Q2 2025 Atlantic Union Bankshares Corp Earnings Call
Move yourself from the queue simply press star 1 1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program Bill Cimino senior, vice president investor relations. Please go ahead sir.
Thank you, Jonathan, and good morning everyone. I'm Atlantic Union Bank shares, president and CEO John Asbury and Executive, Vice President, and CFO Rob Gorman with me today. We also have other members of our executive management team with us for the question and answer period.
Please note that today's earnings release in the accompanying. Slide presentation, we are going through on this webcast are available to download on our investor website. Investors Atlantic Union bank.com
During today's call, we will comment on our financial performance using both Gap metrics and non-gaap financial measures important information about these non-gaap.
And 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 second quarter of 2025.
And our remarks on today's call, we will also make forward-looking statements, which are not statements of historical facts and our subject to risks and uncertainties.
There can be no Assurance at actual performance will not differ materially from any future expectations or results, expressed or implied. From these forward-looking statements,
we're going to take no obligation to publicly, revise or update any Court looking statement except as required by law,
Please refer to our earnings release and slide presentation issued today. And our other SEC filings for further discussion of the company's risk factors and other important information regarding our forward-looking statements including factors that could cause actual results to differ from those expressed or implied in a forward-looking statement.
All comments made during today's call are subject to that Safe, Harbor statement.
Speaker Change: At the end of the call, we'll take questions from the research analyst community, and I'll turn the call over to John Asbury. Thank you, Bill. Good morning everyone. Thank you for joining us today. He was a productive and eventful quarter for Atlantic Union Bank shares marked by the acquisition of Sandy Spring Bank, which closed on April 1 as anticipated. The acquisition introduced, some merger accounting, noise this quarter and Q2 will serve as a better starting point for future linked quarter comparisons. We do believe our operating results, demonstrate the strong earnings potential of our franchise, as we envisioned, when we announced the Sandy Spring acquisition, we are pleased that our operating performance following, the merger is meeting our expectations. The integration of Sandy Spring is progressing smoothly and we benefited from the 2 companies. Strong cultural alignment leading into the merger. The sale of approximately 2 billion of commercial, real estate loans acquired from Sandy Spring Bank closed on on June 26th and exceeded our initial pricing estimates. We also physically settled in full the
Speaker Change: Forward sales of common equity in April concurrent with the merger closing receiving approximately 385 million before expenses.
Speaker Change: We are working diligently on integration activities and are on track for our fourth quarter core systems conversion leveraging, our ex experience from past Acquisitions, including last year's conversion of American National Bank. We are confident and integration efforts and systems preparations
Speaker Change: Our shareholder value proposition remains unchanged, We Believe Atlantic Union is well, positioned to deliver sustainable growth top tier financial performance and long-term shareholder value. The Strategic benefits from the Sandy Spring, acquisition along with Organic growth opportunities will bolster our position as the premier Regional Bank and the lower Mid-Atlantic with a strong presence in attractive markets,
Speaker Change: I will summarize key aspects of our second quarter results and provide insights into market conditions. Before handing over to Rob for a detailed financial review. I will then discuss our organic growth initiatives in North Carolina, which we're excited about. Before opening the call for questions.
Speaker Change: Here are the highlights from our second quarter, our quarter end loan to deposit ratio was approximately 88%. Our cet1 Capital ratio was 9.8% and our bank level Siri concentration ratio was 284% the Sandy Spring acquisition closed 1, quarter earlier than anticipated. A positive development that would gave us 1 quarter less capital accumulation than planned that announcement.
Speaker Change: I reported FTE, net interest margin expanded by 38 basis points to 3.83% notably our core net interest margin, which excludes the impact of accretion income improved by 8 basis points.
Speaker Change: Pipeline and strong production, particularly later in the quarter.
Speaker Change: Our pipelines indicate that we should have solid loan growth in the second half of the year. We continue to project year end loan, balances between 28 and 28.5 billion inclusive of the negative impact of loan, fair value, Marx,
Speaker Change: Positive Growth tents trims, uh, tends to be seasonally slow in the second quarter and we also paid down broker deposits by approximately 340 million dollars in Q2 and intentionally reduced. Some higher cost. Non-relationship deposits acquired in the Sandy Spring portfolio.
Speaker Change: The commercial real estate loan sale process was complex but it yielded a strong outcome better than planned and reflected the quality of Sandy Springs, client base and markets. Completion of the sale, removes the risk element reduced, our commercial real estate concentration. Lowered the loan to deposit ratio and increased capacity for future growth. While providing a positive start to our integration efforts.
Speaker Change: Credit quality remains solid. As we reported only 1 basis point of annualized. Net charge offs and passed through loans. Remained low
Speaker Change: Second quarter npas is a percentage of loans held for investment were 0.60%. The increase reflects aub's more conservative approach to loan rating, and marking under acquisition accounting as Sandy Springs, loans were added to aub's loan portfolio.
Speaker Change: We remain confident in our asset quality and market conditions. We have lowered our forecast for the 2025 net charge all for ratio to be between 15 and 20 basis points for the full year. Inclusive of a few non-performing assets with specific reserves that we expect to charge off later this year.
Speaker Change: We are well distributed across Virginia, Maryland, and North Carolina with the presence in Washington DC. These regions are highly attracted to operate in
Speaker Change: And the greater Washington DC region, despite continuing headlines about government employee employment. Reductions the economic data and our observations suggest resilience the region with a population of about 6.4 million. People remains robust and we view changes in government employment to date as manageable although there can be uncertainty about where it may all end up.
Speaker Change: For perspective approximately 23% of our total loans are of the Washington Metro Area with the remaining 77% across other parts of our footprint.
Speaker Change: As we stated last quarter the credit exposures that have been most in focus in the greater Washington region are government contractors and Office Buildings. We updated disclosures on these categories on pages, 22223 and 24 of our supplemental presentation.
Speaker Change: A government contractor Finance portfolio, primarily National Security and defense related is performing well as you can see on slide 24 of our supplemental. Presentation of note, the recent budget reconciliation bill will increase defense spending to a record level and we believe defense modernization spending will be an overall benefit to our government contract portfolio.
Speaker Change: Regarding the office loan portfolio, AUB does not and Sandy Spring. Did not Finance, large office properties as evidenced by our 1.9 million average loan size. And we have only 71 million of exposure in the District of Columbia. The portfolio is performing well as you can see on slide, 22 of the supplemental presentation.
Speaker Change: More broadly, it is also worth pointing out that as of the most current unemployment data for June, they remains no more popular state in America with a lower unemployment rate than Maryland at 3.3%. Virginia is the third most populous state in the country with the lowest unemployment rate at 3.5%.
Speaker Change: With strong pipelines, and an expanded footprint in attractive markets, supplemented by our specialty lines, We believe We Are positioned well for solid organic growth, in the second half of 2025 Rob will. Now, provide further details on the quarter and I will then return with comments on our future Direction before opening the call for questions Rob.
Rob Gorman: Well, thank you, John, and good morning everyone. Thanks for joining us today.
Rob Gorman: And they'll take a few minutes to provide you with some details of Atlantic units. Financial results for the second quarter.
Rob Gorman: Here are some key data points related to Sandy Spring acquisition that should be kept in mind as we review the second quarter's results.
Rob Gorman: The fair value of assets acquired total 13 billion dollars and included loans helpful investment investment of 8.6 billion dollars in loans held for sale of 1.9 billion, which primarily consists of the CRA loan sold. During the quarter subsequent to the acquisition
Rob Gorman: The total loan portfolio of fair value. Marked discount was 789.7 Million comprised of a credit, Mark of 162.8 million and an interest rate Mark of 626.8 million.
Rob Gorman: Include a total deposits of 11.2 billion. Cor deposited tangibles and other intangibles acquired total 290.7 million.
Rob Gorman: And the preliminary Goodwill arising from the transaction total 496.9 million.
Rob Gorman: Also please note that for the most part, my commentary of focus on Atlantic Union second quarter Financial results on a non-gaap adjustment operating basis which excludes the following items.
Rob Gorman: the 89.5 million negative pre-tax impact of the Cecil day 1 initial provision for credit loss expense on purchased noncredit, deteriorated or non-pc loans required from Sandy Spring, which represents the Cecil double count of the non PCB loan credit Mark and the 11.4 million negative pre-tax impact of provision in expense on unfunded commitments acquired from Sandy Spring
Rob Gorman: Also excludes pre-tax, merger related costs of 78.9 million in the second quarter associated with the merger.
Rob Gorman: And the 15.72% Cary Street partners.
Rob Gorman: That said in the second quarter reported net income available to Common shareholders was 16.8 million.
Rob Gorman: And earnings per common share with 12 cents.
Rob Gorman: Adjusted operating earnings available to Common shareholders. Were 135.1 million or 95 cents per common, share for the second quarter, resulting in an adjusted operating return on tangible common Equity of 23.8%
Rob Gorman: And adjusted operating return on assets of 1.46%.
Rob Gorman: And an adjusted operating efficiency ratio of 48.3%. In the second quarter.
Rob Gorman: Now, turning the credit loss Reserves at the end of the second quarter, the total allowance for credit losses was 342.4 Million which was an increase of approximately 133 million from the first quarter primarily due to the initial allowance related to the Sandy Spring. Acquired loans of 129.2 million which includes a 28.3 million loan loss reserve on PCD loans and the CC CEO double count of the non-pc D loan credit Mark and provisioned expense on acquired unfunded commitments, tolling, 100.9 million.
Rob Gorman: The total allowance for credit losses, as a percentage of total loans held for investment increased to 125 basis points. At the end of the second quarter, and that was up from 113 basis points at the end of the first quarter.
Rob Gorman: Provision for credit losses of 105.7 million in the second quarter, includes the acquisition related, Cecil double count of 100.9 million.
Rob Gorman: That charge us to decrease to 600 666,000 or 1 basis. Point annualized in the second quarter down from 2.3 million or 5 basis points analyzed in the first quarter.
Rob Gorman: Now, turning to the pre-tax pre-provision components of the income statement for the second quarter tax equivalent. Net interest income was 325.7 Million which was an increase of 137.8 million from the first quarter primarily driven. By the addition of Sandy Spring acquired loans in the deposits merger related, net accretion interest income related to acquisition accounting as well as by organic loan growth.
Rob Gorman: As John noted, the second quarter is tax equivalent in that interest margin was 3.83% and that was an increase of 38 basis points from the previous quarter, primarily driven by the incremental net increase, increasing of purchase accounting adjustments on loans, deposits and long-term borrowings related to the Sandy Spring acquisition.
Speaker Change: Ernie acid yields for the second quarter increased 37 basis points to 6.05% compared to the first quarter and the cost of the fund is decreased by 1 basis. Point to 2.22% compared to the prior quarter.
Speaker Change: the loan portfolio yield increased 47 basis points to 6.48% in the second quarter from 6.01% in the first quarter, primarily driven by the incremental, merger related loan, increasing the income of 32.5 million which added approximately 39 basis points to the loan deal from the prior quarter, which was in
Speaker Change: In addition to an increase in link quarter Corps, loan yields of 9 basis, points, driven by bakbuk fixed rate loans repricing higher.
Securities and other earning asset yield yield uh increases in the second quarter, added 1 basis point to the earning asset yield primarily driven by the restructuring of Sandy Springs, Investment Portfolio and fair value accounting adjustments. Arising from the acquisition
Speaker Change: These earning asset yield increases were partially offset by a 2 basis. Point decline, due to shifts in the earning asset, mix
Speaker Change: 1 basis, point Decline and the second quarter is cost of funds to 2.22% was due primarily to the 9 basis points decrease in the cost of deposits at 2.2%. Partially offset by higher borrowing costs, primarily due to increase long-term subordinated debt. As a result of the CNE spring acquisition,
Speaker Change: not interest income increased 52.3 million, to 81.5 million for the second quarter, primarily driven by the 15.7 million free tax gain on the sale of the 2 billion dollars of CRA loans, and the 14.3 million pre-tax gain, on the sale of our Equity interest in carries through Partners, as well as the full quarter impact of the CN spring acquisition,
Speaker Change: Excluding the realized gains on sale during the quarter adjusted, operating non-interest income increased 22.2 million dollars for the first quarter of 51.5 million, primarily to, to the impact of the Sandy Spring acquisition, which drove the majority of increases in fiduciary and asset management fees service. Charges on deposit accounts and interchange fees.
Speaker Change: In addition to acquisition impacts, the quarterly, bank owned life, insurance income, increase of 3.8 million included, 2.4 million in death benefits, received in the second quarter, and the Mortgage Banking income increase of 1.8 million included the impact of Sandy Springs, Mortgage business, as well as a seasonal increase in mortgage loan origination volumes.
Speaker Change: In addition, other operating income increased 2.4 million primarily due to an increase in equity method investment income.
Speaker Change: Reported not interested in non-interest expense increased, 145.5 million to 279.7 million for the second quarter of 2025 primarily driven by a 74. Million dollar increase in merger related costs as well as other increases in non-interest expense. Due to the full quarter impact of the Sandy Spring acquisition,
Adjusted operating on interest expense, was excludes merger related costs in the first quarter first and second quarters, and amortization of intangible Assets in both quarters, increased 58.6 million to 182.4 million. For the second quarter up from 123.8 million in the prior quarter, primarily due to the impact of the Sandy Spring acquisition, which drove the majority of the increases in several non-interest, expense categories. Compared to the prior quarter.
Speaker Change: Company's effective tax rate. In the second quarter was a negative -3.2 reflecting the impact of an 8 million dollar income tax. Benefit recorded during the quarter related to the company's re-evaluation of its State. Deferred tax asset, as a result of the Sandy Spring acquisition,
Speaker Change: Position at Sandy Spring, operating a higher state tax jurisdiction, which now impacts a large proportion of the company's Consolidated pre-tax income.
at June 30th loans help for investment net of deferred fees and costs were 27.3 billion dollars which was an increase of 8.9 billion from the prior quarter again, primarily driven by the Sandy Spring acquisition,
Speaker Change: Assuming the sea spring, acquisition closed on March 31st, instead of April 1st and excluding off the negative. Blown fair value marks on the acquired loans and the effect of the CRA load sale. Transaction Pro pro-forma, loan growth was approximately 4% annualized,
Speaker Change: At June 30th, total deposit stood at 31 billion, which was an increase of 10.5 billion from the prior quarter due to increases in interest rates. Customer deposits. And the band deposits primarily related to the additional Sandy Spring and acquired deposits.
Speaker Change: Assuming the Sandy Spring with the acquisition closed on March. 31st of April, 1st from 4 or deposits decreased 752.8 million or approximately 9 and a half percent annualized from the prior quarter which is primarily due to lower broker deposits which declined by approximately 340 million as well as the clients in time deposit balances of approximately 143 million dollars as we intentionally. Let maturing higher costs, non-relationship time, deposits acquired, from Sandy Springs to run off during the second quarter.
Speaker Change: At the end of the second quarter, Atlantic Union Bank shares. In Atlantic Union's, Banks, regulatory Capital, ratios were comfortably above. Well, capitalized levels, in addition on an adjusted basis. We we remain well, capitalised, as of the end of the second quarter, if you include the negative impact of aoci and held to maturity Securities unrealized losses, in the calculation of the regulatory Capital ratios.
Speaker Change: During the second quarter, the company paid a common stock dividend of 34 cents per share, which was an increase of 6.3% for the previous year. Second quarter dividend amount
Speaker Change: as noted on slide 16, we've updated our full year 2025 Financial outlook for a, which includes estimates of the of purchase accounting, adjustments, with respect to Sandy Spring.
Speaker Change: That our subject to change, we expect loan balances to end the year between 28 billion and 28 and a half billion dollars. While year-end deposit balance is a projected to be between 31 billion and 31.5 billion.
Speaker Change: The allowance for credit losses to loans is expected to fall between 1.2% and 1.3% and our full year. Net charge off ratio is projected to be between 15 and 20 basis points.
Speaker Change: Fully capture equivalent that interest income for the full year is projected to come in between 1 billion, 150 million, and 1.2 billion dollars.
Speaker Change: As a result, we are projecting that the full year fully tax equivalent net. Interest margin will fall in the range between 3.75% and 4% driven by our Baseline assumption. That the Federal Reserve Bank will cut the FED funds rate by 25 basis points in September, November and December.
In addition to fully tax quill, and that interest margin projection, includes the impact of our estimate of net increase in income from to see any spring acquisition, which can be volatile and subject to change.
Speaker Change: The full year basis adjusted on operating non-interest income is expected to fall between 175 and 185 million.
And the adjusted operating non-interest expenses for the full year, which excludes amortization of intangible assets, expense of approximately 60 million dollars. A estimated to fall in the range of 670 million to 680 million.
Based on these projections, we expect to produce Financial returns. That will place us within the top quartile of our peer group and meet our objective of delivering top tier financial performance for our shareholders.
Speaker Change: In summary, Atlantic Union, delivered solid operating results in the second quarter inclusive of inclusive of Sandy Spring. Despite the noise of acquisition accounting, we are on track and confident that we will achieve the anticipated. Financial benefits of the combination. We see any spring, some of which were evident in the second quarter Financial results 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 2025 and Beyond.
Speaker Change: I'll now turn the call back over to John. Thank you. Rob and December. We'll host an analyst day at the New York Stock Exchange and Bill will send out more information on that shortly. This will be our third analyst day since I've been here. And we'll share our new 3-year, strategic plan which we expect to finalize and approve this fall.
Speaker Change: I do want to highlight our Geographic footprint expansion strategy. Is this a question? We frequently receive?
Speaker Change: For background in. As a reminder, I've often described the AUB story in our transformation, as chapters in a book chapter 1 involved. Consolidating Virginia and securing our position as Virginia's Bank, we believe we have now accomplished, that chapter 2 was extending the Virginia franchise to secure a similar footing in the lower Mid-Atlantic, which we believe would was achieved with our acquisition of Sandy Spring. We now have the number 1 Regional Bank by depository market share in both Maryland and Virginia a feat. We Believe unprecedented and likely not replicable in our markets.
Chapter 3, which is already underway focuses on the organic expansion of our presence in North Carolina. The acquisition of American National Bank last year was pivotal for densifying, our presence in western and southern Virginia, as well as providing us a meaningful entry into North Carolina when we acquired American National. We clearly stated Our intention to invest in North Carolina's growth markets. And we now plan to accelerate those Investments.
Speaker Change: The Sandy Spring acquisition is provided us with significant growth opportunities in the large markets of Maryland, and Northern Virginia. As evidenced by this quarter's operating results, we believe it also provides us with the financial capacity to accelerate investments in our company, including organic expansion in North Carolina.
Speaker Change: We will build on the North Carolina base. We enhanced with American National Speed Mont Triad presence and Raleigh office in addition to aub's existing branches in the Outer Banks. Our longstanding Charlotte Loan Production Office and the Wilmington Loan Production Office. We established after the American national merger. These are attractive markets where we believe we can successfully utilize our model to drive incremental growth.
Speaker Change: Starting in 2026, we plan to open 10. New branches in North Carolina with 7 in the Research, Triangle and 3 in Wilmington, we also plan to expand our Commercial Banking, wealth, and mortgage teams. There, we believe these actions will provide us with a critical mass to compete. In those markets and offer new supplemental organic growth opportunities and some of the best population growth markets in the country.
Speaker Change: The branch build out is expected to be completed over a 3 year, period.
Speaker Change: In some, we have intentionally and carefully built the uniquely valuable franchise that we envisioned that our strategic plans over the past nearly 9 years. We believe we are. Well, positioned to realize the potential of the new markets acquired through the Sandy Spring, acquisition to continue our growth in Virginia and to execute on attractive organic growth opportunities in North Carolina. We also plan to continue to supplement organic growth where their existing specialty lines we'll have more details during our investor day in December, but I hope this provides a clearer picture of the next chapter in the aeb story.
Speaker Change: Brian where I think that we're looking at a reasonable growth trajectory for the remainder of the year.
Speaker Change: That's really helpful. Thank you and then as a follow up maybe on the funding side. So you have about one 6 billion of cash on the balance sheet post along sale can you just dig into how youre going to deploy that in terms of paying down higher cost source of funding.
Speaker Change: How much you can do there and how quickly you could move on it.
Brian: Yes, Brian so.
Brian: In terms of we've got about one $6 billion of cash.
Brian: Cash, which is about a $1 billion.
Brian: One building one higher than we typically would have that's obviously it comes from late in the quarter, where we received the proceeds from the CRE sale.
Brian: Our game plan there is to continue to pay down high cost brokered deposits.
Brian: Our maturity.
Brian: Third quarter, so $2 million to $300 million.
Brian: Maybe a little higher than that over the next quarter and then there is a bit more in the up in the fourth quarter.
Brian: In addition to that.
Brian: Going to be investing a bit more.
Brian: The investment portfolio.
Brian: Probably both.
Brian: About $500 million or so we'll be going into there.
Brian: We're kind of ladder in goudy and over this quarter.
Brian: And then.
Brian: We're hoping that loan growth continues to.
Brian: To be higher.
Brian: To get to that $28 billion, so we'll be using some of that cash.
Brian: Core funding funding loans.
Brian: So that's how we're planning to utilize them.
Brian: And is it fair to assume that the loan to deposit ratio, maybe ticks up a little bit from here.
Brian: Yes.
Brian: It likely will I mean, we're comfortable in the 90% to 95% that's historically, where we've run. We're 88, so you could see that tick up a bit higher.
Brian: As you take out.
Brian: Certainly taken off the broker deposit numbers.
Brian: Those down.
Speaker Change: Got it that's really helpful. Thank you for taking my questions certainly thank you Gregg, Brian and we're ready for the next caller Jonathan certainly our next question comes from the line of Steve Moss from Raymond James Your question. Please good morning, Steve.
Chase Andre: Hey, guys. This is chase Andre good morning.
Speaker Change: So you don't Acs, we know Steve has got a good excuse for not being overhaul.
Chase Andre: Thank you for reminding me.
Chase Andre: First one for me I've been hearing a lot about pricing competition, where loan yields coming in at now either in terms of blended or <unk> and legacy SaaS or market separately. Thanks.
Chase Andre: Yes, so in terms of where we see loan yields coming in.
Chase Andre: This quarter it hasn't really changed too much but if you look at the fixed rate portfolio. I think we are at about the six in a quarter.
Chase Andre: To $6 50.
Chase Andre: That's the back.
Chase Andre: Back book fixed rate.
Chase Andre: The increase in pricing, we're seeing we've got about a 510.
Chase Andre: Average average yield on those loans and we're repricing as I said, the six in the quarter to $6 50 range. So.
Chase Andre: That's continued for the last several quarters. It didn't same kind of range. So nothing really materially has changed there.
Chase Andre: Syed.
Chase Andre: Gotcha.
Speaker Change: I see in your 2025 financial outlook Slide that you have three cuts rest of the year baked into the modeling there.
Speaker Change: Did you happen to run it to cut scenario and if so is there anything you can share on how different it was from the three cut scenario.
Speaker Change: Yes, so we did run.
In a scenario, where we had no cuts zero cuts which could happen.
Speaker Change: And it's about a one to two basis points crop improvement.
Speaker Change: Improvement in the margin this year.
Speaker Change: So if we don't get those cuts.
Speaker Change: Because.
Speaker Change: Our.
Speaker Change: Variable rate loan book, which is about 50% of our loan book will reprice down. So we'll pick up a couple of basis points if that plays out into.
Speaker Change: 2026, where we had three cuts in 2026.
Speaker Change: Delay those cuts, it's probably a three to four basis points five basis point improvement.
Speaker Change: In 2026 outlook.
Speaker Change: Thanks for that.
Speaker Change: One last one for me.
Speaker Change: Now that you are actively working on integrating all of SaaS.
Speaker Change: What opportunities are you most excited about thanks.
Speaker Change: I would say.
Speaker Change: We have numerous other leaders here at the table I would say first of all what we bring to the table.
Speaker Change: For the former Sandy spring franchises liquidity.
Speaker Change: They're unconstrained in terms of their ability, we bring new products and capabilities, particularly on the commercial and industrial side.
Speaker Change: And I think we've got a wonderful group of people up there.
Speaker Change: So I think that we couldnt be happier with the cultural fit.
Speaker Change: So I feel really good about that I am Super excited about what we're talking about doing in North Carolina, and I feel good about the Virginia market, So I'm feeling pretty optimistic across the board I think that.
Speaker Change: Any sort of.
Speaker Change: Calm that comes to the markets in terms of the hesitancy that we've seen which appears to be abating is going to be good for us because I think were meaningful in these markets. These are good markets.
Speaker Change: And we play an important point, we won't have anything to add to that.
Speaker Change: And then the stage is set we should be able to deliver.
Speaker Change: Okay.
Speaker Change: That's all for me. Thank you guys thank product color.
Speaker Change: Okay. Thanks Jay.
Speaker Change: Jonathan we're ready for our next caller. Please certainly our next question comes from the line of Catherine Mealor from <unk>. Your question. Please.
Speaker Change: Hi, Catherine.
Speaker Change: Morning.
Speaker Change: Maybe just one on <unk>.
Speaker Change: Follow up on that what you were just talking about in terms of kind of C&I and growth in the D C market.
Speaker Change: You just talk a little bit about the opportunity for growth.
Speaker Change: Maybe you can kind of two buckets in D. C. I think maybe maybe one in terms of bringing youre kind of C&I products, maybe what kind of growth rate would you expect to see in C&I in the north.
Speaker Change: Sandy Springs market.
Speaker Change: And what that kind of ramp and transition happens do we need to hire more lenders or can you do it with the team <unk> got kind of paint a picture for that looks like and then and then secondly on the CRE side.
Speaker Change: Are there opportunities within the.
Speaker Change: The clients some of their relationships that they had with the $2 billion of loans that you. Just saw that you are still servicing is there an inherent kind of growth opportunity within that client base as you're willing to lean in and kind of growth CRE.
Speaker Change: As you build capital over time thanks.
Speaker Change: Yes, certainly Kathryn one thing I'll point out politely as that we don't think about it is the D. C market. We think about it is the state of Maryland.
Speaker Change: Because sandy was Merrill Lynch bank, not the DC bank.
Speaker Change: We have two branches in DC.
Speaker Change: But.
Speaker Change: Far more than just one clarification, yes, thank you I'm sensitive to that.
Speaker Change: Yes, so state of Maryland, and then more broadly northern Virginia.
Speaker Change: We think we do have a great team up there and we feel good about that team and under J O'brien leadership, Dave I think as we've looked at the size of the team and capabilities. We feel pretty good do you have anything you would want to add to that yes.
Speaker Change: When we look at the teams. We also look at their book sizes and the support the support levels that we give them and we think it's fully staffed at this point.
Speaker Change: Don't really need to add unless somebody leaves on the <unk> side, just remember Cree has multiple transactions with customers. So even if there's a customer in the book of business that we just sold we don't necessarily have to take that deal out. We can just do another transaction with them Thats. The beautiful part of the Cree banking is.
Catherine Mealor: We manage those relationships you get multiple opportunity, yes, I agree and so Catherine.
Catherine Mealor: The good thing single best part of the commercial real estate sale lists that were servicing those credits.
Catherine Mealor: And I do think we've got a great partner in Blackstone, who certainly delivered but we are we are still managing those relationships and as they have additional opportunities. It frees up capacity. So if there were a whole limit issue for example, where we might've had too much exposure or limited upside or additional capacity that is now.
Catherine Mealor: Resolved.
Catherine Mealor: With the sale and then opportunities may come up.
Catherine Mealor: Over time with them. So I think it kind of reloads the opportunities for us and as you know because you covered them a good bank that they they were they were a bit constrained in terms of liquidity and commercial real estate concentration and those are no longer a factor.
Catherine Mealor: And we think we're in a really good position to continue to pick and choose and we think we'll see opportunity up there and then elsewhere too.
Speaker Change: And then maybe one follow up just on the margin is it fair to you.
Speaker Change: A big range within the margin and we're kind of starting a little bit on the lower end of where we thought we'd be which was kind of where we had painted the picture, but is it fair to think that as we move through the year and kind of growth improves then you kind of work through some of the liquidity and pay down broker debt or the margin just gradually kind of trends towards the higher end of the <unk>.
Speaker Change: <unk>.
Speaker Change: Yes, Scott. The reason is there I guess, what's the risk that we kind of stay stagnant in the margin near term maybe maybe not.
Speaker Change: A way to put it yes.
Speaker Change: I think what what.
Speaker Change: As we said.
Speaker Change: The margin should grind higher on a core basis and Thats really what.
Speaker Change: We should be seeing we saw that about.
Speaker Change: Eight basis points of core margin.
Speaker Change: Prudent.
Speaker Change: Expansion this quarter.
Speaker Change: In terms of going forward, we've kind of played out.
Speaker Change: Reduced.
Speaker Change: Cost of the CD book.
Speaker Change: Previously we are in the 440 <unk> in terms of.
Speaker Change: The CD rates paid.
Speaker Change: New and maturing CD is going on in the 375% to 4% range will kind of play that out theres, probably another quarter's worth of that.
Speaker Change: To bring down deposit costs.
Speaker Change: We will continue to do bring those deposit costs down.
Speaker Change: As the fed.
Speaker Change: It brings rates down of course, we have.
Speaker Change: To that.
Speaker Change: The variable rate loan book repricing as well so the grind higher it's probably going to slow a bit but it still will grind higher but it's not going to be.
Speaker Change: 8% to 10 basis points.
Speaker Change: Per quarter. So that's kind of why we're kind of kept that range there, but to your point it should grind higher from here.
Speaker Change: But that outlook was on a full year basis, 375% to 4%. So as you go into the third and fourth quarter, you should see that a bit higher than where we are today.
Speaker Change: That we're sitting on $1 billion of cash at quarter end, because it will be a portfolio sale happen days before quarter end, we didn't have the opportunity to deploy much of it.
Speaker Change: That's up opportunity for sure.
Speaker Change: That's great. Okay. Thank you great.
Speaker Change: Thank you Catherine appreciate it yeah.
Speaker Change: Yes.
Speaker Change: Jonathan we're ready for our next caller, please and certainly we have a follow up question from the line of Brian Lapinski from Morgan Stanley. Your question. Please.
Speaker Change: Hey, Brian Hey, just circling back with one more question on credit. So credit was clearly really positive this quarter sounds like youre not seeing any sac.
Speaker Change: In terms of signs of weakness across the portfolio.
Speaker Change: The guidance for the year of 15 to 20 basis points events.
Speaker Change: This is significantly higher than where you've been trending and I know there is one potential idiosyncratic.
Speaker Change: That could get resolved in the second half, but aside from that can you just comment on any conservatism that's baked into that guidance is there anything you're seeing right now.
Speaker Change: Would indicate that losses are going to move higher or are you just being conservative with that with that outlook.
Speaker Change: Yes, Brian I would say, it's a conservative conservative outlook, but it does include a couple of.
Speaker Change: Lowe's, where we have specific reserves on them and expect to see those resolved in the second half of the year. So that's kind of playing into that 15.
Speaker Change: To 20 range, if those play out the way we think they might based on the specific reserves. We have so it's probably a bit conservative may not hit that 15 basis point.
Speaker Change: Charge off ratio.
Speaker Change: But not knowing there's nothing.
Speaker Change: Beyond the things that I, just mentioned that would suggest it should be higher.
Speaker Change: But.
Speaker Change: Just thought that range made sense for us to keep something keep came through in the second half. That's right. We don't have a line of sight to that but.
Speaker Change: We'll review it again after this quarter.
Speaker Change: Got it thank you again.
Speaker Change: Thanks, Brian.
Speaker Change: And thanks for everyone, who called in today. We appreciate your questions and we look forward to talking with you next quarter have a good day. Thank you.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: [music].