Atlantic Union (AUB) Earnings Call Transcript

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DATE

Thursday, January 22, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — John Asbury
• Executive Vice President and Chief Financial Officer — Rob Gorman
• Head of Consumer and Business Banking — Shawn O'Brien
• Executive Vice President, Commercial — David Ring

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TAKEAWAYS

• Adjusted operating net income -- $138.4 million in Q4 and $444.8 million for 2025, reflecting merger-related adjustments and excluding one-time gains.
• Adjusted operating earnings per common share -- $0.97 in Q4 and $3.44 for 2025.
• Adjusted operating return on tangible common equity -- 22.1% for Q4 and 20.4% for 2025, placing the company in the upper quartile of its peer group according to management.
• Adjusted operating return on assets -- 1.5% for Q4 and 1.33% for the year.
• Adjusted operating efficiency ratio -- 47.8% in Q4 and 49.7% for the full year.
• Quarterly loan growth -- 6.3% annualized in Q4, ending with a loan balance of $27.8 billion.
• Deposit base -- $30.5 billion at year-end, down $193.7 million, or 2.5% annualized, from the prior quarter, with declines concentrated in demand deposits and a partial offset through an $81 million increase in brokered deposits.
• Net interest margin (FTE) -- Increased 13 basis points sequentially to 3.96%, due mainly to reduced deposit costs.
• Cost of funds -- Fell 14 basis points from the prior quarter to 2.03%, driven by lower deposit costs.
• Loan yields -- Remained steady due to accretion income, higher loan fees, and the repricing of loans into the current rate environment, despite Fed cuts in 2025.
• Net charge-off ratio -- One basis point annualized for Q4 and 17 basis points for 2025, aligning with previously issued guidance.
• Allowance for credit losses -- $321.3 million at quarter-end, representing 116 basis points of total loans and decreasing by one basis point from the prior quarter.
• Noninterest income -- $57 million in Q4, rising $5.2 million sequentially, mainly due to the absence of prior quarter CRE loan sale losses and increased swap and fiduciary fees.
• Adjusted operating noninterest expense -- $186.9 million for Q4, up $1.4 million sequentially, with higher noncredit-related losses and increased marketing spend as main drivers.
• Tangible book value per common share -- Increased approximately 4% sequentially to $19.69 in Q4.
• Dividend -- $0.37 per common share paid in Q4, up 8.8% from both the previous quarter and the prior year’s Q4 dividend.
• 2026 guidance affirmed -- Loan balances expected between $29 billion and $30 billion; deposit balances to reach $31.5 billion to $32.5 billion by year-end.
• 2026 projections -- Net charge-off ratio of 10%-15% basis points; allowance for credit losses targeted at 115%-120% basis points of loans; net interest income guided to $1.35 billion-$1.375 billion; net interest margin expected around 3.94%; adjusted operating noninterest expense between $750 million and $760 million.
• Sandy Spring cost savings -- $80 million targeted in annualized cost synergies, with about $60 million realized and the remaining being captured by Q1 2026.
• Share repurchase outlook -- Management is considering initiating share buybacks in late Q2 or Q3 2026 if the CET1 ratio exceeds 10.5%.

SUMMARY

The core systems conversion for the Atlantic Union Bankshares (NYSE:AUB) acquisition of Sandy Spring Bank is complete, with only minimal residual merger expense projected for Q1 2026. Near-term core margin expansion is expected as repricing of the acquired loan portfolio and deposit cost reductions offset potential impacts from forecasted Fed rate cuts. Executives described loan production as strong and pipelines as elevated at quarter-end, with growth viewed as geographically broad and supported by specialty banking initiatives. Deposits declined primarily due to typical commercial activity at year-end and further reduction of higher-cost deposits from Sandy Spring, but expectations call for deposit growth of 3%-4% in 2026. North Carolina’s market entry is on schedule, with 10 new branches planned within two years and commercial hiring underway.

• Approximately 27% of the quarter’s interest rate swap income originated from former Sandy Spring customers, indicating early cross-sell benefits from the integration.
• Management noted, "credit underwriting, client selectivity, and loan loss performance have consistently been traditional strengths of Sandy Spring Bank and American National Bank," reinforcing confidence in asset quality.
• Operational cost run-rate is guided to remain flat in Q1 2026, with seasonal compensation factors and final Sandy Spring-related merger costs balanced by further expense synergies realized.
• Fraud-related customer losses materially contributed to higher noncredit expenses in Q4, a trend characterized as episodic by management.
• The majority of core earnings and capital generation benefits related to recent acquisitions are expected to become fully evident in reported results beginning in Q2 2026, as merger adjustments subside.

INDUSTRY GLOSSARY

• Sandy Spring acquisition: Atlantic Union Bankshares’ completed purchase of Sandy Spring Bank, a major driver of loan, deposit, and operational growth addressed throughout the call.
• Net interest margin (FTE): The difference between interest income generated and interest paid out, divided by earning assets, calculated on a fully tax-equivalent basis to standardize for tax differences.
• Accretion income: Incremental non-cash interest income earned as acquired loans are marked up to market value at acquisition and brought to par over time.
• CECL modeling: Current Expected Credit Loss standard for setting loan loss reserves based on forecasted economic conditions.
• CRE loan sale: The transaction involving the sale of commercial real estate loans as part of the Sandy Spring integration, which impacted noninterest income and expense comparability in recent quarters.

Full Conference Call Transcript

Bill Samia: Thank you, Olivia, and good morning, everyone. I have Atlantic Union Bancshares' President and CEO, John Asbury, and Executive Vice President and CFO, Rob Gorman with me today. We also have other members of our executive management team with us for the question and answer period. 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 fourth quarter and full year 2025. We will also make forward-looking statements, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future 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 our slide presentation issued today as well as our other SEC filings for further discussion of the company's risk factors including other information regarding the 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 today's call, we will take questions from the research analyst community. Now, I will turn the call over to John.

John Asbury: Thanks, Bill. Good morning, everyone, and thank you for joining us today. Atlantic Union Bankshares reported strong fourth quarter financial results, reflecting disciplined execution and successful integration of the Sandy Springs acquisition. We believe the adjusted operating financial results for the quarter showcased the organization's earning capacity. While merger-related charges continue to affect this quarter's results, the underlying operating performance supports our continued confidence in achieving the strategic goals associated with the Sandy Spring acquisition, namely, the targets for adjusted operating return on assets, return on tangible common equity, and efficiency ratio.

With the core systems conversion completed in October and only modest residual merger-related expenses anticipated in the first quarter, we expect the noise associated with our merger-related expenses to decline. This means that we will be positioned beginning with Q1 2026 to report unadjusted results that more clearly demonstrate the financial strength and operating 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 creation 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 and attractive markets reinforce our status as the premier regional bank headquartered in the Lower Mid-Atlantic. I'll briefly cover our Q4 and full year 2025 highlights and share market insights before Rob presents the financial review.

Here are the highlights for our fourth quarter. Quarterly loan growth was approximately 6.3% annualized, ending the year at $27.8 billion. Our pipelines were higher at the end of the fourth quarter than they were at the start of the quarter, which suggests we are on track for loan growth consistent with our full year 2026 outlook. While forecasting loan growth remains challenging in the still uncertain economic environment, we continue to expect 2026 year-end loan balances to range between $29 billion and $30 billion inclusive of the negative impact from loan fair value marks. We observed a return to more typical commercial line utilization levels in the fourth quarter.

Loan production reached a record high in Q4 as our team gained momentum despite ongoing economic uncertainty, the Sandy Spring core system conversion, and the CRE loan sale executed at the end of 2025. Additionally, we observed growing confidence among our client base which, combined with seasonally strong lending trends, further supported our robust performance in the quarter. Our deposit base experienced typical year-end fluctuations due to activity from large commercial depositors with some of these balances returning during the early weeks of the first quarter. Our FTE net interest margin increased by 13 basis points to 3.96%.

While improvement in accretion income contributed modestly, the main driver was our ability to reduce deposit costs while holding loan yields relatively flat compared to the prior quarter. Loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed-rate loans at current market rates. Importantly, this also demonstrates we are putting our interest rate accretion income and principal repayments from the acquired fixed-rate loan portfolios to work as those loans renew or reprice to higher market rates.

Fee income was strong, primarily driven by loan-related interest rate swap fees and fiduciary and asset management fees, with both benefiting from the Sandy Spring acquisition. About 27% of interest rate swap income this quarter came from former Sandy Spring customers. While Sandy Spring had a nascent swap program, AUV's swap program is well established and mature. We expect ongoing growth in this area, though it's important to note that swap income may vary from quarter to quarter. Overall, credit quality showed continued strength and improvement, with our fourth quarter annualized net charge-off ratio coming in at one basis point. The net charge-off ratio for the full year was within our guidance at 17 basis points.

Leading asset quality indicators remain encouraging. Fourth quarter non-performing assets as a percentage of loans held for investment declined a further seven basis points to 0.42% from 0.49% in the prior quarter. Criticized and classified assets remain low, at 4.7%. We believe credit underwriting, client selectivity, and loan loss performance have consistently been traditional strengths of Sandy Spring Bank and American National Bank, reinforcing our continued confidence in asset quality.

Before we discuss unemployment rates, I want to clarify we are comparing November to September figures since October data is unavailable due to the government shutdown. Taking a step back, Virginia's unemployment rate remained unchanged at 3.5% in November, compared to September, demonstrating notable resilience, especially since the national unemployment rate rose by 0.2 percentage points to 4.6% during the same time frame. Maryland's unemployment rate rose to 4.2%, a 0.4 percentage point increase at September. This change aligns with our expectations, particularly considering the November data now includes federal government workers who took buyout plans. Despite the uptick, Maryland continues to outperform the national average during the same period.

North Carolina's unemployment rate edged up 0.1 percentage point to 3.8%, remaining well below the national average. Although we do anticipate some further increases in unemployment across our markets in our CECL modeling, we expect these levels in Virginia, Maryland, and North Carolina to stay manageable and 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.

For those who missed our Investor Day last month, I want to revisit a key slide from our Investor Day presentation as its message remains essential. We have deliberately and thoughtfully built a distinctive, valuable franchise outlined in our strategic plan, delivering on our commitments, and establishing the banking platform we set out to create. With this strong foundation, we believe we're well-positioned to capitalize on the expanded markets gained through the Sandy Spring acquisition, drive continued growth in Virginia, and pursue new organic opportunities in North Carolina and across our specialty lines. Our full Investor Day presentation details our market approach for the next three years, and I encourage everyone to watch it.

With disciplined execution of our prior acquisitions and no additional acquisitions currently planned during this phase of our strategic plan, our focus now shifts to demonstrating the franchise's earnings power and capital generation ability. It's time to show that our efforts and investments have been worthwhile. After dedicating capital to strategic investments over the past two years to complete the company we envisioned and worked so diligently to build, and consistently communicated our plans to do so, we believe we are now seeing clear tangible benefits from these efforts. In summary, 2025 was a pivotal year for AUB.

We remained agile and responsive while managing a significant merger integration, a major CRE loan sale, and navigating macroeconomic headwinds including federal government restructuring and unpredictable tariff policies. Despite these challenges, we delivered operating results that we believe will stand out among our peers. With that, I'll turn the call over to Rob for a detailed review of our quarterly financial results before we open the floor for questions. Rob?

Rob Gorman: 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 fourth quarter and full year 2025. My commentary today will primarily address Atlantic Union's fourth quarter and 2025 financial results presenting on a non-GAAP adjusted operating basis, which for the fourth quarter excludes $38.6 million in pretax merger-related costs from the Sandy Spring acquisition. For the full year 2025, it excludes the following items: pretax merger-related costs of $157.3 million, a pretax gain on the sale of CRE loans of $10.9 million, and the pretax gain on the sale of our equity interest in Cary Street Partners of $14.8 million.

That said, in the fourth quarter, reported net income available to common shareholders was $109 million and earnings per common share were $0.77. For the full year 2025, reported net income available to common shareholders was $261.8 million, and earnings per common share were $2.03. Adjusted operating earnings available to common shareholders were $138.4 million or $0.97 per common share in the fourth quarter, resulting in an adjusted operating return on tangible common equity of 22.1%, an adjusted operating return on assets of 1.5%, and an adjusted operating efficiency ratio of 47.8% in the quarter.

For the full year 2025, adjusted operating earnings available to common shareholders were $444.8 million or $3.44 per common share, resulting in an adjusted operating return on tangible common equity of 20.4%, an adjusted operating return on assets of 1.33%, and an adjusted operating efficiency ratio of 49.7%. As John mentioned, we believe these adjusted operating results for return on tangible common equity and the efficiency ratio put us in the upper quartile of our peer group for the full year of 2025.

Turning to credit loss reserves at the end of the fourth quarter, the total allowance for credit losses was $321.3 million, which was an increase of approximately $1.3 million from the third quarter, primarily driven by loan growth in the fourth quarter. As a result, the total allowance for credit losses as a percentage of total loans held for investment decreased one basis point to 116 basis points at the end of the fourth quarter. Net charge-offs decreased to $916,000 or one basis point annualized in the fourth quarter from $38.6 million or 56 basis points annualized in the third quarter due to the charge-off of two commercial and industrial loans in the third quarter.

The net charge-off ratio for the year came in at 17 basis points, in line with our 15 to 20 basis points guidance.

Now turning to the pretax pre-provision components of the income statement for the fourth quarter. Tax-equivalent net interest income was $334.8 million, which was an increase of $11.2 million from the third quarter, primarily driven by a decrease in interest expense resulting from lower deposit costs and increases in interest income on loans held for investment and the securities portfolio, which was partially offset by a decline in other earning asset interest income primarily driven by lower average cash and cash equivalent balances in the fourth quarter.

As John noted, the fourth quarter's tax-equivalent net interest margin increased 13 basis points from the prior quarter to 3.96%, primarily due to lower cost of funds, partially offset by a slight decrease in earning asset yields. The cost of funds decreased 14 basis points from the prior quarter to 2.03% in the fourth quarter due primarily to lower deposit costs reflecting the impact of Fed funds rate decreases starting in September 2025. Earning asset yields for the fourth quarter decreased one basis point to 5.99% as compared to the third quarter due primarily to lower investment and other earning asset yields, partially offset by slightly higher loan yields.

As John mentioned, loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed-rate loans at current market rates.

Noninterest income increased $5.2 million to $57 million for the fourth quarter from $51.8 million in the prior quarter, primarily driven by a $4.8 million pretax loss in the prior quarter related to the final settlement of the sale of CRE loans executed at the end of 2025 as part of the Sandy Spring acquisition.

Adjusted operating noninterest income, which excludes the pretax loss on the CRE loan sale in the third quarter, the pretax gain on the sale of our equity interest in Cary Street Partners in the fourth quarter, and the pretax gains on the sale of securities in both the third and fourth quarters, remained relatively consistent with the prior quarter at $56.5 million, primarily due to a decline in service charges on deposit accounts of $1.1 million, $400,000 of which was driven by temporary post-conversion fee waivers for Sandy Spring customers.

A decrease in other operating income of $807,000 primarily due to lower equity method investment income and seasonally lower mortgage banking income of $727,000 was offset by higher loan-related interest rate swap fees of $2.5 million due to higher transaction volumes, and increases in fiduciary and asset management fees of $1.3 million primarily due to increases in estate fees, personal trust income, and investment advisory fees.

Reported noninterest expense increased $4.8 million to $243.2 million for 2025, primarily driven by a $3.8 million increase in merger-related costs associated with the Sandy Spring acquisition. Adjusted operating noninterest expense, which excludes merger-related costs in the third and fourth quarters and amortization of intangible assets in both quarters, increased $1.4 million to $186.9 million for the fourth quarter, up from $185.5 million in the prior quarter. This was primarily due to a $2.4 million increase in other expenses driven by an increase in noncredit-related losses on customer transactions and a $1.7 million increase in marketing and advertising expense.

These increases were partially offset by a $1.4 million decrease in FDIC assessment premiums due to lower assessments in 2025 and a $1.2 million decline in furniture and equipment expenses, which was primarily driven by lower software amortization expense related to the integration of Sandy Spring.

At December 31, loans held for investment, net of deferred fees and costs, were $27.8 billion, an increase of $435 million or 6.3% annualized from the prior quarter. At December 31, total deposits were $30.5 billion, a decrease of $193.7 million or 2.5% annualized from the prior quarter, primarily due to decreases of $260 million in demand deposits largely driven by typical seasonal patterns and $14.5 million in interest-bearing customer deposits, which were partially offset by an increase of approximately $81 million in brokered deposits. At the end of the fourth quarter, Atlantic Union Bankshares 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 fourth quarter if you include the negative impact of AOCI and held-to-maturity securities unrealized losses in the calculation of the regulatory capital ratios. During the fourth quarter, the company paid a common stock dividend of $0.37 per share, which was an increase of 8.8% from the third quarter's and previous year's fourth quarter dividend amount. Of note, on a linked quarterly basis, tangible book value per common share increased approximately 4% to $19.69 per share in the fourth quarter.

As noted on Slide 17, we are maintaining our full year 2026 financial outlook for AUB that was provided at our Investor Day in December. We expect loan balances to end the year between $29 billion and $30 billion, while year-end deposit balances are projected to be between $31.5 billion and $32.5 billion. On the credit front, the allowance for credit losses to loan balances is projected to remain at current levels in the 115 to 120 basis point range, and the net charge-off ratio is expected to fall between 10 and 15 basis points in 2026.

Full tax-equivalent net interest income for the full year is projected to come in between $1.35 billion and $1.375 billion inclusive of accretion income. As a reminder, we consider accretion income resulting from acquired loan interest rate marks as a built-in scheduled accounting tailwind to our GAAP earnings and net interest margin as the accretion income related to the loan interest rate marks gradually transitions to core cash earnings over time as the loans obtained through acquisitions either mature or get renewed at current market rates.

As a result, we are projecting that the full year fully tax-equivalent net interest margin will fall in a range between 3.94% for the full year, driven by our baseline assumption that the Federal Reserve Bank will cut the Fed funds rate by 25 basis points in April and in September in 2026, and that term rates will remain stable at current levels. On a full-year basis, noninterest income is expected to be between $220 million and $230 million, while adjusted operating noninterest expense is expected to fall in the range of $750 million to $760 million, which includes 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 between 12% and 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 strong operating financial results in the fourth quarter and in 2025. 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. I'll now turn the call over to Bill to see if there are any questions from our research analysts community.

Bill Samia: Thanks, Rob. And, Lucia, we're ready for our first caller, please.

Operator: Thank you, ladies and gentlemen. Just as a reminder, if you would like to ask a question at this time, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. First question coming from the line of Janet Lee with TD Cowen. Your line is now open.

Janet Lee: Good morning, Janet.

John Asbury: Yeah. Good morning.

Janet Lee: To get some I want some more clarifications on your 2026 guide, which was reiterated from your Investor Day in December. Is there any sort of range that you're gravitating towards, whether that's higher end or lower end of that interest income given the higher launching point for QNIM, but although I do expect that NIM will grind down from there in 2026. And it looks like there are different puts and takes in terms of deposits we're coming in below given seasonality and loans were a little bit above what you guided. So I wanted to see what would put you at the higher end versus lower end, what your baseline expectation is.

Rob Gorman: Yeah. So as we've said, Janet, you know, we're guiding to mid-interest income between $1.35 billion and $1.375 billion. To come on the higher end of that, it's really gonna depend on somewhat of do we get elevated accretion income as we saw this quarter? We're not modeling that going forward into 2026. We've got that coming down a bit. Also, I think the other component there is, can we continue to lower deposit costs as the Fed reduces the Fed funds rate? We're taking a bit of a conservative approach on that. Of course, that's dependent on, you know, the competition out there and the needs for funding loan growth that we anticipate.

So really, we're kind of in that range, but on the higher end, if we could see cost of funds come down a bit more than we're projecting, that would probably lead us to the higher end and accretion income would also add to that confidence if we see that coming in a bit higher. Also, as you know, loan growth could also play a part in that regarding to mid-single digits if we see a higher loan growth and term rates kind of remain high with a steep, you know, steep curve. We could see that be coming in at the higher end as well.

Janet Lee: Got it. Thanks for the color. And if my calculation is correct, I see the cumulative interest-bearing deposit beta to the rates coming down in the high 40% range, do you still forecast that mid-fifties beta? Or is that a little lower heading into 2026? And I see that there was a deposit remix into more interest-bearing checking, which I assume are lower cost than the other ones. What kind of wanted to see what kind of what drove that remix in the quarter and whether that's going to reverse in the quarters ahead. Thank you.

Rob Gorman: Yes. So on that, Janet, in terms of the betas, we're still guiding to an interest-bearing deposits guidance of mid-50s, 50 to 55 percent, which is in line with when rates were going up. I think we ended up the prior through the cycle. Beta was around 55% for interest-bearing deposits. On a total deposit basis, we're in that 40 to 45 range. I calculate that we're about 50% betas to date if you go back to when the Fed started cutting in September. And about 40% total deposits. So we're kind of staying in that range. We have seen we've been aggressive on lowering deposit rates.

About $12 billion to $13 billion, we've been able to reprice fairly quickly as the Feds come down. That's a good thing to offset our variable rate loan book that reprices with Fed funds. So that kind of is a balancing act there. So in terms of what was the other the end of the other question you had there? Just

Janet Lee: Deposit remix?

Rob Gorman: Oh, yeah. So there have been some reclasses that have occurred post the Sandy Spring conversion. So there's some of that's kind of moved in one category to another. That's primarily probably the main driver of that. So don't expect that to shift too much going forward. Level set that now.

Janet Lee: Got it. Thank you.

Bill Samia: Thanks, Janet. And, Olivia, we're ready for our next caller, please.

Operator: Our next question coming from the line of David Bishop with Group. Your line is now open.

John Asbury: Hi, Dave.

David Bishop: Hey, John. How are you doing?

John Asbury: Good. Thank you.

David Bishop: Hey. I think I heard you say during the preamble that the loan pipeline had increased relative to that coming into the quarter. Just curious if there's any numbers you can put around it or percent increase and how you're thinking about near-term loan growth here as you talk to your commercial clients? Are you starting to see some traction across the legacy, Sandy Spring portfolio, and is that some of the drivers we saw in the C&I growth this quarter?

John Asbury: Yeah. I would say that we had a modest increase in the total pipeline by the end of the year-end of the quarter versus the beginning of the quarter. That's really important and a bit unusual for Q4 because as you can see, Q4 was a big quarter. Now, as we expected, it was very much back-end loaded. Our teams were super busy over the month of December. The typical phenomenon is you would expect to see the pipeline somewhat clean down. In other words, normally, it takes a while for it to rebuild. So we were pretty excited to see that it was continuing to refill, so to speak, over the course of the quarter.

And I would just say that what we're hearing, we can see the pipeline. The feedback we're getting from our market leaders is quite encouraging. So we feel pretty good about things in terms of the outlook. That's part of what's giving us confidence in our mid-single-digit guidance. And it feels pretty broad-based. Dave Ring, you can comment on this, but what we heard is pretty broad-based in what we see.

David Ring: Yeah. I guess I would only add that our folks are very optimistic going into the year with good pipelines across the footprint.

John Asbury: Yep. It's not in one place. Yeah. Including the former Sandy Spring franchise, to be clear.

David Bishop: Great. And then, John, maybe a holistic question. You know, change in the governor's branch in there. Just your view here from a, you know, a business-friendly climate, do you think that's gonna have much of an impact in terms of the, you know, the Commonwealth's, you know, growth capacity and business climate? Thanks.

John Asbury: Yes. Thank you. No, we feel good about the outlook here in our home state of Virginia. Virginia has a long tradition of business-oriented moderates in these statewide offices, governor, U.S. Senate, and I feel quite confident that, you know, the new governor will continue that tradition.

David Bishop: Great. I'll stop there and hop back in the queue.

John Asbury: Thank you, David. And, Olivia, we're ready for our next caller, please.

Operator: Our next question coming from the line of Steve Moss with Raymond James. Your line is now open.

John Asbury: Hi, Steve.

Steve Moss: Good morning, John, Rob, Bill. Maybe just following up on the loan pipeline here. Just kind of curious where are you guys seeing loan pricing shake out these days? And also, where is in order reverse deposit costs were at quarter end?

Rob Gorman: Yeah. So on the loan pricing side, we're seeing about, you know, $6 to $6.20 loan pricing both on the variable and the fixed-rate loans. So we expect that will continue. It really depends on where short-term rates are, obviously, on the variable rate side. And where term rates are. But the spreads seem to be holding up pretty well on top of those indexes. And in terms of the deposit cost at the end of December, is what you're asking, Steve?

Steve Moss: Yeah.

Rob Gorman: We're below 2% on that. It's about $1.96 coming out of December.

Steve Moss: Okay. Appreciate that. And then in terms of just kind of thinking about the core margin here, I apologize if I missed it, but just curious do you continue to expect core margin expansion here throughout the year and kind of how you're thinking about the cadence if that's the case?

Rob Gorman: Yeah. We think core margin will expand a bit. Some of that's coming off, you know, where we talked about the acquired loan book is repricing and coming back into core. So from a loan yield point of view, that's helpful. In terms of fixed-rate loans, coming on about 100 basis points or so higher than what the portfolio yield is. If the Fed cuts more than a couple of times, we probably will see some stable loan yields or margin, or we could see some contraction a bit. But our call is a couple of cuts next year, which is manageable.

And as I mentioned, we're able to reduce some of our deposit costs, which I think that's the Fed funds fairly quickly, which will offset some of the variable rate loan impacts of further cuts. So in all, I think we'll see some modest core margin expansion based on those factors.

Steve Moss: Okay. Appreciate that. And then just in terms of following up on the purchase account accretion, just curious updated thoughts around the full year number for that?

Rob Gorman: In terms of 2026, Steve. Yeah. We thought, you know, we're currently modeling $150 to $160 million in 2026. As you know, that can fluctuate. We saw a bit higher than expected in the fourth quarter. So that can fluctuate, but give or take our baseline modeling in the guidance we provided from a margin perspective and net interest income perspective is in the $150 to $160 range.

Steve Moss: Okay. Appreciate that. And John, maybe just one for you on, you know, North Carolina's expansion. I know you talked about it a fair amount last month. Just kind of curious as you continue to expand down there in the market, what are the good things you're seeing? Maybe what are some of the challenges, you know, as you're building out down there?

John Asbury: Yeah. Well, I think that we're making good progress in terms of the efforts to expand the commercial teams. And Shawn O'Brien is your head of consumer and business banking. Shawn, you can speak to just sort of the latest in terms of the branch build-out.

Shawn O'Brien: Yeah. We continue to move quickly and have plans for our 10 branches to be open in Raleigh and Wilmington here in the next year and a half, two years, and we're hiring staffing across the bank to make sure there's teams to support on both the wholesale and consumer side. So progress has been very good there as far as finding good sites and finding teammates. We think we're on track, Steve.

Steve Moss: Okay. Great. I appreciate all the color here, I'll step back.

John Asbury: Thank you. And, Olivia, we're ready for our next caller, please.

Operator: Next question coming from the line of Brian Wudzinski with Morgan Stanley. Your line is now open.

Brian Wudzinski: Hey, good morning.

John Asbury: Hi, good morning.

Brian Wudzinski: Yeah. So sticking with the loan growth. So at Investor Day last month, you talked about several different focus areas for organic loan growth over the next few years. There's the Sandy Spring footprint, North Carolina, and also the specialty banking businesses. I was wondering if you could talk a little bit about where you're seeing the most traction in the fourth quarter given how strong growth was. What you see is sort of the near-term driver across those three buckets? Versus what may take some more time to materialize.

David Ring: Yeah. We could talk for hours on this one. Let's not do that. You know, we've seen the Sandy Spring part of the franchise really turn the corner from integrating the bank and getting trained up to positive results in the fourth quarter and a really good pipeline going into the first quarter. North Carolina, steady as she goes there. We're hiring into that market. So there's ramp-up periods for folks that we'll see, I think, really nice results over the course of '26. But they also have turned the corner. They're also growing, and their pipelines are good as well.

And on the specialty side, we have hired the head of healthcare banking, which we talked about in that meeting. And the other specialty businesses actually contributed largely to some of the growth we've had.

John Asbury: And then here in Virginia, which would be, you know, the single largest concentration, what we were so pleased to hear this week as we did our check-in with all of the commercial market leaders and credit officers is seeing strength across the state. And so that's actually really good to see. So we feel pretty good about the setup, Brian. It feels pretty well diversified.

Brian Wudzinski: That's great to hear. And, you know, you highlighted the 6% annualized growth in the fourth quarter. Pipeline is up, sounds like production is up. Any puts and takes in terms of how we think about, say, 2026 relative to what you just did in the fourth quarter? Is there any seasonal benefit in the fourth? Was the end of the government shutdown a material tailwind? Or does it feel like you can sort of maintain this cadence over the course of the year?

John Asbury: Q4 is traditionally seasonally strong. In my experience, across the industry, and that's because businesses are strongly motivated to get things done before year-end for reporting purposes, planning purposes, tax purposes, you name it. So you can always expect to see a seasonally high Q4. Q1 traditionally is somewhat slow. Normally, because so much goes on at the very end of the year. So, you know, we would expect to see the typical pattern, which is it'll build as the year goes on. There's usually a little dip in Q3 as people go on vacation, frankly. There are some, yeah, there are normally some elements of seasonality, but we see the opportunities there. So we'll see what happens.

Brian Wudzinski: Really appreciate the detail, and thanks for taking my questions.

John Asbury: Thank you. Thanks, Brian. And we're ready for our next caller, please.

Operator: Our next question coming from the line of Catherine Mealor with KBW. Your line is now open.

John Asbury: Good morning.

Hannah Wen: Good morning. This is Hannah Wen stepping in for Catherine. Thank you for taking my question.

John Asbury: Of course, Hannah.

Hannah Wen: Had a question on deposits. We saw a decline in deposits this quarter, and I was wondering if you could provide any guidance on the outlook for deposit growth into next year.

John Asbury: Yeah. Let me start by saying we saw the typical, for us, end-of-year decline that happens really in the last two weeks of December. It's not at all uncommon, and we saw it again where some of the larger commercial depositors will have various payments that they're making. And so you see this downdraft in noninterest-bearing deposits. It happens late, and that's what was going on. Over the course of the quarter, we did continue to run down some higher-cost, sort of less relationship-oriented deposits that came out of Sandy Spring in particular. So you've got a seasonal element going in there, and you see the deposit base kind of settling in.

Rob, do you want to speak to the outlook for 2026?

Rob Gorman: Yeah. So, you know, if you look at our guidance, we're really guiding to about off the fourth quarter base. About 3% to 4% deposit growth for the year. We think that's achievable. Both on the commercial and on the consumer side. You know, we've got more treasury management opportunities in the former Sandy Spring footprint. So there's some opportunities to grow there. So we're feeling pretty good because really low single digits is what we're calling for.

Hannah Wen: Okay. Thank you.

John Asbury: Thank you. Thanks, Hannah. And, Olivia, we're ready for our next caller, please.

Operator: Our next question coming from the line of Steven Skun with Piper Sandler. Your line is now open.

John Asbury: Hi, Steven. Good morning.

Steven Skun: Yeah. Good morning, guys. Thanks. So one quick clarification, John. I think you said most of the expenses related to the Sandy Spring deal are kind of in the numbers here, maybe some marginal benefit in Q1? How should we think about, I know we've got the full-year guide, but just the run rate for expenses in the first quarter off of this, you know, what I think was around $204, $205 million here this quarter? On an adjusted basis?

Rob Gorman: Yeah. So Steven, the way to think about that is you're gonna see kind of a flattish quarter in the way we're modeling it. Flattish quarter, first quarter, and it starts coming down a bit over the remaining years. Of course, you understand there is some seasonality in the first quarter as FICO resets, bonus payments are made, unemployment taxes go up. And then we have some merit increases going in. So that'll be kind of the high watermark as well, which is typical. And then start to come down.

If you look at it from an operating excluding the amortization of intangible expense, we're calling for, on average, call it, about $188 million a quarter going forward, but it will skew a bit higher in the first quarter and starts to drop off in the subsequent quarters.

John Asbury: Rob, what can we say about what's left of Sandy Spring related expenses?

Rob Gorman: Yeah. So our well, I think we it's not all in the numbers yet. But we've achieved the cost savings. About $80 million is what we had projected. 27.5%. In the numbers, it's probably about annualized, about 60 some odd million there, call it 60. We're getting another five coming out of the fourth quarter. So that will get you to that $80 million mark. So there is some benefit that you'll see in the first quarter. That's why we're kind of calling for flattish in the first quarter because it's offset by some of these other seasonal items. But you should see that come through going out in the second to fourth quarter.

Of course, we also have investments that are being made in North Carolina in some strategic investments we made, which we noted in Investor Day. So those are kind of all in the numbers that I'm talking about. And I referenced there's some residual remaining expenses in Q1, which is think meaning from a merger-related Yes, like merger one Yes. We have a couple of IT decommissioning expenses and a few related to some leases that we're getting out of maybe less than $5 million is our projection for the first quarter. And then merger-related. That's it. It's all over. That is done.

Steven Skun: That's great. That's extremely helpful detail. Appreciate it. And maybe I know you kind of noted the progression in North Carolina that potential expansion is still pretty much on path for, you know, build out over the next year and a half to two years. Is there any impetus to kind of accelerate any of your plans? Or push maybe deeper into the hiring activity? It seems to be the norm across the spectrum today. Everybody seems to want to hire as many people as they can. With the dislocation we're seeing across the industry.

So just wondering if that any of your plans there could accelerate or if you feel like there's a lot of capacity still within the team just, you know, given the integration with legacy Sandy Springs into the AUB platform?

John Asbury: That would principally be, I think, a commercial or wholesale banking question. Do you want to answer that, Dave?

David Ring: Yeah. I mean, this is not the time you necessarily want to hire a banker because you're gonna have to pay their bonus. You mean this time of year? Yeah. This time of year. But we have a pipeline, a strong pipeline of people that we would expect to bring on board, you know, after bonuses are paid at the other institutions. And we currently have a lot of capacity within the team. We have 20 bankers sitting in the market already in Carolina. New Carolinas. And they're very active. And so, you know, we're gonna continue to grow using those bankers, but also build out the rest over time.

But you should expect to hear about more hiring, you know, March between March and August during the year. We feel we do feel good about the team and our capacity. We're sort of always in the market to some extent, but it yeah. Yeah. We wouldn't expect to see, like, some big announcement that there's some big, you know, expansion per se but we'll see how it goes. But there's no constraints on Correct. Hiring. It's just Yes. Hire at least you can. We have a long track record of, you know, as we can expand, you know, with the right talent, we tend to do that. And it to make it work out.

Little harder to accelerate on the consumer side because you got the branch build-out and things to get yeah. So it's more of a wholesale side. We'll, yeah, we'll push as hard as we can. But it's depending on the hiring capabilities there.

Steven Skun: Great. And then just maybe lastly for me, I mean, you've got a lot on your plate clearly in terms of the North Carolina expansion. Obviously, hoping to accelerate growth overall. In terms of uses of capital. But as earnings continue to ramp higher and capital build should accelerate here, at what point do you think you entertain maybe share repurchases or other paths for that, you know, soon to be building excess capital over time? And is there a kind of a threshold you want to hit a capital level first before you'd entertain that?

Rob Gorman: Yeah. I think we've been clear that we will entertain share repurchase probably the 2026 of this year. Really looking at excess capital, anything beyond the 10.5% CET one would be what we'd be looking for to utilize consider excess capital to be in the repurchase market. So we're on track for that as we go through the first for the second quarter of this year. So we said, we could be in the market late in the second quarter or in the third quarter.

John Asbury: And I'm glad you asked that question. You saw that we grew tangible capital by 4%, approximately 4% in one quarter. And we're doing exactly what we said we would do. We've invested capital to build the franchise, to secure our positioning, to put us on this profitability and capital generation footing, and now we're receiving the benefits of that. And we've been clear that we are guiding toward 12% to 15% annualized tangible capital growth. So we are going to be in a good position, as Rob said, where we'll be able to consider share buybacks.

Steven Skun: Yeah. Fantastic. It feels like everything's laid out before you. Appreciate the color, guys.

John Asbury: Thank you, Steven. And, Olivia, we're ready for our last caller, please.

Operator: We have a follow-up question from David Bishop. Your line is now open.

John Asbury: Hi, Dave.

David Bishop: Hey, John. Real quick, I guess, a question for Rob. You noted the in other expenses, noncredit related customer losses. Is that is that fraudulent? Type losses? Just curious what sort of drove those other expenses higher.

Rob Gorman: Yeah. That's mostly what that is. Fraud is episodic. And, you know, it can come and fit some spurts and that's what you're looking at. Because it was elevated just a couple of items or issues that came up in the fourth quarter. Hopefully, they don't recur, but yeah, you know, they're here to yeah. Do you get these scams that move around the industry? And then there'll be something else. That's episodic. Yeah. We don't But that's what that run rate.

David Bishop: Got it. So within your OpEx, you know, guidance, for the first quarter to flattish, would that be flattish off the reported sort of 2.04 you know, point six on an adjusted basis, or would it be, you know, sort of two zero two adjusting for the fraud?

Rob Gorman: Yeah. It's kind of in each yeah. Kind of around that range, you know, two zero three, two zero two, two zero three, including the amortization. Just because there's, you know, ads. Think about it as yeah. We may not see that level, but there's other things that'll come in from a seasonal point of view.

David Bishop: Got it. Appreciate that color.

John Asbury: Thanks, Dave. And thanks, everyone, for calling. We look forward to speaking with you in three months. Have a good day.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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