Q2 2019 Earnings Call
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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 Asbury.
Thank you Bill and thanks to all for joining us today and welcome to our first conference call as a newly rebranded Atlantic Union Bankshares Corporation.
Atlantic Union, followed its good start to the year with a solid step second quarter to start we completed a seamless core systems integration of access National Corporation rebranded the bank to Atlantic Union Bank on May Twentyth and rebranded our wealth management group the Middleburg financial on the same date.
We launched Xcel the person to person payment network received the most significant customer service award in the company's history being named number one by JD power for retail banking customer satisfaction in the mid Atlantic, which they define notably as Virginia to New York.
Additionally, we were just named for the second year in a row, the Forbes list of best in state banks.
We delivered strong loan growth for the quarter, while deposits stayed steady and showed improvements in our operating profitability metrics from the prior quarter I won't take too much away from Rob's commentary, but for the quarter. Our operating ROA was 1.35% up four basis points from last quarter operating return on tangible common equity was 16.58%, which is a 21 basis point increase from the first quarter operating efficiency ratio was 52.46%, which is a 164 basis point improvement from the prior quarter.
As communicated previously we stepped up our financial targets. They are as follows operating our way between 1.4 and 1.6% operating return on tangible common equity between 16, and 18% and and operating efficiency ratio at 50% or below.
Just like in 2018, our financial results will remain noisy through the third quarter as we complete the integration of access National Bank integration efforts continue to go well and provide another proof point of our core competency in whole bank integration.
Loan growth was a solid 9% annualized for the quarter, despite higher than normal levels of commercial real estate pay downs, which had been a persistent trend over the past few quarters commercial and industrial line utilization during the quarter ticked up slightly to approximately 43% as a reminder, the access acquisition closed on February Onest 2019.
On a pro forma basis as if the access balances were included for the full year our year to date annualized loan growth is at 6%, which is in line with our year to date expectations.
Our pipelines are well balanced and remains strong based on everything we know at this time, we continue to expect full year 2019 loan growth to be in the high single digit range of 7% to 9%.
Our deposit growth did slow during the second quarter at about 1% annualized we had some seasonal reductions from some larger depositors that we expect will return in the second half of the year.
Year to date deposit growth of 5% is close to matching our loan growth of 6%. We continue to believe that we can deliver a deposit growth in the upper single digit range for the full year and hope to match loan growth, but not necessarily in every quarter I will speak more on this in a moment.
Turning to our 2019 priorities, we continue to make progress against them as I've said before setting goals tracking back to them and delivering results is fundamental to how we manage this company.
Here, our previously communicated 2019 priorities to diversified loan portfolio and revenue streams, we continue to diversify our loan book as evidenced by continuing growth in our commercial loan categories of Cnine owner occupied real estate, which now comprise one third of our total loan balances were especially encouraged by the reception we are receiving in the marketplace with our commercial banking emphasis.
We did see an uptick in interest rate hedging fee income for the quarter as more clients opted to hedge interest rates, taking advantage of current the current flat yield curve and a historically low rate environment interest rate hedging typically in the form of plain vanilla swaps as inefficient risk management tool for certain clients and we're excited to be able to introduce these products to our new customers that have joined us from the former access National Bank franchise in the greater Washington region.
While it's hard to predict how the pace of hedging activity will go in the future. We do expect our expanded franchise and the rate environment. We will continue to produce good results, but not necessarily at the same level as this quarter.
We can compete against anyone in the small to mid market commercial space, which covers approximately 99% of all Virginia business.
As Virginia's regional bank, we continue to build on our reputation as a capable responsible pardon me capable responsive local alternative to the Super regional and National banks, we can say with confidence that we are now firmly entrenched as Virginia's bank the home team in Virginia, and we continue to learn how to leverage our homefield advantage at the same time, we are leveraging attractive incremental growth opportunities outside of our home state through our commercial banking offices in Baltimore, Maryland, and Charlotte Raleigh, and Greensboro, North Carolina.
We've also never felt better about the fee income growth potential we have in our wealth management group given its expanded capabilities larger scale post combination with middleburg and the growing power of our banking franchise, we believe that our wealth management platform can be an appealing offering to customers and a larger contributor to our noninterest income going forward.
Next is growing core funding our loan to deposit ratio was 97.6% little over our long term goal of 95%.
As I've mentioned in the past we've increased our focus on deposit gathering we've installed a competitive treasury management system and built our Treasury management team.
We're excited about our ability to scale and replicate a number of business deposit gathering strategies learn from access, especially in our metropolitan markets. We're also optimistic about our ability to grow consumer banking deposit base at a faster pace than in the past given the new leadership and new strategies underway in the consumer banking group.
Next is managing to higher levels of performance as noted the quarter was noisy with the system integration and access in the rebranding costs, but we continue to improve all of our operating profitability metrics from the first quarter.
We've made progress towards hitting our top tier financial roles.
Next strengthen our digital capabilities now that the access core systems conversion is behind US we intend to direct the freed up program management capacity against our digital strategy.
As mentioned relaunch sell at the end of the quarter, which we consider an essential offering in our positioning as the clear alternative to the large national banks that dominate our markets.
We've also now rolled out encino to our teams, which is a best in class end to end commercial banking loan origination system. The benefits of Encino are that it reduces cycle time for credit requests by streamlining our credit underwriting processes, while improving performance tracking and the control environment.
During the quarter. We also brought on Kelway daikon from sometime there is chief digital and customer experience officer and elevated her role to our executive leadership team Kelly is well known to US having previously worked with Atlantic Union Bank, President Maria Tesco and we're pleased that she chose to join our team.
Atlantic Union Bank, we believe digital is more than just a product, but a way of doing business to create a true omni channel delivery system, which is our intention we must ensure digital underpins all that we do have in Kelly in this newly expanded role enables us to integrate customer experience for their digital strategy doing digital as an enabler of customer experience accelerates progress on our value proposition of making banking easier, which is the next priority make banking easier. This is both an internal rallying cry and ultimately our value proposition. The initial thrust here will focus on the consumer banking transformation transformation, which is now moving beyond simply providing great service being nice and taking orders, which have been hallmarks of our consumer banking effort.
The impressive consumer banking backgrounds, and expertise of Atlantic Union Bank, President Maria to VESCO consumer banking group Executive Sean O'brien, and head of digital strategy and customer experienced Kelly Daikon give me great confidence that we have the right leadership in place to move this initiative forward.
We are now underway with the effort and currently focused on taking operational pass out of the branches. So our consumer teammates have the capacity and the skill set to deliver a higher level of need space relationship banking.
Moving forward, we intend to segment our branch network to ensure we are properly geared towards the opportunities in each trade area. We've also completed a review of our retail branch footprint and decided to close four branches in September .
As I mentioned before and Maria often notes, how our consumer journey sauce starts off in a much better place than past transformations has led because the cultural drive to deliver a great customer experience already exists at Atlantic Union is proven by the accolades, we receive and retail banking such as our number one ranking by JD power in the mid Atlantic.
While we are proud of the numerous customer service awards, we learned and continue to earn we need to do much more than simply provide a pleasant banking experience and we will.
And last integrate access National Corporation.
The excess integration continues to go well, we've had a smooth core systems integration over the weekend of May 18, having learned from the zenith integration. The teams executed impressively, having built a replicable process and change management framework.
We also layer to the bank name change on this process, which added complexity to the effort. For example, we swapped out more than 400 signs changed innumerable documents and forms and executed a well designed advertising campaign to promote the new brand just to name a few things.
Pulling off a rebranding of the bank in the middle of a systems integration was no small task, but we did it and we did it well.
I'm proud to say the rebranding has been on dramatic well received across our markets and feedback has been universally complementary at the new name logo and signage the new brand looks like us feels like us and its authentic.
I'll now touch on a few other topics from the quarter before turning it over to Rob.
We do have a leadership change underway in our wealth management group, which operates as Middleburg financial our current leader has elected to return to his hometown of Roanoke, Virginia and joined the team at Dixon hovered fine hour in Brown, which is a registered investment advisor we acquired last year. This both helps with their succession planning and provides an opportunity for us to conduct a nationwide search for a new leader for Middleburg financial.
As with our past surges, we'll look for a leader who's been there done that and is accustomed to dealing with more complexity than north face here at Atlantic in the bank.
Next I want to provide a quick update on the market opportunity, we're seeing with the pending combination of BBSI and Suntrust. We've hired 21 people from those companies. So far this year in a variety of roles anecdotally, we're seeing traction in the marketplace for Atlantic Union as the alternative bank of choice as the not too large and not too small hometeam alternative. We believe we are well positioned to take advantage of this disruption and were not simply waiting on this to come our way we have an organized project team leading a multifaceted strategy focused on maximizing this opportunity we are likely to accelerate some investment in projects. We had slated for 2020 into this year to expedite our positioning to capitalize on what we firmly believe will be a multiyear disruption the single largest market share competitor operating in Virginia.
With that said, it's a good time for me to again comment on our current thinking regarding our geographic markets and expansion plans, we believe that our platform Irrefutably Virginia's regional bank with the potential to become the mid Atlantic's regional bank capable of competing successfully against national and Super Regional banks. We believe we have the franchise right now needed to meet our objectives the embedded organic growth potential of Atlantic Union Bank combined with the potential disruption caused by the BMT Suntrust merger gives us a unique opportunity on which we are laser focused further emboldening us is that our home state Virginia. The Commonwealth last week was recognized by CNBC and its annual ranking as the number one state in which to do business in the entire country. This is the fourth time, Virginia achieved that status over the past decade or so.
While we can't predict what other opportunities may arise to build out our franchise. Our intentions. At this time are to focus on organic growth close any remaining competitive gaps harness the power of this great franchise across our mid Atlantic footprint build the bank one customer at a time and deliver on our promise of making banking easier.
Finally credit quality remains strong.
The economy in our footprint is steady and we do not see evidence of systemic changes to our credit environment.
Charge offs declined 14 basis pardon me charge offs declined to 14 basis points annualized the majority of the charge offs continue to be in our third party consumer loan portfolio. While this is a lucrative asset class for us given its yield is not a strategic focus area and it will be wound down over time.
While charge offs are typically lumpy quarter to quarter. We continue to expect full year 2019 to look like 2017, and 18 from a credit quality perspective, barring some change in the macroeconomic environment.
I continue to believe that problem asset levels at Atlantic Union and across the industry for that matter remain below the long term trend line. Eventually we will see a return to more normalized credit losses, but we still can't tell you when to expect that except to say, we don't see it happening in 2019.
In summary, the Atlantic Union has a solid 2019 underway, we're making progress against our six strategic priorities with loan and deposit growth expected to reach high single digits for the full year were excited to have come together as one team under the Atlantic Union Bank brand.
I remain highly confident in what the future holds for us and the potential we have to deliver long term sustainable performance for our customers communities teammates and shareholders I'll close by reiterating.
Atlantic Union is uniquely valuable franchise, it's a dense and its compact in great markets with a story unlike any other in our region.
We have assembled the right scale, the right markets and the right team to deliver high performance at a franchise that can no longer be replicated in Virginia.
Accommodation with access National Bank and attractive Virginia economy in our home state that was just named the best eight which to do business incremental growth opportunities in our North Carolina in Maryland operations, and what we believe will be a multiyear disruption with two of our largest competitors caused us to believe we have everything we need for right here and right now to accomplish our objectives organically.
I'll now turn the call over to Rob to cover the financial results for the quarter.
Well, thank you John and good morning, everyone. Thank you for joining us today.
I'd like to take a few minutes and provide you with some details of Atlantic unions financial results for the second quarter.
Which we feel this illustrates the earnings potential of this franchise.
As in the past quarter, we do have some noise in the numbers. So please note that for the most part my commentary will focus on Atlantic Union second quarter financial results on a non-GAAP operating basis.
Which excludes 5.1 million in after tax merger related costs.
And $3.2 million in one time after tax rebranding costs. It does however include losses from discontinued operations of $85000.
And approximately $950000 in after tax expenses related to the company's decision to close four branches in the third quarter.
For clarity I will specify which metrics around a reported versus non-GAAP operating basis.
In the second quarter reported net income was $48.8 million in earnings per share were 59 cents up approximately $30 million or 12 cents per share from the first quarter.
Reported return on equity was 7.86% reported return on assets was 1.15% and reported efficiency ratio was 62.43%.
On a non-GAAP operating basis, which again.
As noted excludes 8.3 million an after tax related merger related and rebranding related costs consolidated net earnings for the second quarter were $57.1 million or 70 cents per share.
Up from $50.5 million or 66 cents per share in the first quarter.
The non-GAAP operating return on tangible common equity was 16.58%, which is an improvement of 21 basis points from 16.37% in the first quarter.
The non-GAAP operating return on assets was 1.35%.
And Thats up four basis points from 1.31% in the first quarter.
In the non-GAAP operating efficiency ratio improved by 164 basis points to 52.46% from 54.1% in the first quarter.
As John noted in his comments, we expect further improvements to these financial metrics through this year and next with the addition of access as a reminder, we remain committed to achieving top tier financial performance relative to our peers.
We are targeting an operating return on tangible common equity.
Within a range of 16% to 18%.
And operating return on assets in the range of 1.4% to 1.6%.
And an operating efficiency ratio of 50% or lower.
As noted in the first quarter earnings call, we expect to achieve these financial metric targets on a quarterly basis in the fourth quarter of 2019 and on a full year basis. In 2020, once we have fully integrated access and realize the strategic and financial benefits of the combination.
Please note however achievement of these targets in the fourth quarter could be impacted by accelerated investments in project spending designed to expedite our ability to capitalize on a multiyear disruption, resulting from the Suntrust Bbmg combination as John alluded to.
Now turning to the major components of the income statement tax equivalent net interest income was $141.5 million thats up $11 million from the first quarter due to higher levels of average, earning assets, which was driven by organic loan growth and the full quarter impact of the access acquisition, which closed on February onest.
The current quarter's tax equivalent net interest margin was 3.78%.
The decline to two basis points from the previous quarter.
Net accretion of purchase accounting adjustments for loans time deposits and long term debt added 21 basis points to the net interest margin in the second quarter and Thats up from the first quarter 16 basis point impact.
Primarily due to additional loan related accretion income.
The decrease in the tax equivalent net interest margin was driven by a two basis point increase.
Our cost of funds as earning asset yields have held steady at 4.92% during the quarter.
The flat quarter to quarter, earning asset yield was driven by one basis point increase in alone will yield.
Which was offset by a one basis point negative margin impact as a result of the five basis point decline in the securities portfolio yield, which was caused by the day count difference between quarters.
The one basis point quarterly net increase in the loan portfolio was comprised of additional loan accretion income of approximately five basis points, which was partially offset by four basis points in lower loan yields driven by lower market interest rates in the quarter and lower loan fees.
The quarterly two point basis.
Two basis point increase in the cost of funds to 114 basis points was primarily driven by higher deposit costs, which increased seven basis points from the first quarter to 93 basis points. The increase in deposit costs was partially offset by lower wholesale borrowing rates and favorable changes in the overall funding mix between quarters.
Provision for loan losses for the quarter was $5.9 million or 20 basis points on an annualized basis, thats, an increase of $1.9 million or five basis points from the first quarter.
The increase in the provision for loan losses from the previous quarter was primarily driven by loan growth.
For the second quarter of 2019, net charge offs were $4.3 million.
Or 40 basis points on an annualized basis, as compared to $4.2 million or 50 basis points.
Points for the prior quarter.
As in previous quarters. The majority of charge offs came from the non relationship third party consumer loan portfolio, which is being run off.
Noninterest income increased $5.6 million to $30.6 million for the second quarter from 24.9 million in the prior quarter. The increase in noninterest income was primarily driven by the full quarter impact of the acquisition of the Axis acquisition increased levels of loan related swap transaction fees, resulting from the flat interest rate curve and seasonally stronger mortgage banking income.
As a reminder, beginning in the third quarter debit card interchange revenue will be reduced by approximately $3 million per quarter as a result of complying with the Durbin Amendment.
Excluding merger related costs rebranding costs and amortization of intangible assets in the first and second quarters of 2019, respectively.
Operating net non interest expense increased $6.3 million or 7.5% to $90.3 million when compared to the prior quarter.
The increase in non up.
Operating non interest expense was primarily due to the full quarter impact of the Atlas acquisition.
At CES acquisition. In addition, second quarter operating non interest expense included approximately $800000 in Oreo valuation adjustments driven by updated appraisals, we serve received during the quarter.
And $1.2 million and branch closure costs related to the decision to consolidate four branches in the third quarter of 2009 feet.
We expect to incur a two to $300000 more an additional branch closure costs in the third quarter before branch closures will result in an annual run rate expense savings of approximately $1.2 million beginning in the fourth quarter.
Importantly, we remain firmly on track to hit our $25 million axis related merger cost savings target by the end of the third quarter.
As noted second quarter expenses also included $4 million of Atlantic Union rebranding related costs.
Going forward, we expect to incur up to $2 million in additional rebid branding expenses over the next quarter.
In addition, today, we have capitalized cost of approximately $2 million related to the installation of new and we had a union bank signage across our footprint, which will be depreciated over a five year period.
The effective tax rate for the second quarter was 16% compared to 14.9% in the first quarter. The increase in the effective tax rate was principally due to lower merger related costs.
For the full year, we now expect an effective tax rate in the range of 16.
To 16.5% in 2019.
Now turning to the balance sheet period end total assets stood at $17.2 billion at June Thirtyth, an increase of $262 million from March 30, Onest levels.
And that was driven by loan growth.
At quarter end loans held for investments were 12.2 billion.
An increase of $268 million or 9% on an annualized basis.
On a pro forma basis insist that access acquisition that closed on January onest. Instead of February Onest year to date loan balances grew 6% on an annualized basis through June thirtyth.
Looking forward as John has mentioned, we continue to project upper single digit loan growth for 2019.
With some seasonal variability between the quarters.
At June Thirtyth.
Total deposits stood at 12, and a half billion an increase of $26.2 million were 1% annualized from March 30 Onest levels.
An improved pro forma basis.
As if the access acquisition had closed on January Onest deposit balances increased approximately 5% annualized in the first six months of the year, which is in line with our loan growth through the.
Year to date growth.
Deposit balance growth was driven by increases in demand deposits and money market and time to bet deposit balances and that was partially offset by declines in interest checking account balances.
Turning to credit quality nonperforming assets totaled $34 million or 28 basis points as a percentage of total loans.
Which is an increase of $1.8 million or one basis point from the prior quarter.
The allowance for loan losses increased $1.6 million from March 31 to 42.5 million.
The allowance as a percentage of the total loan portfolio increased one basis point to now at 35 basis points at quarter end.
From a shareholder stewardship and capital management perspective. After the quarter ended we announced that the board of directors authorized the repurchase of up to $150 million worth of the company's common stock through June Thirtyth of 2021.
We are committed to managing our capital resources prudently as the deployment of capital for the enhancement of long term shareholder value remains one of our highest priorities.
So to summarize our second quarter operating results confirm the significant earnings capacity, we envisioned as Virginia's regional bank and the company continues to make progress towards the strategic growth priorities. The access merger systems integration work is now largely behind us and we are confident that we will achieve the strategic and financial benefits from the access combinations.
Finally, please note that we remain focused on leveraging the Atlantic Union franchise to generate sustainable profitable growth and remain committed to achieving top tier financial performance and building long term value for our shareholders.
And with that I'll turn it back over to Bill some units to open it up for questions from our analysts community.
Thanks, Rob.
And now we have time for a few questions Nicole do we have anybody.
As a reminder, in order to ask an audio question. Please press star one.
The first question comes from the line of Kathryn Miller.
Thanks, Good morning.
Yes, so both John and Rob you mentioned accelerated investments.
That you think you'll have later this year is there any way to quantify the dollar amount of what you're expecting there thats been there may be where you expect expenses to trend with that in mind.
Yes.
Yes. This is Rob we've got a number of initiatives underway. We've got a project team looking at all all of the opportunities.
That this disruption may bring to us.
At this point in time, we modeled we estimated that we could accelerate some investments.
In the womb, the $1 million to $2 million.
Expense over the next two quarters so.
Think about it is adding probably $1 million per quarter.
The third and fourth quarter.
Normal operating run rate.
And so when we need.
The operating run rate that we're looking for going into the third quarter excluding that.
Was about 90.
A million dollars so.
More like $91 million, if we actually spend that money in third quarter and then it declines to.
About 89 million we are.
Add back a million dollars or so.
For these investments that have accelerated in the fourth quarter, so call it anywhere from $89 million to $91 million in the next two quarters.
Okay and is that.
Including or excluding amortization of intangibles.
Yes, yes. Good question, yes that excludes the amortization I should say.
Including that would be at the higher level both at about four.
5 million to them those numbers.
Okay.
Okay great.
And.
And then on the margin any any outlook on how you feel like the margin may be impacted if rates are Pat.
Yes so.
We have.
We run the models based on the the the interest rate curve were seeing today, which is much different than we talked about at the first quarter earnings call. As you recall then we had assumed that there would be one fed funds rate cut in the fourth quarter and we were guiding to about two to three basis points of compression.
Per quarter.
With the current outlook. We have now is we expect the fed to cut at the end of this month.
At the end of September and then somewhat early in 2020, but for for the next couple of quarters. We are now instead of two to three core compression.
Guidance, we're talking more in the four to five.
Core margin compression.
Going forward so it as.
To put some more pressure on our NIM guidance going forward.
Good news there is we as you recall, we have about call. It 40% of our book is repricing with fed funds or loan book.
Reprices with fed funds and.
One month LIBOR, one month LIBOR is about 23% of our book in about 50% is fed funds. So those will reprice fairly quickly.
With the fed funds trees.
On the other side of the balance sheet, we have about a million and a half.
$1.5 billion or so of deposits that are indexed to fed funds. So there is some mitigation.
To that on the cost of fund side, but but we will continue to see more pressure on the margin that we had previously guided and the rest would you mind just clarifying again in model exactly in terms of metrics.
Yes, so as I mentioned, we have a fed cup now.
Modeled in for the end of this month.
We have a fed cut modeled in at the end of the third quarter, which will impact the fourth quarter and then going out to 2020, we expect there would be another one early in the year. So we're going to see some pressure on the margin.
At least versus our previous guidance.
Probably right through.
The first and second quarter of next year depends if that were to happen.
In Florida.
Of course compression that is.
That is encoded per quarter per rate, how should I think of it if it's going to be it's going to be in total.
Not until.
By quarter, yes, so its with quarterly adjustments.
Okay. So assuming we have two let's just think about this year so assuming we have.
In July and then it kind of September you're thinking third and fourth quarter core margins basically down by four to five that's per quarter.
Yes that that the right okay.
Okay, Great now, we'll see what happens it's.
If it does if the fed doesnt cut.
We're probably talking that would improve back to the.
A positive two or three basis points off that four to five basis points, we're still expecting to see some compression until we can right size our deposit rates based on a lower interest rate environment for capital we feel like we've got a very realistic outlook and we work from that and if it's better than that and that's good news.
Got it and then to your point is more near term. So that has been really factor in significant repricing on the deposits quite yet.
Yes, that's right. So we're going to be looking very hard at our deposit.
Rates as you know over the past year rates have been going up and we have been.
Moving rates up we've had promotional.
Campaigns related to money market.
And Cds were.
Currently those are under review going forward.
But there is a bit of a lag on some of those earlier campaigns because for instance money markets, we had a six month.
Promotional rate and it would revert down to the.
The normal rack money market rate. So there is some of those higher cost deposits will reprice.
Going into the third and fourth quarter.
But you got to see a bit of a lag on that.
That's really helpful. Thank you.
Thanks Catherine.
In the call we're ready for our next caller. Please.
[laughter].
Nicole Dino Who's the next colors.
The next question is from the line of Casey Whitman.
Hi, Casey good morning.
Good morning.
Just in terms of the buyback you recently announced can you give us any indication of how aggressive you plan to be with that and then could the buyback potentially provide us some upside to the profitability targets that you've laid out or perhaps be up the timeline to get there or are you already sort of assuming some buybacks in there.
Yes, it could be a bit of upside Casey.
On the buyback point of view, although we had model.
We have modeled some repurchases I really depends on how quickly.
We just buy back Don.
We're going to be fairly aggressive.
Over the next three quarters in the buyback of course, it all depends on where our stock price is what we.
Typically.
Look at is we have an intrinsic valuation model that we run which values we feel the value of the company is and we look for a 50 plus.
Percent return on investment so if the stock price runs up you're going to see less.
The repurchase in terms of share buyback.
But if you stay if we're staying where we are.
We'll be pretty aggressive.
Got it thanks, and so really nice growth in Cnine, particularly this quarter can you give us an idea that's mostly coming from the northern Virginia market versus legacy markets and then I also wanted to ask just the 21 people you referenced hiring from BBT in Central does that was that already in the numbers. This quarter or is that are those recent hires.
Yes, those ft were there in the quarter already there in the numbers.
So those were hires already on the payroll.
I mean, we're looking to sort of to some more as we go forward.
And I'm going to ask Dave ring, too and that's pretty broad based I'd say roughly half of those hires were in the commercial banking space.
I see and I related.
Most of the rest are going to be branch branch managers. Most typically we have a few other supporting organizations interestingly about half and half BB NTM Suntrust.
Favoring would you comment on what we're seeing in terms of commercial industrial growth by market sure.
Hi, Kate 60% of the growth.
Came from the greater Washington, Baltimore markets.
Part of the access.
Marketing and the other part of that 60% came from our expansion in the Carolinas.
So as you know we.
Stood up the team.
In Raleigh.
And we also see an opportunity Greensborough recently and so our growth is coming from the Carolinas market and the other work the rest of 40% was really really distributed between our central region, our eastern region in our southwest.
So we saw growth across the board to your point Dave.
Led by Greater Washington area now access is doing well former access, but we also where they are two as a reminder, so the old.
The Atlantic Union.
Turning based commercial team as a part of this the Baltimore loan production offices.
So this is nice in terms of we keep wanting to.
Incremental growth opportunities coming out of the North Carolina operations, Maryland, the greater Washington is a tremendous economy as you all know our largest so we're feeling pretty good about it Casey.
Great. Thanks for taking my questions.
Thanks, Casey and Nicole ready for our next caller. Please.
Certainly and as a reminder, in order to ask an audio question you may do so by pressing star one.
Your next question is from the line of Austin Nicholas.
Hi, Austin.
Hey, guys good morning.
Morning morning.
Maybe just first back on the expense guidance I appreciate that the guidance that you provided to Catherine but maybe could you just.
Maybe just repeat that and then I guess my.
I've got a follow on question is does that guidance include the $2 million in additional.
Rebranding expenses that you guided to.
Yes, so let me backtrack a bit so excluding any of the.
Spending accelerated spending related to the opportunity with Suntrust and BNP.
We'd be looking at about a if you include the.
The amortization expenses.
Worrying about the.
The 93.
93 to four.
Level for Q3 net declines to about.
90 million in Q4, which is pretty much what we had guided to in terms of run rate. Once we got all the cost saves from from the axis deal, but for each of those if you had about a million a million and a half so think of the third quarter.
And these numbers could move.
They are very high level, but we are thinking that we spent about a million dollars.
Related to the opportunity with Suntrust DVT, the third quarter, maybe another million million and a half in the fourth quarter.
So call it.
That too so the numbers you know you're at 91 92 in the third quarter and then call. It 90 91 in the in the fourth quarter inclusive of that.
Although add back the amortization the arena in the 95 96 range I should say.
Got it Okay, and then that that includes the rebranding expenses as well within those that guidance.
Yes, that's correct.
Got it Okay. That's helpful and then on the maybe just on the fee income swap fees, where we're obviously really.
Really strong this quarter any commentary on how you would expect those to trend throughout the year kind of based upon your current rate outlook.
Yes, and this is John I'll I'll openness, and then ask Dave Rang head of commercial to comment we've been obviously talking about this quite.
Quite frequently.
We think we certainly have several things have changed the franchisees larger we have more larger clients and we've now we now have the opportunity to and have introduced this within the old access franchise. So you couple that with more market opportunity plus a rate environment that is a very favorable as it relates to interest rate hedging very flat yield curve, meaning you don't have to pay out much to lock in longer term hedging.
Historically low rates, so that all favors it having said that I don't I don't necessarily see us repeating what we saw in Q2 days during what is your perspective.
Yes, we had a really strong Q2, we part of it is from low hanging fruit existing portfolio that had an appetite for.
To fix their rates were.
But.
Yes, we would expect to just do what's right for the customer really.
Turns out that the.
Works for the customer that.
Some interest rate derivative make sense or interest rate.
This swap makes sense, we'll do it so we probably return closer to.
Levels that we've done in the past.
Second half of the year with the exception that access clients did not have the ability to do derivatives before so we're going to we're going to expose them to this over thats. The great on them, we don't know yet Austin, but.
Sophisticated larger clients. This is a very flexible attractive option.
And certain new offering there.
Our model is really to do what's right for the customer when it comes to this our bankers do not have swapped goals.
We just want to focus on what's doing right, what's what's your data.
Got it.
Okay. Good start in Q3, I won't get into the details, but you know we are we're still seeing a lot of momentum on it we think that will continue.
Okay.
That's really helpful. And then maybe while we're talking about hedging and swaps I guess are there any is there anything layered on.
With that in.
In terms of an interest rate or fixed to floating swaps that.
The bank has.
Has on that May may come off.
In the next few quarters, and then I guess beyond that is there any any changes you're making to the overall asset sensitive position of the bank.
Yes, Austin on Dec is yeah, we're not looking to unwind any swaps at this point, we don't have a lot on or.
Our borrowing base.
But.
In terms of Yeah, we'll continue to look at opportunities going forward, we have pulled the trigger on a couple of things in it.
In the second quarter that will help our cost of.
Funds.
Mitigate the.
Or reduce the cost of funds.
But we'll continue to evaluate that and in the.
Third and fourth quarters as we.
We look at the outlook for rates.
But nothing right now land in the numbers I shared with you.
Got it thanks, and then maybe just one last one any update on the progress on seasonal and maybe when you'd expect to kind of telegraph to the market.
Your your expectations for kind of the day, one impact that kinda ongoing impact.
Yes, so we continue to work on that we feel like we're in pretty good.
In a pretty good place regarding our understanding what the impact is going to be.
We're running continue to run our models were actually validating.
Our model with an outside third party and we are waiting to get the results of that back before we actually.
Say anything publicly about it but.
Again, as we said last quarter, you can expect to see that the allowance.
Will increase at the very least will increase as a result of putting reserve on any of the purchase loans that we've.
The loans that we purchased over the last two deals for zenith and access so it's going to be an increase.
We'll get into more specifics I think on the next call, we'll feel more comfortable with the model is just running the way we want it to.
Got it sounds good thanks for taking my questions guys. Thanks, Austin, Thanks, Austin and thanks, everyone for joining us today, and we look forward to talking with you next quarter have a good day.
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