Q2 2021 Atlantic Union Bankshares Corp Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Atlantic Union Bankshares second quarter 2021 earnings call. Please note that today's call is being recorded 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 1 on your telephone if you require any further assistance. Please press star Zero I would now like Candy conference over to your speaker for today <unk>. Please go ahead.

Thank you Jay and good morning, everyone I have Atlantic Union, Bankshares, President and CEO, John Asbury and executive Vice President and CFO, Rob Gorman and Atlantic Union Bank, President Maria Tedesco with me today.

We also have other members of our executive management team with remotely for the question and answer period.

Please note that today's earnings release from an accompanying slide presentation.

We're going through on this webcast are available to download on our Investor website at investors day at Atlantic Union Bank Dot Com.

During today's call May make forward looking we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures reported on.

Information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures is included on our earnings release and earnings supplement for the second quarter 2001.

Before I turn the call over to John I would like to remind everyone that on today's call. We will be making forward looking statements, which are not statements of historical fact and are subject to risks and uncertainties there.

There can be no assurance that actual performance will not differ materially from any future results expressed or implied by these forward looking statements.

We undertake no obligation on public revise or update any forward looking statements.

Please refer to our earnings release and earnings supplement for the second quarter of 2021 and our other SEC filings for further discussion of the Companys 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 any forward looking statements.

All comments made during today's call are subject to that safe Harbor statement at.

At the end of the call, we'll take questions from the research analyst community and now I will turn the call over to you on that.

Thank you Bill and thanks to all for joining US today as those of you who follow US closely know for the last year on a quarter. We've been consistent in our commentary that we are managing through 2 significant distinct challenges first the COVID-19 pandemic and second a near zero short term rate environment that we expect still has years to run pressuring the company's profitability.

While we can and do hope that interest rates will rise sooner than forecast, which would be a great benefit to us for purposes of planning on running the company, we expect near zero short term rates through at least next year.

Watchful of the different COVID-19 variance in monitoring the trends, but nonetheless continue to belief based on information from state officials dependent on its major impacts are behind us at least in our primary markets. Despite the human tragedy. The pandemic Atlantic Union has emerged from its stronger more capable more agile and resilient.

Our experiences over the past year and a half have confirmed our belief that our strategic plan with our long term goal to become the Premier mid Atlantic Bank is the right 1 and we have a great opportunity before us to create something uniquely valuable for our shareholders customers and the communities we serve.

We remain keenly focused on reaching the full potential of this powerful franchise.

Our mantra of soundness profitability and growth in that order of priority serves us well on continues to inform how we run our company.

Sound Bank is and will remain our highest priority a prudent and conservative credit culture has served the company well during the great recession and it is serving us well on the current environment or loan modifications have helped our clients weather. This storm having peaked at about 17% of the non PPP loan portfolio in may of 2020 and remain at a minimal.

<unk>, 3% as of June 32021, our capital position has been strengthened and we have ample liquidity.

Our second priority is profitability and we are pleased to report a very clean quarter without meaningful onetime gains or losses, allowing you to better see our core performance expense action results and investment in the business for the long haul while we remain mindful of the continuing challenges of the low rate environment.

You will recall, we forecasted a quarterly expense run rate of about $92 million per quarter, and we hit it.

As for growth, we continue to be optimistic on our economic outlook and believe we have a long runway ahead of us to grow both organically and through takeaway from our larger competitors that dominate market share here in our home state of Virginia supplemented by our operations in Maryland, North Carolina, and our specialized lending capabilities in government contract finance and equipment.

Net finance, we remain focused on and believe we are benefiting from the disruption occurring at 2 of our largest competitors.

Loan growth, excluding the impact of PPP returned this quarter with an annualized growth rate of 2.5% loan growth was over 3% annualized when you adjust for the run off of the third party consumer portfolio. Now this is not where we want to be but it is consistent with our prior messaging that we believe we are on an improving growth trajectory and we still do.

We believe that our <unk>.

Commercial loan categories of all types increased by approximately 3.5% annualized with consumer loans declining 2.9% as we continue to run down our third party consumer portfolio, which we expect to drop below $100 million this quarter.

Total consumer loans, excluding our third party portfolio actually showed some slight balance growth and encouraging turn of events line utilization is still well below normal at 28%, which while about a 3 percentage point increase from the prior quarter points to just how much liquidity remains in our system.

Based on our commercial pipeline, which is currently at a record high. We believe we do have line of sight to a continued upward upward trend in loan growth and net the second half of the year will be better than the first half. This could bring our full year 2021 loan growth up to mid single digits, Excluding third party consumer loans run off in PPP loans next year, we do it.

Back to return to high single digit loan growth in our franchise market dynamics and economic outlook certainly support that opportunity.

Aside from the significant amount of excess liquidity being held by our clients to other headwinds impacting our loan growth to date, our supply chain disruptions, creating a scarcity of pretty much anything our business clients seem to need and the difficulty there having filling the open jobs. This is meeting growth for us, but this effect should diminish as the year that works on.

I'll now turn to the PTP forgiveness since it is clouding our reported balance sheet growth. The first and second round of the Paycheck protection program, where brand builders for Atlantic Union and our results support that assertion. We remained focused on converting as many as possible the more than 3500, new to bank Pvp clients to full relationships and per our analysis, we have become.

The primary bank for well over half of them and we continue working all the others.

We started taking applications for round 2 as soon as the small business administration opened banks, our size and received SBA approval for approximately 5700 loans totaling around $555 million per round 2.

PPP loan forgiveness during the second quarter ramped up from the first quarter approximately 5000 clients from both round 1 round to receive forgiveness totaling approximately $705 million during the quarter, bringing the total amount forgiven to date to approximately $1.3 billion, our current PPP balances.

<unk> totaled $859 million overall, the PPP loan forgiveness process is running smoothly let.

Let me speak now to our current operating environment and our workplace strategy while on.

Our branches have been opened to walk in traffic since last fall corporate offices remain closed to all but essential personnel.

People focused organization, we have sought input from them and listen to our teammates conducting numerous surveys and focus groups to better understand their desires and expectations for the office environment, while balancing that with our own business requirements. After labor day, we will transition to work on our hybrid office approach relatively small percentages of our.

Teammates will be fully remote and most who are assigned to corporate offices will be eligible for a hybrid option. This is a great experiment and while we intend to be flexible and responsive to our people's request for a hybrid work opportunity.

If we find that the hybrid approach is not as productive as we expect or if it fails to meet our business requirements. We will revise it like everything else. We do hear this will evolve based on actual experience and our learnings.

The passenger challenged us in new and unexpected ways, bringing out our best to meet the unprecedented needs of our customers and our teammates.

As I said before we've come out on the other side of this as a stronger and more capable organization. Our culture is evolve II and it continues to evolve. This is happening due to 2 important mergers over the past few years, which brought us new teammates with new perspectives, New leadership, having joined the bank, creating new expectations and of course, the new environment that is.

Change the way in which we all work together and interact with our customers for these reasons and more we wanted to study and reflect on the Atlantic Union Bank culture, and revisit our core values to ensure they still aligned with who we have become and with all of this work for us during these challenging times, our core values guide our actions and shape our culture as we continue to grow.

And as we continue to evolve we purposely reflected on how our culture has enabled our success to ensure it will enable our future as well.

This re articulating of our core values, it's clear concise, it's simple to understand and we think is uniquely us the core values, we chose to reflect on.

Our new organization are carrying courageous and committed.

Carrying means working together towards common goals acting with kindness respect and a genuine concern for others courageous means speaking honestly openly and accepting our challenges and our mistakes as opportunities to learn and growth and committed means being driven to help our customers our teammates and our company succeed doing what is right always.

And being accountable for our actions this.

This is all here now it's not some aspirational statement.

While it's easy to talk about culture, it's harder to show how your cultural performs on the competitive environment in which we operate I am proud to say that our words more than match. The reality. In addition to winning a number of local and regional awards. We were number 1 in J D. Power's retail banking customer satisfaction for the mid Atlantic region in 2021, and this is the second time in the last 3.

As we've won this award as we dig deeper into the J D. Power study our online banking experience web site mobile application in branch experience all scored the highest in the mid Atlantic. This is something I would not have expected a few years ago and.

And it's not just retail customers who rate US highlight we were also named the Greenwich Excellence Award winner for businesses with $1 million to $10 million of revenue for the entire South region.

As I've said before as we've learned to work differently, our customers have learned to bank differently.

Seeing usage of our digital channels increased substantially from the prior year. For example, digital logins are up 63%. Since this time last year with 73% of logins coming from a mobile device mobile check deposit utilization is up 46% year over year Zelle utilization is up 196% yeah.

Year over year and card control users are up around 241% year over year.

Finally, commercial mobile deposit dollar volume is up 49% year over year.

We continue to work on new projects and improve the omni channel customer experience with quarterly releases and upgrades to our product offerings. During the second quarter of the year on most significant digital accomplishments are major undertakings. We are having completed the business E banking platform upgrade to the digital 1 platform and we rolled out a dedicated.

<unk> Union Bank wealth management branded mobile application and a new personal finance portal powered by Black Diamond initial feedback from clients has been very complementary with higher than expected log on rates and I can attest is a client of our wealth management group gets terrific.

Turning to credit the headline here is the absence of credit problems with the usual disclaimer that anything can still happen. We're more confident on credit and we have been since the pandemic began even more so than at the end of the first quarter and we don't expect credit issues to be problematic in the near term barring some unexpected negative turn with the COVID-19.

Outlook is.

It's clear to us that the resiliency and diverse nature of our markets coupled with additional government stimulus and accommodated federal reserve and our own actions and client selectivity has had a positive impact and we've seen the unemployment rate in our markets improved faster than expected here on our home state of Virginia June unemployment came in at 4.3% down.

From 5.1% in March and that was 160 basis points better than the national average of 5.9%, having said that the employment challenge in our markets is not the unemployment rate, it's the ability of businesses to fill their open jobs.

We continued to climb out of the systemic downturn on our credit losses have been minimal so far charge offs in Q2 improved off to very low levels, we've seen and netted to zero basis points, which is an impressive accomplishment realistically, though at some point credit losses will have to normalize, but given all of the stimulus and a strengthening economy. There is simply no way.

Of knowing when that may be.

Rob will talk through the provision for credit losses on our seasonal modeling, but by all indications and metrics credit appears to have never been better.

Our goal remains to achieve and maintain top tier financial performance, regardless of the operating environment, our financial outlook will ultimately depend in part on a continued success against additional flare ups of COVID-19 in our main operating areas.

As I mentioned before the economic outlook is strongly positive and we're optimistic.

While there may be some dips along the way to a full recovery. We believe the overall trend will remain upward and it should accelerate in the back half of 2021 the.

The data continues to demonstrate better economic performance in our footprint and would've seen overall on the national economic model projections and that gives us confidence in our outlook.

We will again point out the Virginia economy is fairly unique with a broadly diverse set of regional economies and about 20% of it is anchored in some fashion by the federal government. The additional stimulus should be a net positive for the federal government's contribution to the Virginia economy as an aside Virginia recently became the first back to back winner of the best day to do business.

By CNBC and it comes as no surprise to those of US who live and work here. This is the fifth time, Virginia achieved this number 1 ranking.

Our goal remains creating a company that's able to consistently deliver differentiated performance as I mentioned in our last quarterly call. We continue to work on ways to make the company more efficient and more scalable while improving on automating processes and the customer experience, we should see operating leverage improvements as a result, once we get through the noise. The PPP we would.

To publicly reestablish a top tier financial targets I am convinced we are emerging from the pandemic stronger better and more efficient than before and that will give us opportunities both organic and perhaps under the right circumstances through M&A.

We are leveraging our learnings and on granting a newfound capabilities agility and innovation into the company's culture. So that we are flexible and adaptable on the current lower for longer rate environment and the forthcoming post pandemic next normal whatever that may be while delivering a differentiated customer experience.

I do remain confident in what the future holds for us and the potential we have to deliver long term sustainable financial performance for our customers communities teammates and shareholders and I'll close as always with my customary reminder, that Atlantic Union Bankshares remains a uniquely valuable franchise. It is dense on that is compact it is in great markets with a story unlike any.

Other in our region, where scale of it with the right capabilities the right markets on the right team to deliver high performance even in this triangle times with that I'll now turn the call over to Rob to cover the financial results for the quarter Rob.

Thank you John and good morning, everyone. Thanks for joining us today.

Before I get into the details of Atlantic Union financial results for the second quarter of 2021, I think it is important to once again reinforce John's comments on Atlantic Union's governing philosophy of soundness profitability and growth in that order of priority. This.

This core philosophy has served us well as we manage the company through the COVID-19 pandemic crisis, we're preparing us for what comes next.

Atlantic Union continues to be in a strong financial position with a well fortified balance sheet ample liquidity and a strong capital base, which has allowed us to weather the economic impact of COVID-19, and come out stronger as the pandemic subsides.

Now, let's turn to the company's financial results for the second quarter.

Please note that for the most part my commentary will focus on Atlantic Union second quarter financial results, which will be compared on a non-GAAP operating basis to the first quarter's results, which excludes the first quarter's after tax debt.

<unk> loss of 11.6 million, resulting from the prepayment of long term federal home loan bank advances.

For clarity I will specify which financial metrics are on a reported versus non-GAAP operating basis.

In the second quarter reported net income available to common shareholders was $82.4 million.

And earnings per share per common share were $1.5 up approximately $29.2 million or <unk> 38 per common share from the first quarter.

On a reported return on equity for the second quarter was 12, 5% up from 8.4% in the first quarter <unk>.

Reported non-GAAP return on tangible common equity in the second quarter was 21, 4%, which was up from 14, 6% on the first quarter.

Reported second quarter return on assets was 172% up from 1.6% in the first quarter.

<unk> reported second quarter efficiency ratio was 54, 4%, which was down from 67, 5% in the first quarter.

Compared to second quarter to the first quarter on a non-GAAP operating basis net adjusted operating earnings available to common shareholders in the second quarter was $82.4 million and earnings per common share.

$1.5.

Which was up approximately $17.6 million were <unk> 23 per common share from the first quarter non-GAAP pre tax pre provision adjusted earnings were <unk> $77 million.

This compares to $68.6 million in the first quarter.

The non-GAAP adjusted operating return on tangible common equity was 21, 4% in the second quarter, which compares to a non-GAAP adjusted operating return on tangible common equity of 17, 6% in the first quarter.

Second quarter non-GAAP adjusted operating return on assets was 172%, which was up from 1.4% in the first quarter non-GAAP adjusted operating return on assets.

Second quarter non-GAAP pre tax pre provision adjusted earnings return on assets was 155%, which was up from $1, 41% in the first quarter.

Non-GAAP operating efficiency improved to 51, 4% in the second quarter as compared to the <unk>.

Adjusted operating efficiency ratio of 55, 4% in the first quarter.

Now turning to credit loss reserves as of the end of the debt.

As of the end of the second quarter. The total loans for credit losses was $128.3 million.

Which was comprised of the allowance per loan and lease losses of $118.3 million in the reserve for unfunded commitments of $10 million.

From the second quarter, the total allowance for credit losses declined by $27.5 million, primarily due to the lower expected losses than previously estimated as a result of economic improvements in our footprint benign credit quality metrics to date and an improved macroeconomic outlook for the force forecast period.

The total allowance for credit losses, as a percentage of total loans was <unk>, 94% at the end of June which was down from 1 point on 9% in the prior quarter excluding.

Excluding SBA guaranteed PPP loans, the total loans for credit losses, as a percentage of adjusted loans decreased 22 basis points to 1% from the prior quarter the coverage ratio of the allowance for loan and lease losses to non accrual loans was 3 to 5 times.

At June 30, as compared to 3.4 times at March 31.

The $27.5 million decline in.

And the company's total loans for credit losses took into consideration the COVID-19 pandemic impact on credit losses flow through the 2 year reasonable and supportable macroeconomic forecast utilizing the company's quantity of seasonal model and true management's qualitative adjustments beyond the 2 year reasonable and supportable forecast period, the seasonal quantitative model.

Estimates of expected credit losses, using a reversion to the mean from the company's historical loss rates on a straight line basis over 2 years.

An estimate of expected credit losses, when the loans within the loan portfolio at quarter end. The company utilized Moody's do baseline macroeconomic forecast for the 2 year reasonable and supportable forecast period.

Moody's June economic forecast improved since March and has now assumed debt on a national level GDP will increased 6.9% in 2021 and 5% in 2022 as compared to GDP increases of 5.7% in 2021 and 2022 in the March forecast.

Moody's forecast from Virginia, which covers the majority of our footprint had previously assumed that the unemployment rate in the state would average about 4% during the 2 year forecast period, but the June forecast now assumes a 2 year average of 3.2%.

In addition to the quantitative modeling the company also made qualitative adjustments for certain industries viewed as being highly impacted by COVID-19.

Additional economic scenarios were considered as part of the qualitative framework in order to capture the economic uncertainty and concerns related to the path of the virus vaccination distribution efforts and the potential for other unfavorable economic developments.

The negative provision for credit losses of $27.4 million on the second quarter was higher than the negative provision for credit losses of $13.6 million on the previous quarter and was a decline of $61.6 million from the $34.2 million provision for credit losses reported in the second quarter of 2020.

The significant decrease in the provision for credit losses as compared to the same quarter in 2020 was driven by the better than anticipated credit impacts since the pandemic began the significant recovery on the economy since last year as well as an improvement in the economic forecast utilized in estimating the allowance for credit losses as of June 30.

In the second quarter net charge offs were $70000 compared to $1.2 million or 3 basis points for the prior quarter and $3.3 million or 9 basis points for the second quarter of last year.

Now turning to pretax pre provision components of the income statement for the second quarter tax equivalent net interest income was $143.7 million, which was up $5.7 million from the first quarter, primarily driven by a $3.7 million increase in PPE.

Loans fee accretion in the second quarter, an increase of $176.8 million on average, earning assets and a higher calendar day count in the second quarter net.

Net accretion of purchase accounting adjustments added 9 basis points to the net interest margin in the second quarter, which was in line with the 9 basis point impact in the first quarter.

The second quarter's tax equivalent net interest margin was 3.3%, which was an increase of 7 basis points from the previous quarter as.

As a result of a stable, earning asset yield compared to the first quarter and a 7 basis point decline in the cost of funds.

The loan portfolio yield increased to 376% from $3.6 9% in the first quarter, primarily driven by the impact of higher levels of PPP loans fee accretion interest income, resulting from higher higher levels of PPP loans were given by the SBA in the second quarter.

Which was partially offset by core loan yield compression due to lower market interest rates.

The quarterly decrease from the cost of funds to 23 basis points from 30 basis points was primarily driven by a 5 basis point decline in the cost of deposits to 18 basis points in the second quarter interest bearing deposit costs declined by 7 basis points from the first quarter to 25 basis points in the second quarter due to the continued aggressive repricing deposits.

And the maturity of high cost time deposits in the quarter.

Noninterest income decreased $2.5 million to $28.5 million in the second quarter primarily.

Primarily driven by $3.6 million decline in mortgage banking income driven by a 13% reduction in mortgage origination volumes.

Also a decline in loan interest rate swap income of $433000 due to lower transaction volumes in the quarter.

In addition, there was a decline in unrealized gains on equity method investments of approximately $1.1 million during the second quarter of 2021.

These quarterly declines were partially offset by increases in several.

Other noninterest income categories, including an increase in service charges on deposit accounts of $1.1 million higher debit card interchange fees of $356000 an increase in bank owned life insurance income of $944000, primarily due to life insurance proceeds received during the quarter and.

And an increase in fiduciary and asset management fees of $344000 due to quarterly growth in assets under management.

Noninterest expense decreased $19.9 million to $92 million from.

Approximately $112 million in the prior quarter.

The decline in non interest expense was primarily driven by the recognition of debt extinguishment cost of $14.7 million during the first quarter, resulting from the prepayment of $200 million in long term debt.

<unk> advances reductions in salaries and benefits of approximately $1.9 million due to decreases in seasonal payroll related taxes lower professional fee costs professional services cost of 552000, primarily due to legal fees and costs related to strategic projects recognized in the first quarter and <unk>.

<unk> non interest expenses decreased $1.3 million due to costs related to the company's closure of 5 branches.

February 2021 recognized during the first quarter.

This year Oreo and related credit expenses also declined from the first quarter of 2021 by approximately $795000, which was driven by gains on the sale of closed branches of $930000. These.

These net reductions were offset by an increase of $694000 of seasonally higher marketing and advertising expenses and an increase in technology and data processing expenses of $315000.

Non interest expense for the second quarter also included approximately $200000 in costs related to the company's response to the COVID-19 pandemic.

On approximately $250000 in expenses related to PPP loan forgiveness processes.

The effective tax rate for the second quarter increased to 83% from 16, 8% in the first quarter.

And for 2021, we now expect our full year effective tax rate to be in the 17% to 18% range.

Turning to the balance sheet period end total assets stood at $20 billion at June 30.

It was an increase of $135 million from March 31, primarily due to an increase in cash and cash equivalents as well as net growth in the investment securities portfolio is excess liquidity was put to work in the second quarter par.

Partially offset by decreases in loans due to PPP loan forgiveness process during the quarter.

The per yen period end loans held for investment were $13.7 billion.

Inclusive of $859 million on PPP loans, which was a decrease of $574 million or approximately 60% annualized from the prior quarter, driven primarily by $705 million on PPP loans that were forgiven during the second quarter.

Excluding the PPP loans loan balances on the first quarter increased $79 million or 2.5% annualized driven by increases in commercial loan balance of $93 million or 3.5% annualized and.

And reductions in consumer loan balances of $14 million were 2.9% on an annualized basis. The overall decline in consumer loan balances during the quarter was driven.

By continued run off of non relationship third party consumer loan balances of approximately $20 million.

At the end of June total deposits stood at $16.7 billion, which is an increase of $361 million or approximately 9% annualized from the prior quarter driven by an increase of $560 million across all customer deposit categories, except high cost deposits time deposits, which had balance runoff of $167 million during the second.

Quarter.

At June 30, low cost transaction accounts now comprise 54% of total deposit balances, which is up from 53% in the first quarter.

As previously mentioned the average total cost per progress declined by 5 basis points to 16 basis to 18 basis points.

On interest bearing cost declined by 7 basis points to 25 basis points in the second quarter.

From a shareholder stewardship and capital management perspective, we remain committed to managing our capital resources prudently as the deployment of capital for the enhancement of long term shareholder value remains 1 of our highest priorities.

From a capital perspective, the company continues to be well positioned to manage through the uncertainties of the pandemic and its potential impact on the company's financial results at the end of the first quarter Atlantic Union, Bankshares, and Atlantic Union banks capital ratios were well above regulatory well capitalized levels.

During the second quarter of 2021, the company paid a common stock dividend of 28 per share, which was an increase of <unk> or 12% from the prior quarter and also paid a quarterly dividend of 171.

88 on each outstanding share of series a preferred stock.

The board of directors also authorized a $125.25 million share repurchase authorization in may and the company repurchased approximately 1.1 million shares for $42.3 million during the quarter.

Additionally.

Additionally from quarter end through July 21, the company has repurchased on.

And the other 900000 shares for $32 million. The company has approximately now has approximately $50 million remaining on the board authorization.

In summary, Atlantic Union delivered solid financial results from the second quarter, while positioning yourself for a stronger profitability and growth as the year progresses, and the pandemic impact on the economy subsides. Please note that while we continue to proactively manage the company through the end stages of the pandemic. We also remain focused on leveraging the Atlantic Union franchise.

It is to generate sustainable profitable growth and remain committed to building long term value for our shareholders with that I'll turn it back over to bill to open it up for questions.

Rob we are.

We're ready for our first caller please.

Thank you and as a reminder, if you would like to ask a question. Please press star 1.

Our first question comes from the line of Brody Preston from Stephens, Inc. Your line is open good morning.

Good morning, everyone. Good morning, everybody how are you.

Well good.

Good. Thank you good Hey, I just wanted to start on the buybacks.

Given the average price on the timing of the authorization I'm assuming the purchases.

Some point in June so with the stock below where you were previously buying should we expect you to be similarly aggressive here in the third quarter.

Yes that would be the case.

As the stock price has declined.

Yes.

Significantly since the first quarter and since.

Authorization was put in place.

We will be we will continue to be aggressive on on that as I mentioned.

We bought $1 billion.

On $1.1 million shares.

As of June 30.

And we bought another 900000 is on <unk>.

3.2 yesterday, so we continue to be aggressive there.

Okay. Good thanks for that and then the core C&I strength that you saw I think it was about 8% annualized backing out PPP. John has some of that from the pipeline last quarter and then you mentioned that pipelines are still at record levels would you expect that.

Core C&I strength to kind of accelerate from what you saw this quarter in the third quarter.

We hope so Brody couple of things if you look at our total commitment production for Q2, 'twenty, 1 that actually exceeded all quarters of 2019, except for Q4, which is traditionally the strongest quarterly year by the way. The same is true for Q1. The reason why youre not seeing more on the balance sheet growth side is twofold 1.

As depressed line utilization and then 2 is the elevated paydowns that we've been fighting off and Thats really more of a commercial real estate issue, Dave <unk> head of wholesale banking on a commercial banking is on day do you have any comments in terms of expectations. My view is at some point, we're going to get more traction on the yes.

The actual outstandings.

Yes, John.

Just to tag on to your comments are and Bro to your question was about core C&I growth. So right now our pipeline is over weighted towards C&I. So about 44% of our pipeline is real estate and 50, 556% of our pipeline is C&I. So we do expect C&I to continue to grow.

<unk>.

Okay, great. Thanks for that and then I'll just ask 1 more and then hop back because I know you have a long line.

Just wanted to you gave good disclosures on the portfolio pricing mix on slide 13, just the 15% of the portfolio that has floors, Rob what percentage of that is currently.

Currently at or below at floor levels or below.

Yes, so the 15% growth about 7%.

The low floors.

And to bring them up.

Looking at about a 50 to 75 basis point on average.

For rates to go up.

To go back above the floors, so about 7%.

Awesome. Thank you very much I appreciate you taking my questions. Thank you Brady checkpoint Jay we are ready for our next caller. Please.

Thank you next question comes from the line of few Jean Clayton from Barclays. Your line is open good morning Eugene.

Good morning.

Can you help us on packaging specific drivers behind the decline in mortgage revenue this quarter. It looks like the refi volume has come down significantly and I assume gain on sale margin decline too.

Are you thinking about the mortgage dynamics from the third quarter, what does your pipeline look like today.

Yes. It is.

As you noted.

Down from a high point in the first quarter in terms of gain on sale from mortgages and it was down in the second quarter.

As volumes declined primarily as a result of.

Lower refi.

Origination volume that came through we're also seeing.

As rates rates went up.

We've seen a lot of competition in the mortgage business. So also our gain on net gain on sale I'm also came down a bit in the second quarter.

We think going forward here.

Depending on what the inventory of homes from.

On a purchase perspective.

It comes back on line that's also.

Had some effect on our originations.

We do expect debt mortgage growth.

Probably be down a bit in the next 2 quarters, although we think gain on sale will probably stabilize at the levels. We saw on the second quarter I would expect that you will see some some further decline in the mortgage revenue line in the third and fourth quarters, I will say that the drop in treasury yields hubs.

That means lower mortgage rates, which potentially will.

Drive some pickup in refinance activity believe it or not they're still refinance opportunity.

Rob is right 1 of the big issues in our market and scarcity of homes for sale.

That plus the number of cash offers that are being made but nevertheless, lower rates help and we'll work our way through it.

Thank you that's actually very helpful.

I can get another question and I wanted to zero in on your expense trajectory. It looks like the core expenses came in at closer to $93 million this quarter when adjusting out the gain on sale of branches and that also includes the half million dollar decline in the professional growth and was effectively offset by higher market right.

Are we thinking about the expenses going forward and is there a chance debt when the roughly $5 million of Colgate on CVP caused decline that will result in lower lower overall expenses or will that just be reinvested back as you continue to build out the bank.

Yes.

And in terms of the expense is yet.

Reported number was call it $92 million, which is pretty much in line with what we had.

Projected for the quarter there were some positives in there as you mentioned.

Gain on sales.

$92 million didn't include what we said we were kind of carving out the COVID-19 related expenses and then any forgiveness related expenses. So.

<unk>.

Those will subside, although I don't think they will over the next 2 quarters as we.

Could get back.

Get back to the office is going to be expenses incurred related to that we will consider those kind of the COVID-19 back to work the expenses and we have about.

As we mentioned about $850 million or so of.

PPP loans that still around the balance sheet debt will continue to work to be forgiven and will continue to incur those expenses, but if you take those out.

We are hovering around that $92 million.

Level give or take.

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It can be a little lumpy with we've got a number of projects going on as we mentioned early in the first in the first quarter in terms of.

Having some external third parties, helping us out on projects that should help us as we go forward from a efficiency productivity perspective.

So it can be a little bit lumpiness around that $92 million were also seeing as you probably heard from other banks.

We're starting to see some pressure on the wage pressure, we've got to look at debt as well which could.

The impact on expenses going forward, although I don't think thats going to be a big big number 2 on over here and to <unk> point, there are always some pluses and minuses.

That will likely continue but we keep targeting 92.

I should also mentioned of course incentives as a variable cost so.

We continue to occur.

Accrue to our targeted levels of incentives.

Past 2 quarters.

We'll see where we go based on what was projections look like and that's a lever we can pull as well if that is correct that levers available if needed.

Okay.

Thank you I appreciate you taking my questions. Thank you Lexi and Jay we are ready for our next caller. Please.

Next question comes from the line of cash the written from Piper Sandler Your line is open Hi, Casey.

Good morning.

Hey.

Just bigger picture question for you John we've seen M&A pick up that new markets can you just give us an update to how you're viewing M&A opportunities across your footprint and just how you're weighing that against the organic growth opportunities.

Sure Casey nothing has really changed from the commentary last quarter in terms of our overall view.

First of all we are principally focused on organic performance and whenever you hear us talk about our projects and we call them out for a reason and we just want to demonstrate the projects that are underway. There are strategically important activities going on in this company that have us very busy and so as we think about M&A, we have to balance.

<unk>.

The implications of taking something on vs things, we need to do any way. We can always we've organically I think driven excellent results and proven we can start new businesses, most notably equipment finance.

Standing government contractor finance, we feel good about our pipeline, we can always buy back shares and those are all pretty safe propositions for us and so we think about that compare debt. The M&A options that are out there were less likely to look at what I'll call small M&A, because even though it could be smaller.

It would have on opportunity cost.

And we have been watching with great interest and fascination. These these competitive bids that have gone on in our markets, none of which we have participated and by the way.

While I will never say never it is not our style to engage in bidding wars.

For banks.

Our style is to build relationships and partner with people who have a similar vision for the future.

And who take the long view not simply sell to the highest bidder because there are downsides and you can see cost take out and all the consequences of that so again nothing is impossible that doesn't mean, we will never ever given that you just don't see anything haven't seen anything yet that would be so important to us that would cause us to feel the need to do it.

And then we also think we'd rather keep powder dry take the long view think about something that could potentially be more on tactful create more value create more scarcity value shareholder value and scarcity value. So fundamentally we're patient we're not feeling pressured we're not filling pushed we have lots of friends.

We have a lots of conversations many of these conversations go on for years at a time. This fall all have been here 5 years. So I have some 5 year old trends too. So we may or may not do something we will see you can ask you again next quarter.

Yes.

Will do thank you for the call it from Elster Kevin.

Thanks Becky.

Okay, we're ready for our next caller please.

Thank you next question comes from the line of Laurie Hunsicker from Compass point. Your line is open.

Hi, Thanks, good morning.

I was hoping we could go back to expenses.

And sitting netting back debt and then RVO line item expenses of 900 to 9000 dollar credit is that correct.

They again see that broken out on the income statement I'm just taking your the adjustment yes, yes, that's right.

Lawyers on about 900000 of positive impact on the real line there.

And you know.

Which has been on its in other.

All other product right and then normally you guys do have texting and so I guess I'm looking at that and adjusting that I'm over I'm over 93 million per the quarter can you sorry can you just.

Bear with US I know I know, Rob you mentioned, probably $92 million run rate, but just any sort of other branch rationalization that you're thinking about.

Again also dovetailing off the fact that mortgage banking is going to be very very challenged how you're how you're thinking about you know what are your variable costs or anything out of there just maybe as we look even beyond 'twenty..1 if we're if we're looking into 'twenty 2 how we should be thinking about expenses.

Yes.

Yes ill, let John pick leave at the branch rationalization question on the comment beyond that share. We continue to look at we look at branches, formerly on an annual basis, but is it perhaps flow matter, we're always thinking about it something we've recently done here in Richmond as we went 2 for 1 and so the old way of thinking about this was closed.

Branch, a and consolidate into branch be something we've done recently that we're looking to replicate his close branch and branch fee.

Build branch seek better located smaller exactly the way, we designed exactly where we want it in a better location. That's a metropolitan market strategy, obviously, and we're looking for more opportunities and we have we have a couple of ideas around that.

We also have an opportunity.

Debt that we will likely undertake where.

Where we do have 1 branch that will likely be sold and repositioned and I don't want to talk too much about that but that is 1 of the ways that we think about it long and.

We're always looking at the change in consumer behavior Maria Tedesco is here our bank Presidents do you have anything to add to that I would just add that we have a much richer data to understand our customers' behavior in their bank.

<unk> pattern.

<unk>.

That doesn't just mean consumer we also talked about business and commercial on how they're leveraging the branches and that GAAP plays into this whole modeling that we're doing on branches I would also say we've recently opened 2 new locations.

You alluded to in the consolidation but.

That was based off of where we saw the market good market opportunity and customer demand for our <unk>.

Branch space, yet so I don't envision we're going to have another round of a big Bang on the branch consolidations that will be announced as an event anytime soon but we will continue to pare it down and I think back to your underlying question Laurie every quarter, there's always some degree of put and take.

And if we have a we call on blue birds, if we have.

Again, we're looking at is there anything else, we need to do that we keep our eye on the target of $92 million. We always have incentive compensation is a variable cost that we can draw down if we need to we would rather not but we'll do it if we have to.

And everything is a trade off we're constantly managing tradeoffs.

Yes, I would also add on.

Making investments in some productivity plays efficiency plays.

Robotics process automation continues to be worked on and these are things that you won't necessarily see a decline.

On the expense base, but you should see.

<unk>.

Lower level of expense increases as we go forward. So we don't have to add excellent game that's operating level.

So.

So that's what we're really working towards glory is trying to.

Produce positive operating leverage where expenses arent growing nearly as fast as the revenue growth.

Okay perfect. That's helpful. And then just on last question Rob on margin I was hoping you can just give us a little bit of help understanding its going forward.

Point number 1 if you can remind me how much is left on it on amortized on.

Unamortized fees on your $859 million.

PPP loans, and then any thoughts about piece of loan forgiveness, and then I guess sort of dovetailing on to that because you had certainly outside PPP fees that time, and then outsized accretion just looking on your accretion to be about $4 million this quarter.

On page, probably around close to $10 million and happy with how we should be thinking about.

Net interest income and net interest margin any any guidance you can give us would be really helpful.

Yes, thanks, Laura so in terms of the PPP deferred fees.

About $25 million left on that 850 or so people.

PPP loans left on the balance sheet.

We're anticipating that.

Bulk of those fees will be.

Accreted through income over the balance of this year from.

Some into the first quarter.

We're working on and these are <unk>.

Mostly related with 600, 550 or $600 million related to PPP too, which is really just getting underway from a forgiveness perspective.

But based on PPP won forgiveness, we think it will accelerate over the next call it 2 to 3 quarters.

Sure.

<unk>.

Net interest income on a dollar basis.

In terms of going forward in the margin.

Probably noted.

If you look at on reported margins.

But if you take out the PPP impact.

Accretion income impact, which was about 90 basis points.

Our core margin came down a bit we have been guiding to plus or -305.

That has come down a bit couple 2 to 3 basis points this quarter and we anticipate that we could see.

So.

Near term further compression in that range.

That's all because of the excess liquidity, we continue to see and we're trying to put debt to work as best we can.

You would have noted that we've increased our investment portfolio considerably over the last 6 to 9 months up about $1 billion.

Actually from about 15% of earning assets to closer to 20% we feel like Thats.

Okay.

Its margin.

A negative to the margin, but it's a positive.

Income so it's a dollar margin question there we will continue to evaluate tso.

Our view is that we want to put that money to work on outlet at CIT in 5 to 10 basis points cash position. So.

That said I think you'll see on a core basis net interest income going up on you may see some.

Pressure on the core margin itself.

Perfect. Thank you very helpful.

Thanks, Lori and Jay we are ready for our next caller. Please.

<unk> next question comes from the line of Kathryn Miller from key DW. Your line is open Brian Catherine Kathryn.

Good morning. Thank you my questions were answered, but just wanted to have 1 quick follow up on the expense.

Conversation.

Net.

You typically talk about the $92 million as your target for that Tim.

<unk> excludes intangible.

Amortization is that still how we're thinking about it so its kind of 92 on it.

Core ex amortization from more like 95, if we include that 3 million expense.

Yes.

Yes, Kevin.

We've talked about this quarter, but the 92 was inclusive of the amortization so get back that out its like $3.5 million to $4 million, you'll be closer to the $88 million net.

Non amortization expense, but we do include that in our guidance.

So the 92 again.

Give or take around that level.

Let's say on your guidance.

Guidance trying to Scott of trying to keep it around 90 care.

It backs out.

No.

Amortization.

So the 92, we reported this quarter includes about $4 million amortization, yet so that 92 million target is inclusive of the amortization otherwise it's 88, yes.

Got it okay.

Last quarter, you had guided to 92 million dollar expense.

Newmar.

Yes, we did understand included including the amortization of intangible.

Right.

Yes.

Yes last quarter, we were around 95% or so after taking out some of the noise 96.

And that included amortization and then.

We're dialing that back.

Back to 92 inclusive of the amortization.

Great. Okay, perfect, Yes, I just want to make sure that we are on this.

That's perfect got it Okay and then on there was there.

Sure.

And we're seeing really the negative provisions the past couple of quarters.

I'm, assuming that that kind of moderate as we move forward just given where the reserve.

Ratio and then any thoughts on kind of provisioning levels in the back half of the year.

Yes, as you noted third quarter on ROE that we've released reserves.

1 being.

On the largest and about $28 million.

And it's all about.

Quantitative seasonal modeling.

And the outlook in the pristine credit metrics that we're seeing and as John mentioned basically zero charge offs. This quarter past dues down we're not seeing any.

Gration negative migrations in the loan book in terms of loans our ratings.

So we've seen them in.

Improve.

So all of that suggests that unless we see some sort of worsening situation on the economic front.

We will continue to see.

Releases as we go forward here.

Where that bottoms out there is a question we've been suggesting debt to grow back to our seasonal day..1 it was about 75 basis points of the loan portfolio.

Our balance portfolio.

We think thats, probably a pretty good guide.

B again, all seem to be positive going forward here that we'll get there over a period of time and maybe depending on what our mix of loans are actually could be a bit lower than that.

But our bias is you can expect to see continue.

Releases, unless something material changes and now we're conservative by nature, we apply qualitative overlays uncertainty to the extent that we can justify it which is our bias.

But at the end of the day, you can't make it up we can't simply say, we choose not to release.

We sometimes hear our counterparts may comments, it sounded like we choose not to release data.

They don't appear to have the same accounts because we do you can't do that so there is a point, where it's principally driven by quantitative metrics. They are what they are we yes, we apply qualitative overlay and we'd be as conservative. So we can justify but you can't make it up and say, yes. That's a good point John that you mentioned debt.

Hopefully the allowance this quarter, we've been over the last several quarters is about 35% of the.

The allowance dollars is about is related to qualitative overlays that management is putting on correct.

So rest assure we dial that needle up as high as we can justify on when we stop.

Great.

Very helpful. Thank you.

Thank you Matt and.

And thanks, everyone for joining us today, we look forward to speaking with you over the next quarter and in 3 more months with our next results. Thank you and have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Great day.

Okay.

Okay.

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Ladies and gentlemen, thank you for standing by and welcome to the Atlantic Union Bankshares second quarter 2021 earnings call. Please note that today's call is being recorded 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 1 on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker for today Bill <unk>. Please go ahead.

Thank you Jay and good morning, everyone of Atlantic Union, Bankshares, President and CEO, John Asbury and executive Vice President and CFO, Rob Gorman and Atlantic Union Bank, President Maria Tedesco with me today.

Other members of our executive management team with us remotely for the question and answer period.

Please note that today's earnings release from an accompanying slide presentation.

We are going through on this webcast are available to download on our investor website.

Investors thought Atlantic Union Bank Dot com.

During today's call. We may make forward looking we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures.

Information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures is included in our earnings release and earnings supplement for the second quarter 2001 on 1.

Before I turn the call over to John I would like to remind everyone that on today's call. We will be making forward looking statements, 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 results expressed or implied by these forward looking statements.

We undertake no obligation to publicly revise or update any forward looking statements.

Please refer to our earnings release and earnings supplement for the second quarter of 2021 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 any forward looking statements.

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 will turn the call over to John Hess.

Thank you Bill and thanks to all for joining US today as those of you who follow US closely know for the last year on a quarter. We've been consistent in our commentary that we are managing through 2 significant distinct challenges first the COVID-19 pandemic and second on near Zero short term rate environment that we expect still has years to run pressuring the company's profitability.

While we can and do hope that interest rates will rise sooner than forecast, which would be a great benefit to us for purposes of planning on running the company, we expect near zero short term rates through at least next year.

I'll watch all of the different COVID-19 variance in monitoring the trends, but nonetheless continued to belief based on information from state officials dependent on major impacts are behind us at least in our primary markets. Despite the human tragedy. The pandemic Atlantic Union has emerged from its stronger more capable more agile and resilient.

Our experiences over the past year and a half have confirmed our belief that our strategic plan with our long term goal to become the Premier mid Atlantic Bank is the right 1 and that we have a great opportunity before us to create something uniquely valuable for our shareholders customers and the communities. We serve and we remain keenly focused on reaching the full potential of this powerful.

Our mantra of soundness profitability and growth in that order of priority serves us well on continues to inform how we run our company.

Bank is and will remain our highest priority a prudent and conservative credit culture has served our company well during the great recession and it is serving us well on the current environment.

Loan modifications have helped our clients weather. This storm, having peaked at about 17% of the non PPP loan portfolio in May of 2020 and remain at a minimal <unk>, 3% as of June 32021, our capital position has been strengthened and we have ample liquidity.

Our second priority is profitability and we are pleased to report a very clean quarter without meaningful onetime gains or losses, allowing you to better see our core performance expense action results and investment in the business for the long haul while we remain mindful of the continuing challenges of the low rate environment.

You will recall, we forecasted a quarterly expense run rate of about $92 million per quarter, and we hit it.

As for growth, we continue to be optimistic in our economic outlook and believe we have a long runway ahead of us to grow both organically and through takeaway from our larger competitors that dominate market share here in our home state of Virginia supplemented by our operations in Maryland, North Carolina, and our specialized lending capabilities and governance contract finance and equipment.

Net finance, we remain focused on and believe we're benefiting from the disruption occurring at 2 of our largest competitors.

Loan growth, excluding the impacts of PPP returned this quarter with an annualized growth rate of 2.5% loan growth was over 3% annualized when you adjust for the run off of the third party consumer portfolio. Now this is not where we want to be but it is consistent with our prior messaging that we believe we are on an improving growth trajectory and we still do.

We believe that our commercial loan categories of all types increased by approximately 3.5% annualized with consumer loans declining 2.9% as we continue to run down on our third party consumer portfolio, which we expect to drop below $100 million this quarter total.

Total consumer loans, excluding our third party portfolio actually showed some slight balance growth and encouraging turn of events line utilization is still well below normal at 28%, which while about a 3 percentage point increase from the prior quarter points to just how much liquidity remains in our system.

Based on our commercial pipeline, which is currently at a record high. We believe we do have line of sight to a continued upward upward trend in loan growth and net the second half of the year will be better than the first half. This could bring our full year 2021 loan growth up to mid single digits, Excluding third party consumer loans runoff in PPP loans next year, we do it.

Debt to return to high single digit loan growth in our franchise market dynamics and economic outlook certainly support that opportunity.

Aside from the significant amount of excess liquidity being held by our clients to other headwinds impacting our loan growth to date on our supply chain disruptions, creating a scarcity of pretty much anything our business clients seem to need and the difficulty there having filling the open jobs. This is meeting growth for us, but this effect should diminish as the year of the works on.

I'll now turn to the PTP forgiveness since it is clouding our reported balance sheet growth. The first and second round of the Paycheck protection program, where brand builders for Atlantic Union and our results support that assertion we remain focused on converting as many as possible the more than 3500, new to bank Pvp clients to full relationships and per our analysis, we have become.

The primary bank for well over half of them and we continue working all the others.

We started taking applications for round 2 as soon as the small business administration open to banks, our size and received SBA approval for approximately 5700 loans totaling around $555 million per round 2.

PPP loan forgiveness during the second quarter ramped up from the first quarter approximately 5000 clients from both round 1 round to receive forgiveness totaling approximately $705 million during the quarter, bringing the total amount for given to date to approximately $1.3 billion, our current PPP balance.

<unk> totaled $859 million overall, the PPP loan forgiveness process is running smoothly let.

Let me speak now to our current operating environment and our workplace strategy while on.

Our branches have been opened to walk in traffic since last fall corporate offices remain closed to all but essential personnel.

People focused organization, we have sought input from them and listen to our teammates conducting numerous surveys and focus groups to better understand their desires and expectations for the office environment, while balancing that with our own business requirements. After labor day, we will transition to work on our hybrid office approach relatively small percentages of our.

Teammates will be fully remote and most who are assigned to corporate offices will be eligible for a hybrid option. This is a great experiment and while we intend to be flexible and responsive to our people's request for a hybrid work opportunity.

If we find that the hybrid approach is not as productive as we expect or if it fails to meet our business requirements. We will revise it like everything else. We do hear this will evolve based on actual experience and our learnings.

The passenger challenged us in new and unexpected ways, bringing out our best to meet the unprecedented needs of our customers and our teammates.

As I said before we've come out on the other side of this as a stronger and more capable organization. Our culture is evolve II and it continues to evolve. This is happening due to 2 important mergers over the past few years, which brought us new teammates with new perspectives, New leadership, having joined the bank, creating new expectations and of course, the new environment that is.

Change the way in which we all work together and interact with our customers for these reasons and more we wanted to study and reflect on the Atlantic Union Bank culture, and revisit our core values to ensure they still aligned with who we have become and with all of this work for us during these challenging times, our core values guide our actions and shape our culture as we continue to grow.

And as we continue to evolve we purposely reflected on how our culture has enabled our success to ensure it will enable our future as well.

This re articulating of our core values, it's clear concise, it's simple to understand and we think is uniquely us the core values, we chose to reflect on.

Our new organization are carrying courageous and committed.

Carrying means working together towards common goals acting with kindness respect and a genuine concern for others courageous means speaking honestly openly and accepting our challenges and our mistakes as opportunities to learn and growth and committed means being driven to help our customers our teammates and our company succeed doing what is right always.

And being accountable for our actions this.

This is all here now it's not some aspirational statement.

It's easy to talk about culture, it's harder to show how youre cultural performs on the competitive environment in which we operate I am proud to say that our words more than match. The reality. In addition to winning a number of local and regional awards. We were number 1 in J D. Power's retail banking customer satisfaction for the mid Atlantic region in 2021, and this is the second time in the last 3 years.

We won this award as we dig deeper into the J D power study are on.

Online banking experience web site mobile application in branch experience all scored the highest in the mid Atlantic. This is something I would not have expected a few years ago.

It's not just retail customers who rate us highly well also named the Greenwich Excellence Award winner for businesses with $1 million to $10 million of revenue for the entire South region.

As I've said before as we've learned to work differently, our customers have learned to bank differently. We've seen usage of our digital channels increased substantially from the prior year. For example, digital logins are up 63%. Since this time last year with 73% with logins coming from a mobile device.

Mobile check deposit utilization is up 46% year over year.

<unk> utilization is up 196% year over year and card control users are up around 241% year over year.

Finally, commercial mobile deposit dollar volume is up 49% year over year.

We continue to work on new projects and improve the omnichannel customer experience with quarterly releases and upgrades to our product offerings. During the second quarter of the year on most significant digital accomplishments are major undertakings. We are having completed the business E banking platform upgrade to the digital 1 platform and we rolled out a dedicated in la.

<unk> Union Bank wealth management branded mobile application and a new personal finance portal powered by Black Diamond initial feedback from clients has been very complementary with higher than expected log on rates and I can attest as decline of our wealth management group gets terrific.

Turning to credit the headline here is the absence of credit problems with the usual disclaimer that anything can still happen. We're more confident on credit and we have been since the pandemic began even more so than at the end of the first quarter and we don't expect credit issues to be problematic in the near term barring some unexpected negative turn with the COVID-19.

Outlook is.

It is clear to us that the resiliency and diverse nature of our markets coupled with additional government stimulus and accommodated federal reserve and our own actions and client selectivity has had a positive impact and we've seen the unemployment rate in our markets improve faster than expected here on our home state of Virginia June unemployment came in at 4.3% down.

From 5.1% in March and that was 160 basis points better than the national average of 5.9%, having said that the employment challenge in our markets is not the unemployment rate, it's the ability of businesses to fill their open jobs.

We continued to climb out of the systemic downturn, our credit losses have been minimal so far charge offs from Q2 improved off to very low levels, we've seen and netted to zero basis points, which is an impressive accomplishment realistically, though at some point credit losses will have to normalize, but given all of the stimulus and a strengthening economy. There is simply no way.

Of knowing when that may be.

Rob will talk through the provision for credit losses on our seasonal modeling, but by all indications and metrics credit appears to have never been better.

Our goal remains to achieve and maintain top tier financial performance, regardless of the operating environment, our financial outlook will ultimately depend in part on the continued success against additional flare ups of COVID-19 in our main operating areas.

As I mentioned before the economic outlook is strongly positive and we're optimistic while.

While there may be some dips along the way to a full recovery. We believe the overall trend will remain upward and it should accelerate in the back half of 2021.

The data continues to demonstrate better economic performance in our footprint and what <unk> seen overall on the national economic model projections and that gives us confidence in our outlook. We will again point out the Virginia economy is fairly unique with a broadly diverse set of regional economies and about 20% of it is anchored in some fashion by the federal government the additional stemming.

This should be a net positive for the federal government's contribution to the Virginia economy as an aside Virginia recently became the first back to back winner of the best day to do business by CNBC and it comes as no surprise to those of US who live and work here. This is the fifth time, Virginia achieved this number 1 ranking.

Our goal remains creating a company that's able to consistently deliver differentiated performance as I mentioned in our last quarterly call. We continue to work on ways to make the company more efficient and more scalable while improving on automating processes and the customer experience, we should see operating leverage improvements as a result, once we get through the noise. The Pvp we would.

To publicly reestablish a top tier financial targets I am convinced we are emerging from the pandemic stronger better and more efficient than before and that will give us opportunities both organic and perhaps under the right circumstances through M&A.

We are leveraging our learnings and on granting our newfound capabilities agility and innovation into the company's culture. So that we are flexible and adaptable.

Current lower for longer rate environment, and the forthcoming post pandemic next normal whatever that may be while delivering a differentiated customer experience.

Remain confident in what the future holds for us and the potential we have to deliver long term sustainable financial performance for our customers communities teammates and shareholders and I'll close as always with my customary reminder, that Atlantic Union Bankshares remains a uniquely valuable franchise. It is dense on that is compact it is in great markets with a story unlike any other in.

Our region, we are scalable with the right capabilities the right markets on the right team to deliver high performance, even though this triangle of times with that I'll now turn the call over to Rob to cover the financial results for the quarter Rob.

Thank you John and good morning, everyone. Thanks for joining us today.

Before I get into the details of Atlantic Union financial results for the second quarter of 2021, I think it is important to once again reinforce John's comments on Atlantic Union's governing philosophy of soundness profitability and growth in that order of priority. This core philosophy has served us well as we manage the company through the COVID-19 pandemic crisis.

We're preparing us for what comes next.

Atlantic Union continues to be in a strong financial position with a well fortified balance sheet ample liquidity and a strong capital base, which has allowed us to weather the economic impact of COVID-19, and come out stronger as the pandemic subsides.

Now, let's turn to the company's financial results for the second quarter.

Please note that for the most part my commentary will focus on Atlantic Union second quarter financial results, which will be compared on a non-GAAP operating basis to the first quarter's results, which excludes the first quarter's after tax debt still.

<unk> net loss of $11.6 million, resulting from the prepayment of long term federal home loan bank advances.

For clarity I will specify which financial metrics are on a reported versus non-GAAP operating basis.

In the second quarter reported net income available to common shareholders was $82.4 million.

And earnings per share per common share were $1.5 up approximately $29.2 million or <unk> 38 per common share from the first quarter.

The reported return on equity for the second quarter was 12, 5% up from 8.4% in the first quarter.

Reported non-GAAP return on tangible common equity in the second quarter was 21, 4%, which was up from 14, 6% in the first quarter.

Reported second quarter return on assets was 172% up from 1.6% in the first quarter.

In our reported second quarter efficiency ratio was 54, 4%, which was down from 67, 5% in the first quarter.

Compared to second quarter to the first quarter on a non-GAAP operating basis net adjusted operating earnings available to common shareholders in the second quarter was $82.4 million and earnings per common share.

$1.5.

Which was up approximately $17.6 million or 23 per common share from the first quarter non-GAAP pre tax pre provision adjusted earnings were <unk> $77 million.

Which compares to $68.6 million in the first quarter.

The non-GAAP adjusted operating return on tangible common equity was 21, 4% in the second quarter, which compares to a non-GAAP adjusted operating return on tangible common equity of 17, 6% in the first quarter.

Second quarter non-GAAP adjusted operating return on assets was 172%, which was up from 1.4% in the first quarter non-GAAP adjusted operating return on assets.

Second quarter non-GAAP pre tax pre provision adjusted earnings return on assets was 155%, which was up from 141% in the first quarter.

Non-GAAP operating efficiency improved to 51, 4% in the second quarter as compared to the <unk>.

Adjusted operating efficiency ratio of 55, 4% in the first quarter.

Now turning to credit loss reserves as of the end of the debt.

As of the end of the second quarter. The total allowance for credit losses was $128.3 million.

Which was comprised of the allowance per loan and lease losses of $118.3 million and a reserve for unfunded commitments of $10 million.

In the second quarter, the total allowance for credit losses declined by $27.5 million, primarily due to the lower expected losses than previously estimated as a result of economic improvements in our footprint benign credit quality metrics to date and an improved macroeconomic outlook over the force forecast period.

The total allowance for credit losses, as a percentage of total loans was <unk>, 94% at the end of June which was down from 1 point on 9% in the prior quarter excluding.

Excluding SBA guaranteed PPP loans, the total allowance for credit losses, as a percentage of adjusted loans decreased 22 basis points to 1% from the prior quarter the coverage ratio of the allowance for loan and lease losses to non accrual loans was 3.2 times.

At June 30, as compared to 3.4 times at March 31.

The $27.5 million declines in.

And the company's total loans for credit losses took into consideration the COVID-19 pandemic impact on credit losses flow through the 2 year reasonable and supportable macroeconomic forecast utilizing the company's quantity of CSO model and true management's qualitative adjustments beyond the 2 year reasonable and supportable forecast period, the Cecil quantitative model.

Estimates of expected credit losses, using a reversion to the mean from the company's historical loss rates on a straight line basis over 2 years.

An estimate of expected credit losses, when the loan within the loan portfolio at quarter end. The company utilized Moody's June baseline macroeconomic forecast for the 2 year reasonable and supportable forecast period.

Moody's June economic forecast improved since March and has now assumed debt on a national level GDP will increased 6.9% in 2021 and 5% in 2022 as compared to GDP increases of 5.7% in 2021 and 2022 in the March forecast.

Moody's forecast of Virginia, which covers the majority of our footprint had previously assumed that the unemployment rate in the state would average about 4% during the 2 year forecast period, but the June forecast now assumes a 2 year average of 3.2%.

In addition to the quantitative modeling the company also made qualitative adjustments for certain industries viewed as being highly impacted by COVID-19.

Additional economic scenarios were considered as part of the qualitative framework in order to capture the economic uncertainty on concerns related to the path of the virus vaccination distribution efforts and the potential for other unfavorable economic developments.

The negative provision for credit losses of $27.4 million in the second quarter was higher than the negative provision for credit losses of $13.6 million on the previous quarter and was a decline of $61.6 million from the $34.2 million provision for credit losses reported in the second quarter of 2020.

The significant decrease in the provision for credit losses as compared to the same quarter in 2020 was driven by the better than anticipated credit impacts since the pandemic began the significant recovery on the economy since last year as well as an improvement in the economic forecast utilized in estimating the allowance for credit losses as of June 30.

In the second quarter net charge offs were $70000 compared to $1.2 million or 3 basis points for the prior quarter and $3.3 million or 9 basis points for the second quarter of last year.

Now turning to pretax pre provision components of vehicles statement for the second quarter tax equivalent net interest income was $143.7 million, which was up $5.7 million from the first quarter, primarily driven by a $3.7 million increase in PPE.

Loans fee accretion in the second quarter, an increase of $176.8 million on average, earning assets and a higher calendar day count in the second quarter net.

Net accretion of purchase accounting adjustments added 9 basis points to the net interest margin in the second quarter, which was in line with the 9 basis point impact in the first quarter.

The second quarter's tax equivalent net interest margin was 3.3%, which was an increase of 7 basis points from the previous quarter. As a result of a stable, earning asset yield compared to the first quarter and a 7 basis point decline in the cost of funds.

The loan portfolio yield increased to 376% from $3.6 9% in the first quarter, primarily driven by the impact of higher levels of PPP loans fee accretion interest income, resulting from higher higher levels of PPP loans were given by the SBA in the second quarter.

Which was partially offset by core loan yield compression due to lower market interest rates.

The quarterly decrease in the cost of funds to 23 basis points from 30 basis points was primarily driven by a 5 basis point decline on the cost of deposits to 18 basis points in the second quarter.

Interest bearing deposit costs declined by 7 basis points from the first quarter to 25 basis points in the second quarter due to the continued aggressive repricing deposits and the maturity of high cost time deposits in the quarter.

Non interest income decreased $2.5 million to $28.5 million in the second quarter primarily.

Primarily driven by a $3.6 million decline in mortgage banking income driven by a 13% reduction in mortgage origination volumes.

Also a decline in loan interest rate swap income of $433000 due to lower transaction volumes in the quarter.

In addition, there was a decline in unrealized gains on equity method investments of approximately $1.1 million during the second quarter of 2021.

These quarterly declines were partially offset by increases in several.

Other noninterest income categories, including an increase in service charges on deposit accounts of $1.1 million higher debit card interchange fees of $356000 an increase from bank owned life insurance income of $944000, primarily due to life insurance proceeds received during the quarter and.

And an increase in fiduciary and asset management fees of $344000 due to quarterly growth in assets under management.

Noninterest expense decreased $19.9 million to $92 million growth.

Approximately $112 million in the prior quarter.

The decline in noninterest expense was primarily driven by the recognition of debt extinguishment cost of $14.7 million during the first quarter, resulting from the prepayment of $200 million in long term debt.

<unk> reductions in salaries and benefits of approximately $1.9 million due to decreases in seasonal payroll related taxes lower professional fee costs per.

Personal services cost per 552000, primarily due to legal fees and costs related to strategic projects recognized in the first quarter.

In addition, noninterest expenses decreased $1.3 million due to costs related to the company's closure of 5 branches.

February 2021 recognized during the first quarter.

Of this year.

Oreo and related credit expense has also declined from the first quarter of 2021 by approximately $795000, which was driven by gains on the sale of closed branches of $930000.

These net reductions were offset by an increase of $694000 of seasonally higher marketing and advertising expenses and an increase in technology and data processing expenses of $315000.

Non interest expense for the second quarter also included approximately $200000 in costs related to the company's response to the COVID-19 pandemic.

On approximately $250000 on expenses related to PPP loan forgiveness processes.

The effective tax rate for the second quarter increased to 83% from 16, 8% in the first quarter.

And for 2021, we now expect our full year effective tax rate to be in the 17% to 18% range.

Turning to the balance sheet period end total assets stood at $20 billion at June 30, which was an increase of $135 million from March 31, primarily due to an increase in cash on cash equivalents as well as net growth in the investment securities portfolio is excess liquidity was put to work in the second quarter par.

Partially offset by decreases in loans due to PPP loan forgiveness process during the quarter.

The period in period end loans held for investment were $13.7 billion.

Inclusive of $859 million on PPP loans, which was a decrease of $574 million or approximately 60% annualized from the prior quarter, driven primarily by $705 million on PPP loans that were forgiven during the second quarter.

Excluding the PPP loans loan balances on the first quarter increased $79 million or 2.5% annualized driven by increases in commercial loan balance of $93 million or 3.5% annualized.

And reductions in consumer loan balances of $14 million or 2.9% on an annualized basis. The overall decline in consumer loan balances during the quarter was driven by.

By continued runoff of non relationship third party consumer loan balances of approximately $20 million.

At the end of June total deposits stood at $16.7 billion, which is an increase of $361 million or approximately 9% annualized from the prior quarter driven by an increase of $560 million across all customer deposit categories, except high cost deposits time deposits, which had balance runoff of $167 million during the second.

Quarter.

At June 30, low cost transaction accounts now comprise 54% of total deposit balances, which is up from.

On 53% in the first quarter.

As previously mentioned the average total cost per progress declined by 5 basis points to 60 basis to 18 basis points, while interest bearing costs declined by 7 basis points to 25 basis points in the second quarter.

From a shareholder stewardship and capital management perspective, we remain committed to managing our capital resources prudently as the.

The deployment of capital for the enhancement of long term shareholder value remains 1 of our highest priorities from.

From a capital perspective, the company continues to be well positioned to manage through the uncertainties of the pandemic and its potential impact on the company's financial results at the end of the first quarter Atlantic Union, Bankshares, and Atlantic Union Bank capital ratios were well above regulatory well capitalized levels.

During the second quarter of 2021, the company paid a common stock dividend of <unk> 28 per share, which was an increase of 3 or 12% from the prior quarter, but also paid a quarterly dividend of 171.

<unk> 88 on each outstanding share of series a preferred stock.

The board of directors also authorized a $125.25 million share repurchase authorization to make and the company repurchased approximately 1.1 million shares for $42.3 million during the quarter. Additionally.

Additionally from quarter end through July 21, the company has repurchased on.

Another 900000 shares for $32 million.

Somebody is approximately now has approximately $50 million remaining on the board authorization.

In summary, Atlantic Union delivered solid financial results from the second quarter, while positioning yourself for stronger profitability and growth as the year progresses and as the pandemic impact on the economy subsides. Please note that while we continue to proactively manage the company through the end stages of the pandemic. We also remain focused on leveraging the Atlantic Union France.

It is to generate sustainable profitable growth and remain committed to building long term value for our shareholders and with that I'll turn it back over to bill to open it up for questions.

Rob.

We're ready for our first caller please.

Thank you and as a reminder, if you would like to ask a question. Please press star 1.

Our first question comes from the line of Brody Preston from Stephens, Inc. Your line is open good morning.

Brian everyone. Good morning, everybody how are you.

Well good.

Thank you good Hey, I just wanted to start on the buybacks.

Given the average price on the timing of the authorization I'm assuming the purchases.

Some point in June so with the stock below where you were previously buying should we expect you to be similarly aggressive here in the third quarter.

Yes that would be the case.

As the stock price has declined.

No.

Significantly since the first quarter.

The authorization was put in place.

We will be we will continue to be aggressive on that as I've mentioned.

We bought $1 billion.

On $1.1 million shares.

As of June 30.

And we bought another 900000 is from <unk>.

<unk> 2 yesterday, so we continue to be aggressive there.

Okay. Good thanks for that and then the core C&I strength that you saw I think it was about 8% annualized backing out PPP. John has some of that from the pipeline last quarter and then you mentioned that pipelines are still at record levels would you expect that.

Core C&I strength to kind of accelerate from what you saw this quarter in the third quarter.

We hope so Brody couple of things if you look at our total commitment production for Q2, 'twenty, 1 that actually exceeded all quarters of 2019, except for Q4, which is traditionally the strongest quarterly year by the way. The same is true for Q1. The reason why youre not seeing more on the balance sheet growth side is 2 fold 1.

As depressed line utilization and then 2 is the elevated paydowns that we've been fighting off and Thats really more of a commercial real estate issue, Dave <unk> head of wholesale banking or commercial banking was on day do you have any comments in terms of expectations. My view is at some point, we're going to get more traction on the yes.

The actual outstandings.

Yes, John.

Just to tag on to your comments are and Brody. Your question was about core C&I growth. So right now our pipeline is over weighted towards C&I. So about 44% of our pipeline is real estate and 50, 556% of our pipeline is C&I. So we do expect C&I to continue to grow.

<unk>.

Okay, great. Thanks for that and then I'll just ask 1 more and then hop back because I know you have a long line.

Just wanted to you gave good disclosures on the portfolio pricing mix on slide 13, just 15% of the portfolio that has floors, Rob what percentage of that is currently.

Currently.

At or below at floor levels or below.

Yes, so the 15% growth about 7% is below floors.

And to bring them up.

Looking at about a 50 to 75 basis point on average.

For rates to go up.

To go back above the floors, so about 7%.

Awesome. Thank you very much I appreciate you taking my questions. Thank you Brady segment's Jay we are ready for our next caller. Please.

Thank you next question comes from the line of few Jean Clayton from Barclays. Your line is open.

<unk> good morning.

Can you help us unpack the specific drivers behind the decline in mortgage revenue this quarter. It looks like the refi volume has come down significantly and I assume gain on sale margin has declined 2 how are you.

Are you thinking about the mortgage dynamics from the third quarter, what does your pipeline look like today.

Yes. It is.

You noted.

We're down from a high point in the first quarter in terms of gain on sale from mortgages and it was down in the second quarter.

As volumes declined primarily as a result of lower refi.

Origination volume that came through we're also seeing.

As rates went up we.

We've seen a lot of competition in the mortgage business. So also our gain on net gain on sale also came down a bit in the second quarter.

We think going forward here.

Depending on what the inventory of homes.

From a purchase perspective.

Comes back on line that's also.

<unk> had some effect on our originations.

We do expect debt mortgage will probably.

We would be down a bit in the next 2 quarters, although we think gain on sale will probably stabilize at the levels. We saw on the second quarter I would expect that.

So youll see some some further decline in the mortgage revenue line in the third and fourth quarters, I will say that the drop in treasury yields hubs.

These lower mortgage rates, which potentially will.

Drive some pickup in refinance activity believe it on authors total refinance opportunity.

Rob is right on the big issues in our market and scarcity of homes for sale.

That plus the number of cash offers that are being made but nevertheless, lower rates help and we'll work our way through it.

Thank you that was actually very helpful.

I can get another question and I wanted to zero in on your expense trajectory. It looks like the core expenses came in closer to $93 million this quarter when adjusting out the gain on sale of branches and that also includes the half million dollar decline in professional growth and was effectively offset by higher market right. How do we think about the express.

Going forward and is there a chance debt when the roughly $5 million.

Good on CVP caused decline that will result in lower lower overall expenses or will that just be reinvested back as you continue to build out the bank.

Yes.

And in terms of the expense as yet.

<unk> number was call it $92 million, which is pretty much in line with what we had.

Projected for the quarter there were some positives in there as you mentioned.

From gain on sales.

$92 million didn't include what we said we were kind of carving out the COVID-19 related expenses and then any forgiveness related expenses. So.

<unk>.

Those will subside, although I don't think they will over the next 2 quarters as we.

Get back.

Get back to the office is going to be expenses incurred related to that we will consider those kind of a COVID-19 back to work the expenses and we have about.

As we mentioned about $850 million or so of <unk>.

<unk> P loans that still around the balance sheet debt will continue to work to be forgiven and will continue to incur those expenses, but if you take those out.

We are hovering around that $92 million level give or take.

<unk>.

It can be a little lumpy with we've got a number of projects going on as we mentioned early in the first in the first quarter in terms of.

Having some external third parties, helping us out on projects that should help us as we go forward from a efficiency productivity perspective, so it can be a little bit lumpiness around that $92 million were also seeing as you probably heard from other banks.

We're starting to see some pressure on the wage pressure, we've got to look at debt as well which could.

On impact on expenses going forward, although I don't think thats going to be a big big number 2 on over here and to <unk> point, there are always some pluses and minuses.

That will likely continue but we keep targeting 92.

Yes, sure also mentioned of course.

Centres as a variable cost so.

We continue to.

Accrue to our targeted levels of incentives.

Past 2 quarters.

We'll see where we go based on what was projections look like and that's a lever we can pull as well if that is correct that levers available if needed.

Okay.

I appreciate you taking my questions. Thank you Judy and Jay we are ready for our next caller. Please.

Next question comes from the line of cash the written from.

From Piper Sandler Your line is open Hi, Casey.

Good morning.

Hey.

Just bigger picture question for you John nearly seen M&A pick up that new markets can you just give us an update to how you're viewing M&A opportunities across your footprint and just how you're weighing that against the organic growth opportunities.

Sure Casey nothing has really changed from the commentary last quarter in terms of our overall view.

First of all we are principally focused on organic performance and whenever you hear us talk about our projects and we call them out for a reason and we just want to demonstrate the projects that are underway. There are strategically important activities going on in this company. They have a very busy and so as we think about M&A, we have to balance.

<unk>.

The implications of taking something on vs things, we need to do any way we could always we've organically I think driven excellent results and proven we can start new businesses, most notably equipment finance.

Standing government contractor finance, we feel good about our pipeline, we can always buy back shares and those are all pretty safe propositions for us and so we think about that compared to the M&A options that are out there were less likely to look at what I'll call small M&A, because even though it could be smaller.

It would have on opportunity cost.

And we have been watching with great interest and fascination. These these competitive bids that have gone on in our markets, none of which we have participated and by the way.

While I will never say never it is not our style to engage in bid wars.

For banks.

Our style is to build relationships and partner with people who have a similar vision for the future.

And who take the long view not simply sell to the highest bidder because there are downsides and you can see cost takeout and all the consequences of that so again nothing is impossible that doesn't mean, we will never ever that you just don't see anything haven't seen anything yet that would be so important to us that would cause us to feel the need to do it.

And then we also think we'd rather keep powder dry take the long view think about something that could potentially be more impactful create more value create more scarcity value shareholder value and scarcity value. So fundamentally we're patient we're not feeling pressured we're not feeling pushed we have lots of friends.

We have a lots of conversations many of these conversations go on for years at a time. This fall all have been here 5 years. So I have some 5 year old trends too. So we may or may not do something we will see you can ask again next quarter.

Will do thank you for the call that's announced yet Kevin.

Thanks.

Okay, we're ready for our next caller please.

Thank you next question comes from the line of Laurie Hunsicker from Compass point. Your line is open.

Laurie.

Hi, Thanks, good morning.

I was hoping we could go back to expenses.

And sitting netting back debt and then the RVO line item expenses of 900 to 9000 dollar credit is that correct.

And again see that broken out on the income statement I'm just taking your day adjustment, yes, yes, that's right.

Lawyers about 900000 of positive impact on the real line there.

And you would know which isn't all fits.

It's in other.

It's all in order for a product right.

And then normally you guys do you have <unk> and so I guess I'm looking at that and adjusting that I'm over I'm over 93 million per the quarter can you sorry can you just.

Share with US I know I know, Rob you mentioned, probably $92 million run rate.

Any sort of other branch rationalization that you're thinking about.

Again also dovetailing off the fact that market's banking is going to be very very challenged hanger, how youre thinking about what are your variable costs can you pull anything out of there just maybe as we look even beyond 'twenty..1 if we're if we're looking into 'twenty 2 how we should be thinking about expenses.

Thanks.

Yeah, I'll, let John pick leave at the branch rationalization question on the comment beyond that share. We continue to look at we look at branches formally on an annual basis, but is it perhaps will matter, we're always thinking about it something we've recently done here in Richmond as we went 2 for 1 and so the old way of thinking about this was closed.

Branch, a and consolidate into branch be something we've done recently, we're looking to replicate his close branch and branch fee.

Per build branch seek better located smaller exactly the way, we designed exactly where we want it in a better location. That's a metropolitan market strategy, obviously, and we're looking for more opportunities and we have we have a couple of ideas around that.

We also have an opportunity.

The debt, we will likely on.

<unk> take that.

We do have 1 branch that will likely be sold and repositioned and I don't want to talk too much about that but that is 1 of the ways that we think about that long and we're on.

We're always looking at the change in consumer behavior Maria Tedesco is here our bank Presidents do you have anything to add to that Murray I would just add debt we have a much richer data to understand our customers' behavior their bank.

<unk> pattern.

And.

I don't that doesn't just mean consumer we also talk about business and commercial on how they're leveraging the branches and.

GAAP plays into this whole modeling that we're doing on branches I would also say we've recently opened 2 new locations.

You alluded to in the consolidation but.

That was based off of where we saw the market good market opportunity and customer demand for our.

Branch space, yet so I don't envision we're going to have another round of a big Bang on branch consolidations that will be announced as an event anytime soon but we will continue to pare it down and I think back to your underlying question like every quarter, there's always some degree of put and take.

And if we have a we call on blue birds, if we have.

Again, we're looking at is there anything else, we need to do but we keep our eye on the target of $92 million. We always have incentive compensation was a variable cost that we can draw down if we need to we'd rather not but we'll do it if we have to.

And everything is a trade off we're constantly managing tradeoffs.

Yes, I would also add on.

We're making investments in some productivity plays efficiency plays.

Robotics process automation continues to be worked on and these are things that you won't necessarily see a decline.

In the expense base, but you should see.

<unk>.

Lower level of expense increases as we go forward. So we don't have to add excellent team that's operating leverage.

So.

So that's where we're really working towards glory is China.

Produce positive operating leverage where expenses arent growing nearly as fast as the revenue growth.

Okay perfect. That's helpful. And then just last question Rob on margin I'm, hoping you can just give us a little bit of help understanding its going forward.

Point number 1 if you can remind me how much is left on the on amortized.

Unamortized fees on your $859 million.

PPP loans, and then any thoughts about piece of loan forgiveness, and then I guess sort of dovetailing on to that because you had certainly outside PPP fees that time, and then outsized accretion just looking on your accretion cable at $4 million this quarter book.

On page <unk> $10 million and happy with how we should be thinking.

Net interest income and net interest margin any any guidance you can get that would be really helpful.

Yes, thanks, Laura so in terms of the PPP deferred fees.

About $25 million left on that 850 or so people.

P loans left on the balance sheet.

Anticipated.

On the bulk of those fees will be.

<unk> treated through income.

Over the balance of this year, probably some into the first quarter.

We're working on and these are group.

<unk> related with 600, 550 or $600 million related to PPP too, which is really just getting underway from a forgiveness perspective.

But based on PPP 1 per given this we think it will accelerate over the next call. It 2 to 3 quarters, which will.

<unk>.

Net interest income on a dollar basis.

In terms of going forward in the margin.

Probably noted.

If you look at on reported margins.

But if you take out the PPP impact and the <unk>.

<unk> income impact, which was about 90 basis points.

Our core margin came down a bit we have been guiding to plus or -305.

That has come down a bit couple 2.3 basis points this quarter and we are anticipating that we could see.

So.

Near term further compression in that range.

That's all because of the excess liquidity, we continue to see and we're trying to put debt to work as best we can.

You would have noted that we've increased our investment portfolio considerably over the last 6 to 9 months up about $1 billion.

Actually from about 15% of earning assets to closer to 20% we feel like that.

Okay.

Its margin.

<unk>.

The negative to the margin, but it's a positive to net interest income. So it's a dollar margin question that we will continue to evaluate tso.

Our view is that we want to put that money to work on outlet at CIT in 5 to 10 basis points cash position. So.

That said I think you'll see on a core basis net interest income going up on you may see some.

Pressure on the core margin itself.

Perfect. Thank you very helpful.

Thanks, Lori and Greg we're ready for our next caller. Please.

<unk> next question comes from the line of Kathryn Miller from <unk>. Your line is open good morning Catherine.

Good morning. This is all my questions were answered, but just wanted to have 1 quick follow up on the expense.

Conversation.

Great.

You typically talk about the $92 million as your target for that typically excluded.

Intangible amortization is that still how we're thinking about it so its kind of 92 on it.

Core ex amortization from more like 95%. If we include that $3 million.

Yes.

Yes Catherine.

Can you talk book this quarter, but the 92 is inclusive of the amortization so get back that out its like $3.5 million to $4 million, you'll be closer to the 88 million net.

Non amortization expense, but we do include that in our guidance to the 92 again.

Give or take around that level.

Let's say on your guidance.

<unk> trying to Scott of trying to keep it around 90 care.

It backs out.

No.

Amortization.

So the 92, we reported this quarter includes about $4 million amortization.

So that 92 million target is inclusive of the amortization otherwise it's 88, yes.

Got it okay, but last quarter, you had guided to a $92 million.

And on there.

Yes, we did understand included including the amortization of intangible yes, right yes.

Good day.

Yes last quarter, we were around 95% or so after taking out some of the noise 96.

And that included amortization.

We're dialing that.

Back to 92 inclusive of amortization.

Great. Okay, perfect, Yes, I just want to make sure that we are on this.

That's perfect got it Okay, and then on the reserve.

And we're seeing really the negative provisions the past couple of quarters.

I'm, assuming that that kind of moderate as we move forward just given where the reserve.

Ratio and then any thoughts on on kind of provisioning levels in the back half of the year.

Yes, as you noted third quarter on a road that we've released reserves just wondering on.

The largest of about $28 million.

And it's all about.

Quantitative seasonal modeling.

And the outlook and the pristine credit metrics that we're seeing and as John mentioned basically zero charge offs. This quarter past dues down we're not seeing any.

Migration negative migrations in the loan book in terms of loans our ratings.

Actually we're seeing them.

Improve.

So all of that suggests that unless we see some sort of worsening situation on the economic front.

We will continue to see.

Releases as we go forward here.

Where that bottoms out there is the question Ben.

<unk> been suggesting that if you go back to our seasonal day, 1 it was about 75 basis points of the loan portfolio.

Our balance portfolio.

We think thats, probably a pretty good guide to be again, all things being positive going forward here that we'll get there over a period of time and maybe depending on what our mix of loans on our exit could be a bit lower than that.

But our bias is you can expect to see continue.

Leases unless something material changes and now we're conservative by nature, we apply qualitative overlays uncertainty to the extent that we can justify it which is our bias.

But at the end of the day, you can't make it up we can't simply say, we choose not to release.

We sometimes hear our counterparts make comments that sounded iron ear like we choose not to release date.

They don't appear to have the same accounts, we do you can't do that so there is a point, where it's principally driven by quantitative metrics. They are what they are we yes, we apply qualitative overlay and we'd be as conservative. So we can justify but you can't make it up and so that's a good point, Jon I should mentioned debt.

Hopefully the allowance this quarter, we've done over the last several quarters is up 35% of the.

The allowance dollars is about is related to qualitative overlays that management is putting on growth.

So rest assure we dial that needle up as high as we can justify and then we stop.

Great.

Very helpful. Thank you.

Thank you.

And thanks, everyone for joining us today, we look forward to speaking with you over the next quarter and in 3 more months with our next results. Thank you and have a good day.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect have a great day.