SmartFinancial Inc (SMBK) 2018 Q2 法說會逐字稿

Good day, and welcome to the SmartFinancial Second Quarter 2018 Earnings Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Frank Hughes. Please go ahead.

Thank you, Jasmine. Good morning, and thank you for joining us today on our second quarter 2018 earnings call. With me this morning is Miller Welborn, Chairman of SmartFinancial Inc.; Billy Carroll, President and CEO; Ron Gorczynski, Chief Administrative Officer; and Bryan Johnson, our Chief Financial Officer. After our prepared remarks, we will then take questions. Yesterday evening, we issued an earnings release discussing our second quarter results. We have also prepared a slide presentation, which we will refer to during our remarks this morning. Both of these can be found on our website at smartbank.com in the Investor Relations section.

During today's call, we will make forward-looking statements, which are subject to risk and uncertainties and are intended to be covered by the safe harbor provisions of the federal securities laws. Actual results and trends could differ materially from those set forth in such statements due to various risks, uncertainties and other factors. More detailed information about these and other factors can be found on our press release that preceded this call and the Risk Factors and Forward-looking Statements sections in our annual report on Form 10-K. Statements are valid only as of today's date, and the company disclaims any obligation to update this information, except may be required by applicable law. Additionally, today's presentation contains non-GAAP financial measures. The reconcilements of such measures to the most comparable GAAP figures are included in our earnings release and at the end of our earnings call presentation. Please also note, this event is being recorded.

I will now turn the call over to Chairman and board -- the Chairman of the Board, Miller Welborn.

Thanks, Frank. Good morning. I appreciate you all joining on this morning. We are excited to talk about another good quarter for SmartBank. A couple of bullet points and thoughts as we get started. Our plan and our process are continuing on target. Our asset growth has been strong as we passed the $2 billion mark this quarter. Our earnings growth is strong, our credit metrics are certainly strong. We did get another acquisition closed in the second quarter and another transaction announced with the Foothills transaction, and we are continuing to see very healthy markets with strong management in place. We as a bank are tracking exactly where we promised our board and our shareholders we would be at this time in our journey. And with those bullet points, I'm going to turn it over to Billy and let him talk about a few of the specifics. Billy?

Thank you, Miller. And good morning, everybody on the call. I'm going, to begin with some -- a few highlights for our quarter and the year. And then I'm going to turn it over to Bryan Johnson, our CFO, and let Bryan dive into the financial results in a little bit greater detail. Then he'll turn it back over to me, and I'll wrap up with some color on what I expect as we move into the second half of 2018.

Overall, as Miller said, a very solid quarter for us, and I feel really good about where the bank is positioned. Our second quarter was highlighted, as he said, with the closing of our Tennessee Bancshares, Southern Community Bank acquisition. Closed that deal on May 1, so we had 2 months of Southern's numbers in these Q2 numbers that you're seeing today. We're also currently preparing for conversion and rebranding of those offices. This is still scheduled for August 10 and excited to get the Southern Community Bank integrated and rebranded and SmartBank on those offices in those new markets.

We anticipate the bank fully having integrated with all cost saves by the end of the third quarter. And as Miller also mentioned, another great highlight for the quarter was a really nice end-market deal, Foothills Bancorp, Maryville, Tennessee. Our team's really excited about that, having one close to home is really nice. Being able to add some density in our home Knoxville, MSA is something we're very excited about and be glad to touch on that more if needed.

I'll start with the slide deck. Hopefully, everybody on the call has had an opportunity to take a look at our deck. We'll start on Page 4. For anyone that's relatively new to our story, this slide give you -- it gives you a little bit of a background on our now $2 billion in asset company. Also highlighted is the footprint we'll be picking up with the Foothills acquisition. We've also included some slides in the first part of the deck. This is a new deck format that we have that provides some additional background on our company as well as some of our recent acquisitions and our acquisition strategy.

Jumping into the highlights for the quarter. On the earnings front, we did have a really nice earnings quarter. Core ROA and EPS were right in our target range, even while juggling all the M&A activity that we've talked about. Core net interest margin continuing to -- continue to hold very well, and I'm going to let -- Bryan's going to dive into the specifics of margin in his comments. We did have a little nonrecurring accretion that positively impacted NIM. But our core margins continue to be strong even with a slight tick up in funding cost. In addition to Southern Community Bank assets, our sales team organically added about $10 million in loans for the quarter. That's a little slower than the net balance growth that we had in Q1 but still ahead of our target on a year-to-date basis. Year-to-date, we're running at approximately 10% annualized on an organic front.

Efficiency ratio improved as we continue to be on pace to move into -- consistently move a core into that mid-to-low 60s range. So it was a nice to see our core efficiency ratio dip down again this quarter. And credit quality remains very strong with nonperforming assets at 0.25%.

Turn it over to Slide 11 in the deck. You'll see a summary of our key metrics for the last 5 quarters. Our core ROA, again, moved up as anticipated, as did our net interest income, the assets quarter-to-quarter. Noninterest income trend still remains flat. Our most recent acquisitions have not come with many noninterest revenue opportunities. But it remains the goal to increase this line, and we plan to see improvement in that metric as we move further into the year. Noninterest expense trends look really nice as we are taking advantage of the cost saves, our Capstone acquisition that was completed earlier in the year is now fully integrated, performing very well. Those cost saves are in place. So our net expense ratios are really starting to move in a nice direction.

And then as we shake out Southern's integration in the third quarter, we should have all of that in place by September 30. So overall, feel really good about the trend lines and the steps we took in the second quarter. Again, it was a, as we typically have, extremely busy quarters in this company. And real excited to see the progression in our financial metrics.

So with that, I'm going to flip it over to Bryan and let him just really drive into the numbers in a little bit greater detail.

Thank you, Billy. I'm going to take you through about the next 8 slides in the deck. So I'm going to start on 12, which is our earnings profile for the most recent quarter.

Earnings per share, up 60% compared to the prior year, $0.32 a share. If you look over to income statement, to the right, you can see that was driven by a 90% increase in net interest income. We also had a 26% increase in noninterest income, offset by a 73% increase in noninterest expense.

As the notes say, the drivers in the increase in noninterest expense were the additions of both -- compared to the prior year, were the additions of Capstone and Tennessee Bancshares as well as merger expenses during the quarter.

Going on to the next slide, Net Interest Income. As Billy mentioned, very strong quarter on margin compared to the prior year. Yields on loans up 67 basis points. Securities and interest-bearing due from up 48 basis points leading to earning asset yield of a 72 basis points year-over-year. That was offset by increases on interest-bearing liabilities, which were up 35 basis points compared to a year ago. One thing I will note, as you look down at the cost of funds of though, while interest-bearing liabilities were up that much, kind of the delta between our interest-bearing liabilities and cost of funds went from 11 basis points a year ago to 19 basis points the current quarter. So having those noninterest-bearing DDAs does make a big difference as rates start to rise on this.

Looking over to the left-hand side, net interest margin, and speaking a little bit about accretion. As Billy said, we are a serial acquirer, and accretion comes with it. I mean, if I was going to use a sports analogy, I'd say we're -- I mean, we're an American League team, we got a designated hitter, and we're going to get more points throughout the season. We might not hit a home run every quarter like we did this time, but you can expect to see higher RBIs and higher runs over the season. Having said that, we did have a pop last quarter from -- not to December to fourth quarter a year ago, but we are holding very strong with our net interest margin, just a tick under 4%. And I should note, if you want to dig into the details on the accretion, that is available for you on Slide 23.

Next slide, Noninterest Income. Billy already touched on it. We are up about 26% compared to a year ago, but we know that's something that we want to continue to improve. You can see the breakdown there.

Flipping through the next slide, Noninterest Expense. We're really proud of the fact that even though we had over $1 million in merger expenses this quarter, we still managed to thrive that efficiency ratio down. It was even better if you look on our operating efficiency ratio, down below 65% compared to the prior year. As I mentioned, salaries due to the addition of Tennessee Bancshares and Capstone are what's driving that higher.

Also, during the quarter, our data processing was slightly elevated as we are still running 2 cores, and that will drop off next quarter. So we will see a cost save there.

Flipping over to the Balance Sheet. I'm going to walk through a couple of lines here. First you'll notice the cash and cash equivalents is a little elevated, and that was due to 2 things: one, we liquidated the acquired portfolio from Tennessee Bancshares but it had not been reinvested; and the other was, if you flip down to FHLB and other borrowings, that was a little elevated as we did some testing of fed fund lines at quarter end. But if you strip that out, as the notes say, we also increased our holding company line to $15 million during through quarter in that line.

Other things I'll note, the -- Billy alluded to it on the organic loan front. But if you saw our 8-K/A last week with the pro forma of Tennessee Bancshares, the loan increase quarter-to-quarter, about $190 million of it was due to the acquisition and going down to the deposit number, just over $200 million was -- of that increase quarter-on-quarter was due to the acquisition.

Next page, loan and deposit composition. Compared to the prior quarter, on our loan portfolio, we had a tick-up in allocation to residential real estate and owner-occupied real estate. On the deposit front, we're still running, give or take, about 1/3 in DDAs, 1/3 in time deposits, 1/3 in money markets and savings.

Going on over to Slide 18, our CRE ratios. You’ll see, if you look at the 100 ratio, it did tick up during the last quarter. That was due to the acquisition of Tennessee Bancshares. However, on 300 ratio, we managed to hold that down at about the same level.

Finally, Slide 19, Asset Quality. It's hard to believe but as a percent of total assets, NPAs ticked down even lower to just 25 basis points. The other thing I'll note is our allowance. We continue to build it up but as we add discounted loans, if you're looking at a normal allowance to a loan, it does "look low," which is why we include those discounts on the acquired loans in there. You’ll see that that jumped up in the fourth quarter with the addition of Capstone and again, in the second quarter, with the addition of Tennessee Bancshares.

With that, I'll turn it back over to Billy.

Thanks, Bryan. As you walk through those slides, as Bryan walked through the slides, I think you all, I think those on the call would concur. I think you're seeing some nice trends, a few little different pieces here and there. Again, the accretion piece, a little more than we had anticipated this quarter, but even with that, a really strong core earnings quarter for our company.

Again, as I'd mentioned earlier, Southern Community Bank, we'll have converted, rebranded, integrated with cost saves during this quarter. We'll get that accomplished next month and then immediately move into planning for our Foothills bank integration. We are still anticipating a fourth quarter close and a Q1 integration of the -- of that newest deal, which was announced a few weeks ago. Our team continues to do a great job on these integrations. I'll tell you, there's a ton of work that goes into not only growing a $2 billion company but also to plan and really execute on these integrations. Teams are doing a nice job on the sales side, operations side, and the culture side. And a lot of times, I don't think we spend enough time talking about that piece of it, but the cultural side of the integration is, I think, is the one of the things that makes this thing hum as well as it has over the past few years, sale -- and our teams are doing a great job there.

Sales team, led by Greg Davis, sales side has really done a nice job on production organically as the year is progressing. We're actually ahead of our year-to-date production plan.

Net balance growth for the quarter was a little softer than Q1, but that was anticipated. We had some payoffs come on some larger construction deals that we knew would come, but again, still running right at about a 10% organic loan pace for the year. We're doing that with a nice balanced mix as you saw in the slide deck. And we are keeping within our CRE guidance metrics and staying below those regulatory guidance thresholds.

Pipelines continue to be robust really in all of our markets. I've had an opportunity to get out and visit most all of our markets over the last few weeks, and the energy and the enthusiasm in the pipelines that we're seeing, it really is continuing nicely. We are watching as rates are starting to move up, and we are moving loan rates up. We'll watch and see how that impacts growth opportunities, but we still very -- feel very confident with our high single-digits projection for organic growth moving forward. The sales teams are continuing to focus on adding revenue producers. We've been able to do that over the last quarter as well, added several revenue producers to our teams in various markets. And those folks, those newest team members are really starting to grow some nice pipelines as well.

One of the things that Bryan touched on and I really like as well, when you look at Slide 17, deposit and loan composition, very well balanced. I like the balance that we're seeing in those pie charts. It makes me feel good to see those continue to move in really nice diversification direction, especially on the deposit side as we are focused on growing the lower-cost funds there.

So to summarize, a really nice quarter, continued organic growth, while closing a deal, planning its integration and announcing a new one. Core operating metrics have progressed as planned, and really like where we are as we move into the second half of the year.

So really I'll wrap up there. And before I do wrap, Frank had mentioned in the opening that we've got a new team member that's on our call out today, Ron Gorczynski. Ron joined our team in the second quarter after a very long successful run over at Bank of North Carolina. So great to have Ron's expertise on our smart financial team. And Ronnie, any comments from you before we wrap.

Yes, thanks, Billy, I'm excited to be here. I came here and hit the ground running. SmartBank has a lot of things going on. One thing to note, I was very impressed with the sound M&A foundation that's already in place. So we have a very talented team here, much energy and enthusiasm. I'm glad to be part of the SmartBank family.

Right. Thanks, Ron. And at that point, I guess I'll -- we'll stop, and we'll open up for questions.

(Operator Instructions) The first question comes from the line of Tyler Stafford of Stephens Inc.

This is actually Gordon McGuire on for Tyler this morning. So I just wanted to start on the accretion. I think, Billy, in the prepared remarks, you mentioned some nonrecurring accretion in 2Q. And I'm not sure if I caught if that was quantified during the prepared remarks. How much of that $2.6 million was more accelerated versus what you would have expected on a scheduled basis?

Yes. We have, I think we've got it laid out, and Bryan I'll let you speak to the numbers. I think what we've also got, Gordon, in that again, we've got kind of a new -- kind of a reset on our accretion run rate going forward with Southern. And so we've kind of got, I think at what I -- what we term our core accretion has moved up as well as having a little bit of a pop with one. But Bryan do you want to speak to the specifics on the numbers and kind of what you think going forward?

Sure. I'd say, if you exclude the impact from Southern, we're probably talking about an additional $800,000 for the quarter. A couple of years ago, in terms of what it means for margin, I would have said, all right, we were at 20 basis points. Then we clicked up, and now we're at 30. And now with the addition of Southern and then depending on Foothills, later this year, I think, we're probably looking at closer to 40 basis points to NIM on just a standard month-over-month, quarter-over-quarter base accretion level.

So I guess -- and -- I guess to answer it, Gordon probably net about $800,000 for the quarter.

Okay, perfect. And that 40 basis point included Foothills so that'll be kind of a 4Q number?

That's a looking forward, I guess you'd say, I mean, we do say forward-looking guidance. Now that is best case now, and of course, when everything closes, we'll do the whole evaluation, the whole 9 yards. But initially, that's what we're looking at.

Just on the deposit cost, how much of that was pro forma, just adjustments for Southern versus the competitive pricing pressure that all the banks are seeing this quarter? And where would you expect those betas to go or trend from here?

Sure. I'll tackle the first part. Southern -- of what we saw, the uptick was 1, maybe 2 basis points of it, the majority of it being our legacy side. And speaking about deposit betas, if we look back, fourth quarter, we didn't see any uptick/we were able to lag rates. Saw a little bit of uptick in first, now in the second quarter, we are seeing a little bit more -- it has been, I'll call it selective. We have great CD rates. We are running like a lot of folks being -- running CD specials on occasion in selective markets, and we're seeing a little bit of uptick, of course, on the money market cost. Having said that, I do think it is a little lumpy, and this was kind of what I'd say a heavier quarter in terms of catch up on deposit rates. And it'll probably tick down a little bit next quarter. But having said that, if loan growth takes off, we will need to fund it, and -- while the deposit cost will go up, it still adds to the bottom line. So if loans -- rates off in the third quarter, then we'll fund it as needed.

Sure. And last one for me. Billy, you alluded to it in your comments, the fee income-to-assets target. In the past, I think, you've talked about a 50 basis point number that you would hope to achieve. I think you had characterized it as more of a near-term target. And I do appreciate that the acquisitions you've done, it kind of diluted that. But what kind of timeline just considering the deals that you've done, do you think you could potentially achieve that, or have you updated that target any?

Yes, we really haven't. And I think the 50 basis points target, Gordon, that we have talked about is something that we've got out there. It's a goal for us. It's, obviously, with acquiring more assets. And I think, that's the -- that's really been the thing that's really lagged it. As we've grown the bank, we've acquired companies. The last couple that -- really are great companies, just have not had a lot of fee revenue-side income. And so it's pushed that metric down a little bit. I still think we can get there. We're doing some things. We're revamping some things on some -- we're doing -- still working on some residential components that will help that. We're adding, layering in a new brokerage group with Raymond James' investments platform. So excited about getting those things in. And as far as a timeline, it is a near-term goal. Everything we do is near term. I say near term. By the end of next year, I would love to see that metric pushing toward that 50 basis point goal. There's some things, other things that we're working on that I think could help us get there. So when I say near term, I would say, I'd like to see that by the end of next year. Give me 18 months.

The next question comes from the line of Catherine Mealor of KBW.

Can you just give us a little bit of color on what your outlook is for loan growth going into the back half of the year?

Loan growth, I touched on it in my comments. We've, overall, had a pretty good year to date. In production numbers, as I said, and you can't see that in the data, but our production side has done really -- has done well. We had some anticipated construction deals that paid off, rolled into some secondary market financing, a couple of larger projects that we had planned. So production side is still good, Catherine. I still think kind of that high single-digits target for us, I -- we still feel really good about. I think the wild card probably is rates. As we are pushing -- we're pushing some loan rates up in our markets. Some of that is going with some resistance. It's tougher when you quote a 5% handle on a loan, it's almost like sticker shock. We laugh, and -- but it's a relatively low rate. So we're working through some of that. I really believe that we are still in a good spot with the pipelines that we see over the next quarter and projecting out later in the year to still hit that high single digits on our -- on an annual basis.

Okay. And you mentioned the 5% security stock rate. And if I look at your core loan yields and back out the accretion, it was a fairly stable linked quarter at about 5.10%. And so would you say that new loan production is coming in, kind of, around or even above that range?

Yes, it's mixed, but it is. I think as we really worked, and Bryan does a nice job of working with our sales teams and trying to -- pushing our curves up and trying to maximize yields while still being able to get the growth we want, it's a -- there is an art, sales side and rate side. But we are -- I still think we are moving, we're definitely moving up into those higher 4s, low 5s, when we can. Bryan, I think that's probably a fair statement. I know you deal with these guys kind of more anecdotally on a day-to-day basis. Any anecdotal comments that you're getting?

No, I think you're right on, Billy, and Catherine, you're right on at backing out the number. It was fairly stable, maybe a slight uptick offset by the additions -- on loan yields, by the additions of the Southern portfolio at 5.10%.

Okay. All right, great. And then I apologize if I missed this earlier, but just on the expense side, can you just kind help us think about the expense run rate going into the back half of the year as we layer on the deals and then think about the cost savings coming out? And maybe within that, are the Capstone cost savings fully in this quarter's run rate?

They are. Capstone is fully -- and a comment on Capstone, then I'll let Bryan kind of walk through some of his thoughts on the core noninterest expense rates going forward. Capstone's side has really integrated well. Cost saves have really come online as we'd anticipated. Sales side going well, teams have really embraced our culture, our strategy down there. So feel really good about that. We anticipate the same for Southern as we get -- you know it takes about -- it takes you about 6 months to kind of get the newness out there and kind of get it going, and man, we're really seeing that now with our Capstone acquisition, especially in our Tuscaloosa market. So Capstone then, overall run rate, Bryan, I'm going to let you run through that. We actually just talked about this the other day, Catherine. And I think, we've got a -- some pretty good guidance on that.

Sure, Catherine, I'm going to chime in a little. Obviously, it's easy to strip out the merger expense number and pull that out. I'd say, in addition, we probably had some other one times and a bunch of other line items. It probably added up to close to $0.5 million. But speaking to like a forward run rate, we were at 3.15% of average assets this quarter. You strip out all that additional stuff, we're probably down around 2.95%, give or take. And we're targeting trying to drive that noninterest expense-to-average asset number down to below 2.90%, approaching 2.85%. And the reason I'm going to give you percentage, of course, is as we keep adding acquisitions, more expenses come on, but we're offsetting it with revenues. So does that answer your question?

Your next question comes from the line of Nancy Bush of NAB Research.

I have a -- since I'm new to your company, I have sort of a philosophical question to ask. And I ask this of all banks that are sort of in a rapid acquisition mode, which you are certainly. I mean your results are kind of lumpy but it looks like on a core basis, you're approaching sort of a 1% ROA. At what point do you have to think about capital return to shareholders and particularly, about paying at least some kind of a nominal dividend?

Well, this is Miller Welborn, and I'll address that. And we as a board spend a ton of our time doing strategic discussions, and we are very cognizant of shareholder return. We talk about dividends regularly. We do feel that we have, to date, been very successful in deploying that capital through acquisitions rather than pay the dividend. Is there some point in the future that we can hopefully do both? We do believe the acquisitions we've made have been successful, have been additive to our company and our franchise. And we believe that there is more of that to come. We believe there's some opportunity in the future to continue this, not necessarily -- well, I guess you might even call it a line of business. But I totally agree, and we as a board agree that we would love to pay a dividend, and the time will come when we can hopefully do both.

And Nancy, this is Billy. I think you touched on it. It's really more about getting, as we have been, kind of a hyper-growth company going from about $0.5 billion private bank a little over 3 years ago to a $2-plus billion public bank by the end of this year. It takes some time to grow into your pants, and now that we're starting to do that, we -- you can feel and we can feel our company -- again, you're relatively new to us, but those that have seen us, it's progressing just as Miller and I had kind of laid out 3 years ago when we combined our companies. And so to your point, we are getting at a point now where that is -- that's a very conversation that we can have related to capital planning. And obviously, something that, as Miller said, we'd love to see do, we just want to make sure we do it at the right time.

Okay. And also, if I could ask, you have a pretty good roster of deals under your belt now. What has been sort of an average for the cost saves in these deals?

Average -- and I'm looking -- Nancy, I'm looking over at Bryan and Ron as we've modeled some of these. I would say probably about 30% to 35%. Is that -- that's probably I would -- is I think probably the ones that we've had.

I think some of that is, I think, is because we've done more of them out of market as we've kind of done this -- you're new to us, and most people, I think, would tell you that they do more end market and expand from the core out. We've kind of defined our outer boundaries. We've talked about it a little bit before. So we're probably as inefficient as we'll ever be. And the more end-market deals we can do, hopefully that percentage will increase a little bit.

Have you put a projection out on Foothills?

Ron, what did we...

I think we set 35%.

I think we're at -- we were at 35%. And we were at 35% with an end market because we -- I think, we -- one of the things, Nancy, that we've done is we've lagged a little bit with putting some additional support folks behind a couple of these deals. So we kind of looked at a 35% kind of on a net-net basis. We think we'll get probably more saves out of Foothills, but we also know that we're probably a little lean in a couple spots that we'll need to add. So net-net, about 35% there.

Next question comes from the line of Daniel Cardenas of Raymond James.

Just kind of a follow up on the M&A, on M&A outlook. I mean you guys have done a couple of acquisitions here in pretty rapid succession. You're in the process of integrating. What's your appetite for additional deals? And what's the environment like right now? Is there a lot of chatter within your footprint? Or have things kind of quieted down here?

I will say, we have put together a team, and Billy and the group have done a phenomenal job of integrating the ones that we have. Gosh, we don't ever want to get out over our skis and do something on top of something else that might not be helpful to us and might stress the team too much. But having said that, dadgum, we've told you all this before. We are certainly looking, there's certainly a lot of activity out there. There's a lot of interest in us and what we've been able to do, and we have a lot of interest in some other folks that we continue to look at and have interest in. So do I have anything I want to tell you about this afternoon or tomorrow morning? No. But...

You've been around Miller long, wait till next week. Ron, he's -- it's -- I'll tell you, he brings up a great point. I -- do you talk about chatter? I still think there's chatter going out there. We're seeing it, we're seeing some deal announcements. Gosh, even this week. There is chatter going on. That's, I think, kind of going back to our expense run rate. That's one of the things that we've seen. We still feel like there are some really good opportunities for us in this line of business. And I think that's the reason that we've looked to continue to add some resources. We're -- adding Ron Gorczynski, adding some folks to our ops team, our support group, to help us manage through the process. We feel really good about our ability now to do deals, get deals integrated, get the cost saves in. So hopefully, we can continue to do that. Like I said, kind of queuing up Foothills right on the hills of Southern I think is great. It’s a great utilization of resources. We can move from one right to the other. And then hopefully, that positions us to maybe look at some things as we move into 2019.

Okay. And then maybe some color in terms of the types of institutions that you target just in terms of their asset size. I mean, the -- are those competitive processes? Or do you find yourself kind of maybe, 1 of 2 or 3 folks bidding on those types of companies?

Yes, I would say the type companies, size, similar to what we have been doing. $200 million to $500 million is preferable. Dadgum, we're not the guy that's going to go out there and get in an auction. Might we be in a minimally competitive situation where there might be 2 or 3, and we can do a negotiated deal. But at the end of the day, we want to partner with people who want to be part of our team. We don't want to end up in an auction where somebody is a partner of ours because we were just the high bidder and that got -- who was at the table last. Culture is incredibly important to us. And I can't stress incredibly important enough. If it doesn't fit us, culture, and they don't want to -- they aren't excited about how we do what we do, we're probably not their guy.

And I'll concur with that, Dan, I think for us, it's -- the size -- we could probably go a little bit larger than the $500 million on the upper end now that we're north of $2 billion. But I still think that's the target range. And I think that's kind of the range of banks that as Miller and I look at the universe of opportunities out there for us, I still think kind of that $200 million to $500 million is probably the sweet spot, maybe a little north of the $500 million if it fits right.

Yes, and we've also said before, and we stand by this. We're -- have proven that we can successfully do an MOE, and if that opportunity came along, yes, that wouldn't scare us either.

Okay. Good, good. And then maybe just a housekeeping question here in terms of the tax rate for the back half of the year. What's a good assumption to be using for you guys?

Bryan, you got that?

Yes, Dan, it's Brian, I'll speak to that. I'll say we're in, excluding one-time pops of either non-deductible merger expenses/people exercising NSO's, which we get a tax benefit for. Our core tax rate is still 25% to 26%, which is kind of why you saw the creep up from quarter-to-quarter, from first to second quarter for us. We're much closer to that effective core tax rate last quarter.

Okay, great. And then how should I think about your share count in Q3?

I tell you, outside folks exercising options, it should be pretty flat. We do have some in-the-money options but not a heck of a lot of on them. So I mean what you can see by looking at our diluted versus basic share count. So it should be...

Negligible change.

Yes, negligible.

(Operator Instructions) And there are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Miller Welborn for any closing remarks.

Thanks, Jasmine. We do appreciate you joining us today. Thanks for your support of the bank and for following us as we continue to build this team and this bank. Have a great day.

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