationships rather than just balances. I don't anticipate significant changes in either direction, but we will seize opportunities as they arise to grow our business and relationships.

Yeah, well stated, Michael. I will say this as well, Steve. That is, as we think about construction, it is that relationship-driven piece for us. We think about our risk tolerance and our portfolio and what level of risk we're willing to accept, and we're really comfortable where we are right now. That being said, one thing we have to keep an eye on is the regulatory guidance and the regulatory threshold, especially in the current regulatory environment. You also have to keep in mind, let's say we did have some type of transaction out there that capital would likely drop some. You want to make sure you've got room for whatever you would have the opportunity to do there, and that doesn't become a barrier to you.

Great. I appreciate all the color and everything. Thank you very much.

Okay.

The next question will come from Catherine Mealor with KBW. Please go ahead.

Thanks. Good morning.

Good morning, Catherine.

Good morning.

Back to the margin just, Michael, can you talk to us about the security yield? I know you had the bond restructured late last quarter. That was a big piece of the security yield going higher. But maybe just talk to us about your outlook for where that yield is going, cash flows towards the back half of the year? And maybe anything else you did to the bond book this quarter to push yields up so much?

Yeah. Good morning, Catherine. I think there's a couple hundred million that reprices or come mature throughout the back half of the year. One of the benefits in the second quarter is we saw some treasuries reprice and went from a 2% to a 5%, 6% reinvestment yield. So there is certainly some benefit to that. Obviously, we don't have as much lower-yielding stuff maturing at this point because we've cycled through a lot of what I've called a couple of quarters ago, the dogs; we took the bite of the apple and reinvested. Probably not as much benefit. I don't think you're going to be seeing 50 basis point pops, so a lot more consistency from here forward. That being said, we do continue to look at capital deployment and reinvestment opportunities. We didn't do any restructuring this quarter other than, as you mentioned, kind of just maturing and reinvesting.

Okay, great. And then back to the C&I credit that you added the specific reserve for. Can you talk a little bit about, I know you mentioned that it was a C&I credit and we saw your C&I reserve go up, so that makes sense. So maybe the size of the credit, the type of industry it's in, and then outside of that one credit, have you seen any other migration within criticized classifications or any other migration within your portfolio?

Yeah. Good morning. On the particular credit, it's in the service industry, and it was a service provider to another specific industry. Not to get too in the weeds, but this was one where there were changes in the dynamics of what they had to do for licensing that added a substantial burden to the company that was unforeseen. There was also some fraud which combined forced the company into bankruptcy. This is what happened without getting too specific. We do see some migration. We see stuff going in; we see stuff coming out of various buckets, adversely classified. We see things getting better. Overall, we've seen a little bit more going into that adversely classified bucket than we're seeing coming out. However, we are still seeing quite a bit of movement in our credits like we always do, I guess is what I'm saying.

Catherine, regarding the C&I credit you inquired about, it is currently in bankruptcy, which complicates matters slightly. However, we have made full provisions for the credit that lacks collateral.

We're fully reserved on the credit that's not collateralized by real estate.

Great. What's the current size of the credit?

Current size of the credit is around $10 million.

Just a shade under $10 million.

Great. Okay. All right. Very helpful. Thank you.

The next question will come from Alex Lau with JPMorgan. Please go ahead.

Hi. Good morning.

Good morning.

Good morning, Alex.

Chris, can you confirm if the low to mid-single digit outlook for the second half of the year was for loan growth specifically, and where do you expect net loan growth to come from for the back half of the year?

Yes, we're really targeting loan and deposit growth there with those numbers. Where does it come from? If you remember that we think of ourselves as a community bank. So it comes from multiple geographies and loan types. We hope and think that C&I is probably the biggest single contributor. That's going to come from multiple industries. There could be a little bit of real estate, but not a lot. We will continue to progress with specialty lending.

No, we don't target a specific industry or geography to hang our growth on. We really look to the entire footprint and the whole portfolio to get that growth. As Chris referenced in his opening remarks, we've grown roughly 5% absent trying to get the ADC down. So that's basically continuing to do what we've been doing without the headwinds of getting down the ADC bucket.

Yeah. The other thing I would say is, our loan and deposit side will be fairly granular. It won't be going out and buying syndicated deals or participations. If we can't get our usual solid relationship customer, then the growth rate will be lower than that. That's what will make it up.

That's great color. And how much runoff in construction loans are you assuming in that outlook?

Yeah, relatively flat from here forward.

Thank you. And then just on the commitment side of it, those construction loan commitments were down about $70 million. How do you expect the pace of this decline in commitments in the quarters ahead, or is that similar to your balance outlook?

I think it's similar to our balance outlook. I think you're not going to see the commitments decline as rapidly as they have in the past few quarters.

We're down $600 million year-over-year and unfunded commitments to that bucket. Most of that is kind of normal operating business at this point stabilized.

Thank you. And then just a follow up on the public funds. Last quarter, you were expecting it to peak at $1.7 billion, $1.8 billion. Given the recent customer actions this quarter, how has this changed your expectations for peak deposits this year? And do you expect any seasonal increase in the third quarter?

No, I think it's almost the same situation as construction. We anticipate stability in that area moving forward. As Travis mentioned, the 5% loan growth has managed to counterbalance the flat construction deposit growth, which has offset the $650 million decline in public funds. I expect that issue to be resolved at this point as well.

But we also have to remember in the public funds, there is an actual seasonality to public funds. Third and fourth quarter usually is kind of gets to the low point of what they're holding on balance because taxes come in at the start of the year, then they pay all the expenses and all the things they have to pay for till the next tax season.

Great. Just one follow up on the revenue producers being added this year. How does this pace of investing in revenue producers compare to last year? And what type of contribution are you expecting to this year's outlook? Thanks.

Yes, it's definitely higher than last year. Honestly, I don’t have the exact figures from the same time last year. There are two areas where this impacts us. First, we will continue to bring in new talented individuals, which does increase our expense base. We are very discipline and aware of our expenses and what it takes to operate the company under normal conditions. We have adhered to this principle strictly throughout the year. Additionally, while we have accounted for some flexibility in our budget, this amount is beyond what we consider to be our standard operating expenses.

Yeah. I mean, another way to say that is we're very diligent on our expense initiatives, but we're not going to pass on good revenue producers to make that expense number. We would take on the additional expense of any good revenue producer as we can get.

Yeah. And Alex, on your growth aspect, a lot of that's right in '25, right? As people come on, typically they've been at other competing institutions, and so there's some agreements there, and we honor those agreements. The growth is further out in the year. It's not necessarily a back half of '24, '25 or '26. We're not necessarily counting on these producers to make those numbers we've talked about. Any help we get, we're certainly grateful for, but it's not absolutely reliant on all that panning out. As Michael said, a lot of times there are agreements in place, and we absolutely 100% abide by those.

As Michael said, a lot of times there are agreements in place, and we absolutely 100% abide by those, and so we don't count on that.

Great. Thanks for taking my questions.

Thanks, Alex.

Thanks, Alex.

The next question will come from Russell Gunther with Stephens. Please go ahead.

Hey, good morning, guys.

Hey, Russell.

Good morning, Russell.

I just had a couple of follow-up questions at this point. The first on the glide path to that 10% loan growth number in '25. You guys just parsed that a little bit in terms of how much that would be driven by the new revenue producers vs. no longer declines in some of the construction balances versus a willingness to just grow legacy with the producers you currently have?

Yeah. So we count on the bulk of it to come from the producers we currently have. We do count on nice additions because there’s no net runoff from the producers that are coming on, and there’s an unknown; frankly, all of that has a bunch of assumptions in it. So I guess it's all unknown. There are variables going into that. You said you count on the bulk of that to come from the force of relationship managers that we have, and getting nods of agreement from the other two guys sitting here at the table.

Very good. And then you guys have done a great job on the expense side of things. Trends were favorable again this quarter. You reiterated your full-year core bank expectations. If I recall, that guide does not assume a significant increase in new revenue producers. I'm just trying to parse, based on the guides you've already added and your current expectations for the back half of the year, would you expect to be within that current guide or does the pipeline suggest the potential to punch outside?

I appreciate those comments, Russell. We expect to stay within the current guidance. As Travis mentioned, this involves a lot of discussions and recruitment over quarters, months, and years. Similar to what Chris noted about appealing bank acquisitions, we can't always control the timing, but we need to manage when and how we bring people on board. We accept talent when they add value to us and we can provide value to them. Therefore, I wouldn't dismiss high-quality talent based on a specific number I set for these individuals.

Today, we believe we will be within our guidance. As we encounter opportunities, we won't hesitate to pursue them even if it means straying from that guidance. We consider it a valuable investment in our future. Therefore, we feel confident about staying within the parameters. If we find the right opportunities for long-term positive growth for our company, we will take action, and we will keep you informed as we proceed.

Understood. Thank you, guys. And then just switching to the excess capital deployment, we saw the benefit of a prior securities repositioning in the numbers this quarter. You guys were active with the buyback. I understand you evaluate both on a quarterly basis just as we looked at Q3. What does the opportunity set look like and where would you expect to be more active?

It's probably more in balance sheet right now than it is share repurchase with the run-up. We're on the ready, if there were backup. That being said, you kind of evaluate that on a daily basis. You said quarterly; I'll probably get back to my desk and there will be a couple of scenarios waiting on me to evaluate on the security side. It's probably more there than share repurchase at this point, but we'd love to spend it organically; that's number one, is these recruiting and team lift-outs that we've been discussing. That's where we would love to spend it.

Got you. Okay, great. And then last one on the M&A front, you reminded us of the interest in a handful of names. Could you just also remind us in terms of your targeted asset size and desired geographies?

Yeah, our targeted asset size geographies are around $1 billion to $5 billion. That's a wide range, so I'd take kind of the center point for that of maybe $2 billion to $4 billion would be preferable. $1 billion to $5 billion, if we expand out to that. Geographically, contiguous to our existing geography or our existing geography, the State of Alabama is a place that we have a good but very young presence. We would do things if we got a chance to expand and add there, we would love to. The State of Georgia, same; North and South Carolina, same; mostly, I'd say on the western side of those Carolinas would be the places that we'd be most interested. Maybe even the western part of Virginia. Those are places where we understand the culture, and at least we think we do, and we have a lot of friends up there in other places in the state.

Got you. Okay, great, guys. Thank you very much for taking my questions.

Thanks, Russ.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Chris Holmes for any closing remarks. Please go ahead.

Yes. Thank you very much. We always appreciate everybody's interest. We appreciate you joining us this morning, and we look forward to Q3. If we don't talk to you before, we'll talk to you on this call again next quarter. Thanks.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.