Atlantic Union Bankshares (NYSE:AUB) Q3 2026 Earnings Call

0:00 Hello, and welcome to Atlantic Unit Bike Shares third quarter 2026 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 the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the call over to Bill Cimino, Head of Investor Relations. You may begin.

0:34 Thank you, Tawanda, and good morning, everyone. I have Atlantic Union Bankshares President and CEO John Asbury and Executive Vice President and CFO Alex Dodd 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 and the accompanying slide presentation we are going through on this webcast are available to download on our investor website, investors.AtlanticUnionBank.com. During today's call, we will comment on our financial performance using both gap metrics and non-gap financial measures. Important information about these non-gap financial measures, including reconciliation to comparable gap measures, are in the appendix to our slide presentation and in our earnings release for the third quarter of 2026.

1:21 We will also make forward-looking statements which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectation or result expressed or implied by these forward-looking statements. We undertake no obligation in public to revise or update any forward-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. All comments made during today's call are subject to that safe harbor statement. And at the end of the call, we will take questions from the research analyst community.

2:07 And I'll turn the call over to John. Thank you, Bill. Good morning, everyone.

2:10 This was a solid quarter with heavy, healthy loan growth, strong credit quality, and a modest increase in adjusted operating earnings. Higher net interest income and lower credit costs supported the result, while funding costs increased and fee income moderated. I'll briefly cover the quarter's highlights and share some market perspective before Alex reviews the financial results. Our third quarter results reflect disciplined execution and sound underlying performance, despite a more challenging funding environment. With merger-related items behind us, the only significant adjustment this quarter was a loss on debt extinguishment related to our subordinated debt refinancing. Over the past several years, we have deployed capital deliberately to strengthen the franchise and support long-term growth. This quarter provides further evidence that our investments in supporting earnings capacity and organic growth while our earnings and capital generation continue to provide flexibility to invest in the franchise and return capital to shareholders. As always, we remain focused on soundness, profitability, and growth in that order. Our North Carolina expansion is underway.

3:16 We began with one branch in the Raleigh region and plan to add seven new branches there, bringing us to eight across the region when complete. One new location is already open, and two more are scheduled to open by early November. Beginning next year, we also expect to add three branches in Wilmington area. In parallel, we are expanding our commercial banking teams in North Carolina. Together, these investments are designed to build full-service relationships, support long-term deposit gathering, and commercial banking growth, and generate attractive risk-adjusted returns over time. We believe our model translates well to these markets. We combine local market knowledge, local decision-making, and responsiveness with the capabilities and balance sheet strength of a larger regional bank. That is the value proposition we're bringing to North Carolina, and it's the value proposition that we have executed well across the rest of the franchise.

4:08 I'll briefly cover our third quarter highlights and share some market perspective before Alex reviews the financial results. The operating environment does remain uncertain, shaped by geopolitical tensions, energy price volatility, persistent inflation, and an evolving industry outlook. Within our customer base, activity remains constructive, though, and loan pipelines are healthy. Customers are becoming more selective as financing and project costs remain elevated, but overall activity level remains supportive of profitable growth. Against that backdrop, client activity and disciplined execution produced healthy loan growth during a traditionally seasonally slower quarter. We remain focused on profitable growth supported by relationship-based funding, appropriate pricing, and attractive risk-adjusted returns.

4:56 With that context, here are the key highlights from the third quarter. Average loans were $28.9 billion, increasing approximately 9.6% annualized during the quarter. Period-end loans reached $29.3 billion, up approximately 8.6% annualized from June 30. Growth was well distributed across the franchise, led by commercial and industrial lending and construction lending, and line utilization increased modestly. Year-to-date annualized loan growth was 7.2%. Based on current pipelines and expected fourth quarter activity, we now expect full year loan growth toward the lower end of the high single-digit range. Average deposits increased 1.5% annualized during the quarter, while period end deposits increased 6.5% annualized to $31.0 billion.

5:47 Year-to-date deposit growth was approximately 2.2%, consistent with our low single-digit outlook. Several larger customer outflows reduced quarter-end deposit balances, and period-end deposit growth reflected increased brokered funding, which represented 3.5% of total deposits at quarter-end. Importantly, most of those funds returned early in the fourth quarter, and as of October 19, our loan-to-deposit ratio had improved to 93.7% compared with 94.6% at September 30. Broker deposits were relatively flat year-over-year. Our focus remains on growing relationship-based deposits, expanding share of wallet, and maintaining disciplined funding. Reported FTE net interest margin declined six basis points to 3.88% as funding cost increased, but FTE net interest income rose $3.4 million as loan growth and accretion income more than offset those pressures.

6:45 Q3 received no material benefit from the September rate increase because most SOFR-based loans reset in early October. Q4 should reflect a full quarter of that benefit on the variable rate loan portfolio. Alex will provide additional details in his comments. Overall asset quality remained strong and trends were favorable across most key metrics. Quarter over quarter, non-performing assets declined to 37 basis points of loans held for investment from 39 basis points. Classified assets decreased to 4.0% from 4.4% and net charge-offs remained at three basis points annualized. Occurring past dues increased six basis points to 34 basis points, but remain low in absolute terms. Given favorable credit trends and our current loss expectations, we are lowering our full-year net charge-off guidance, which Alex will discuss later in the call.

7:40 The most recent state unemployment data available for this presentation are for August, showing unemployment rates in Virginia and North Carolina remain below the national average while Maryland's was in line with it. Labor market conditions across our footprint continue to compare favorably with the national picture, supporting our confidence in the resilience and long-term attractiveness of our markets. This quarter's results reflect continued progress in our organic growth initiatives. We are operating as one team across the combined franchise. We also continue to build our North Carolina commercial banking teams where we see meaningful opportunities to deepen relationships and contribute incremental growth over time. Conditions across our markets remain resilient, although we expect certain aspects of the operating environment to become more challenging over time.

8:26 Higher rates may weigh on mortgage banking activity and interest rate swap income, while competition for deposits may increase pressure on funding costs. In commercial real estate, higher financing and project costs are likely to slow new construction and delay some projects. Even so, at this time, we believe that healthy pipelines and continued customer activity support our expectations for profitable growth despite the uncertain environment. Additionally, we have not observed any broad-based deterioration in our loan portfolios. We have a long track record of adapting to changing conditions, and we will continue to respond as the environment evolves. While we remain mindful of the headwinds I just discussed, we believe that our focus on soundness, profitability, and growth in that order positions as well to continue creating long-term value.

9:15 Our priorities remain clear. Protect balance sheet strength, generate profitable growth, and allocate capital where we see attractive risk-adjusted returns. Healthy loan demand, strong credit performance, and continued earnings and capital generation provide the flexibility to invest in the franchise, return capital to shareholders, and create long-term shareholder value. With that, I'll turn the call over to our Chief Financial Officer, Alex Dodd, for a detailed review of our quarterly financial results.

9:44 Alex? Thank you, John, and good morning, everyone. The third quarter reported net income available to common shareholders was $133.7 million and fully diluted earnings per common share of $0.94, resulting in a return on tangible common equity of 19.59%, a return on assets of 1.43%, and an efficiency ratio of 52.7%. Our third quarter adjusted operating earnings available to common shareholders, which principally excludes the 2.7 million pre-tax loss on debt extinguishment was 135.6 million for 96 cents per diluted common share, resulting in an adjusted operating return on tangible common equity of 19.85% adjusted operating return on assets of 1.45% and an adjusted operating efficiency ratio of 48.1%.

10:47 Slide 11 shows the year-to-date metrics on a gap basis and the corresponding trend over the past five years. As we move to slide 12, this shows the same metrics as slide 11, but on an operating basis. For the year-to-date performance, we have reached our medium term financial targets of 1.4% to 1.5% for return on assets and 19% to 20% for return on tangible common equity. While there will always be quarter to quarter variability, we remain confident in our ability to sustain performance within these target ranges over the medium term, which we define as this year and next. Turning to credit loss reserves, The total allowance for credit losses was $334.2 million, an increase of $3.3 million for the quarter, primarily driven by loan growth. The total allowance for credit losses as a percentage of total loans held for investment decreased one basis point to 114 basis points at the end of the quarter.

11:53 Net charge-offs were $2.3 million or three basis points annualized in the quarter. Turning to net interest margin, the fully tax-equivalent net interest margin declined six basis points to 3.88%, as higher funding costs more than offset a modest improvement in earning asset yields. Despite the decline in margin, tax-equivalent net interest income increased $3.4 million during the quarter, driven by strong loan growth. Earning asset yields increased one basis point from the prior quarter to 5.89%. Loan yields declined modestly during the quarter and did not yet reflect the impact of the Federal Reserve's 25 basis point September rate increase on the variable rate portfolio.

12:42 Cost of funds increased seven basis points to 2.01% from continued customer migration into higher yielding deposit products and a higher funding mix of borrowings during the quarter. Non-interest income decreased $35.4 million to $54.8 million for the third quarter, primarily driven by the $32.3 million pre-tax gain on the sale of our equity interest and bearing insurance recognized during the second quarter. Adjusted operating non-interest income decreased $3.1 million, driven primarily by lower loan-related interest rate swap fees and reduced mortgage banking revenue as higher interest rates tempered customer activity.

13:29 Fiduciary and asset management fees were also lower when compared to the prior quarter. Noninterest expense increased $5.2 million to $204.3 million for the third quarter, primarily driven by the $2.7 million pre-tax loss on debt extinguishment recognized in the third quarter of 2026. Excluding the one-time expense and amortization of intangibles, The adjusted operating non-interest expense increased $2.7 million, primarily from the continued investment in the North Carolina expansion, strategic technology initiatives, and seasonal marketing costs. At September 30th, loans held for investment, net of unearned income, or $29.3 billion, an increase of $623 million, or 8.6% annualized from the prior quarter.

14:25 Our average loan growth for the quarter was approximately 9.6%. At September 30th, total deposits were $31 billion, an increase of $497 million, or approximately 6.5% annualized from the prior quarter, while average deposits increased 1.5% for the quarter. Our loan-to-deposit ratio ended the quarter at 94.6%, within our preferred range of 90% to 95%. As John mentioned, those balances have largely returned, and our loan-to-deposit ratio as of yesterday was 93.7%. At the end of the third quarter, Atlantic Union Bank shares and Atlantic Union Bank's regulatory capital ratios were comfortably above well-capitalized levels.

15:16 In addition, we remain well-capitalized on an adjusted basis if you include the negative impact of AOCI and unrealized losses for held to maturity securities in the calculation of the regulatory capital ratios. During the quarter, we repurchased 62.5 million of common stock while maintaining a CET1 ratio within our targeted operating range of 10 to 10.5%. Tangible book value per share was $20.36 at quarter end compared with $20.77 at June 30th. The decline primarily reflects higher unrealized losses recorded in AOCI as long-term rates increased.

16:03 Before reviewing our full year outlook, I want to highlight the strength of the franchise's earnings and capital generation capabilities, providing the flexibility to execute buybacks while continuing to support strategic growth and investment opportunities. Our prior guidance called for term rates to remain stable and at the same levels, neither of which occurred in the third quarter. We continue to expect loan balances to end the year between $29 and $30 billion, while year-end deposit balances continue to be projected between $31 and $32 billion. We expect full-year loan growth toward the lower end of the high single-digit range and expect year end deposits to end up in the lower single digit range.

16:51 On the credit front, the allowance for credit losses is projected to remain at the lower end of the 115 basis point to 120 basis point range. And we are reducing the projected net charge off ratio to be less than five basis points in 2026. Fully tax equivalent net interest income for the full year is projected to come in at the lower end of the 1.32 billion to 1.33 billion range inclusive of accretion income. We expect higher interest bearing deposit mix as well as greater loan and deposit competition to partially offset increasing loan yields. We believe we will be at the low end of the 3.90% to 3.95% range for our 2026 fully tax equivalent net interest margin.

17:45 This outlook is supported by our baseline assumption that the Federal Reserve increases rates by 25 basis points in December and that term rates remain stable at current levels. Our focus remains on generating profitable net interest income growth rather than managing to a specific margin target. On a full year basis, adjusted operating non-interest income is expected to be at the lower end of the $220 and 230 million range, including the impact of higher rates on mortgage income and loan related interest rate swap activity. Adjusted operating non-interest expense is expected to fall in the lower end of the range of 742 to 752 million, including the expense impact of our North Carolina investment.

18:37 The impact on AOCI on tangible book value growth was significant during the quarter as long-term interest rates moved higher. Given the sensitivity of AOCI to future rate movements, we are not providing a specific tangible book value growth outlook for full year 2026 at this time. Importantly, our commitment to building tangible book value remains unchanged, excluding the impact of AOCI volatility Tangible Book Value would have increased by $2.24 or approximately 11% compared to the third quarter of last year, reflecting the underlying earnings power and capital generation of the franchise. Looking ahead, we are currently in the midst of our 2027 planning process and are not prepared to provide an outlook at this time.

19:28 As John mentioned, we remain focused on generating sustainable, profitable growth delivering positive operating leverage and continuing to build tangible book value, which we believe will drive long-term shareholder value. I'll now turn the call over to Bill.

19:45 Thank you, Alex. And Tawanda, we're ready for our first caller, please. Thank you. Ladies and gentlemen, as a reminder to ask the question, please press Start11 on your telephone, then wait for your name to be announced. To withdraw your question, please press Start11 again. Please stand by for our first question. Our first question comes from the line of Brian Wilczynski with Morgan Stanley. Your line is open.

20:12 Good morning, Brian. Hi, good morning. Thanks for taking my questions. I wanted to start off with the updated net interest margin outlook for 2026. I think it implies some modest NIM expansion in the fourth quarter. Can you just talk more about the puts and takes around NIM including both the borrowings that you highlighted as well as the impact from higher rates. Thanks.

20:40 Thanks, Brian. Good morning. I'll start on the Q3 margin. We did see a six basis point decline in the quarter and that was solely due to funding due to higher mix of customer deposits going into higher interest bearing products as well as higher mix of borrowings for the quarter. and as we move into the fourth quarter and you heard from our prepared remarks, we are sticking with the range of 390 to 395 for our net interest margin, which means essentially our margin will improve as we go into the fourth quarter. And that's coming from a couple of factors. One of them is that the Fed rate increase happened late in the quarter and half of our loan book is variable. So we will see a full quarter's benefit of the 25 basis point increase in the fourth quarter.

21:35 Also beyond that, our investment portfolio has a variable component and our new purchases in that portfolio are coming on about 140 basis points over the portfolio yield. This will be offset by the full beta impact on the deposit portfolio and further customer mix. So we remain positive about NIM and expect it to grind higher in the fourth quarter to get to the full range of 390 to 395 for the full year.

22:08 Alex, can you speak to what we saw in September?

22:11 Thanks, John. Yeah, and as we're leaving the quarter, we did see our core margin increase by two basis points. So this is just the month of September, started to see the benefit of the factors I mentioned on the variable rate loans. and higher coupon yields offset by about $3 billion of Fed-linked deposits that repriced immediately. So we're encouraged by the core NIM increase in the month of September, which was at $342 compared to our full quarter of $340.

22:44 And I would reiterate that nearly all SOFR-based loans are repricing early in the month, which means we did not see any benefit on SOFR anymore. Thank you very much.

23:20 I was wondering, are you seeing that slowdown today, either in construction or in any particular parts of the portfolio? And how meaningful of an impact do you think higher rates could have on loan growth as we look ahead to the fourth quarter? Thanks.

23:35 Yeah, Brent, the growth that you're seeing in construction lending, which will continue, are fundings on existing construction loans, projects that are already underway. So there's no change there. What will happen is we anticipate that we will see fewer new construction projects that will have a delayed impact. That could take minimum six months to a year before we really feel that. But in talking to our developer clients, there's no question that we're hearing commentary that they may begin to delay certain projects, not all, but certain projects. And it's the classic issue where they're already dealing with inflation and higher subcontractor bids. and when you add on additional interest carry, certain things are just harder to pencil out and effectively require more cash equity.

24:25 And so it's a bit difficult to quantify right now, but we expect that new construction commitment production will slow. It's difficult to say just how much, but that will effectively be a bit of a delayed impact before we really feel it. As for CNI and other forms of financing, it will not be as significant. Our client base is doing very well. Demand overall is actually quite strong. We are seeing some evidence of companies paying cash on the CNI side, whether it's for equipment finance more so than we have seen. And of course, that puts pressure on operating account balances, particularly non-interest-bearing if they decide that they have surplus liquidity and they would rather pay cash for some or all. But having said that, I would say we are on a strong run in terms of what's going on in commercial and industrial. So I think that we'll still see good growth.

25:29 Overall, I would expect that total loan growth will moderate a bit from what we've been seeing, certainly in Q3. but we'll still be on a growth footing based on everything that we're seeing.

25:44 That's great. Really appreciate all the detail and thank you for taking my questions.

25:49 Thanks, Brian. And Tawanda, we're ready for our next caller, please. Our next question comes from the line of Janet Lee with TD Cohen. Your line is open.

25:56 Hi, Janet. Good morning.

25:59 Good morning. Understand that you're not commenting on 2027. If we just look at The core NIM trajectory or just the benefits of a rate hike. Is this still a benefit to your NIM if you get a rate hike given the still the fixed rate asset repricing benefits at the floating rate impact? I understand that the funding pressure will be higher, but I just want to see if to the extent you can comment, is it a net benefit to your incremental NIM?

26:38 Good morning, Janet. It is a net benefit. When we see a Fed rate increase, we'll see the repricing of all of our variable rate loans, and that will more than offset the deposit data. So we will see a short-term increase, and we're modestly asset sensitive on the short end of the curve, so it will be a modest benefit going forward as well.

27:06 Got it. So core NIM could still expand in a rising rate scenario.

27:12 That's correct.

27:14 Okay. And on betas, could you comment on your cumulative cycle beta expectations as we stand? What do you think is reasonable? And for the broker deposits, you had mentioned that some of these client outflows have come back to the balance sheet. So is there any way to quantify how much broker deposits could come down in the fourth quarter? Thank you.

27:42 Sure. Our overall beta is 40%. And on the interest-bearing portion of the portfolio, it's 50%. And we did take on borrowings from the quarter, about $500 million. Most of this was short-term or under six months. and so we expect to replace those with customer deposits when they mature. And so it's probably half under six months. The remaining half is 12 months in duration overall.

28:20 Got it. Thanks for taking my questions.

28:22 Thanks, Janet. And Tawanda, we're ready for our next caller, please. Our next question comes from the line of David Chiaverini with Jefferies. Your line is open.

28:31 Hi, David. Hi, good morning. Thanks for taking the questions. So I wanted to ask on the deposit side, I think I heard you mention about expecting a higher interest bearing deposit mix. I guess as it relates to that, can you comment on, you know, maybe magnitude and then overall kind of deposit pricing and competitiveness in your markets? Are you seeing a change in recent months relative to say three or six months ago?

29:04 Sure. Our margin did decline six basis points and the sole driver was going to be on the funding side coming from our deposit mix and deposit pricing and also the mix of borrowings. To your question about the deposit portfolio, the two drivers of the cost of deposits increasing by seven points are really coming from mix and higher average pricing on interest checking and savings. As we move forward, we'd expect the full beta to come on the deposit portfolio and continued customer mix of movement into the higher rate products.

29:46 David, I'll also add for context, as you know, our markets are dominated by the very largest institutions, which historically have been very disciplined in terms of depository pricing. They effectively set the market. We have seen upward movement from them, and that does move the market. They seem to have somewhat front-run the recent Fed rate increase. We saw them begin to move up in a few cases, even a bit ahead of that. and of course we have to respond to that. There are always smaller banks somewhere that will do unexpected things and we'll deal with that one by one but they most certainly don't set the market. We view deposit pricing on the whole as rational.

30:31 There's strong loan growth across the industry therefore there are more bids for deposits and that's what's going on. So we don't see anything all that unexpected going on out there.

30:43 Great, thanks for that. And then shifting to the loan side, it sounds like the pipelines are healthy in that it's being driven from CNI. Any particular categories or sectors that are driving that growth? And I guess related to that, with the AI kind of data center build out, I know that you guys aren't necessarily participating directly, but your markets are kind of Sourcing or housing some of these data centers. Can you talk about to what extent that's supporting your pipelines?

31:21 Sure. Let me lead off, and then I'm going to ask David Ring, who leads our wholesale businesses, which is what we refer to the collection of commercial businesses to provide commentary. I'll start with the data center issue. You are right. We do not directly finance data centers. They're far too large and expensive. We do have adjacent businesses. It could be contractors. You could see it in industrial warehousing, even landscaping, believe it or not. So we have clients who are benefiting from the data center expansion that is going on, and that is continuing. One of the more interesting things that we noticed, a comment that I took note of, We're seeing a lot of very large contractors being pulled into these really hyperscaler data center buildouts, which is creating space for kind of midsize or smaller contractors that would more likely be our client base.

32:19 And so that's actually supportive of them. So pricing is improving, there's more work, etc. So there are tangential benefits, and it also creates a lot of tax revenue, frankly. Here's another thing. It's difficult to quantify, but the demand for power generation is very high. And so we're seeing a lot of power infrastructure development going on. We have a client who is a manufacturer that is a supplier to the electrical utility industry, building components for transformers and that sort of thing. and they are very busy and we just don't see any end in sight. So it would be a tangential benefit. Dave Ring, can you comment more broadly?

33:04 I think it's fair to say that we're seeing very good diversified loan growth. Anything that's particularly strong from your perspective?

33:13 Thanks, John. Thanks, David. I think you covered the question on data center, but on the pipeline, first we look at production related to the pipeline. CNI production is roughly 59% of our production and our pipelines look very similar to this. So when you look across our pipeline, CNI tends to dominate now and almost every region has a growing pipeline. So we don't have it at any specific area or any specific region. We're seeing growth in the pipelines in all our regions right now.

33:48 Other things to watch over time will be pharma manufacturing, which we are in one of the best position markets in the country, we believe. We're sitting right in the middle of a lot of investment that's going on to manufacture pharmaceuticals here in the U.S., and that would run in the North, Maryland, certainly here through central Virginia into the Research Triangle. that has benefits. We're seeing multi-billion dollar plants and several of them underway right now which have spillover benefits to contractors and labor. That's good. And also we firmly believe that we are the defense technology capital of the country. You see that in the greater Washington region, especially in northern Virginia. They're very active. So there's some secular trend here. You have certain clusterings that are going to be long-term positives for the markets. But beyond that, it's a pretty diversified economy, and on the whole, it's doing well.

34:55 Very helpful. Thank you.

34:56 Thanks, David. And, Tawanda, we're ready for our next caller, please. Our next question comes from the line of Russell Gunther with Stevens. Your line is open.

35:06 Hi, Russell.

35:08 Hey, John. Follow up on the loan growth discussion, maybe more intermediate term, we'll see. But I guess with the recent backup in rates, likelihood of some additional Fed hikes, is there an absolute level in rates where you guys would expect to see some pipeline fallout? You mentioned new construction, but maybe beyond that asset class. And in a way that would put that sort of mid to high single digit growth profile, we tend to think of AUB at risk.

35:37 That's a difficult question to answer. I think that the increase that we've seen as I mentioned before is going to have a noticeable impact on new construction financing. That's the area that I would expect to see the most. It won't stop it. but it's going to knock out some projects that the developers are just going to wait on. Typically what I'm hearing from them and I've spent a lot of time with a number of them recently is they're kind of waiting to see what's going to happen. Is this temporary or is this not? But on the commercial and industrial side in certain real estate projects such as healthcare or certain industrial properties, I really don't see it putting much of a dent in that. and then again, commercial and industrial, the demand is there and they need to respond to it and they're doing okay.

36:31 So, you know, 100 basis point increase in term rates or 100 basis point increase in short-term rates, I don't see changing much there. So it's hard to say. It would presumably need to be, you know, quite a bit. Sometimes you'll hear me talk about construction lending is like a bathtub. And what I mean by that is new construction commitments, that's sort of the spigot or the faucet It's filling up the bathtub and as projects complete, they drain out of that construction lending balance and they move into permanent mortgage. So I think what you're going to see is the bathtub will keep draining as projects complete and move out of the construction lending category and the faucet is going to be slowed but it's not going to be shut off. So it's really hard to say. But punchline, I think, could it be the difference between mid-single-digit growth and high-single-digit growth? It could. Always think about our default position as being mid-single-digit growth. You've seen us a couple of times pull out a slide we used in Investor Day that states that over the last, I think it was a nine-year period, the organic-only growth rate for us has been about 7% over time. Technically, that would be a high single-digit number, but I think we're on a reasonable growth footing, and we'll say more about what to expect next year.

37:52 Understood. And a helpful caller, John. Thank you. And then to follow up on the margin discussion, I appreciate the commentary around the asset-sensitive position today. Could you guys put a finer point on what each 25 basis point rate hike might mean to the NIM and kind of size the benefit there? Yeah. Each 25 basis point increase, Russell, should be about three basis points of margin in a quarter.

38:24 Okay, great.

38:25 Thank you. And then just my last follow-up, if I could.

38:27 Do you have where the spot deposit rate ended the quarter?

38:32 Yeah, in September, it was at 2.03%. So we were at 2% for the full quarter, and it ticked up three basis points in September. So you're getting a mix of the rate increase in there as well.

38:45 Yeah. Okay. Very helpful. Thank you guys for taking my question. Thank you, Russell. Thanks, Russell. And to Wanda, we're ready for our next caller, please. Our next question comes from the line of Will Jones with KBW. Your line is open.

38:59 Will, welcome. We're glad to have you. Yeah, guys, glad to be with you. Thanks for having me. Thanks for the questions. I wanted to ask, maybe just sticking with the margin discussion, on loan yields, maybe what you saw in the quarter on loan pricing. I was maybe a bit surprised if you kind of wipe away the fair value accretion that loan yields were, you know, really more stable-ish this quarter. I felt like there was some fixed repricing momentum that we would see. I know the quarter doesn't reflect much of the September hike that we saw, but maybe just kind of the outlook you see for loan yields moving forward.

39:36 Sure, yeah. For loan yields, what we saw in the quarter was on the variable side, we ended the quarter around 6.2% with spreads at about 220 basis points. and keep in mind about two thirds of our production in the third quarter was coming from variable rate loans. On the fixed side, we ended the quarter with yields around 6.45% and we did see spreads tighten in the third quarter down to about 170 basis points from competitive pricing. But what happened in the third quarter of loans going down by basis points, I feel like that's more of a function of the mix of originations. as we're more on the variable side, which comes with a lower yield.

40:24 And going forward, you know, coming into the fourth quarter and the run-up in rates, we do expect yields to increase. When I quoted the September yield, that's more of a blended average for that month, but I don't have the number for our exact spot at the end of the quarter, but we expect them to increase as rates increased in the last 45 days.

40:44 Yeah, there's no question we're seeing more variable rate lending right now. Of course, we We now have the benefit of the Fed rate increase as we go into the new month. We did see an odd dynamic, something that's a bit uncommon. From a competitive and market condition standpoint, we were seeing more spread compression on fixed rate lending than variable, which is a little odd based on what we've seen traditionally. And it appears that at least certain banks are more focused on yield than spread. and, you know, some of that we're going to need to sit out because, you know, if we don't see what we believe to be a reasonable risk-adjusted return, you know, we're not going to do it.

41:31 Yeah, okay. That's helpful, John. And then, Alex, thanks for pointing out the mix there on new loans in the quarter. Maybe turn the conversation over to capital. Buybacks were meaningful this quarter. Just talk about your propensity to continue. Should we expect maybe this pace of buyback to continue going forward? And I know AOCI was a negative optic impact to Tangible Book and TCE. Does that impact your and many more. Thank you.

42:29 buyback $62.5 million worth of our within our approved buyback program. We do intend on continuing the buyback through May of 2027. With that being said, we are mindful to the impact of rates on AOCI and we're monitoring our tangible common equity ratio. And if rates were to move sharply higher, we would revisit. And that's the good thing about the buyback program is that it's flexible. We are generating a lot of capital.

43:02 And so if we were to decide that, I'm not saying we have, but if we were to reduce or stop share buybacks, you would see capital run up very quickly. So I agree with Alex that we have flexibility there.

43:18 Yeah, okay. That's great color, guys. Thanks for all the comments this morning. Thank you.

43:23 Thanks, Will. Thanks, Will. Wanda, we're ready for our next caller, please. Our next question comes from the line of David Bishop with Hove Group. Your line is open.

43:32 Hey, David. Yeah, good morning. Hey, good morning, gentlemen. Hey, John, saw the takedown of that charge off expectations there. Just curious, you know, as you look at your borrower financial statements and talk to your clients out there, are you seeing any indications of credit stress from higher rates sort of permeating the commercial or even consumer segment at this time?

43:56 Let's ask Chief Credit Officer Doug Woolley, who's famously succinct. Doug?

44:01 All right, David, I'll give you a more extended answer. On commercial real estate, we do have some floating rate construction projects, so that'll have some impact.

44:12 The bulk of our portfolio is institutional developers. They take those things in stride, and we don't have any concern about that. On the CNI side,

44:21 Even though rates have gone up, the interest rate cost expense to a C&I borrower is a small percent of their overall operating costs. It really would have to move significantly. And we had absolutely no stress that we could discern back when rates skyrocketed from nothing, you know, post-COVID. The C&I borrowers simply absorbed that. I'll take that as a not really...

44:51 Yes, well said, well said. And then, you know, John, I think you mentioned earlier some of the benefits from the defense segment, you know, GovCon. Just curious what you're seeing within that segment within the greater D.C. region.

45:08 Yeah, they're doing well. I would say that there's no question that, you know, they're active, this focus on national security, defense, and intelligence is receiving a lot of funding Credits holding up very well, and we just don't, you know, we feel quite good about that portfolio. We do see a lot of M&A in that space. You know, we've had clients sold. Sometimes we have clients, you know, buying companies as well. But it's very supportive, and it's showing up if you go up into the region. You'll see improving dynamics on office sales. a lot of which is being taken up by defense contractors who are expanding or moving into the area and then firms that are adjacent to defense contractors and they could be everything from attorneys private equity firms setting up shop in the region because a lot of capital is flowing into it and so you know we don't finance like giant defense contractors but it is it's overall supportive and the unfortunate aspect of the geopolitical situation is that this is going to play out for a long time because of the changing nature of warfare, you know, drone warfare, drone defenses, cybersecurity, autonomous aerial vehicles, autonomous ships, you name it.

46:28 There's a multi-billion dollar expansion underway in Baltimore for ship buildings, specifically submarines. The Newport News shipyard has over a 10-year backlog. And so this is a very durable trend, David. And so it's going to have spillover benefits over time into the region.

46:54 Great. Appreciate the color. Thanks, Dave. And Tawanda, we're ready for our last caller, please. Our next question comes from the line of Steve Moss with Raymond James. Your line is open.

47:05 Hi, Steve.

47:06 Good morning. Morning, John.

47:08 and Sarah has popped on late here, but I, you know, so I apologize if I missed anything, but do I ask, you know, what growth are you seeing out of the North Carolina markets these days and maybe just how much that drove your loan growth for the quarter?

47:21 Yep. We view ourselves as a $3 billion asset bank in North Carolina in terms of, you know, where we are now. Remember, we are not new to North Carolina. The Charlotte LPO, which is the biggest component, which deals with commercial, regional commercial real estate developers in North and South Carolina. We do do business in South Carolina. We just don't have a material physical presence there. Yeah, that's been around for a long time and has done well. And then American National Bank had been in the Piedmont Triad area for about 10 years. So that's the base that we're building from. Dave Ring, do you want to comment on some of the expansion activity and what we're seeing? It is unarguably the best growth market in which we operate.

48:05 Let me just start with, we've continued to add new people, new relationship managers in the Carolinas. We have a total of 29 producers now in the Carolinas. 23 of them are C&I focused. Six of them are commercial real estate focused. And they're spread across Wilmington, Greensboro, Burlington, Raleigh, Winston-Salem, and some in Charlotte. And So we have good coverage across the entire state now. We're very comfortable with where we are. And we've started to build a stronger middle market team in North Carolina. This past quarter was the best quarter that we've had since the American national acquisition. And we continue to see growth in the Carolinas.

48:50 That's a nice contributor to our overall growth. Okay, great. Other question I want to ask and just ask about the accretion

49:05 here. For 2027, just kind of curious, what are your updated thoughts on purchase accounting accretion for 2027?

49:13 We're not ready, Steve, to give any 2027 guidance at this time. I'll say for the third quarter, we look at accretion on the lending side between baseline and accelerated accretion. and the baseline accretion was about 9 million per month or 27 million for the quarter. And the accelerated accretion was about 13 million, a little bit above that, maybe 13 to 14 million for the quarter. We should expect that in the fourth quarter as well from the baseline side. For accelerated accretion though, we have to be mindful of the higher rate environment may slow down prepayments and that's what's driven by the, that's what drives the accelerated accretion. but not yet ready to give guidance yet on 2027.

49:59 Yeah, and we firmly believe that the accretion is reinvested as the cash comes back in and the rising rate environment actually supports our argument that that will convert over time into core net interest income.

50:18 Okay, great. And I appreciate all the color here and I'll step back. Thank you very much, guys.

50:23 Thank you Steve, and thanks everyone for joining us today. We look forward to updating you in January. Have a good day. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.