Q3 2023 Atlantic Union Bankshares Corp Earnings Call

Yeah.

Speaker 1: Good day and thank you for standing by. Welcome to the Atlantic Union Bank Share's third quarter, 2023 earnings 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.

Good day, and thank you for standing by and welcome to the Atlantic Union Bankshares third quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one on your telephone and wait for your name.

Speaker 1: To ask a question during the session, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1.

It would be announced to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Bill Cimino Senior Vice President Investor Relations.

Speaker 1: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President, Investor Relations.

Thank you, Josh and good morning, everyone.

Speaker 2: I have Atlantic Union Bank Chair, President and CEO John Asbury, and Executive Vice President and CFO Rob Guarman with me today. We also have other members of our executive management team with us with a 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.

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

Speaker 2: Please note that today's earnings release and accompanying slide presentation that 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 accompanying slide presentation.

This webcast are available for download on our Investor website investors that Atlantic Union Bank Dot com.

Speaker 2: During today's call, we will comment on our financial performance using both gap metrics and non- GAAP financial measures.

During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures report information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures are included.

Speaker 2: Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix for a slide presentation and under earnings release for the third quarter of 2023.

Alex we're slide presentation and the earnings release for the third quarter of 2023.

Speaker 2: We will make forward-looking statements on today's call, which are not statements of historical fact and are subject to risks and alternatives.

We will make forward looking statements on today's call, which are not statements of historical fact and are subject to risks and uncertainties.

Speaker 2: There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements.

No assurance that actual performance will not differ materially from any future expectations results expressed or implied by these forward looking statements.

Speaker 2: And we undertake no obligation to publicly revise or update any board looking statement.

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

Speaker 2: Please your heard or earnings release issue today and or other FBC filings for further discussion of the company's risk factors and other important information regarding our board looking statements, including factors that could cause actual results to differ from those expressed or implied in any forward looking statement. All comments made during today's call are subject to that safe harbor statement. And at the end of the call, we will take questions from the research and exhaust community and now I'll turn it all over to the next slide.

Please refer to our earnings release issued today and our other SEC filings for further discussion of the Companys risk factors and important information regarding our forward looking statements, including factors that could cause actual results to differ from those expressed or implied in any forward looking statements. All comments made during today's call are subject to that safe Harbor statement at the end of it.

Recall, we will take questions from the research analyst community and now I will turn the call over to John .

Speaker 2: Thank you, Bill. Good morning, everyone, and thank you for joining us today. The third quarter operating results were strong for Atlantic Union. There was noise in the quarter due to three meaningful and proactive measures we have taken this year to address the demanding environment in which our industry operates. We believe these measures are a proof point of our willingness and ability to take action to better position the bank for success both now and in the future while building long-term shareholder value.

Thank you Bill good morning, everyone and thank you for joining US today, the third quarter operating results were strong for Atlantic Union. There was noise in the quarter due to three meaningful and proactive measures. We have taken this year to address the demanding environment in which our industry operates we believe these measures are a proof point of our willingness and ability to take action to better position.

The bank for success, both now and in the future while building long term shareholder value.

Speaker 2: These actions were first in our Q-123 quarterly earnings comments. We announced our intent to undertake structural expense reductions when deposit costs rose faster than expected in order to maintain positive operating leverage. We did what we said we would do and announced an expense reduction program in June that is expected to reduce the annual expense run rate by approximately $17 million and had all measures implemented by July .

These actions were first in our Q1 'twenty three quarterly earnings comments, we announced our intent to undertake structural expense reductions where deposit costs rose faster than expected in order to maintain positive operating leverage we did what we said we would do and announced an expense reduction program in June that is expected to reduce the annual expense run rate.

The approximately $17 million.

And had all measures implemented by July <unk>.

Speaker 2: Second, concurrent with Q2, 23 earnings, we announced our entry into a merger agreement to acquire Dan Goldberg, a genuine based American national bank cheers and an all stock transaction.

Second concurrent with Q2 2003 earnings we announced our entry into a merger agreement to acquire Danville, Virginia based American National Bancshares in an all stock transaction. We believe this transaction will improve aep's financial performance further build out our franchise in a way that keeps us dense and compact okay contiguous expansion mark.

Speaker 2: We believe this transaction will improve AUB's financial performance for the build-out of our franchise in a way that keeps us dense and compact. Open, contiguous expansion markets in North Carolina, and further drive the scarcity value of our franchise. The initial feedback from the community and American national clients has been strongly positive, and we believe we are on track to close the transaction in the first quarter of 2024. We remain excited about what we'll do together with the American national team once the merger is completed.

<unk> in North Carolina, and further drive the scarcity value of our franchise.

Visual feedback from that community at American National clients has been strongly positive and we believe we are on track to close the transaction in the first quarter of 2024, we remain excited about what we will do together with the American National team once the merger is completed.

Speaker 2: We have now acted twice this year to reposition our balance sheet for a higher, for longer, interest rate environment. We undertook the second action in the third quarter by pairing a sale lease back of 27 properties with a restructuring of a portion of our securities portfolio. This enabled us to unlock equity in certain owned real estate assets and use that to restructure certain available for sale securities in a capital, neutral transaction.

Third we have now added twice this year to reposition our balance sheet for a higher for longer interest rate environment.

We undertook the second action in the third quarter by carrying a sale lease back of 27 properties with a restructuring of a portion of our securities portfolio.

This enabled us to unlock equity and certain of our owned real estate assets and use that to restructure certain available for sale securities in a capital neutral transaction.

Speaker 2: Rob will have more details on the transaction, which was immediately approved for earnings, and is anticipated to have a greater impact in the fourth quarter, now that the proceeds have been reinvested into higher-yielding securities in our available for sales portfolio.

Rob will have more details on the transaction, which was immediately accretive to our earnings and is anticipated to have a greater impact in the fourth quarter now that the proceeds have been reinvested into higher yielding securities in our available for sale portfolio.

Speaker 2: All these actions were strategic in nature with anticipated benefits in both the near term and long term.

All of these actions were strategic in nature with anticipated benefits in both the near term and long term.

Speaker 3: We'll go into our quarterly results in our financial performance in a few minutes, but broadly, we saw impressive customer deposit growth, which more than funded our loan growth during the quarter, better than expected loan growth from the normally seasonally slow third quarter. I think line in operating expenses, demonstrating the initial benefits of our expense action.

We will go into our quarterly results and our financial performance in a few minutes, but broadly we saw impressive customer deposit growth, which more than funded our loan growth during the quarter better than expected loan growth in the normally seasonally slow third quarter.

The line on operating expenses, demonstrating the initial benefits of our expense actions modest net interest margin compression and negligible charge offs. All of this indicates that our franchise remains healthy strong and resilient.

Speaker 3: Modest net interest margin compression and negligible charge-offs. All of this indicates that our franchise remains healthy, strong, and resilient.

Speaker 3: We see our financial result as quarters and other confirmation of our long-term strategy of being a diversified, traditional, full service bank. It makes a positive difference in our markets with a strong brand and deep client relationships. We provide economically beneficial services and financings that help people and help.

We see our financial results. This quarter is another confirmation of our long term strategy of being a diversified traditional full service bank. It makes a positive difference in our markets with a strong brands and deep client relationships, we provide economically beneficial services and financings to help people can help businesses. So straightforward business model that works and it's.

Speaker 3: To street forward business model that works and it stood the test of time over our 121 year history. This is why soundness, profitability and growth in that order of authority remains our mantra and informs how we run this company.

The test of time over our 121 year history. This is why soundness profitability and growth in that order of priority remains our mantra and informs how we run this company.

Speaker 3: I'm now comment on macroeconomic conditions and that are quarterly results.

I'll now comment on macroeconomic conditions and in our quarterly results.

Speaker 3: Inflation appears to be on an overall improving trend despite month of mod volatility. And we expect the Fed to be most likely done with its rate tightening cycle. While for the purpose of forecasting, we continue to plan for a mild recession, it seems there's a real possibility of a soft landing. The macroeconomic environment remains favorable in our footprint, and we still do not expect this change in the near term.

Inflation appears to be on an overall improving trend despite month to month volatility and we expect the fed to be most likely done with its rate tightening cycle, while for the purpose of forecasting we continue to plan for a mild recession. It seems there is a real possibility of a soft landing.

The macroeconomic environment remains favorable and our footprint and we still do not expect this change in the near term.

Speaker 3: Our markets appear to be healthy and our lending pipelines are down a bit from last quarter, but are slightly higher than a year ago, which suggests to us that the current macro environment is in pretty good shape than I thought.

Markets appear to be healthy and our lending pipelines are down a bit from last quarter, but are slightly higher than a year ago, which suggests to us that the current macro environment is in pretty good shape in our footprint.

Speaker 3: Virginia's last reported unemployment rate of 2.5% in August improved from 2.9% in May. And as usual, remains below the national average of 3.8% during the same time period.

Virginia as last reported unemployment rate of two 5% in August improved from two 9% in may and as usual remains below the national average of three 8% during the same time period.

Speaker 3: We're not anticipating any materially negative near-term shift away from these low unemployment trends and generally benign credit environment, but as always, we continue to closely monitor the health of our Mark.

We're not anticipating any materially negative near term shift away from these low unemployment trends and generally benign credit environment, but as always we continue to closely monitor the health of our markets.

Speaker 3: Given continued investor focus on non-uniroccupied commercial real estate and more specifically office exposure, I'll reiterate what I've said for the past two quarters. Commercial real estate finance is a historic strength in our company and it's an asset class that has performed well in our markets which have not traditionally been prone to boom in bus cycles. We stick to our knitting and we generally deal with local and regional developers and operators that we know well and have trackers with us.

Given continued investor focus on non owner occupied commercial real estate and more specifically office exposure I'll reiterate what I've said for the past two quarters commercial real estate finance is a historic strength of our company and it's an asset class that has performed well in our markets, which have not traditionally been prone to boom and bust cycles, we stick to our netting.

And we generally deal with local and regional developers and operators that we know well and have track records with us non owner occupied office exposure totaled $792 million and comprised approximately 5% of our total loan portfolio at quarter end.

Speaker 3: Non-uniractified office exposure total $792 million and comprised approximately 5% of our total loan portfolio quarter end. Of this, approximately 22% is medical office, which we consider among the highest quality office category. We do not finance large, high rise or major metropolitan central business district office buildings and we have no exposure and district at Columbia. The portfolio is performing well and is generally geographically diverse.

Of this approximately 22% is medical office, which we consider among the highest quality office category, we do not finance large high rise or a major metropolitan Central business District office buildings, and we have no exposure and the district of Columbia.

Portfolio is performing well and is generally geographically diverse.

Speaker 3: I described most of our ox exposure suburban single-story and mid-rise properties under long-term leases generally to local tenants who are less likely to use remote or hybrid work options than large national firms.

I described most of our office exposure suburban single story mid rise properties under long term leases generally to local tenants that are less likely to use the remote or hybrid work options and large national firms.

Speaker 3: We recently finished another deep dive analysis of the rec roles of the larger office loans that cover more than half of our portfolio, whether I toward any near term lease explorations, which we define as less than two years. As with last quarter, we proactively monitor this portfolio, and we don't see any systemic concerns in the office book current.

We recently finished another deep dive analysis of direct roles of a larger office loans that cover more than half of our portfolio with an eye toward any near term lease expirations, which we defined as less than two years as with last quarter. We proactively monitor this portfolio and we don't see any systemic concerns in the office book currently chip.

Speaker 3: Should problems develop in the portfolio, if we believe they would likely be distributed over years, and we expect any problems that may develop to be readily manageable.

Should problems develop in the portfolio, we believe they would likely be distributed over years and we expect any problems that may develop to be readily manageable turning to quarterly results. We remain focused on generating positive operating leverage that is growing our revenue faster than our expenses here are a few financial highlights for the third quarter, which Rob will detail.

Speaker 3: We remain focused on generating positive operating leverage. That is growing our revenue faster than our expenses. Here are a few financial highlights for the third quarter, which robbed detail momentarily.

Momentarily.

Speaker 3: On a year-over-year basis, we generated positive adjusted operating levels of approximately 3.1% as adjusted revenue growth was up to approximately 5.2%. While adjusted operating non-interest expenses increased approximately 2.1%.

On a year over year basis, we generated positive adjusted operating leverage of approximately three 1% as adjusted revenue growth was up approximately five 2% while adjusted operating noninterest expenses increased approximately two 1% I'd also like to point out that pre tax pre provision adjusted operating.

Speaker 3: I'd also like to point out that pre-tax, pre-provision, adjusted operating earnings increased 10.6% year over year.

Earnings increased 10, 6% year over year.

Speaker 3: Total deposits screwed 9.1% annualized for the core and are up 7.2% for today. Given our year-to-date performance, at this time, we expect to be in the mid-single digits for deposit growth for the year, which had largely paced loans.

Total deposits grew nine 1% annualized for the quarter and are up seven 2% year to date, given our year to date performance at this time, we expect to be in the mid single digits for deposit growth for the year, which had largely pace loan growth.

Speaker 3: The remixing of non-intersparing deposits to intersparing deposits continue to the quarter to a decreasing rate. And we saw good growth in customer CDs. Quarter-in non-intersparing deposits were 25% of total deposits. A decline of 1.6 percentage points linked quarter.

The remixing of noninterest bearing deposits to interest bearing deposits continued over the quarter. It was a decreasing rate and we saw good growth in customer Cds quarter, and noninterest bearing deposits were 25% of total deposits a decline of one six percentage points linked quarter.

Speaker 3: We posted annualized lung growth of 5.7% during the third quarter, led by growth in commercial loans. Year-to-date lung growth was 7.7% annualized. Lung growth was up across commercial real estate and commercial industrial banking in the quarter. Construction and lead balances were down from the second quarter as projects rolled off, but are still higher than the prior year.

We posted annualized loan growth of five 7% during the third quarter led by growth in commercial loans year to date loan growth was seven 7% annualized loan growth was up across commercial real estate and commercial and industrial banking in the quarter construction loan balances were down from the second quarter as projects rolled off but are still higher than the.

Speaker 3: Our pipelines are holding up pretty well, are slightly elevated from a year ago and remain healthy. Given our year-to-date performance, at this time, we expect to be in the upper end of our mid-single-digit-learn growth guidance for 2023.

Yes.

Our pipelines are holding up pretty well are slightly elevated from a year ago and remain healthy given our year to date performance at this time, we expect to be in the upper end of our mid single digit loan growth guidance for 2023.

Speaker 3: While the economic outlook in our footprint and borrow a demand could change, we expect to remain in a grudemote for the rest of 2023.

While the economic outlook in our footprint in borrower demand for change we expect to remain in a growth mode for the rest of 2023.

Speaker 3: C&I line utilization this quarter was relatively flat with the fire quarter, but up from fire year, third quarter.

C&I line utilization this quarter was relatively flat with the prior quarter, but up from prior year's third quarter.

Speaker 3: Commercial real estate payouts decline year of a year and we're down so lightly from the second.

Commercial real estate payoffs decline year over year and were down slightly from the second quarter.

Speaker 3: Turning to credit, that was a good story as we recorded annualized net charge also of one basis point for the third quarter down from four basis points in a second.

Turning to credit that was a good story as we recorded annualized net charge offs of one basis point for the third quarter down from four basis points in the second quarter.

Speaker 3: We have yet to see any sign of a systemic inflection point in our asset quality metrics which remain denied. While we continue to expect a normalization in asset quality at some point, following the long run of minimal net charge offs, we remain competent and are pleased with in our asset quality.

We have yet to see any sign of a systemic inflection point in our asset quality metrics, which remain benign.

While we continue to expect a normalization in asset quality at some point following a long run of minimal net charge offs, we remain confident and are pleased with our asset quality.

Speaker 3: In some, we thought this was a strong and fundamentally sound border for Atlantic Union. We have continued to demonstrate that we will take the necessary strategic actions to successfully navigate the challenges we face in this uncertain economic environment.

In sum we felt this was a strong and fundamentally sound quarter for Atlantic Union. We have continued to demonstrate that we will take the necessary strategic actions to successfully navigate the challenges we face in this uncertain economic environment and.

Speaker 3: And we don't foresee that uncertainty ending anytime soon with recent geopolitical events and a possibly contentious process for the next round of congressional funding. But for the time being, we remain cautiously optimistic in our outlook.

And we don't foresee that uncertainty ending anytime soon with recent geopolitical events in a possibly contentious process for the next round of congressional funding for it.

Of the time being we remain cautiously optimistic in our outlook as usual with uncertainty comes opportunity, which we believe we are well positioned to capitalize on.

Speaker 3: as usual, with uncertainty comes opportunity, which we believe we are well positioned to capitalize.

Speaker 3: The Atlantic Union is a uniquely valuable franchise that is a diversified, traditional, full-service bank with a strong brand and deep client relationships and stable and attractive markets. It should soon be even more so with the addition of the American National Bank to the AUB family. We remain on a solid footing, resilient and expect a good finish to the ears.

Union is a uniquely valuable franchise that has a diversified traditional full service bank with a strong brand and deep client relationships and stable and attractive markets. It should soon be even more so with the addition of American National Bank to the AEP family, we remain on a solid footing resilient and expect a good finish to the year.

Speaker 3: Last month, Mark, my seventh year anniversary at Atlantic Union Bank, and I'd like to take this opportunity to think our teammates to be a central role they have played in the evolution of this great company. As I look back, I can say that overall, we have done what we said we would do and while our strategy has evolved and responded to our changing environment, there's also remain consistent. And it's working.

Last month marked my seventh year anniversary at Atlantic Union Bank, and I'd like to take this opportunity to thank our teammates to be a central role. They have played an evolution of this great company.

Look back I can say that overall, we have done what we said we would do and while our strategy has evolved and responded to our changing environment. There's also remained consistent and it's working.

Speaker 3: I'll now turn the call over to Rob to cover the financial results for the quarter.

I'll now turn the call over to Rob to cover the financial results for the quarter.

Speaker 4: Well, thank you, John , and good morning, everyone. Thanks for joining us today.

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

Speaker 4: Please note that for the most part, my commentary will focus on Atlantic Union's third quarter financial results on a non-GAP adjusted operating basis, which excludes the pre-tax cost of $8.7 million recorded in the third quarter. And $3.9 million record in the second quarter related to our strategic cost saving initiatives announced in the second quarter. As well as the $2 million in pre-tax cost related to our proposed merger with American National, which was incurred in the third quarter.

Please note that for the most part my commentary will focus on Atlantic Union's third quarter financial results on a non-GAAP adjusted operating basis, which excludes the pretax cost of $8 7 million recorded in the third quarter at three 9 million recorded in the second quarter related to our strategic cost savings initiatives announced.

In the second quarter as well as the $2 million in pre tax costs related to our proposed merger with American National which was incurred in the third quarter.

Speaker 4: In addition, the third quarter financial results on a non-GAP adjusted operating basis exclude the pre-tax gain of $27.7 million related to the sale lease back transaction and the pre-tax net loss on the sales of securities of $27.6 million.

In addition, the third quarter financial results on a non-GAAP adjusted operating basis exclude the pre tax gain of $47 $7 million related to the sale leaseback transaction and the pre tax net loss on the sales of securities of $27 6 million.

Speaker 4: Our previously disclosed sale leaseback transaction of 27 home properties, including 25 branches generated cash proceeds of approximately $46 million. It resulted in a pre-tax gain of approximately $27.7 million in the third quarter, or $22 million after tax net of transaction-related costs.

Our previously disclosed sale leaseback transaction of 2017 properties, including 25 branches generated cash proceeds of approximately $46 million.

And resulted in a pretax gain of approximately $27 7 million in the third quarter were $22 million. After tax net of transaction related costs aggregate first year first full year of rent expense under the lease agreements will be approximately $3 $7 million or $2 $9 million after tax.

Speaker 4: Aggregate first year, first full year of rent expense under the lease agreements will be approximately $3.7 million or $2.9 million after tax. Would you be partially offset by the elimination of the annual pre-tax depreciation expense on the properties of approximately $960,000 and the estimated increase in annual pre-tax interest income of approximately $2.2 million generated by the investment of the transactions and that cash proceeds.

Which will be partially offset by the elimination of the annual pre tax depreciation expense on the properties of approximately $969000 and the estimated increase in annual pretax interest income of approximately $2 $2 million generated by the investment of the transactions net cash proceeds.

Speaker 4: Concurrent with a sale leaseback transaction, the company restructured a portion of its investment portfolio by selling approximately $228 million in available per sale securities, yielding approximately 2.3%. Resulting it a pre-tax net loss will approximately $27.7 million, almost wholly offsetting the net gain recognized from the sale leaseback transaction.

With the sale leaseback transaction the company restructured a portion of its investment portfolio by selling approximately $228 million in available for sale securities yielding approximately two 3%, resulting in a pretax net loss of approximately $27 $7 million almost wholly offsetting the net gain recognized from the.

Sales leaseback transaction the net proceeds from the security sales and the sale leaseback transaction and then reinvested into the available for sale securities portfolio, yielding approximately 6%.

Speaker 4: and that proceeds from the security sales and the sale lease back transaction and then reinvested into the available for sale securities for foil yielding approximately 6%.

Speaker 4: In combination on an annualized basis starting in the fourth quarter, these strategic actions are expected to increase earnings per share by six cents or 2 percent at five basis points of the net interest margin and reduce the efficiency ratio by approximately 24 basis.

In combination on an annualized basis, starting in the fourth quarter. These strategic actions are expected to increase earnings per share by <unk> or 2% at five basis points of the net interest margin and reduce the efficiency ratio by approximately 24 basis points.

Speaker 4: In the third quarter reported net income available to the common shareholders was $51.1 million. And earnings per common share were 68 cents. Adjusted operating earnings available to common shareholders were $59.8 million or 80 cents per common share for third quarter, which was an increase of $4.4 million or 7.9% from the second quarter and up $4.7 million or 8.5% from the third quarter of 2022.

In the third quarter reported net income available to common shareholders was $51 1 million and earnings per common share were <unk> 68.

Adjusted operating earnings available to common shareholders were $59 8 million or <unk> 80 per common share for the third quarter.

He was an increase of $4 4 million or seven 9% for the second quarter and up $4 7 million or eight 5% from the third quarter of 2022.

Speaker 4: The adjusted operating return on tangible common equity was 18.3% in the third quarter, up from 17% in the second quarter. Adjusted operating return on assets was 1.21% in the third quarter, which was up five basis points from the prior quarter. And on an adjusted operating basis, the efficiency ratio was 52.4% in the third quarter, which was down 3% from 55.3% in the second quarter.

The adjusted operating return on tangible common equity was 18, 3% in the third quarter up from 17% in the second quarter adjust.

Adjusted operating return on assets was 121% in the third quarter, which was up five basis points from the prior quarter.

And an adjusted operating basis, the efficiency ratio was 52, 4% in the third quarter, which was down 3% from 55, 3% in the second quarter.

Speaker 4: Turning the credit loss reserves as of the end of the third quarter, the total allowance for credit losses was $140.9 million, which is an increase of approximately $4.7 million from the second quarter, primarily due to loan growth in the third quarter and the impact of continued uncertainty in the economic outlook.

Turning to credit loss reserves as of the end of the third quarter. The total allowance for credit losses was $140 9 million.

Which is an increase of approximately $4 $7 million from the second quarter, primarily due to loan growth in the third quarter and the impact of continued uncertainty in the economic outlook.

Speaker 4: The total allowance for credit losses as a percentage of total loans held for investment was 92 basis points at the end of the third quarter.

Total allowance for credit losses, as a percentage of total loans held for investment was 92 basis points at the end of the third quarter the.

Speaker 4: A revision for credit losses of $5.5 million in the third quarter was down from $6.1 million in the prior quarter, which is primarily driven by lower net charge-offs. Net charge-offs decreased to $294,000 or one basis point annualized in the third quarter from $1.6 million or four basis points annualized in the second quarter.

The revision for credit losses of five point.

$5 million in the third quarter was down from $6 1 million in the prior quarter, which was primarily driven by lower net charge offs net charge offs decreased to $294000 or one basis point annualized in the third quarter from $1 6 million or.

Operator: Good day, and thank you for standing by.

Or four basis points annualized in the second quarter.

Operator: Welcome to the Atlantic Union Bankshare's third quarter 2023 earnings call. At this time, all participants are in a listen-only mode.

Speaker 4: The year-to-date net charge operation was six basis points on an annualized basis.

Year to date net charge off ratio was six basis points on an annualized basis.

Speaker 4: Now turning the pre-tax, pre-provision components of the Incos statement for the third quarter, tax equivalent, that interesting income was $155.7 million, which was a slight decrease from the second quarter. As higher cost, deposit costs, due to increases in market interest rates.

Now turning to pretax pre provision components of vehicles statement for the third quarter tax equivalent net interest income was $155 7 million.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.

Which was a slight decrease from the second quarter as higher cost deposit costs due to increases in market interest rates changes in the deposit mix as depositors continue to migrate to higher cost in interest bearing deposit accounts and growth in average deposit balances were partially offset by an increase in loan yields on our variable rate loans due to increase.

Speaker 4: changes in the deposit mixes, the positives continue to migrate to higher costing, interest bearing deposit accounts. In growth and average deposit balances, we're partially offset by an increase in loan yields on our variable rate loans, due to increases in short term interest rates.

William Cimino: I would now like to hand the conference over to your speaker today, Bill Semino, Senior Vice President Investor Relations. Thank you, Josh, and good morning, everyone.

William Cimino: I have Atlantic Union Bankshare's president and CEO, John Asbury, and Executive Vice President and CEO of Robert Gorman with me today. We also have other members of our executive management team with us with a question and answer period. Please note that today's earnings release and accompanying slide presentation that we are going through on this webcast are available to download on our investor website, investors.

This is in short term interest rates during the quarter as well as by growth in average loans held for investment.

Speaker 4: during the quarter as well as by growth in average and owns health for invest.

Speaker 4: The third quarter tax equivalent net interest margin was 3.35%, which was a net decrease of 10 basis points from the previous quarter due to an increase of 20 basis points in the yield-on-earning assets for being primarily by increases in loan yields and loan growth, which was more than offset by a 30 basis point increase in the cost of funds.

The third quarter's tax equivalent net interest margin was 335%, which was a net decrease of 10 basis points from the previous quarter due to an increase of 100 basis points in the yield on earning assets driven primarily by increases in loan yields and loan growth, which was more than offset by a 30 basis point increase in the cost of funds.

Speaker 4: The loan portfolio yield increased 22 basis points to 5.84% in the third quarter from 5.62% in the second quarter, which had a 20 basis point to the net interest margin. Primarily due to the impact of rising market interest rates, I'm variable rate loan yields, new loan production yields, as well as I'm renewing loan yields.

The loan portfolio yield increased 22 basis points to 584% in the third quarter from $5 six 2% in the second quarter, which added 20 basis points to the net interest margin primarily due to the impact of rising market interest rates on variable rate loan yields new loan production yields as well as on renewing loan.

William Cimino: We will make foreign looking statements on today's call, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these foreign looking statements, and we undertake no obligation to publicly revise or update any foreign looking statements. Please refer to our earnings release issue today and our other FBT filings for further discussion of the company's risk factors and other important information regarding our foreign looking statements, including factors that could cause actual results to differ from those expressed or implied in any foreign looking statement.

Speaker 4: The 30 basis point increase in the third quarter's cost of funds of 2.04 percent, was primarily driven by the 36 basis point increase in the cost of deposits to 1.97 percent, which had a 35 basis point negative impact on the third quarter's net interest margin, which was partially offset by the 4 basis point impact of lower borrowing cost.

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The 30 basis point increase in the third quarter's cost of funds of two 4% was primarily driven by the 36 basis point increase in the cost of deposits to 197%, which had a 35 basis point negative impact on third quarter's net interest margin, which was partially offset by the four basis point impact.

Lower borrowing costs.

Speaker 4: The deposit cost increase was driven by changes in the deposit mix, as depositors migrated to higher costing, interest bearing deposit accounts during the quarter. The modest increase in higher cost, broker deposit balances, as well as by the increases in interest bearing deposit rates driven by rising marketed.

The deposit cost increase was driven by changes under deposit mix as depositors migrate its a higher cost interest bearing deposit accounts during the quarter. The modest increase in higher cost broker deposit balances as well as by the increases in interest bearing deposit rates driven by rising market interest rates.

John Asbury: All comments made during today's call are subject to that State Barbara statement, and 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. Thank you Bill, good morning everyone, and thanks for joining us today. The third quarter operating results were strong for Atlantic Union. There was noise in the quarter due to three meaningful and proactive measures we have taken this year to address the demanding environment in which our industry operates.

Speaker 4: Adjusted operating on an interesting come which exclusive the loss on sales of securities and the net gain on the CLL Eastpact transaction recording the third quarter increased $2.8 million to approximately $27 million from the prior quarter. Turned by a $1 million merchant services vendor contract signing bonus, as well as quarterly increases across most of the other fee revenue categories.

Yes.

Adjusted operating noninterest income, which excludes the loss on sales of securities and a net gain on the sale leaseback transaction recorded in the third quarter increased $2 8 million to approximately $27 million.

John Asbury: We believe these measures are a proof point of our willingness and ability to take action to better position the bank for success both now and in the future while building long term shareholder value. These actions were first in our Q123 quarterly earnings comments. We announced our intent to undertake structural expense reductions when deposit costs rose faster than expected in order to maintain positive operating leverage. We did what we said we would do and announced an expense reduction program in June that is expected to reduce the annual expense run rate by approximately $17 million and had all measures implemented by July.

From the prior quarter, driven by a $1 million in merchant services vendor contract signing bonus as well as quarterly increases across most of the other fee revenue categories.

Speaker 4: reported on interest expense increased $2.8 million to $108.5 million for the third quarter from $105.7 million in the park.

Reported noninterest expense increased $2 8 million to $108 5 million.

For the third quarter from $105 $7 million in the prior quarter.

Speaker 4: Adjusted operating the understrips expense, which excludes the immunization expense related to intangible assets in the second and third quarters. Expenses associated with strategic cost savings initiatives in the second and third quarter. And merger related cost in the third quarter declined by $3.9 million, $95.7 million in the third quarter from $99.5 million in the prior quarter.

Adjusted operating noninterest expense, which excludes the amortization expense related to intangible assets in the second and third quarters expenses associated with strategic cost savings initiatives in the second and third quarter and merger related costs in the third quarter declined by $3 9 million to $95 7 million in the third quarter.

John Asbury: Second, concurrent with Q223 earnings, we announced our entry into a merger agreement to acquire Danville Virginia based American national bank cheers and an all stock transaction. We believe this transaction will improve AUB's financial performance for the build out our franchise in a way that keeps us dense and compact open contiguous expansion markets in North Carolina and further drive the scarcity value or franchise. The initial feedback from the community and American national clients has been strongly positive and we believe we are on track to close the transaction in the first quarter of 2024. We remain excited about what we will do together with the American national team once the merger is completed.

From $99 5 million in the prior quarter.

Speaker 4: Quarterly declined and adjusted not operating non-express expenses was primarily driven by a decrease of 1.6 million in salary some benefits expense, reflecting the impact.

The quarterly decline in adjusted not operating noninterest expenses was primarily driven by a decrease of $1 6 million in salaries and benefits expense, reflecting the impact of the strategic cost savings initiatives executed in the third quarter. In addition professional services.

Speaker 4: of the Strategic Cost Saving Initiative executed in the third quarter.

Speaker 4: In addition, professional services expense the client $1.1 million related to the live or transition and other strategic project costs which were incurred in the prior quarter.

<unk> declined $1 $1 million related to the LIBOR transition and other strategic project costs, which were incurred in the prior quarter marketing and advertising expenses declined by $598000 in technology and data processing expense was also lower by $643000.

Speaker 4: Marketing, the advertising expenses declined by $598,000. In technology, the aga processing expense was also lower by $643,000.

John Asbury: III. We have now acted twice this year to reposition our balance sheet for a higher, for longer interest rate environment. We undertook the second action in the third quarter by pairing a sale lease back of 27 properties with a restructuring of a portion of our securities portfolio. This enabled us to unlock equity in certain owned real estate assets and use that to restructure certain available for sale securities in a capital neutral transaction.

Speaker 4: At period end loans help for investment, netted the per fees and costs, with $15.3 billion, an increase of approximately $217 million, or 5.7% annualized from the prior quarter, through by increases in commercial loan balances of $238 million, or 7.4% in the quarter annualized growth, partially offset by declines in consumer loan balances of 21 billion, or 3.6% annualized.

Period end loans held for investment net of deferred fees and costs were $15 3 billion, an increase of approximately $217 million.

Or five 7% annualized from the prior quarter driven by increases in commercial loan balances of $238 million or seven 4% linked quarter annualized growth, partially offset by declines in consumer loan balances of $21 million or three 6% annualized.

John Asbury: Rob will have more details on the transaction, which was immediately appreciative to our earnings and is anticipated to have a greater impact in the fourth quarter now that the proceeds have been reinvested into higher yielding securities in our available for sale portfolio. All these actions were strategic in nature with anticipated benefits in both the near term and long term. We'll go into our quarterly results in our financial performance in a few minutes, but broadly we saw impressive customer deposit growth which more than funded our loan growth during the quarter, better than expected loan growth from the normally seasonally slow third quarter.

Speaker 4: At the end of September , total deposits stood at $16.8 billion, which was an increase of $375 million, where approximately 9% annualized from the prior quarter, which was driven by increases in interest-bearing customer deposits and bloke deposits partially offset by lower levels of non-interest-bearing demand deposits.

At the end of September total deposits stood at 68 billion.

Which was an increase of $375 million or approximately 9% annualized from the prior quarter, which was driven by increases in interest bearing customer deposits and broker deposits, partially offset by lower levels of noninterest bearing demand deposits.

Speaker 4: At the end of the third quarter, the Atlantic Union Bank shares and the Atlantic Union Bank's regulatory capital ratios were well above well capitalized levels. In addition, on a pro-former basis, we remain well capitalized as of the end of the third quarter. If you include the negative impact of AOCI and health to maturity securities, unrealized losses in the calculation of the regulatory capital ratio.

At the end of the third quarter Atlantic Union, Bankshares, and Atlantic Union Bank regulatory capital capital ratios were well above well capitalized levels. In addition on a pro forma basis, we remain well capitalized as of the end of the third quarter. If you include the negative impact of <unk> and held to maturity securities unrealized losses in the calculation.

John Asbury: I decline in operating expenses, demonstrating the initial benefits of our expense actions, modest net interest margin compression and negligible charge offs. All of this indicates that our franchise remains healthy, strong, and resilient. If we see our financial result this quarter is another confirmation of our long term strategy of being a diversified traditional full service bank, it makes a positive difference in our markets with a strong brand and deep client relationships. We provide economically beneficial services and financings that help people and help businesses.

<unk> of the regulatory capital ratios.

Speaker 4: Our finding it's a outlook for the full year 2023 is as follows. We expect to generate full year loan growth in the higher end of our mid-single-digit range, which is expected to be materially matched by deposit growth. We continue to project that the full year-

Our financial outlook for the full year 2023 is as follows we expect to generate full year loan growth in the higher end of our mid single digit range, which is expected to be materially matched by deposit growth we continue.

The project that the full year fully tax equivalent net interest margin will fall in a range between $3 35 to $3 45, driven by the assumption that the Federal Reserve Bank maintains the fed funds rate at five 5% through the end of the year.

Speaker 4: The equivalent net interest margin will fall in a range between 335 to 345, driven by the assumption that the Federal Reserve Bank maintains the Fed funds rate at 5.5% through the end of the year.

John Asbury: To street forward business model that works and it stood the test to climb over our 121 year history, this is why soundness, profitability, and growth in that order of priority remains our mantra and informs how we run this company.

Speaker 4: In addition, we now project that our further cycle total deposit beta will be approximately 45%, which will be more than offset by the projected through the cycle loan yield data, approximately 50%.

In addition, we now project that our through the cycle total deposit beta will be approximately 45%, which will be more than offset by the projected through the cycle loan yield data of approximately 50%.

John Asbury: I'll now comment on macroeconomic conditions and that our quarterly results. Inflation appears to be on an overall improving trend despite month-of-month volatility and we expect it fed to be most likely done with its rate tightening cycle. While for the purpose of forecasting we continue to plan for a mild recession, it seems there's a real possibility of a soft landing. The macroeconomic environment remains favorable in our footprint and we still do not expect this change in the near-term.

Speaker 4: The through the cycle, intersparing deposit beta is expected to be approximately 55.

Through the cycle interest bearing deposit beta is expected to be approximately 55%.

Speaker 4: As a result of loan growth and our tax equivalent net interest margin projection, we continue to expect the taxable equivalent net interest income to increase by mid-single digits in 2023 from full year 2022 level.

As a result of loan growth in our tax equivalent net interest margin projection. We continue to expect the taxable equivalent net interest income to increase by mid single digits in 2023 from full year 2022 levels. We.

Speaker 4: We also expect that the company will generate positive adjusted operating leverage in 2023 due to expected mid-single-digit adjusted operating revenue growth, a pacing expected relatively flat adjusted operating down to expense growth in 2023 from four-year 2022 levels, as a result of the strategic cost saving actions we took during the second quarter.

John Asbury: Our markets appear to be healthy and our lending pipelines are down a bit from last quarter but are slightly higher than a year ago, which suggests to us that the current macro environment is in pretty good shape than our footprint. Virginia's last reported unemployment rate of 2.5% in August improved from 2.9% in May and as usual remains below the national average of 3.8% during the same time period. We're not anticipating any materially negative near-term shift away from these low unemployment trends in generally benign credit environment but as always we continue to closely monitor the health of our markets.

I also expect that the company will generate positive adjusted operating leverage in 2023 due to expected mid single digit adjusted operating revenue growth.

Facing expected relatively flat adjusted operating the understood expense growth in 2023 for the full year 2022 levels as a result of the strategic cost savings actions, we took during the second quarter.

Speaker 4: In summary, Atlanta do need delivered strong financial results in the third quarter of 2023, despite the challenging banking environment we find ourselves in. As a result, we believe we are well positioned to continue to generate sustainable, profitable growth and to build long-term value for our shareholders in 2023 and beyond.

In summary, Atlantic Union delivered strong financial results in the third quarter of 2023, despite the challenging banking environment, we find ourselves in.

As a result, we believe we are well positioned to continue to generate sustainable profitable growth and to build long term value for our shareholders in 2023 and beyond.

John Asbury: Given continued investor focus on non-uniroccupied commercial real estate and more specifically off-sex exposure, I'll reiterate what I've said for the past two quarters. Commercial real estate finance is a historic strength in our company and it's an asset class that has performed well in our markets which have not traditionally been prone to boom and bust cycles. We stick to our knitting and we generally deal with local and regional developers and operators that we know well and have track records with us.

Speaker 4: And with that, I'll turn it back over to Bill Simeon to open it up for questions from our panel.

And with that I'll turn it back over to Bill to open it up for questions from our analysts.

Speaker 2: Thanks Rob. And Josh, you're ready for our first caller, please.

Rob and Josh we're ready for our first caller. Please.

Speaker 1: Thank you. As a reminder, to ask a question, please press Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 1-1 again. One moment for questions.

Thank you.

Minder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

John Asbury: Non-uniroccupied office exposure totaled $792 million and comprised approximately 5% of our total loan portfolio quarter end. Of this, approximately 22% is medical office which we consider among the highest quality office category. We do not finance large high rise or major metropolitan central business district office buildings and we have no exposure and district at Columbia. The portfolio is performing well and is generally geographically diverse. I've described most of our office exposures suburban single-story and mid-rise properties under long-term leases generally to local tenants who are less likely to use remote or hybrid work options than large national firms.

Speaker 1: Our first question comes from Casey Whitman, the Piper Sandler, you may proceed. Good morning, Casey. Hey, good morning.

Our first question comes from Casey Whitman with Piper Sandler you May proceed good.

Good morning Casey.

Hey, good morning.

Speaker 5: So Rob, just because you're new guide to the year, it's still sort of a broad range. Do you think margin compression and fourth quarter should be less than what we saw in the third quarter at the health of the security's restructuring? And then my follow-on question is just, when do you think the margin sort of bottom is for AUB? I guess excluding the impact of American assets.

So Rob just because your NIM guide for the year is still sort of a broad range do you think margin compression in the fourth quarter should be okay.

Less than what we saw in the third quarter to help on the securities restructuring and then my follow on question is just when do you think the margin sort of bottoms for AEP I guess, excluding the impact of American national.

John Asbury: We recently finished another deep dive analysis of the rec roles of the larger office loans that cover more than half of our portfolio, with an eye toward any near-term lease explorations which we define as less than two years. As with last quarter, we proactively monitor this portfolio and we don't see any systemic concerns in the office look currently. Should problems develop in the portfolio if we believe they would likely be distributed over years and we expect any problems that may develop to be readily manageable.

Speaker 4: Yeah. So in terms of the fourth quarter, we do look for further compression in the margin. We're modeling between five and 10 basis points, inclusive of the impact of the restructuring. In terms of the...

Yes.

So in terms of the fourth quarter, we do look for further compression in the margin.

We are modeling between five and 10 basis points inclusive of the impact of the restructuring.

In terms of the.

Speaker 4: where we think it's going to trough, if you will. We think that's in the first quarter, in the 325 range, give or take a few basis points and then kind of stabilize from that point forward. Of course, this all depends on our assumption.

Where we think its going to trough. If you will we think thats in the first quarter.

In the 325.

Range give or take a few basis points.

And then kind of stabilize from that point forward of.

Of course, this all depends on our assumption.

Speaker 4: If our work in assumption of the Fed funds rates being at $5.50 and market rates kind of being where they are, that's our current outlook based on that.

Our working assumption on the fed funds rates being at $5 50, and market rates kind of be where they are.

John Asbury: Turning to quarterly results. We remain focused on generating positive operating leverage. That is growing our revenue faster than our expenses. Here are a few financial highlights for the third quarter which robble detail momentarily. On a year-over-year basis, we generated positive adjusted operating leverage of approximately 3.1% as adjusted revenue growth was up to approximately 5.2% while adjusted operating non-interest expenses increased approximately 2.1%. I'd also like to point out that pre-tax pre-provision adjusted operating earnings increased 10.6% year-over-year.

That's our current outlook based on that.

Speaker 4: And that was standalone, right, the margin? Yeah, yes, and alone. Yeah, if you bring in, you know, it gets a little complex in terms of the impacts of the American national merger impacts, which obviously will...

And notwithstanding alone right to margin, yes, yes, standalone, yes, if you're bringing in it gets a little.

Complex in terms of the.

The impacts of the American National.

Merger impacts, which obviously will.

Speaker 4: will bring in a lot of accretion income. So, again, I think we said on the call related when we announce the acquisition, we'd be in the 360 to 370 range with accretion on it.

Bringing a lot of accretion income so.

Again, I think we said on the call when we announced the acquisition we'd be in the $3 60 to 370 range with accretion.

On a combined basis.

Speaker 5: Okay, and then can you talk about just sort of where new loan production is getting put on now? And then maybe sort of pair that against where the incremental cost of the new deposit is? Just sort of to get an idea.

John Asbury: Total deposits screwed 9.1% annualized for the core and are up 7.2% for today. Given our year-to-day performance at this time, we expect to be in the mid-single digits for deposit growth for the year, which should largely pace long growth. The remixing of non-interest bearing deposits to interest bearing deposits continued over the quarter to a decreasing rate, and we saw good growth in customer CDs. Quarter end non-interest bearing deposits were 25% of total deposits, a decline of 1.6% percentage points linked quarter.

Okay, and then can you talk about just sort of where new loan production is getting put on now and then maybe pair that against where the incremental cost of deposit is just.

Just to get an idea of the spread coming on.

Speaker 4: Yeah, so, the production this quarter came on around 7%. Combination of both variable rate loans coming on production and fixed rate. I think the variable rate loans is about 50, 50 in terms of, you know, rounded in terms of fixed versus variable. Variable was coming on close to 8%. Fix was coming on a little over 6%. So blended, you know, we talked about 7%.

Yes, so absolute production this quarter came on around 7%.

Combination of both.

Variable rate loans coming on production in fixed rate.

I think the variable rate loans, probably about 50 50 in terms of.

John Asbury: We posted annualized loan growth of 5.7% during the third quarter, led by growth in commercial loans. Year-to-date loan growth was 7.7% annualized. Loan growth was up across commercial real estate and commercial industrial banking in the quarter. Construction-line balances were down from the second quarter as projects rolled off, but are still higher than the prior year. Our pipelines are holding up pretty well, are slightly elevated from a year ago and remain healthy.

Rounded in terms of fixed versus variable variable was coming on closer to 8% fix was coming on a little over 6% so blended.

We're talking about 7%.

Speaker 4: So that continues a churn.

So thats continuing to churn.

Speaker 4: Fixed rate loans, portfolio fixed rate loans, reprice, we add new loans, that's going to help the loan yields continue to go up. But again, we expect the positive rates to continue to go up primarily from the continual remix that we're seeing. We think that's slowing down, but we'll continue to impact the margin a bit more than the loan yields. So, little negative.

Fixed rate loans portfolio of fixed rate loans would reprice, we add new loans, that's going to help.

The loan yields continue to go up but again, we expect deposit rates to continue to go up primarily.

John Asbury: Given our year-to-day performance at this time, we expect to be in the upper end of our mid-single digit loan growth guidance for 2023. While the economic outlook in our footprint and borrower demand could change, we expect to remain in the growth mode for the rest of 2023. CNI line utilization this quarter was relatively flat with the prior quarter, but up from prior year's third quarter. Commercial real estate payouts declined year over year, and were down slightly from the second quarter.

From.

The continuing to remix that we're that we're seeing.

We think thats slowing down, but we will continue to impact the margin a bit more than.

Loan yields so low negative continuing there.

Speaker 5: Okay, I'll just switch gears just to ask, you know, obviously there's more questions than the industry around shared national credit. So can you walk us through the size of that book for you and any color around that you might want to add?

Okay.

Switch gears just ask obviously that there's no more question in the industry around shared national credit. So can you maybe walk us through the size of that book for you and any color around that you might want to add.

John Asbury: Turning to credit, that was a good story, as we recorded annualized net charge-offs of one basis point for the third quarter, down from four basis points in the second quarter. We have yet to see any sign of a systemic inflection point in our asset quality metrics which remain benign. While we continue to expect a normalization in asset quality at some point, following the long run of minimal net charge-offs, we remain competent and are pleased with in our asset quality.

Speaker 3: Yeah, KC, this is John . This is not a primary focus for us. We do have some shared national credits. Historically, what we've done most of it would be Virginia-based corporations, where we know them. This is a single digit percentage of the one portfolio. It's more important to talk about what we do not.

Yeah Casey this is John .

This is not a primary focus for us we do have some shared national credits historically, what we've done most of it would be Virginia based corporations.

Where we know them. This is a single digit percentage of the loan portfolio. It's more important to talk about what we do not do we do not maintain with some banks will call a secure a syndications platform also known in the industry as a by desk.

Speaker 3: We do not maintain what some banks will call a syndications platform. Also, then an industry is a bike.

John Asbury: In some, we thought this was a strong and fundamentally sound quarter for Atlantic Union. We have continued to demonstrate that we will take the necessary strategic actions to successfully navigate the challenges we face in this uncertain economic environment, and we don't foresee that uncertainty ending anytime soon with recent geopolitical events in a possibly contentious process for the next round of congressional funding, but for the time being, we remain cautiously optimistic in our outlook as usual, with uncertainty comes opportunity, which we believe we are well positioned to capitalize on.

Speaker 3: We are not buying secondary issuances.

We are not buying.

Secondary issuances.

Speaker 3: in the open market. What we would do would be to deal with companies that we know where we have relationships with management that we physically call on and anything we would take on would almost certainly be a primary syndication.

On the open market, what we would do would be to deal with companies that we know where we have relationships with management that we physically call on anything we would take on would almost certainly be a primary syndication.

Speaker 3: You will see subsets of this, some of the larger government contractors, we have some of that.

You will see subsets of this some of the larger government contractors, we have some of that.

Speaker 3: asset based lending, we have some of that. Although as we expand asset based lending and really built out our infrastructure, the primary focus there is more individual bank deals. This is not a big if.

Asset based lending we have some of that although as we've expand asset based lending and really built out our infrastructure. The primary focus there is more individual bank deals. This is not a big effort for us.

John Asbury: Atlantic Union is a uniquely valuable franchise that is a diversified, traditional, full-service bank with a strong brand and deep client relationships and stable and attractive markets. It should soon be even more so with the addition of the American National Bank to the AUB family. We remain on a solid footing, resilient and expect a good finish to the ears.

Speaker 2: Okay, appreciated. Thank you for taking my questions. Let's have an awesome time. Thanks, KC. And Josh, we're ready for our next call, please.

Okay. Appreciate it. Thank you for taking my questions, Let me answer thanks.

Thanks, Casey and Josh we're ready for our next caller. Please.

John Asbury: Last month, Mark my seventh year anniversary to Atlantic Union Bank and I'd like to take this opportunity to thank our teammates for the essential role they have played in the evolution of this great company. As I look back, I can say that overall, we have done what we said we would do, and while our strategy has evolved and responded to our changing environment, there's also remained consistent and it's working.

Thank you one moment for our next question.

Speaker 1: Our next question goes from Katherine Mueller with KVW, you may proceed.

Our next question comes from Catherine Mealor with <unk> you May proceed.

Speaker 6: Hi Catherine. Thanks good morning. Hey good morning. Fees had a really nice quarter to set some nice growth in service charges and trust fees. Just kind of curious how you're thinking about fee growth into the next quarter and really had a fee given into 24.

Okay, Hi, Katherine Thanks, Good morning, Hey, good.

Morning.

Steve had a really nice quarter, you saw some nice growth in service charges.

Trustees, just kind of curious how youre thinking about the crest into the next quarter and really here. Thank you get into 'twenty four.

Robert Gorman: I'll now turn the call over to Rob to cover the financial results for the quarter.

Speaker 4: Yeah, so in terms of those categories, it's really being impacted by net...

Robert Gorman: Rob? Well, thank you, John.

Yes, so in terms of those categories really.

Robert Gorman: Good morning, everyone. Thanks for joining us today. Please note that, for the most part, my commentary will focus on Atlantic Union's third quarter financial results on a non-gap adjusted operating basis, which excludes the pre-tax cost of $8.7 million recorded in the third quarter, and $3.9 million recorded in the second quarter related to our strategic cost saving initiatives announced in the second quarter, as well as the $2 million in pre-tax costs related to our proposed merger with American National, which was incurred in the third quarter.

Impacted by net.

Speaker 4: client growth number of accounts. We see about 2 to 3% in new client growth.

Client growth number of accounts.

About 2% to 3%.

And new client growth.

Speaker 4: So we'd expect, you know, to be in the 2 to 3, 2 to 4% growth rate as we go for. It also included in there is a debit card interchange. So.

Growth so we would expect.

Two to three 2% to 4% growth rate as we go forward.

Also included in there.

Debit card interchange so.

Speaker 2: You know, we continue to see more growth here as well with a number of new accounts come in as well. And then there's seasonal impacts in the fourth quarter. So you expect to sum some of that Q3 to Q4 increase with the holiday season and more transactions come in.

Sure.

We continue to see more growth here as well.

The number of new accounts come in come in as well and then as seasonal impacts in the fourth quarter. So you would expect to see some of that.

Robert Gorman: In addition, the third quarter financial results on a non-gap adjusted operating basis exclude the pre-tax gain of $27.7 million related to the sale lease-back transaction, and the pre-tax net loss on the sales of securities of $27.6 million. Our previously disclosed sale lease-back transaction of 27 home properties including 25 branches generated cash proceeds of approximately $46 million, and resulted in a pre-tax gain of approximately $27.7 million in the third quarter, or $22 million after tax net of transaction-related costs.

Q3 to Q4 increase.

With the holiday season, and more transactions coming through.

Speaker 4: But in the end, we're talking about two to four percent growth in those categories as we go forward on a stand.

But.

In the end, we're talking about 2% to 4% growth in those categories. As we go forward on a standalone basis.

Speaker 6: Okay, great, and then on one, John , you may the comment that you're still in gross mode going.

Okay, Great and then Im wondering John you made a comment that you are still in growth now going into the fourth quarter. How do you. How do you think about growth into next year.

Speaker 6: into the fourth quarter. How do you think about growth into next year and just

Speaker 3: where you're comfortable adding new loans, where you're kind of pulling back, and really what this kind of client appétitors today with higher rate. Yeah, I'm gonna, we have double-a-tie credit officer and David Raine had a commercial banking here too, and since most of the production comes out of the commercial saddle, last day to comment, my two cents on this is that, you know, the environment, it is okay.

Where youre comfortable adding new loans, where youre kind of going back and really with the kind of client appetite is.

With higher rate, yes, we have definitely chief credit officer, and David <unk> head of commercial banking here too and since most of the production comes out of the commercial side I'll ask David to comment on this is that the environment. It is opaque.

Robert Gorman: Aggregate first year, first full year of rent expense under the lease agreements will be approximately $3.7 million or $2.9 million after tax, which will be partially offset by the elimination of the annual pre-tax depreciation expense on the properties of approximately $969,000, and the estimated increase in annual pre-tax interest income of approximately $2.2 million generated by the investment of the transaction's net cash proceeds. Concerned with a sale lease-back transaction, the company restructured a portion of its investment portfolio by selling approximately $228 million in available per sale securities yielding approximately 2.3 percent, resulting in a pre-tax net loss of approximately $27.7 million, almost wholly offsetting the net gain recognized from the sale lease-back transaction.

Speaker 3: I do think that in general, our economy is indicated in my prepared comments is in good shape.

I do think that in general our economy as I indicated in my prepared comments is in good shape.

Speaker 3: We are in the budgeting process for next year, and at this point, all you're discussing would be something in the mid-single-digit loan growth range. I think we will continue to be able to grow in a minute in case we'll see what happens.

We are in the budgeting process for next year and at this point, what we are discussing with the something in the mid single digit loan growth range. I think we will continue to be able to grow at a pace, we will see what happens.

Speaker 7: Faith, as you think about it, what is your take on this? Yeah, our pipeline going into the year, would support that, John , mid-single digit growth. It's probably going to come more from the C&I and equivalent finance and the regular businesses that operate in businesses versus real estate.

Dave as you think about it.

What is your take on this.

Yes, our pipeline going into the year.

Support that John .

Mid single digit growth.

It's probably going to come more from the C&I and equipment finance.

Robert Gorman: The net proceeds from the security sales and the sale lease-back transaction have been re-invested into the available per sale securities portfolio yielding approximately 6 percent. In combination on an annualized basis starting in the fourth quarter, these strategic actions are expected to increase earnings per share by 6 cents or 2 percent at five basis points of the net interest margin and reduce the efficiency ratio by approximately 24 basis points. In the third quarter reported net income available to the common shareholders was $51.1 million and earnings per common share were 68 cents.

Regular businesses that are operating businesses versus real estate.

Speaker 7: We just saw our production for this quarter be two thirds C and I went there real estate. So we're seeing that start to happen today and we think it'll continue into the next quarter.

We just saw our production for this quarter. The two thirds C&I one third real estate. So we're seeing that starting to happen today and we think it will continue into the next quarter into next year I think thats a good assessment of it really points back to the merit of our seven year along effort to diversify the bank's capabilities.

Speaker 3: I think that's a good assessment. It really points back to the merit of our seven year-long effort to diversify the bank's capabilities. If we were just to commercial real estate lender.

If we were just a commercial real estate lender I would be giving you a different answer but I think the diversification of the things that we do.

Speaker 3: I would be giving you a different answer, but I think that the diversification of the things that we do, the brand that we build for small and mid-sized businesses, the overall strength of our markets, all of this makes us bullish. The Wild Card will be American National Bank.

The brand that we built for small and mid sized businesses. The overall strength of our markets. All of this makes us bullish the wildcard will be American National Bank.

Robert Gorman: Adjusted operating earnings available to common shareholders were $59.8 million or 80 cents per common share per third quarter which was an increase of $4.4 million or 7.9 percent from the second quarter and up $4.7 million or 8.5 percent from the third quarter of 2022. The adjusted operating return on tangible common equity was 18.3 percent in the third quarter up from 17 percent in the second quarter. Adjusted operating return on assets was 1.21 percent in the third quarter which was up five basis points from the prior quarter and on an adjusted operating basis, the efficiency ratio was 52.4 percent in the third quarter which was down 3 percent from 55.3 percent in the second quarter.

Speaker 3: We only get too far into that right now, but as we several, we announce the merger, we bring a bigger balance sheet, we bring infrastructure and capabilities, particularly on the CNI side. You marry that with the great team that they have, the reputation that they have, the physical presence.

We don't want to get too far into that right now, but as we said when we announced the merger we bring a bigger balance sheet, we bring infrastructure and capabilities, particularly on the C&I side, you marry that with.

The great team that they have the reputation that they have the physical presence the things, we can do and kind of the industrial markets in the south side of Virginia or.

Speaker 3: The things we can do and kind of the industrial markets of the South Side of Virginia, or Southern Virginia, is actually call it. And then the entry of the Piedmont Triad, you know, all of these things give us confidence that we should be able to achieve, let's just call it mid-single digit growth. And then we'll see what happens from there.

Our southern Virginia is actually call. It and then the entry and the Piedmont Triad all of these things give us confidence that we should be able to achieve let's just call. It mid single digit growth and then we'll see what happens from there.

Great very helpful. Thank you.

Speaker 2: Thanks, Katherine. Thanks, Katherine. Josh, are you ready for our next baller please?

Robert Gorman: Turning the credit loss reserves as of the end of the third quarter the total allowance per credit losses was $140.9 million which is an increase of approximately $4.7 million from the second quarter primarily due to loan growth in the third quarter and the impact of continued uncertainty in the economic outlook. The total allowance per credit losses as a percentage of total loans held for investment was 92 basis points at the end of the third quarter.

Thanks, Scott Thanks, Catherine Joshua ready for our next caller. Please.

Thank you one moment for our next question.

Speaker 1: Our next question comes from Russell Gunther with Stephen's He May Proceed.

Our next question comes from Russell Gunther with Stephens you May proceed.

Speaker 8: I wrote a good morning guys. Hey John , good morning. Just a couple follow up. So on the long growth.

Hi, Rob Hey, Good morning, guys, Hey, John Good morning, just a couple of follow ups. So on the loan growth discussion.

Speaker 3: Appreciate your thoughts there. How does the North Carolina market fold into there? What's the opportunity set, particularly as American national fold in? What do you think Dave? Now don't be too bullish here.

Get your thoughts there how does the North Carolina market fold into there, what's the opportunity set, particularly as American national folds in but what do you think they've now don't be too bullish here.

Robert Gorman: The revision per credit losses of $5.5 million in the third quarter was down from $6.1 million in the prior quarter which was primarily due to loan by lower net charge-offs. Net charge-offs decreased to $294,000 or one basis point annualized in the third quarter from $1.6 million or four basis points annualized in the second quarter. The year-to-date net charge-off ratio was six basis points on an annualized basis. Now turning the pre-tax, pre-provision components of the encode statement for the third quarter, tax equivalent, that interest income was $155.7 million which was a slight decrease from the second quarter.

Speaker 7: Well, we've been in North Carolina in real estate. Yeah, we're there in quite a while for us. Yeah. For seven years, all at all. And we've been pretty successful there. What American National Brings is a really good commercial industrial bank.

Well, we've been in North Carolina, and real estate, where there quite a while for us for seven years, Charlotte office, and we've been pretty successful there what American National brings is really good commercial industrial bankers and in markets like the triad and the triangle areas of North Carolina.

Speaker 3: markets like the triad and the triangle areas of North Carolina. So we think there's going to be opportunity there. We don't know what it is completely yet, but we think it's going to be an opportunity to grow. It could be incremental growth opportunity. And they sit there, if you look at the map on the I-40 corridor starting in Winston Salem, over to Greensboro, Burlington, they have a small rally off.

So we think there's going to be opportunity. There. We don't know what it is completely yet, but we we.

We think it's going to be an opportunity for growth could be incremental growth opportunity and they sit there. If you look at the map on the I 40 corridor, starting in Winston Salem over to Greensboro, Burlington and they have a small Raleigh office.

Robert Gorman: The higher cost, deposit costs due to increases in market interest rates, changes in deposit mixes, depositors continue to migrate to higher costing, interest bearing deposit accounts. In growth and average deposit balances were partially offset by an increase in loan yields on our variable rate loans due to increases in short term interest rates during the quarter as well as by growth in average loans held per investment. The third quarter tax equivalent in interest margin was 3.35%, which was a net decrease of 10 basis points from the previous quarter due to an increase of 20 basis points in the yield unearning assets driven primarily by increases in loan yields and loan growth, which was more than offset by a 30 basis point increase in the cost of funds.

Speaker 3: And those are good industrial markets. So I agree with Dave. On the real estate side, we mostly bring a bigger balance.

Those are good industrial markets I agree with Dave on the real estate side, we mostly bring a bigger balance sheet.

Speaker 3: On the commercial and industrial side, we bring robust treasury management services, equipment, finance, asset based lending, and just the infrastructure to be able to better go after. I would say, you know, mid-sized companies and then Southern Virginia, which.

The commercial and industrial side, we bring robust Treasury management services equipment finance asset based lending and just the infrastructure to be able to better go after I would say mid sized companies and then southern Virginia, which used to be called the south side, where their home turf.

Speaker 3: used to be called the South Side. Whether home turf is Danville, Martin'sville over into South Boston. And by the way, we do double down at Roanoke. These are good commercial and industrial markets and we've not had a presence in southern Virginia. We are in Roanoke. So we're bullish. I don't want to sound too bullish. I'm just saying that these are things that will be incrementally beneficial to us.

As Danville Martinsville over into South Boston and by the way, we do double down at Roanoke. Yes. These are good commercial and industrial markets and we have not had a presence in southern Virginia. We are in Roanoke. So we're bullish I don't want to sound too bullish I'm, just saying that these are things that will be incrementally beneficial to us.

Robert Gorman: The loan portfolio yield increased 22 basis points to 5.84% in the third quarter from 5.62% in the second quarter, which had a 20 basis point to the net interest margin. Primarily due to the impact of rising market interest rates on variable rate loan yields, new loan production yields, as well as on renewing loan yields.

Speaker 3: And if you look at the backgrounds of the American National People, they absolutely do have people with commercial and industrial backgrounds too. In addition to good traditional commercial real estate community banking backgrounds, all of this is beneficial. I think there's a lot we can do together. So.

And if you look at the background of the American National people. They absolutely do have people with commercial and industrial backgrounds to in addition to good traditional.

Commercial real estate community banking backgrounds. All of this is beneficial I think there's a lot. We can do together to overcome over it will come in over time over time, yes to be clear over time, So we'll see where it goes from here, but I think this is really an expansion platform, we're going to be able to do more things in southern Virginia, and we're going to be.

Robert Gorman: Bill Gates. The 30 basis point increase in the third quarter's cost of funds of 2.04%, was primarily driven by the 36 basis point increase in the cost of deposits to 1.97%, which had a 35 basis point negative impact on the third quarter's net interest margin, which was partially offset by the 4 basis point impact of lower borrowing costs. The deposit cost increase was driven by changes in the deposit mix as depositors migrated to higher costing, interest sparing deposit accounts during the quarter.

Speaker 3: Over time, over time. Yes, to be clear over time. So we'll see where it goes from here. But I think that this is really an expansion platform. We're going to be able to do more things in Southern Virginia. And we're going to be able to definitely build for a very long time as far as the I can see along.

Able to definitely build for a very long time as far as the eye can see along.

Speaker 3: that I-40 corridor in North Carolina using exactly the same strategy we have here in Virginia. You know, we're built to be the challenger.

<unk> hundred 40 corridor in North Carolina, using exactly the same strategy. We have here in Virginia, we're built to be the challenger bank to the large institutions, where the alternative to the large institutions. We can do what they do for small and midsized businesses.

Speaker 3: to the large institutions, whether you're all part of the large institutions, we can do what they do for small and mid-sized businesses.

Robert Gorman: The modest increase in higher cost, broker deposit balances, as well as by the increases in interest sparing deposit rates driven by rising market interest rates. Adjusted operating on interest income, which excludes the loss on sales of securities and the net gain on the sale lease patterns action, recording the third quarter increased $2.8 million to approximately $27 million from the prior quarter, turned by a $1 million merchant service has been their contract signing bonus, as well as quarterly increases across most of the other fee revenue categories reported on interest expense, increased $2.8 million to $108.5 million for the third quarter from $105.7 million in the prior quarter.

Speaker 3: And we think do it more responsibly, responsibly. And at the same time, we recognize we compete against the small banks all day every day. So we're kind of covering both bases. That's the homework of Atlantic Union Bank.

And we think do it more responsibly responsive Lee and.

At the same time, we recognize we compete against the small banks all day every day, so we're kind of covering both basis.

That's the hallmark of Atlantic Union Bank.

Speaker 3: authentic human experience plus digitally forward technology that is our strategy.

Identic human experience plus digitally for technology that is our strategy.

Speaker 8: I appreciate it. I'm just switching gears to the follow up on the margin.

That's good color guys I appreciate it.

And just switching gears as a follow up on the margin so.

Speaker 8: a lot of good detail in terms of expectations. One that I wanted to focus on was the deposit remix comments made that that's slowing, but certainly remains impactful to the name. So as you think about where non-interest bearing ultimately shakes out as the percentage of total deposit.

A lot of good detail in terms of expectations.

One that I wanted to focus on was the deposit remix comments made that that slowing but certainly remains impactful to the NIM. So as you think about where non interest bearing ultimately shakes out as a percentage of total deposits just give us some updated thoughts on that front and is that a function of outflow.

Robert Gorman: Adjusted operating on interest expense, which excludes the amortization expense related to intangible assets in the second and third quarters, expenses associated with strategic cost savings in the initiative. And merger related cost in the third quarter declined by $3.9 million to $95.7 million in the third quarter from $99.5 million in the prior quarter. Quarterly declined and adjusted not operating on interest expenses was primarily driven by a decrease of $1.6 million in salaries and benefits expense, reflecting the impact of the strategic cost savings initiative executed in the third quarter.

Speaker 8: Just give us some updated thoughts on that front and

Speaker 8: is that a function of outflow, that function of remix out of non-IB from current customers into higher yielding products, just some additional calls.

Without a function remix out of non IV from current customers into higher yielding products.

Some additional color would be helpful.

Speaker 4: Yeah, so Russell, we're projecting that we'll be in, you know, the 23 to 25% range, kind of where we were, pre-pandemic levels, 22 to 25. We've been holding fairly steady, and we saw a big decline, you know, from fourth quarter through the first two quarters and it's kind of slowed down. Most of that is not really outflow going out of the bank, it's really getting remixed into...

Yes, so Russell.

We're projecting that we'll be in.

The 23% to 25% range kind of where we were pre pandemic levels 'twenty two to 'twenty five.

Been holding fairly steady and we saw a big decline from fourth quarter.

Through the first two quarters, and it's kind of slowed down.

Robert Gorman: In addition, professional services expense the climb $1.1 million related to the live or transition and other strategic project costs, which were incurred in the prior quarter, marketing, advertising expenses declined by $5.98 million in technology and the negative processing expense was also lower by $643,000. At period end loans help for investment, netted the third fees and cost were $15.3 billion, an increase of approximately $217 million, or 5.7% annualized from the prior quarter, during by increases in commercial loan balances of $238 million, or 7.4% in the quarter annualized growth, partially offset by declines in consumer loan balances of $21 million, or 3.6% annualized.

Most of that is not really outflow going out of the bank, it's really getting remixed into.

Speaker 4: just checking in some of our higher cost, higher yielding rates, categories. So we do expect to kind of stabilize them down here we are, mean to out a bit, but I want to see how that plays out.

Interest checking and some of our other higher cost.

Higher yielding rates.

Categories.

So we do expect to kind of stabilize around where we are mid to up a bit.

But.

We will have to see how that plays out but really.

Speaker 4: really not much ship going on here. You know, in the end there's a stabilized level where people are using...

Really not much shift going on here.

And then there is a stabilized level.

Speaker 3: The man deposits for operating accounts and you know, this is a certain level. It's going to stabilize and that's where we think it will be. We're right about that and this week really grown the commercial business base of clients, the small mid-sized businesses. You pick up more operating accounts that are using Treasury management services.

People are using.

Demand deposits for operating accounts and there is a certain level, it's going to stabilize and that's why we think it will be right about that and as we've really grown the commercial business face of clients small midsized businesses you pick up more operating accounts that are using treasury management services and I think if you look at our average balance.

Robert Gorman: At the end of September total deposits stood at $16.8 billion, which was an increase of $375 million, or approximately 9% annualized from the prior quarter, which was driven by increases in interest-bury customer deposits and broker deposits, partially offset by lower levels of non-interest-bury demand deposits. At the end of the third quarter, Atlantic Union bank shares and Atlantic Union bank's regulatory capital ratios were well above well capitalized levels. In addition, on a pro-former basis, we remain well capitalized as of the end of the third quarter, if you include the negative impact of AOCI and health to maturity securities, unrealized losses in the calculation of the regulatory capital ratio.

Speaker 3: And I think if you look at our average balances, you know, the average consumer balance this quarter was $19,000 going for memory.

As the <unk>.

Average consumer balanced this quarter was $19000 going from memory. The average business client has about $100000 in their account, yes. This suggests that need that.

Speaker 3: The average business client has about $100,000 in their account. Yeah, this suggested me.

Speaker 3: Many of them are probably kind of operating level and non-interest mirroring we think.

Many of them are probably are kind of operating level and noninterest bearing we think it's hard to say two we can't predict with any precision where it's going to be but I agree with what Rob I think we're sort of approaching bottom we'll see exactly.

Speaker 3: It's hard to say, we can't predict with any precision where it's going to be, but I agree with Bach-Rab. I think we're sort of approaching bottom.

Speaker 4: Yeah, I think, you know, we'll still on the remix. A lot of that is kind of remixing from what I would call the positive standard rates kind of moving to these higher levels, you know.

Russell on the remix a lot of that is kind of remixes from what I would call deposits as standard rates kind.

William Cimino: Services. Our finding it's a outlook for the full-year 2023 is as follows. We expect to generate full-year loan growth in the higher end of our mid-single-digit range, which is expected to be materially matched by deposit growth. We continue to project that the full-year fully tax equivalent that interest margin will fall in a range between 335 to 345, driven by the assumption that the Federal Reserve Bank maintains the Fed funds rate at 5.5% through the end of the year.

William Cimino: In addition, we now project that our full-year cycle total deposit data will be approximately 45%, which will be more than offset by the projected through the cycle loan yield data to approximately 50%. The full-year cycle interest bearing deposit data is expected to be approximately 55%. As a result of loan growth and our tax equivalent net interest margin projection, we continue to expect the taxable equivalent net interest income to be increased by mid-single-digits in 2023 from full-year 2022 levels.

Kind of moving to these higher levels.

From a.

Speaker 4: It was checking with money market counsel higher, higher yielding CD was kind of really what we're talking about from Remix and expect. You know, that will continue, but certainly slow down from what the what it was in the first couple.

Interest checking money market and also higher higher yielding CD.

Kind of really what we're talking about for remix and expect that will continue but.

Certainly slowed down from what what the.

What it was in the first couple of quarters.

Speaker 8: Okay, great. Thank you both. Just a clarification on the C outlook.

Okay, great. Thank you both.

Just a clarification on the fee outlook.

Speaker 2: I think I only half caught this. There was a certain merchant servicers signing bonus that was this quarter and about a million bucks and then just kind of wearing the P&L that fell line item one. Yeah, that's another fees Russell. It serviced charge other fees.

I think I only have cut theirs.

Merchant Servicers signing bonus that was this quarter and about 1 million Bucks and then just kind of where in the P&L that felt like.

The line item lines.

That's another other fees.

So.

Service charges other fee and service charges.

Okay.

Yes.

Speaker 2: and then didn't get ml the service Georgia's

That's helpful. Thanks, and then just lastly.

The other service charges.

And fees.

William Cimino: We also expect that the company will generate positive adjusted operating leverage in 2023 due to expected mid-single digits adjusted operating revenue growth, outpacing expected relatively flat adjusted operating down to its expense growth in 2023 from full-year 2022 levels, as a result of the strategic cost saving actions we took during the second quarter. In summary, Atlanta do you need delivered strong financial results in the third quarter of 2023, despite the challenging banking environment we find ourselves in.

Speaker 8: Thank you. And then last one for me, credit has been really strong for you guys. Here are the commentary about normalization understood. What does normalization look like for Atlantic Union, as you think out to 24, and what would the drivers of that normalization?

Thank you.

And then last one for me.

<unk> has been really strong for you guys.

The commentary about normalization understood.

What does normalization look like for Atlantic Union as you think out to 'twenty four.

And what would the drivers of that normalization beam.

Speaker 2: Yes, so we would project 15 to 20 basis points of annualized charge offs is probably a normal level for us.

Yes.

We would project that 15% to 20 basis points of <unk>.

Annualized charge offs as probably a normal level for us.

William Cimino: As a result, we believe we are well positioned to continue to generate sustainable, profitable growth and to build long-term value for our shareholders in 2023 and beyond. And with that, I'll start it back over to Bill Somino to open it up for questions from our analysts. Thanks, Rob. And Josh, we're ready for our first caller, please. Thank you. As a reminder, to ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. One moment for questions.

Speaker 7: Of course, we haven't come near that to date in this period.

Of course, we haven't come near that today.

Right.

In this period.

Speaker 7: kind of what we're looking for. You know, things like higher interest rates and other

Yes.

Kind of what we're looking for.

Things like higher interest rates and other.

Speaker 7: you know, recessionary factors could play into that. We're not projecting that at this point, although our amounts of credit losses does skew towards more recessionary environment. But that's about what we think. And Doug, I don't know if you have anything to add from the keep credit officer perspective, but that's a view of we...

We set some very factors could play into that we're not projecting that at this point, although our allowance for credit losses.

Skew towards more recessionary environment.

But that's about what we think and Doug I know if you have anything to add from the Chief credit Officer perspective.

Casey Whitman: Our first question comes from Casey Whitman with Piper Sandler. You may proceed. Good morning, Casey. Hey, good morning. So, Rob, just because you're new guide to the year is still sort of a broad range. Do you think margin compression in the fourth quarter should be less than what we saw in the third quarter at the help of the securities restructuring? And then my follow along question is just, when do you think the margin sort of bottoms for AUB?

We have as a company.

Speaker 9: Yeah, the weakening, if it comes, will be in smaller credit.

Yes, but weakening if it comes.

We will be in smaller credits.

Speaker 9: We don't see anything. We've done a recent...

We don't see anything.

<unk> done a recent.

Speaker 9: resizing of ensuring commercial real-state loans and construction loans converting to their mini-perm They're resizing on that and all of that looks perfectly fine

Re sizing of maturing commercial real estate loans and construction loans converting to their mini perm.

Casey Whitman: I guess excluding the impact of American national? Yeah. So in terms of the fourth quarter, we do look for further compression in the margin. We're modeling between five and ten basis points, inclusive of the impact of the restructuring. In terms of where we think it's going to trough, if you will, we think that's in the first quarter in the three, twenty-five range, give or take a few basis points, and then kind of stabilize from that point forward.

That re sizing on that and all of that was perfectly fine. So if something happens it will it'll be on the smaller commercial credit base and as is always the case.

Speaker 9: If something happens, it'll be in a smaller, commercial credit base and as always the case.

Speaker 3: And think about the drivers of the C-cell modeling, what drives it, underpinning it, the unemployment rate, what's happening with the gross domestic product?

And same home portfolio.

About the drivers of the see some modeling what drives it underpinning the unemployment rate what's happening with the gross domestic product.

Speaker 3: And it's just hard to see the economy falling off a cliff. Anytime soon, at least in the markets in which we operate. Having said that, yeah, I would caution, there's always the infamous one off.

And it's just hard to see the economy falling off a cliff anytime soon at least in the markets in which we operate having said that I would caution there is always the infamous one off.

Casey Whitman: Of course, this all depends on our assumption. If our work in assumption of the PED funds rates being at $5.50 and market rates kind of being where they are, that's our current outlook based on that. And that was standalone, right, the margin? Yeah, yes and a load. Yeah, if you bring in, you know, it gets a little complex in terms of the impacts of the American national merger impacts, which obviously will bring in a lot of a Christian income. So, you know, again, I think we said on the call related to when we announced the acquisition, we'd be in the 360 to 370 range with a Christian on a combined basis.

Speaker 3: Now, you can't have a four off and a five off and a ten off, but things do happen from time to time. It could be idiosyncratic. We're always subjected to that. We haven't, we saw one.

Now you can't have a four often are five often turn off but things do happen from time to time, there can be idiosyncratic.

Subjected to that yet we saw one of those this year, but overall Russell, we still feel pretty good but acknowledged black Swan events happen all the time.

Speaker 8: But overall, Russell, we still feel pretty good, but I acknowledge Flaxlon events happen all the time. But we feel pretty good about where we are right now. Understood. OK, guys. Thank you very much for taking my question. Thanks for all the questions. And just.

But we feel pretty good about where we are right now.

Understood. Okay, guys. Thank you very much for taking my question.

Thanks for the question and Josh we're ready for our next caller. Please.

Thank you one moment for our next question.

Speaker 1: Our next question comes from Steve Moss, Raymond James, he may proceed.

Our next question comes from Steve Moss with Raymond James You May proceed.

Speaker 10: I see you guys. Good morning, guys. One jump. On, then just on, go back a little.

Good morning, guys.

Morning, John .

Casey Whitman: Okay, and then can you talk about just sort of where new loan production is getting put on now, and then maybe sort of pair that against where the incremental cost of the new deposit is just sort of to get an idea of the spread coming on. Yeah, so a load production this quarter came on around 7%. Combination of both variable rate loans coming on production and fixed rate. I think the variable rate loans is about 50, 50 in terms of, you know, rounded in terms of fixed versus variable.

Thanks.

Parts of Europe .

Speaker 2: Robby mentioned loans coming in at 7% for the quarter. Just curious, you know, should we expect to step up and loans being added, and loan rates for loans being added to this court.

Rami mentioned loans coming in at 7% for the quarter, just curious should we expect a step up and loans being added.

Inland rates for loans being added this quarter.

Speaker 2: Do you mean production, Steve, is your question, what do we expect for production in Q4? Or do you either rate it? The expected rate. So what do you expect for the record? Yeah, I think you see...

So.

Do you mean production Steve is your question what does what do we expect for production in Q4 or do you kind of the rates.

The expected rate so what do you expect from yes, Yes, I think I think you see.

Speaker 7: probably kind of staying where we saw it in a third quarter, you know.

Probably kind of staying where we saw.

Casey Whitman: Variable was coming on closer to 8%. Fix was coming on a little over 6%. So blended, you know, we talked about 7%. So, that that continues a churn, you know, that's fixed rate loans, portfolio fixed rate loans, reprise, we add new loans. That's going to help the loan units continue to go up. But again, we expect the positive rates to continue to go up primarily from the continual remix that we're seeing. We think that slowing down, but we'll continue to impact the margin a bit more than loan yields. So a little negative continued there.

In the third quarter.

Speaker 7: averaging about seven, maybe over seven. I think the term rates being up, you might see the fixed rate loans get priced a bit higher on the production, but I think...

Averaging about seven maybe over little over seven I think the term rates being up you might see the fixed rate loans get priced a bit higher.

The production, but I think.

Speaker 7: you know, if the Fed does stay steady, I don't think you'll see much movement in the short term rates. So the variable rate, new loans coming out will probably be in the...

Yes.

If the fed does stay steady I don't think you'll see much movement in the into the.

Short term rates.

The favorable rate.

New loans coming on will probably be in the <unk>.

Speaker 7: close to 8%, which is what we saw in the third quarter. So now looking for a lot of shift there, but if it's gonna happen, it's gonna be in the fixed rate turn loans, just because that terminates of going up since the end of the year.

Closer to 8%, which was what we saw in the third quarter. So now looking for a lot of shifts there but.

It's going to happen is going to be in the.

And the fixed rate term loans, just because terminals have gone up since the end of the quarter.

Casey Whitman: Okay, I'll just switch gears just to ask, you know, obviously there's more questions in the industry around shared national credit.

Speaker 2: Okay. And then, you know, on the deposit front, you know, curious, you know, with your margin guide here as, you know, to the 325 range, what you guys are thinking for, what that is applying for deposit beta, and just maybe just a little talk around the competition for deposits you guys are seeing in your market.

Okay.

And then on the deposit front.

Casey Whitman: So can you maybe walk us to the size of that book for you and any color around that you might want to add?

Curious whats your margin guide here.

325 range, what you guys are thinking for what that imply a higher deposit beta and just maybe just talk around.

John Asbury: Yeah, Casey, this is John, this is not a primary focus for us. We do have some shared national credits. Historically, what we've done, most of it would be Virginia based corporations where, you know, we know them. This is a single digit percentage of the one portfolio.

The competition for deposits I understand in your markets.

Speaker 7: Yeah, so in terms of the data, we're now saying that total deposit data through the cycle is going to be around, you know, mid 40s. That's up from, I think, last quarter we were guidance about 40%. Interest bearing deposits, a guy now is 55% data through the cycle. Offsetting that would be our loan.

Yes, so in terms of the.

Deposit betas, where we're now seeing.

John Asbury: It's more important to talk about what we do not do. We do not maintain what some banks will call a secure a syndications platform, also then an industry is a buy desk. We are not buying secondary issuances in the open market. What we would do would be to deal with companies that we know where we have relationships with management that we physically call on and anything we would take on would almost certainly be a primary syndication.

That total deposit beta through the cycle is going to be around.

Good <unk>.

Up from I think last quarter, we were guiding to about 40% interest bearing deposits. Our guide now is 55%.

Percent betas through the cycle.

Offsetting that would be our loan.

Speaker 7: a yield beta which is about 50% through the cycle.

Yield data, which is.

It's about 50% through the cycle.

Speaker 7: So we will continue to project that unless there's movement in the switchroom rates.

So we will.

John Asbury: You will see subsets of this, some of the larger government contractors, we have some of that asset based lending. We have some of that, although as we expand asset based lending and really built on our infrastructure, the primary focus there is more individual bank deals.

So <unk>.

Project that.

Unless there is movement.

Moving it in the short term rates.

Speaker 7: from the Fed's perspective. But in terms of the total deposit rates, if you look at it, you know, on average, this quarter we were at 197.

From the Fed's perspective.

But in terms of the total deposit rates. If you look at it on average this quarter we were at 197.

John Asbury: This is not a big effort for us.

Speaker 7: cost of deposits. If you look at it from September levels, just from the month of September , it's at 207. So we're seeing that continue to move up now. The the boonio has also moved up.

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Cost of deposits.

Casey Whitman: Okay, appreciate it. Thank you for taking my questions.

If you look at it from September levels is the month of September .

William Cimino: Let's move on. Thanks, KC. And Josh, we're ready for our next call, please. Thank you, one moment for our next question.

207.

So we're seeing that continuing to move up.

The loan yield has also moved up.

Catherine Mealor: Our next question comes from Catherine Mealor with KVW. You may proceed. Hi Catherine. Thanks Good morning. Hey, good morning. I had a really nice quarter to set some nice growth in service charges and trust fees. Just kind of curious how you're thinking about fee growth into the next quarter and really how you're thinking about it into 24. Yeah, so in terms of those categories, it's really being impacted by net client growth, number of accounts.

Speaker 7: But we'll continue to see that, you know, through the first quarter, maybe into the second quarter that we'll continue to see deposit rates ratchets up somewhat offset by loan yields ratcheting up. But you'll...

But we will continue to see that.

Through the first quarter maybe.

Maybe into the second quarter that will continue to see deposit rates ratchet up somewhat offset by loan yields were actually up.

But.

We'll see how it plays out.

Speaker 7: In terms of market rates or competitive rates, we haven't really seen much movement at all in the last two quarters. Maybe, you know, since, I guess maybe late April May, it's been pretty steady. We haven't really raised our rates at all in terms of, you know, our published deposit rates or C.D. Specials or money markets.

In terms of market rates are competitive rates, we haven't really seen much movement at all in the last two quarters, maybe since I guess, maybe late April may.

Catherine Mealor: We see about 2 to 3% in due client growth. So we'd expect, you know, to be in the 2 to 3, 2 to 4% growth rate as we go for it. Also, including theirs, you know, debit card interchange. So, you know, we continue to see more growth here as well with number of new accounts come in as well. And then it's seasonal impacts in the 4th quarter. So you expect to sum some of that Q3 to Q4 increase with holiday season and more transactions coming through.

It's been pretty steady.

We haven't really raised our rates at all in terms of.

Catherine Mealor: But in the end, we're talking about 2 to 4% growth in those categories as we go forward on a standalone basis. Okay, great. And then on loan, John, you may have a comment that you're still in growth mode going into the 4th quarter. How do you think about growth into next year and just, you know, where you're comfortable adding new loans, where you're kind of going back and really what this kind of client appetite is today with higher rate?

Our public deposit rates or specials CD.

CD specials or money market promos.

Speaker 7: So we're not looking to see a lot more greater rates unless we see.

So we're not looking to see.

See a lot more market rates unless we see.

Speaker 7: or composivates increase from the credit point of the OSCE market range rise, which we're not projecting at the moment.

Composite rates increase from the <unk> point of view as we see market rates rise.

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We're not projecting at the moment.

Okay. That's helpful and then.

Speaker 2: John , I apologize. I dialed in at the end of your credit comments here. But just, you know, on the 30 to 89 day past you bucket picking up here, you know, it was crossed the Unrock by Non-Unrock and C&I kind of curious any color or maybe, you know, what any underlying trends there.

John I apologize I dialed in at the end of your credit comments here.

But just on the 30 to 89 day past due bucket picking up here.

It was cost owner occupied non owner occupied and C&I kind of curious any color or maybe.

Whats the any underlying trends there yes.

Speaker 9: Yes, that was largely driven by a couple of administrative pastus. We literally had one credit that was a third of that increase. And for various reasons, it was not renewed on time. It's absolutely been renewed. We are not concerned about that. We've seen the material change and pastus from our perspective. Doug, do you have anything to add to that? John , well, you know, a few smaller.

Yes that was largely driven by a couple of administrative past dues. We literally had one credit that was a third of that increase and for various reasons. It was not renewed on time. It has subsequently been renewed we are not concerned about that we've seen a material change in.

Catherine Mealor: Yeah, I'm going to, we have double 8G credit officer and David Aurene had a commercial banking agency here too. And since most of the production comes out of the commercial side of last day to comment, my few things on this is that, you know, the environment, it is opaque. I do think that, you know, in general, our economy is indicated in my prepared comments is in good shape. We are in the budgeting process for next year.

Pass throughs from our perspective, Doug do you have anything to add to that.

Yes.

Few smaller.

Speaker 9: small loans but administrative past dues to have that. Yeah, with your clear.

See smaller loans, but.

Administrative past dues drove that yes, what you are cleared.

Speaker 2: Okay, great. Now appreciate all the color there. Thank you very much guys. Thank you, thanks Steve. And thanks everyone for joining us today. We look forward to talking with you in three months time. Everybody, how are you? It's fourth quarter.

Okay, Great no I appreciate all the color there. Thank you very much guys.

Catherine Mealor: And at this point, all we are discussing would be something in the mid single digit loan growth range. I think we will continue to be able to grow in a mid case. We'll see what happens. Dave, as you think about it, what is your take on this? Yeah. Our pipeline going into the year, you know, would support that, John. You know, mid single digit growth. You know, it's probably going to come more from the CNI and equivalent finance and the, you know, the regular businesses operating businesses versus real estate.

Thanks, Steve and thanks, everyone for joining us today, we look forward to talking with you in three months time, everybody have a good fourth quarter.

Speaker 1: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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

Okay.

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Catherine Mealor: We just saw our production for this quarter, the two thirds CNI went through real estate. So we're seeing that start to happen today. And we think it will continue into the next quarter into the next year. I think that's a good assessment. It really points back to the merit of our seven year long effort to diversify the bank's capabilities. If we were just to commercial real estate lender, I would be getting you a different answer.

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Catherine Mealor: But I think that the diversification of the things that we do, the brand that we build for small and mid-sized businesses, you know, the overall strength of our markets, all of this makes us bullish. The wild card will be American National Bank. We only get too far into that right now. But as we said, we'll be announced the merger. You know, we bring a bigger balance sheet. We bring infrastructure and capabilities, particularly on the CNI side.

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Catherine Mealor: You marry that with, you know, the great team that they have, the reputation that they have, the physical presence, the things we can do and kind of the industrial markets of the South Side of Virginia, or Southern Virginia. It's actually call it. And then the entry of the Piedmont Triad. You know, all of these things give us confidence that we should be able to achieve. Let's just call it mid-stingle-digit growth. And then we'll see what happens from... There. Great, very helpful. Thank you. Thanks, Catherine. You're Josh already for our next follow-up, please. Thank you, one moment for our next question.

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Russell Gunther: Our next question comes from Russell Gunther with Stephen. You may proceed. Hey, good morning, guys. Hey, John. Good morning. Just a couple follow-ups. So on the long growth discussion, appreciate your thoughts there. How does the North Carolina market fold into there? What's the opportunity set, particularly as American national folds in? What do you think, Dave? Now, don't be too bullish here. Well, we've been in North Carolina in real estate. Yeah. Well, they're quite a lot for us.

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Russell Gunther: It's just seven years, all it all has. And we've been pretty successful there. What American national brings is really good commercial industrial bankers. And in markets like, you know, the triad and the triangle areas of North Carolina. So we think there's going to be opportunity there. We don't know what it is completely yet, but we think it's going to be an opportunity for growth. It could be incremental growth opportunity. And they sit there, if you look at the map on the I-40 corridor, starting in Winston-Salem over to Greensboro, Burlington.

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Russell Gunther: They have a small rally office. And those are good industrial markets. I agree with Dave. On the real estate side, we mostly bring a bigger balance sheet. On the commercial and industrial side, we bring robust treasury management services, equipment, finance, asset-based lending. And just the infrastructure to be able to better go after, I would say, you know, mid-sized companies. And then Southern Virginia, which used to be called the south side, whether home turf is Danville, Martinsville, over into South Boston.

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Russell Gunther: And by the way, we do double down at Roanoke. You know, these are good commercial and industrial markets. And we've not had a presence in Southern Virginia. We are in Roanoke. So, you know, we're bullish. I don't want to sound too bullish. I'm just saying that these are things that will be incrementally beneficial to us. And if you look at the backgrounds of the American national people, they absolutely do have people with commercial and industrial backgrounds too.

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Russell Gunther: In addition to good traditional commercial real estate community banking backgrounds, all of this is beneficial. I think there's a lot we can do together. It's over time. Yes, to be clear over time. So, we'll see where it goes from here. But I think that this is really an expansion platform. You know, we're going to be able to do more things in Southern Virginia. And we're going to be able to definitely build for a very long time, as far as the I can see, along that I40 corridor in North Carolina, using exactly the same strategy we have here in Virginia.

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Russell Gunther: You know, we're built to be the challenger bank to the large institutions. We'll be alternative to the large institutions. We can do what they do for small and mid-sized businesses. And, you know, we think do it more responsibly, responsibly. And at the same time, we recognize we compete against the small banks, you know, all day every day. So, we're kind of covering both bases. That's the homework of Atlantic Union Bank. I sent it to human experience plus digitally forward technology. That is our strategy. I just did color guys. I appreciate it.

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Russell Gunther: I'm just switching gears to the follow-up on the margin. So... You know, a lot of good detail in terms of expectations. One that I wanted to focus on was the deposit remix comments made that that's slowing but certainly remains impactful to the name. So as you think about where non-interest bearing ultimately shakes out as a percentage of total deposits. Just give us some updated thoughts on that front and is that a function of outflow with a function of remix out of non-IB from current customers into hire.

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Russell Gunther: You know, the products just some additional color would be helpful. Yeah, so Russell, we're projecting that we'll be in, you know, the 23 to 25% range kind of where we were pre-pandemic levels 22 to 25. We've been holding fairly steady and we saw a big decline, you know, from fourth quarter through the first two quarters and just kind of slowed down. Most of that is not really outflow going out of the bank.

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Russell Gunther: It's really, you know, getting remixed into just checking and some of our higher cost higher yielding rates categories. So we do expect to kind of stabilize them. Here we are, we drop a bit, but I want to see how that plays out, but really not much shift going on here. In the end, there's a stabilized level where people are using demand deposits for operating accounts and, you know, this is a certain level that's going to stabilize.

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Russell Gunther: And that's where we think it will be. It wraps right about that. And as we've really grown the commercial business base of clients to small mid-sized businesses, you pick up more operating accounts for using Treasury management services. And I think if you look at our average balances, you know, the average consumer balance this quarter was $19,000 going for memory. The average business client has about $100,000 in their account. Now, you know, this suggested me that many of them are probably kind of operating level and non-interest bearing.

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Russell Gunther: We think it's hard to say to, we can't predict with any precision where it's going to be, but I agree with Bob Robb. You know, I think we're sort of approaching bottom. We'll see exactly. Yeah, I think, you know, well, on the remix, a lot of that is kind of remixing from what I would call the positive standard rates, kind of moving to these higher levels, you know, from a interest checking money market, how to hire higher yielding CD was kind of really what we're talking about from remix and expect deal that will continue, but certainly slow down from what the.

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Russell Gunther: What it was in the first couple of quarters. Okay, great. Thank you both. Just a clarification on the fee outlook, so I think I only have caught this. There was a certain merchant service or signing bonus that was this quarter and about a million bucks and then just kind of wearing the PNL that fell line item. Yeah, that's another other fees. Russell. It's service charges other fee and service charges. Okay, look at that.

Russell Gunther: Yeah, the service charges. Thank you. And then last one for me, you know, credit has been really strong for you guys. I hear the commentary about normalization and understood. What does normalization look like for Atlantic Union as you think out to 24 and what would the drivers of that normalization be? Yeah, so we would project that 15 to 20 basis points of annualized charge off this is probably a normal level for us.

Russell Gunther: Of course, we haven't come near that to date in this period, but that's kind of what we're looking for, you know, things like higher interest rates and other you know, recessionary factors could play into that. We're not projecting that at this point, although our allows for credit losses does skew towards more recessionary environment, but that's that's about what we think. And Doug, I don't know if you have anything to add from the cheap credit officer perspective, but that's a few what we have as a company.

Russell Gunther: Yeah, the weakening, if it comes, will be in smaller credits. We don't see anything. We've done a recent resizing of ensuring commercial real stable loans and construction loans converting to their mini-perm that are resizing on that and all that looks perfectly fine. So something happens. It'll it'll be in the smaller commercial credit base. And as always, the case, the consumer portfolio and think about the drivers that see some modeling, you know, what drives it, underpinning it, the unemployment rate, what's happening with the gross domestic product.

Russell Gunther: And it's just hard to see the economy falling off a cliff anytime soon, at least in the markets in which we operate. Having said that, I would caution, there's always the infamous one off. Now, you can't have a four off and a five off and a 10 off, but you know, things do happen from time to time. It could be idiosyncratic. We're always subjected to that. We saw one of those this year.

Russell Gunther: But overall, you know, Russell, we still feel pretty good, but I know it's black swan events happen all the time, but we feel pretty good about where we are right now. Understood. Okay, guys, thank you very much for taking my question. Thanks for asking also. And Josh, we're ready for our next caller, please. Thank you. One moment for our next question.

Steve Moss: Our next question comes from Steve Moss and Raymond James. You may proceed. I see.

Steve Moss: Good morning, guys. One jump. On, on, go back a little pricey here. Robby mentioned loans coming in at 7% for the quarter. Just curious, you know, should we expect to step up and loans being added in loan rates for loans being added discord. Do you mean production is your question? What is what do we expect for production and Q4 or do you either rate the new expected rate? So what do you expect for the record?

Steve Moss: Yeah, I think that I think you see, probably kind of staying where we saw in the third quarter, you know, averaging about seven, maybe over a little over seven. I think the term rates being up, you might see the fifth rate loans get priced a bit higher on the production, but I think, you know, if the Fed does stay steady, I don't think you'll see much movement in the short term rates, so there will be new loans coming out already being close to 8%, which is what we saw in the third quarter.

Steve Moss: So now looking for a lot of shift there, but if it's going to happen, it's going to be in the fixed rate term loans just because that term rates have gone up since the end of the quarter.

Steve Moss: Okay, and then, you know, on the deposit front, you know, curious, you know, with your margin guide here, to 325 range, what you guys are thinking for, what that implying for deposit beta, and just maybe just a little talk around the competition for deposits you're seeing in your markets. Yeah, so in terms of the data, we're now saying that total deposit beta through the cycle is going to be around, you know, mid 40s.

Steve Moss: That's up from I think last quarter, we were guidance about 40%. Interest bearing deposits, a guide now is 55% data through the cycle. I'm offsetting that would be our loan yield beta, which is about 50% through the cycle. So we will, you know, continue to project that, unless there's, you know, movement in the short term rates from the Fed's perspective. But in terms of the total deposit rates, if you look at it, you know, on average, this quarter, we were at 197, cost of deposits.

Steve Moss: If you look at it from September levels, it's the month of September, it's at 207. So we're seeing, you know, that continuing to move up. Now, the the boonio has also moved up, but we'll continue to see that, you know, through the first quarter, maybe into the second quarter that we'll continue to see deposit rates ratcheted up somewhat off, set by loan yields ratcheting up. But we'll see how it plays out.

Steve Moss: In terms of market rates or competitive rates, we haven't really seen much movement at all in the last two quarters. Maybe, you know, since, I guess, maybe late April, May, it's been pretty steady. We're, we haven't really raised our rates at all in terms of, you know, our published deposit rates or specials, CD specials or money market promos. So we're not looking that to see a lot more market rates, unless we see, or deposit rates increase from the credit point of view, unless we see market rates rise, which we're not projecting at the moment. Okay, that's, that's helpful.

Steve Moss: And then, John, I apologize, I doubted in at the end of your credit comments here, but just, you know, on the 30 to 89 day past you bucket picking up here, you know, it was across the unrockbed, non-rockbed and CNI kind of curious any color or maybe, you know, with any underlying trends there. Yeah, that was largely driven by a couple of administrative pastus. We literally had one credit that was a third of that increase.

Steve Moss: And for various reasons, it was not renewed on time. It's obviously been renewed. We are not concerned about that. We've seen a material change in pastus from our perspective. Don't you have anything to add to that? John, well said, yeah, you know, a few smaller, and a few small loans, but administrative pass-doos, sure of that. Yeah, which are cleared.

Steve Moss: Okay.

Steve Moss: Great. Now I appreciate all the color there. Thank you very much, guys. Thank you. Thanks, Steve.

William Cimino: And thanks for everyone for joining us today. We look forward to talking with you in three months time. Everybody has a good fourth quarter. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may not disconnect. Thank you. [inaudible] David Bishop, John Asbury, John Asbury, John Asbury, John[inaudible] Asbury, John Asbury, John Asbury, John Asbury, John Asbury, John Asbury, John Asbury, John Asbury, John[inaudible] Asbury, John Asbury, John Asbury, John David Bishop, John Asbury, Robert Gorman, John Asbury, Robert Gorman, John Asbury, Robert Gorman[inaudible]