Atlantic Union Bankshares (NYSE:AUB) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below.
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Summary
Atlantic Union Bankshares reported solid first quarter financial results, with a 2.2% annualized growth in loan portfolio, totaling $27.9 billion.
The integration of Sandy Spring Bank was successfully concluded, with final merger-related charges impacting this quarter's results.
The company anticipates year-end loan balances between $29 and $30 billion and deposit balances between $31 and $32 billion, with a continued focus on core deposit growth.
Net interest margin excluding accretion income improved by 4 basis points, while reported net interest margin declined to 3.85% due to lower accretion income.
Credit quality remains robust with non-performing assets declining to 0.36% and annualized net charge-offs at just 2 basis points.
Management is optimistic about market opportunities in Virginia, Maryland, and North Carolina and anticipates minimal impact from geopolitical tensions.
The company revised its full-year net interest income guidance to $1.34 billion to $1.35 billion, reflecting lower accretion income and increased deposit cost pressures.
Strategic initiatives include continued growth in North Carolina, with plans to open several new branches and expand market presence.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Atlantic Union Bancshares' first quarter 2026 earnings conference 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 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President, Investor Relations. Please go ahead sir.
Bill Cimino (Senior Vice President, Investor Relations)
Thank you Michelle and good morning everyone. I have Atlantic Union Bancshares' President and CEO John Asbury and Executive Vice President and CFO Alex Dodd with me today. Since Alex is only eight days into his job, former CFO Rob Forman will cover the first quarter financial results in his transition capacity as a Senior Financial Advisor to the company until his September 30th retirement. 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 GAAP metrics and non GAAP financial measures. Important information about these non GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our slide presentation and in our earnings release for the first quarter of 2026. We will also make forward looking statements which are not statements of historical fact and are subject to risks and uncertainties. There could be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward looking statements. We undertake no obligation to publicly 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 in the forward looking statements. 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. And now I'll turn the call over to John.
John Asbury (President and CEO)
Thank you Bill. Good morning everyone and thank you for joining us today. I am pleased to introduce Alex Dodd as our new Chief Financial Officer. Alex brings a wealth of experience, having successfully helped guide a smaller institution through its transformation into a larger, more complex financial organization. His background aligns well with our executive leadership team and I am confident he will add tremendous value as we continue to drive growth and innovation over the next few months. We look forward to having Alex meet many of you during our active investor relations calendar, while Rob Gorman will remain with us full time until his retirement at the end of September. I do want to extend my sincere gratitude to Rob for his invaluable contributions and his dedication to ensuring a seamless CFO transition. Atlantic Union Bankshares reported solid first quarter financial results reflecting disciplined execution and a successful conclusion of the integration of Sandy Spring Bank. We believe the adjusted operating financial results for the quarter showcase the organization's earnings capacity, while we had a final set of merger related charges impact this quarter's results. The underlying operating performance supports our continued confidence in achieving the financial outlook for adjusted operating return on Assets, return on Tangible Common Equity and efficiency ratio that we have set for 2026. We do look forward to reporting results without the merger noise starting next quarter, which we believe should more clearly demonstrate the financial strength and operational efficiency we are committed to delivering for our shareholders. Our commitment to creating shareholder value remains unwavering. We believe Atlantic Union is well positioned to deliver sustainable growth, top tier financial performance and long term value for our shareholders. We believe the strategic advantages gained from the Sandy Spring acquisition combined with continued organic growth opportunities due to our robust presence in attractive markets reinforce our status as the premier regional bank headquartered in the lower Mid Atlantic. I'll briefly cover the Q1 2026 highlights and share market insights before Rob presents the Financial Review and here are the highlights from the first quarter. Quarterly loan growth was approximately 2.2% annualized during the typically slow first quarter with total loans ending at $27.9 billion. For additional context, quarterly loan growth averaged roughly 5.9% annualized over this year's first quarter. Loan production remained strong and when compared to the previous four quarters was second only to the fourth quarter of last year. We were pleased to see record level fundings from Atlantic Union Equipment Finance and record level production from our North Carolina based commercial real estate team. However, we also experienced elevated payoffs late in the quarter, particularly within our commercial real estate portfolio due to a number of property sales. This activity highlights the strength of our CRE markets, robust investor demand and the availability of ample liquidity. The first quarter saw a slight increase in line of credit utilization for the fourth quarter and was relatively flat year over year at the end of the first quarter, our loan pipelines were noticeably higher than at the beginning, giving us confidence that we are pacing to meet our loan growth targets for 2026. A deeper look at the pipeline report reveals that our construction and development pipeline has achieved a record high. For those familiar with my construction lending bathtub analogy, this means our pipeline is filling up at a faster rate than it's draining, which positions us well for continued growth in construction lending balances throughout the year. While forecasting loan growth remains challenging in this uncertain macroeconomic environment, particularly with the recent energy price shocks, we continue to expect 2026 year end loan balances to range between 29 and 30 billion. Our deposit base demonstrated strong customer deposit growth this quarter, nearly offsetting the planned reduction in high cost Broker Deposits. Broker deposits currently represent just 2% of total deposits and play a purposeful role in our liquidity strategy. We believe this approach provides us flexibility to add broker deposits in the future if needed and depending on cost and market conditions, we anticipate any new additions, if any, would be at lower rates than those currently rolling off. Above all, our core customer deposit base remains the crown jewel of the franchise and our primary focus is on growing customer deposits and expanding our share of wallet. Net interest margin, excluding the impact of accretion income, which can be volatile, improved by 4 basis points quarter over quarter, matching our expectations. Our reported FTE net interest margin declined 11 basis points to 3.85%, mainly because accretion income was lower compared to the elevated level seen in Q4. Rob will provide more detail about the factors influencing NIM performance in this section. Credit quality continues to show strength and improvement. Our first quarter annualized net charge off ratio was just 2 basis points for the year. We are still projecting a range of 10 to 15 basis points, although we do not yet have full visibility into reaching that range. Key asset quality indicators remain robust and are improving. Non performing assets as a percentage of loans held for investment declined by 6 basis points to 0.36% from 0.42% in the prior quarter, bringing us closer to our historical operating levels. Criticized and classified assets also improved, decreasing to 4.5% of total loans from 4.7% last quarter. And looking at the most current unemployment data, the Bureau of Labor Statistics reported Virginia's January unemployment rate remained stable at 3.7%. Maryland's unemployment rate was 4.3% and North Carolina's was 3.8%, all of which are at or below January's national average of 4.3%. We continue to expect unemployment levels in Virginia, Maryland and North Carolina to stay manageable and comparable to or below the national average, consistent with Moody's current state level forecast. We remain confident in our markets and consider them among the most attractive in the country. I do want to acknowledge the ongoing conflict in Iran and its potential impact on our bank and the markets we serve. We are closely monitoring the geopolitical developments and their effects on the broader economy. The most immediate consequence has been the sharp increase in petroleum prices should this trend persist over an extended period. Our primary concern is not a direct credit event given our portfolio's limited sensitivity to energy prices, but rather a possible decline in consumer and business confidence. At present, our loan pipelines remain strong, business sentiment across our markets is positive and the underlying economy in our footprint continues to be favorable. Additionally, it appears likely that defense spending will rise as a result of the geopolitical situation, which should provide a stimulative effect for certain areas of our markets. We remain vigilant and believe we're well positioned to navigate these challenges while supporting our clients and our communities. We have deliberately and thoughtfully built the distinctive, valuable franchise outlined in our strategic plan, delivering on our commitments and establishing the banking platform we set out to create with a strong foundation. We believe we are well positioned to capitalize on our expanded markets, drive continued growth in Virginia, and pursue new organic opportunities in North Carolina and in our specialty lines. With disciplined execution of our prior acquisitions and no additional acquisitions currently planned. During this phase of our strategic plan, our focus has shifted to demonstrating the franchise's earnings power and capital generation ability. After dedicating capital to strategic investments over the past two years to complete the company we envisioned and worked diligently to build and consistently communicated our plans to do so. We believe we are well positioned to demonstrate clear and tangible benefits from these efforts. In summary, we had a good start to 2026 and we believe that our full year results will demonstrate the differentiated financial performance compared to our peers, which in turn will help build long term shareholder value. With that, I'll turn the call over to Rob for a detailed review of our quarterly financial results.
Rob Forman (Senior Financial Advisor)
Rob well, thank you John and good morning everyone. I'll now take a few minutes to provide you with some details of Atlantic Union's financial results for the first quarter of 2026. My commentary today will primarily address Atlantic Union's first quarter financial results presented on a non GAAP adjusted operating basis, which for the first quarter excludes $9 million in pre tax merge related costs. As John noted, we don't expect to incur any additional Sandy Spring merger related costs going forward. In addition, in the first quarter we finalized the fair value assets acquired and liabilities assumed related to the Sandy Spring acquisition, inclusive of measurement period adjustments primarily related to loans, other assets and other liabilities. The one year measurement period related to the Sandy Spring acquisition concluded and related goodwill was finalized as of March 31 at $541 million. In the fourth quarter, reported net income available to common shareholders was $119.2 million and earnings per common share were $0.84. Adjusted operating earnings available to common shareholders were $126.2 million or $0.89 per common share for the first quarter, which resulted in an adjusted operating return on tangible common equity of 19.6%, an adjusted operating return on assets of 1.41%, and an adjusted operating efficiency ratio of 49.9% in the quarter. Turning to credit loss reserves, at the end of the first quarter, the total allowance for credit losses was $321.9 million. Please note that effective January 1, 2026, the company made certain changes to its allowance for credit losses methodology as part of the continued enhancement of its credit modeling practices, resulting in the Company moving from two loan portfolio segments, commercial and Consumer, to three loan portfolio segments, commercial, Real Estate, Commercial, Industrial and Consumer. These model enhancements enable more dynamic and precise modeling and allow for more granularity in and monitoring our estimated credit losses. As a result, and paired with portfolio mix changes, the total allowance for credit losses as a percentage of total loans held for investment decreased 1 basis point to 115 basis points at the end of the first quarter. The allowance for loan losses as a percentage of total loans held for investment decreased by 2 basis points from the prior quarter to 104 basis points. While the reserve for unfunded commitments coverage ratio increased 1 basis point to 11 basis points on March 31, which was primarily driven by higher construction and land development unfunded commitments. As John mentioned, net charge offs were $1.6 million or only 2 basis points annualized in the first quarter. Now turning to the pre tax pre provision components of the income statement for the first quarter, tax equivalent net interest income was $316.9 million, which was a decrease of $17.9 million from the fourth quarter, primarily driven by by a decrease in loan accretion income, the lower day count in the first quarter, lower average earning assets and the full quarter impact on variable rate loan yields. Following the cumulative 75 basis point reduction in the fed funds rate between September and December 2025 the decreases in tax equivalent net interest income were partially offset by a decrease in interest expense primarily from lower deposit costs. As John noted, the first quarter's tax equivalent net interest margin declined by 11 basis points from the prior quarter to 3.85% due to lower earning asset yields which were partially offset by by lower cost of funds. Earning asset yields decreased 20 basis points from the prior quarter to 5.79% primarily due to lower loan accretion income of $13 million which was inclusive of the impact of a $3.5 million non recurring loan fair value measurement period adjustment related to the Sandy Spring acquisition and lower yields on variable rate loans. As previously noted, the cost of funds decreased 9 basis points from the prior quarter to 1.94% for the first quarter due primarily to lower deposit costs of 13 basis points which reflected the impact of fed funds rate reductions on customer deposit rates and the decline in higher costing average broker deposit balances of note excluding the impact of net accretion income,, our core net interest margin increased by 4 basis points to 3.45% from 3.41% in the prior quarter which was primarily driven by lower deposit costs partially offset by lower core loan yields. Non interest income declined by $2.2 million to $54.8 million for the first quarter primarily driven by lower loan related interest rate swap fees due to seasonally lower transaction volumes which was partially offset by higher capital markets income. Reported non interest expenses decreased by $33.4 million to $209.8 million for the first quarter, primarily driven by a $29.6 million decline in merger related costs and a 2.3 million decrease in amortization of intangible assets. Adjusted operating on interest expense which excludes merger related costs in 4Q25 and 1Q26 and the amortization of intangible assets in both quarters decreased by $1.6 million to $185.3 million for the first quarter. This decrease was primarily due to $3.1 million reduction in other expenses primarily due to lower non credit related losses on customer transactions, a $2.3 million decrease in professional services expenses related to strategic projects that occurred in the prior quarter and a $1.9 million decrease in technology and data processing expenses. These decreases were partially offset by a $5 million increase in salaries and benefits expense primarily due to seasonal increases in payroll taxes and 401 contribution expenses on March 31. Loans held for investment net of unearned income were $27.9 billion which was an increase of $150.3 million or 2.2% annualized. from the prior quarter. On March 31, total deposits were $30.4 billion which was a decrease of $80.4 million or approximately 1% annualized from the prior quarter primarily due to decreases of $517.9 million in broker deposits, partially offset by an increase of $438.5 million in interest bearing customer deposits. At the end of the first quarter, Atlantic Union bank shares and Atlantic Union Bank's 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 first quarter if you include the negative impact of AOCI and held the most sturdy securities unrealized realized losses in the calculation of the regulatory capital ratios, AOCI increased, $22.4 million during the first quarter as term interest rates increased from the prior quarter. Company paid a common stock dividend of $0.37 per share in the first quarter in line with the fourth quarter's dividend amount and an increase of 8.8% from the previous year's first quarter dividend amount of $0.34 per common share. On a linked quarterly basis, tangible book value per common share increased $0.24 or 1% to 19.93 per share to $19.93 per share in the first quarter. Despite the headwinds caused by the increase in the AOCI's unrealized losses, we estimate that the increase in AOCI had a negative impact to our tangible book value of $0.16 per share in the first quarter. As noted on Slide 17, we are updating our full year 2026 financial outlook for AUB to the following we expect loan balances to end the year between 29 and 30 billion dollars while the year end deposits balances are projected to be between 31 and 32 billion dollars. On the credit front, the allowance for credit losses to loan balances is projected to remain at Current levels in 115 to 120 basis points range and the net charge off ratio is expected to fall between 10 and 15 basis points in 2026. Although we don't currently have a line of sight to reaching that range this year, fully taxable equivalent net interest income for the full year are projected to come in between 1.34 billion and $1.35 billion inclusive of accretion income of between $140 million and $145 million. As a result, we are projecting that the full year tax equivalent net interest margin will fall in a range between 3.90% and 4% for the full year, driven by our baseline assumption that the Federal Reserve Bank will not cut the fed funds rate in 2026 and that term rates will remain stable at current levels on a full year basis, non interest income is expected to be between 220 and $230 million, while adjusted operating noninterest expense is estimated to fall in the range of $742 to $752 million, including the expense impact of our North Carolina Investment and other 2026. strategic initiatives. Based on these projections, we expect to generate annual growth in tangible book value per share of 12 to 15%, produce financial returns that will place us within the top quartile of our proxy peer group and meet our objective of delivering top tier financial performance for our shareholders. In summary, Atlantic Union delivered solid operating results in the first quarter and 2026. is off to a good start. We remain firmly focused on leveraging this valuable Atlantic Union bank franchise to generate sustainable, profitable growth and to build long term value for our shareholders in 2026 and beyond. Before I transition the call back to Bill, I would like to briefly reflect on my tenure at AUB. When I joined the organization in 2012, AUB had approximately $4 billion in total assets with a market capitalization of around $360 million. Currently our assets have grown to nearly $40 billion and our market capitalization exceeds $5 billion, establishing us as the largest regional bank headquartered in lower Mid Atlantic. It's been a great privilege to have played a part in the company's growth and financial success over the past 14 years. And looking ahead, I'm pleased to have Alex step into the role of CFO as my successor and I'm confident that his extensive financial leadership experience will contribute significantly to Atlantic Union's future success. I'll now turn the call over to Bill to see if there are any questions from our research analysts community.
Bill Cimino (Senior Vice President, Investor Relations)
Thanks Rob and Michelle. We're ready for our first caller.
OPERATOR
Please. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our first question is going to come from the line of Russell Guenther with Stevens. Your line is open. Please go ahead.
Russell Guenther
Good morning Russell. Hey, good morning guys. Hey John. Good morning. Wanted to start on the core margin please. Nice to see that up a little bit this quarter. Would be helpful to get a sense for how you expect that to trend over the course of the year. And particularly touching on the direction of deposit costs from here with the Fed on pause, just wondering if you have the ability to lower further or if there's an upward bias to deposit costs. Yes, yes. In terms of the core margin Russell,
Rob Forman (Senior Financial Advisor)
we do expect it can grind higher from here and we do expect that as I mentioned in my comments, we don't expect the Fed to cut this year. So there should be, shouldn't be an impact on our variable rate loan yields on a negative, from a negative perspective. However, it also means longer for or higher for longer rates will impact our ability to reduce deposit costs meaningfully lower from here. Basically, it's probably going to be stable. Maybe there's a little we may see that tick up a bit on the customer deposit side. The good news there is we do have some broker deposits that are still outstanding that are maturing this quarter and next quarter and those broker deposits are paying about 515 currently. So we will get a pickup on that. If you look at what current broker rates are or even customer deposit CD rates and money market rates are, So we will get some positive out of that in the near term. The real impact of the grind higher in core net interest income or net interest margin is basically we've got the continuing backlog fixed rate loan backlog repricing and that will continue throughout the year. As we mentioned we're projecting that term rates, you know five year term rates are pretty stable going forward here and We've got about 850 or 900 million of maturing fixed rate loans on the legacy AUB side per quarter through the rest of this year. So you see about a pickup of you know, call it 90 to 100 basis points from portfolio yields on that portfolio. So on the 5.10%, 5.15% level, repricing into the 6 to 610 range. So that's really the underlying context of our thoughts that core margin will, will grind a bit higher. Got it.
Russell Guenther
Okay Rob, that's helpful detail. Thank you. And then last one for me would be on the expense front. Solid result this quarter. You lowered that guide at the investor day in December that you had mentioned considering some additional branch rationalization in 26. So wondering if that is at all contemplated in the lowered guide and if not given the lowered NII outlook, is that on the cards at all as a potential offset?
Rob Forman (Senior Financial Advisor)
Yeah, it's certainly not in the guidance that we just provided in those numbers. On the non-interest expense side there's always some thoughts around that where we could Be looking at that if we really thought the revenue growth was not going to materialize. But we do think we've got a pretty good handle on the expense discipline around expenses. That's why we did lower that. Part of that was, you know, this first, you know, the first quarter we came in better than we expected. That should continue as we go forward. We said that the first quarter is, you know, the seasonally high expense quarter for the year. So you should see that things coming down, especially on payroll taxes and 401k which are at the high end. I mean, that was increase of over $5 million quarter to quarter. That's going to come down over time. It's just elevated due to incentive payments, et cetera, which would drive those higher in the first quarter. So you should see those costs come down. Now, we did mention that we do have investments being made primarily in the North Carolina franchise, opening 10 new branches, not all this year. Probably three branches will be open by year and another five or six next year and then the remainder early in 2028. But that expense will start coming on board, you know, later this year. Call it second, third and fourth quarter will start to increase. So those are somewhat offset to this reduced level of payroll taxes in 401(k) that we'll see going into the next three quarters.
Russell Guenther
Okay, excellent. Thanks, Rob, and congrats on your retirement. Thank you. Thanks.
OPERATOR
Russell and Michelle, ready for our next caller, please. One moment. Our next question will come from the line of Janet Lee with TD Cowan. Your line is open. Please go ahead.
Janet Lee
Hi, Janet. Janet, good morning. So I want to get some clarification. Much of your deposit decline in the quarter seems to be driven by a runoff of broker deposits. I assume that lower broker deposits is partly attributing to your lower deposit guide for the full year. But would be great to hear the direction of travel for core customer deposits and broker deposits over the course of 26. That's assumed in direct updated deposit guidelines.
Rob Forman (Senior Financial Advisor)
Yes. So on the customer deposit side, we're looking for 3% to 4% growth on that front. In broker deposits, we paid down quite a bit. I think quarter to quarter we were down about 500 million. Those are high cost, obviously. And from a funding perspective, with a lower loan growth quarter, we did not need to refinance or fund those with new brokers. So that was a positive. And as I said, we got about 200 this quarter in brokers that are maturing at high cost and another 80 or so in the third quarter. We'll see how that plays out in terms of broker. But that is part of the reason, maybe a lot of the reason why we've lowered our deposit, total deposit cost including broker. Now we'll see what happens there. Janet, really depends on seeing a pickup in loan growth over the next several quarters and maybe, you know, see if we're on the higher end and maybe up producing the higher end. You know, we may have to go back and bring in some broker deposits to fund the gap there. Got it. Thank you. And the accretion income declined 13 million quarter over quarter and looks like it included some one time measurement period adjustments of 3.5 million. Is it fair to are you still maintaining your purchase accounting adjustments (PAA) guide of 150 to 160 million for the full year or is that impacting your NII guide? I know it's harder to forecast the accretion, but wanted to see where that should trend going forward. Yeah, we have lowered that Janet to adjust to 145 to 150 million accretion. Part of that was the three and a half one time which wasn't anticipated in the earlier guide. And we do expect more of a normalization of prepayments on that portfolio. It was pretty low quarter compared to the fourth quarter in terms of prepayments and accelerated accretion. On a baseline perspective, excluding any early or prepayments accelerated accretion, it's about $10 to $11 million on the loan accretion side. You know, from a baseline you can expect that per quarter. And then the wild card is what's the, what's the accelerated prepayments look like and the accretion that comes through related to that. And it's, you know, it's been running probably normalized. It's probably more in the $3 million a month kind of thing. So that's kind of what is in our projection for that.
Janet Lee
Got it. Thank you so much. Congrats, Rob. Thanks, Janet.
OPERATOR
Michelle, ready for our next caller? Please.
David Chiaverini
One moment. Our next question comes from the line of David Chiaverini with Jeffries. Your line is open. Please go ahead. Hi, thanks for taking. Hi, how's it going? Thanks for taking the question. So wanted to touch on loans you mentioned about the loan pipelines being strong. Can you talk about customer sentiment and what you're seeing there in terms of drivers?
Dave Ring
Yes, Dave Ring, our head of all of our commercial related businesses, which we call wholesalers here. Dave, do you want to speak to what you're saying? I can give my perspective too. Sure. Like you Said pipelines are significantly higher than they were this time last year or even at the end of the quarter, first quarter. But the sentiment is, you know, we are not seeing a lot of companies not doing transactions, but we're seeing companies sometimes pause them and it's largely driven by interest rates, rather than some of the other factors going on in the economy. So as interest rates, you know, kind of stabilize, we'll see. You know, I think our pipeline convert pretty quickly.
John Asbury (President and CEO)
Yeah, I think. And Dave, when you say interest rates, you mean people are essential. We've heard some feedback that clients were sort of waiting on lower rates and now we're in what appears to be a higher for longer environment. And as they see that rates are likely not about to come down, they move forward. It is important to point out, as I commented, that we saw our record quarter best ever in Atlantic Union equipment finance fundings in Q1. We saw record production out of the North Carolina based commercial real estate team that operates throughout the Carolinas. Pipelines look really good. And also mentioned that the construction lending pipeline looks really good too. So we are seeing activity out there. And despite all the uncertainty and concern about what's going on with this situation in Iran, doesn't really seem to have impacted sentiment. I agree with Dave. We've heard more comments on people that were kind of speculating on what rates might do. So we feel good about the outlook from here. The fundamentals are pretty good across the footprint.
David Chiaverini
Great, thanks for that. And then shifting over to capital management, can you comment on to what extent, if any, the Basel III endgame proposal could have on Atlantic Union and then also touch on your buyback appetite and timing is later this year still in the cards.
Rob Forman (Senior Financial Advisor)
Yeah. In terms of the first question on the Basel III impact, we've estimated that that impact based on what's out there today, the proposal is would reduce risk-weighted assets in the 6 to 6.5% range, which translates into from a CET1 regulatory capital ratio of an increase of 65 to 70, 75 basis points. So we'll see where that comes out in the final rules or what's approved. But that's our current estimate of the impact there. So pretty positive from a regulatory capital ratio perspective in terms of the potential buybacks. Yes. So as we said, we look at anything over 10.5% CET1 as excess capital, available for us to buy back shares and kind of manage, you know, between 10 and 10.5% CET1. We haven't come off our plans to. Well, I should say we are projecting that we will hit that 10.5% mark coming out of Q2. Nothing's changed really there into Q3. So we're in a position to request an authorization from a board of directors subject to their approval and we would expect to be in the market assuming approval there in the near future.
David Chiaverini
Very helpful, thank you.
OPERATOR
Thanks Dave and Michelle. We're ready for our next caller, please. Our next question is going to come from the line of David Bishop with Hoveti Group. Your line is open. Please go ahead.
David Bishop
Hi, David. Hey John. And congratulations Rob, on the retirement. Enjoyed working with you. Thank you, sir. John. Dave, just curious from the net charge off guidance that in the slide deck, you're still sticking with the 10 to 15 basis points guidance? Just curious, is there any line of sight into reaching even that lower end just given what's happening at a high level? And maybe what could get you there on sort of a worst case scenario? Maybe what portfolios could drive that higher?
John Asbury (President and CEO)
We don't see anything. We have no line of sight to meeting even the lower end of the guide at this moment, meaning we don't see anything coming. However, we know from experience it's usually the infamous one off which can happen from time to time. Doug Woolley's here as well. So Doug, you may want to our chief credit officer. Do you see anything that would be sort of a systemic or kind of secular concern?
Doug Woolley (Chief Credit Officer)
No, no. Portfolios at risk like John said, they inevitably end up being one offs, sometimes larger than we expect, but always resolved quickly.
John Asbury (President and CEO)
Once identified as a $38 billion bank, we're not going to run the bank with 2bps of annualized net charge offs. Having said that, I've made similar comments for nine and a half years. So I mean it would be great. We would love to do that very thing. But we'll see. We think it's a reasonable assumption based on what we know right now.
David Bishop
They got it. One follow up. I know you mentioned the seasonal impact on swap fees are down this quarter. If we do see maybe stability in the term structure of rates, do you think that impacts the overall level of swap fees this year from a go forward basis? Thanks.
John Asbury (President and CEO)
Say that again, Dave. The term rates I didn't catch. The rates are stable that we expect. Yeah. I think you're saying that you expect sort of relative stability. And the outlook for interest rates, does that have a oppressive impact if rates aren't volatile on the outlook for swap fees moving forward? Thanks. Yeah, I think, yeah. So on swaps, yeah, we look, we have A pretty good quarter. We'll continue to see how that plays out. But I think you're right, there's a lot of volatility will play into that. I don't know if Dave has anything, Dave Ring has anything to add to that. But yeah, I mean, for swaps we're actually not seeing. Volatility doesn't normally play a role in our swap sales. It's really a function of new transactions getting booked.
Dave Ring
So, you know, we have a pretty strong, very strong methodology around making sure we're eyeballing all transactions that are coming in the bank. And, you know, we're trying to help clients, you know, decide whether to manage the fixed, you know, manage the interest rates or not. But I think the way, the reason we're so successful in swap production is our methodology and the fact that we are, you know, we close a lot of new transactions every quarter. I would say that if there's no expectation that rates are about to drop, that's generally helpful, based on my experience. Meaning there's not much to wait for. People aren't sort of betting on lower rates.
David Bishop
Right. Great. Appreciate the color.
OPERATOR
Thanks, Dave. Thanks, Dave and Michelle, we're ready for our next caller.
Brian Wolczynski
Please, one moment. Our next question comes from the line of Brian Wolczynski with Morgan Stanley. Your line is open. Please go ahead. Hi, Brian. Hi.
Rob Forman (Senior Financial Advisor)
Hi, good morning. Wanted to just quickly go back to the net interest income outlook for the year for 2026. It looks like you brought that down by about 18 million at the midpoint. It sounds like the lower purchase accounting accretion explains a portion of that, but was just wondering if you could speak to any change in the core net interest income outlook and anything new that you're seeing on that front specifically. Yeah. So, Brian, the bulk of the adjustment there is accretion income that you saw in the first quarter that we brought that down a bit. The other driver there is, you know, we've increased our deposit rate outlook from our original guidance earlier in the year. We're seeing some competition in some of our markets. We do regional pricing, but in terms of the regions where we're seeing some increases and we've raised rates in those regions is, you know, the metro D.C. area, former Sandy Spring footprint. And then some, some impact, even though it's not as large for us is North Carolina. We've also seen heavy competition from our, you know, some from the bigger players in those markets and some of our peers. So we did increase those rates a bit. For instance, we now have certificate of deposit (CD) specials in the 4% range or CDs offerings in the 4% range for three and six months. And we also now have an advantage money market rate, which is in the 380 range that requires new money to come in. But those are increasing the deposit rate outlook as we go through this year. Rob, on the accretion income expectations, it's fair to say that's more of a timing issue. Well, it's a timing issue in terms of. Yeah. Will the acceleration of accretion income come through prepayments from the Sandy Spring acquired portfolio, those activities and it could be. Plus, you know, it could be more, could be lower, I'd say, you know, we were high in the fourth quarter as we talked about last quarter, and we were lower this quarter, excluding that three and a half million dollar adjustment that was not recurring. So it kind of does fluctuate quarter to quarter depending on what prepayments we get.
John Asbury (President and CEO)
Yeah, you still have that, as you pointed out, you still have this base level that's a pretty good accounting tailwind. And then the volatility comes in with prepayment activity, which is very difficult to predict. Yeah, that's right.
Rob Forman (Senior Financial Advisor)
And maybe just to Clarify, on the PAA, the updated expectation is at 145 to 150. I may have misheard, but I think earlier in the call you might have said 140 to 145. So just wanted to clarify what the new expectation is. It's really 140 to 150, Brian. I kind of misstated that. So midpoint about 145 is what we're thinking.
Brian Wolczynski
Got it, got it. And then you mentioned the strong production during the quarter on the loan side. Sounds like loan pipelines are quite strong, albeit with some pay downs towards the end of the quarter. I'm wondering, to the extent that loan growth surprises negatively over the course of the year, say in a scenario where pay downs remain elevated, do you think that the NII guidance is still achievable? Would there be more offsets maybe on the deposit side, or would the NII guidance become more challenging in that scenario?
Rob Forman (Senior Financial Advisor)
Thanks. Yeah, I think the range that we put out there assumes that there's much lower growth than what we're projecting internally. So the range is what, you know, 3 to 7%, if you look at the loan guidance. And then the net interest income related to that is kind of on a low end, but certainly there, you know, if it comes in lower or it's flat, that will have some impact on that guidance and likely bring it lower but we're not projecting that flat growth rate. But certainly, as I said earlier, we may then take other actions, maybe from an expense point of view, maybe on the deposit cost perspective to maintain that net interest margin. But we do have some other levers on the expense side we could pull if the revenue growth doesn't come through. Got it.
Brian Wolczynski
Really appreciate all the detail, as always. And Rob, congratulations on your retirement.
John Asbury (President and CEO)
Yeah, thank you, Brian. Just for market clarity, Rob's not retired yet, so we're going to get our money's worth out of him until September. But Alex is CFO as of now and they'll go through a very planful transition, as you know.
OPERATOR
And Michelle, we're ready for our next caller. Please, one moment. Our next question will come from the line of Catherine Mueller with kbw. Your line is open. Please go ahead.
Catherine Mueller
Hi, Kathryn, Good morning. Hi, good morning. One more. On the loan side or on the NIMS side, could you repeat what loan maturities you have maturing per quarter and then on average where new loan yields are coming on the books today?
Rob Forman (Senior Financial Advisor)
Yeah, it's about to speak to the fixed rate portfolio. It's about 850 to 900 million maturing on a quarterly basis. And those new loans are being, or those loans refis or new loans coming on are in the 6% to 6, 10 range versus a portfolio at about 5 to 510.
Catherine Mueller
Okay. And are those just legacy? Yeah. Okay, so that is an included. Yeah.
Rob Forman (Senior Financial Advisor)
So if we bring in Sandy spring, it's about that 900 goes up to about 1.2 to 1.3 billion quarterly. Okay, great. But you're saying that's going from about five to six, 10.
Dave Ring
Yeah. Right, got it. Great. And then we talked a lot about deposit cost competition on this call. What about loan competition? Are you still seeing. Can you talk about the competitive dynamic in lending both on how that impacts volumes and how that impacts rate today? It's competitive. It's always competitive, particularly for a bank like us that deals with what I would call the higher quality set of credit. Dave, do you want to comment on what you're seeing? Yeah. It's competitive in structure and price. So it really depends on the asset. The better the organization or better the company or better the prospect, the more competitive it gets for sure. What we're seeing now is the larger banks are very active in the markets we're in now. And so we feel like we compete best against them, actually. So we feel like strong competition, but we're teed up to compete against them. Yeah, we'll get our fair share, Kathryn.
John Asbury (President and CEO)
Great. And then maybe one more question on just the growth. You've left your end of period growth guide unchanged, is there, I know this is a hard question, but it matters for the full year. NII guide relative to the growth. I mean, do you feel like that growth is back end loaded or do you feel like we're, I know pay downs are kind of heavy in the back part of this quarter or do you feel like we're going to get, as you see it today, a big improvement in growth even starting in the second quarter? Do we see that kind of ramp to growth starting sooner rather than later? Yeah, truthfully, Q1 was better than I would have expected based on production and we were looking, we were approaching 4% point to point annualized loan growth until literally the last week of Q1. Notice that the average loan growth for Q1 versus Q4 was 5.8%, which would be a very strong number for Q1, which is seasonally slow coming off a very strong Q4. So the productivity is there. We're off to a very good start in Q2 and I would say we're on pace to where we'll continue to see it ramp. We're not effectively saying we don't see much happening until we get into the second half of the year, for example. Do you have anything to add on that, Dave? I mean, we can see it in the pipeline.
Dave Ring
Yeah, the pipeline. You know, if you were to just look at, you know, quarter over quarter, the pipeline's up, you know, 26% even though we had a really strong fourth quarter. And so I think it's just a matter of conversion and we're doing that. Like John said, we already had a good start to the second quarter so we're confident that our conversion rates will be good.
John Asbury (President and CEO)
So Kathryn, right now we feel pretty good in terms of being on pace to meet our expectations. It's not all back end loaded. Having said that, Q4 is traditionally in my 37 year career, Q4 is always the best quarter of the year year. But it's not like we're waiting on that. Great. Very helpful caller. Thank you. Congrats, Rob, on your new role, not retirement. Well said, Kathryn. Thank you. And Michelle, we're ready for our last caller.
OPERATOR
Please one moment. And our last question will come from the line of Steve Moss with Raymond James. Your line is open. Please go ahead. Hi Steve, good morning. Hey John.
Steve Moss
Rob, good morning. Appreciate you guys taking my questions here. Just maybe not to be dead horse, but just following up on deposit costs Just kind of curious, you know, how are you thinking about the marginal cost of deposits for you guys? I hear you on the 4% CD rate, but just, you know, think about the blended holistic dynamic, what you're bringing in. You know, where does that roughly shake out these days?
Rob Forman (Senior Financial Advisor)
Yeah. So if you look at the mix of deposit growth, it's going to be in, in the money market and the CD book and, you know, as I said, those are probably on a marginal cost basis, those would be, you know, in the ranges that I just mentioned. So, you know, they'll start to tick up. The average cost of deposits will tick up a bit on the money market side. That's not repricing the back book. So that's not as big an impact, but it will, but it will grind higher over a period of time. And then CDs as they mature, you'll see that coming in, you know, again over time. So I think that's, that's kind of the way to think about it. Those are the, those are the growth engines at this point from a deposit, you know, other than, you know, we are bringing on some operating accounts and things of that nature. Of course, we always look for that from a growth point of view, but in terms of the drivers of the growth, it's going to be in those categories.
Steve Moss
Okay. And then maybe just kind of, you know, thinking along the lines, just given how high the cost is, just curious if you guys are thinking about maybe running off more securities here as the year goes on just to fund growth.
Rob Forman (Senior Financial Advisor)
If we see a remix that way, you know, maybe. Hello, are you guys willing to take, you know, securities and cash here? Yeah, that's a good question, Steve. Yes, we are bringing down the securities portfolio as a percentage of total assets. That's part of the equation to help fund any gaps between deposit growth and loan growth. Right now we're about 13.5% of the securities portfolio as a percentage of total assets. And we're expected to see that come down to about 12 and a half. 12 to 12 and a half, which historically is where we've been. So there is that funding from maturities coming out of the securities portfolio. Cash flows are about 75 million a month out of the securities portfolio. So that gives us some, you know, some good funding opportunity for loan growth. Moving that to the loan book. Okay. And then just on the reserve methodology change here, kind of curious, you know, maybe just explain kind of underneath what the dynamic is that, you know, how this could impact the way your reserve behaves in future periods or you know, and I know you guys said it wasn't a material benefit. You know, is it just like a million, 2 million to the provision? Just kind of curious how we think about the dynamics for this quarter. And just like the way sensitivity changes going forward. Yeah, the big change there is, as we said, is we now have modeling on three segments. We split commercial real estate and the commercial industrial portfolios. And the real benefit there is that we now have loan level credit modeling available to us on the commercial real estate side. And that can get very granular in terms of where collateral is and things like. Of that nature. The other component here is if you looked at our allowance for credit losses under the previous modeling, we had about 50% of our reserve was what we considered qualitative factors versus quantitative modeling. And now under the new modeling, we still have qualitative factors, but they're more in the 20 to 25% range. And the quantitative model, the more granular model, is producing 75% of the give or take of the total allowance. So it's really a much better, more detailed model for us.
John Asbury (President and CEO)
And we can feel like it's. I don't think you'll see very much volatility in it going forward, depending on the economic forecast. I mean, that can change it, change it a bit going forward. But that would be under the old model as well. So we feel good about the changes that we made. We've continued to evolve. This is, we had three models. This is the fourth model. And this is probably obviously the best model we've had. And interestingly enough, it kind of underpinned what we were putting as qualitative because the new model wasn't that really much different from the ACL levels that we have on the balance sheet. Okay, that's helpful. I'll take a little more offline there, but I appreciate all that color. And then maybe just in terms of, you know, John, I heard you on the loan pipeline or talk about good dynamics in North Carolina, I believe you said, just kind of curious, what is that looking like these days? And just kind of what percentage of loan pipeline. Maybe sizing up a little more would be helpful. You mean coming out of the Carolinas? Correct? Yeah. And when I say North Carolina, I should say broadly Carolinas, because the commercial real estate team covers both of the Carolinas. Dave, do you want to speak to how you think about that in terms of how much of a broadly North Carolina world Carolinas are as a part of the overall equation in terms of pipeline? Yeah, I mean, it certainly helped this quarter that Carolinas was our second largest growth engine for the company, for our commercial. So that kind of speaks for itself. I think the pipelines are strong enough to replicate this performance in the Carolinas. So we feel really good about it and we're expanding. It used to be and a few years ago when we talked about Carolinas, we. What we really meant was the commercial real estate team based in Charlotte thanks to the acquisition of American National Bank that gave us a base principally in the Piedmont Triad. We have our Wilmington LPO, which is doing well, which we did post American National acquisition. We've been expanding in Raleigh. We've got the branch investment going on in the greater Raleigh area and Wilmington, and we're continuing to expand the team at a reasonable pace. So see if I think it will become more important over time. It is arguably one of the best growth markets in the country and they are gaining employment faster than most places as well. And it's right next door. So we feel really good. It's very important to understand how diversified Atlantic Union Bank is. I don't think we get credit for that. We need to do a better job of explaining. We are a diversified bank over three very good states and we have specialty lines as well that can go beyond like equipment finance. So we feel good about our opportunity. Okay. No, definitely hear you on that, John. Okay. That's everything for me at the moment. I really appreciate all the call here.
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