Q4 2021 Atlantic Union Bankshares Corp Earnings Call

Speaker 2: Good day and thank you for standing by. Welcome to the Atlantic Union Bankshare's fourth quarter and full year 2021 earnings conference call.

Good day and thank you for standing by welcome to the Atlantic Union Bankshares fourth quarter and full year 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone please be advised today's conference is being.

Speaker 2: 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 this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Bill Cimino, Investor Relations. Please go ahead. Thank you, Michelle.

Recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today Joseph <unk> Investor Relations. Please go ahead.

Thank you Michelle and good morning, everyone.

Speaker 1: I have Atlantic Union Bank's President and CEO , John Asbury, and Executive Vice President and CFO , Rob Gorman, with me today. We also have other members of our executive management team with us for the question and answer period.

I have Atlantic Union, Bankshares, President and CEO , John Asbury, and executive Vice President and CFO , Rob Gorman with me today. We also have other members of our executive management team with us for the question and answer period.

Speaker 1: Please note that today's earnings release and the coupling spot presentation we are going through on this webcast are available to download on our investor website, investors.atlanticunionbank.com.

Please note that today's earnings release and the 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.

Speaker 1: During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the earnings release for the fourth quarter in fiscal year 2021, which is also available on the investor website.

During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures.

More information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures is included in the earnings release for the fourth quarter and fiscal year 2021, which is also available on the investor website.

Speaker 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.

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.

Speaker 1: There can be no assurance that actual performance will not differ materially from any future results expressed or implied by these forward-looking statements.

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

Speaker 1: We undertake no obligation to publicly revise or update any forward-looking statement. Please refer to our earnings release for the fourth quarter in Fiscal Year 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 statement.

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

Please refer to our earnings release for the fourth quarter and fiscal year 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.

Speaker 1: All comments made during today's call are subject to that Safe Harbor Statement. At the end of the call, we will take questions from the research analyst community. And now, I'll turn the call over to John Asbury.

At the end of the call we will take research questions from the research analyst community and now I'll turn the call over to John Asbury.

Thank you Bill good morning, and thanks to all for joining US today I'll begin with some high level thoughts on our performance environment. Some changes we have made and how we're thinking about our growth strategies.

Speaker 1: Thank you, Bill. Good morning, and thanks to all for joining us today. I'll begin with some high-level thoughts on our performance environment, some changes we have made, and how we're thinking about our growth strategy.

Speaker 1: Looking back at 2021, it was a challenging but successful year for Atlantic Union bank shares. While there were ups and downs with the continuing pandemic, Atlantic Union had a strong finish to 2021 and we're optimistic as we enter 2022.

Looking back at 2021 was a challenging but successful year for Atlantic Union Bankshares, while there were ups and downs with the continuing pandemic Atlantic Union had a strong finish to 2021 and we're optimistic as we enter 2022.

Our operating philosophy of soundness profitability and growth served us well this year as we continue to navigate the ongoing challenges of operating in a pandemic. While we're mindful of the current omicron surge, we don't see a derailing the fundamental positive trends of a growing economy declining unemployment and the most benign credit environment I've witnessed in my 34 year career.

Speaker 1: Our operating philosophy of soundness, profitability, and growth served us well this year as we continued to navigate the ongoing challenges of operating in a pandemic. While we're mindful of the current Omicron surge, we don't see it derailing the fundamental positive trends of a growing economy, declining unemployment, and the most benign credit environment I've witnessed in my 34-year career.

Speaker 1: Further, that the Federal Reserve has signaled multiple short-term rate hikes in 2022 is good for us, as we remain fairly asset-sensitive heading into what appears to be the beginning of a rising rate cycle.

Further that the federal reserve has signaled multiple short term rate hikes. In 2022 is good for us as we remained fairly asset sensitive heading into what appears to be the beginning of a rising rate cycle.

Speaker 1: There are still headwinds as supply chain disruptions continue, they also appear to be on an improving trend, and business clients are still challenged to fill open positions. We think all of this will improve as the year goes on.

There are still headwinds as supply chain disruptions continued.

<unk> appear to be on an improving trend and business clients are still challenged to fill open positions. We think all of this will improve as the year goes on on.

Speaker 1: On the revenue front, last quarter I mentioned we believe we had a coiling spring for loan growth and that we expected solid growth in the fourth quarter.

On the revenue front last quarter I mentioned, we believe we had a quilling spring for loan growth and that we expected solid growth in the fourth quarter.

Speaker 1: I think we can say we finished better than solid with 11.7% annualized loan growth during the quarter exclusive of PPP. This is the best we've seen since the pandemic.

I think we can say, we finished better than solid with 11, 7% annualized loan growth during the quarter exclusive of PPP. This is the best we've seen since the pandemic started when growth was so strong we returned point to point low single digit growth for the full year exclusive of PPP.

Speaker 1: When growth was so strong, we returned point-to-point, low single-digit growth for the full year, exclusive of PPP.

While we'd rather see consistent growth each quarter. We are pleased to see evidence that some of the factors meeting loan growth earlier in the year now appear to be fading.

Speaker 1: While we'd rather see consistent growth each quarter, we are pleased to see evidence that some of the factors meeting loan growth earlier in the year now appear to be fading.

Fourth quarter loan production was the best since the pandemic started and this was true for our two major segments of commercial lending and commercial real estate lending.

Speaker 1: Fourth quarter loan production was the best since the pandemic started. And this was true for our two major segments of commercial lending and commercial real estate lending.

Speaker 1: A strong production more than offset an even higher level of runoff and paydowns than we saw during the third quarter.

Our strong production more than offset an even higher level of one off and pay downs than we saw during the third quarter.

Speaker 1: Construction lending balances declined slightly at quarter end as projects completed and were recoded to commercial mortgage categories. New construction loan originations remain strong, and based on our unfunded construction loan commitments and funding schedules, this should be a tailwind for balances this year.

Construction lending balances declined slightly at quarter end as projects completed and where we coded to commercial mortgage categories, New construction loan originations remain strong and based on our unfunded construction loan commitments and funding schedules. This should be a tailwind for balances this year.

We were also encouraged to see C&I line utilization tick up in each month of the quarter ending the period at 28%, which is still well below our pre pandemic levels. It's good to see this inflect and we do have a lot of upside here of sales and working capital needs increase among our client base.

Speaker 1: We were also encouraged to see C&I line utilization tick up in each month of the quarter, ending the period at 28%, which is still well below our pre-pandemic levels. It's good to see this inflect, and we do have a lot of upside here as sales and working capital needs increase among our client base.

As we entered the new year, our pipelines are solid and they are significantly higher than they were coming into 2021. We are encouraged by our competitive positioning the market dynamics and economic strength across our footprint all of that plus our expanded lending capabilities lead us to expect upper single digit loan growth for 2022.

Speaker 1: As we enter the new year, our pipelines are solid and they're significantly higher than they were coming into 2021. We are encouraged by our competitive positioning, the market dynamics and economic strength across our footprint. All of that, plus our expanded lending capabilities, lead us to expect upper single-digit loan growth for 2022. While some quarters may be better than others, January has started off strong and we feel upper single-digit loan growth is achievable for the full year.

Some quarters may be better than others January has started off strong and we feel upper single digit loan growth is achievable for the full year. Additionally.

Speaker 1: Additionally, we believe we have a long runway ahead to grow both organically and through take away from our larger competitors that dominate market share in our home state of Virginia, supplemented by our operations in Maryland, North Carolina, and our specialized living capabilities in government contract finance and equipment finance.

Additionally, we believe we have a long runway ahead to grow both organically and through takeaway from our larger competitors that dominate market share 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 Finance, we are focused on and believe we are benefiting from the disruption occurring.

Speaker 1: We are focused on and believe we're benefiting from the disruption occurring at two of our largest competitors.

Two of our largest competitors.

Speaker 1: Our asset quality continued to impress, and once again, the credit headline for the quarter was the absence of credit problems.

Asset quality continued to impress and once again the credit headline for the quarter was the absence of credit problems net charge offs for the quarter came in at $511000 or two basis points annualized that's a negligible increase run effectively zero base in Q3, and Q2 of 'twenty one.

Speaker 1: Net charge-offs for the quarter came in at $511,000, or two basis points annualized. That's a negligible increase for an effectively zero base in Q3 and Q2 of 21. Full year 2021 net charge-offs were

Full year 2021, net charge offs were one basis point a level I would have previously thought unimaginable at some point credit losses will have to normalize but given all the liquidity that remains in the system continued declining unemployment and the strengthening economy, we see no sign of a systemic inflection point and all of that continues to feel very different to us.

Speaker 1: a level I would have previously thought unimaginable. At some point, credit losses will have to normalize, but given all the liquidity that remains in the system, continued declining unemployment and a strengthening economy, we see no sign of a systemic inflection point and all of that continues to feel very distant to us.

And to that point, the economic outlook remains positive and we're optimistic here in our home state of Virginia November unemployment came in at three 4% down from three 8% in September and that was better than the national average of four 2% from the same time period, we're still waiting on December unemployment numbers for Virginia.

Speaker 1: And to that point, the economic outlook remains positive and we're optimistic. Here in our home state of Virginia, November unemployment came in at 3.4%, down from 3.8% in September and that was better than the national average of 4.2% from the same time period. We're still waiting on December unemployment numbers for Virginia.

Speaker 1: While that's all good news, the employment challenge in our markets continue to be the ability of businesses to fill their open jobs and this will likely not resolve itself until we see more people return to the workplace.

While thats all good news the employment challenge in our markets continue to be the ability of businesses to fill their open jobs and this will likely not resolve itself until we see more people return to the workplace.

Speaker 1: Rob will talk through the provision for credit losses in our CECL modeling, but by all indications and metrics, credit appears to have never been better.

Rob will talk through the provision for credit losses in our seasonal modeling, but by all indications and metrics credit appears to have been better.

Speaker 1: Turning to expenses, it was a noisy fourth quarter for one-time charges as we took further action to align our expense structure to the operating environment, something we signaled was coming in our last earnings call comments.

Turning to expenses it was a noisy fourth quarter for one time charges as we took further action to align our expense structure to the operating environment something we signaled was coming in our last earnings call comments.

Speaker 1: In early December , we announced we were closing 16 branches in the first quarter of this year, which is 12% of the current branch network. We've been among the more aggressive branch consolidators in the industry. And with this action since the start of the pandemic, we will have reduced our retail branch network by approximately 25% or 35 branches.

In early December we announced we were closing 16 branches in the first quarter of this year, which is 12% of the current branch network. We've been among the more aggressive branch consolidators in the industry and with this action since the start of the pandemic, we will have reduced our retail branch network by approximately 25% or 35 branches. This reflects that.

Speaker 1: This reflects our recognition of changing consumer behaviors, never better analytics on customer usage of the branch network and alternative delivery channels, and our need to continue to invest in our digital products and respond to wage inflation pressure.

A recognition of changing consumer behaviors never better analytics on customer usage of the branch network and alternative delivery channels and our need to continue to invest in our digital products and respond to wage inflation pressure.

We saw also announced a rationalization of our office space with the pending closure of a roofer, Glenn Virginia operations site, which is north of Richmond, Yes, we consolidate all Richmond area corporate office personnel into existing facilities on the west end of town. This is made feasible by our shift to a hybrid work schedule for most corporate office roles and full time <unk>.

Speaker 1: We also announced a rationalization of our office space with the pending closure of our Rutherglen, Virginia operations site, which is north of Richmond, as we consolidate all Richmond area corporate office personnel into existing facilities on the west end of town. This is made feasible by our shift to a hybrid work schedule for most corporate office roles and full-time remote work for select positions, such as our call center. As a result, we simply don't need as much office space as before.

Worked for select positions such as our call Center as a result, we simply don't need as much office space as before regarding.

Speaker 1: Regarding expenses, Rob will take you deeper into the details in his comments, but we continue to expect that we will hold non-interest expense growth to no more than 2% in 2022.

Regarding expenses, Rob will take you deeper into the details in his comments, but we continue to expect that we will hold noninterest expense growth to no more than 2% in 2022.

Speaker 1: Expense management actions, combined with our asset sensitivity, and that we believe we are on a solid growth footing, all give us confidence in our ability to maintain differentiated financial performance and meet our top-tier financial targets for 2022.

Our expense management actions combined with our asset sensitivity and that we believe we are on a solid growth footing, all give us confidence in our ability to maintain differentiated financial performance and meet our top tier financial targets for 2022.

In terms of how we run the bank, we recently announced that Bank President Maria Tedesco has also been named Chief operating Officer, and we've added key support units to her responsibilities. In addition to all revenue generation activities that she currently leads.

Speaker 1: In terms of how we run the bank, we recently announced that Bank President Maria Tedesco has also been named Chief Operating Officer and we've added key support units to her responsibilities in addition to all revenue generation activities that she currently leads.

Speaker 1: This moves the center of gravity of the organization even closer to the customer and better organizes the bank around customer needs and experience, improves internal accountabilities and coordination and better positions us to respond to our changing environment in an agile manner. This also enables me to focus even more on the bigger picture and long-term strategies including the potential disruption from financial technology and the digital asset ecosystem. I'll speak more to that momentarily.

This moves the center of gravity of the organization, even closer to the customer and better organized as the bank around customer needs and experience improves internal accountabilities and coordination and better positions us to respond to our changing environment in an agile manner.

<unk> also enables me to focus even more on the bigger picture and long term strategies, including the potential disruption from financial technology, and additional asset ecosystem I'll speak more to that momentarily.

Speaker 1: As we think about the future of our company and our industry, we want to more rapidly diversify our income streams both in terms of net interest income and all important non-interest income. To be clear, we will protect, invest in and grow our core franchise as we look for new value-added ways to serve our clients to generate both forms of revenue. Examples of core franchise growth initiatives include the build out of our foreign exchange solutions, loan civications and ongoing enhancement of treasury management services in addition to specialty finance operations.

As we think about the future of our company and our industry, we want to more rapidly diversify our income streams. Both in terms of net interest income and all important noninterest income to be clear, we will protect invest in and grow our core franchises. We look for new value added ways to serve our clients to generate both forms of revenue.

Examples of core franchise growth initiatives include the build out of our foreign exchange solutions loan syndications and ongoing enhancement of Treasury management services. In addition to specialty finance operations.

Speaker 1: While we won't say more about that as our plans develop, I'll call out that we want to expand our asset-based lending unit, scale our SBA 7A program, and enhance our existing not-for-profit and public finance capabilities.

While we will say more about that as our plans develop I'll call out that we want to expand our asset base lending unit scale, our SBA 700 program and enhance our existing not for profit and public finance capabilities and.

Beyond our core banking operations, you'll also see us become more active in the digital asset ecosystem, we began investing in fintech funds a few years ago, we're adding to our position this year and we're using those to build relationships with potential Fintech partners gain insights and find new opportunities. This has informed our digital offerings and enabled us to vet and.

Speaker 1: and beyond our core banking operations, youíll also see us become more active in the digital asset ecosystem. We began investing in FinTech funds a few years ago.

Speaker 1: We're adding to our position this year, and we're using those to build relationships with potential fintech partners, gain insights, and find new opportunities. This has informed our digital offerings and enabled us to vet and identify opportunities to enhance them.

<unk> opportunities to enhance them.

Speaker 1: Moving forward we're also interested in positioning for new and emergent opportunities such as in blockchain which we think could prove disruptive to existing payment systems and back-end processes.

Moving forward, we're also interested in positioning for new and emerging opportunities such as in blockchain, which we think could prove disruptive to existing payment systems and back end processes as we prepare the company for the future. We will dedicate more time to this than ever before to summarize our growth strategies at the highest level. They are in order of priority.

Speaker 1: As we prepare the company for the future, weíll dedicate more time to this than ever before. To summarize our growth strategies at the highest level, they are in order of priority 1. Driving the organic growth and performance of our core banking franchise, 2. Leveraging financial technology and FinTech partnerships to generate new sources of income and new capabilities, and 3. Selectively considering M&A as a supplemental tertiary strategy.

One driving the organic growth and performance of our core banking franchise to leveraging financial technology, and Fintech partnerships to generate new sources of income and new capabilities and three selectively considering M&A as a supplemental tertiary strategy. This is an option we will preserve and may use under the right.

Speaker 1: This is an option we will preserve and may use under the right circumstances.

Stances.

Speaker 1: As I've said before, we've come out on the other side of the pandemic as a stronger and more capable organization. We've learned to work differently and our customers have learned to bank differently.

As I've said before we've come out on the other side of the pandemic as a stronger and more capable organization, we've learned to work differently and our customers have learned to bank differently.

Speaker 1: Weíve seen usage of our digital channels increase substantially. For example, in the fourth quarter, we continue to see a shift in the origination channels for checking and savings accounts. While weíre not permitted to share our benchmarking data, we believe we are outperforming for banks our size in this area and we expect to further drive up these numbers as we continue to refine our digital offerings.

Seeing usage of our digital channels increased substantially for example in the fourth quarter. We continued to see a shift in the origination channels for checking and savings accounts, while we're not permitted to share our benchmarking data we.

Believe we are outperforming for banks our size in this area and we expect to further drive up these numbers as we continue to refine our digital offerings mobile check deposit utilization accounts for 20% of our deposit transactions and while I think we've done a very good job with our digital usage as compared to what we see at much larger banks. It seems very clear we have a lot of up.

Speaker 1: Mobile Check Deposit Utilization accounts for 20% of our deposit transactions and while I think we've done a very good job with our digital usage as compared to what we see at much larger banks, it seems very clear we have a lot of upside potential here.

<unk> potential here.

Speaker 1: We also continue to work on new projects and improve the omni-channel customer experience with quarterly releases and upgrades to our product offerings. We'll continue to align our resources with these opportunities and respond to evolving customer behavior, which we are watching very carefully.

We also continue to work on new projects and improve the omnichannel customer experience with quarterly releases and upgrades to our product offerings will continue to align our resources with these opportunities and respond to evolving customer behavior, which we are watching very carefully.

Speaker 1: Looking ahead, our goal remains to achieve and maintain top-tier financial performance regardless of the operating environment. We continue to work on ways to make the company more efficient and scalable while improving and automating processes and the customer experience.

Looking ahead, our goal remains to achieve and maintain top tier financial performance, regardless of the operating environment. We continue to work on ways to make the company more efficient and scalable, while improving and automating processes and the customer experience, we should see operating leverage improvements as a result.

Speaker 1: we should see operating leverage improvements as a result.

Speaker 1: As we close out 2021 and begin the new year, I remain confident in what the future holds for us and the potential we have to deliver long-term, sustainable performance for our customers, communities, teammates, and shareholders, and our end, of course, with my usual reminder that Atlantic Union Bank Shares remains a uniquely valuable franchise. It's dense and it's compact in great markets with a story unlike any other in our region. We're scalable with the right capabilities, the right markets, and the right team to deliver high performance even in the most trying of times.

As we close out 2021 and begin the new year I remain confident in what the future holds for us and the potential we have to deliver long term sustainable performance for our customers communities teammates and shareholders and I'll and of course with my usual reminder, that Atlantic Union Bankshares remains a uniquely valuable franchise, it's dense and it's compact in great.

Markets with a story unlike any other in our region, where scalable with the right capabilities, the right markets and the right team to deliver high performance even in the most trying of times.

Speaker 1: Iíll now turn the call over to Chief Financial Officer Rob Gorman to cover the financial results for the quarter.

I'll now turn the call over to Chief Financial Officer, Rob Gorman to cover the financial results for the quarter.

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

Speaker 1: Now let's turn to the company's financial results for the fourth quarter.

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

Speaker 1: Please note that for the most part, my commentary will focus on Atlantic Union's fourth quarter results on a non-GAAP adjusted operating basis, which excludes the financial impacts of the strategic actions taken in the fourth quarter.

Please note that for the most part my commentary will focus on Atlantic Union's fourth quarter results on a non-GAAP adjusted operating basis, which excludes the financial impacts of the strategic actions taken in the fourth quarter.

Speaker 1: Specifically, Adjusted Operating Earnings excludes pre-tax restructuring costs of $16.5 million or $13.1 million in after-tax expenses.

Specifically adjusted operating earnings excludes pre tax restructuring costs of $65 million.

$413 $1 billion in after tax expenses related to the decision to close the company's operation center to reduce excess office capacity and so closed 16 branches or approximately 12% of the branch network both of which will be completed in the first quarter of 2022.

Speaker 1: related to the decisions to close the company's operations center, to reduce excess office capacity, and to close 16 branches, or approximately 12% of the branch network, both of which will be completed in the first quarter of 2022.

Speaker 1: As a result, the company expects to lower its annual expense run rate by approximately $8 million beginning in the second quarter.

As a result, the company expects to lower its annual expense run rate by approximately $8 million beginning in the second quarter.

Adjusted operating earnings for the fourth quarter also excludes the pretax gain of $5 $1 million were $4 $1 million on an after tax basis related to the sale of visa class B common stock in December .

Speaker 1: Adjusted operating earnings for the fourth quarter also excludes the pre-tax gain of $5.1 million or $4.1 million on an after-tax basis related to the sale of Visa, Inc. Class B common stock in December .

Speaker 1: For clarity, I will specify which financial metrics are on a reported versus non-GAAP adjusted operating basis.

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

In the fourth quarter reported net income available to common shareholders was $44 8 million and earnings per common share were <unk> 59.

Speaker 1: In the fourth quarter, reported net income available to common shareholders was $44.8 million. Earnings per common share were $0.59, down approximately $26.8 million or $0.35 per common share from the third quarter.

Down approximately $26 8 million or.

With <unk> 35 per common share from the third quarter.

Speaker 1: The reported return on equity for the fourth quarter was 6.98%.

The reported return on equity for the fourth quarter was $6 98%.

Speaker 1: The reported non-GAAP return on Tangible Common Equity was 11.98%.

The reported non-GAAP return on tangible common equity was 11, 98%.

Speaker 1: The reported return on assets was 94 basis points and the reported efficiency ratio was 68.6% for the quarter.

Reported return on assets was 94 basis points and the reported efficiency ratio was 68, 6% for the quarter.

Speaker 1: Non-GAAP-adjusted operating earnings available to common shareholders in the fourth quarter were $53.8 million, and adjusted operating earnings per common share were $0.71, which is down approximately $17.8 million or $0.23 per common share from the third quarter.

non-GAAP adjusted operating earnings available to common shareholders in the fourth quarter were $53 8 million.

And adjusted operating earnings per common share was <unk> 71.

Which is down approximately $17 8 million or 23 per common share from the third quarter.

Speaker 1: The non-GAAP-adjusted operating return on tangible common equity was 14.25% in the fourth quarter. The non-GAAP-adjusted operating return on assets was 1.11%.

The non-GAAP adjusted operating return on tangible common equity was $14 two 5% in the fourth quarter the.

The non-GAAP adjusted return on operating return on assets was $1 one 1%.

And the non-GAAP adjusted operating efficiency ratio came in at 58% in the fourth quarter.

Speaker 1: And the non-gap adjusted operating efficiency ratio came in at 58% in the fourth quarter.

Speaker 1: Turning to credit loss reserves as of the end of the fourth quarter, the total allowance for credit losses was $107.8 million, which was comprised of the allowance for loan and lease losses of approximately $100 million and the reserve for unfunded commitments of $8 million.

Turning to credit loss reserves as of the end of the fourth quarter. The total allowance for credit losses was $107 $8 million, which was comprised of the allowance for loan and lease losses of approximately $100 million and the reserve for unfunded commitments of $8 million.

Speaker 1: In the fourth quarter, the total allowance for credit losses decreased approximately $1.5 million, primarily due to lower expected losses than previously estimated as a result of ongoing economic improvements in our footprint, benign credit quality metrics to date, risk rating upgrades during the quarter, and a positive macroeconomic outlook over the forecast period.

In the fourth quarter, the total allowance for credit losses decreased approximately $1 $5 million, primarily due to lower expected loss has been previously estimated as a result of ongoing economic improvements in our footprint benign credit quality metrics to date risk rating upgrades during the quarter and a positive macro economic outlook.

The forecast period.

Speaker 1: The total allowance for credit losses as a percentage of total loans was 82 basis points at the end of December , down slightly from 83 basis points in the prior quarter.

The total allowance for credit losses, as a percentage of total loans was <unk> 82 basis points at the end of December down slightly from 83 basis points in the prior quarter.

As a reminder, our day one seasonal reserve was 75 basis points of total loans.

Speaker 1: As a reminder, our day one CECL reserve was 75 basis points of total loan.

Speaker 1: In estimating expected credit losses within the loan portfolio at year-end, the company utilized Moody's December baseline macroeconomic forecast for the two-year reasonable and supportable forecast period.

An estimated expected credit losses within the loan portfolio at year end the company utilized Moody's December baseline macroeconomic forecast for the two year reasonable and supportable forecast period Moody's.

Speaker 1: Moody's December baseline economic forecast for Virginia, which covers the majority of our footprint, is relatively consistent with September's baseline forecast as it assumes that the Virginia unemployment rate will average 2.6% over the two-year forecast period, which is a slight improvement from the 2.7% two-year average state unemployment rate assumed in the September baseline forecast.

Moody's December baseline economic forecast for Virginia, which covers the majority of our footprint is relatively consistent with september's baseline forecast as it assumes that the Virginia unemployment rate will average two 6% over the two year forecast period, which is a slight improvement from the two 7% two year average stayed unemployed.

Assumed in our September baseline forecast.

Speaker 1: At a national level, the December baseline forecast assumes GDP will increase by 4.4 percent in 2022 and 2.9 percent in 2023.

On a national level. The December baseline forecast assumes GDP will increase by four 4% in 2022 and two 9% in 2023.

Speaker 1: In addition to the quantitative modeling, the company has 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 future path of the virus and the potential for other more unfavorable economic developments.

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

Additional economic scenarios were considered as part of the quality of framework in order to capture the economic uncertainty and concerns related to the future path of the virus and the potential for other more unfavorable economic developments.

Speaker 1: The negative provision for credit losses of $1 million in the fourth quarter decreased materially from the prior quarter's negative provision for credit losses of $18.8 million and a negative provision for credit losses of $13.8 million recorded in the fourth quarter of 2020.

The negative provision for credit losses of $1 million in the fourth quarter decreased materially from the prior quarter's negative provision for credit losses of $18 $8 million and a negative provision for credit losses of $13 8 million recorded in the fourth quarter of 2020.

As the allowance for credit losses has normalized to pre pandemic Cecil day, one reserve levels is a significant COVID-19, driven spike in loan losses, initially projected and reserved for have not materialized to date.

Speaker 1: as the allowance for credit losses has normalized to pre-pandemic CECL Day 1 reserve levels as a significant COVID-19-driven spike in loan losses initially projected and reserved for have not materialized to date.

Speaker 1: In the fourth quarter, net charges remain negligible at approximately $511,000 or two basis points annualized compared to $133,000 for the prior quarter and $1.8 million or five basis points for the fourth quarter last year.

In the fourth quarter net charge offs remained negligible at approximately 511.

$1 or two basis points annualized compared to $133000 for the prior quarter and $1 $8 million were five basis points for the fourth quarter last year.

Speaker 1: As John mentioned, net charge-offs for the full year 2021 were approximately one basis point as credit quality has remained pristine.

But John mentioned net charge offs for the full year 2021 were approximately one basis point as credit quality has remained pristine.

Now turning to the pretax pre provision components of vehicles statement for the quarter tax equivalent net interest income was $141 6 million.

Speaker 1: Now turning to the pre-tax, pre-provisioned components of the income statement for the quarter, tax equivalent net interest income was $141.6 million.

Which was up approximately $900000 from the third quarter driven by higher investment income as a result of growth in the investment portfolio in.

Speaker 1: which was up approximately $900,000 from the third quarter, driven by higher investment income as a result of growth in the investment portfolio.

Speaker 1: and marginally higher interest and fees on loans, including PPP loan interest and fees, partially offset by the acceleration of the unamortized discount related to subordinated debt that was redeemed in December .

And marginally higher interest and fees on loans, including PPP loan interest and fees.

Really offset by the acceleration of unamortized discount.

Related to subordinated debt that was redeemed in December .

Speaker 1: Net accretion approaches the county adjustments of $4.2 million, added 10 basis points to the net interest margin in the fourth quarter, up slightly from the nine basis point impact in the third.

Net accretion of purchase accounting adjustments of $4 $2 million added 10 basis points to the net interest margin in the fourth quarter up slightly from the nine basis point impact in the third quarter.

The fourth quarter's tax equivalent net interest margin was three 1%.

Speaker 1: Fourth quarter's tax equivalent net interest margin was 3.10%, a decline of two basis points from the previous quarter due to the decline of one basis point in the yield on earning assets and a one basis point uptick in yield.

<unk> three point.

One zero percent a decline of two basis points from the previous quarter due to the decline of one basis point and the yield on earning assets.

And a one basis point uptick in the cost of funds.

Speaker 1: Slight decline in quarter-to-quarter earning asset yield was driven by an 11 basis point increase in the loan portfolio yield, which was offset by the impact of lower investment portfolio yields of 12 basis points and the impact of increased levels of excess liquidity held in low yielding cash equivalents.

Slight decline quarter to quarter, earning asset yield was driven by an 11 basis point increase in the loan portfolio yield.

Which was offset by the impact of lower investment portfolio yields of 12 basis points and the impact of increased levels of excess liquidity held in low yielding cash equivalents.

The loan portfolio yield increased to $3 eight 1% from $3 seven zero percent in the fourth quarter, primarily driven by a 10% increase in the yield on average PPP loans to approximately 16% from the prior quarter, which is reflective of an increase of $1 3 million to $10 $7 million in PPP.

Speaker 1: The loan portfolio yield increased to 3.81% from 3.70% in the fourth quarter, primarily driven by a 10% increase in the yield on average PPP loans to approximately 16% from the prior quarter, which is reflective of an increase of $1.3 million to $10.7 million in PPP loan fee accretion included in interest income.

Loan fee accretion included in interest income.

The PPP loan yield increase impact on the earning asset yield was partially offset by core loan yield compression of two basis points due to continued paydowns of higher yielding loans and lower loan yields on loan renewals and new production.

Speaker 1: The PPP loan yield increase impact on the earning SEO is partially offset by core loan yield compression of two basis points due to continued pay downs of higher yielding loans and lower loan yields on loan renewals and new production.

Speaker 1: The reduction in the investment portfolio yield to 2.44% from 2.56% resulted from the reinvestment of portfolio cash flows and the deployment of excess liquidity into investment securities portfolio at lower market interest rates.

Reduction in investment portfolio yields of 244% from two 5%, 6% resulted from the reinvestment of portfolio cash flows and the deployment of excess liquidity into investment securities portfolio at lower market interest rates.

Speaker 1: The quarterly increase in the cost of funds to 20 basis points from 19 basis points was driven by a higher borrowing cost as a result of the $1 million acceleration of the unamortized discount related to the subordinated debt that was repaid in December . This impact was partially offset by a two basis point decline in the cost of deposits to 12 basis points in the fourth quarter, primarily due to the maturity and repricing of high-cost time deposits.

The quarterly increase in the cost of funds to 20 basis points from 19 basis points was driven by higher borrowing cost as a result of the $1 million acceleration of unamortized discount related to the subordinated debt that was repaid in December .

This impact was partially offset by a two basis point decline in the cost of deposits to 12 basis points in the fourth quarter, primarily due to the maturity and repricing of high cost time deposits.

Speaker 1: Non-interest income increased $6.5 million to $36.4 million in the fourth quarter.

Noninterest income increased $6 5 million to $36 4 million in the fourth quarter.

Speaker 1: up from $29.9 million in the prior quarter, primarily driven by the gain on sale of Visa Class B stock of $5.1 million and increases in several non-interest income categories, which was partially offset by a $1.5 million decline in mortgage banking income, reflecting the seasonal drop in mortgage loan origination volumes in the fourth quarter.

Up from $29 9 million in the prior quarter, primarily driven by the gain on sale of visa class B stock of $5 1 million and increases in several noninterest income categories, which.

Which was partially offset by a $1 $5 million decline in mortgage banking income, reflecting the seasonal drop in mortgage loan origination volumes in the fourth quarter.

Speaker 1: Other non-interest income increases of note in the fourth quarter include an increase of $937,000 in unrealized gains on equity method investments, a seasonal increase of $610,000 in deposit service charges, a $559,000 increase in BOLI revenue from death benefit proceeds.

Other noninterest income increases of note in the fourth quarter include an increase of $937000 in unrealized gains on equity method investments.

Seasonal increase of $610000 in deposit service charges.

$559000 increase in <unk> revenue from death benefit proceeds and.

Speaker 1: An increase of $341,000 in loan interest rate swap fee income and an additional asset management fees of $210,000 due to growth in assets under management would stand at $6.7 billion at the end of 2021.

An increase of $341000 in loan interest rate swap fee income and an additional asset in <unk>.

Asset management fees of $210000 due to growth in assets under management, which stand at $6 7 billion.

At the end of 2021.

Reported noninterest expense increased $24 6 million to $119 9 million in the fourth quarter from $95 3 million in the prior quarter.

Speaker 1: Reported non-interest expense increased $24.6 million to $119.9 million in the fourth quarter from $95.3 million in the prior quarter.

Speaker 1: This is primarily driven by restructuring expenses of $16.5 million related to the announced closure of the company's operations center and a consolidation of 16 branches in March 2022.

This was primarily driven by restructuring expenses of $16 $5 million related to the announced closure of the Companys operations Center and the consolidation of 16 branches in March 2022. Please.

Speaker 1: Please note we expect to incur an additional $5.7 million in branch closure costs, primarily related to lease terminations in the first quarter of 2022.

Please note, we expect to incur an additional $5 7 million in branch closure costs, primarily related to lease terminations in the first quarter of 2022.

Speaker 1: As noted earlier, these strategic actions will result in approximately $8 million in annualized one-rate savings, which will begin in the second quarter.

As noted earlier these strategic actions will result in approximately $8 million in annualized run rate savings, which will begin in the second quarter.

Speaker 1: During the fourth quarter, the company also incurred expenses for items not expected to persist into the future, including $1.4 million in expenses associated with strategic projects, approximately $1.2 million in severance costs unrelated to branch closures, and approximately $900,000 in technology and data processing costs related to determination of a software contract.

During the fourth quarter. The company also incurred expenses for items not expected to persist into the future, including $1 $4 million of expenses associated with strategic projects approximately $1 $2 million in <unk>.

<unk> cost unrelated to branch closures and approximately $900000 in technology and data processing costs related to the termination of a software contract.

Speaker 1: In addition, expenses in the fourth quarter were elevated over normal run rate levels due to incremental performance based variable incentive compensation and profit sharing expenses of approximately $4 million including a $500,000 contribution to the company's employee stock ownership plan.

In addition to expenses in the fourth quarter were elevated over over normal run rate levels due to incremental performance based variable incentive compensation and profit sharing expenses of approximately $4 million.

<unk>, a $500000 contribution to the company's employee stock ownership plan.

The effective tax rate for the fourth quarter decreased to 44% from 18% in the third quarter, reflecting the impact of changes in the proportion of tax exempt income to pre tax income.

Speaker 1: The effective tax rate for the fourth quarter decreased to 14.4 percent from 18 percent in the third quarter, reflecting the impact of changes in the proportion of tax-exempt income to pre-tax income.

For 2021, the full year.

Speaker 1: Effective tax rate was 17.2%. And in 2022, we expect the full year effective tax rate to be in the 17 to 18% range.

The tax rate was 17, 2% and in 2022, we expect our full year effective tax rate to be in the 17% to 18% range.

Speaker 1: Now turning to the balance sheet period, the total deposit stood at $20.1 billion at December 31st, which was an increase of $129 million or 2.6% annualized from September 30th levels.

Now turning to the balance sheet period total deposits stood at $20 1 billion at December 31, which was an increase of $129 million or two 6% annualized from September 30 levels.

Speaker 1: Due to net growth in the investment portfolio as well as growth in the loan portfolio, which was partially offset by PPP loan forgiveness.

Due to net growth in the portfolio as well as growth in the loan portfolio, which was partially offset by PPP loan forgiveness.

Speaker 1: At period end, loans held for investment were $13.2 billion, inclusive of $150 million in PPP loans.

At period end loans held for investment were $13 2 billion inclusive of a $150 million in PPP loans and.

Speaker 1: an increase of $56 million from the prior quarter, primarily driven by increases of loan balances of $373 million, partially offset by $315 million in PPP loans that were forgiven during the fourth quarter.

An increase of $56 million from the prior quarter, primarily driven by increases of loan balances of $373 million, partially offset by $315 million in PPP loans.

We are forgiven during the fourth quarter.

Excluding PPP loans loan balances in the fourth quarter increased 11, 7% annualized driven by increases in commercial loan balances of $345 million or 12, 8% linked quarter annualized consumer loan balances grew $27 million or five 4% annualized driven by a third.

Speaker 1: Excluding PPP, loans and loan balances in the fourth quarter increased 11.7% annualized through increases in commercial loan balances of $345 million or 12.8% linked quarter annualized.

Three 3% annualized growth rate in indirect auto balances, partially offset by the strategic runoff of third party consumer loan balances, which are down to $73 5 million at the end of 2021.

Speaker 1: PPP loan forgiveness during the fourth quarter was steady, approximately 2,700 clients from both round one and round two received forgiveness totaling approximately $315 million during the quarter, bringing the total amount forgiven to date to approximately $2 billion.

PPP loan forgiveness during the fourth quarter was steady approximately 2700 clients from both round, one and round two receive forgiveness totaling approximately $350 million during the quarter, bringing the total amount for given to date to approximately $2 billion.

Speaker 1: PPP loan balances were approximately $150 million, net of $4.4 million in deferred loan fees at the end of the quarter. Overall, the PPP loan forgiveness process is running smoothly. It should largely wrap up by mid-2022.

PPP loan balances were approximately $150 million net of $4 4 million and deferred loan fees at the end of the quarter.

Overall, the PPP loan forgiveness process is running smoothly.

It should largely wrap up by mid 2022.

At the end of December total deposits stood at $16 6 billion, a slight decrease of $11 million.

Speaker 1: At the end of December , total deposits stood at $16.6 billion, a slight decrease of $11 million.

Speaker 1: or approximately 0.3% annualized from the prior quarter as a decline of $187 million in high-cost time deposits was mostly offset by growth in low-cost deposits.

Or approximately 3% annualized from the prior quarter as a decline of $187 million in high cost time deposits was mostly offset by growth in low cost deposits at December 31st low cost transaction accounts comprised 56% of total deposit balances, which is consistent with third quarter levels.

Speaker 1: The December 31st low-cost transaction accounts comprise 56% of total deposit balances, which is consistent with third quarter levels.

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

Speaker 1: 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 one of our highest priorities.

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

Speaker 1: At the end of the fourth quarter, Atlantic Union Bank's shares and Atlantic Union Bank's capital ratios were well above regulatory, well-capitalized levels.

At the end of the fourth quarter Atlantic Union, Bankshares, and Atlantic Union Bank capital ratios were well above regulatory well capitalized levels.

Speaker 1: In December , the company raised Tier 2 regulatory capital by issuing $250 million.

In December the company raised tier two regulatory capital by issuing $250 million.

Speaker 1: of 2.875% fixed to floating rate subordinated notes with a maturity date of December 15, 2031.

Two 875% fixed to floating rate subordinated notes with a maturity date of December 15 2031.

Speaker 1: The company used a portion of the net proceeds from the new issuance to repay its outstanding 5% $150 million fixed afloating rates subordinating notes that were due to mature in 2026.

The company used a portion of the net proceeds from the new issuance to repay its outstanding 5% $150 million fixed to floating rate subordinated notes that were due to mature in 2026.

During the fourth quarter, the non repeat of stock common stock dividend <unk> 28 per share consistent with the prior quarter and also paid a quarterly dividend of 170 188 <unk>.

Speaker 1: During the fourth quarter, Commerce paid a stock dividend of $0.28 per share, consistent with the prior quarter, and also paid a quarterly dividend of $171.88 on each outstanding share of Series A preferred stock.

And each outstanding share of series a preferred stock.

Also in December the company's board of directors authorized a share repurchase program to purchase up to $100 million of the company's common stock.

Speaker 1: Also in December , the company's board of directors authorized a shared repurchase program to purchase up to $100 million of the company's common stock.

Speaker 1: This repurchase program replaced the prior $125 million repurchase program that was fully utilized as of September 30.

This repurchase program replaces the prior $125 million repurchase program that was fully utilized as of September 30.

With the financial impact of the PPP loan program winding down the pandemic driven volatility related to expected credit losses, and credit loss reserve levels subsiding and the expectation that interest rates will begin increasing this year, we are reaffirming our top tier financial metric targets to be.

Speaker 1: With the financial impact of a PP loan program winding down, the pandemic-driven volatility related to expected credit losses and credit loss reserve levels subsiding and the expectation that interest rates will begin increasing this year, we are reaffirming our top-tier financial metric targets to be.

Speaker 1: Return on tangible common equity within the range of 13 to 15 percent, return on assets in the range of 1.1 percent to 1.3 percent, and an efficiency ratio of 53 percent or lower.

Return on tangible common equity within a range of 13% to 15% return on assets in the range of $1 one.

Were sent to one 3% and an efficiency ratio of 53% or lower.

Speaker 1: Regarding the efficiency ratio target, I'd like to point out that it is difficult to compare our efficiency ratio to banks that don't have significant operations in Virginia since Virginia banks do not pay state income taxes but instead they have franchise tax that flows through non-interest expenses and not the income tax line.

Regarding the efficiency ratio target I would like to point out that it is difficult to compare our richardson ratio to banks that don't have significant operations in Virginia.

Virginia banks do not pay state income taxes, but instead they are franchise tax that flows through noninterest expenses and not the income tax line.

Speaker 1: The apprentice tax expense in taxes adds approximately 2.5% to our efficiency ratio.

The franchise tax expense impacts it adds approximately two 5% to our efficiency ratio.

So setting our efficiency ratio target of 53% or lower is akin to a 50% efficiency ratio target for peer banks not headquartered in Virginia.

Speaker 1: So setting our efficiency ratio target at 53% or lower is akin to a 50% efficiency ratio target for peer banks not headquartered in Virginia.

Speaker 1: As a reminder, our financial performance targets are dynamic and are set to be consistently in the top tier or the top quartile among our peer group regardless of the operating environment and at this time we believe these targets are reflective of the financial metrics required to achieve top tier financial performance in the current economic environment and we do expect to achieve these targets in 2022.

As a reminder, our financial performance targets are dynamic and are set to be consistently in the top tier.

Top quartile among our peer group, regardless of the operating environment and at this time. We believe these targets are reflective of the financial metrics required to achieve top tier financial performance and the current economic environment.

And we do expect to achieve these targets in 2022.

In summary, Atlantic Union delivered solid financial results in the fourth quarter and for the full year and is well positioned to generate sustainable profitable growth and to build long term value for our shareholders in 2022 and beyond.

Speaker 1: In summary, Atlantic Union delivered solid financial results in the fourth quarter and for the full year and is well positioned to generate sustainable, profitable growth and to build long-term value for our shareholders in 2022 and beyond.

Speaker 1: And with that, let me turn it back over to Bill Cimino to open it up for questions from our analysts. Thank you, Rob.

With that let me turn it back over to Bill to open it up for questions from our analysts.

Thank you, Rob and Michelle we're ready for our first caller. Please.

Speaker 2: Thank you. If you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of Casey Whitman with Piper Sandler. Your line is open. Please go ahead.

Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

First question comes from the line of Casey Whitman with Piper Sandler. Your line is open. Please go ahead.

Good morning, good morning.

Good morning.

This first that assets really nice loan growth towards the end of the quarter can you.

Speaker 3: I guess first I'd ask, there's some really nice loan growth towards the end of the quarter. Can you...

Yeah.

Give us an idea for where new loan yields are coming on compared to the rest of the book.

Speaker 3: Give us an idea for where new loan yields were coming on compared to the rest of the book.

I'm sorry.

Yields.

Speaker 1: The new production that you guys put on towards the end of the quarter, what were the average yields on that production versus the rest of the book? The average yields on commercial growth that we saw was in the range of about 3% or so. That's versus about 20% of the existing portfolio, so we've seen some declines there.

And the new side of the new production you guys put on towards the end of the quarter what were the average yields on that production versus versus the rest of the book, Yes. The average yes, Casey the average yields on the commercial growth that we saw was in the range of about 3% or so.

That's versus about a 320% of the portfolio existing portfolio. So we've seen some declines there.

Okay.

Speaker 3: Okay. Maybe can you walk us through sort of how you're feeling about rate hikes and where you're positioned from an ALCO perspective and sort of what sort of deposit betas you're assuming to get there?

Maybe can you walk us through sort of how you're feeling about rate hikes, and where you are positioned from an alco perspective, and sort of what what sort of deposit betas, you're assuming to get there.

Yes.

Speaker 1: Yeah, so in terms of the margin going forward here, as we now expect.

In terms of the margin going forward here.

As we now expect.

Speaker 1: that we'll see the Fed Reserve move on increasing Fed funds rates could be as early as March, as some of the markets are indicating. Our baseline view for 2022 is that we'll see three rate hikes from the Fed, one in May, one in July , and another one in November .

We will see the fed.

The fed reserve.

Move on the increase in fed funds rates could be as early as March.

Some of the.

Markets are indicating.

Our our baseline view for 2022 is that we will see three rate hikes from the fed.

One in May one in July and another one in November .

Speaker 1: That said, we would expect, from a deposit data perspective, we don't expect to be moving rates higher initially. We probably won't see real movement on non-indexed deposits.

That said.

We would.

From a from a deposit beta perspective, we don't.

Moving.

Rates higher.

Initially.

Probably won't see.

Real movement on non index deposit.

Deposit.

Clients.

Speaker 1: clients until we see going to the fourth and the fifth hike is our belief.

Until we see going into the fourth and the fifth hike is our belief. So we won't see a lot of increase in terms of the deposit costs going forward at least at least for this year.

Speaker 1: see a lot of increase in terms of the deposit costs going forward, at least for this year.

Speaker 1: We do expect the margin will, on a core basis, will improve fairly significantly in the new year in 2022. We came out of the fourth quarter on a core basis, now this is XPPP and accretion, at 2.8 percent.

We do expect the margin will on a core basis.

We will improve fairly significantly.

In the new year in 2022, we came out of the fourth quarter on a core basis. This is ex PPP and accretion.

At two 8%.

Speaker 1: That includes about 11 basis points of excess liquidity impact.

That includes about 11 basis points of excess liquidity impacts.

Speaker 1: We think we're putting that excess liquidity to work.

We think we're putting that excess liquidity to work we did.

Speaker 1: good job by the end of the quarter. You'll see that in the first quarter. So we're looking at core margin to increase seven or eight basis points in the first quarter, and then picking up as rates, as short-term rates increase, starting in May and throughout the year that we'll end the year at about a 3.10 or so basis point.

But good job by the end of the quarter Youll see that in the first quarter.

So we're looking at core margin should increase 7% or eight basis points in the first quarter.

Then ticking up as rates.

As certain short term rates increase.

Starting in May.

Throughout the year that we will end the year at around about a 310 or so.

310, or so core margin again, not including the impacts of PPP, which are really.

Speaker 1: 310 or so core margin, again, not including the impacts of PPP, which are really coming down fairly significantly as we end the new year. We only have $4 million or so of deferred fees related to PPP, so that's not going to be a big impact at all this year.

Coming down fairly significantly as we.

In the new year, we only have $4 million or so.

Of deferred fees related to the PPP, so thats not going to be a big impact this year.

Speaker 1: In terms of what's driving that is, I think...

In terms of whats driving that is.

Speaker 1: If you look in the deck, we do say that we've got about 45% of our loan book is tied to one month LIBOR and prime rates, and those will move fairly immediately to any heights from the Fed Fund's perspective in assuming LIBOR follows suit, which we expect that will happen.

If you see if you look in the deck, we do say that we've got.

About 45% of our loan book is tied to.

One month LIBOR.

And prime.

Prime rates.

And those will move.

Fairly immediately.

Any hikes from the fed funds perspective, and assuming LIBOR.

<unk> suite, which we expect that will happen.

Okay. Thank you helpful. I'll just ask one on expenses.

Speaker 3: OK, thank you. Helpful. I'll just ask one on expenses. Kind of hard, you've got a lot of moving parts this quarter, I know. I mean, what's sort of the starting run rate that we should work the 2% guide that you guys just gave for 2022? I'm assuming it's a little bit higher than the $95, $96 million that you were running at, just as a starting point. That would be helpful.

Kind of hard you've got a lot of moving parts. This quarter I know I mean, what what's sort of the starting.

Run rate that we should work the 2% guide that you guys gave for 2022.

Im assuming its a little bit higher than that with 95% $96 million you were running at.

The starting dose.

Paul.

Yes cases, so if you if you take if you look at our quarter. Obviously the reported number was quite high we've had the restructuring charges, but we also had a number of <unk>.

Speaker 1: Yeah, Casey, so if you take in, if you look at our quarter, you know, obviously, the reported number is quite high. We've had the restructuring charges, but we also had a number of

Speaker 1: fairly unusual items that we would back out and not consider in our core run rate. Some of the commentary that I mentioned, if you back those out, plus an elevated incentive accrual this quarter.

Fairly unusual items that.

That we would back out and not consider in our core run rate.

Some of the commentary that I've mentioned.

If you back those out plus.

<unk> incentive accruals this quarter.

If you back those out we think we're at around my feeling is we're at about $96 million.

Speaker 1: If you back those out, we think we're at around, my feeling is we're at about a $96 million.

Or so run rate coming out of the quarter.

Speaker 1: or so run rate coming out of the quarter.

Speaker 1: We are still guiding to be in about 2% growth off of that run rate. So for a year, we are looking for...

We are still guiding to be about 2% growth off of that run rate.

So full year, we're looking for.

Speaker 1: anywhere between 385 to 390 million is what we're looking at in terms of full year expense going forward. Hey, Rob, can you speak to what will happen in Q1? There's still some residual expenses and timing issues on the branch consolidation and the operations center. Yeah, as I mentioned in my prepared comments, we're gonna have about $5.7 million of additional restructuring costs related to the...

Anywhere between $385 million to $390 million is what we're looking at in terms of full year expense going forward and Rob can you speak to what will happen in Q1, there is still some residual expenses and timing issues on the branch consolidation and the operation Center.

As I mentioned in my.

My prepared comments, we're going to have about $5 7 million.

Additional restructuring.

Costs related to the.

Speaker 1: branch closures, the 16 branch closures that will take place in March. And then, of course, if you look at it on a quarterly basis, we do have upticks.

Branch closures, the 16 branch closures that will take place in March.

And then of course, if you look at on a quarterly basis, we do have upticks in the first quarter, primarily due to payroll tax resets et cetera.

Speaker 1: in the first quarter, primarily due to payroll tax resets, etc.

Speaker 4: So, that would be the highest, you know, higher quarter and it will come down. We're also, as you go into the second quarter, third and fourth, you'll see the impacts of those costs, those actions taken on the cost of about $2 million a quarter going forward. Casey, we acknowledge it's hard from the outside looking in to get clear line of sight to the run rate of expenses. We were very busy in December . We admittedly, purposefully cleared the deck.

So that would be the highest.

Higher quarter and then it will come down. We're also as you go into the second quarter third and fourth Youll see.

The impacts of those costs.

Those actions taken on the cost saves.

About $2 million a quarter going forward Casey, we acknowledge it's hard from the outside looking in to get clear line of sight to the run rate of expenses. We were very busy in December we admittedly purposely cleared the decks.

Speaker 4: to take care of some things that needed to be taken care of, but we do think that the run rate is $96 million for the quarter on sort of a clean basis, around or about. When we talk about 2% growth rate on that baseline, that does assume the incentive plan is fully funded.

There are some things that needed to be taken care of but we do think that the run rate is $96 million for.

For the quarter on sort of a clean basis around or about and when we talk about 2%.

Growth rate on that baseline that does assume the incentive plan is fully funded.

Speaker 3: The $385-$390 million guide does not include, I would assume, the $5.7 million. Yeah, that's right, Casey. But it would include everything else, including the amortization of tangible assets.

Okay.

The 385% to $390 million guide does not include I would assume the.

$5 7 million.

Yes.

Excellent.

Okay.

But it would include everything else, including the amortization of intangible assets.

Speaker 3: Yeah, it includes the amortization and everything else except that $5.7 million. Okay. Helpful. I'll let someone else jump on. Thank you.

Yes includes amortization everything else, except at $5 7 million.

Okay helpful I'll, let someone else jump on thank you.

Thank you Michelle ready for our next caller please.

Speaker 5: And our next question comes from the line of Catherine Moore with KBW. Your line is open. Please go ahead. Hi. Hi, Catherine. Good morning. Good morning. Remember last quarter you gave a core NII XPPP guide of about 5 to 6% for this year. How are you thinking about that number now that we've got some rate hikes in your assumption?

And our next question comes from the line of Catherine Mealor with <unk>. Your line is open. Please go ahead.

Kathryn good morning, good morning, good morning.

Last quarter, you gave a core NII ex PPP guide of about.

6% for this year, how are you thinking about that number now that we've got some rate hikes in your assumption.

Speaker 1: Yeah, so if you exclude the PPP...

Yes, so if you exclude the PPP.

And accretion.

Speaker 1: We're looking at about a 7.5% to 8% growth rate on the net interest income line this year, primarily related to putting that excess liquidity to work.

Well just PPP, we're looking at.

About $7, 5% to 80%.

Growth rate on the net interest income line.

This year, primarily related to putting that excess liquidity to work.

Speaker 1: and higher rates and the rate increases I just mentioned.

And higher rates and.

The rate increases that I just mentioned.

Speaker 5: Great. And then the 7 to 8 BIPs in lower NIM that you're thinking about for next quarter, are you thinking there's a big change in your excess liquidity or is that generally on a fairly similar balance sheet, although with some...

Okay, Great and then just 70 bits and lower NIM that youre thinking about for next quarter are you thinking theres a big change in your excess liquidity or is that generally on fairly.

Fairly similar balance sheet I'll go with that.

Great.

Speaker 5: Basically on a core basis, we're noting that it will be an uptick from what this quarter is. So about 287 is what we're looking at in Q1, 22 versus 280. Oh, good. I thought you were going down. No, we're going up. Okay, great. That's what I was trying to figure out. Okay, so reported maybe it's going down. But I'm not sure. Okay, great.

Say that again, Kathryn basically on a core basis core basis.

Noting that it will be an uptick from what this quarter is so about $2 87 is what we're looking at in Q1, 'twenty two versus $2 <unk>.

Yes.

So positive that you are going down.

We're growing up yes, okay, great I was trying to figure out okay.

Reported maybe is going down but but.

Yes every quarter, we go down.

Speaker 1: Yeah, reported will go down. Reported will go down because, yeah, PPP will be out of the equation to the level we had in the fourth quarter.

It will go down because.

Yes.

We'll be out of the equation to the level, we had in the fourth quarter.

Speaker 5: Got it. OK, that makes a lot more sense. And so that and so you would assume within that some of the excess cash you had this quarter comes off as we move into next quarter.

Got it okay that makes a lot more sense and so you would assume within that some of the excess cash you had this quarter come to us are significant.

Speaker 1: Yeah, that's right. A lot of that excess cash did come off in December . You can't see it in the averages, but you'll see that coming off as we had strong fundings of loans in December . And we also put some of that money to work in the investment security portfolio as well. But yeah, that's going to come down fairly.

Yes, that's right a lot of that excess cash did come off in December you can't see it in the averages.

But youll see that coming off.

As we funded.

Strong fundings of loans in December .

We're also put some some of that money to work in.

Investment security portfolio as well, but yes, that's going to come down fairly.

Speaker 1: in a fairly large manner. We still think we're going to have four or five basis points of

In a fairly large manner.

We still have we still think we're going to have 458 basis points.

Speaker 1: of impact from excess liquidity, but that's down from the 11 basis point we see in the current.

Impact from excess liquidity with desk down from the 11 basis point, we see current quarter.

Speaker 5: Okay, great. And then one more if I could, on fees, I was surprised to see service charges up, because there's been a lot of conversations in the industry about that, having weakness with overdraft changes. And any thoughts on what drove the service charges and any headwinds we might see in that line going forward?

Okay, Great and then one more if I could on fees I was surprised to see service charges up its just theres been a lot of <unk>.

Conversations in the industry about that having weakness with after tax changes and any thoughts on what drove the service charges.

Any headwinds you might see in that line going forward.

Speaker 1: Yeah, in terms of the uptick in the quarter, we did see, you know, that's typically, you know, a seasonal uptick on volumes, you know, from the holiday season. So that's not unusual.

Yes in terms of in terms of the uptick in the quarter.

We did see that.

Typically a seasonal uptick.

On volumes.

The holiday season, so that.

That's not unusual.

And all that.

Speaker 1: And I'll ask John to comment on, you know, I think your question is where we're going with potential.

John to comment on I think your question Juan.

Where we're going with potential adjustments to policies related to overdrafts et cetera.

Speaker 4: adjustments to policies related to overdrafts, et cetera. That's right.

Okay.

Yes, Catherine I would say that really for the last year or two we have made various changes on related to overdraft charges to make them more consumer friendly. We are obviously very carefully watching the.

Speaker 6: Yeah, Catherine, I would say that really for the last year or two, we have made various changes on related to overdraft charges to make them more consumer friendly. We are obviously very carefully watching the dynamic going on in the industry.

The dynamic going on in the industry there will be more changes we do have a plan we are not ready to share that yet as we go through.

Speaker 6: There will be more changes. We do have a plan. We are not ready to share that yet as we go through, I guess, the final decision-making process.

I guess the final decision, making process that you can expect there's going to be there will be pressure on overdraft charges.

Speaker 6: but you can expect there will be pressure on overdraft charges. Atlantic Union Bank, as a reminder, has won the J.D. Power Retail Banking Customer Satisfaction Award in the Mid-Atlantic for two out of the last three years, so we do a good job for our retail customers. We're very customer-focused.

Atlantic Union Bank as a reminder has won the J D power retail banking customer satisfaction award in the mid Atlantic for two out of the last three years. So we do a good job for our retail customers, we're very customer focused and we do understand the changing value proposition.

Speaker 6: and we do understand the changing value proposition of consumer checking and weíll be making some changes. So there will be pressure that will apply there and weíll have more to say about that shortly. Okay, great. Thank you, John .

Consumer checking and we will be making some changes. So there are there will be pressure.

And that will apply there and we'll have more to say about that shortly.

Okay, great. Thank you John .

Thanks, Catherine celebrating.

Great.

Speaker 7: Thank you, and our next question comes from the line of Brody Preston with Stephen Zink. Your line is open. Please go ahead. Good morning. Good morning. Brody, how are you? Doing well, doing well. I hope you're doing well, too.

Thank you and our next question comes from the line of Brody Preston with Stephens, Inc. Your line is open. Please go ahead.

Good morning, Hey, good morning, everybody how are you.

Doing well gain while I hope you're doing well too.

Speaker 8: Hey, I guess I just wanted to just real quick circle back on expenses. So, Rob, you know, I've got you at about like 18.6 million or so in one-time expenses this quarter between the branch closure stuff, the severance stuff, and the.

Hey, I guess I just wanted to just real quick circling back on expenses So Rob.

I've got you at about $18 6 million or so.

One time expenses this quarter between the branch closure stopped the severance stuff.

Speaker 8: The vendor termination. So I've got your operating expense inclusive of amortization of intangibles at about $101 million.

The vendor termination.

So your operating expense inclusive of amortization of intangibles of about $101 million.

Speaker 8: And so the higher end of the guidance that you put out for the 390 implies about 97 and a half million. And so if we're building off of a base of 101 into the first quarter with some higher payroll tax stuff, and then you've got the branch closures that come in, you know, in the second quarter taking 2 million out, I can get you down to like.

And so the the higher end of the guidance that you put out the $3 90.

Implies about $97 5 million and so if we're if we're building off of a base of 101 into the first quarter with some higher payroll tax stuff and then you've got the branch closures that come in.

In the second quarter taken 2 million out I can get you down to light.

Speaker 8: another nine like back to 99 to 100 pretty easily. So where's the rest of the two to three million dollar delta coming that gets you down to that kind of 97 and a half quarterly run rate on average?

Another like back to $99 100 pretty easily so, whereas the rest of the $2 million to $3 million Delta coming that gets you down to that.

And 97, five quarterly run rate on average.

Speaker 1: Yeah, so Brody, we're, as I mentioned...

Yes, so poorly.

As I mentioned.

Speaker 1: Our view is that the run rate is the adjusted core run rate that we'd be looking at is about 96 for the quarter. I think if you look at the

Our view is that the run rate.

Is.

Adjusted core run rate that we'd be looking at as it is about <unk> 96 for the quarter.

I think.

If you look at the one.

Speaker 1: 120 million were reported, you back up to 16 and a half million, you're down to about a hundred.

$120 million, we reported it back up to $16 5 million Youre down to.

About $103 million.

Speaker 1: And then you take out the various items I kicked off in my comments that we don't feel like will persist.

And then you take out the various.

It was like ticked.

Kicked off in my comments.

Just that we don't.

Feel like we will persist.

Speaker 1: Those would be related to the contract termination, severance, and some costs related to strategic projects that won't recur. And then the other component is bringing that down would be the incentive accruals that we put through. Those were...

Those would be really to the contract termination severance.

Some costs related to strategic projects that won't recur.

And then the other component is.

<unk>.

Bringing that down.

Would be the incentive accruals that we put through those were.

Speaker 1: inflated by about $3.9 million or so.

Inflated by about.

$3 $9 million or so.

Speaker 4: So back that out and you get close to that number that I'm referring to. Now that performance will have to find its way back into the run rate because it basically was a pickup.

So back that out and you'll get get close to that number that I'm referring to.

Now that performance that performance incentive.

We will have to find its way back into the run rate.

Because it's basically was.

Pick up.

Coming out of the third quarter, we thought.

Speaker 6: wouldn't have that level of incentive payout, but we had a strong fourth quarter.

Wouldn't have that level of incentive pay up but we had a strong fourth quarter. Yes. So we had to catch up interestingly Brody if you look at salary and benefit excluding the incentive topping off if you want to call. It that it was pretty much even quarter over quarter and that's ahead of the actions that are coming with branch.

Speaker 6: topping off if you want to call it that, it was pretty much even quarter over quarter and that's ahead of the actions that are coming with branch consolidation, etc. So we feel that we have a clear line of sight to be able to manage the 2% expense growth off of that $96 million-ish base, assuming incentives are fully funded.

<unk> et cetera.

So we feel we feel that we have a clear line of sight to be able to manage to a 2% expense growth off of that $96 million ish base, assuming incentives are fully funded.

Speaker 8: Got it. Okay. Thank you for that. Thank you for clarifying some of it for me. On the growth front, I just wanted to circle back maybe to Corsi and I and other commercial. They were both extremely strong this quarter, and so I wanted to ask if

Got it okay. Thank you. Thank you for clarifying some of it for me.

On the growth front I just wanted to circle back maybe to core C&I and other commercial they're both extremely strong this quarter and so I wanted to ask it.

Speaker 8: Some of that was utilization rates ticking higher or, you know, was

Some of that was utilization rates ticking higher.

It generally new client acquisition and then in the other commercial.

Speaker 8: purely new client acquisition, and then in the other commercial, can you speak to maybe the strength you saw in equipment finance this quarter?

I think the strength you saw in equipment finance this quarter.

Speaker 6: David Green, Head of Commercial Banking, is here with me, wholesale banking, as we now call it. I'll ask him to comment on this, but I'll set it up. You did see, encouragingly, commercial line utilization tick up in every single month of Q4, but the reality is it was still pretty minimal, so 28% is still about as low as you can imagine. So it was not.

Sure David Rain head of commercial banking this year with the wholesale banking as we now call. It I'll ask him to comment on this but I'll set it up you did see encouragingly commercial line utilization tick up in every single month of Q4, but the reality is it was still pretty minimal so 28% is still about as low as you can imagine.

Not on the back we are fighting declining utilization for a change that's good but but thats not really lifted the boat I think that we had really good performance production in Q4.

Speaker 6: on the back. We weren't fighting declining utilization for a change. That's good.

Speaker 6: But that's not really what lifted the boat. I think that we had really good performance production in Q4.

Was the.

Speaker 6: the best that I've seen. Production, it was back and loaded. December production was thunderous.

The best that Ive seen production it was backend loaded December production was <unk>.

Speaker 6: and it was really a busy month for us. Equipment Finance is performing well. Leasing shows up in the other commercial category, which you'll see on the balance sheet reporting, and we were really strong across all categories, and certainly CNI was the headliner. Dave Ring, do you wish to comment on what we saw happen in Q4?

It was really a busy month for us our equipment finance is performing well.

Leasing shows up in the other commercial category, which you'll see on the balance sheet reporting and we were really strong across all categories certainly.

Certainly C&I was the headliner, Dave Randy wish to comment on what we saw happened in Q4 sure. John like you said, we had a record production for the quarter, we had higher paydowns, but clearly more than offset it with C&I and equipment finance real estate was pretty flat for the quarter.

Speaker 6: Sure, John . Like you said, we had a record production for the quarter. We had higher paydowns, but we clearly more than offset it with C&I and equipment finance. Real estate was pretty flat for the quarter, so most, if not all, of the growth came out of the C&I and equipment finance.

So most if not all of the growth came out of the C&I and equivalent finance groups and when I think about the quarterly spring as we've referred to it a few times its there waiting commercial line utilization yet presumably has nowhere to go but up from here I think we're off the bottom and have been selected that will.

Speaker 6: When I think about the coiling spring, as we've referred to it a few times, it's there waiting. Commercial line utilization presumably has nowhere to go but up.

Speaker 6: uh... from here i think we're off the bottom of inflected that'll grow with working capital needs and sales i watch construction lending even though you saw that take down a little bit that's something because projects completed rolled into permanent mortgage categories we can see

Grow with working capital needs in sales I'll watch construction lending, even though you saw that ticked down a little bit that's simply because projects completed rolled into permanent mortgage categories. We can see that construction funding commitments. We can see the funding schedules that should be a headwind for the year. We look at our pipelines they are far better.

Speaker 6: the construction funding commitments, we can see the funding schedules that should be ahead for the year. We look at our pipelines.

Speaker 6: Theyíre far better than they were this time next year and despite the tremendous production in Q4, theyíre actually in quite good shape right now.

Other than they were at this time next year. Despite the tremendous production in Q4, they are actually in quite good shape right. Now so feel like we should be on a growth footing a solid growth flooding at this point in time, you coupled out with our asset sensitivity and I think that.

Speaker 6: we should be on a growth footing, a solid growth footing at this point in time. You couple that with our asset sensitivity.

Speaker 6: And I think that and our expense reduction actions.

And our expense reduction actions, where we are in a good position and we're exactly where we need to be we just need to execute.

Speaker 8: Got it. And then on the securities portfolio, if I could just ask for two stats from you. Do you happen to have what the duration of the portfolio is? And then do you have what percent of the portfolio is floating rate?

Got it and then on the Securities portfolio. If I can just ask for two stats from India to have what the.

The duration of.

The portfolio is and then do you have what percent of the portfolio is floating rate.

Yes.

Speaker 4: Yeah, so, Brody, the duration is approximately five years.

Florida.

The.

Duration is approximately five years.

Speaker 4: I don't have exactly what the loading rate component is, so I'll have to come back to you on that. But it's relatively low. I just don't have the number.

I don't have exactly what the.

Floating rate component is so I'll have to come back to you on that but it's relatively small.

<unk>.

Just don't have the number in front of me here.

Speaker 8: You got it. Okay. And if I could sneak one more in.

Got it okay, and if I can sneak one more in.

Speaker 8: The reserve for unfunded commitments, you know, it looked like it stayed pretty flattish, and so there was like a 7% increase maybe in the dollar amount, but it was flattish as a percent of loans. So is it fair to assume that the unfunded commitments increased about 7% as well, quarter over quarter?

The reserve for unfunded commitments.

It looked like it looked like it stayed pretty flattish and so it was like a 7% increase maybe in the dollar amount, but it was flattish as a percent of loans. So is it fair to assume that the unfunded commitments increased about 7% as well quarter over quarter.

Speaker 4: Yeah, that's right. Actually, I think it increased about a half a million to seven and a half. I think it's at eight million now. Yeah. All right. Thank you very much.

Yes, that's right actually.

I think it increased about <unk> 5 million to seven five I think it's 8 million now.

Yes.

Alright, Thank you very much.

Thanks, Craig.

Our next call.

Speaker 2: Thank you. And our next question comes from the line of David Bishop with Seaport Research. Your line is open. Please go ahead.

Thank you and our next question comes from the line of David Fischer with Seaport Research. Your line is open. Please go good morning, David.

Speaker 6: Good morning, gentlemen. Most of my questions have been asked and answered, but I'm just curious about your view of excess liquidity in cash. I saw you put some to work there at the end of the quarter, the cash, about $800 million. Just where you see that potentially settling into over the course of the year?

Good morning, gentlemen.

Most of my questions have been asked and answered but.

Just curious your view of excess liquidity and cash you saw you you put them to work there at the end of the quarter.

Cash about $800 million, just where you see that potentially settling into over the course of the year.

Yes for the most part we're looking at.

Speaker 4: For the most part, we're looking at that excess liquidity put into the loan book and the loan growth. We have increased our investment portfolio.

That excess liquidity to put into the loan book and the loan growth.

<unk> increased our investment portfolio.

Speaker 4: over the quarter, we're now up about $300 million quarter to quarter in terms of investment portfolio. We're about 21% of total assets in investment portfolio and putting that to work in mortgage-backed securities and municipals.

Over the quarter. We're now I think we were up about $300 million quarter to quarter in terms of the investment portfolio were about 21% of total assets in the investment portfolio and putting that to work to work in.

Mortgage backed securities and.

And municipals.

Speaker 4: in a 60-40 kind of going percentage of 60% mortgage backs, 40% munis, and we're putting those on at a blended rate of about 2.2%, but I don't think you'll be seeing that.

60, 40 kind of going.

Our percentage of 60%.

<unk>, 40% munis, and we're putting those on at a blended rate of about 222%.

I don't think youll be seeing that.

Security portfolio continue to increase probably come down over time through maturities, but we wanted to use that excess liquidity into the loan growth that we're envisioning occurring here.

Speaker 1: security portfolio continue to increase, it will probably come down over time through maturities, but we want to use that extra security into the long growth that we're envisioning occurring here in the first, well, throughout the year.

Here in the first.

Throughout the year basically.

Speaker 9: Got it. And then one final question, maybe on a dollar basis, just curious if you have the dollar amount of the loan pipeline at your end.

Got it and then one final question maybe on a dollar basis. So just curious if you have the.

The dollar amount of the loan pipeline at year end versus last quarter.

Speaker 6: Yes, so at the end of the year, the pipeline was around $2.2 billion.

Yes, so at the end of the year the pipeline was around $2 2 billion.

Speaker 9: It was up fairly quickly the last year, which was up roughly $650 million.

This was up fairly.

If you compare to last year, which resulted in roughly $650 million.

Speaker 6: Not everything is going to close, and we can get into the details behind that, but we're consistent in terms of how we view it. This is part of why we're

Not everything is going to close when we can get into the details behind that but.

We're consistent in terms of how we view. It. This is part of why we are.

Speaker 10: bullish and feeling confident about our ability to deliver on high single-digit lung growth. Great, thank you. Thanks, David.

Bullish.

And feeling confident about our ability to deliver on high single digit loan growth.

Great. Thank you.

Thanks, David and Michel already partners.

And our next question comes from the line of Laurie Hunsicker with.

Your line is open. Please go ahead Laurie good morning.

Speaker 3: Your line is open. Please go ahead. Hi, Laurie. Good morning. Good morning. I just wanted to go back on expenses and slide 12. You break it out really nicely. I just want to make sure I'm understanding this right. The $4.4 million increase in salary and benefits, obviously you broke that out, $3.9 plus the $500 contribution to ESOP. So are you suggesting that $3.9 is non-recurring?

Good morning, just wanted to go back on expenses.

In slide 12, you break it out really nicely just wanted to make sure I'm understanding this right.

$4 million increase in salary and benefits, obviously bright spot out three nine.

Classified as Andres contribution the Aesop so are you.

Are you, suggesting a $3 nine is nonrecurring.

Speaker 4: No, what I'm suggesting, Laurie, is that...

No what I'm, suggesting is that.

Speaker 4: gets fed back over a quarterly basis as opposed to the increase in the quarter.

Gets fed back over.

A quarterly basis as opposed to.

The increase in the quarter.

So.

Speaker 1: Typically, we'd be accruing for incentives.

Typically we'd be accruing for incentives.

Speaker 1: evenly throughout the year, depending on what our outlook is for the year. Through third quarter, we did not think the performance was going to end the year where it did, and so we had not accrued as much.

Evenly throughout the year, depending on what our outlook is for the year.

Through third quarter, we did not think.

The performance was going to end the year, where it did and so we had not.

Non accrued as much.

That was needed by the end of the year based on the performance in the fourth quarter, Yes, I think about my five years here, we generally have done a pretty good job in terms of estimating incentives. So that we aren't really subjected to these these year end top offs in.

Speaker 6: that was needed by the end of the year based on the performance in the fourth quarter.

Speaker 6: The fact is we've done, we have not done as good a job last year and this year just due to the environment. It's been, you know, we're pretty conservative, it's been very difficult to predict. And I think what Rob is saying is we'll simply have it spread out more evenly this year because I think we're going to be able to forecast with more confidence. Yeah, that's right.

In fact, as we've done we have not done as good a job last year and this year just due to the environment. It's been we're pretty conservative it's been very difficult to predict and I think what Rob is saying is we'll simply have it spread out more evenly this year, because I think we're going to be able to forecast with more confidence.

Right Laurie.

Okay, and then just just to clarify youre $96 million run rate because I think unlike Friday might know somehow is higher your $96 million run rate.

Speaker 11: Okay. And then just to clarify, your 96 million run rate, because I think I'm like Brody, my math somehow is higher. Your 96 million run rate includes the incentive accrual fully baked into it. Is that correct?

Include the.

Incentive accrual fully baked into it is that correct.

Speaker 4: Yes, that's right. Now that 96 million...

Yes, that's right now at $96 million.

As I mentioned.

Speaker 4: We were expecting a couple of percent growth rate on that, but you're right, it's fully baked.

We're expecting a couple of percent growth rate on that so that's.

But you're right, it's fully baked in that number.

Got it okay, and so when we think about 96 million, obviously first quarter motivated by the $5.

Speaker 11: Got it. Okay. And so when we think about 96 million, obviously first quarter is elevated by the 5.57 million of branch closures plus you have the FICO that hits in that first quarter. But so when we think about sort of the June quarter starting run rate, we're 96 million plus the 2% growth rate annualized as we go forward into 2022. Is that right?

$7 million of branch Closers, plus you have the FICA.

HEICO that hit in that first quarter.

When we think about sort of the June quarter, starting run rate were $96 million plus the 2% growth rate annualized as we go forward into 2022 is that right.

Speaker 4: Yeah, but you know, again, it's not not evenly this first quarter is going to be much higher.

Yes.

Again, it's not evenly this.

First quarter is going to be much higher.

Speaker 6: than you'll see in the second, third, and fourth quarter. But yeah, that's basically right. Yeah, first quarter is always seasonally high for tax purposes, as you know, Laurie. And again, as a reminder, we have $8 million of costs identified that are coming out of the system as a result of branch restructuring, the closure of the Rutherglen Center. That kicks in really, it takes into Q2.

And then Youll see in the second third and fourth quarter, but yes. That's basically right first quarter is always seasonally high for tax purposes. As you know and again as a reminder, not all we have $8 million of costs identified theyre coming out of the system. As a result of branch restructuring the closure of closure of the <unk> Glen Center.

That that kicks in really it takes into Q2.

Okay.

Speaker 11: Okay, okay, right, the 2 million run rate savings, okay. And then just remind me, your payroll taxes are about $2 million, or do you have a better number on that? So again,

Okay, right, that's 2 million run rate savings, Okay, and then just remind me your payroll taxes are about $2 million or do you have a better number on that.

Just that one.

The payroll taxes the FICO.

Speaker 6: How much is that? Oh, payroll, FICA tax, $2 million. Is that your question, Lori? Yeah.

How much does that help payroll FICA tax $2 million is that your question Laurie.

Yeah, how much is it.

How much is FICA.

How much of a spike.

Speaker 3: for this quarter. I can follow up with you offline, because that's... Yeah, okay, thanks, Laurie. I have another, I just wanted... It's going to adjust up. Two more questions. And so, as we think about 2023 expenses, because I think most of us are modeling our price targets off of 2023, how should we be thinking about expense growth in 2020?

For this quarter.

I can follow up with you offline because that looks like.

I just wanted to.

Okay adjust up tomorrow.

No more questions.

And so as we think about 2023 expenses, because I think most of them for modeling our price targets off of 2023, how should we be thinking about expense growth in 2023.

Yes.

Speaker 1: Yeah, as we project forward in our three-year forecast, we're looking at about 4% growth rate and expenses.

As we project forward in our three year forecast, we're looking at above 4% growth rate in.

<unk> expenses of course.

Could change depending on the environment, where revenue is going et cetera, but as we see a rising rate environment.

Speaker 1: could change depending on the environment, where revenue is going, etc. But as we see a rising rate environment and where we are here with inflation, etc., we're looking at about 4%.

And where we are.

Sure was inflation et cetera, we're looking at about 4% now.

If you look at.

Speaker 6: the 2022 numbers, I think we'd be in a four or so percent increase if not for the cost actions reduction actions we took. So it's fairly consistent going forward as well. Yeah, I agree. And again, we should be an improving revenue growth environment. You know, at long last, we will be a beneficiary of a rising rate environment, and I think we're well set up for that. But it's all about operating leverage, Laurie. We'll continue to manage expenses to do what needs to be done.

The 2022 numbers I think we'd be in the four or so percent increase if not.

Not for the cost actions reduction actions, we took so.

Fairly consistent going forward as well, yeah, I agree and again, we should be an improving revenue growth environment.

At long last we will be a beneficiary of a rising rate environment and I think we're well set up for that but its all about operating leverage Lorie, we will continue to manage expenses to the witness to be done.

Okay, Great and then one last question just looking for clarity on the Bali.

Speaker 11: Okay, great. And then one last question, just looking for clarity on the BOLI. I know it increased $559,000. Was that the death benefit, or do you have the total of the death benefit? I think I missed that in your...

I know it increased 569000 with.

Was that the death benefit or do you have the total of the death benefit I think I missed that in your comments.

Speaker 1: Yeah, the borrower benefit there was a little over 500 for the quarter. So back that out, and that will get you the normal run rate. Great.

Yes.

He benefit there was about 500, a little over 500 for the quarter, so back that out and that will give you the normal normal run rate.

Great. Thanks for taking my question.

Speaker 8: Thank you, Larry. Thanks, Larry. And I'm sure we're ready for our last call.

Thank you Larry.

Alright.

Please.

Thank you and our last question comes from the line of William Wallace with Raymond James Your line is open. Please go ahead.

Speaker 2: Thank you. And our last question comes from the line of William Wallace with Raymond James. Your line is open. Please go ahead. Hi, Raleigh. Good morning.

Hi, good morning.

Speaker 12: Thank you. Good morning to you. Maybe just real quick for David, we talked about line utilization. What was line utilization pre-COVID, and are you guys modeling for increases in your high single-digit guidelines?

Thank you and good morning to you.

Maybe just real quick for David we talked about line utilization what was line utilization pre Covid and are you guys modeling for increases in your high single digit guide for the year.

Speaker 6: It's a little hard to say because of the growth of the banks and it's changing complexion.

Well, it's a little hard to say because of the growth of the bank and its changing complexion, but low forty's is yes, I think that more of a quarter before COVID-19 was at 38% does that sound right.

Speaker 6: before COVID was at 38%. Is that sound right, Dave? That's right. It was 38%. And now it's 28%. And we thought that was a little low back then. We thought that was about 40-ish, low 40s. I do predict that businesses, as we've seen after various shocks before, will run with more liquidity.

It was 38 and now it's 28 and we felt that was a little low back then.

It is normal and that was a kind of 40 ish low forty's I do predict that businesses as we've seen after various shocks before we'll run with more liquidity.

Speaker 6: So maybe line utilization will be lower structurally than it used to be, but it's not gonna be 28%. I mean, that's sitting there waiting on inventory, the ability to fill jobs, to grow sales, et cetera, et cetera. So there's upside there.

So maybe align utilization will be lower structurally than it used to be but it's not going to be 28%. I mean, that's sitting there waiting on and then torry the ability to fill jobs to grow sales et cetera et cetera, So there's upside there.

Speaker 9: There's about $25 million of upside for every percentage.

$25 million of upside for every percentage point.

Okay.

Speaker 12: Okay, and are you guys modeling for increased utilization in 22 for your guide?

Are you guys modeling for.

Increased utilization in 'twenty two for your guide.

No no we're not that'll be upside.

Speaker 6: No, no, we're not. That'll be upside.

Great.

Speaker 12: John , in your prepared remarks, you gave three kind of longer-term goals, and the third one was I believe you said M&A as a tertiary strategy, and then I think you said under the right circumstances. Could you provide some commentary on what the right strategy is?

Yes.

John in your prepared remarks, you gave three kind of longer term goals and the third one was I believe you said M&A.

Yes.

A tertiary strategy and then I think you said under the right circumstances could you could you provide some commentary on what the right circumstances for sure.

Speaker 6: Iíve been here over five years now and if you look at the two that weíve done, which were really instrumental to the creation of the bank as we know it today and arguably on a combined basis were transformational, what did they have in common? There was no question about their strategic fit, there was no question about the financial role. There was no question about their strategic fit.

Sure I think yes, yes. Thanks.

If you look at that here over five years now and if you look at.

The two that we've done which were really instrumental to the creation of the bank as we know it today and arguably on a combined basis were transformational what did they havent and there was no question about their strategic fit there is no question about the.

Financial.

Speaker 6: aspects of the deal and they made perfect sense and they were clearly signaled. How do we think about this? We don't even think about anything that does not make strategic sense and that financially would make sense, but you really get into four big issues, one, execution risk, how competent we can pull it off well, two, what is the opportunity cost, exactly what is not going to happen.

Aspects of the deal and they made perfect sense and they were clearly signaled so how do we think about this we don't even think about anything that does not make strategic sense and that financially. It makes sense, but you really get into kind of four big issues.

Execution risk how confident are we can pull it off well to what is the opportunity cost exactly what is not going to happen.

Speaker 6: if we put the resources on that type of opportunity.

If we put the resources on that type of opportunity cultural fit.

Speaker 6: One that we've really come to better understand is what I'll call differences in strategy.

Then one that we've really come to better understand.

What I will call differences in strategy.

Speaker 13: It is we can be more accommodating where we don't have

It is we can be more accommodating where we don't have.

Speaker 13: perfect alignment on these issues for smaller deals.

Perfect alignment on these issues for smaller deals.

Speaker 13: but you can't really accommodate differences if you thought about something larger. What's changed in our mindset is we're on a strong organic footing and we will be a beneficiary of rising rates. We're watching what is happening in the industry with the rise of financial technology and we do intend to participate in that.

But you can't really accommodate differences if you thought about something larger and so while I think.

<unk> changed our mindset is we are on a strong organic footing.

There will be a beneficiary of rising rates were watching what is happening in the industry with the rise of fitting.

Financial technology, and we do we do.

We intend to participate in that so.

So from our standpoint.

Speaker 13: It is an option. We want to preserve it. I'm not saying we won't do it. It is more likely than not that if we pursued it, it would be something smaller. I will tell you we did give thoughtful consideration to a larger scale accommodation last year and we concluded it did not make sense for us. It just didn't pass the test of execution risk, opportunity cost, cultural fit and differences in strategy and so you notice we haven't done anything.

It's it is an option we want to preserve it I'm not saying we won't do it it is more likely than not that if we pursued it it would be something smaller.

I'll tell you we did give thoughtful consideration to a larger scale combination last year and we concluded it did not make sense for us. It just didn't pass the test of execution risk opportunity cost cultural fit and differences in strategy and so you noticed we havent done anything yet.

Speaker 13: And quite candidly, a year ago when we thought we would be in a zero rate environment for many years to come, that seemed more compelling than it does now. So that's how we think about it, not saying we will, not saying we won't, but anything we did, if we did anything, wouldn't surprise you. I think we've got the track record to back that up.

Quite candidly a year ago, when we thought we would be in the zero rate environment for many years to come that seem more compelling than it does now so that's how we think about it not saying we will not saying we won't but anything we did if we did anything surprise you I think we've got the track record to back that up.

Speaker 9: Okay. Thank you for that, John . And then just two quick follow-up questions. I believe, David, it might have been yours, John , said that the pipeline was $2.2 billion at the end of the year from $650 million. Was that $650 million at the third quarter or at the end of last year? That would be compared to year over year.

Okay. Thank you for that John and then.

Just two quick follow up questions.

I believe David at night, and Yours, John said that the pipeline was $2 2 billion at the end of the year from $650 million does that $650 million in the third quarter or last at the end of last year.

That'd be compared to year over year.

Okay.

Okay, and then Rob just go ahead.

So I would say, yes, it's coming going into 2021 versus going into 2022 is what Dave was referring to.

Speaker 1: I was going to say, yes, going into 2021 versus going into 2022 is what Dave was referring to. Okay.

Okay. Thanks.

Yeah.

Okay, and then Rob just.

Speaker 12: I appreciate all the commentary around your net interest margin and your timing of rate hikes, but just so I don't have to do the mental gymnastics of figuring out what the timing difference in our models might be around when we're modeling hikes, can you just kind of boil it all down and give what your expectation of margin expansion would be per 25 basis point fed hikes?

I appreciate all the commentary around your net interest margin and your timing of rate hikes, but just so so I don't have to do the mental gymnastics of figuring out what the timing difference in our models might be around when we're modeling hikes could you just kind of boil it all down and give what your expectation of margin expansion would be.

<unk> per 25 basis point fed hike.

Speaker 4: Yes, so for 25 BIPs, we're looking at about 8 to 9 basis points of margin expansion.

Yes, So first 45 bps, we're looking at about eight to nine basis points of margin expansion.

Okay.

Yes.

Okay, Great and then I don't know if we're out of time or not but if we're not John I'd Love. If you could talk about any fintech partnerships, how close you might be or how you're kind of thinking about.

Speaker 12: Okay, great. And then I don't know if we're out of time or not, but if we're not, John , I'd love if you could talk about any Fintech partnerships, like how close you might be or how you're kind of thinking about building those partnerships to drive sales.

Building those partnerships to drive fee income.

Speaker 13: Yes, while we intend to do an investor day in May and we'll take you into a deep dive on that and really the rest of our various strategies, as a reminder, we were one of the initial investors in the Canopy Fund and that, Rob, going from memory, would have been 2019 timeframe?

Yes.

We intend to do an investor day in May and we will take you into a deep dive on.

On that and really the rest of the.

The rest of our various strategies and as a reminder, we were one of the initial investors in the canopy fund and that Rob going from memory would have been 2019 timeframe.

Speaker 13: Yeah, that's right. So we have been leveraging that and other mechanisms to really vet.

Yes, that's right.

So we have been leveraging that.

And other mechanisms to really vet financial technology partnerships, thus far I would generally characterize the types of financial technology partnerships that we've engaged in as providing services and products that complement the existing.

Speaker 13: financial technology partnerships. Thus far, I would generally characterize the types of financial technology partnerships that weíve engaged in as providing services and products that complement the existing.

Speaker 13: lines of business, product base, etc. Think of it as features and functionality from mobile banking, online banking and then backend processes as well and we can give you lots of examples of that. Blend would be an example which we use in our mortgage company. Weíve learned about that through the seat we have at the table. When we talk about these funds, I want to be clear. We donít think of these as financial investments per se. Yes, theyíre financial investments and

Lines of business product base et cetera, I think of it as features and functionality for mobile banking online banking and then backend processes as well and we can give you lots of examples of that land would be an example.

Which we use our mortgage company, we learned about that through the seat we have at the table. When we talk about these funds I wanted to be clear. We don't think of these as financial investments per se, yes, they are financial investments.

Speaker 13: I guess we've been successful, but the real reason why we're interested in it is it allows us to build relationships, as I said in my comments, to look at a carefully screened and vetted set and to really gain insight so it informs our strategy, what will happen next.

Yes, they've been successful.

The real reason why we're interested in is it allows us to build relationships as I said in my comments to look at it carefully screened and vetted set.

And to really gain insight so it informs our strategy what will happen next is that we are really interested in the opportunity to build what I would call new business lines potentially.

Speaker 13: is that we are really interested in the opportunity to build what I would call new business lines potentially and we see blockchain as something that is potentially very disruptive to existing payment mechanisms. So, there are coming real-time payment networks that could potentially and underscore potentially render ACH, Fedwire, Zelle, things like that obsolete. We do not want to be a late adopter on it.

And we see blockchain is something that is potentially very disruptive to existing payment mechanism. So there are coming real time payment networks that could potentially and underscore potentially render ACTH fed wire zelle things like cap obsolete, we do not want to be a later adopter on it and so we're interested category.

Speaker 13: We're interested categorically, especially in payment networks and what I would call back office applications, the ability to go from start to finish on a home equity line in five days.

<unk>, especially and payment networks.

And what I would call back office applications the ability to go from start to finish on home equity line in five days.

Speaker 13: could be a possibility. So we donít want to get ahead of ourselves on this Wally, but what weíre saying is weíre now moving this to the next level and weíve invested in other funds to expand our network of partnerships. Weíre not going to do anything I think that would surprise you. We donít have any current intentions at this moment for engaging in what I would call store value concepts, which is

Could be a possibility. So we don't want to get ahead of ourselves on this Wally but what were saying is were now moving this to the next level and we've invested in other funds to expand our network of partnerships, we're not going to do anything I think that would surprise you.

We don't have any current intentions at this moment for engaging in what I would call store value concepts, which is like.

Speaker 13: you know, like be a gateway to Bitcoin. I'm not saying we will not do that, but I'm simply saying that we are especially focused on emerging payment networks.

Be a gateway to bitcoin I'm, not saying, we will not do that but im simply saying that we are especially focused on emerging payment networks and blockchain as a technology to vastly improve backend processes, we'll see where it goes from here.

Speaker 13: and blockchain as a technology to vastly improve backend processes. We'll see where it goes from here.

Okay, great. Thank you so much I appreciate your time guys sure.

Speaker 6: Thanks, Wally. Thanks, Wally. Thanks, everyone, for joining us today. We look forward to talking with you next quarter. Have a good day.

Sure thing. Thanks, Thanks, Paul and thanks, everyone for joining US today, we look forward to talking with you next quarter have a good day. Thank you.

Speaker 2: This concludes today's conference. Thank you for participating. You may now disconnect.

This concludes today's conference. Thank you for participating you may now disconnect.

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Okay.

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Speaker 14: Thank you for watching!

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Speaker 14: But.

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