FB Financial Corporation (FBK) Q2 2021 Earnings Call Transcript

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FB Financial Corporation (FBK -0.62%)
Q2 2021 Earnings Call
Jul 20, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to FB Financial Corporation Second Quarter 2021 Earnings Conference Call. Hosting the call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by Michael Mettee Chief Financial Officer, Greg Bowers, Chief Credit Officer; and Wib Evans, President of FB Ventures, who will be available during the question-and-answer session. 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 be opened for questions after the presentation.

With that, I would like to turn the call over to Robert Hoehn, Director of Corporate Finance. Please go ahead.

Robert Hoehn -- Investor Relations

Thank you Chad. During this presentation FB Financial may make comments which constitute forward-looking statements under the Federal Securities laws. All forward-looking statements are subject to risks and uncertainties, and other facts 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 is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K.

Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this 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 Chris Holmes, FB Financial's, President and CEO.

Christopher T. Holmes -- President and Chief Executive Officer

Thank you Robert. Good morning everybody and thank you for joining us. We always appreciate your interest in FB Financial. We had a great quarter as we delivered annualized loan growth of 13.9% when you exclude PPP. Adjusted EPS of $0.88, adjusted return on average assets of 1.43%, adjusted return on tangible common equity of 15.8% and we grew our tangible book value per share to $20.43 or a 16.4% annualized pace. Back in April, we had our last call economic activity in our markets have started picking back up and folks across our footprint were returning or had already returned to their normal schedules.

We felt that this return to normal which is coming through in our numbers last quarter, as we had a loan growth of 1.8% annualized, most of which came in March. We also had a 19 basis point release and our adjusted allowance deferrals declining $152 million and net charge-offs of 5 basis points. In this quarter, our markets have really been buzzing. People have almost universally returned to work and our customers are transacting business again. This quarter's results reflect our footprint's rebound as loan growth ex-PPP was a stellar $240 million.

We saw 26 basis point release in our adjusted allowance, our deferrals are down to $74 million and net charge-offs were only 2 basis points. Our loan growth this quarter is a sign of the strength of our markets, as well as the quality and capacity of our Relationship managers. Our growth came from across the board. Middle Tennessee continues to show very strong economic activity. Our teams in Knoxville, North Alabama had some nice wins this quarter. We're also seeing strong performance out of Birmingham, which delivered $40 million of loan growth. We just recently received FDIC approval for a full branch location in Birmingham so we look forward to continued momentum from that team.

Our Memphis team has given us approximately $90 million of loan growth since we added several new relationship managers in that market last year and has a strong pipeline of relationships that they're converting to FirstBank customers. Our relationship managers in the field are excited about the opportunities they have in front of them and the pipeline remains strong. We feel good about our loan growth for 2021 and at this point, we're changing our guidance to high-single digit growth for 2021 and we could potentially reach double-digit growth but we have some expected payoffs coming that was going to make 10% hard to achieve.

On the liability side of the balance sheet, we brought down our cost of interest bearing deposits by 12 basis points this quarter. I believe we still have some room for improvement on our cost of deposits will continue to press our team on pockets where it's appropriate for us to lower our rates. We also continue to tackle operational technology and customer experience initiatives that create scalability and position us for the future. We're committed to executing our customer focused organic growth strategy in a way that creates the highest performing bank in the Southeast. Following our Franklin combination and our growth over the last few quarters from $7 billion in assets to $12 billion, we focused on integrating teams, associated retention and satisfaction, building out scalable credit and risk management platforms and client retention and satisfaction.

These initiatives ensure that we have the people and the infrastructure in place to execute on organic growth and acquisition opportunities in front of us without sacrificing our customer focused local authority based community banking model that we believe will be a key differentiator for us over the coming years. We believe that if you're not currently executing at a high level, then you're wasting shareholder resources by adding scale to a less than optimal organization. We see this frequently in banking today, but we're determined that it will happen to us. Old M&A the universe of traditional banks continue to shrink, scarcity value is real given the relatively few quality banks that provide scale in geographies that are attractive to us.

We keep a list of those banks and will be a factor, if they choose to seek a merger partner. At the right time, we will also pursue opportunistic M&A which are defined as banks that aren't necessarily on our radar at the moment, but that would be additive to our footprint or funding profile or add a complementary business line. Until then, we operate with great teams and great marketing and can produce organic growth as this quarter shows. On mortgage, our results were in line with guidance that we provided last quarter but at $500,000 we're less than we would like. As we look in the third quarter, our forecast has moved around significantly over the past 60 days and with the market move yesterday, we were reforecasting again our best estimate right now is $2 million to $4 million in contribution for the third quarter and I'm going to let Michael give additional color on the current mortgage backdrop in his section. So to summarize, we had a very strong quarter of loan growth that we believe reflects the strengths of our mortgage, the quality of our team and our focus on execution. We expect that growth to continue over the remainder of 2021. Mortgage faces a challenging environment, but should provide an improved contribution.

We continue to improve our funding cost and we think that we have some more room there. And most importantly, we have the people, the systems and the processes to capitalize on the strong growth prospects that we have in front of us. I will now turn the call over to Greg to discuss credit.

Gregory Bowers -- Chief Credit Officer

Thanks Chris, and good morning everyone. As you can see, we have scaled back our credit disclosures this quarter, as our local economies continue to improve. We are keeping an eye on COVID case counts with the Delta variant picking up some steam across the country. But in the absence of further widespread outbreaks and related shutdowns, we feel positive overall about how the portfolio has performed over the past 15 months. While we have not issued an all-clear memo yet, we are cautiously optimistic about how things have unfolded.

On slide 11, you can see that our overall deferrals are down to less than 30 loans with roughly $74 million outstanding. Of those, as we've highlighted in the past about [Phonetic] $49 million are actually on an interest-only payment schedule, with the remainder $25 million on a full principal and interest deferral. Hotels continue to be the largest component, most of our operators are reporting improving trends, especially those more seasoned managers who benefit from newer properties and better flags.

We actually had one of our smaller hotel loans that we had circled as a concern, pay off this quarter so that helps our outlook as well. Also on slide 11, you can see an update for the industries that we had viewed as most at risk at the onset of the pandemic. We continue to monitor these industries, but feel fairly comfortable with the current operating environment for each of them at this point. No one specific segment stands out in our list. But, as noted in our first quarter call, we did have a pickup in healthcare -- the healthcare segment's classified loans last quarter with a couple of assisted living properties having challenges due to COVID outbreak.

We continue to monitor those closely and saw improvements in performance during the quarter. I will close with slide 12 which displays our overall credit metrics. Across the board, our numbers improved this quarter and we feel pretty comfortable with the health of our loan portfolio. Classified loans, non-performing loans and NPAs each moved down 11 basis points quarter-over-quarter and lastly charge-offs were minimal this quarter at 2 basis points. As highlighted in Chris's comments, I too am pleased to see the pickup in our loan book as our teams continue to compete aggressively across the markets.

Our associates are identifying good opportunities and our people continue to be diligent in balancing growth and asset quality to achieve long-term profitability which is the core of our company's historic success. I'll now turn the call over to Mike.

Michael Mettee -- Chief Financial Officer

Thank you Greg, and good morning everyone. Speaking first to mortgage and illustrated on Slide 6 mortgage performed as we expected for the quarter, achieving a contribution of approximately $550,000. We continue to see margin compression and reduced volumes due to excess capacity in the industry refinanced [Indecipherable] and a shortage of housing in our markets. We expect the housing shortage to be a continued headwind and margin compression will be a concern, until we see capacity exit the mortgage industry.

However, margins have stabilized over the last couple of weeks. Additional guidance from Chris's comment is somewhat challenging given the recency of changes in the rate environment and the removal of the adverse market fee by FHFA on refinancing, both of which could lead to more refinance activity but it's too early to tell. Moving on to net interest margin, we saw our headline number remain essentially flat at 3.18% in the second quarter compared to 3.19% in the first quarter. We were able to bring down our cost of total deposits by 10 basis points this quarter.

We continue to focus on lowering our funding costs and we see room for continued improvement. Our CD repricing is slowing, as we made up through the majority of the higher cost deposits from our 2018 campaign, but we do have approximately $330 million repricing in the third quarter at a weighted average cost of around 85 basis points. Our contractual yield on loans, excluding PPP dropped by 11 basis points to 4.37% in the second quarter from 4.48% in the first quarter, as pricing competition remains fierce.

Yield on new originations during the quarter came down at 3.8% to 3.9% range and that pricing has continued through the first few weeks of the third quarter, so we would expect to see -- expect to continue to see contractual yields compress until we see rates begin to rise. When rates do rise, we have approximately $2 billion in variable rate loans that should reprice immediately. We traditionally have kept our fixed-rate loan shorter dated as we know that longer-term fixed rate paper at low rates can become a credit risk in addition to an interest rate risk.

As a result, our balance sheet remains fairly asset sensitive. Despite our strong loan growth for the quarter, we continue to have a tremendous amount of excess liquidity. We've begun deploying a portion of that liquidity into our securities portfolio opportunistically after the benchmark 10-year US treasury yield increased by approximately 83 basis points in the first quarter. After $265 million of security purchases, runoff from pay-downs and market value changes our securities portfolio increased by $179 million in the second quarter. The average yield on purchased securities during the quarter is an estimated 1.46%. We continue to be conservative with duration risk within security purchases as we add to the portfolio.

In the absence of rate increases, we would expect the margin to stay in the same relative band that we've been in for the past couple of quarters with the positive changes in the balance sheet mix being relatively offset by continually declining earning asset yields. Our cost of funds should also continue to have small declines. We will focus on continuing to grow net interest income in the near-term through earning asset growth, both loans and securities and maintain the longer-term upside of our asset sensitive balance sheet.

Moving to CECL and our allowance, we saw our release at $13.8 million this quarter as economic forecast continued to improve. As we have mentioned previously, the improving economic forecast for the first and second quarter has caused us to begin to increase our qualitative factors in order to maintain what we feel is a prudent level of reserve. Going forward, we will continue to weigh the improving forecast [Indecipherable] factors that are necessary to pinpoint any risk that still exists, that are not reasonably picked up in the model. We would currently expect further releases over the next few quarters, assuming outlets continue to improve.

As an update on our non-core commercial held for sale portfolio, we saw our exposure decline about additional $50 million during the quarter. With these pay downs and improving economic conditions we saw a gain of $1.4 million on our portfolio as compared to an $853,000 loss in the first quarter, a $1.4 million gain in the fourth quarter of $2020 and a $1.9 million gain in the third quarter of 2020. We continue to market the portfolio while maintaining our hurdle price and we feel that the portfolio is appropriately inadequately marked for the remaining risk.

Until the buyer hits our bid, we expect continued pay downs and small gains or losses as the portfolios mark to market each quarter. Speaking to our expenses, our bank expenses were higher than we had anticipated as we have implemented systems and took advantage of hiring opportunities, each of which support our growth. We don't expect our bank expenses to exceed the current quarter's level over the remaining two quarters of the year and we expect next year this expense growth to be in the low to mid single digit range.

With that, I'll turn the call back over to Chris to close.

Christopher T. Holmes -- President and Chief Executive Officer

Thanks Greg and Michael for the color. Certainly, we believe that we delivered strong financial performance this quarter. We're pleased with the team's results, particularly our loan growth. That concludes our prepared remarks. Thank you everybody for your interest in FB Financial and operator at this point, we'd like to open the line for questions.

Questions and Answers:

Operator

Thank you sir. [Operator Instructions] And the first question will be from Stephen Scouten with Piper Sandler. Please go ahead.

Stephen Scouten -- Piper Sandler -- Analyst

Hey good morning everyone.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning Stephen.

Stephen Scouten -- Piper Sandler -- Analyst

So, just maybe start with loan growth here a little bit. Obviously, I think the 14% level was a very impressive number -- we'll see how other peers shake out, but I don't think they'll be anywhere near that level. So I'm wondering, other than just the strength of the markets you spoke to are there any other nuances that led to that growth? It seemed like maybe there was more residential real estate growth so, can you talk to that? Was that, maybe just holding more on balance sheet or what are the dynamics there?

Christopher T. Holmes -- President and Chief Executive Officer

Yeah, we can speak certainly speak to it. I'll go first. But really, Stephen, it came across the board and there are two components to that net growth number, so it came across the board. And if we look at our funded -- our funding's surprisingly balanced. You couldn't balance it anymore across C&I, CRE both owner occupied, non-owner occupied, multifamily. Multifamily is probably the biggest area -- it was the biggest area of growth for us and we had good originations, but we just frankly had fewer pay downs. It was an impressive. Well, I appreciate you calling it an impressive growth number and we turned in good performance but actually it's probably even more remarkable for us was the level of paydowns as well.

We had great originations and continue to get some pay downs and we didn't get many in multifamily and that's what led to higher growth in that particular segment but residential as well we had some growth in that or, so it was really balanced across the board. Yes, anything to that?

Gregory Bowers -- Chief Credit Officer

Chris, I'd also add that balance point is key and I thought in the loan dollar side as well there are a lot of $2 million, $3 million and $4 million dollars deals that could represent across the footprint.

Christopher T. Holmes -- President and Chief Executive Officer

Yeah, and we talked -- we thought once really things open back up, we see a lot of activity and certainly, if you can walk in Broadway in Nashville even at 8 o'clock in the morning on a Tuesday you'd be surprised we see a lot of activity and it's not only Nashville, it's across the quarters.

Michael Mettee -- Chief Financial Officer

Yeah. Stephen, it's Mike. I'd add and your point about putting more residential and balance sheet that is one of the benefit to the mortgage division. If we choose to do that we have the ability to choose portfolio and mortgage loans and sometimes we do deploy that option so that is out there.

Stephen Scouten -- Piper Sandler -- Analyst

Okay. And I guess is that a strategy you could shift in general or just took advantage of this quarter and what kind of the production are you keeping on balance sheet? Is it arms or shorter-term?

Gregory Bowers -- Chief Credit Officer

Yeah, it's not really a strategy shift. I mean, very little production we're still selling 97% of our mortgage is in the secondary market on a go-forward basis. We do see some jumbo customer stuff that we'll put on at the cheapest but yeah good customers and footprint type of business, but it's not a big piece of our business at this point.

Christopher T. Holmes -- President and Chief Executive Officer

And net of payoffs it was a contributor, but I would say not a huge contributor.

Stephen Scouten -- Piper Sandler -- Analyst

Got it. Yeah, it makes sense. Okay. And then maybe thinking about capital deployment, it feels like you were maybe a little more -- I don't know, aggressive about your commentary in terms of the ability to deploy capital and you mentioned maybe a handful of M&A targets that you guys would be active if they came to market. Can you give us a feel for how many of those targets might be out there and what kind of the potential asset sizes would be that you might look and then if M&A doesn't come about, maybe how aggressive could you be on the share repurchases, especially with the stock having pulled back somewhat?

Christopher T. Holmes -- President and Chief Executive Officer

Yes. On the M&A front, we've taken the position -- we always think about that -- I don't think you can do what we do and not at least have a plan and have that in mind, and we always have a plan -- have that in mind. We've not been aggressively out pursuing M&A partly for a couple of reasons; one, I've referenced quite often some of our internal initiatives that we feel like in that we've been focused on that really just enhance the quality of everything we do, including our associate experience and our customer experience, and so we've had a really significant focus on them.

The company has grown significantly over the last 18 months and so -- double in size over the last 18 months and so we've had a lot of focus on that and that's part of it, is we don't want to disrupt a lot of momentum and I think quarters like this you can see that, because it shows through. And so --- but we do keep a small list of names in and around our footprint, it would not hit the double-digit -- kind of a double-digit for us because that's -- I mentioned scarcity when it comes to really high quality franchise, man, there is some out there that are fantastic, but there are just not that many of them. And some of them may reach out sometime soon -- some of them may not reach out for another 3 years or 4 years or 5 years, which is completely fine for us, and so and so that's a matter of timing. We don't anticipate anything in the immediate future from those names.

But as you know, we'll get reached out to or we will get called on by investment bankers with opportunities that sometimes are pretty good opportunities that are not -- that are opportunistic for us and it's not one of those names and we'll consider those two, we just consider those a little less aggressively and we would -- we would go down to $400 million, $500 million in terms of size and then on the upside we go up to $3 billion, maybe $4 billion would be -- I'd say $5 billion and under and we wouldn't do anything bigger than that.

We really wouldn't even get to that level, but somewhere in that range is where our targets would be, as we think about how to grow the franchise. We wouldn't get any bigger than that in terms of an acquisition because it just gets to be too much at that point.

Stephen Scouten -- Piper Sandler -- Analyst

Okay. Yeah, that's really helpful. And then maybe just following up on the share repurchase thoughts, down to 1.5 times at tangible book obviously would be -- the math gets a little more attractive and you guys mentioned, you have a lot more excess capital now. So, how do you think about that today?

Christopher T. Holmes -- President and Chief Executive Officer

Yeah, I'm sorry Stephen -- I don't know, you've referenced that. It's a thought, and you're exactly right on all counts we're accumulating a lot of capital. We expect that to continue buyback of shares is a possibility as we move forward over the next couple of quarters. We're certainly at 1.5 times tangible we're sort of scratching our head and so that makes the buyback look more attractive and so it's a consideration for us.

Stephen Scouten -- Piper Sandler -- Analyst

Okay, great. Well, thanks for the color and congrats on a great all right.

Christopher T. Holmes -- President and Chief Executive Officer

All righty. Appreciate it Stephen.

Operator

And our next question will come from Brett Rabatin with Hovde Group. Please go ahead.

Brett Rabatin -- Hovde Group -- Analyst

Hey, good morning everyone.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning Brett.

Brett Rabatin -- Hovde Group -- Analyst

I wanted to first ask on the mortgage, the guidance for the $2 million to $4 million in contribution for 3Q, can we talk maybe about the assumptions for that -- does that assume one, that the current rate down draft we've got here -- does that mean that it sticks or if that's your assumption and then just maybe talk about how you're assuming gain on sale margins trend from here?

Michael Mettee -- Chief Financial Officer

Yeah Brett, this is Michael. So, really, as we look through the quarter, it doesn't include some of the recent Red Valley [Phonetic] asset the last couple of days. The $2 million to $4 million really framed before that -- obviously tenure has been pretty volatile here so we think that maybe there is some tailwinds behind this lower rate environment and so would not include that, but it's really just too early to tell how long that sticks and really if mortgages follow and then from a margin perspective -- on slide 6 if you look at Canada, of $2.4% [Phonetic] range, which is where our pipeline is that's really where margins have been coming down on a kind of a weighted average, if you look at the mix in our consumer direct and retail businesses.

And so, it's been pretty consistent over the last couple of weeks, which is a nice thing, as we've seen them contracting for quarter over quarter here. So, seeing same some stabilization we'll see how that plays out among competition here in the next couple of weeks. But for now, we're pretty comfortable in that space.

Brett Rabatin -- Hovde Group -- Analyst

Okay. I appreciate the color there. And then, the other thing was just, you highlighted the hires and expansion and talked about Birmingham but you also mentioned that you wouldn't expect the core bank expenses to grow from here. Have you sort of accomplished what you wanted to in terms of adding talent for the near term and what other opportunities you might look at and what markets you might be if any?

Christopher T. Holmes -- President and Chief Executive Officer

Yeah. And so never recruiting is a 7-day a week, 365 opportunity for us. And so, we could always opportunistically add either teams or individual revenue producers as we get opportunities to do that. And so, with that -- that will be something we'll continue to pursue. We -- there is always things falling out of the expense side and things getting added to the expense side and so it's a constant roll forward and as we look at it and we think about big expenses in terms of say new systems or in a big personnel moves or things like that, we think that's where that statement comes from.

And so, we don't see anything that's going to cause us to be significantly higher. We know of a few expenses it go -- that get actually reduced in the quarter but we're allowing also for some -- for some adds of personnel. We continue to -- we continue to look for not only on the revenue producing side of the business, but we've made some really key adds in the financial area, we've made some -- we've made some key adds in the risk area and so when we have the chance to upgrade talent, we're going to continue to add to our talent. We're going to continue to do that.

Brett Rabatin -- Hovde Group -- Analyst

Okay, great. Appreciate all the color. Thank you Brett. We think we can do that within our existing expense structure for the next couple of quarters. Okay.

Operator

Okay. All right. And our next question will come from Kevin Fitzsimmons with DA Davidson. Please go ahead.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Hey, good morning everyone.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning, Kevin.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Just another follow-on question on mortgage. So if I'm looking at -- I'm just looking at the components of mortgage banking income which is on page 12 of the supplement, and so when I think about it, revenue what could be happening going forward. Would it be reasonable to assume that fair value hit of about $17.6 million this quarter is going to -- you're assuming that's going to come lower, but there will also be some additional pressure on the gain and fees from originations line. Is that a fair assumption?

Gregory Bowers -- Chief Credit Officer

Hey Kevin, good morning. Yeah, that's fair. You're seeing the pipeline has come down, call it 30% quarter-over-quarter and so that really drives -- the rate loan drives that fair value mark, and so we're seeing some stabilization there. Back to the earlier question would be -- how do we feel a little bit of growth from this rate move and refinance activity -- purchase activity continues to be under pressure within the housing. So, don't expect a whole lot of it unfortunately, but your assumption is correct. Gain on sale, obviously our volume that we go down because it follows that smaller pipeline is our opportunity to pick up some pennies there shrinks with lower volume.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Great, thank you. And just want to -- just more of a housekeeping thing on the loan growth guidance taking it up to a high-single digit, it previously was a mid-to high-single digit, is that correct?

Christopher T. Holmes -- President and Chief Executive Officer

That's correct. It was previously mid to high and we're saying it should be high at this point.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Okay. And then if you could just remind us, I appreciate the outlook for further reserve releases and you're still at a very strong level here and you referenced the day one CECL level. Can you remind us what that is on a combined basis, what you consider that level and when you might approach it or is it something you're looking at -- assuming the outlook and the indicators you're looking at stay -- continue to be where they are or even improve from here. Are we looking at more of a 2-year window more of a one-year window and would that level roughly be?

Christopher T. Holmes -- President and Chief Executive Officer

Yeah. Probably the least -- probably.

Gregory Bowers -- Chief Credit Officer

Yeah Kevin, it was around $140 million to $150 million originally but I don't really think about it like that because the business has changed so much which Chris referenced going from $7 billion to $12 billion. The combination changed environment so it's tough to think about and day one, and so we kind of look forward and obviously we'll move if things continue down the path moving down. We would expect to move down over the next couple of quarters. I wouldn't expect it all happen in the third and fourth quarter as it likely pushes into 2022 as we get a grasp on the Delta variant and all that stuff. So, I don't think it's an immediate move down but we're in such a different look than day one that's kind of...

Kevin Fitzsimmons -- DA Davidson -- Analyst

Yes, and that's exactly why I asked about it because I didn't want to place too much weight on that number, when it was you guys were a much different bank at that point.

Christopher T. Holmes -- President and Chief Executive Officer

Exactly. And I think it's a good summary and it's been a frustrating year with CECL, because we've put a lot in and now we've got it slowly coming back out -- a lot in allowance and it's slowly coming back out, and I suppose that's the way it's supposed to work, but it doesn't make it hard to just zero in on core earnings from quarter to quarter. I know you got to do what we try to do too. And so we're trying to be as transparent as we can when we say, we expect future releases based on -- if things continue as we expect them to, we would expect future releases, but we don't have any kind of time frame on that and we don't have any goal in mind that we're trying to get to.

And so -- it's a little -- we can't answer the question as published cleanly as we'd like to be able to answer Kevin, but we try to be as transparent on it as we can, again.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Yeah. That's all very fair. It is. Just one last one for me, so on M&A, I appreciate the kind of differentiating between the targets that are in and around your markets that you would have on this list versus some more -- more strategic opportunistic targets and I'm assuming that maybe some of those or not -- maybe those are outside of the current footprint. If that includes those kind of scenarios, are there certain markets where you would be more open to looking at such as maybe the Carolinas or Northern Georgia. I would assume Birmingham as a market, you'd be interested in if targets came up, given the de novo, but just any anything you're comfortable sharing on that front? Thanks.

Christopher T. Holmes -- President and Chief Executive Officer

Yeah. And you got read it pretty well, one thing I would say is that list is all in and around our geography OK. It's not taking us into significantly into new geographies. It's all in and around our geography and we would call Northern Georgia in our geography today, we call anything Birmingham in North in our geography today. We don't have any physical presence in the western part of the Carolinas, but that wouldn't be a reach for us [Indecipherable] as we say down here in the Southeast, we're really close to North Carolina at this point anyway just got a few mountains or barrier to travel, but we're really close to that Western part of the Carolinas.

And so we don't really consider that to be out of geography that's kind of in our targeted zone, and those are the types of areas. But all of our targets would be within those types of areas would be within those areas -- would be outside of those. Is that helpful Kevin?

Kevin Fitzsimmons -- DA Davidson -- Analyst

That's perfect. That's perfect. Thanks very much.

Christopher T. Holmes -- President and Chief Executive Officer

Okay.

Operator

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

Catherine Mealor -- KBW -- Analyst

Thanks good morning.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning Catherine.

Catherine Mealor -- KBW -- Analyst

Wanted to just follow up on bank level expenses and see if -- just want to make sure that your guidance is what we're hearing it right. So you're saying that you think core expenses will grow from here. And so, what kind of -- I remember last quarter you have had kind of taken fourth quarter run rate and annualize that and that was about $212 million and had guided for that to be kind of a low to mid single digit growth rate this year. It seems like that guidance is coming up a little bit this quarter, can you just kind of talk about what's changed within that. And then, is that a growth rate that you think is specific to just 2021 and we should see that growth rate may be pull back and normalize a little bit as we get into next year. Thanks.

Michael Mettee -- Chief Financial Officer

Hi Catherine. So, rest of the year we don't take the third and fourth quarter will be as high as the second quarter was, right. So, we actually expect that number to normalize or stabilize maybe some slight downward pressure on expenses. So, the guidance around low single digit was for 2022. So I may not have been clear in my comments but we do expect to see some stability in expenses and a slight decrease for the remainder of the year.

Catherine Mealor -- KBW -- Analyst

Great. Okay, so your core expense has come down from this quarter and in the low single-digit growth rate is expected for next year off of that base?

Michael Mettee -- Chief Financial Officer

That's right.

Catherine Mealor -- KBW -- Analyst

Perfect. Okay, great. Just wanted to clarify that. And then what's the difference between the gain on sale margin in the Consumer Direct business versus just the in-footprint kind of core mortgage business?

Wib Evans -- President, FB Ventures

Catherine, this is Wib. You're looking in the consumer direct space somewhere in the $175 million to $190 million range and on the retail for front you're looking, probably $320 million to $340 million.

Catherine Mealor -- KBW -- Analyst

Okay, great. Thanks. That's all I got, appreciate it, good quarter.

Wib Evans -- President, FB Ventures

Thank you.

Christopher T. Holmes -- President and Chief Executive Officer

Thanks Catherine.

Operator

The next question is from Matt Olney with Stephens. Please go ahead.

Matt Olney -- Stephens -- Analyst

Hey, great, thanks, good morning guys.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning.

Matt Olney -- Stephens -- Analyst

Just looking back on the loan growth, I think you're pretty clear as far as the pay downs and how those eased quite a bit in 2Q, but could potentially return in the second half of the year. What about utilization rates? How did the 2Q levels compared to the trough levels and how these compare to what we saw pre-pandemic? Thanks.

Christopher T. Holmes -- President and Chief Executive Officer

Yes. So a couple of things. Matt, we did have actually in the quarter -- I may not have been clear. We did have significant pay downs in the second quarter and still we're able to produce the 14% loan growth. So we -- our originations were really significant in the second quarter -- our new originations. And then when we look at fundings -- and so moving to funding, we got a little bit of help, particularly in our -- when I say particularly we didn't get much out, to be honest with you in the fundings on our lines just in the -- call it $20 million-ish I'd say on our C&I loans in terms of where existing loans that were funded this quarter above where they were last quarter. So we did get some help in utilization there, but it wasn't a huge contributor for us. Yeah. Then we're still below pre-pandemic for sure specifically in 2019 probably just around 5% probably round number, if you go back to early 2018 -- early first quarter, second quarter, fourth quarter 2019, actually if you go back all the way back in the 19. We're still probably in the 7 or 8% below utilization rates.

Matt Olney -- Stephens -- Analyst

Okay, that's helpful. And then circling back to the mortgage discussion, I want to drill down, one of the issues that you mentioned and that is that the housing supply shortages in some of your core markets. I'm trying to appreciate as that's a shorter term problem that will need a few more months and some more reasonable commodity prices to get beyond or say longer term problem that we're going to talk about for several more years in your core markets.

Christopher T. Holmes -- President and Chief Executive Officer

Yeah, it's a great question. I don't think in the short term, it's not where it will come out [Indecipherable] we'll talk about it longer than that. I don't know if we'll be talking about it 5-year from now, but we'll be talking about it for at least several quarter.

Michael Mettee -- Chief Financial Officer

You hit on it before. Chris and your conversations about all the jobs that we've seen so, especially in the Middle Tennessee section of our footprint, I think that's going to be something that frankly is a little bit of a good problem with the migration and build up in the economy.

Christopher T. Holmes -- President and Chief Executive Officer

Yeah, it's going to be something. It depends on the market, but particularly in the Nashville market, we're going to be -- we'll be talking about this for a long time because it's at a balance and it's going to really be hard to get back in balance for another 2 quarters, 3 quarters, 4 quarters, and even when it does, it's going to be tight. I mean I don't see how, given the strength of the economy that we won't be talking about this for a few years in Nashville in particular, the markets, not quite as robust but still strong -- the economy of Tennessee, as a whole is very good and it's probably, it's the best of the states that we operate in -- at least where we operate [Indecipherable] is another one that's quite good, Birmingham is also is also strong and so I think the migration across the Southeast is going to have this -- talking about this at least I'd say it's an intermediate term topic and maybe even longer term in some places.

Matt Olney -- Stephens -- Analyst

Okay. Well, we'll keep an eye on that, and then just lastly, a housekeeping question. Saw some strong ATM interchange fees this quarter, any drivers of that in particular. And then, if you rollout forecasts for 2023, just remind us of the Durbin impact and when do you expect that to be and what you think the amount should be? Thanks.

Michael Mettee -- Chief Financial Officer

Yeah. So just pickup in economic activity, more slides for the car, more transactions drove to that $1 million increase quarter-over-quarter. Yes, it's too early to tell I guess but that's a reoccurring trend. We certainly hope so as we see the economy continue to improve. Durbin will hit 6/30 of next year -- we were talking about this the other day and as soon as we get this optimized, we'll get that nailed with Durbin and so the number will be quite tangible.

Christopher T. Holmes -- President and Chief Executive Officer

Yeah it's actually 7/1 technically, we lose the 6/30 technically so 7/1 is basically 40% of the number of what we booked today -- basically 40% of that number comes out. So, it's not that difficult of math and that's for better or for worse, I suppose it's a good thing. That number continues to grow for us. We do have a pretty good retail presence in a lot of our markets and so that's a growing -- continually growing number for us. Unfortunately 7/1 of next year only 60% of it will be growing so that's what that means to us.

Matt Olney -- Stephens -- Analyst

Okay, thank you.

Operator

Thank you. [Operator Instructions] The next question will be from Alex Lau with JPMorgan. Please go ahead.

Alex Lau -- JPMorgan -- Analyst

Hi, good morning.

Christopher T. Holmes -- President and Chief Executive Officer

Good morning Alex.

Alex Lau -- JPMorgan -- Analyst

Could you provide some color and what you're hearing from customers on the commercial side on loan demand and what are your thoughts on the Delta variant, and if it could have any material impact on confidence of your business customers. Thanks.

Christopher T. Holmes -- President and Chief Executive Officer

Yeah. And so we're getting confidence from our -- on the commercial side. We're gaining confidence. We were hearing it in the first half of the year, a lot of optimism about the last half of the year and as we've gotten sort of at the inflection point, we hear a lot of confidence. And as things have reopened and businesses have reopened and are really ramped up to full speed or near full speed, we hear confidence there is still some challenges with the labor force, there is challenges the supply chain. We are both of those as being obstacles but they hope that certainly they'll help the labor force is a shorter term obstacles in supply chain and intermediate-term obstacle, but a lot of optimism. On the Delta variant, of course, we hear the same news reports everybody hears. We're watching closely -- I don't know if concern is the right word, but we're certainly interested in watching and monitoring for the impact on our markets -- impact on what's happening with our healthcare system, hospital stays and how that's going. And so we have certain things internally that are, that we have a group that's monitoring across our markets on what the level -- what with the case counts are and where we are and like most of the country we've seen them increase and so today, no impact.

But, when we think about things for instance when Michael was talking about our CECL Q factors, it's one of the things we go conservative on is on, in case we do face another shutdown or in case we -- it becomes a material impact. But, I will say practically speaking, if you walk down the stream in most of our markets, it would be business as usual and it would be life as normal. And people are out doing both leisure and business activities as you know.

Michael Mettee -- Chief Financial Officer

Chris, on confidence factor one of the things that we, again Middle Tennessee has really benefited from the in-migration of like the Amazons and the Oracle announcements, the spin-offs from that and that's impacting a lot of confidence in the warehouse side of the market, logistics and panning out quite nicely -- I'd say there's a lot of confidence in that.

Christopher T. Holmes -- President and Chief Executive Officer

Yeah, And there is [Indecipherable] I don't know if you follow -- I mean we have the confidence, I think it's a reflection. I think we have the largest July 4 celebration of any place in the country, with 350,000 people in Downtown, Nashville. And so I don't think there was a high degree of concern around those people, I didn't participate but I didn't see any masks. And so again I think confidence of the general population is high -- I think as a business community is high. Everybody has got a sort of a watch and see and they've got some concern over the Delta variant and potentially other variants, they come to us on COVID. And so, we certainly don't declare it as -- we here at FB Financial do not declare it as over and we keep on it every day.

Alex Lau -- JPMorgan -- Analyst

Thank you. And on your deposits, on a period-end basis, it was down quarter-over-quarter. Could you touch on the moving pieces on this decline? Anything would be going on offsetting growth? Thanks.

Michael Mettee -- Chief Financial Officer

Yeah, a little bit some of it's public funds and our traditional cycle on public fund deposits is where they tend to swell in the first quarter and then come down

A bit in the second quarter. So actually sometimes they can come down -- they can swell a lot in the first quarter, come down a lot in the second quarter. They have not come down quite as they have come down some, but not quite as much in the second quarter, as they normally would -- as they would in a normal year just because so many public entities are so flush with cash.

And so, we were effectively flat in deposits for the quarter, but notice, we also decreased our cost fairly significantly in the quarter. And those two things as you know can operate in an inverse relationship and so that doesn't -- frankly, that's not -- when we're sitting on as much cash and liquidity as we have, we're happy right now to trade lower rates for a little less in balance.

Alex Lau -- JPMorgan -- Analyst

Thanks for taking my questions.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Chris Holmes for any closing remarks.

Christopher T. Holmes -- President and Chief Executive Officer

All right, thank you very much and Chad and thank you for all of you for joining us this morning. Always appreciate the interaction and the questions, if there is anything that we didn't cover, we're glad to do that in follow-up calls and everybody have a great rest of your day and hope your earnings season is good. Thanks.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Robert Hoehn -- Investor Relations

Christopher T. Holmes -- President and Chief Executive Officer

Gregory Bowers -- Chief Credit Officer

Michael Mettee -- Chief Financial Officer

Wib Evans -- President, FB Ventures

Stephen Scouten -- Piper Sandler -- Analyst

Brett Rabatin -- Hovde Group -- Analyst

Kevin Fitzsimmons -- DA Davidson -- Analyst

Catherine Mealor -- KBW -- Analyst

Matt Olney -- Stephens -- Analyst

Alex Lau -- JPMorgan -- Analyst

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