Atlantic Union Bankshares (NYSE:AUB) Q2 2026 Earnings Call

0:00 Good day. Thank you for standing by, and welcome to Atlantic Union Bankshares Second Quarter twenty twenty six Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

0:16 A Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker host, Bill Cimino, Senior Vice President of Investor Relations. Please go ahead. Thank you, Olivia, and good morning, everyone. I have Atlantic Union Bankshares' President and CEO, John Asbury and Executive Vice President and CFO, Alex Stodd, 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're 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.

1:06 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 second quarter of twenty twenty six. We'll also make forward looking statements, 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 to publicly revise or update any forward looking statement except as required by law.

1:41 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 statement. All comments made during today's call are subject to that Safe Harbor statement. At the end of the call, we will take questions from the research analyst community. I'll now turn the call over to John. Thank you, Bill. Good morning, everyone. Thank you so much for joining us today. The lack of Indian Bankshares reported strong second quarter financial results, reflecting disciplined execution and providing an encouraging indication of the earnings power of the franchise we have been building. For the first time in two years, we did not incur any merger related costs.

2:27 We were also pleased to realize a $32,300,000 pretax gain from the sale of our equity interest in bearing insurance. Adjusted operating performance, excluding the gain from the equity interest sale was notable for solid loan growth, margin improvement on both a core and reported basis, disciplined expense management and solid credit performance along with continued capital generation. Over the past two years, we have deployed capital intentionally to strengthen and expand our franchise. We believe our second quarter results are an encouraging early indication that those investments are beginning to translate into stronger earnings capacity, capital generation and long term shareholder value. We remain focused on building on this progress through disciplined execution, organic growth and continued attention to soundness, profitability and growth in that order.

3:19 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 that our 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 our Q2 twenty twenty six highlights and share market insights before Alex presents the financial review. Before reviewing this quarter's results, I would note that the second quarter was marked by a continued uncertainty, particularly around geopolitical developments and the conflict involving Iran. Despite that backdrop, customer confidence remained resilient and economic activity across our footprint held up well. We delivered record loan production during the quarter, exceeding our twenty twenty five fourth quarter production level, which is traditionally our strongest quarter by roughly 8%.

4:16 While the second quarter is typically one of our seasonally stronger periods and we expect some moderation in the third quarter due to the normal summer slowdown, our pipelines remain healthy. Overall, we believe that our underlying credit activity and pipeline depth support our full year outlook and we currently expect loan growth to finish toward the higher end of our mid single digit range. Importantly, this growth reflects strong client activity across our markets, the value of the customer relationships we have built and disciplined execution by our team. With that context, here are the key highlights from the second quarter. Average loans were $28,200,000,000 and grew approximately 6% annualized during the second quarter, while period end loans increased approximately 10.4% annualized from Q1 to Q2, ending the quarter at approximately $28,700,000,000 Growth was well distributed across the franchise, led by strong client activity in commercial lending, construction lending, multifamily and select consumer categories.

5:16 Line of credit utilization decreased slightly from the first quarter, but was up slightly year over year. Year to date annualized loan growth was 6.4%. As I mentioned, loan pipelines are healthy and support our expectation that full year loan growth is tracking toward the higher end of our mid single digit outlook. Average deposits increased 2.4% annualized during the quarter and total deposits increased approximately 1% annualized from the end of Q1 to the end of Q2, all consistent with our low single digit 2026 outlook. Growth was concentrated in interest bearing deposits. We also reduced brokered deposits by approximately $53,000,000 during the quarter and roughly $571,000,000 year to date. Broker deposits represented only 2% of total deposits at quarter end, giving us flexibility to use them selectively going forward if needed.

6:09 Our core customer deposit base remains a defining strength of the franchise and our focus remains on relationship based deposit growth, expanding share of wallet and maintaining funding discipline. Core net interest margin, which excludes the purchase accounting adjustments, improved by one basis point quarter over quarter. Reported FTE net interest margin increased nine basis points to 3.94%, driven primarily by higher accretion income compared with first quarter. Alex will provide more detail on the factors influencing NIM performance in his section.

6:43 Before turning to credit, I do want to highlight the progress we are making in bringing our capital market capabilities to our expanded footprint. In the second quarter, former Sandy Spring Bank teams generated approximately 27% of our interest rate swap transactions and 32% of our foreign exchange revenue. We believe these fee products should continue to provide opportunities for additional revenue synergies over time. Credit quality remained strong in the quarter with annualized net charge offs of just three basis points for both the second quarter and year to date. Based on our first half performance, current loss expectations and favorable asset quality trends, we are lowering our full year net charge off guidance, which Alex will discuss later in the call. Key asset quality indicators remained encouraging.

7:30 Non performing assets increased modestly from the prior quarter, but remained low at 39 basis points of loans held for investment, while past dues declined considerably and criticized and classified assets improved to 4.4% of total loans, down from 4.5% in the prior quarter. With Bureau of Labor Statistics scheduled to release June unemployment data shortly, this chart will soon be updated. For now, I'll simply note that Virginia and North Carolina's May unemployment rates remain below the national average, while Maryland's was just slightly above it. We continue to expect unemployment levels in Virginia, Maryland and North Carolina to remain manageable and generally comparable to or below the national average consistent with Moody's current state level forecast. We remain confident in the resilience and long term attractiveness of our markets.

8:19 As I approach my tenth anniversary with Atlantic Union at the end of this quarter, what is clear to me is how far we've come as an organization. We've stayed focused, adapted as conditions changed and consistently executed the strategy we set out and clearly communicated, while remaining grounded in the community bank values and local relationships that have always defined Atlantic Union. This quarter's results reflect that continued momentum and most importantly, the dedication of our teammates whose hard work makes it all possible. With that foundation in place and no additional acquisitions currently planned during this phase of our strategic plan, our focus is squarely on continuing to demonstrate the sustained performance and capital generation capability of the company we have built, performance that enables us to better serve our customers and communities, invest in our teammates and create long term value for our shareholders.

9:11 With that, I'll turn the call over to our CFO, Alex Dodd, for a detailed review of our quarterly financial results. Before I do, I'd like to note that Alex has now been with the company for nearly four months following a deliberate and smooth transition with former CFO, Rob Gorman, who will retire at the end of September. Since this is our last earnings call before Rob's retirement, I want to again thank him for all he's contributed over his fourteen years with Atlantic Union. Rob leaves behind a strong legacy and will be missed, but he is ably succeeded by Alex. With that, I'll turn the call over to Alex for his inaugural quarterly earnings comments. Alex? Thank you, John, and good morning, everyone. Before I begin, I want to thank Rob as well for making this a smooth transition for me. I'll now take a few minutes to provide you with some details on the results.

10:01 My commentary today will primarily address Atlantic Union's second quarter financial results presented on a non GAAP adjusted operating basis, which for the second quarter principally excludes the $32,300,000 pre tax gain associated with the sale of our equity interest in bearing insurance. In the second quarter, reported net income available to common shareholders was $158,000,000 and earnings per common share of $1.11 The adjusted operating earnings available to common shareholders were $134,000,000 or $0.94 per common share for the second quarter, resulting in an adjusted operating return on tangible common equity of 20.11 percent, an adjusted operating return on assets of 1.47%, and an adjusted operating efficiency ratio of 47.47%.

10:59 Here's a look at the GAAP year to date metrics and trends over the last few years. Looking at the year to date adjusted operating numbers at the end of the second quarter, we have already reached the target for ROA and ROTCE medium term financial targets. We remain confident that we will achieve all three of these targets over the medium term, which we define as this year and next. Turning to the credit loss reserves. At the end of the second quarter, the total allowance for credit losses was $331,000,000 an increase of $9,100,000 primarily driven by loan growth during the quarter. The total allowance for credit losses as a percentage of total loans held for investment remained flat at 115 basis points at the end of the second quarter.

11:48 As John mentioned, net charge offs were $2,000,000 or three basis points annualized in the quarter. Now turning to the pretax pre provision components of the income statement for the second quarter. Tax equivalent net interest income was $329,700,000 an increase of $12,800,000 from the first quarter, primarily driven by an increase in loan volumes, higher loan yields and increased loan accretion income. The increase in loan related interest income was partially offset by an increase in deposit interest expense, primarily from growth in interest bearing deposit balances and modestly higher deposit costs. As John noted, the second quarter's tax equivalent net interest margin increased nine basis points from the prior quarter to 3.94, primarily due to higher earning asset yields, partially offset by modestly higher cost of deposits.

12:40 Earning asset yields increased nine basis points from the prior quarter to 5.88%, primarily due to higher loan accretion income of $5,000,000 and higher loan yields. Cost of funds was flat from the prior quarter as a three basis point increase in the cost of deposits was offset by lower borrowing amortization costs related to past acquisitions.

13:02 Of note, excluding the impact of accretion income, our core net interest margin increased by one basis point to 3.46. Non interest income increased $35,500,000 to $90,200,000 for the second quarter, primarily driven by the gain on sale of our equity interest in bearing insurance.

13:23 Excluding the one time gain, adjusted operating non interest income increased 3,100,000 to $57,900,000 driven by higher loan related interest rate swap fees associated with higher loan originations and increased fiduciary and asset management fees, which were partially offset by lower other income.

13:43 Non interest expense decreased $10,700,000 to $199,100,000 for the second quarter, driven by a $9,000,000 decline in merger related costs. Adjusted operating non interest expense, which excludes merger related costs in the first quarter and amortization of intangible assets in both quarters, decreased $1,300,000 to $184,000,000 for the second quarter, primarily due to lower marketing costs, along with a decrease in salaries and benefits, primarily related to seasonally higher payroll taxes and four zero one contribution expenses in the prior quarter. At June 30, loans held for investment net of unearned income were $28,700,000,000 an increase of $727,000,000 or 10.4% annualized from the prior quarter.

14:38 Our average loan growth for the quarter was approximately 6%. At June 30, total deposits were $30,500,000,000 an increase of $77,000,000 or approximately 1% annualized from the prior quarter, while average deposits decreased 2.4% for the quarter.

14:57 Our loan to deposit ratio ended the quarter at 94.1% within our preferred range of 90% to 95%. At the end of the second quarter, Atlantic Union Bankshares and Atlantic Union Bank's regulatory capital ratios were comfortably above well capitalized levels.

15:17 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.

15:31 On a linked quarter basis, tangible book value per common share increased $0.84 or 4.2% to $20.77 per share at the end of the second quarter. Since Q2 of twenty twenty five, tangible book value per share has grown $2.39 or 13% year over year.

15:55 The CET1 ratio was 10.41% for the second quarter and within our preferred range of 10% to 10.5%. During the second quarter, the company repurchased approximately 10,000,000 of its common shares at an average price of $37.76 leaving approximately $240,000,000 remaining under our share repurchase authorization.

16:20 Before turning to the financial outlook, I would emphasize that our second quarter results represented strong operating performance and an encouraging indication of the earnings capacity and capital generation capability of the franchise. At the same time, we believe our updated outlook reflects a disciplined and prudent view of second half funding competition and deposit mix.

16:41 We expect we continue to expect loan balances to end the year between 29,000,000,000 and $30,000,000,000 while year end deposit balances continue to be projected between 31,000,000,000 and 32,000,000,000 On the credit front, the allowance for credit losses is projected to remain in the 115 to 120 basis point range, and we are reducing the range for our projected net charge off ratio to be between five and ten basis points in 2026.

17:10 Fully tax equivalent net interest income for the full year is now projected to come in between 1,320,000,000 and $1,330,000,000 inclusive of accretion income. The updated range reflects our expectation of higher interest bearing deposit mix, as well as greater loan and deposit competition in the second half of the year.

17:32 We are tightening the range for our 2026 fully tax equivalent net interest margin to between 3.903.95%. This outlook is supported by our baseline assumption that the Federal Reserve increases rates by 25 basis points in September and that term rates remain stable at current levels.

17:53 On a full year basis, non interest income is expected to be between $220,000,000 and $230,000,000 while adjusted operating non interest expense is estimated to fall in between the range of $742,000,000 to $752,000,000 including the expense impact of our North Carolina investment and our other 2026 strategic initiatives.

18:16 Based on these projections, including our expected stock repurchase activity, we expect to generate annual growth in tangible book value per share of approximately 12% in 2026 and produce financial returns that will place us within the top quartile of our proxy peer group. In summary, Atlantic Union delivered strong operating financial results in the second quarter and had a solid first half. We remain focused on generating sustainable, profitable growth and to build long term value for our shareholders in 2026 and beyond.

18:49 I'll turn the call over to Bill. Thank you, Alex. And Olivia, we're ready for our first caller, please. Now first question coming from the line of Russell Gunther with Stephens. Your line is now open. Good morning, Russell. Hey, good morning. Hey, good morning, John. Good morning, Alex. First question for me, I wanted to kind of start on the margin and really trying to get a sense directionally for loan yields, where they're headed. So, if you could level set us for where new production came on in 2Q, kind of perhaps where that pipeline yield sits today and then just remind us of what the fixed rate opportunity, repricing opportunity is for you guys kind of relative to what you are putting on new commercial at today.

19:50 Sure. And good morning, Russell. So for the second quarter, our fixed rate loans are coming on, new loan spreads are around 200 basis points, and our variable rate loans are also around 200 basis points. We saw a little bit of

20:09 lower spreads in the quarter, due to larger loans that we completed, and that was more just a function of the size of the loan, but around 200 basis points for both variable and fixed. In terms of the fixed rate opportunity, we have about 800,000,000 to $900,000,000 per quarter of variable rate loans that are maturing with rates around 5%, and we expect to put those back on around six ten basis points. So it's about 100 basis to 110 benefit for the loan maturities each quarter. Okay, great. Thanks, Alex. And then maybe just a follow-up with the revised NII guide, including a Fed hike in September. Can you quantify for us what, if any, benefit is factored into your kind of revised NIM and NII outlook?

21:01 And perhaps just kind of package where you would expect kind of the core NIM overall to trend within that guide?

21:09 Yes. So we do have in our guidance one twenty five basis point increase in September. We will see a small benefit in the fourth quarter for the deposit pricing lag. It's about it's under one basis point for the full year. It's about three basis points in the fourth quarter. In terms of core margin, we do expect that to grind higher over time

21:36 from the benefit of the fixed rate loan repricing. But because of higher funding costs and deposit mix, it's not going to be as high as expected. As we look forward to the next few quarters, we'll see core margin increase modestly because of those dynamics.

21:55 Got it. Okay, great. Super helpful. I'll step back. Thanks for taking my question. Thank you, Russell. Olivia, we're ready for our next caller, please. Thank you. Our next question coming from the line of Janet Lee with TD Securities. Your line is now open. Hi, Janet. Good morning. Good morning. Could you give us a little more color around the deposit competition and the mix shift, what you're expecting

22:22 your NII guide and what maybe what pace of deposit cost increase assumed in your $3.90 to $3.95 NIM guide?

22:32 Sure. And good morning, Janet. So we did update our guidance, for net interest income, and it's solely coming from the funding side of the balance sheet. What we saw in the quarter was customer migration to our higher yielding interest bearing deposit accounts, and

22:54 that's informed our guidance. So we're encouraged by the loan growth that we saw in the quarter, but the cost of funding that is getting more going up higher than we expected. What we saw through the quarter, to give you perspective on just the month of June, we saw a two basis point increase in our cost of deposits. So it's three basis points for the full quarter and two basis points in the month of June, and that really informed the outlook for the rest of the year.

23:23 So I guess I'll stop there, Jen, and see if you have further questions. Got it. So two basis point increase in the month of June. So that is sort of at this point, the pace at which you would expect for the rest of the year ballpark?

23:41 Not necessarily. We're gonna be a little bit under that if you just play that out for the rest of the year. And that's gonna come from the mix that we'll see in CD growth and money market growth, as well as some DDA growth that we have in our outlook. So it's underneath that pace, but that's what informed our outlook for the rest of the year. Yeah. Alex, is it fair to say what we saw what we're seeing is relatively stable deposit rates from a competitive standpoint. Is this more of a mix issue in terms of where is the growth coming? That's a good point,

24:12 John. Yeah. It really is our deposit mix that's informing the guy here. The deposit competition is elevated but stable. And so what we're seeing is just the inflow into our deposit portfolio is coming from the higher yielding products.

24:30 Got it. Thanks for the color. And just a quick follow-up. PAA for the second quarter came in maybe just slightly above what you guided before. Is 145 PAA for 2026 is still a good assumption?

24:47 Yeah. We we had said on the last call the range is 140 to 150, and and we're still tracking to that. So 145 being in the midpoint is fine. Got it. Thank you. Thanks, Janet. Thank you, Janet. And Olivia, we're ready for the next caller, please. Thank you. Our next question coming from the line of Dave Bishop with Group. Hey,

25:10 good morning, Hey, I'm curious, John, Alex, it sounds like the loan pipeline continues to be pretty robust. Just curious what you're seeing on the commercial pipeline out of sort of the legacy Sandy Spring, Maryland markets, how much that's contributing to the pipeline and maybe the growth you saw this quarter? Yes, we are growing the former Sandy Spring portfolio and we're happy to see that. Dave Ring, do you want to just sort of speak directionally? Sure. I mean, we're seeing double digit growth in the pipeline with in the Greater Washington market, Greater Washington, Maryland. Production is up double digits as well and all the markets,

25:59 all the teams in those markets are also growing. So we're seeing very balanced stable growth and we're not seeing any hangover from the acquisition. The way I think about this, Dave, is that the former Sandy is, round numbers, maybe a third of the overall portfolio.

26:20 And so you would expect all things being equal for them to be about a third of the pipeline. And they've come a long way closer to that. So we've been very pleased with it. And the teams, to be clear.

26:35 Got it. Appreciate that color. And then John, just maybe an update and progress in terms of the Carolina build out, what you're seeing on those fronts? Thanks. Yes, there's really two, I think of this, it's a holistic strategy comprised of both the retail banking effort as well as the investments that we're making and expanding our commercial banking teams along with some additional

27:02 investment for mortgage management, etcetera. Something I've been saying recently, I wanna be clear in terms of the investment, while we do refer to it as the North Carolina strategy, you could more specifically refer to it as our densification strategy in Raleigh and Wilmington. Because that's where the thrust of the investment and certainly the physical branch network build out is going on. So I'll ask Sean O'Brien, who's Head of Consumer Business Banking. Can you update us on where are we in terms of the branch effort? And then I'll ask Dave Ring to chime in with some perspective on the commercial side. Yes, thanks, John. So we announced that we were going open 10

27:36 branches, 10 new branches in North Carolina to John's Point in Raleigh in Wilmington. And the first of those branches opens here this month. So we are very excited. That's Raleigh. Raleigh. We have a branch opening and then we have two more opening in Raleigh in October, November of this year. So we'll have three new Raleigh branches this year. And then we will start to open branches in Wilmington as well. If you remember seven new and now it's three in Wilmington.

28:02 We hope to get all 10 done in 2027. A couple may get into 2028, but we are very happy with our site selection. We've hired the first three teams and they're completely staffed for Valley. So we have all of those teams hired. We're very happy with the talent we found. So we're very excited about it. We have a lot of plans underway for how to grow new customers in those two primary markets. And then Dave, your perspective on what we call wholesale banking, which are the various commercial businesses. And we're working really closely with consumer. And so

28:35 we're seeing double digit growth again in loan balances in North Carolina plus we're waiting on announcements of some new hires that have started or recently started that we're very excited about. So overall, we're meeting our talent acquisition plan and we're meeting our loan growth expectations.

29:00 So they've more more to come on that. Great. Thank you for the color. Thanks, Dave. And Olivia, we're ready for our next caller, please. Our next question coming from the line of Catherine Miller with KBW. Your line is now open. Hi, Kathryn. Hi, good morning. Just one more on the NII. Just circling back on just kind of size of the bond book. How should we think about the securities portfolio growth in the back half of the year? Or is it fair to

29:31 keep that fairly stable? Yes.

29:35 Guess I'll start with, in the second quarter, we did bring it down over $200,000,000 to fund lending growth, and we're now at about 13% of total assets, and we plan on keeping it stable in the rest of the year. Okay. So that's shrunk the past 0.5, so maybe we can expect as deposit growth improves in the back half of the year,

29:57 it's your loan growth is funded by deposit growth, not the securities book, so that's just flat. Yes, you're correct. Yes. Want to fund the loan growth from our core deposit growth going forward. Perfect. Okay, great. And then on buybacks, it was great to see that started. How should we think about how much of that $240,000,000 you expect to repurchase over the next to the period that you have that authorization?

30:26 We plan to complete the whole program. Our forecasting assumption right now is spread out by quarter. But it's obviously going to be dictated by the share price and when we're in the market. Perfect. Okay. Thank you. Yes. And just one quick note, Kathryn. If you recall, the securities book was elevated after the CRE loan sale. So it coming down as sort of part of our plan is to reinvest in the core earning assets. Yes. So you'll

30:56 go back, you can see how it rose temporarily and that was the plan. And then we intended to draw it down, which was what we've done. And as Alex said, roughly 13% is a pretty good proportion of assets to have in the securities portfolio from our perspective. Got it. Okay. Thanks for the clarification.

31:15 Thanks, Catherine. And Olivia, we're ready for the next caller, please. Our next question coming from the line of Steve Musk with Raymond James. Your line is now open. Hi, Steve. Hey, John. Good morning, everyone. Maybe just following up on deposit competition here. Just kind of curious in terms of what's your appetite to maybe increase borrowings over higher cost CDs in my market? Is the market that competitive that borrowing is cheaper? I know you put on some towards the end of the quarter here.

31:46 Yes. What you saw go on at the end of the quarter was essentially a bridge. As we indicated, we had 6% annualized loan growth during the quarter. So we were productive all quarter long, which was great. It was not all back end loaded. Having said that, it certainly picked up at the end of the quarter hence that bridge. So Alex, do you want to share any perspective? Sure. And we

32:10 ended the quarter with a loan to deposit ratio of over 94% and had to increase borrowings as you're calling out. But we would prefer to fund our lending growth through our core deposit growth, including CDs. And then after that, we may support it with broker deposits as well. The borrowings is going to be more of a short term measure to really balance the overall balance sheet.

32:38 As you know from past history with us, not unlike many others, we do see some seasonality and deposit balances in Q2 due to tax payments. And we also have certain larger commercial depositors that seem to commonly have some sort of downdraft imbalances just at quarter end through the natural cycle inflow of their businesses. And you can see that evident and the difference between the spot growth rate for deposits and the average quarter over quarter.

33:10 Right. Okay. I just wanted to check on that. Appreciate that color there. And then second thing here, just in terms of on credit, I guess, two things. One, if you give color around the C and I loans that were placed in nonaccrual this quarter. And then with regard to the allowance for credit losses, you guys state in your guidance that you assume an uptick in unemployment. Just kind of wondering how much that uptick matters to the total ACL for the current year or by year end? Doug Willey, Chief Credit Officer is here. Do you wanna speak to that On the C and I uptick, it's two smaller credits that have gone a little bit sideways. So we're working through that, but obviously not a cool. So we think it's a little bit of loss there.

33:57 It doesn't indicate anything not tied to anything else in the portfolio. It was interesting. We have been impressed with the resilience of the not only our local economies, but the client base, you would expect to see some stress and this isn't much. So non performers are low from our perspective at 39 bps of loan sales for investment. And it's fair to assume that you could see it go plus or minus a bit in any given quarter. We're actually below where we finished the end of last year. No common thread terms of Yeah. It just it happens. Losses are very, very low. I've said for ten years that losses across the industry and in the bank are below what I would have expected to be a normalized rate.

34:50 And that was beginning ten years ago. So we feel pretty good about losses. Right. And appreciate that color there. Just the ACL guide, is it just like maybe one to two bps in terms of the assumption on the unemployment rate to rise? This a minor impact maybe on your guidance That's for '20 right. It is a minor impact. We're certainly still within our 115 to 120 basis points if you look out to 2027. Okay. Thanks. I'll step back in the queue here. Thank you, Steve. Olivia, we're ready for the next caller, please. Our next question coming from the line of Brian Wielczynski with Morgan Stanley. Your line is now open. Hi, Brian. Hi, good morning. Thanks for taking my question.

35:37 You mentioned earlier on the call that most of the pressure that you're seeing on deposit cost is coming from the mix of deposits. Can you give any color on what the cost of new interest bearing deposits, that are coming into the bank today are? Yes. The new deposits on a combined basis is going to be over 3%, somewhere between 33.5% depending on that mix. But it's mostly going to be in CDs and money markets and interest bearing I'm sorry, interest checking. Got it. That's very helpful. Thank you. And then when we look at the non interest bearing deposits as a percentage of total, it sounds like there will be some more migration in the second half of the year.

36:27 You think that you'll see a similar amount of migration in the second half as you saw in the second quarter? We're actually forecasting some of the interest bearing sorry, non interest bearing growth in the second half of the year and maintaining that same percentage of our total deposits around 22%. But obviously, we saw migration happen in the second So that's our assumption right now based on working with the business leaders, but it could change. Yes. And the data that we're looking at is suggesting it's less it's not about smaller deposit non interest bearing accounts. It's some of the larger ones, commercial businesses that are making more active use of sweep accounts.

37:12 I mean, the reality is that we do offer quite sophisticated treasury management services and part of our job is to help them optimize working capital. So we saw some of that movement as they were able to deploy some surplus funds. But in Alex's camp, we would expect to see some improvement there over time. It's very difficult to forecast in this environment. No question about it. Got it. And if I could just squeeze in one more, Alex. Do you happen to have the spot deposit costs at quarter end? It was 195,000,000 for the month of June. Got it. I really appreciate all the detail and thank you for taking my questions. Certainly. Thanks, Brian. And Olivia, we're ready for our next caller, please.

38:01 Our next question coming from the line of David Schiverny with Jefferies. Your line is now open. Hi, David. Hi, everyone. This is Frank on for Dave. Just one for me. One for me on the balance sheet sensitivity. I know you guys mentioned that the NII guide down was coming mostly from the deposit side. But I just kind of want to touch on how your modeled NII sensitivity has changed relative to last quarter and just what deposit beta you're now embedding in your guidance? Thank you, guys. Yes. The sensitivity changed because of our mix, and that's what you can expect is, the mix changed versus the prior quarter into higher rate sensitive deposit products.

38:47 To the second part of your question around the beta, the beta we're pricing in for the 25 basis point increase is about 50% for interest bearing products and 40% overall. We have as I mentioned earlier in the call, there will be a lag. So we'll reprice immediately for some contractual deposits, and then there'll be a ninety day lag for our savings portfolio, where we'll see a bit of a benefit that's short lived, but a benefit in the fourth quarter. Awesome. Cool. Thank you, guys. Thanks, Frank. And Libby, we're ready for our next caller, please. Our next question in queue coming from the line of Stephen Scunn with Piper Sandler. Your line is now open.

39:34 Yes, thanks. Good morning, guys. Curious if we could go back to the conversation here around the repurchase briefly. I know you said you plan to utilize the entirety of that. Can you talk a little bit about at a high level how you think about the math there, it's an earn back perspective, alternate uses of that capital Just kind of potentially how sensitive to price you could be if the stock continue to move higher? Sure. In terms of the buyback, there's a couple of things we want to manage at the same time. We want to operate our CET1 ratio between 1010.5%. And our capital management priority is supporting loan growth. So if we see loan growth outperform our guidance, we will slow down the buyback.

40:24 But in terms of buybacks specifically, we have an intrinsic value model on our share price, and we want to get a certain return out of when we'll be in the market. So if it does trade above our shares trade above where we want to actually be in the market, there'll be a pause for a little while in terms of when we're repurchasing shares. Overall, the earn back though is about four years on the share buyback. So we want to make a good economic decision of when we're in the market and when we're actually doing our repurchase activity. We've modeled, as I said, over the next twelve months to be split by month or evenly distributed, but that's going to depend on where the shares are pricing.

41:11 Got it. Very helpful. Appreciate that clarity. And then just maybe one last one going back to kind of the balance sheet momentum and loan growth and deposit growth. It sounds like overall balance sheet growth should maybe more closely match loan growth moving forward, if I'm hearing what you're saying, less potential drawdown in securities, maybe less remix and more just matched growth from that perspective. Is that the right viewpoint in the hope of what you'd be able to deliver? Well, over time, the guidance that we provided for '26 is mid single digit loan growth and low single digit deposit growth. But certainly, over time, we would expect to fund loans with deposits customer deposits ideally.

41:57 Got it. Okay. Appreciate it. Everything else has been kind of asked and answered. Thanks for the time. Thanks, Stephen. And thanks, everyone, for joining us today. We appreciate your time and look forward to talking with you next quarter. Thank you, everyone. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and you may now disconnect.