All right. Thank you, Joelle, good morning, and thank you for joining us today.

With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Don Chery, our Chief Administrative Officer; Angela Dose, our Chief Accounting Officer; Tom Dolan, our Deputy Chief Credit Administrator; and joining us by phone is Barry Johnston, our Chief Credit Administrator. So let me first thank you all for joining us today and hope you're all enjoying the summer.

Yesterday, we released our second quarter 2019 results. This was a very strong quarter for us with well-balanced performance across the business.

Some highlights and details from the quarter. Earnings were $52.4 million, which was an $8 million or 18% increase over the prior year second quarter.

Diluted earnings per share for the quarter were $0.61, an increase of 17% over the prior year second quarter. Organic loan balances increased $270 million or 13% annualized.

We also had organic core deposit growth of $40.1 million or 2% annualized. Organic non-interest deposit growth was a very strong $120 million or 16% annualized.

Net interest margin for the quarter was 4.33% of earning assets, which was stable, down just 1 basis point over the prior quarter. Our loan yields increased 2 basis points from the prior quarter to 5.20%, and our cost of core deposits was unchanged.

The net interest margin was up 16 basis points over the second quarter a year ago. Return on assets was a very strong 1.69% for the quarter, a 2 basis points increase over the prior quarter.

Tangible book value per share of $15.03 at quarter end increased $0.68 per share from the prior quarter, and $1.64 per share from a year ago. We also declared a regular dividend of $0.27 per share, our 137th consecutive quarterly dividend, which was a 4% increase over the prior quarter.

And at the end of April, we successfully closed on the acquisition of First National Bank in Layton, Utah, now named First Community Bank of Utah. This is over 15th division and our first standalone division in Utah.

We now have a leading market position in Davis County and a strong team to help us grow, and we're very excited to welcome First Community Bank to the Glacier team. We also received all regulatory approvals on our acquisition of Heritage Bank in Reno, Nevada.

This is a great community bank. One of the best performers in the industry with a great team, and a stable low-cost deposit base with excellent high-quality, high-margin loans.

We expect to close this transaction at the end of July. Loan production for the first quarter was $990 million, which was, once again, generally well distributed among all our divisions.

Loan paydowns were $719 million, which is consistent with past seasonality. And the loan portfolio ended the quarter at $8.8 billion.

We still feel good about our 8% loan growth target for the year as our Western markets remain healthy and active and our unique business model remains extremely effective. Total investment securities of $2.7 billion decreased $55 million or 2% during the current quarter and decreased $75 million or 3% from the prior year second quarter.

Investment securities represent 21% of total assets at the end of the quarter compared to 24% at the end of the second quarter a year ago. Once again, our key credit quality ratios improved in almost all categories across the board.

Our talented team of credit professionals continue to do a great job in this area. Early-stage delinquencies, as a percentage of loans at the end of the second quarter were 43 basis points, a decrease of 7 basis points from the prior year second quarter.

Net charge-offs for the quarter were $732,000 compared to $762,000 in the second quarter a year ago. Nonperforming assets, as a percentage of subsidiary assets at the end of second quarter were 41 basis points, which is 1 basis points lower than the prior quarter and 30 basis points lower than the prior year second quarter.

At the end of the quarter, the dollar amount of NPAs were $51.9 million, an increase of $1.1 million or 2% from the prior quarter, but the increase was primarily driven by the acquisition that was added in the quarter. Number of our divisions and divisions' Presidents did an excellent job working through these different credit, and we expect NPAs to remain stable around this level as we move forward.

Of course, there is always the potential for a one-off surprise addition, but we remain confident at being able to maintain the low current level. The allowance for loan and lease losses as a percentage of total loans outstanding at the end of the quarter was 1.46%, which is down 10 basis points from the prior quarter and down 20 basis points from the second quarter a year ago.

Provision for loan losses was 0 versus $57,000 in the prior quarter. This reflects our continued, very positive outlook on that portfolio and our markets.

Core deposits ended the quarter at $9.7 billion. Total core deposits were organically up 2% annualized or $40 million, and increased $184 million or 2% from the quarter a year ago.

Noninterest-bearing deposits organically were up $120 million or 16% annualized and increased $257 million or 9% over the prior year second quarter. We've been focusing on growing our share of non-interest deposits from some time now and are pleased to see the growth trend.

The cost of our core deposits was stable at 19 basis points, unchanged compared to the prior quarter, and up 3 basis points from the prior year second quarter. We ended the quarter with a loan-to-deposit ratio of 90.27%, up from 87.14% at the end of prior quarter.

The total cost of funding for the current quarter was 45 basis points, up from 43 in the prior quarter and 36 at the end of the prior year second quarter. The increase in the current quarter was driven by the increased cost of borrowed funds needed to fund our strong loan growth for the quarter.

And our 15 divisions continue to do an outstanding job managing the deposit cost specific to each of their markets. Interest income for the quarter was $120 million, which was up $5.1 million or 4% from the prior quarter and increased $11.7 million or 11% over the prior year second quarter.

Both increases were primarily attributable to interest rate increases on renewing and new loans and an increase in commercial loans. Interest income on commercial loans increased $4.5 million or 5% from the prior quarter, and increased $12.2 million or 16% from the prior quarter -- from the prior year second quarter.

Our net interest margin as a percentage of earning assets for the current quarter was a stable 4.33% compared to 4.34% in the prior quarter. The core margin, excluding discount accretion and recovery of interest on nonaccrual loans, increased 1 basis points to 4.27% from 4.26% last quarter.

The yield on loans increased 2 basis points from the prior quarter, and the margin was up 16 basis points from the second quarter a year ago. We had very strong growth in the second quarter and needed to borrow from the Federal Home Loan Bank to support this growth, given loan growth was much stronger than deposit growth.

As a result, the 2 basis point increase in loan yields was offset by the 2 basis point increase in wholesale funding cost. We'll see how much the wholesale funding cost will have impact we'll have going forward as the second and third quarters are historically good for deposit growth.

Now there's been a lot of talk around margin this earnings season, the drop of almost 50 basis points in the 5-year treasury rate from the end of the first quarter to the end of the second quarter has changed the industry's view on margin and ours as well. We expect, along with the market, that the Fed will reduce interest rates 50 to 75 basis points in 2019.

And our modeling shows that this would have a modest impact on our business and margin in 2019. Going forward in 2019, we believe we'll continue to see a generally stable core margin operating in a tight band around the current levels with the slight downward biases of up to 5 to 7 basis points.

The impact on the margin in '20 will depend on the steepness in interest rate curve at that time. Overall, we feel the company is very well positioned to navigate through this current environment.

In times like this, when NIMs are under pressure across industry, we think our consistent, strong and high-quality loan growth along with our stable and low-cost core funding foundation will continue to support us very well with increasing net income, even if our NIM is slightly reduced. Non-interest income for the quarter totaled $30.8 million, up 8% or $2.4 million from the prior quarter, and decreased $994,000 or 3% over the same quarter last year.

We had some onetime items last year which caused a decrease compared to the prior year. Service charges and other fees of $20 million increased $2 million or 11% from the prior quarter, primarily due to seasonality.

Gain on sale of loans of $7.8 million increased $2 million or 4% due to seasonality, as the second quarter generally marks the beginning of the peak real estate activity in our markets. Non-interest expense for the quarter of $86.2 million increased $3.3 million or 4% from the prior quarter, and increased $4.4 million or 5% from the prior year second quarter.

Comp and employee benefits were up $2.9 million or 6% from the prior year, primarily due to acquisition and organic growth, which require more employees. Other expenses of $15.3 million increased $3 million or 25% from the prior quarter, primarily due to acquisition-related expenses.

Acquisition-related expenses were $1.8 million during the current quarter compared to $214,000 in the prior quarter and $2.9 million in the prior quarter -- in the prior year second quarter. Tax expense for the quarter was $12.6 million, an increase of $900,000 or 8% compared to the prior quarter and $3.1 million or 33% from the prior year second quarter.

Our effective tax rate in the second quarter was 19% compared to 18% in the prior year second quarter. The current quarter efficiency ratio was 54.5%, an 87 basis point improvement over the prior quarter efficiency ratio and a 94 basis point improvement over the prior quarter a year ago.

We believe we're on track to meet our full year efficiency ratio target of between 54% and 55%. So the second quarter represents another excellent performance by the company.

In addition, delivering -- to delivering a solid performance for the second quarter, the company announced the acquisition of Heritage Bank of Reno, Nevada. And as I previously noted, Heritage Bank and First National Bank of Layton, which closed at the end of April, will add over $1.1 billion in assets in 2019.

We have received all regulatory approvals to proceed with the closing of the Heritage Bank of Reno, which will occur as planned at the end of this month. Our 15 Division Presidents and their teams across our 7 states as well as our senior staff continue to produce market-leading results, and I would like to thank them all for their commitment and drive to be the best.

So Joelle, that ends my formal remarks, and I'd like to now ask you to open the line for any questions that our analysts may have.

Appreciate the updated color on the net interest margin outlook, Randy. Just wanted to see if I could clarify a few points around that.

First, is that kind of on the core margin or the reported margin with purchase accounting accretion? And does that include or exclude the Heritage deal closing?

So I'm going to -- so obviously, given what's going on in the markets, we've taken a close look at this and I'd have Ron take it apart for you. So I'm going to ask Ron to cover that.

Yes. So the reported margin is what the reduction was, the 5 to 7 basis point.

And that will include the acquisition of Layton -- I'm sorry, Heritage, and as we add them in July 31 and, Michael, what were the other -- the discount description, so that -- we estimate that only from Layton was the minor piece. We only picked up discount accretion of basically $1.9 million on the acquisition, and so basically I think that answer your question, but did you have more or other color you want?

Yes. Maybe just a little color around kind of what would drive the higher versus the lower end of kind of that guidance?

And what offsets are there potentially out there in terms of either reducing deposit cost or using the flow, which already makes sense, some of the lower rates into the forward curve? Just some potential geometry around how we might end up couple of quarters from now?

Sure, Michael. It's a -- so I think we've got some positives coming our way.

You've seen really strong growth. We -- like I said, we expect our growth to continue in targeting that 8%.

We also have pretty good pricing power through our model across all our markets, so we feel good about that. Headwind on our margin is going to be what -- really what the Fed does, and the amount, the steepness, what they actually do, whether it's 25 or 50, and then what impact that has on the longer part of the curve.

So where the 5 year goes. The other factor is just going to be our deposit growth and the speed of our growth.

So we had a lot of growth this quarter, a little more than we expected and so we had to -- didn't have the deposit growth to cover, so our borrowing cost were up. So I think you kind of rattled through the right factors.

So those are the kind of the some of the pluses and minuses that we see that really drives whether we're going to kind of bounce around flat or it could be downward pressure over the next 2 quarters of up to 5 to 7.

Okay. And maybe just one last one on expenses.

Any outlook for kind of where we should start the third quarter with the deal folding in? And you didn't really change the efficiency ratio guidance for the year despite maybe a slightly less optimistic view on margins.

So are there some offsets in other parts of the income statement that are helping there?

Well, from a -- this is Ron, Michael. From a run rate, remember, in the second quarter we had $1.8 million of acquisition-related expenses.

And so we would see a similar number in the third quarter coming from the acquisition of Heritage. So I would tell you the run rate may be above another 1%.

But that would be more than covered by the additional income we'll pick up from the acquisition. So that's why we haven't updated the efficiency guidance.

We still, as Randy said, still will come in at between 54 and 55, and you can see it, it's come down Q1 versus Q2. So we feel comfortable with that.

A question on just the credit side of things and the provisioning levels are off quite a bit year-to-date. And just kind of poking into that a little bit, it really seems to signal that the underlying fundamentals have -- you've put on pretty good growth.

But are the underlying credit fundamentals significantly improved? Is there any switch in methodology here that would underlie the pretty modest provisioning year-to-date?

Sure. Barry, do you want to answer that?

Yes. We've had some good loan growth this year, but we have to remember part of it came from acquisitions in those portfolios come over with a discount already attached.

The -- from a perspective, as we do every quarter, we evaluate our current portfolio with respect to credit metrics, and given what we've seen is some fairly significant reductions in nonperforming loans and nonperforming assets, when OREO is included. We wanted -- we evaluate it and that remains fairly directionally consistent.

And given those improved credit metrics, the provisioning was commensurate with the movement in the portfolio.

Barry, and I guess just to follow up is this is -- any initial thoughts on CECL or is that guiding any current provisioning or thoughts kind of going forward either in the number if it's not, just anything you could add to how you're prepping on that end?

No. It's not impacting our current evaluation.

We are running parallel runs. We're in the process of that.

We're doing some data validation, and we anticipate that overall with the conversion to CECL, it won't have a material impact on our business.

Got you. Okay.

And then maybe one last one for Randy. Just interested in the reception in Utah with that added scale.

You've been in the state but this is a bigger step. And anything from how you think you've been received with the added folks, but also just -- also general thoughts on the competitive landscape in the state.

Sure. Very, very pleased with our First Community Bank in Utah acquisition going extremely well on a number of fronts.

Their current pipeline is -- I would say almost double what their normal pipeline ran. And why is that?

Pretty much what we've talked about. When we make an acquisition, loan officers can go out, and they can offer their customers financing that maybe they couldn't as a $320 million bank, now they have a $13 billion balance sheet.

And so we don't want to run out and do loans that we haven't done, but we do want to go back to customers that maybe went to competitors, and we're seeing that happen. So they are doing extremely well.

They are also -- we've seen a big, I think, move forward with their ability to take our 4 branches that we have in the state and pull them into a divisional structure and give them a lot more attention. They're doing a lot of work with that, and I think we'll be -- we'll see some nice results there.

So now in terms of the customers and the market, I think that we've been -- it's been very well received, I don't believe we've really lost any kind of material traction there. So I would say on that one, it's so far going just about as well as could be expected.

And the team there is John Jones, our Division President and his team are just doing a terrific job.

Randy, how many rate cuts do you have embedded in that down 5 to 7 basis points in the NIM?

The bottom of that is 75. So kind of our worst, most aggressive scenario would be a 75 basis point rate cut.

50 at the end of the month and followed by 25 in October.

Okay. Great.

And then just digging a little deeper with some of the moving parts, can you give us a sense where new business rates are coming in on loans with the movement in the curve? Also maybe talk a little bit about the repricing phenomenon.

Remind us how much of the portfolio is floating and maybe hybrids and fixed? And then just with the securities portfolio down to about 21% of assets, I think 15% to 20% is the range, but that should, I would think, also help you defend the NIM.

Just want to talk through these other items.

Sure. Let me take the loan pricing on current production, and then I'll have Ron kind of talk about the repricing, and how we feel about the portfolio, and the 15% to 20% investment kind of target that we talked about, investment portfolio.

So new loans for the quarter, the new loans were priced a bit north of 5.30%, and so that we still feel we're getting good pricing but we have a declining reference point being the cost of 5-year money. Big, big drop quarter-to-quarter.

We think that's going to continue, we'd probably guess in this quarter, we're going to see things price kind of north of 5.15%, based on when the 5-year is. But some of that's just going to depend on what happens at the end of the month, and what shape the curve takes, so I'm kind of watching that carefully.

But generally, we're -- we still feel that we're getting good margin over the reference point. It's just the changing statements of the curve will really dictate where that goes going forward.

In terms of the repricing, specifically, there's a lot of moving parts there in our portfolio in terms of floors that we have in place, and how much of that book actually reprices every quarter. But specifically, was there a specific element of that you were asking about?

Yes. I was just curious what percent, I just need a reminder, how much of that portfolio is truly floating, maybe tied to short-term LIBOR and prime.

Yes. So on the tight -- on freely floating, this is Ron, very, very little of it is tied to LIBOR, and I think it's 17% or 18%, somewhere in that range is tied to prime.

And then you had ask about fixed. So truly fixed is running at 35% of the portfolio.

So the other part is what we call variable, not freely floating. So that gets back to what we said is that just about a 1/3 of the portfolio will mature or reprice in a single year, and so that is still continuing.

Great. And then just on the remix, the asset remix, Randy?

Yes. I think we want to keep it right around 20%.

That's -- we're getting close to that. There is some flexibility around there.

But that's kind of the 15% to 20%, I'd say, we're kind of targeting more of the higher end of that to maintain. So there is still some room depending on growth and the pace of the growth.

But that's still where we want to maintain that.

Okay. And then just on -- switching gears to the loan growth.

Can you quantify the production in the quarter and the payoffs? And did you guys purchase any loans in the quarter?

We generally do not purchase any loans. We don't do participations.

There was probably a very small amount of -- that's one of the benefits of the acquisition, as you know the banks that we buy, they have participated loans. They can go back out and get them.

So there was a small amount by First Community Bank of participated loans but very, very, very small. In terms of the production and -- so for the quarter, we had growth of -- let's see, that was the number, covered that in the comments here, $989 million of production and we had about $719 million of payoffs.

And that's pretty consistent with seasonality we have in those payoffs.

And can you speak to where you're seeing the most strength within the footprint or by affiliate?

Yes. We looked at that, and it's surprisingly broad-based.

We're just -- we saw growth in pretty much every division. So there was really no stand out that really kind of drove the results.

We continue to see good activity in Denver, our Arizona franchise has grown quite nicely. But other than a couple places doing a little bit better, it's generally very, very well spread out.

Okay. And then, Barry, just last one.

The credit mark on the portfolio so we can adjust the reserve.

Help me out there, credit mark on the acquisition?

Just acquisition. Just so we can gross up the reserves.

It came over at $1.9 million, First Community Bank, and some discount.

Just to make sure, I heard this correctly, the 5 to 7 basis points, that was through the end of this year? So we should be thinking about the 4Q reported NIM may be being 5 to 7 basis points lower.

Yes. So we think our -- we've got a very stable NIM.

That's the range from flat to down 5 to 7 at the most conservative end of our estimates, and that's over the next 2 quarters.

Okay. And what does that assume for the 5 year?

Is it -- are you assuming that it comes down with the cuts, kind of a parallel shift? Or are you assuming that it holds in a little bit higher, maybe the curve gets a little bit steeper?

We have a very slight steepening in the model.

Got it. Just on the liquidity, I think you mentioned being able to bring securities down 15% -- to 15% maybe of assets.

I'm just wondering kind of from a liquidity standpoint, you've done a good job letting loan growth outstrip deposit growth in bringing down some of the higher cost deposits. At what point do you think you might have to start growing the CDs or the money markets a little bit more?

And how should I think about the trade-off between maybe getting more competitive in the pricing of those products versus the borrowings that you'd like to move lower?

Sure. Well, so first of all, just our general growth rate in the investment portfolio.

I think our target is -- as Matthew asked about that, I think we want to keep it right around 20% range, don't really want to go significantly below that. That can, if we need to, but we'd like to keep it in that range.

So some of this borrowing is going to be driven by deposit growth. These are -- this is our second and third quarter, our best quarters for deposit growth, so we'll see where those come in.

If we need to borrow then we have the Federal Home Loan Bank, which is one of our least cost. And we like it because we don't have to commit like a CD to a long-term rate, we can borrow and then pay that off depending on the flow of loan growth.

No plans. We've been letting our CD book runoff for, like, I'd say years, it's slow for two reasons.

One is we think it's a bit of a product that's changing -- for -- demographically appeals to a very specific segment. But that's -- we have -- again, with our model, we have the divisions that can price those products depending on their markets.

But we don't have a corporate strategy to use that as a way to grow deposits. We're really focused on the noninterest growth.

And so really you saw that 16% growth, that's been something we've been working on for the last year or so. Really looking for the relationship accounts for -- connected with our loans as well as existing business.

That coupled with our just bread and butter, we grow our core checking accounts every year, that's continuing, that's bringing in good, high-quality, stable deposit growth and those are really the kind of levers we're leaning more on.

Okay. So growing kind of the lower cost core, and then if that kinds of falls short from where you maybe hope it would be, you'd use the borrowings to manage the liquidity?

Yes.

Okay. And then I'm not sure, I may have missed it, did you provide an update on Durbin?

Is that still about $4 million to next quarter?

I'm glad you asked that. So we've been -- we haven't talked about Durbin for over a year, and we try to keep the estimates updated because we keep growing as we're waiting.

And as you know, July, we finally hit the point where Durbin will kick in. So Ron does have some updated numbers for you.

So the number, as we said in the first quarter call, we said $17 million to $20 million and updating that now to the range of $20 million to $22 million. And that does include the Heritage acquisition and Layton, and so that's for the full year.

That was for 20 -- if I remember the -- I'm trying to think about for next quarter, I think that higher range that you gave for 2020, was higher than what you gave for 2018. Is that 20 -- should I be thinking about $5 million next quarter?

Yes. I wouldn't go any higher than that.

Yes. Yes.

Just a few questions around the loan growth in your outlook here. What was -- much of this growth this quarter -- was any of it pulled forward from the third quarter?

Or maybe it was pent-up demand from what wasn't booked in the first?

Yes. No, I think we did.

There is some element of that. So our first quarter loan growth was soft.

We had the weather in Montana and some of our surrounding states that really did put a damper on loan production. We think some of that did get pulled into the second quarter.

We're actually looking at pipeline right now and feel like third quarter is looking pretty good, probably not as strong as our second quarter, but still a decent growth rate. But there was a bit of a pull forward from the first quarter into the second quarter.

You're correct about that.

Okay. And then on capital or that continues to build here, certainly some of it's from a AOCI shift.

But where do you guys feel the most comfortable managing your capital levels in operating the bank?

Well, so you see the range we're in. We continue to evaluate that.

We're being a little more cautious on it this year because we think there'll be a bit of a shift not for us but for the industry post CECL. So we want to see the impact that has on capital and see if there is an adjustment in the industry around levels.

So I think we feel good where we are. We always run at a conservative level of capital.

We feel it certainly would be easier to lower it and our metrics would look better. But it's there -- we like the stronger, conservative capital because our game plan is to run through multiple cycles with the company.

And we feel that, that just gives us a lot of opportunity to do that. We want to continue to pay dividends through multiple cycles.

We feel that extra capital versus the industry helps us do that. So we'll continue to be above our peer group there, and I think levels we're seeing right now, we feel pretty good.

Just wanted to touch briefly, I know we spent a lot of time on the margin, just kind of wanted to hear how security yields were coming in? I know that they dropped slightly sequentially, but just wanted to hear what the securities were coming on at?

And how that looks going forward with the curve?

Sure. Ron, do you want to cover that?

Yes. Luke, so the yields -- if you look back at the margin table, the second quarter, we came in at the same as what we had on a portfolio basis.

We really didn't grow the portfolio, in fact, we had a little bit runoff. And so depending upon what we're buying, we're able to hold that yield.

And we think that'll be the case going forward.

Okay. Yes, that's helpful.

And then just kind of a housekeeping question. I saw that on the other expense line item, and this is excluding the impact of the $1.8 million from acquisition costs was up about $1.4 million sequentially.

Just wanted to see if that's a good run rate? Or if we -- if that's -- if there's seasonality in there?

Yes. There is seasonality in there, and thank you for that question because, yes, it caught our attention too.

And so we look through it and just sundry things and that similarly happened in the first quarter. So it is truly seasoned, it was more this quarter than it was the first quarter.

And that's typical. I wasn't surprised, let me put it that way.

Got you. Yes.

And then just lastly with the two acquisitions coming on in this quarter and next, I believe Heritage and FNB both had higher loan yields. So I just wanted to see if -- like, backing out the impact of those on the loan yields this quarter, what would've loan yield would have been excluding the impact from First National Bank?

Well, so remember we closed it at the end of April. So we just had 2 months on the books.

And in terms of -- is your questions, what would the yield would be been without those?

Yes. Just kind of -- I know you guys had given the -- good information on the new loan yields coming in at, I think, you said north of 5 and -- or 5.3%.

So just kind of wanted to see if there is a lot of -- because there was -- I saw 2 basis points up sequentially and just kind of wanted to see if a lot of that was impacted by FNB and how that kind of look for Heritage coming on next quarter.

Yes. No, First National Bank, like I said, we got 2 months out of it.

It was the loan portfolio on that acquisition. The $250 million into our $8 billion really didn't have a big impact.

And so we can separately kind of maybe get back to you on Heritage, that's going to have -- it's a much bigger bank. That's going to have a bit of a -- more of an impact.

Okay. That's helpful.

And then lastly on credit. NPAs remain very low, but I just saw that there was one nonaccrual put on from presold and spec construction.

Just kind of wanted to hear your thoughts on that, and if that might've been brought over from the FNB or if that was organic?

Yes....

Yes. Go ahead, Barry.

Yes. That's what -- it came over from FNB.

They have a very relatively large presold and spec portfolio about $30 million for that size of bank. And they had a challenge with 1 or 2 credits.

Some of that was administrative past dues rather than totally NPAs.

Luke, one of the things we find with acquired bank is they're not as tuned into the focus on a quarterly performance. And so some of the -- some of that's just the growing gains of a new division is to -- kind of, for us these administrative past dues, they get cleaned up, are more important to get that in the quarter than kind of letting them go.

So that's one of the things we typically go through with a new bank.

Just wanted to -- kind of given the macro outlook, turning a little more of a headwind for a lot of banks. Are you seeing a change in kind of the M&A discussions broadly, and any thoughts around pipeline there?

Obviously, you've done kind of your two deals, I guess, for this year. But just going forward, in a post-CECL world, are you still pretty active?

Yes. So we continue to have some good conversations.

And so I guess, in our view, probably wouldn't announce anything till next year, possibly earlier if things move in the right direction but we'll see. We've got $1.1 billion, we got two great banks, we're very focused this year on just making sure those are close and integrated.

And -- but we do have a couple of discussions going into next year possibly and -- so I -- we haven't seen a big fall off. And in terms of CECL, it's an interesting question.

A lot of people are still trying to figure out exactly what that is going to mean. And so we are in a process of tuning our M&A models to make sure that we account for some of the changes that will occur with CECL.

But I don't think that's been played through the market in terms of what that might mean for evaluations and things like that. But I think the fundamentals that kind of drove interest over the last couple of years, which is more generational change that banks get to a point and want liquidity and look for some options, we see that continue to -- probably be the biggest theme right now.

Okay. And just a quick housekeeping one.

Just the other fee income and mortgage gain on sale. Those were -- I guess, really the other fee income was a little low.

And anything in there that was kind of one-off, Ron?

No. To be direct, no, there was...

The $3 million or so? Okay.

Yes.

And same with mortgage. That's about the right level to expect forward into the seasonally stronger 3Q?

Yes. We saw a big pickup.

Our mortgage business continues to be very healthy. These are our two strongest quarters.

So yes, I think you'll -- we see things running around the same range.

Just wanted to touch on deposit costs and wanted to know whether or not you saw that deposit cost -- or when you think deposit cost will peak? And whether or not you think they might go down if the Fed cuts 25 basis points?

Yes. So our core deposit cost remain unchanged at the 19 basis points.

On whether they're going to go down? I think for us they're going to stay pretty much right in that range.

There's been a lot of talk about that and will the -- will customers -- banks that are more rate sensitive and who'll raise their rates during this, will they be able to bring them down? We don't know.

But for our customers, I think we have established kind of our -- where we sit with them, and we've kept our rates stable. Don't really expect to see much of a change there for us at the 19 basis points.

Probably just only have one other question. Are you seeing any lending sectors or geographies where you're becoming more cautious than maybe you were earlier in the year?

There's nothing I won't -- Barry, jump in, but there's no particular area that's emerging that we're -- that's new. I think Barry mentioned it in the first quarter, ag is something we're watching closely.

But other than that, I don't believe that we're seeing any other areas emerge as areas we're concerned about. Barry, do you want to comment on that?

No. Probably ag is the one area, but for the most part, a lot of our producers are adjusting the input cost there.

So we do have some challenges and some hard grains, just like a lot of banks do. But the only another area that we're looking at is acquisition and development lending as we -- as this credit cycle matures, that's probably one area that we'll keep a real close eye on, but it's very small percentage of our overall portfolio.

So other than that there is nothing else that we see.

Just a quick follow-up from one of my earlier questions. What's the average rate you're paying on the new FHLB advances?

As those balances grow and the cost has come down. So I was just wondering what you're paying for new growth in those balances?

Yes. We borrow overnight.

So it's 220, it's where it's come at, and that's been trending down. Never low enough but, yes.

All right. Thank you, Joelle.

I want to thank all of you, again, for dialing in today. Really appreciate it.

We want to wish you all a continued great summer and a great weekend. So thank you.