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spk04: Good day, and thank you for standing by. Welcome to the Atlantic Union Bank Shares first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President of Investor Relations. Please go ahead.
spk07: Thank you, DeeDee, and good morning, everyone. I have Atlantic Union Bank Shares President and CEO John Asbury and Executive Vice President and CFO Rob Gorman with me today. We also have other members of our executive management team with us for the question and answer period. Please note that today's earnings release and the accompanying slide presentation we are going through on the webcast are available to download on our investor website, investors.AtlanticUnibank.com. During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix or slide presentation and in our earnings release for the first quarter of 2024. Since our acquisition of American National Bank closed after quarter end, our discussion today will not include any American National results. We did provide a pro forma look at our assets, loans, and deposits for quarter end on slide four. We did provide financial outlook numbers for the full year that include the impact of American Nationals. Speaking of which, we will make forward-looking statements on today's call, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements. We are going to take no obligation to publicly revise or update any forward-looking statement. Please refer to our earnings relief issue today and our other SEC filings for further discussion of the company's risk factors and other important information regarding our forward-looking statements, including factors that could cause actual results to differ from those expressed or implied in a forward-looking statement. All comments made during today's call are subject to that safe harbor statement. At the end of the call, we will take questions from the research analyst community, and now I'll turn the call over to John Asbury.
spk08: Thank you, Bill. Good morning, everyone, and thank you for joining us today. I'd like to offer a special welcome to our new shareholders and teammates who've joined us now from American National Bank. Our merger closed on April 1st, and we believe we're off to a great start. I'll share more on that later in my comments. For those new to our story, we operate our company under a mantra of soundness, profitability, and growth, and that order of priority. There's nothing new about it, and it's a simple operating philosophy that's stood the test of time. The same is true for our traditional operating model. We make loans, we take deposits, and provide fee-based services all to our customers under our brand. We're a traditional diversified bank that provides financing and services to help people, help businesses, and help our communities. We believe we're large enough and capable enough to be a challenger and an alternative to large banks, but are still small enough and responsive enough to compete against the smaller banks that we often have more capabilities than they do. The environment remains challenging for banks of all sizes, especially with persistent net interest margin pressures to which AUB is not immune. Thankfully, we expect the financial benefit of the American National Bank merger to be apparent during the second quarter and will provide a welcome boost to both net interest margin and bottom line profitability. Rob will comment on what to expect during his section of our remarks. I'll now comment on the microeconomic conditions we are seeing and then move on to our first quarter results. Regarding the economic outlook, for forecasting purposes, we do remain cautious, although it appears a soft landing is possible. Inflation is still a factor and does not seem to be progressing toward the Fed's target levels as quickly as it had hoped, leading us to believe that we'll see fewer rate cuts this year or perhaps not at all. Nevertheless, the macroeconomic environment remains favorable in our footprint, and we do not expect that to change in the near term. Our markets continue to appear healthy, though we have seen a slowdown in capital investment activity among certain parts of our client base in response to higher interest rates and economic uncertainty. While our lending pipelines reflect that trend, they imply we should expect mid-single-digit loan growth in 2024, inclusive of the American National Bank. Virginia's last reported unemployment rate was 2.9% in March and, as usual, remains below the national average, which was 3.8% during the same period. When speaking to investors and analysts, among the more frequent questions we receive is the credit outlook for non-owner-occupied office exposure, and to a lesser extent, multifamily commercial real estate. We've added some additional disclosures on these loan categories in our supplemental slides as of quarter end, and here's our current perspective. Regarding not owner-occupied office, I'll start by saying that about 22% of the portfolio is medical and has not been impacted by concerns about work-from-home related office utilization trends. This is a granular portfolio with an average loan size of $1.9 million and a median size of $664,000. We do not finance large central business district office buildings. Additionally, at 4.9% of total loans outstanding, This is not an outsized exposure, and the portfolio is well distributed geographically. In our region, office exposure in greater Washington, D.C. receives attention. We have no exposure in the District of Columbia, no office exposure, and our total non-owner-occupied office loans from Northern Virginia throughout the state of Maryland is a modest $65 million. Non-recourse commercial real estate lending is uncommon for us, and most office loans have some form of guarantee from the owner that seeks to ensure their ongoing commitment. Given their size and location, the suburban office buildings we finance are generally leased to local and regional businesses that, on average, have been less supportive of remote work and hybrid work arrangements than larger companies, meaning the buildings we finance have tended to be better utilized than larger buildings. Overall, this portfolio is performing well, and while I expect we'll incur some problems in it over time, we currently expect any such problems to be readily manageable. Regarding multifamily exposures, This is also a granular portfolio, and we believe it's reasonable in size at 6.8% of total loans. Our markets appear healthy and growing. They're not overbuilt, and nearly all report scarcity of housing. We're generally still seeing stable rents, and there are currently no rent control laws in our markets. As is implied by our average loan size of $3.3 million and median size of $829,000, we do not finance high-rise luxury apartments. While there is concern about the impact of higher interest rates on debt service coverage and property values, it's important to understand that multifamily revenues have also increased due to rising rents. Additionally, as with nearly all of our commercial real estate lending, we generally require some form of personal guarantee to seek to ensure the borrower's ongoing commitment from the multifamily project. Normally, we finance multifamily construction with a mini firm during the stabilization period, and we underwrite for institutional lender takeout. Typically, the developer refinances the property into the institutional market or sells it and then reinvest the proceeds in new projects. As demonstrated by the credit metrics on slide 18 of our supplemental presentation, asset quality for multifamily is among the best in the bank. We currently do not anticipate any material problems to develop in this asset class and we expect that should any arise, it would be readily natural. We understand concerns about banks' office and multifamily exposure and hope this recap provides more clarity and context around what this looks like at AUV. Moving on now to quarterly results. Here are a few financial highlights for the first quarter, and Rob will provide more detail later. Total deposits increased 5% year-over-year and 11% annualized quarter-over-quarter. As we have seen before, we did have a seasonal dip in deposits at the end of 2023 and then saw better than expected deposit inflows in the first quarter. We had a modest increase in broker deposits, which are a relatively low 3.9% of total deposits. Importantly, we grew customer deposits 8.4% annualized, which allowed us to more than fund our quarterly loan growth. The loan deposit ratio declined to 91.7% at quarter end, down from 93% in the prior quarter. Our total range for the loan-to-deposit ratio remains, pardon me, our target range for the loan-to-deposit ratio remains 90% to 95%. Deposit mix shift continued in the higher rate environment with customer deposit growth coming from primarily money market and CDs while we also saw some continuation of non-interest-bearing deposit migration to interest-bearing deposits, though at a declining pace. Non-interest-bearing deposits are approximately 22% of total deposits, and we believe that percentage is approaching bottom. We posted annualized loan growth of 5.6% during the first quarter, which was led by growth in commercial loans. The increase in construction loan balances came from existing commitments on projects underway funding up toward completion. As I mentioned earlier, we expect to be in the mid-single-digit growth range for loans held for investment in 2024, inclusive of American National Bank. Commercial and industrial line utilization this quarter was consistent with the prior quarter, but up from the prior year's first quarter. Loan production in the first quarter was weighted more heavily to existing clients than new to bank clients, with about 75% existing clients. It also favored C&I over commercial real estate, with about 63% of the production coming from commercial and industrial. Commercial real estate payoffs decreased slightly from the fourth quarter and increased slightly from the same period in the prior year, which we interpret as a sign that commercial real estate markets where we operate are still healthy. Credit remained stable. Net charge-offs at 13 basis points annualized during Q1 were driven by two credits that we reserved for last quarter. As a reminder, we also reported 13 basis points of annualized net charge-offs during the first quarter of 2023, yet for the full year of 2023, the net charge-off ratio was only 5 basis points. Credit remains a good story at AUB, though we do not consider the negligible losses we have seen over the past few years to be sustainable. We anticipate that asset quality should eventually normalize following the long run of minimal net charge-offs. though we still see no evidence of an inflection point coming or having occurred. For forecasting purposes, we continue to expect 10 to 15 basis points of net charge-offs during 2024, though we do not have visibility to enough potential charge-offs to reach that level currently. Having said that, idiosyncratic credit losses do happen, as was the case with the two credits I mentioned earlier. That's normal and to be expected. Regardless, we remain confident in and pleased with our asset quality. Turning now to our merger with American National, as mentioned, the transaction closed on April 1, and we're excited to have our new teammates and shareholders on board. After the deal was announced, we spent a great deal of time with the American National team to get ready for legal day one and for the all-important core systems conversion, which remains on track for late May. We've already completed the first mock systems conversion, which went well. This is our third acquisition of a $3 billion asset bank during my time here. and we've refined our integration playbook after each one based on lessons learned. We're experienced at this and are expecting a smooth integration and conversion. More so than anything else, it's the people of American National and our cultural compatibility that excites us. The more time we've spent with them and in their markets, the more enthusiastic we've become about the potential opportunities we have together. Additionally, we continue to be bullish on the long-term opportunity to leverage our new North Carolina markets as a growth platform and you can look for us to invest in them to drive organic growth over time. We've already begun to add experienced bankers to the team there and intend to further build out our CNI capabilities in North Carolina. We believe American National's markets and people, coupled with our additional capabilities in the larger balance sheet, make for a formidable combination. In sum, we believe we're well positioned for 2024 and the strategic actions we took last year to prepare This challenging environment, coupled with financial benefits of the American national merger, should differentiate AUD's performance going forward. We continue to believe we're on a reasonable growth footing, and we will not hesitate to take the strategic actions we deem necessary to strategically navigate the challenges we face in this uncertain economic environment. As has been the case for some time, we expect uncertainty to continue, especially given geopolitical events, but for the time being, we remain cautiously optimistic in our outlook. As usual, with uncertainty comes opportunity, which we believe we are well positioned to capitalize on. Last, I'd like to thank our teammates at Atlantic Union Bank, whose responses to the annual Top Workplaces USA survey landed us a second consecutive National Top Workplace USA award. This highly engaged team, they are the ones who make it happen. And no matter the issue, challenge, or opportunity, in the end, the answer always lies with our people. Now more than ever, Atlantic Union is a uniquely valuable franchise that is diversified, traditional, full-service bank with a strong brand and deep client relationships in stable and attractive markets. I'll now turn the call over to Rob to cover the financial results for the quarter. Rob?
spk09: Thank you, John, and good morning, everyone. Thanks for joining us today. I'd now like to take a few minutes to provide you with some details of Atlantic Union's financial results for the first quarter. As Bill mentioned, my comments today relate to Atlantic Union's financial results and do not include financial results of American National since the transaction closed on April 1st. Also, please note that for the most part, my commentary will focus on Atlantic Union's first quarter financial results on a non-GAAP adjusted operating basis, which excludes the following pre-tax items. Gains of $1.9 million in the fourth quarter related to sale-leaseback transactions. FDIC special assessments of $3.4 million recognized in the fourth quarter and $840,000 in the first quarter, a $3.3 million legal reserve related to our previously disclosed settlement with the CFPD in the fourth quarter, and merger-related costs of $1.9 million in the first quarter and $1 million in the fourth quarter associated with our merger with American National. In the first quarter, reported net income available accounting shareholders was $46.8 million, and earnings per common share was 62 cents. Adjusted operating earnings available to common shareholders were $49 million, or 65 cents per common share for the first quarter. The first quarter's adjusted operating return on tangible common equity was 13.9 percent. The adjusted operating return on assets was 99 basis points, and on an adjusted operating basis, the efficiency ratio was 56.8 percent in the first quarter. Turning to credit loss reserves, as of the end of the first quarter, the total allowance for credit losses was $151.8 million, which is an increase of approximately $3.3 million from the fourth quarter, primarily driven by loan growth in the first quarter and the continued uncertainty in the economic outlook on certain loan portfolios. The total allowance for credit losses as a percentage of total loans held for investment increased to 96 basis points at the end of the first quarter, as compared to 95 basis points at the end of the fourth quarter. Provision for credit losses of $8.2 million in the first quarter was down from $8.7 million in the prior quarter. Net charge-offs increased to $4.9 million or 13 basis points annualized in the first quarter from 1.2 million or three basis points annualized in the fourth quarter, primarily related to two credit relationships which were previously reserved for in the prior quarter's allowance for credit losses. Now turning to the pre-tax, pre-provision components of the income statement for the first quarter, tax equivalent net interest income was $151.5 million, and that's a decrease of $5.8 million for the fourth quarter, primarily driven by higher deposit costs due to growth in average deposit balances and changes in the deposit mix, and the lower day count in the quarter, as well as higher short-term borrowing costs due to an increase in average short-term borrowings in the quarter. These decreases were partially offset by higher yields on the loan portfolio and higher average loan balances. First quarter's tax equivalent net interest margin was 3.19%, and that's a decrease of 15 basis points from the previous quarter due to an 18 basis point increase in the cost of funds, which was partially offset by a three basis point increase in the yield on earning assets due primarily to higher yields on loans. The loan portfolio yield increased six basis points to 6.03% in the first quarter from 5.97% in the fourth quarter, which added approximately five basis points to the net interest margin in the first quarter. The increase was primarily due to the impact of higher market interest rates on new loan production yields, as well as on renewing loan yields. The 18 basis point increase in the first quarter's cost of funds to 2.43%, was due primarily to the 16 basis point increase in the cost of deposits to 2.39%, which had an approximately 11 basis points negative impact on the first quarter's net interest margin, as well as a seven basis point margin negative impact of higher average short-term borrowing balances on the quarter's funding mix. The deposit cost increase was primarily driven by changes in the deposit mix, as depositors continue to migrate to higher-costing interest-bearing deposit accounts during the quarter. Interest-bearing deposit rates increased as a result of higher overall market rates and the continuing competitive deposit pricing environment. Adjusted operating non-interest income, which excludes the $1.9 million gain on a sale-leaseback transaction recorded in the prior quarter, decreased $2.5 million to $25.5 million for the fourth quarter, primarily due to a $2.4 million decline in loan-related interest rate swap fees as swap transactions decreased from the seasonally high fourth quarter levels. Reported non-interest expense decreased approximately $2.6 million to $105.3 million for the first quarter from $107.9 million in the prior quarter. Adjusted operating non-interest expense, which excludes amortization of intangible assets, Flew to the FDIC special assessment in both the fourth quarter, 23, and the first quarter of 24. The legal reserve associated with our previously disclosed settlement with the CFPB in the fourth quarter and merger-related costs associated with our merger with American National in the fourth and first quarters increased $2.5 million to $100.7 million from $98.2 million in the prior quarter. The increase in adjusted operating expenses was primarily driven by a $5.2 million increase in salaries and benefits due to seasonal increases in payroll-related taxes and 401 contribution expenses in the first quarter, which were partially offset by a $1.3 million decline in professional service expenses and a $700,000 decline in marketing and advertising expenses. At the end of March, loans held for investment, net of deferred fees and costs, were $15.9 billion, an increase of $216 million, or 5.6% annualized from the prior quarter, driven by increases in commercial loan balances of $270 million, or 8.2% linked quarter annualized, partially offset by declines in consumer loan balances of $54 million, or 9.4% annualized. primarily due to the runoff of auto loan balances related to the strategic decision made last year to exit the indirect auto loan business. At the end of March, total deposits stood at $17.3 billion, an increase of $460 million, or approximately 11% annualized from the prior quarter, primarily due to increases in interest-bearing customer deposits and broker deposits, partially offset by declines in demand deposits, which now stand at 22% of total deposits. At the end of the first quarter, Atlantic Union Bank shares and Atlantic Union Bank's regulatory capital ratios were comfortably above well-capitalized levels. In addition, on an adjusted basis, we remain well-capitalized as of the end of the first quarter if you include the negative impact of AOCI and health and maturity security unrealized losses in the calculation of the regulatory capital ratios. During the first quarter, the company paid a common stock dividend of $0.32 per quarter. common share, which was an increase of 6.7% from the previous year's quarterly dividend. As noted on slide 14, we've now updated our full year 2024 financial outlook for AUB to include the estimated post-closed impact of the American national acquisition beginning in April, and have also provided comments related to our fourth quarter run rate revenue and expense targets to highlight the financial benefits of the acquisition once we complete the system's conversion work and achieve our 40% cost savings goal. Please note that the 2024 financial outlook includes preliminary estimates of the purchase accounting adjustments that are subject to change. We now expect loan balances to end the year at or above $18 billion, while year-end deposit balances are projected to be at or above $19.8 billion. Fully taxed equivalent net interest income for the full year is now projected to come in between $725 million and $740 million, and we are targeting the fourth quarter fully taxed equivalent net interest income run rate to fall between $195 million and $205 million. As a result, we are projecting that the full year fully taxed equivalent net interest margin will fall in the range between 3.4% and 3.5% for the full year, And we are targeting between 3.55% and 3.65% in the fourth quarter, driven by our baseline assumption that the Federal Reserve Bank will cut the Fed funds rate by 25 basis points twice in 2024, beginning in September. In addition, the fully tax equivalent net interest margin projection and target ranges include the impact of our preliminary estimate of net accretion income from the American National Transaction, which is subject to change once purchase accounting adjustments are finalized, and which can be volatile quarter to quarter. In addition, the net interest margin projection and target ranges assume that a through-the-cycle total deposit data will be approximately 45%, which will be more than offset by the projected through-the-cycle loan yield data of approximately 50%. The through-the-cycle interest-bearing deposit data is expected to be approximately 58%. The current rate cycle is projected to end when the FOMC pivots to reducing the Fed's funds rate, which is noted we now assume will begin in September. On a four-year basis, adjusted operating non-interest income is expected to be between $105 and $115 million, and we are targeting the fourth quarter adjusted operating non-interest income run rate to fall between $30 and $35 million. Adjusted operating non-interest expenses for the four-year are estimated to fall in the range of $445 to $455 million, while the fourth quarter adjusted operating non-interest expense run rate we are targeting is expected to be between $110 and $115 million, which assumes full achievement of our 40% merger-related cost saves on a run rate basis beginning in the fourth quarter. Based on these projections and fourth quarter run rate targets, we expect to produce financial returns that will place us within the top quartile of our peer group and meet our objectives of delivering top-tier financial performance for our shareholders. In summary, Atlantic Union delivered solid financial results in the first quarter despite the challenging banking environment we are effectively managing through. The American National Transaction closed April 1st and as John said, the integration work is going very well and we remain confident that we will achieve the financial benefits of the combination once the cost stays Savings are fully realized on a run rate basis starting in the fourth quarter. As a result, we believe we're well positioned to continue to generate sustainable, profitable growth and to build long-term value for our shareholders in 2024 and beyond. And with that, let me turn it over to Bill Cimino for questions.
spk07: Thank you, Rob. And DeeDee, we're waiting for our first caller, please.
spk04: Okay, thank you. One moment for our first question. And our first question comes from Catherine Miller of KBW.
spk08: Good morning, Catherine.
spk03: Hey, good morning. I wanted to see, Rob, if you could just in the NIM guidance that you lay out, is there any way just to put a range on where you're thinking the credible yield will go and then maybe even outside of that where you think the core NIM will go within that guidance?
spk09: Yeah, so if you kind of, our projection from a core perspective is for 2024 is to fall within a 320 to 330 range. On top of that, if you look at what we've projected for the reported numbers, you can add 20 to 25 basis points to that, which would primarily be the American national impact, including an increase in income.
spk03: Okay, great. And so then you still then, in that core 320 to 330, that assumes two rate cuts. So it seems like you still, with two rate cuts, you feel like you're going to get some expansion from this quarter's level. What does that look like if we don't get any rate cuts? How much sensitivity is there to that?
spk09: If we don't get any rate cuts, Catherine, the impact is actually significant. two or three basis points to the good, primarily because we won't see the rate cuts. If they don't happen, we wouldn't see our variable rate loan yields decline by whatever the Fed cuts. So it's actually a benefit of two to three basis points for 2024.
spk03: Got it. Okay. And then within that margin guide, if we look at deposit costs, deposit costs Increased a little bit more than I had expected this quarter. Are you seeing stabilization towards the end of the quarter and just any kind of comments on maybe spot rates on deposit costs towards March or April and then maybe even what that looks like with American National?
spk09: Yeah, so in terms of where we ended the quarter, if you look at March, we were up a little bit from the reported full quarter average. where 2.43% was total cost of deposit, so up about three or four basis points from the average for the first quarter. We are projecting that those deposit costs will increase, you know, through the second quarter and kind of stabilize in the third quarter and hopefully see a bit of a decline in the fourth quarter if we see those rate cuts that we're calling for. I would say that we think it will stabilize and call it, give or take, approximately 2.5% range in terms of total deposit costs, again, assuming that the Fed cuts in the back half of the year.
spk03: Okay, great. And maybe one last margin-related question. Does this forecast in the margin assume that you liquidate American National's bond portfolio and then reinvest that? How do we think about that?
spk09: Yes, that's true. We do expect that. We've actually done some restructuring where we've, right after close, where about two-thirds of the portfolio we restructured. And you'll see that coming out, obviously, when we report second quarter earnings. But that is... where we think we'll end up is we've kind of completed that restructuring early in April, and you'll see the benefits of that as we go forward. That accretion income doesn't include the benefits of that because that will come through a core net interest margin going forward.
spk03: Okay, perfect. All right, thanks for all the clarity. Appreciate it.
spk07: Thanks, Catherine. And, DeeDee, we're ready for our next caller, please.
spk01: Thank you. One moment. And our next question comes from Casey Whitman of Piper Sandler.
spk08: Hi, Casey.
spk02: Hey, good morning. Hi. John, I think you mentioned that you think we're nearing the bottom of the mix shift out of non-dress bearing. Can you just, I mean, what gives you confidence there or what can you point to for us? Thanks.
spk08: Sure. Well, if you look at the pace of decline, it's becoming more shallow, so it's inflected. So we've seen it go down at a declining pace. The other thing is, historically speaking, we're starting to get closer to what we saw, say, pre-pandemic. Now, bear in mind, we have a larger base of commercial industrial clients who have operating accounts that are normally non-interest bearing. And as we look at the pace over the last couple of months, up to now, it's simply been on a declining trend, Casey. It's unlikely that businesses are suddenly waking up, realizing they have large dollars sitting in their non-interest-bearing account that they forgot about. It is more likely that what's happening is that they're becoming more efficient in terms of their cash management activities because it's now to their advantage to do that. And to some extent, we see companies using their cash as well because it's more expensive to borrow. So they will pay cash for things they might have financed in the past. But what we see is a declining trend And it's impossible to predict with precision, but it certainly looks like it's on a, the slope of the line leads us to believe we're nearing the bottom.
spk09: I'd also add that American National is helpful from that point of view because they're about 31% non-interest-bearing to total deposits. So when we blend it together, we're probably getting back to about a 24% give or take. But to John's point, We think we're at the bottom here at around 22% on a standalone basis. We think. Yeah. Yeah. And then we'll see what happens. Correct.
spk02: Perfect. Thank you. And then piggybacking on some of Catherine's questions, just I guess, Rob, can you walk us through what the size of the overall balance sheet then might be with American National?
spk09: Yeah, so it's about, you know, about $3 billion in terms of their total assets at closing. So we expect that we'll continue to grow. You know, I think we're at $24.5 billion bill, pro forma 331 numbers. So we expect to grow the loan book about 5% on a combined basis, on a full year basis reported. So you see those assets grow accordingly.
spk02: Okay. Understood. And then maybe just a bigger picture question on M&A. Obviously, you just closed American National. You've got the systems conversion, I think, going on in May. John, can you walk us through sort of your thoughts around future M&A?
spk08: Sure. It's hard to think about anything but a successful conversion and integration of American National Bank right now. But I understand your question because we always do try to think a couple of steps ahead. Casey, nothing has changed in terms of our declared priorities. First, organic performance of this bank. That now includes American National. Make the most of what we have right here, right now. That is by far the most important thing we have to do. Second, innovation and transformation activities. We have a lot of work underway there. We have a new mobile and online banking platform that's coming online this year as well. A lot went on in the technology space, and we see continued opportunity for automation, which will pull expense out, improve quality. Third, and it's a distant third, would be strategic investment to include a whole bank acquisition. And we have had other conversations that have gone on for years, just like American National Bank went on for years. You never know what the timing would be. If all goes well with American National Bank and everything is in good order, you know, would we consider something else consistent with what we described before? We might if it made strategic and financial sense. But I hope we're being clear that first things come first.
spk02: Great. Thank you for the call.
spk07: Thanks, Casey. And DeeDee, we're ready for our next caller, please.
spk04: Thank you. One moment. And our next question comes from Steve Moss of Raymond James.
spk07: Hi, Steve. Have you lost Steve?
spk04: He removed from queue. Let me promote the next person.
spk01: Okay.
spk04: Our next question comes from David Bishop of Hovde Group.
spk07: Hi, David. Good morning.
spk04: David, your line is open.
spk05: Hey, sorry about that. Can you hear me?
spk08: You're making me nervous, David. Sorry, John. Congratulations on being promoted. Thank you for calling in. Hey, John, just curious.
spk05: Obviously, you mentioned at the beginning the resilience in the economy and the opportunities in the new markets in North Carolina. Just curious how to reconcile that with what appears to be maybe conservative guidance in terms of loan growth or are there some portfolios maybe you're going to run off post-close that that sort of, you know, maybe provides the lower end of the loan growth guidance. Just curious maybe what, you know, just reconcile maybe some of the guidance versus the economic reality.
spk08: Yes. There are no runoff portfolios associated with American National Bank. The only runoff portfolio in our bank, I suppose you would say, would be the indirect auto finance. We have things like office that we certainly don't have any appetite for taking on new exposure as well. But David, I think perhaps David Ring, head of wholesale banking or commercial-related businesses, can comment here. We do think that clients are being cautious. We feel good about these economies. We feel good about credit. But there is less investment going on right now. So I think that the mid-single-digit loan growth guidance, where we stand today, is a good expectation. Could it be better than that? I think it could. Dave, what is your view? Well, we've seen fewer opportunities. The opportunities have started to shrink a little bit. Our pipelines are still good, but they're rebuilding and they're more early stage in the pipeline. So we feel like down the road, there's good growth. And in the new markets, we're exploring expansion opportunities to take advantage of those new markets. And we think they're going to provide more growth at the back half of the year as well. We feel like we've never been one of the banks that would operate around the fringe of the credit piece. And so we haven't changed our standards and we're simply more cautious around some of the real estate asset classes. I would agree. So I think that's a pretty conservative approach, David. And if things change as we gain more experience in the year, we'll obviously revisit our guidance. But I think that's a good, reasonable assumption.
spk05: got it and then uh john just in terms or for rob um you know noted a little bit of growth in broker deposits just curious if there's um any sort of cliff maturation or maturation and maybe what those average costs are yeah so the average cost is uh it's a little over five percent i think five and a quarter we've got um we've got two tranches uh two or three tranches i guess three um about 150 million is
spk09: We went a little extended duration a bit to take advantage of the inverted curve. Those costs are about approximately $450,000 blended. And then we've got some one-month broker that's maturing over the next few months here. And that's paying about $5.25 for those. Those numbers move up and down depending on what the funding requirements are in any particular point in time. So, as John said, we're just a bit under 4% of total deposits in brokerage. We've run anywhere from 2% to 4% in the past.
spk05: Do you think that stays around that range? Yes. Yeah, I do. Got it. And then maybe on the loan side, just curious what fixed rate loans that might be repricing at... average rate versus what they repriced into? Thanks.
spk09: Yeah, so the repricing of the fixed rate loans, I think we're putting on about 7.5%, so up considerably from where the fixed rate loan yield is on the portfolio today. So it's been inching up over the last several quarters, and the most current quarter was about 7.5% on the fixed side.
spk01: Great.
spk07: Thank you. Thanks, Dave. We're ready for our next caller, please.
spk04: Okay. Thank you. One moment. And our next question comes from Russell Gunther of Stevens. Hi, Russell. Good morning.
spk06: Good morning. Good morning. I appreciate all the color on the margin. I just had a follow-up. So as we think about the roughly 20 to 25 basis points of purchase accounting contribution, how does that cadence look for next year? Is that a decent kind of run rate into 25 or just trying to get a sense as to when that earnings contribution could begin to taper?
spk09: Yeah, so through 25, yeah, that's a good estimate. We're talking about 25 basis points in 2025. It starts to taper a bit as we get into 26 and 27. Of course, as you know, decreasing income can be volatile depending on prepays, et cetera, but that's our current estimate. We're doing basically four to five years, some of the year digits on our loan interest rate mark is what we're talking about.
spk06: Okay. It's really helpful. Thank you. And then just a quick one on the loan growth outlook. So could you give us a sense for how you're going about investing in the Carolina market? I think you mentioned adding some bankers there. There's a number you could share or general background, what the opportunity set to continue to add commercial lenders in that footprint is. And then just lastly, is the pickup in that market ultimately enough to to move you back to your mid to high single digit pace? Or is that a general pickup in sort of the macro economy that gets you there? Thank you.
spk08: How about if I start and I'll ask David Ring to follow. First of all, we're not talking about massive lift outs and that sort of thing. It'll be highly selective. I do think that the North Carolina market is going to be additive. to our overall growth expectations. So in other words, I think that it gives us confidence in our guidance and probably gives us more likelihood of upside. Dave, I know we are not quite yet ready to get into too much detail, but what are your thoughts on where we'd expect to expand? Oh, and I should comment. We feel very, very good about the American national team and the bankers that we have down there. So we think we're going to take that and build from it. Yeah, we have a very talented team that we inherited from American National, but we also have a very strong commercial real estate presence in North Carolina already because of our Charlotte group that's been in business for about eight years there now. And so what we're looking to do in North Carolina is move into the faster growing markets, and where the capital is moving. And so we have plans, and we're executing them now. We're just not ready to disclose what the final results are.
spk06: Understood. Well, guys, that's it for me. Thank you for taking my question. Okay.
spk07: Thank you, Russell. Thanks, Russell. And thanks, everybody, for joining us today. We look forward to talking with you in July, and everybody have a good quarter.
spk04: This concludes today's conference call. Thank you for participating and you may now disconnect. you Thank you. Thank you. So, Bye. Bye. you Thank you. Good day and thank you for standing by. Welcome to the Atlantic Union Bank shares first quarter 2024 earnings conference call.
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