Q2 2025 Atlantic Union Bank Earnings Call
Thank you for standing by and welcome to the Atlantic Union Bank shares. Second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during this session. You'll need to press star 1, 1 on your telephone. If your question has been answered and you'd like to remove 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.
Bill Cimino: Thank you, Jonathan, and good morning everyone. I have 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.
Bill Cimino: 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 unionbank.com.
About these non-gaap.
Bill Cimino: 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.
Bill Cimino: 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.
Bill Cimino: There can be no assurance that actual performance will not differ materially from any future expectations or results, expressed or implied. From these 4 looking statements,
Bill Cimino: we undertake no obligation of publicly revised or update, any core looking statement except as required by law,
Bill Cimino: Net charge offs decreased to 600 $666000, a one basis point annualized in the second quarter down from $2 3 million or five basis points annualized in the first quarter.
Bill Cimino: Now turning to the pretax pre provision components of vehicles 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 and deposits merger related net accretion interest income related to the acquisition.
Bill Cimino: This accounting.
Bill Cimino: As well as by organic loan growth.
Bill Cimino: John noted the second quarter's tax equivalent net interest margin was 383% and that was an increase of 38 basis points from the previous quarter, primarily driven by the incremental net increase accretion of purchase accounting adjustments on loans deposits and long term borrowings related to the Sandy spring acquisition.
Bill Cimino: Asset yields for the second quarter increased 37 basis points to six 5% compared to the first quarter and the cost of funds decreased by one basis point to 2.2.
Bill Cimino: <unk>, 2% compared to the prior quarter.
Bill Cimino: The loan portfolio yield increased 47 basis points to 648% in the second quarter from six 1% in the first quarter, primarily driven by the incremental merger related loan accretion income up $32 $5 million, which added approximately 39 basis points to the loan yield from the prior quarter, which was in.
Bill Cimino: In addition to an increase in linked quarter core loan yields of nine basis points, driven by back book fixed rate loans repricing higher.
Bill Cimino: Securities and other earning asset yield.
Bill Cimino: <unk> in the second quarter added one basis point.
Bill Cimino: Earning asset yield primarily driven by the restructuring of Sandy Springs investment portfolio.
Bill Cimino: Fair value accounting adjustments arising from the acquisition.
Bill Cimino: These earning asset yield increases were partially offset by a two basis point decline due to shifts in the earning asset mix.
Bill Cimino: One basis point decline in the second quarter's cost of funds for 222% was due primarily to the 90 basis points decrease in the cost of deposits of two 2%, partially offset by higher borrowing costs, primarily due to increased long term subordinated debt as a result of the Sealy spring acquisition.
Bill Cimino: Noninterest income increased $52 3 million to $81 5 million for the second quarter.
Bill Cimino: Mainly driven by the $15 7 million pre tax gain on the sale of the $2 billion of CRE loans and $14 $3 million pre tax gain on the sale of our equity interest in carrier Street partners as well as the full quarter impact of the Sealy spring acquisition.
Bill Cimino: Excluding the realized gains on sale during the quarter adjusted operating noninterest income increased 22 two.
Bill Cimino: For the first quarter of $51.5 million, primarily due to the impact of the Sandy spring acquisition, which drove the majority of the increases in fiduciary and asset management fees service charges on deposit accounts and interchange fees.
Bill Cimino: Listen to acquisition impacts the quarterly bank owned life insurance income increase of $3 $8 million included $2 4 million death benefits received in the second quarter and our mortgage banking income increase of $1 $8 million included the impact of Sandy Springs mortgage business as well as the seasonal increase in mortgage loan origination.
Bill Cimino: Items.
Bill Cimino: In addition, other operating income increased $2 4 million.
Bill Cimino: Primarily due to an increase in equity method investment income.
Bill Cimino: Reported noninterest noninterest expense increased 145 point.
Bill Cimino: $5 million to $279 7 million for the second quarter of 2020, primarily driven by a $74 million decrease in merger related costs as well as other increases in non interest expense due to the full quarter impact of the Sandy spring acquisition adjust.
Bill Cimino: Adjusted operating noninterest expense, which 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 Sandy spring.
Bill Cimino: <unk>, which drove the majority of the increases in several noninterest expense categories compared to the prior quarter.
Bill Cimino: The company's effective tax rate in the second quarter was a negative 32%, reflecting the impact of an $8 million income tax benefit.
Bill Cimino: During the quarter related to the company's reevaluation of its state deferred tax asset as a result of the Sandy spring acquisition.
Bill Cimino: Going forward the company's estimated annual effective tax rate is projected to increase within a range of 21% to 22% from approximately 19, 5% in the prior year.
Bill Cimino: Secondly impact of the Sandy spring acquisition of Sealy spring operated.
Bill Cimino: Higher state tax jurisdiction, which impacts a large proportion of the company's consolidated pre tax income.
Bill Cimino: At June 30 loans held for investment net of deferred fees and costs were $27 $3 billion, which was an increase of $8 9 billion for the prior quarter again, primarily driven by the Sandy spring acquisition.
Bill Cimino: Assuming the <unk> acquisition closed on March 31st instead of April one and excluding both the negative loan fair value marks on the acquired loans and the effect of the CRE loan sale transaction pro forma loan growth was approximately 4% annualized.
Bill Cimino: At June 30, total deposits stood at $31 billion, which was an increase of $10 $5 billion from the prior quarter due to increases in interest bearing customer deposits and demand deposits primarily related to the additional sandy spring acquired deposits.
Bill Cimino: Assuming the series Premier acquisition closed on March 31 as of April one.
Bill Cimino: Pro forma deposits decreased $752 $8 million were approximately nine 5% annualized from the prior quarter, which was primarily due to lower broker deposits, which declined by approximately $340 million as well as declines in time deposit balances of approximately $143 million as we intentionally let maturing.
Bill Cimino: Cost non-religious of time deposits acquired from Sandy spring to run off during the second quarter.
Bill Cimino: At the end of the second quarter Atlantic Union, Bankshares, and Atlantic Union Bank regulatory capital ratios were comfortably above well capitalized levels. In addition on an adjusted basis, we remain well capitalized as of the end of the second quarter. If you include the negative impact of AUO Ci and held to maturity securities unrealized losses and.
Bill Cimino: The calculation of our regulatory capital ratios.
Bill Cimino: During the second quarter the company paid a common stock dividend of 34 per share, which was an increase of six 3% for the previous year's second quarter dividend amount.
Bill Cimino: As noted on slide 16, we've updated our full year 2025 financial outlook for ABB, which includes estimates of the purchase accounting adjustments with respect to Sandy spring.
Bill Cimino: That are subject to change, we expect loan balances to end the year between $28 billion and $25 million.
Bill Cimino: While year end deposit balances are projected to be between $31 billion 31 5 billion.
Bill Cimino: The allowance for credit losses to loans is expected to fall between one 2% and one 3% and our full year net charge off ratio is projected to be between 15% and 20 basis points.
Bill Cimino: Fully tax equivalent tax equivalent net interest income for the full year is projected to come in between one $1.150 billion and $1 2 billion.
Bill Cimino: As a result, we are projecting that full year fully tax equivalent net interest margin will fall in a range between 375.
Bill Cimino: At 4% driven by a baseline assumption that the federal Reserve Bank will cut the fed funds rate by 25 basis points in September November and December.
Bill Cimino: In addition to fully tax equivalent net interest margin projection includes the impact of our estimate of net accretion income from the Sandy spring acquisition, which can be volatile and subject to change.
Bill Cimino: On a full year basis, adjusted operating noninterest income is expected to fall between $175 million to $185 million.
Bill Cimino: And the adjusted operating noninterest expenses for the full year, which excludes amortization of intangible assets expense of approximately $60 million.
Bill Cimino: Our estimated to fall in the range of $670 million to $680 million.
Bill Cimino: 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.
Bill Cimino: In summary, Atlantic Union delivered solid operating results in the second quarter inclusive of.
Bill Cimino: Inclusive of Sandy spring, despite the noise of acquisition accounting.
Bill Cimino: We're on track and confident that we will achieve the anticipated financial benefits of the combination with Sandy 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 to build long term value for our shareholders in 2025.
Bill Cimino: And beyond.
Bill Cimino: I'll now turn the call back over to John.
John: Thank you Rod 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 will share our new three year strategic plan, which we expect to finalize and approved this fall.
John: You should not expect anything dramatic in terms of changes it will be the next phase of the strategy, we have articulated and consistently executed over the years, although I don't want to front run too much of what we will share in December I do want to highlight our geographic footprint expansion strategy is this a question we frequently receive for.
John: Her background and as a reminder, I've often described the AEP story in our transformation as chapters in a book chapter one involve consolidating Virginia and securing our position as Virginia's Bank. We believe we have now accomplished that chapter two was extending the Virginia franchise to secure a similar footing in the lower mid Atlantic, which we believe was a.
John: Sheathed with our acquisition of Sandy spring.
John: We now have the number one regional bank by depository market share in both Maryland, and Virginia, a feat, we believe unprecedented and likely not replicable in our markets chapter three 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 densify our presence.
John: 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.
John: Sandy Spring acquisition has 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.
John: We will build on the North Carolina base, we enhanced with American Nationals Piedmont Triad presence in Raleigh Office. In addition to Abb's existing branches in the outer banks are longstanding Charlotte a 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 utilized.
John: Our model to drive incremental growth.
John: In 2026, we plan to open 10, new branches in North Carolina with seven in the research triangle and three in Wilmington, We also plan to expand our commercial banking wealth and mortgage teams. There. We believe these actions will provide us with the critical mass to compete in those markets and offer new supplemental organic growth opportunities and some of the best population growth.
John: <unk> in the country.
John: The branch build out is expected to be completed over a three year period, and some we have intentionally and carefully built a uniquely valuable franchise that we envision that our strategic plans over the past nearly nine years. We believe we are well positioned to realize the potential of the new markets acquired to the Sandy spring acquisition to continue our growth in <unk>.
John: And to execute on attractive organic growth opportunities in North Carolina. We also plan to continue to supplement organic growth whether existing specialty lines will have more details during our investor day in December but I hope. This provides a clear picture of the next chapter in the AEP story.
Speaker Change: And I would like to close by acknowledging our Chief Financial Officer, Rob Gorman his planned retirement, which we announced in the second quarter. We have launched a nationwide search and are looking both internally and externally for our next CFO.
Speaker Change: Rob joined US in 2012, when we were a well regarded $4 billion asset Virginia community Bank. His vision for the company's potential predates my tenure and he has been instrumental to our success, perhaps leadership expertise and friendships had been invaluable. He is not done yet and for those of you who he'll run through the finish line.
Bill Cimino: I'll now turn the call over to Bill to see if there are any questions from our research analyst community.
Speaker Change: Thank you John and were Jonathan we're ready for our first caller. Please.
Bill Cimino: Certainly and our first question for today comes from the line of Russell Gunther from Stephens. Your question. Please.
Russell Gunther: Right. Good morning, guys, Hey, good morning, John.
Russell Gunther: Maybe just start on the loan growth discussion I appreciate the commentary.
Russell Gunther: Being well positioned for the back half of this year that we have those kind of guideposts, how should we think about the pro forma growth outlook on a larger balance sheet and as we think about your plans for the Carolinas as pizza that.
Russell Gunther: Yes, I think that we're in the Carolinas right now.
Russell Gunther: You know and the Charlotte L. P O, which is now nine years old is actually the single largest piece of it we picked up in.
Russell Gunther: An additional presence in teams of course with the American National Bank merger, and we're very happy with them, we have been relatively new Wilmington, LPL. So thats all roll down if you will through our forecast.
Speaker Change: David <unk>, who is our head of wholesale banking, which are all of our various commercial businesses is here, maybe I'll ask Dave to comment, but Dave My view as I look at the I'll call. It a hate to use this term, but the legacy AEP pipeline, excluding sandy it is at a record level.
Speaker Change: And Sandy spring that piece of the franchise seem to be rebranded in the fall as AEP is looking pretty good too. So what is your take in terms of what to expect.
Speaker Change: So in the back half of the year, we do have good momentum coming in especially starting in June it really started in.
Speaker Change: Like John said the pipeline is as strong as it's ever been and so if you do the math and calculate your runoff in Europe, how faster pipeline turns we should be in good shape for the rest of the year.
Speaker Change: Thank you guys.
Speaker Change: And then maybe switching gears onto the.
Speaker Change: Expense outlook beyond what you've provided for this year and as you consider the Carolinas I think.
Speaker Change: Pro forma for Sandy spring you talk to an efficiency ratio in the 45% range is that still the right way to think about this going forward into 'twenty six or could we see that creep up as you build out the Carolinas organically.
Speaker Change: Yes, Russell this is Rob, yes, we're still targeting that mid 45 or.
Speaker Change: Our mid Forty's efficiency ratio Thats inclusive of the investment we're making in the Carolinas. So we looked at that very carefully.
Speaker Change: Still.
Speaker Change: We've reconfirmed our thoughts on 2026 in terms of the metrics return on assets in the 150 range, our OTC 20, plus.
Speaker Change: And then just this ratio mid.
Speaker Change: Mid forties inclusive of the investment, we're making down in the Carolinas and that also includes some additional investment on the technology front in particular I think every group at the bank seems to have shown up with with AI related request for example, and while we can't do everything we do have the financial capacity.
Speaker Change: <unk> continued to invest in the company.
Speaker Change: So in that $40. Thank you.
Speaker Change: I will note as you can see Russell on an operating basis, we achieved what is a personal long term goal for me we broke 50.
Speaker Change: So we think we are solidly in the <unk> 40, something efficiency ratio category, now, which is pretty good for a bank with a relatively large retail footprint.
Speaker Change: I appreciate your thoughts.
Speaker Change: Are you on that and then just the last one for me would be how youre thinking about capital levels. Here is there any interest in exploring the reversal of a seasonal double count and then given just capital does accrete quickly with the pro forma return profile. How are you thinking about that related deployment is that all organic growth pegged as their consideration of buybacks.
Speaker Change: Just helpful to get your.
Capital thoughts.
Speaker Change: So if you look at the CET one ratio of about nine 8%.
Speaker Change: At the end of this quarter.
Speaker Change: We're looking at that looking forward, we think that will continue to increase by about 25% to 30 basis points a quarter, so pretty pretty.
Speaker Change: Heavy internally generated capital increases.
Speaker Change: Terms of the seasonal double count we'll evaluate that.
Speaker Change: The change in the accounting here, we'll evaluate that.
Speaker Change: Russell, but.
Speaker Change: It's probably about a 30 basis point impact if we if we didnt have that issue.
Speaker Change: Change has been made prior to.
Speaker Change: In this quarter.
Speaker Change: We'll evaluate that.
Speaker Change: We will make that change, but we will see how that plays out.
Speaker Change: In terms of deployment, we will continue to obviously invest in the organic growth of the company. That's that's number one.
Speaker Change: And then.
Speaker Change: Continuing to look at our dividend.
Speaker Change: Payout ratio, which is in the 35% to 45%.
Speaker Change: Target range, and then beyond that as well.
Speaker Change: Start to get up closer to between 10, five and 11% will look at other deployment options beyond those two.
Speaker Change: Which would could could be repurchasing shares put a program in place to repurchase shares that's probably something we could evaluate probably in the first quarter second quarter of next year.
Speaker Change: Okay great. Thank.
Speaker Change: Thank you both for taking my questions.
Speaker Change: Thanks, Russell and Jonathan we're ready for our next caller. Please certainly our next question comes from the line of David Bishop from Hovde Group. Your question. Please.
David Bishop: Good morning, David.
David Bishop: Hey, good morning, John Good morning, Robin Congratulations Rob on all the news.
David Bishop: Okay just curious.
Speaker Change: From a credit quality perspective, John maybe on that you have.
Mark: Mark on the legacy Sandy spring.
Mark: Just curious what you saw from a credit quality perspective on our sort of legacy Atlantic Union basis, maybe sort of color on what happened all criticized classified and NPA.
Mark: NPA formation it looks like it was pretty low, but just wanted to make sure.
Mark: The numbers right.
Doug: I think Doug.
Speaker Change: The increase in NPA as we stated really was simply Sandy spring portfolio coming in your overall credit look quite stable, Doug Williams here, Chief Credit Officer, Doug do you want to.
Speaker Change: Share perspective on that yes, well, John what John said, David is that it.
Speaker Change: A reflection of our work on the standing portfolio the rest of the footprint looks fine.
Speaker Change: Nothing material or noticeable in credit risk profile anywhere.
Speaker Change: Got it and then John I know in the past couple of quarters as bad stuff.
Speaker Change: Headwinds, especially within the <unk> com.
Speaker Change: Segment, just curious what youre seeing there in terms of the pipeline and rebuild of that portfolio any sort of stabilization in that.
Speaker Change: Headwind.
Speaker Change: <unk> is performing fine.
Speaker Change: Indicated.
Speaker Change: Most not all but most of our government contract finance portfolio as National security and defense related and they're arguably winners.
Speaker Change: Now that we have a record defense spending bill the modernization of defense spending the shift towards <unk>.
Speaker Change: <unk>.
Speaker Change: Warfare anti drone defense unmanned vehicles unmanned ships cyber security.
Speaker Change: Missile defense in general all of that tends to favor the types of contractors that we deal with.
Speaker Change: And it looks pretty good one of the issues we faced in government contracts for the answer has been yes.
Speaker Change: Saw a lot of activity with private credit.
Speaker Change: Yes that was paying it down but overall, yes.
David Bishop: Yes, it looks pretty good Dave do you have anything to add in terms of opportunities. There I would just say that we do a lot of due diligence on a weekly basis on that portfolio. So in other words, we look at contracts.
Speaker Change: Our approved and contracts that are.
Speaker Change: Taken away from our clients on a weekly basis and update cash.
Speaker Change: Cash flows to.
Speaker Change: To make sure that those clients are able to pay and the portfolio looks really strong.
Speaker Change: Client selectivity matters, we've been in that business for 15 years knock on wood, we've never had a charge offs now, saying that will always be the case, but I think we are in the right segment.
Speaker Change: Got it and one final question, maybe Rob from a <unk>.
Speaker Change: <unk> keeping perspective, I know there is lumpiness in terms of purchase accounting accretion.
Speaker Change: Cup level.
Speaker Change: Any sort of sets where that could be trending over the near term here.
Speaker Change: A good estimate moving forward into the latter half of the year.
Speaker Change: Yes, if you look at this quarter, we had about $45 million.
Speaker Change: Accretion income come through.
Speaker Change: That's pretty good run rate the way we're looking at.
Speaker Change: Our projections, so I would go with that.
Speaker Change: It could be.
Speaker Change: Be volatile as you know it can be entire prepayments and things of that nature, but we think the $45 million is a pretty good good good number to run with.
Speaker Change: Great I appreciate the color.
Speaker Change: Thanks, Dave and Jonathan we're ready for our next caller. Please certainly our next question comes from the line of Brian <unk> from Morgan Stanley. Your question. Please.
Speaker Change: Good morning, Brian.
Brian: Hey, good morning, Thanks for taking my question, maybe just coming back to the one growth side, so you're at 27.3 billion.
Brian: Today can you just talk about what Youre hearing from your commercial borrowers about the environment.
Brian: Specifically, how youre thinking about the drivers of loan growth from here for both C&I and also CRE separately.
Brian: Yes.
Brian: David I'll take that.
Brian: Sure.
Brian: Okay.
Brian: The way.
Speaker Change: Dwayne characterized the market that we're dealing with right now is still a little there is still holding back.
Speaker Change: Thinking about tariffs and other things we've seen our our borrowers actually.
Bill Cimino: Investor borrow more for inventory Bill.
Bill Cimino: Buildup before tariffs would come across to them.
Bill Cimino: But there has been like a break and optimism and it's move we're starting to see our sales cycles shorten.
Bill Cimino: And closings happened more quickly on the real estate side.
Bill Cimino: That's a little trickier for us because we manage that very closely and we look at how construction and development works and we Peel that back a little bit and we see those pipeline is shrinking.
Bill Cimino: But we're doing more deals on stabilized properties and so we do see the.
Bill Cimino: Both the CRE business growing.
Bill Cimino: This year and the C&I business growing and were seeing that right now but.
Bill Cimino: But we expect that to continue I agree. There is no question the mood improved over the course of the quarter I think some of that was just people getting.
Bill Cimino: Are more accustomed to the uncertainty the tariff issue, it's not that our markets are somehow.
Bill Cimino: Particularly susceptible to tariffs as we've argued before and had federal reserve data to back it up we are probably less impacted by tariffs in our markets than most places, it's really more business sentiment.
Bill Cimino: But I think that the mood is clearly improved as people have gotten more accustomed to the the volatility.
Bill Cimino: And generally feeling more optimistic about where we go from here and that's showing up I see clear evidence of that.
Bill Cimino: So I think to Dave's earlier point I think we're on a pretty good footing.
Speaker Change: Brian 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 allowance sale can you just dig into how youre going to deploy that in terms of paying down higher cost source of funding.
Speaker Change: You can do there and how quickly you can move on it. Thanks.
Brian: Yes, Brian so.
Speaker Change: In terms of <unk>.
Brian: <unk> got about 1.6 billion.
Brian: Cash, which is about $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: And those are maturing in the 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 and up in the fourth quarter.
Brian: In addition to that we're going to be investing a bit more in the investment portfolio.
Brian: Probably both.
Brian: But $500 million or so we'll be going into there.
Brian: Kind of ladder in Goudy and.
Brian: Over this quarter.
Brian: And then we.
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.
Brian: 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.
Brian: Got it that's really helpful. Thank you for taking my questions certainly.
Speaker Change: 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.
Speaker Change: Hey, guys. This is chase under Steve Good morning.
Speaker Change: So are you doing to Acs, we know Steve has got a good excuse for not being on our call.
Speaker Change: Thank you for reminding me.
Speaker Change: First one for me I've been hearing a lot about pricing competition, where loan yields coming in right now either in terms of blended or <unk> and legacy SaaS or market separately. Thanks.
Speaker Change: Yes, so in terms of where we.
Speaker Change: See loan yields coming in this quarter. So does it really change too much if you look at the fixed rate portfolio.
Speaker Change: We're at about the six in a quarter.
Speaker Change: To $6 50.
Speaker Change: That's the back.
Speaker Change: Back book fixed rate.
Speaker Change: The increase in pricing, we're seeing we've got about a 510.
Speaker Change: Average average yield on those loans and we're repricing our business has a six in the quarter to $650 range. So.
Speaker Change: That's continued for the last several quarters. It didn't same kind of range. So nothing really materially has changed there.
Speaker Change: Negative side.
Speaker Change: 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 cuts scenario.
Speaker Change: Yes, so we did run.
Speaker Change: 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 up.
Speaker Change: <unk> in the margin this year.
Speaker Change: So if we don't get those cuts.
Speaker Change: Our.
Speaker Change: Variable rate loan book, which is about 50% of our loan book will reprice down so I'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 you are actively working on integrating all 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 out there.
Speaker Change: So I think that we couldnt be happier with the cultural fit.
Speaker Change: 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.
Speaker Change: Have anything to add to that.
Speaker Change: I mean, the stage is set we should be able to deliver.
Speaker Change: That's all for me. Thank you guys. Thank for all the color.
Jay: Thank you sure. Thanks Jay.
Speaker Change: And 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.
Catherine: Hi, Catherine.
Catherine Mealor: Good morning.
Catherine: Maybe just one.
Catherine: All of that what you were just talking about in terms of kind of C&I and growth in the D. C market can.
Catherine: Can you just talk a little bit about the opportunity for growth.
Catherine: Maybe you can kind of key 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.
Catherine: Sandy Springs market.
Catherine: What that kind of ramp and transition happens do we need to hire more lenders or can you do it with the team you've got kind of paint a picture for that looks like and then and then secondly on the CRE side.
Catherine: Are there opportunities within.
Catherine: 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 youre willing to lean in and kind of growth CRE.
Catherine: 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, we have two branches in D C.
Speaker Change: <unk>.
Speaker Change: Far more than just one clarification, yes. Thank you why insensitive to that Scott.
Speaker Change: Yes, So state of Maryland, and then you have more broadly northern Virginia.
Speaker Change: We think we do have a great team up there and we feel good about that team.
Speaker Change: Under Joe Brian's leadership, Dave I think as we've looked at the size of the team the capabilities, we feel pretty good do you have anything you would want to add to that.
Speaker Change: 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 and we don't really need to add unless somebody leaves on the crude side just remember Cree has multiple transactions with customers. So even if there's a customer in the book of.
Catherine Mealor: 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 as you manage those relationships you get multiple opportunity, yes, I agree and so Catherine.
Catherine Mealor: Good thing single best part of the commercial real estate sale list that we're servicing those credits and I do think we've got a great partner in Blackstone, who certainly delivered.
Catherine Mealor: 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 you might've had too much exposure or limited upside or additional capacity that is now.
Catherine Mealor: <unk> 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 they are 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.
Catherine Mealor: Got a big range within the margin.
Catherine Mealor: 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 have painted the picture, but is it fair to think that as we move through the year and kind of growth improves and 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 range.
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.
Catherine Mealor: A way to put it yes.
Speaker Change: I think what what as.
Catherine Mealor: As we said.
The margin should grind higher on a core basis and Thats really what we.
Catherine Mealor: We should be seeing we saw that about eight basis.
Catherine Mealor: Points of core margin.
Catherine Mealor: <unk>.
Catherine Mealor: Spansion this quarter.
Catherine Mealor: In terms of going forward, we've kind of played out.
Catherine Mealor: Reduced coal.
Catherine Mealor: Most of the.
Catherine Mealor: CD book.
Catherine Mealor: Previously we're in the 440 <unk> in terms of.
Catherine Mealor: CD rates paid.
Catherine Mealor: New and maturing.
Catherine Mealor: TD is going on in the 375% to 4% range with kind of play that out there's probably another quarter's worth of that.
Catherine Mealor: To bring down deposit costs.
Catherine Mealor: We will continue to do bring those deposit costs down.
Catherine Mealor: As the fed.
Catherine Mealor: Brings rates down of course, we have.
Catherine Mealor: To that.
Catherine Mealor: The variable rate loan book repricing as well so.
Catherine Mealor: The grind higher is probably going to slow a bit but it still will grind higher but it's not going to be.
Catherine Mealor: Eight to 10 basis points.
Catherine Mealor: Per quarter. So that's kind of what we're kind of kept that range there, but to your point it should grind higher from here.
Catherine Mealor: But that outlook was on a full year basis $3, 75% to 4% so.
Catherine Mealor: As you go into the third and fourth quarter, you should see that a bit higher than where we are today.
Catherine Mealor: Fact that we're sitting on $1 billion of cash at quarter end, because there'll be some portfolio sales happened days before quarter end, we didn't have the opportunity to deploy much of it.
Catherine Mealor: Sets up opportunities for sure.
Speaker Change: That's great Okay. Thank you.
Catherine Mealor: Thank you Catherine appreciate it.
Speaker Change: Yes and.
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 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'd 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.
Speaker Change: <unk> to.
Speaker Change: To 20 range, if those play out the way we think they might based on the specific reserves we have.
Speaker Change: So that'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 you 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 we'll review it again.
Speaker Change: After this quarter yes.
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: Yes.
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].