Atlantic Union Bankshares (AUB) Q3 2026 earnings call transcript

Thank you, Tawanda, and good morning, everyone. I have Atlantic Union Bank Shares President and CEO John Asbury and Executive Vice President and CFO Alex Dodd with me today. We also have other members of our executive management team with us for the question and answer period. Please note that today's earnings release and the accompanying slide presentation we are going through on this webcast are available to download on our investor website, investors. atlanticunionbank. com.

During today's call, we will comment on our financial performance using both gap metrics and non-gap financial measures. Important information about these non-gap financial measures, including reconciliation to comparable gap measures, are in the appendix to our slide presentation and in our earnings release for the third quarter of 2026. We will also make forward-looking statements which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectation or result expressed or implied by these forward-looking statements. We undertake no obligation in public to revise or update any forward-looking statement except as required by law. And please refer to our earnings release and slide presentation issued today and our other SEC filings for further discussion of the company's risk factors and other important information regarding our forward-looking statements, including factors that could cause actual results to differ from those expressed or implied.

All comments made during today's call are subject to that Safe Harbor statement. And at the end of the call, we'll take questions from the research analyst community. And I'll turn the call over to John.

Thank you, Bill. Good morning, everyone. This was a solid quarter with heavy, healthy loan growth, strong credit quality, and a modest increase in adjusted operating earnings. Higher net interest income and lower credit costs supported the result, while funding costs increased and fee income moderated. I'll briefly cover the quarter's highlights and share some market perspective before Alex reviews the financial results.

Our third quarter results reflect disciplined execution and sound underlying performance, despite a more challenging funding environment. With merger-related items behind us, the only significant adjustment this quarter was a loss on debt extinguishment related to our subordinated debt refinancing. Over the past several years, we have deployed capital deliberately to strengthen the franchise and support long-term growth. This quarter provides further evidence that our investments in supporting earnings capacity and organic growth, while our earnings and capital generation continue to provide flexibility to invest in the franchise and return capital to shareholders. As always, we remain focused on soundness, profitability, and growth in that order.

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

That is the value proposition we're bringing to North Carolina, and it's the value proposition that we have executed well across the rest of the franchise. I'll briefly cover our third quarter highlights and share some market perspective before Alex reviews the financial results. The operating environment does remain uncertain, shaped by geopolitical tensions, energy price volatility, persistent inflation, and an evolving interest rate outlook.

Within our customer base, activity remains constructive, though, and loan pipelines are healthy. Customers are becoming more selective as financing and project costs remain elevated, but overall activity level remains supportive of profitable growth. Against that backdrop, client activity and disciplined execution produced healthy loan growth during a traditionally seasonally slower quarter. We remain focused on profitable growth supported by relationship-based funding, appropriate pricing, and attractive risk-adjusted returns.

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

Average deposits increased 1.5% annualized during the quarter, while period-end deposits increased 6.5% annualized to $31.0 billion. Year-to-date deposit growth was approximately 2.2%, consistent with our low single-digit outlook. Several larger customer outflows reduced quarter-end deposit balances, and period-end deposit growth reflected increased brokered funding, which represented 3.5% of total deposits at quarter-end. Importantly, most of those funds returned early in the fourth quarter, and as of October 19, our loan-to-deposit ratio had improved to 93.7% compared with 94.6% at September 30.

Brokered deposits were relatively flat year-over-year. Our focus remains on growing relationship-based deposits, expanding share of wallet, and maintaining disciplined funding. Reported FTE net interest margin declined six basis points to 3.88% as funding costs increased, but FTE net interest income rose $3.4 million as loan growth and accretion income more than offset those pressures. Q3 received no material benefit from the September rate increase because most SOPR-based loans reset in early October. Q4 should reflect a full quarter of that benefit on the bearable rate loan portfolio.

Alex will provide additional details in his comments. Overall asset quality remained strong, and trends were favorable across most key metrics. Quarter over quarter, non-performing assets declined to 37 basis points of loans held for investment from 39 basis points. Classified assets decreased to 4.0% from 4.4%, and net charge-offs remained at 3 basis points annualized. Occurring past dues increased six basis points to 34 basis points but remain low in absolute terms. Given favorable credit trends and our current loss expectations, we are lowering our full year net charge-off guidance which Alex will discuss later in the call. The most recent state unemployment data available for this presentation are for August showing unemployment rates in Virginia and North Carolina remain below the national average while Maryland's was in line with it.

Labor market conditions across our footprint continue to compare favorably with the national picture, supporting our confidence in the resilience and long-term attractiveness of our markets. This quarter's results reflect continued progress in our organic growth initiatives. We are operating as one team across the combined franchise. We also continue to build our North Carolina commercial banking teams where we see meaningful opportunities to deepen relationships and contribute incremental growth over time.

Conditions across our markets remain resilient, although we expect certain aspects of the operating environment to become more challenging over time. Higher rates may weigh on mortgage banking activity and interest rate swap income, while competition for deposits may increase pressure on funding costs. In commercial real estate, higher financing and project costs are likely to slow new construction and delay some projects.

Even so, this time we believe that healthy pipelines and continued customer activity support our expectations for profitable growth despite the uncertain environment. Additionally, we have not observed any broad-based deterioration in our loan portfolios. We have a long track record of adapting to changing conditions, and we will continue to respond as the environment evolves. While we remain mindful of the headwinds I just discussed, we believe that our focus on soundness, profitability, and growth, and that order positions us well to continue creating long-term value.

Our priorities remain clear. Protect balance sheet strength, generate profitable growth, and allocate capital where we see attractive risk-adjusted returns. Healthy loan demand, strong credit performance, and continued earnings and capital generation provide the flexibility to invest in the franchise, return capital to shareholders, and create long-term shareholder value.

With that, I'll turn the call over to our Chief Financial Officer, Alex Dodd for a detailed review of our quarterly financial results. Alex?

Thank you, John, and good morning, everyone. The third quarter reported net income available to common shareholders was $133.7 million and fully diluted earnings per common share of $0.94, resulting in a return on tangible common equity of 19.59%, a return on assets of 1.43%, and an efficiency ratio of 52.7%. Our third quarter adjusted operating earnings available to common shareholders, which principally excludes the $2.7 million pre-tax loss on debt extinguishment, was $135.6 million for 96 cents per diluted common share, resulting in an adjusted operating return on tangible common equity of 19.85%, adjusted operating return on assets of 1.45%, and an adjusted operating efficiency ratio of 48.1%. Slide 11 shows the year-to-date metrics on a gap basis and the corresponding trend over the past five years.

As we move to slide 12, this shows the same metrics as slide 11, but on an operating basis. For the year-to-date performance, we have reached our medium-term financial targets of 1.4% to 1.5% for return on assets and 19% to 20% for return on tangible common equity. While there will always be quarter-to-quarter variability, we remain confident in our ability to sustain performance within these target ranges over the medium term, which we define as this year and next.

Turning to credit loss reserves, the total allowance for credit losses was $334.2 million, an increase of $3.3 million for the quarter, primarily driven by loan growth. The total allowance for credit losses as the percentage of total loans held for investment decreased one basis point to 114 basis points at the end of the quarter.

Net charge-offs were 2.3 million, or three basis points, annualized in the quarter. Turning to net interest margin, the fully tax-equivalent net interest margin declined six basis points to 3.88%, as higher funding costs more than offset a modest improvement in earning asset yields. Despite the decline in margin, tax equivalent net interest income increased $3.4 million during the quarter, driven by strong loan growth. Earning asset yields increased one basis point from the prior quarter to 5.89%. Loan yields declined modestly during the quarter and did not yet reflect the impact of the Federal Reserve 25 basis points September rate increase on the variable rate portfolio Cost of funds increased seven basis points to 2 percent from continued customer migration into higher yielding deposit products and a higher funding mix of borrowings during the quarter.

Non-interest income decreased $35.4 million to $54.8 million for the third quarter, primarily driven by the $32.3 million pre-tax gain on the sale of our equity interest in bearing insurance recognized during the second quarter. Adjusted operating non-interest income decreased $3.1 million, driven primarily by lower loan-related interest rate swap fees and reduced mortgage banking revenue as higher interest rates tempered customer activity. Fiduciary and asset management fees were also lower when compared to the prior quarter. Non-interest expense increased $5.2 million to $204.3 million for the third quarter, primarily driven by the $2.7 million pre-tax loss on debt extinguishment recognized in the third quarter of 2026 excluding the one-time expense and amortization of intangibles the adjusted operating non-interest expense increased 2.7 million primarily from the continued investment in the North Carolina expansion strategic technology initiatives and seasonal marketing costs at September 30th loans held for investment net of unearned income or 29.3 billion, an increase of $623 million, or 8.6% annualized from the prior quarter.

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

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

The decline primarily reflects higher unrealized losses recorded in AOCI as long-term rates increased. Before reviewing our full year outlook, I want to highlight the strength of the franchise's earnings and capital generation capabilities, providing the flexibility to execute buybacks while continuing to support strategic growth and investment opportunities. Our prior guidance called for term rates to remain stable and at the same levels, neither of which occurred in the third quarter. We continue to expect loan balances to end the year between 29 and 30 billion dollars while year-end deposit balances continue to be projected between 31 and 32 billion we expect full year loan growth toward the lower end of the high single digit range and expect year-end deposits to end up in the lower single digit range on the credit front the allowance for credit losses is projected to remain at the lower end of the 115 basis point to 120 basis point range and we are reducing the projected net charge off ratio to be less than five basis points in 2026 fully tax equivalent net interest income for the full year is projected to come in at the lower end of the 1.32 billion to 1.33 billion range inclusive of accretion income we expect higher interest bearing deposit mix as well as greater loan and deposit competition to partially offset increasing loan yields.

We believe we will be at the low end of the 3.90% to 3.95% range for our 2026 fully tax equivalent net interest margin. This outlook is supported by our facelight assumption that the Federal Reserve increases rates by 25 basis points in December and that term rates remain stable at current levels. Our focus remains on generating profitable net interest income growth rather than managing to a specific margin target. On a full year basis, adjusted operating non-interest income is expected to be at the lower end of the $220 and $230 million range, including the impact of higher rates on mortgage income and loan-related interest rate swap activity.

Adjusted operating non-interest expense is expected to fall in the lower end of the range of $742 to $752 million, including the expense impact of our North Carolina investment.

The impact on AOCI on tangible book value growth was significant during the quarter as long-term interest rates moved higher. Given the sensitivity of AOCI to future rate movements, we are not providing a specific tangible book value growth outlook for full year 2026 at this time. Importantly, our commitment to building tangible book value remains unchanged. Excluding the impact of AOCI volatility, tangible book value would have increased by $2.24 or approximately 11% compared to the third quarter of last year. reflecting the underlying earnings power and capital generation of the franchise.

Looking ahead, we are currently in the midst of our 2027 planning process and are not prepared to provide an outlook at this time. As John mentioned, we remain focused on generating sustainable, profitable growth, delivering positive operating leverage, and continuing to build tangible book value, which we believe will drive long-term shareholder value. I'll now turn the call over to Bill.

Thank you, Alex. And Tawanda, we're ready for our first caller, please.

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

So we will see a full quarters benefit of the 25 basis point increase in the fourth quarter. Also beyond that, our investment portfolio has a variable component and our new purchases in that portfolio are coming on about 140 basis points over the portfolio yield. This will be offset by the full beta impact on the deposit portfolio and further customer mix. So we remain positive about NIM and expect it to grind higher in the fourth quarter to get to the full range of 390 to 395 for the full year.

Thanks, Sean. Yeah, and as we were leaving the quarter, we did see our core margin increase by two basis points. So this is just the month of September. Started to see the benefit of the factors I mentioned on the variable rate loans and higher coupon yields all set by. We have about $3 billion of Fed-linked deposits that repriced immediately. So we're encouraged by the core NIM increase in the month of September, which was at $342 compared to our full quarter of $340. And I would reiterate that nearly all SOFR-based loans are repricing early in the month, which means we did not see any material benefit on SOFR-based loans from the Fed rate increase in the month of September that that has now occurred.

But that's encouraging. And even without that, we were beginning to see a NEM trend up in September.

Yeah, Brad, the growth that you're seeing in construction lending, which will continue, are fundings on existing construction loans, projects that are already underway. So there's no change there. What will happen is we anticipate that we will see fewer new construction projects. That will have a delayed impact. You know, that could take minimum six months to a year before we really feel that.

But in talking to our developer clients, there's no question that we're hearing commentary that they may begin to delay certain projects. Not all, but certain projects. And it's the classic issue where they're already dealing with inflation and higher subcontractor bids. And when you add on additional interest carry, certain things are just harder to pencil out and effectively require more cash equity.

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

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

That's great. Really appreciate all the detail and thank you for taking my questions. Thanks, Brian.

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

That's correct.

Sure. Yeah, our overall beta is 40%. percent and on the interest-bearing portion of the portfolio it's 50 percent and we did take on borrowings from the quarter about 500 million dollars most of this was short term and are under six months and so we expect to replace those with customer deposits when they mature and so it's It's probably half under six months. The remaining half is 12 months in duration overall.

Thanks, Janet.

Sure. You know, our margin did decline six basis points, and the sole driver was going to be on the funding side coming from our deposit mix and deposit pricing and also the mix of borrowings. To your question about the deposit portfolio, the two drivers of the cost of deposits increasing by seven points are really coming from mix and higher average pricing on interest checking and savings.

As we move forward, we'd expect the full beta to come on the deposit portfolio and continued customer mix of movement into the higher rate products.

David, I'd also add for context, as you know, our markets are dominated by the very largest institutions, which historically have been very disciplined in terms of depository pricing. They effectively set the market. We have seen upward movement from them, and that does move the market. They seem to have somewhat front-run the recent Fed rate increase. We saw them begin to move up in a few cases even a bit ahead of that.

And, of course, we have to respond to that. There are always smaller banks somewhere that will do unexpected things, and we'll deal with that one by one, but they most certainly don't set the market. We view deposit pricing on the whole as rational. There's strong loan growth across the industry. Therefore, there are more bids for deposits, and that's what's going on. So we don't see anything all that unexpected going on out there.

Sure. Let me lead off, and then I'm going to ask David Ring, who leads our wholesale businesses, which is what we refer to the collection of commercial businesses to provide commentary. I'll start with the data center issue. You are right. We do not directly finance data centers. They're far too large and expensive. We do have adjacent businesses. It could be contractors.

You could see it in industrial warehousing, even landscaping, believe it or not. So we have clients who are benefiting from the data center expansion that is going on, and that is continuing. You know, one of the more interesting things that we noticed, a comment that I took note of, we're seeing a lot of very large contractors being pulled into these really hyperscaler data center buildouts, which is creating space for kind of midsize or smaller contractors that would more likely be our client base.

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

Dave Reen, can you comment more broadly? I think it's fair to say that we're seeing very good diversified loan growth. Anything that's particularly strong from your perspective?

Thanks, John. Thanks, David. I think you covered the question on data center, but on the pipeline, these, you know, first we look at production related to the pipeline. CNI production is roughly 59% of our production and our pipelines look very similar to this. So, when you look across our pipeline, CNI tends to dominate now and almost every region has a growing pipeline. So, we don't have it at any specific area or any specific region. We're seeing growth in the pipelines in all our regions right now yeah other things to watch over time will be pharma manufacturing which we are in one of the best position markets in the country we believe we're sitting right in the middle of you know a lot of investment that's going on to manufacture pharmaceuticals here in the US and that would run from in the north Maryland certainly here through central Virginia into the research triangle.

That has benefits. We're seeing, you know, multibillion-dollar plants and several of them underway right now, which have spillover benefits to contractors and labor.

Thanks, David.

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

And then again, commercial and industrial, the demand is there and they need to respond to it and they're doing okay. So, you know, 100 basis point increase in term rates or 100 basis point increase in short-term rates, I don't see changing much there. So it's hard to say. It would presumably need to be, you know, quite a bit.

Sometimes you'll hear me talk about construction lending is like a bathtub. And what I mean by that is new construction commitments, that's sort of the spigot or the faucet that's filling up the bathtub, and as projects complete, they drain out of that construction lending balance and they move into permanent mortgage. So I think what you're going to see is the bathtub will keep draining as projects complete and move out of the construction lending category and the faucet is going to be slowed, but it's not going to be shut off.

So it's really hard to say. But punchline, I think, could it be the difference between mid-single-digit growth and high-single-digit growth? It could. Always think about our default position as being that single-digit growth you've seen us a couple of times pull out a slide we used an investor day that states that over the last I think it was a nine-year period the organic only growth rate for us has been about seven percent you know over time technically that would be a high single digit number but you know I think we're on a reasonable growth footing and we'll say more about what to expect next year understood and helpful caller John thank Thank you And then to follow up on the margin discussion you know appreciate the commentary around the asset sensitive position today Could you guys put a finer point on you know what each 25 basis point rate hike might mean to the NIM can kind of size the benefit there Yeah, each 25 basis point increase, Russell, should be about three basis points of margin in a quarter.

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

Thank you, Russell. Thanks, Russell.

Will, welcome. We're glad to have you.

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

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

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

That's helpful, John. And Alex, thanks for pointing out the mix there on new loans in the quarter.

Yeah, our capital management priority is to support organic growth. And then beyond that, we want to return capital to our shareholders through the dividend and share repurchases. And in the quarter, we did buy back $62.5 million worth of our – within our approved buyback program. We do intend on continuing the buyback through May of 2027.

With that being said, we are mindful to the impact of rates on AFCI, and we're monitoring our tangible common equity ratio. And if rates were to move sharply higher, we would revisit, and that's the good thing about the buyback program is that it's flexible.

We are generating a lot of capital, and so if we were to decide that, I'm not saying we have, but if we were to reduce or stop share buybacks, you would see capital on it very quickly.

So I agree with Alex that we have flexibility there.

Thank you. Thanks, Will.

Let's ask Chief Credit Officer Doug Woolley, who's famously succinct.

Doug? All right, David, I'll give you a more extended answer. On commercial real estate, we do some floating rate construction projects, so that will have some impact. The bulk of our portfolio is institutional developers. They take those things in stride, and we don't have any concern about that. On the C&I side, even though rates have gone up, the interest rate cost expense to a C&I borrower is a small percent of their overall operating costs. It really would have to move significantly. And we had absolutely no stress that we could discern back when rates skyrocketed from nothing, you know, post-COVID. The CNI borrowers simply absorbed that.

I'll take that as a not really.

Yeah, they're doing well. I would say that there's no question that, you know, they're active. This focus on national security, defense, and intelligence is receiving a lot of funding. Credit's holding up very well, and we just don't, you know, we feel quite good about that portfolio. we do see a lot of M&A in that space. We've had clients sold.

Sometimes we have clients buying companies as well. But it's very supportive, and it's showing up if you go up into the region. You'll see improving dynamics on office, a lot of which is being taken up by defense contractors who are expanding or moving into the area, and then firms that are adjacent to defense contractors, and they could be everything from attorneys, private equity firms, setting up shop in the region because a lot of capital is flowing into it.

And so, you know, we don't finance like giant defense contractors, but it's overall supportive. And the unfortunate aspect of the geopolitical situation is that this is going to play out for a long time because of the changing nature of warfare, you know, drone warfare, drone defenses, cybersecurity, autonomous aerial vehicles, autonomous ships you name it there's a multi-billion dollar expansion underway in Baltimore for ship buildings specifically submarines the Newport News shipyard has over a 10-year backlog and so this is a very durable trend David and so it's going to have spillover benefits over time into the region Great.

Thanks, Dave.

Yep. We view ourselves as a $3 billion asset bank in North Carolina in terms of, you know, where we are now. Remember, we are not new to North Carolina. The Charlotte LPO, which is the biggest component, which deals with commercial, regional commercial real estate developers in North and South Carolina. We do do business in South Carolina. We just don't have a material physical presence there. Yeah, that's been around for a long time and has done well. and then American National Bank had been in the Piedmont Triad area for about 10 years. So that's the base that we're building from.

Dave Ring, do you want to comment on some of the expansion activity and what we're seeing?

It is unarguably, you know, the best growth market in which we operate.

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

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

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

Thank you, Steve. Thanks, Steve.

And thanks, everyone, for joining us today. We look forward to updating you in January. Have a good day.