Q3 2024 Atlantic Union Bankshares Corp Earnings Call
Presentation, there'll be a question and answers and instructions will be given at that time.
Speaker Change: As a reminder, this call maybe recorded I would now like to turn the call over to Bill <unk> Senior Vice President Investor Relations. Please go ahead.
Thank you Michelle and good morning, everyone.
Bill: I think union Bankshares, President and CEO, John Asbury, and executive Vice President and CFO, Rob Gorman with me today.
Bill: They also have Sandy spring Bancorp, Chairman, President and CEO, Dan tried or on the call who will join us in expressing our merger announced earlier today.
Bill: Other members of our executive management team will be here for the question and answer period.
Bill: Please note that today's releases in the accompanying slide presentation are available to download on our Investor website, Investor startup Atlantic Union Bank Dot com.
Bill: During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures is included in the appendix to our slide presentation and in our earnings release for the third quarter of 2024.
Bill: We will make forward looking statements on today's call, which are not subject to risk, which are not statements of historical fact and are subject to risks and uncertainties.
Bill: Can be no assurance that any actual performance will not differ materially from any future expectations. Our results expressed or implied by these forward looking statements.
Bill: We undertake no obligation to publicly revise or update any forward looking statements.
Please refer to our earnings release and our other SEC filings.
Bill: For further discussion of the Companys risk factors and other important information regarding our forward looking statements, including factors that could cause actual results to differ from those expressed or implied in the forward looking statements.
Bill: All comments made during today's call are subject to that safe Harbor statement.
Bill: At the end of the call we will take questions from the research analyst community and now I will turn the call over to John. Thank you Bill good morning, everyone.
John Asbury: They were excited to announce the merger of Atlantic Union Bankshares with Omi, Maryland based Sandy Spring Bancorp Sandy spring is a $14 $4 billion asset bank with an exceptional 156 year history, and an impeccable asset quality track record an attractive contiguous markets. This is a highly respected Maryland bank and in our view.
John Asbury: You have historic franchise among the oldest in America. It has grown from a Maryland community bank to the largest independent bank in Maryland. This is exactly what Atlantic Union Bank is done in Virginia, We believe its a hand in glove fit for two great neighboring franchises that have been on similar paths with similar cultures, and a similar customer and community focus.
Speaker Change: We are eager to share our thoughts on this announcement and why we believe it improves each company's shareholder value proposition and ability to serve our customers and communities I will do so after robin I provide abbreviated comments on Q3 results for Atlantic Union.
Speaker Change: It was a good quarter for Atlantic Union with less noise in the prior quarter, which makes for an easier and shorter conversation about our results. So let's begin as you will recall during the second quarter. We closed our acquisition of Danville, Virginia based American National Bank and completed their systems conversion over Memorial day weekend.
Speaker Change: We did not have the second quarter's merger related items impacting our results during the third quarter and we believe our post merger of core earnings power is now on full display on a linked quarter annualized basis, our deposit base grew six 1% and averaged up two 8% linked quarter annualized loan growth in the seasonally slow third quarter.
Speaker Change: Relatively flat ending down 0.2%, though averaged up three 6% loan growth was impacted by clients waiting for the well telegraphed Federal reserve rate cuts to begin in September and we also experienced a pickup in commercial real estate payoffs.
Speaker Change: We had lower line utilization during the quarter as some larger commercial clients pay down overall, we were pleased to stay relatively flat and loan balances at quarter end. Despite these headwinds.
Speaker Change: Increased commercial real estate payoffs were something we expected following the dip in treasury bond yields during the quarter and were a combination of institutional nonrecourse refinances and property sales. This indicates there is liquidity in the commercial real estate markets, which is encouraging.
Speaker Change: Also as a reminder were continuing to wind down our indirect auto portfolio, which reduced our loan balances by approximately $42 million during the quarter.
Speaker Change: Our commercial banking pipelines are healthy leading us to believe that we will be in a moderate growth mode for the rest of 2024, having said that we believe there is a backlog of commercial real estate payoffs coming and that may mute, what might otherwise be even stronger loan growth.
Speaker Change: Credit was again 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. This is now my eighth year anniversary at the company and for eight years each quarter I have said, we have yet to see any sign of a systemic inflection point in our asset quality metrics, which remained benign and I'll say that again.
Speaker Change: 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 in and are pleased with our asset quality as always we are focused on delivering top tier financial performance and you can see improvements in our adjusted return on tangible common equity return on assets.
Speaker Change: And efficiency ratio quarter over quarter improvements show the earnings power, we envision when we announced the acquisition of American National.
Speaker Change: We had good expense management modest core net interest margin compression and continued impressive asset quality trends. We believe all of this serves as proof points that our franchise remains strong and focused on generating positive operating leverage we continue to see our performance is confirmation of our long term strategy of being a diversified traditional full service.
Speaker Change: Bank that makes a positive difference in our markets with a strong brand and deep client relationships, we provide economically beneficial services and financing to help people and help businesses and help our communities. It's a straightforward business model. It works and has withstood the test of time over our 122 year history. This is why soundness prop.
Speaker Change: The ability and growth in that order of priority remain our mantra and informs how we run the company.
Speaker Change: It was a good quarter for Atlantic Union, we have completed the integration of American National and are excited about our increased presence in central Western and Southern Virginia and are promising new North Carolina markets, which offer long term growth and expansion potential.
Speaker Change: Iterate that we believe we will achieve our planned cost savings from the American National acquisition and are positioned well to deliver top quartile results in the fourth quarter on an adjusted operating basis I'll now turn the call over to Chief Financial Officer, Rob Gorman to cover the financial results for the quarter before we get into the details of the transaction Rob.
Rob Gorman: Well, thank you John and good morning, everyone. 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 $1 4 million in pre tax merger related costs recorded in the third quarter and.
Rob Gorman: In the third quarter reported net income available to common shareholders was $73 4 million and earnings per common share were <unk> 82.
Rob Gorman: Adjusted operating earnings available to common shareholders was $74 $5 million or <unk> 83 per common share for the third quarter, which was an increase of $18 2 million or 32, 3% from the second quarter of 2024, and up $14 7 million or 24, 7% from third quarter of 2023.
Rob Gorman: The adjusted operating return on tangible common equity was 19, 2% in the third quarter. The adjusted operating return on assets was 125% in third quarter and on an adjusted operating basis. The efficiency ratio was relatively flat with the second quarter at 52, 2%.
Rob Gorman: As of the end of the third quarter. The total allowance for credit losses was $177 6 million, which.
Rob Gorman: Presented 97 basis points as a percentage of total loans.
Rob Gorman: Provision for credit losses of $2 6 million in the third quarter was down from the prior quarter's $21 $8 million provision for credit losses, primarily driven by the prior quarter's inclusion of the initial provision for credit losses, our non PCI loans and unfunded commitments acquired from American National a $14 6 million as well as by low.
Rob Gorman: Net charge offs and lower loan growth in the third quarter.
Rob Gorman: Charge offs decreased to approximately $700000 or one basis point.
Rob Gorman: Annualized in the third quarter from $1 7 million or four basis points annualized in the second quarter year to date net charge off ratio was six basis points on an annualized basis now.
Rob Gorman: Now turning the pre tax pre provision components of the income statement for the third quarter tax equivalent net interest income was $186 eight.
Rob Gorman: $8 million, which was down approximately $1 5 million or less than 1% from the second quarter, primarily due to higher interest expense on interest bearing deposits, partially offset by increased interest income on loans held for investment and lower borrowing costs.
Rob Gorman: Interest expense on interest bearing deposits increased as a result of 299 billion and higher average balances due primarily to growth in customer time deposits interest income on loans held for investment increased as a result of $165 five 4 million and higher average loan balances during the quarter and increased loan yields part.
Rob Gorman: Really offset by lower loan accretion income of $1 7 million.
Rob Gorman: Borrowing costs were lower during the third quarter as a result of decreased wholesale funding usage due to customer deposit growth.
Rob Gorman: The third quarter's tax equivalent net interest margin was 338% a net decrease of eight basis points from the previous quarter, which was due to a four basis point impact from lower fair value accretion on acquired loans, a two basis point net increase on the core earnings asset yield and a six basis point increase in the cost of funds to six <unk>.
Rob Gorman: <unk> point increase in third quarters cost of funds to $2.
5% to 6% was due to the net impact of higher deposit costs and lower borrowing costs.
Rob Gorman: The cost increase is a result of growth and mix shift into higher yielding deposit products, which had a negative 11 basis point impact on the cost of funds.
Rob Gorman: The cost of funds was positively impacted by five basis points due to lower borrowing costs as a result of decreased wholesale funded usage.
Rob Gorman: The two basis point decline in the third quarter, earning asset.
Rob Gorman: It was primarily due to lower yields on securities and lower loan accretion income, partially offset by the positive impact of loan growth and an increase in core loan portfolio yields there was a five basis point negative impact on the securities portfolio and earnings asset mix due to lower balances and the impact of lower unrealized losses.
Rob Gorman: <unk>.
Rob Gorman: If the securities yields from the decline in market rates during the third quarter.
Rob Gorman: The loan portfolio yield increased to $6 three 5% in the third quarter from 634% in the second quarter, which is due to the net impact of new loans originated at a higher than current portfolio rates, partially offset by the effects of the decrease in average short term interest rates during the quarter and the impact of lower fair value accretion on acquired loans.
Rob Gorman: Which had a four basis point negative impact on loan yields.
Rob Gorman: Noninterest income increased $10 5 million to $34 3 million for the third quarter of 2024, primarily due to the $6 5 million pretax loss on the sale of available for sale securities in the prior quarter.
Adjusted operating noninterest income, which excludes losses or gains on the sale of securities increased $4 million to $34 3 million for the third quarter from $30 3 million in the prior quarter, primarily driven by a $1 $9 million increase in other operating income due to an increase in equity method investment income of $1 2 million dollar increase.
Rob Gorman: And bank owned life insurance income, primarily driven by death.
Rob Gorman: Benefits received in the third quarter.
Rob Gorman: $706000 seasonal increase in service charges on deposits.
Rob Gorman: Noninterest expenses decreased $27 4 million to $122 6 million for the third quarter.
Rob Gorman: Adjusted operating noninterest expense, which excludes merger related costs of $1 $4 million in third quarter, and $29 8 million in the second quarter and amortization of intangible assets of $5 8 million in the third quarter at $6 million in the second quarter increased $1 2 million to $150 4 million for the third quarter from one <unk>.
Rob Gorman: $14 2 million from the prior quarter.
Rob Gorman: Driven by a $923000 increase in salaries and benefits due to increases in variable incentive compensation expenses and full time equivalents equivalent employees as well as a $607000 increase in FDIC assessment premiums driven by an increase in our assessment base as a result of the American National acquisition.
Rob Gorman: These increases were partially offset by a $537000 decline in technology and data processing expenses.
Rob Gorman: Period end loans held for investments totaled $1 eight.
Rob Gorman: <unk> $18 3 billion, which was a decrease of approximately $10 million.
Rob Gorman: 20 basis points annualized from the prior quarter construction.
Rob Gorman: Construction and land development loans increased $134 million on an as ongoing construction projects continue to fund up commercial industrial loans decreased by $145 million as a result of loan paydowns and lower lower revolving credit line usage.
Rob Gorman: At the end of September total deposits stood at $23 million and that's an increase of $304 million of approximately six 1% annualized from the prior quarter, which was primarily due to increases in interest bearing customer deposits and broker deposits, partially offset by declines in demand deposits at.
Rob Gorman: At the end of the third quarter non interest non interest bearing demand deposits accounted for 22% of total deposits.
Rob Gorman: Down slightly from 23% in the prior quarter.
Rob Gorman: At the end of the third quarter Atlantic Union, Bankshares, and Atlantic Union Bank regulatory capitals were well above well capitalized levels. In addition on a pro forma basis, we remain well capitalized. If you include the negative impact of ALC and held to maturity securities unrealized losses in the calculation of the regulatory capital ratios.
Rob Gorman: As noted on slide 13, we've updated our full year 2024, and fourth quarter financial outlook for the following week.
Rob Gorman: We expect loan balances to end the year between $18 $5 billion 19 billion.
Rob Gorman: While year end deposits balances are projected to be between $20 billion $25 billion.
Rob Gorman: Fully taxable equivalent net interest income for the full year is projected to come in between $720 million $725 million and we are targeting the fourth quarter fully tax equivalent net interest income run rate to fall between 190 and $195 million.
Rob Gorman: As a result, we are projecting that the full year fully taxable equivalent net interest margin will fall in a range between 335% and three 4% for the full year and we are targeting between three 4% and 345% in the fourth quarter driven by our baseline assumption that the federal Reserve Bank will cut the fed funds rate by 20.
Rob Gorman: Five basis points in November and December.
Rob Gorman: In addition to the fully taxable equivalent net interest margin projection and target ranges include the impact of our estimate of net accretion income from American national which are volatile and subject to change.
Rob Gorman: The lower level of net interest income and net interest margin from the previous guidance provided during our second quarter earnings call. It was primarily due to the more aggressive 50 basis point decline in the fed funds rate in September we had assumed a reduction of 25 basis points.
Rob Gorman: Also significantly lower term rates, which impacts fixed rate, new and renewed loan yields as well as a reduction in the amount of accretion interest income projected in the fourth quarter.
Rob Gorman: On a full year basis, adjusted non operating non interest income is expected to fall between $120 and $125 million and we are targeting the fourth quarter adjusted operating noninterest income run rate to fall between 30% and $35 million.
Adjusted operating noninterest expenses for the full year are estimated to fall in the range of $445 million to $450 million.
Rob Gorman: While the fourth quarter adjusted operating noninterest expense run rate, we are targeting is expected to be between $115 million to $120 million.
Rob Gorman: In summary, Atlantic Union delivered strong financial results in the third quarter of 2024 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 2024 and beyond.
John Asbury: We're now excited to turn our attention to provide you with the details of our merger announcement with Sandy Spring Bank. Thank you Rob now that we both hit the high points for the quarter, let's talk about the Big news today and Thats, our exciting partnership with Sandy spring as noted on slide two the forward looking statements Bill covered at the beginning of this call still apply and we'd like to note additional.
John Asbury: Risks listed on the slide.
John Asbury: As you can see on slides three and four the merger will be addressed in a joint proxy statement of Sandy spring and Atlantic Union and a prospectus of Atlantic Union to be filed with the SEC. We urge you to read it when it becomes available because they will contain important information information regarding the persons who may under the rules of the SEC be considered participants in the solicitation.
John Asbury: Sandy spring and Atlantic Union shareholders in connection with the proposed merger will be set forth in the proxy statement prospectus when it is filed with the SEC now.
Speaker Change: Now let me begin by saying we are thrilled we are thrilled to partner with Sandy spring, we've long admired the company and its team and being neighbors, we know them well and have watched as Dan Schrader and his team have transformed a Maryland community Bank into Merrill Lynch Bank. This is a strategy we recognize as we've done exactly the same here in Virginia, we admire Sandy Springs.
Speaker Change: <unk> culture customer focus impeccable asset quality track record and the important role. They have played in their communities over their long 156 year history. We also respect the number one regional bank depository market share in Maryland, and the density of their franchise, which in our view means they are highly relevant to their markets we share.
Speaker Change: Common legacy with our own 122 year history and are highly compatible people oriented culture. They are Merrill Lynch Bank and we are Virginia's bank together, we have the greater Washington regions Bank and more broadly the lower mid Atlantic Bank. We both operate traditional banking models that have withstood the test of time, we each provide economically burner.
<unk> financing and services that help people held businesses and help our communities I have said many times before then Atlantic Union strategy is intentional and not opportunistic will now make the case for why this is so with this combination.
Speaker Change: You can see the resulting dense compact franchise that at $39 billion becomes the largest regional bank in the mid Atlantic and assets with compelling financial returns that should position us firmly in the top quartile of peer banks. It's a formidable franchise that in my opinion will eclipse anything we've ever seen in this region from our position as the preeminent regional bank.
Speaker Change: The lower mid Atlantic, Our Virginia franchise will now become a linchpin that connects the powerful mid Atlantic franchise to the southeast where we plan to invest in and grow our presence in the Carolinas overtime I would argue this combined franchise cannot be replicated and holds enormous scarcity value.
Speaker Change: If you recall our shareholder value proposition you will see why we believe this transaction delivers on every one of our points. We have worked hard in our company to build a leading regional presence in Virginia, just like Sandy spring as Donlin in Maryland. We believe this partnership will further that objective by increasing the density convenience and capabilities of our banking.
Speaker Change: At work and our brand power and scarcity value and the mid Atlantic region. This is an investment in Sandy Spring Bank by Atlantic Union Bank. It is one that will enhance our financial strength through increased profitability enhanced growth potential and scale, allowing us to better invest in our company and the communities. We serve we have chosen to take proactive.
Active actions to better position and de risk the pro forma balance sheet. So that we are poised for future growth with the step substantial capital liquidity and no CRE concentration constraints, we plan to enhance our growth potential by deploying Atlantic in your banks commercial and industrial banking capabilities into Sandy Springs market.
Speaker Change: By adding significant wealth management capabilities from Sandy Spring Bank.
Speaker Change: By keeping substantial liquidity and capital levels, we will be well positioned for organic growth opportunities in some of the most attractive markets in America.
Speaker Change: As we are today in Virginia, we believe will be the challenger in the alternative to the large institutions that dominate market share in the lower mid Atlantic, while maintaining the responsiveness and flexibility to compete with the smaller banks too.
Speaker Change: We wanted to show you, how the pro forma company stacks up against our shareholder value proposition with a capital will generate until the merger closes the forward sell equity raise we announced this morning, and our intention to sell up to $2 billion of acquired commercial real estate loans. We believe we will increase our pro forma capital levels at close and have ample liquidity.
Speaker Change: <unk> continued to grow.
Speaker Change: By going forward, we expect to generate significant capital from poor retained earnings and interest rate Mark accretion, Rob will have more details, but you can see our return on tangible common equity return on assets and efficiency ratios should be in the top tier of our peers.
And we have a short tangible book value earn back period with strong earnings per share accretion and an internal rate of return above our hurdle rate and short this acquisition checks all the boxes for M&A just as we said, we do and as we've always done.
Speaker Change: For those of you who are unfamiliar with Sandy spring, we wanted to highlight some of the key characteristics, which make them an attractive partner for us I would like to introduce now their chairman President and Chief Executive Officer, Dan Shrider, Dan could you speak to why you decided to partner with us.
Dan Shrider: Alright, Thank you John.
Dan Shrider: I really do appreciate being a part of this morning's call and we'd like to share a bit about Sandy spring talk about this partnership we have announced and what this will mean for our clients and our communities.
Dan Shrider: Those who are unfamiliar with Sandy spring Bank, we observed families and businesses in the Washington Metro area for over 156 years.
Dan Shrider: With assets of 14.
Dan Shrider: <unk> four 1 billion and.
Dan Shrider: And over 50 locations in Maryland, DC, and Virginia, we provide a wide range of products and services, including consumer banking commercial banking Treasury management, and a robust wealth management and trust business.
Speaker Change: And as John noted today's announcement brings together two very strong organizations and I'm really excited about what we're creating together Atlanta.
Speaker Change: Atlantic Union Bank, and Sandy Spring bank share the same values and commitment.
Most of the share of people first approach to doing business and serving our communities.
Speaker Change: And together, we will add even greater value to those that we serve.
Speaker Change: This combination for us will deliver enhanced scale and capabilities and capacity for our clients and will provide greater opportunities for our employees to grow within a larger organization.
And once this merger is complete our collective footprint will include DC, Maryland, Virginia, and North Carolina.
Speaker Change: If there are any specific questions regarding sandy spring bank I'm happy to answer those during the Q&A session.
Speaker Change: I'll turn it back to John.
John Asbury: Thank you so much Dan.
John Asbury: Slide nine shows combined market share in some market highlights.
John Asbury: We're excited to create the number one regional bank in the mid Atlantic region, and separately and remember when regional bank in Virginia. The number one regional bank in Maryland to my knowledge. This has never been done before and I do not believe that can be done again. This is an enormously powerful franchise. The pro forma entity will be situated in some of the wealthiest counties of the country.
John Asbury: <unk>.
John Asbury: Our pro forma franchise will be in the 95 percentile of counties by median household income in fact six of those are in the top 12 in the United States. We're excited by the positioning in some of the largest population and wealth centers on the East Coast with Washington D C in Maryland.
John Asbury: It should allow us to have an enhanced growth opportunities for our expanded wealth management capabilities.
John Asbury: Potential future loan and deposit growth and our ability to drive customer growth and gain market share.
Speaker Change: Before I turn it over to Rob I wanted to offer perspective on why it should come as no surprise that we were interested in this combination.
Speaker Change: As mentioned earlier I've been at Atlantic Union Bank now for eight years during that time, we have worked hard to build a reputation for doing what we say we will do.
Speaker Change: We achieved with this partnership is one of those things and our 2018 Investor day six years ago, I outlined what our future M&A strategies would look like and you can see that on slide 10 of today's merger presentation. Since we outlined those options six years ago with this announcement at different times, we've now done them all we have.
Speaker Change: <unk> had periods of organic only growth, particularly while we ensure that we built a scalable talent and scalable operational technology and risk management infrastructure to support the mid sized bank we had become.
Speaker Change: We also use those periods to improve our products and services to better serve our customers and deliver more complete product offerings that match up well against the Super regional and large national banks for the customer segments, we choose to serve.
Speaker Change: We've consolidated Virginia, and we've become Virginia's bank and today, we've announced the combination that will substantially complete the Golden Crescent strategy, meaning completing the arc that runs from Baltimore through greater Washington down through Richmond and onto coastal Virginia, we've evolved into a mid Atlantic Regional bank in our primary challenger that can compete.
Speaker Change: Head to head with the largest banks that dominate market share in these areas, while remaining agile and responsive enough to compete against the smaller banks too we are ever mindful mindful of our humble roots in community Bank heritage that are the essence of our DNA, but now we are more capable than a community bank our strategy, it's been a combination of organic.
Speaker Change: Growth and carefully cultivated partnerships with other banks, who share our vision. The result builds value for our shareholders and provides more convenience and capabilities to our customers enables us to continue to invest in the communities. We serve it's also a terrific organic growth platform with unmatched scarcity value in these markets and most exciting for me.
Speaker Change: This will create new career opportunities for our people paying it forward for those who came before us at our predecessors, such as Union Bank and Trust American National Bank, and now Sandy Spring Bank among others.
Now I'll turn it over to Rob for more details.
Rob Gorman: So thanks, John let me switch gears to outline the expected financial impact of the merger from the strategic aspects of the transaction, which as John just noted we believe are very compelling.
Rob Gorman: On slide 11, we recap the transaction structure and key terms of the transaction in terms of the transaction itself. Its a 100% stock deal with a fixed exchange ratio of <unk>.
Rob Gorman: 0.90 shares of <unk> common stock for each share of Sandy Springs common stock.
Rob Gorman: When factored in with the equity raised announced today assuming full.
Rob Gorman: Full physical settlement of the common shares this works out to approximately 29% pro forma ownership of the combined company by Sandy Springs shareholders that.
Rob Gorman: That translates into an accurate aggregate transaction value of about $1 6 billion.
Rob Gorman: With $34 93 per Sandy spring share based on the closing share price of Atlantic Union stock ending on Friday October 18th.
Rob Gorman: This represents a per share market premium to sandy spring shareholders of approximately 7% over Fridays closing stock price.
Rob Gorman: The implied transaction metrics represents a $1 two way priced so tangible book value multiple or price to 2025 consensus earnings per share multiple of 13, five times and a core deposit premium of three 3%.
Rob Gorman: Upon closing the transaction three members of Sandy Springs Board of Directors will join Atlantic Union's board, including CEO, Dan Schrader.
Rob Gorman: Transaction is expected to close by the end of the third quarter of 2025 subject to customary closing conditions and the receipt of required regulatory approvals and shareholder approval from both companies. In addition, we are targeting the first quarter of 2026 complete the poor systems convergence.
Speaker Change: On slide 12, we laid out the key transaction assumptions from a cost savings in merger cost perspective, we are assuming we can achieve savings of approximately 27% of Sandy Springs annual operating expenses.
Speaker Change: To incur approximately $115 million in after tax merger related expense.
Speaker Change: Core deposit intangible is set at 275% of Sandy Springs core deposits or approximately $213 million and we expect the wealth management intangibles to be approximately $66 million.
The gross the gross loan credit Mark is expected to be 150% of loan balances of $179 million with a 60% non PCB, 40% PCB credit Mark split and the day to see some reserve adjustment on non PCI loans is expected to be one times the non PCB.
Speaker Change: Credit Mark of a.
Speaker Change: $107 million for the so called double count.
Speaker Change: We're also modeling a rate related loan fair fair market value adjustment of 5% or $575 million.
Speaker Change: 404, $3 million interest rate Mark of Sandy Springs held to maturity securities portfolio of $5 million net benefit of subordinated debt and time deposits and a $9 million write up of real estate assets.
Speaker Change: We also announced today that we raised $350 million of common equity with a $52 5 million or 15% green shoot at a price of $35 50 per share utilizing a forward settlement mechanisms that provides flexibility.
Speaker Change: Around the settlement date, when the equity would be funded which is assumed to be at the M&A deal closing date.
Speaker Change: We also intend to sell up to $2 billion of Sandy Springs, CRE or commercial real estate portfolio. After the merger closes to reduce the combined company's CRE concentration ratio to below 300%.
Speaker Change: Proceeds from the sale will be used to delever, the balance sheet and reduce the pro forma company's loan to deposit ratio post close.
Speaker Change: Turning the page as John mentioned earlier, we have been very public about our discipline around mergers and acquisitions in terms of the key financial targets that we expected when we enter into any merger transaction and summarize those here as a reminder, immediate earnings accretion to EPS and earn back.
Speaker Change: Tangible book value dilution, if any of three years or less and an internal rate of return of at least 18% as you can see on a pro forma basis. This deal checks all the boxes on our M&A metrics, 23% EPS accretion a 2.0 year tangible book value earn back period, and a 20% internal rate of return.
Speaker Change: In addition on the right side of the slide you can see that on a pro forma capital ratio basis, we will have a strong capital ratio position and CRE concentration ratio.
Speaker Change: This slide illustrates the meaningful impact that the merger should have on our profitability profile profile, putting us firmly into the top quartile of our pro forma peers across return on assets return on tangible common equity and the efficiency ratio.
Speaker Change: As John noted, we put a lot of thought into this larger transaction and wanted to ensure that the pro forma entity should be positioned for success with strong CRE concentration levels liquidity capacity and capital levels.
Speaker Change: We are taking prudent actions to strengthen.
Speaker Change: The positioning of the pro forma balance sheet and provide capacity to organically grow the combined entity upon closing the transaction.
We expect to accomplish these objectives in two ways first through the CRE loan sale, which should lower the commercial real estate to total risk based capital concentration ratio and provide the liquidity liquidity to reduce the pro forma company's loan to deposit ratio.
Speaker Change: Second by raising additional common equity, which should enhance our CET one capital ratio to approximately 10% at closing.
Speaker Change: In addition, using 2026 consensus Street estimates and factoring in the expense saves as expected from the transaction you can see the earnings power of the combined franchise the level of internally generated capital that we expect this deal to create which should support the organic growth potential of the pro forma company across its entire footprint.
Speaker Change: Additionally, we expect our capital generation to be enhanced from the accretion of interest rate related fair value marks.
Speaker Change: As those flow back through earnings and capital and represent locked in GAAP earnings going forward.
As you would expect we went through a very comprehensive due diligence process as we do in any merger transaction.
Speaker Change: Significant preliminary due diligence was undertaken ahead of the more formal due diligence exclusivity period to come.
Speaker Change: Confirm the merger feasibility and to estimate preliminary impacts of any purchase accounting adjustments as well as the determined our ability to raise equity and sell CRE loans as part of the transaction to ensure we could derisk the pro forma company balance sheet.
Upon positive typically confirming the feasibility of the merger we formed a cross functional due diligence team have reviewed all aspects of Sandy springs business over a four week exclusivity period.
Speaker Change: In addition to our internal team, we engaged third party expertise to review credit interest rate in real estate low market valuations as well as tax and legal matters.
Speaker Change: Nixon with the transaction.
Speaker Change: The credit due diligence of Sandy spring was very thrilled as you can see from the magnitude of the review of Sandy Springs loan portfolio as noted here.
Speaker Change: Sandy Springs has historically been a very clean bank from a credit perspective and results from our third party's review found that to be the case.
Speaker Change: In addition to due diligence teams met with their counterparts at each of the year. As you list you see listed on this slide and came away with a very strong understanding of the culture and business operations of Sandy spring.
Speaker Change: Which will allow us to plan for a smooth integration into the Atlantic Union franchise.
John Asbury: Now I'll turn it back over to John to discuss our community benefits plan for the pro forma company. Thank you Rob Atlantic Union in Sandy Spring, a real banks for real people as mentioned our roots go back 122 years. While there is go back 156 years, we wouldn't be here today without the support of our communities and we have supported them too through the year.
John: As you can see we both spend a lot of time and money investing in our communities. We believe that this transaction will enable us to deliver even greater benefits to our communities and to that end. We have developed a nine $5 billion community benefits plan whereby over the next five years, we will commit across our markets to provide approximately $8 billion in community.
John: <unk> financing and approximately $1 5 billion and community investments and charitable contributions for the benefit of the communities we serve.
John: We are also excited to announce that we will open three new branch locations in low to moderate income areas in Baltimore City, Maryland, Prince Georges County, Maryland, and principally in the County, Virginia.
John: We'll provide residential mortgage assistance additional support for small and medium sized businesses and make additional donations to community organizations. We've been lots of awards, because we do the right things for our teammates and the communities we serve and the plan announced today reflects that long history and illustrates our continuing community support well into the future.
Speaker Change: As you can see this transaction works on so many levels and positions us to deliver long term shareholder value. It will solidify our status as the preeminent lower mid Atlantic franchise that bridges into the southeast as Rob mentioned, the significant earnings accretion will earn back to tangible book value dilution quickly.
Speaker Change: With our history of successful integrations and having just completed an acquisition and systems conversion. We've exercised these muscles recently and we believe that this transaction has a lower execution risk as a result, our customers will have greater convenience and we'll be able to offer greater capabilities and an expanded product set and as previously mentioned our teammates will benefit.
Speaker Change: From expanded career and development opportunities and the soon to be larger organization, we have compatible cultures and great respect between our two companies and we plan to do great things together for our shareholders, our teammates our customers and our communities.
Speaker Change: Our stronger together.
And with that I'll turn it back over to Bill <unk> to open it up for questions from our analysts Bill. Thank you Jon Michelle we're ready for our first question.
Thank you.
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Speaker Change: Our first question comes from Catherine Mealor with <unk>. Your line is open.
Speaker Change: Good morning Catherine.
Catherine Mealor: Good morning, and congrats on this acquisition.
Catherine Mealor: I wanted to start maybe just with the CRE loan sale.
Catherine Mealor: Just curious if you can talk us through how you're prepared for that.
Catherine Mealor: Is that how that works and then.
Catherine Mealor: Just on your in your presentation, you mentioned that the fee.
Speaker Change: Or anything else takes about 20 and since that is book value. So just kind of curious what kind of discount you're assuming within that within that number. Thanks sure I'll start with the process. We were represented on this transaction by Morgan Stanley.
Speaker Change: Due diligence took.
Speaker Change: Two phases phase, one Dan and we referred to as preliminary due diligence and we did several things at that period of time.
Speaker Change: We took the loan tape and we had analyzed both wanted to calculate the actual credit marks.
Speaker Change: Our interest rate marks I should say and importantly, we also had Morgan Stanley who maintains an active commercial real estate capital markets group assess the portfolio to identify the for sale portfolio, which we had estimated at $2 billion, Dan and I, both referred to this phase of due diligence as the feasibility.
Speaker Change: <unk> test does the merger makes sense does the math work and so it was important to not spec.
Speaker Change: Speculate estimate or frankly guess at what the interest rate marks we actually calculated key interest rate marks using our third party and at the same time Morgan Stanley actually assessed the loan portfolio.
Speaker Change: <unk> four cell notes and price them. So we have a very very good handle on what that will be.
Speaker Change: Catherine I'll point out it's up to $2 billion, it's not necessarily $2 billion, we're solving for.
Speaker Change: The known metrics of the targeted commercial real estate concentration ratio and the loan to deposit ratio and so based on the modeling that we've done it's up to $2 billion, we could find out that we do not need to sell all of that but nevertheless, we were able to conclude with confidence that the.
Speaker Change: Central transaction was feasible.
Speaker Change: <unk> agreed that if we're going to do this we're going to position the company for growth and we're not going to have a CRE concentration ratio to hold us back and we're going to have ample liquidity begin the loan to deposit ratio. So that's how that works in terms of the the nature of it by the way we will the service retained so the commercial real estate loans that are sold will be.
Speaker Change: Service retained meaning it'll be the same experience for the client Rob do you want to speak to how we calculate the marks.
Speaker Change: Katherine in terms of the impact on tangible book value as you noted.
Speaker Change: We're selling about $2 billion of CRE loans.
Speaker Change: Obviously those are being marked for sale.
Speaker Change: So including that Mark.
Rob Gorman: Got a one five credit Mark we've got a 5% interest rate mark on that portfolio and then on top of that.
Rob Gorman: Additional discount relates to the sale in the market.
Rob Gorman: We're assuming a low nineties.
Rob Gorman: Total mark in terms of what we're able to sell to so when we receive those proceeds.
Rob Gorman: On a basis from par.
Rob Gorman: And then we are reinvesting those proceeds and paying down federal home loan bank.
Rob Gorman: The answers.
Rob Gorman: Actually I should point out.
Rob Gorman: The yield on the $2 billion, we're talking about is about a 573%.
Rob Gorman: Currently this week model.
Rob Gorman: Reinvesting.
Rob Gorman: By paying down.
Rob Gorman: Federal home loan bank of high cost brokered deposits among other things and those are.
Rob Gorman: Rates paid on those who are in the 450 475 range. So we've taken a bit of a <unk>.
Rob Gorman: Haircut on that from an earnings point of view.
Rob Gorman: In addition, we also have some of that.
Rob Gorman: Some of those proceeds will be invested in.
Rob Gorman: Both loans and securities portfolio. So there's there's a haircut that we're taking on a yield basis related to those.
Rob Gorman: And then there's also the aspect of we're not getting the.
Rob Gorman: Accretion income by selling these loans, we lose the.
Rob Gorman: Ability on the accretion income aspect of that so that's all good.
Rob Gorman: Hello.
Rob Gorman: And calculated.
We do know, it's a headwind against the.
Rob Gorman: Earnings.
Rob Gorman: As we go forward, but.
Rob Gorman: It's kind of a net not the gross number of the.
Rob Gorman: 573 yield on the portfolio, it's a headwind, but the transactions looks great.
Rob Gorman: Despite that headwind.
Speaker Change: Which are the headwinds and allows you said, Greg I'll ask you to grow.
Speaker Change: Yes, that's exactly right.
Speaker Change: I also want to point out that there is sort of an embedded option here. If you were of the mindset as we are that we're going to see an elevation in commercial real estate pay offs.
Speaker Change: If we find that we are sort of running below the planned level of commercial real estate than we're able to easily fixed that will simply sell fewer loans.
Speaker Change: Which will pop off the targeted balances and that will actually be quite lucrative because they will have Denmark again, all we're really doing is solving a math equation.
How much do we have to sell in order to hit our targeted commercial real estate concentration ratio and loan to deposit ratio, it's really as simple as that.
Speaker Change: And what are those targeted ratios as it is.
Speaker Change: More than just below 300 is it like 272 is the targeted CRE to capital that Youre looking at.
Speaker Change: Yes, if you look at the modeling I think what we reported about 272 at the holding company level, it's probably a little over that at the bank level TBD.
Yes, you can see that on the slide with tier $2 72, and $2 80.
Speaker Change: 185 below.
Speaker Change: Below 300 for sure that's the key and trying to bring that down.
Bit lower than that we're sitting right now.
Speaker Change: We're about $2 90.
Speaker Change: Today and loan to deposit ratio will be in great shape, there will actually be we're in good shape right now, but it will be lower still below 90% I think the key message to the teams, particularly who will join from Sandy spring and so the markets in which the operators we will be open for business.
Speaker Change: Positioned to grow alright, great.
Speaker Change: Great.
Speaker Change: Really helpful and then.
Speaker Change: On a standalone basis for Atlantic Union.
Speaker Change: Looks like the margin is coming down a little bit in the fourth quarter just any added.
Speaker Change: More rate cuts is there any way to kind of think about how that impacts.
Speaker Change: NIM, which we should start for 2025.
Speaker Change: Yes.
Speaker Change: Yes, Catherine I think we will we won't provide official guidance until our fourth quarter earnings call in January but you can expect that.
Speaker Change: We should see some expansion in the margin coming out of.
Speaker Change: Out of the fourth quarter.
Speaker Change: Clearly some of this is kind of temporary impacts.
Speaker Change: In terms of we've lowered our accretion income estimates as payments prepayments were coming in lower than we had originally forecast.
Speaker Change: Then you can see.
Speaker Change: Lower fixed rates have impacted.
Speaker Change: <unk>.
Speaker Change: Lower market rates term rates have impacted the yields that we're getting on new and renewing fixed rate loans.
Speaker Change: And then the other part of that is there is an extra 25 basis points.
Speaker Change: Fed funds.
Speaker Change: Rate cut that we hadn't originally.
Speaker Change: Projected in the fourth quarter that will catch up.
Speaker Change: We're expecting more to come into 2025, so all that put together and being aggressive on deposit rate bring your deposit rates down we're assuming.
Speaker Change: Mid forty's upon the deposit beta down that should allow us to stay on the margin a bit.
Speaker Change: 2025, and we will talk more about that.
Speaker Change: And our next call.
Speaker Change: Okay very helpful. Thank you and congrats.
Speaker Change: Thank you Catherine Michelle we're ready for our next caller. Please.
Speaker Change: Our next question comes from Russell Gunther.
Speaker Change: With Stephens, Inc. Your line is open.
Speaker Change: Russell.
Russell Gunther: Good morning, guys just quickly follow up on Catherines line of question for the NIM.
Russell Gunther: Could you give us a sense for where you would expect the pro forma margin to shake out with deal close.
Does the I think the $364 million you referred to on slide 16.
Russell Gunther: Does that include marks taken on the $2 billion potential $2 billion of CRA sales or not how should we be thinking about that number.
Speaker Change: Yes that should include.
Speaker Change: It should include the impact of the CRE sale both from.
Speaker Change: Earnings perspective, as well as the face of the marks.
Speaker Change: Not accretive as much income.
Speaker Change: In terms of the.
Speaker Change: 164, contemplates the up to $2 billion of loans, So yes exactly.
Speaker Change: Then in terms of the margin impact that I think we are.
Speaker Change: Suggesting upon closing.
Speaker Change: See accretion coming through probably in the.
Speaker Change: Call. It the $3 75 to $3 85 range is what we would be projecting.
Speaker Change: Accretion income.
Speaker Change: Got it thank you Rob for the clarity there and then switching gears to low <unk>.
Loan growth outlook, I think sandy spring struggled a bit to grow C&I. The way. They would have liked this is <unk>.
Speaker Change: Very much a core competency at Atlantic Union, So could you give us.
Speaker Change: The playbook for overlaying the <unk> model on Sandy Spring and then how should we think about the overall pro forma loan growth rate going forward.
Speaker Change: Dave <unk> Who's our head of all commercial businesses is here, let me say that we we have a playbook, we will continue to refine the playbook as we began to spend more time with them.
Speaker Change: So they don't show your hand, too much but at least be Directionally correct, yes.
Speaker Change: Yes, I think I think the advantage going into this transaction really is they've already segmented there business lines. So they already have a Cree segment.
Speaker Change: Like we do the C&I segment like we do yes. So now it's an opportunity to really grow the fee based businesses along with new client acquisition, our playbook will probably remain very similar to what you've seen over time, where.
Speaker Change: 30% to 40% of production comes from New client acquisition, Yes, and I would say that the Maryland markets are similar to what we see.
Speaker Change: So we definitely will use what we'll call the Virginia pardon me the Virginia playbook.
Speaker Change: We are better able or I should let me rephrase, we are better positioned to serve middle market companies.
Speaker Change: So sandy.
Speaker Change: Perhaps a bit more limited there. So we'll continue to go after certainly smaller business, but we can move into the pure metal market.
We bring new capabilities to the table be it equipment finance asset based lending foreign exchange.
Speaker Change: <unk> interest rate hedging program additional Treasury management services by the way that's some treasury management offerings that we don't currently offer that we intend to keep so all of that will come in time I do believe there are revenue synergies here. The single largest revenue synergy is you will not be.
Speaker Change: Trained in any way shape or form in terms of the capacity to lend, but we bring new tools to the table.
Speaker Change: And I think that while we have modeled zero.
Speaker Change: They're going to be very real so we're excited about it and what we can do together.
Speaker Change: As needed also I think it will help us attract talent to to the extent that the team finds that.
Speaker Change: They have room to grow and add more talent.
Speaker Change: Alright, great. Thank you guys and then just last one for me would be a follow up on the CRE loan sale understand solving for.
Speaker Change: A math equation in terms of the loan to deposit ratio of concentration.
Speaker Change: But is there anything.
You could share in terms of the profile of the loans.
Speaker Change: Loans sold whether it's asset classes like office or geographies, just how did you kind of ring fence the characteristics of the potential CRE to be sold yes.
Speaker Change: Yes, Russell, we've actually identified the portfolio priced it down to the individual node.
Speaker Change: Just to give you some context, it's about 200 notes I don't want you to think it's 2000 and.
Speaker Change: And the two largest categories will be retail and multifamily and then you get into some.
Speaker Change: Kind of miscellaneous other which makes up now we don't have to sell those 200 nodes to be clear.
Speaker Change: That is the identified portfolio, we can we can loosen things around so to speak.
Speaker Change: But there is a very liquid market for those to be exceptionally clear, we're talking about very good high quality performing loans.
Speaker Change: I wish we didn't have to sell any.
Speaker Change: That is the right thing to do so we have a very good line of sight into exactly what we're selling.
Speaker Change: Thanks, John and thank you guys for taking my questions.
John Asbury: Thanks Russell.
Speaker Change: Michelle we're ready for our next caller please.
Michelle: Okay. Our next question comes from Steve Moss with Raymond James Your line is open Hi, Steve.
Steve Moss: Good morning, guys.
Steve Moss: Just following up on the commercial real estate loans, you plan to sell here just kind of curious kind of what's the average life of the type of loans, you're looking to sell versus the average life of a CRE loans are looking to retain.
Speaker Change: I think the average life for duration of the portfolio is about four years.
Speaker Change: On the commercial real estate portfolio and these loans are pretty much in line, there will be a little shorter but pretty.
Speaker Change: Pretty much in line with that that duration.
Speaker Change: That's the total portfolio, Robert or just the the part you're selling I'm sorry.
So the total portfolio is about a four year duration and the product. We're selling is approximately in the largely reflective but it could be it's a little shorter than the four years.
Just just from the market.
Speaker Change: Appetite for this sort of assets.
Speaker Change: Not significantly.
Speaker Change: Okay, and then in terms of just the.
Speaker Change: That Mark that you guys are talking about.
Speaker Change: And I think was in the low 90 as you guys said.
That is not included in the $575 million.
Speaker Change: Interest rate Mark or is that included.
Speaker Change: It is it is included in the total Mark.
Speaker Change: If you look at we have a reconciling settlement in the back I think page 28.
Speaker Change: And then we back that out.
Speaker Change: As part of the real estate deals kind of have it in two places a negative and a positive.
Speaker Change: Okay.
Speaker Change: Got you and then in terms of just kind of.
Speaker Change: <unk>.
Speaker Change: Thinking about.
Speaker Change: The market here today, it sounds like you.
Speaker Change: You guys saw loan yields.
Speaker Change: Came in during the quarter.
Speaker Change: Curious.
Speaker Change: Okay.
Speaker Change: What kind of rate you guys are seeing on new originations here and how you guys are thinking about the pro forma combined origination rate.
Speaker Change: Yes in terms of.
Speaker Change: The Atlantic Union of new loans are coming on around the seven.
Speaker Change: 705 range in the third quarter that's down.
Speaker Change: When I think about a 7% quarter in the prior quarter part of that is due to the significant decline in term rates that occurred in the second or third quarter I think the five year.
Speaker Change: So about almost 100 basis points now that's coming back a little since the end of the quarter.
Speaker Change: So that's what we're putting on.
Speaker Change: Renewed new and renewed loans.
Speaker Change: In terms of the.
Speaker Change: Overall portfolio I mean, you can think about it kind of.
Speaker Change: If you combine the two with the marks were talking about pretty much.
Speaker Change: In that ballpark, if you mark.
Speaker Change: Sandy's, which we'll see.
Sandys.
Speaker Change: Loan yields.
Speaker Change: Portfolio.
Speaker Change: <unk>.
Speaker Change: Really those are being put on at market in terms of the loan Mark. So you would expect to see those rates kind of play through.
Speaker Change: Okay.
Speaker Change: AMETEK before that question just going back to the loans Youre looking to sell are you guys doing any hedging around around the loans to lock in.
Speaker Change: Price on the loans you plan to sell and also just curious I think the five year has moved up quite a bit here in last couple of weeks.
Speaker Change: Is that reflective of the rate Mark Youre, taking on the $2 billion portfolio or is that kind of.
Speaker Change: Question on the finance.
Speaker Change: Yes.
Speaker Change: It's reflective I think the curve.
Speaker Change: Market rates are reflected in the loan mark.
Speaker Change: But in terms of hedging we've looked at various alternatives from a hedging point of view.
Speaker Change: And.
Speaker Change: It's quite expensive, we'll continue to evaluate that.
Speaker Change: But at this point in time, we haven't.
Speaker Change: Locked into anything definitively.
Speaker Change: Definitively on hedging that we do have room if rates were to.
Speaker Change: Go up 100.
Speaker Change: The 100 basis points, we still think we're in good shape from from all of the metrics that we were talking about here.
Speaker Change: Okay got you and then just curious here on.
Speaker Change: Posit cost side it sounds like.
Speaker Change: Trends were a little bit ahead of what you guys were expecting for the quarter.
Speaker Change: Curious to hear what the 50 basis point fed cut what you guys are seeing for deposit cost trends going forward.
Speaker Change: Yes, we're certainly seeing them come down.
Speaker Change: <unk> been fairly aggressive in September post <unk>.
Speaker Change: Post the fed move and bringing down at both our CD rates and money market rates.
Speaker Change: Actually consistent with what we're seeing from some of the larger players in our market. The truest wells bofa they've been aggressive so we are being as aggressive as well.
Speaker Change: As I mentioned, we are modeling that we would.
Speaker Change: Probably be in the mid Forty's.
Through the down cycle from.
Speaker Change: From a deposit deposit beta.
Speaker Change: Perspective and.
Speaker Change: We'll be very.
Speaker Change: Aggressive on the downside here.
Speaker Change: Okay. Great appreciate all color. Thank you very much.
Speaker Change: Thanks, Steve.
Michelle we're ready for our last caller please.
Michelle: Thank you our last question comes from David Bishop with Hub Group. Your line is open.
Speaker Change: Hey, good morning, Hey, good morning.
David Bishop: John curious obviously the.
David Bishop: You get a lot bigger here following the transaction.
David Bishop: Obviously, you guys are very strong community bank oriented franchises, both you and Dan.
Do you see that the nature of the types of loan relationships.
David Bishop: Materially.
David Bishop: Post close.
David Bishop: To move upmarket in terms of the upper middle market just curious how you think.
David Bishop: Our business model May change.
Speaker Change: The way, we would think about it is we will keep doing everything we're doing today. There is nothing thats going on at Sandy spring Thats not going on here from our standpoint in terms of commercial banking. So we keep doing what we're doing but we will have the capacity.
Speaker Change: To deal with some larger clients as well.
Speaker Change: The middle market.
Speaker Change: We have some other capabilities that will be of interest we have a public finance subsidiary for example, which will actually make us more competitive up there.
Speaker Change: In terms of tax exempt financing for example.
Speaker Change: You know.
Speaker Change: The Baltimore area is an outstanding industrial market I used to run asset based lending in the southeast for Bank of America. We had a Baltimore office has spent a lot of time up there. So as we bring things like equipment finance to the table and asset based lending and equipment finance, we have marine finance capabilities think tug boats barges et cetera.
Speaker Change: Baltimore, we see a lot of opportunity not just in there, but I'm, specifically, calling out Baltimore in that area.
Speaker Change: As an excellent set of commercial and industrial market, but then just broadly greater Washington region.
Speaker Change: Central Maryland.
Speaker Change: We will be able to bring some tools to the table and capital.
Speaker Change: To be able to move a bit more up market its not an either or it's everything theyre doing and some additional capabilities.
Speaker Change: Great. Thanks, and then maybe just curious.
Speaker Change: It's obviously, maybe somewhat Boston, the shelf a little bit but.
Speaker Change: You experienced thus far in terms of retention and maybe growth on the.
American National deposit base may be some some trends there post close.
Speaker Change: We feel good yes, feeling really good about it doesn't really.
Speaker Change: The retention has been really good.
Speaker Change: Both the deposit side and I think from a commercial client perspective, and a retail perspective so.
Speaker Change: Bullish I think nothing material to report Theyre actually feel like we're growing some some of those those accounts.
Speaker Change: Maybe any comments on what youre seeing on the commercial on the commercial side.
Speaker Change: Client attrition rate is actually lower than our average client attrition rate.
Speaker Change: Yes.
Speaker Change: And only slightly higher than the historical average for American nationals, So we're seeing pretty steady.
A steady book of business that has a great team of bankers.
And we've clearly been able to demonstrate our enhanced ability to recruit which we have mostly seen in north Carolina, because we have a good we have a great team right now in central Western and southern Southern Virginia.
Speaker Change: But we've been adding to the commercial team down in North Carolina, That's one benefit.
Speaker Change: To the additional capabilities and some additional scale.
Speaker Change: They're all going to be bankers, who will perceive that as a good thing.
Does it only further improves our ability to go head to head with the big guys.
Speaker Change: And to the middle market.
Speaker Change: Got it appreciate the color I guess, one final question John it sounded like.
Speaker Change: You had some line of sight maybe too.
Speaker Change: Additional commercial real estate pay downs coming up here, maybe maybe.
Speaker Change: Talk about where you're seeing some of that that pressure coming from yes, it's interesting.
<unk> is here with me we were just spending time recently with our commercial real estate team and.
Speaker Change: It's very clear that we have going on here.
Speaker Change: If you look back we've been through a period of suppressed or below normal commercial real estate payoffs, which in my mind think of it as like a backup or a bit of a backlog. So these are developers that.
Speaker Change: In the normal course are going to refinance into the institutional nonrecourse markets like insurance companies or if it's apartments, Fannie or Freddie programs, possibly see MBS, and then kind of a waiting because they've been making their expectation will spend the term rates will come down.
Speaker Change: Or sell the properties and so when term rates come down cap rates go down. So when we saw the dip in treasury yields last quarter that felt like a little bit of a tipping point and I'm not saying there is applied but I'm just saying they were they were ready and they begin to make this decision to do it. So we saw this pickup.
Speaker Change: And we know from talking to them.
Speaker Change: But they have more to go as they sort of quarter backlog because they want the capital back.
Speaker Change: And they want there.
Speaker Change: The ability to go do additional projects. This is actually a healthy thing it should be viewed as a good thing in the markets.
I'm not saying there is a huge wave, but im saying its beginning to think of it as normalized but there probably will be some above average payoffs were a little bit while this backup clears. This is normal. This is what you want them to do.
Speaker Change: It's just kind of the normal process and it's been below average so yes we've.
Speaker Change: We've seen treasury yields pick up again now so maybe that will change their expectations not sure.
Speaker Change: Putting that altogether, maybe on an organic basis does that sort of imply maybe mid single digit loan growth, maybe as opposed to a high single digit growth rate just curious maybe holistically.
Speaker Change: Rob you want to speak to that.
Rob Gorman: Yes, so we're still calling for mid single digit loan growth Dave So.
Rob Gorman: Even despite some of the headwinds we're seeing here, yes, we think the pipelines are supportive of that.
David Bishop: Great I appreciate the color.
Speaker Change: Thanks, Dave and thanks, everyone for joining us today on today's call. We look forward to talking with you next quarter. Thank you Rob.
Thank you for your participation you may now disconnect everyone have a great day.