Good day, and thank you for standing by. Welcome to the Atlantic Union Bankshares First Quarter 2025 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. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Bill Cimino, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Lisa, and good morning, everyone. I have Atlantic Union Bankshares President and CEO, John Asbury, 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 for a slide presentation, and in our earnings release for the first quarter of 2025. Since our acquisition of Sandy Spring Bancorp closed in the second quarter, first quarter financial results do not include Sandy Spring. We have provided, however, certain pro forma and forward-looking financial data for the combined company. The pro forma and forward-looking financial data should not be relied on as being indicative of future results and are subject to risks and uncertainties. Please refer to Slide four of our presentation issued today for additional information. We've also updated our financial outlook for the full year to include the expected impact of our acquisition of Sandy Spring. Our remarks on today's call 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 slide 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 a forward-looking statement. All comments made during today's call are subject to that safe harbor statement. And at the end of the call, we will take questions from the research analyst community. Now I'll turn the call over to John.

Thank you, Bill. Good morning, everyone, and thank you for joining us today. It was an eventful and busy first quarter for Atlantic Union Bankshares. With their acquisition of Sandy Spring having closed on April 1, a full quarter ahead of our original expectations due to our receipt of regulatory approval earlier than anticipated. It was also a quarter when the economic outlook became more uncertain, financial markets became more volatile, and government policies changed abruptly. Nevertheless, we believe we are well positioned to capitalize on the franchise's strength and potential. We have a lot to cover today, and Rob and I will begin by summarizing Atlantic Union Bankshares' first quarter results, share perspective on our now expanded franchise, and finish by updating you on the financials of the Sandy Spring acquisition, which we believe remains very much intact. Turning now to quarterly results. Here are a few financial highlights from the first quarter. I'll begin with our 12 basis point net interest margin expansion and an 18 basis point reduction in cost of funds. Consistent with the expectations we set in our comments last quarter, average loan growth was approximately 1.3% annualized quarter over quarter in the typically seasonally slow first quarter. Following the typically seasonally high fourth quarter, loans held for investment ended the quarter down 0.9% annualized from the end of the fourth quarter due to some late quarter payoffs and revolving credit paydowns. Production was good, the third highest of the past five quarters. Deposit growth in the first quarter was approximately 2.1% annualized point to point, which includes the impact of reducing broker deposits by more than $100 million in the quarter. We were pleased to see noninterest-bearing deposits increase by $194 million during the quarter. As a percentage of total deposits, noninterest-bearing deposits represented…

Well, thank you, John, and good morning, everyone. I'll now take a few minutes to provide you with some details of Atlantic Union's financial results for the first quarter. As Bill mentioned, my comments today relate to Atlantic Union's first quarter financial results and do not include the financial results of Sandy Spring since the transaction closed on April 1. Please note that for the most part, my commentary will focus on Atlantic Union's first quarter financial results and a non-GAAP adjusted operating basis, which in the first quarter excludes $4.9 million merger-related costs related to our acquisition of Sandy Spring. That said, in the first quarter, reported net income available to common shareholders was $46.9 million and diluted earnings per common share were $0.52. Adjusted operating earnings available to common shareholders were $51.6 million or $0.57 per diluted common share for the first quarter resulting in an adjusted operating return on tangible common equity of 13.2% and adjusted operating return on assets of 90 basis points and an adjusted operating efficiency ratio of 57%. Turning to credit loss reserves at the end of the first quarter, the total allowance for credit losses was $209 million, which is an increase of approximately $15.3 million from the fourth quarter, primarily due to the increased uncertainty in the economic outlook as John noted. As a result, the total allowance for credit losses as a percentage of total loans held for investment increased eight basis points to 1.13% at the end of the first quarter. Provision credit losses of $17.66 million in the first quarter were primarily driven by Moody's quarter-to-quarter economic forecast change and qualitative factor overlays given the increasing recession risk not captured in the March economic forecast published by Moody's. Now turning to pretax pre-provision components of the income statement…

Thank you, Rob. I'll now share some perspective on our expanded franchise post-Sandy Spring acquisition. Let me begin by pointing out that post-merger, and assuming we complete our previously disclosed anticipated sale of $2 billion of commercial real estate loans, the Sandy Spring franchise will be about one-third of the combined company by asset size. Meaning that Atlantic Union Bankshares standalone assets would be two-thirds of the combined franchise on a pro forma basis as of March 31. Between our previous acquisition of American National Bank and now Sandy Spring, approximately 46% of our pro forma combined loan portfolio will have been marked for credit and interest rates, which we believe puts us in a position of strength in the face of economic uncertainty. As is evident from slide 15, our supplemental presentation, pre-merger, we view Sandy Spring as well distributed across Maryland with a presence in Washington DC and Northern Virginia. With a distinguished 156-year history, they were Maryland's bank. A state which ranks as the most affluent in the nation by median household income, is among the most well-educated, and has consistently maintained one of the lowest unemployment rates of any state in the country. There is a significant market focus on the applications of government efficiency-related impacts on the Greater Washington DC region. This is the sixth largest metropolitan statistical area in America. With a population of about 6.4 million people. We view the region as resilient. Been diversifying its economy for decades, and we believe this will continue, if not accelerate, to the changes underway in government policy. Today, the Greater Washington region is not only the nation's capital, it's also the East Coast technology hub. It's projected to be one of the biggest AI growth hubs in the US. Has the world's largest number of…

Well, thanks, John. As John noted, I'll now provide you with an update on the Sandy Spring acquisition economics and integration activities to date. And take you through a comparison of the original acquisition financial assumptions to our updated projections. In short, this acquisition checks all of our strategic and financial boxes for M&A, just as we said it would. As noted, due to the accelerated receipt of regulatory approvals, we closed the deal on April 1 ahead of schedule. In conjunction with the transaction closing, we physically settled the previously announced forward sale of common equity on April 1, issuing 11.3 million common shares. Received approximately $385 million in net proceeds before expenses in full settlement of the forward sale. Also on April 1, we launched the $2 billion commercial real estate loan sale process that we previously discussed on the transaction announcement date. We intend to complete the loan sale by the end of the current quarter. More expedited closing date for the acquisition allowed us to move forward our core systems conversion to October 2025 from February 2026 or approximately four months earlier than initially scheduled. This is expected to accelerate the achievement of full transaction cost savings of 27% of Sandy Spring's expense base in 2026, providing an additional quarter of savings in 2025. As previously noted, as part of the transaction planning, we chose to take proactive actions related to the capital raise and commercial real estate loan sale to better position and de-risk the combined company's balance sheet. So that we are poised for future growth with substantial capital and liquidity and without any commercial real estate concentration constraints. Now here's a quick snapshot of the combined franchise, which represents a pro forma look at the key measures as if the deal closed on…

Oh, yeah. Can you hear me?

Yeah. Great. Thank you. Alright. Wait a minute.

Improvise there. That was great. Wanted to start just on the marks from the Sandy Spring deal. Is there any way you can I'd appreciate the kind of updated looks like the interest rate marks are coming up just a little bit just given kind of your note, Rob, with a little bit more tangible book value dilution, but higher accretion. I'm just curious if you can update us on maybe what that low mark looks like.

Yeah. So if the loan mark as of 03/31, rates as you know, interest rates went up a bit. Since the announcement date, we're looking at about a 7% of loans mark, which is about $800 million, which is higher than what we originally had projected, which is in the think about the $600 million range at the announcement. So that interest rate fair value adjustment will accrete through income over we're saying is a seven-year, some of the year digits accretion income flow.

Okay. Great. And then you are using some of the year digits with that as a way to forecast kind of what your NIM forecast would look like.

Exactly. Yep. That's right. And within that, is there an assumption that you'll see kind of accelerated paydowns?

Yeah. You know, the nature of the sum of the year, they're would call for, you know, more paydowns earlier than the maturity schedule might say. But so there's some there's some of that in the projections that we have in there.

And maybe it's fair because if you've got a couple cuts coming the next few years, maybe that's Yeah. They that could be it could be faster.

And it's kind of unpredictable. It can be volatile quarter to quarter as you know. Depending on what rate where rates are, where the loan yields are.

Okay. Great. And then was there any change to the credit mark? With Sandy Spring?

Actually, the credit mark came in a bit better than what we had projected at the announcement date. It's about a 1.3% mark on that entire portfolio versus what we had originally projected to be a bit higher, I think, in the one and a half percent. So it came in a little better.

Okay. Great. And I know you can't know you're just in the of the CRE loan sale, but is there any just given the volatility and the rates, is there any risks you think that that sale could come at a steeper discount, or do you I think I think when you announced the deal, was you already had a about a 10% discount to those loans. I'm just kind of curious how you're thinking about I'm you're the risk of that being a little bit higher as you as you get towards the close.

Yeah. You're right in terms of the projected discount. You know, obviously, with all the market turmoil rates this way and that, just a general market turmoil out there, we're monitoring it very closely. Really can't talk too much specifically on that. But at this point in time, we don't see there's any major negative to what we were projecting from at the close.

Okay. Great. And just as kind of an update, most of the type of credits that you have in that loan sale are multifamily, retail. Can you just remind us kind of a composition of what's in that book?

Yeah. The majority of it is retail and multi k only to your point. And those are the big things. I think there's some other It there's a miscellaneous things. But Some Those are the big those are big categories, and that hasn't changed. Since what when we discussed it at the announcement date. And, Catherine, one thing to point out, this is a relatively short duration portfolio. Would you comment on that, Rob?

Yeah. Portfolio is probably the duration of maturity level maturity of those loans is probably in the three to four-year range at this point. So it these are good good loans. Obviously, these are not distressed loans at all. So you know, the interest rate environment does affect the Mhmm. That pricing But, again, we feel comfortable in the range that that we talked about. But we'll see. More to come on that. I can't talk too much more specifics because we're in the middle of that. Yeah. The process is going well. The reason why I comment on the duration is don't go look at what was the ten-year treasury on October 21 and what it today. You need to look at, like, the three-year treasury. Right. Or four. And what you're gonna find is the it's comparable to or actually a little bit lower than a fund announcement. So it's been up, it's been down, it's been all over. Yeah. It's it's moved way up around quite a bit, but we're closely monitoring. Yep. Yep.

Okay. Very helpful. I'll put that in the queue. Thank you.

Okay. Thanks, Catherine. And, Lisa, let's try this again for our next caller, please.

Thank you. And the next question will be coming from the line of David Bishop of Holding Group. Please go ahead.

Hi, David. I think she's a I think she said my name. Hey. How you doing, John?

Yes. She said we we we know it's you.

Hey. Just curious, you know, obviously, Sandy Spring is freshly in there. Rear rear rear view mirror, so to speak. But as you integrate the bank and you look at you know, obviously, lot of noise with the the tariff situation, but on a a poor loan growth perspective, where do you think the that shakes out from a longer term perspective? Is it mid single digits, mid to high single digits? Where do you see that that trending out over the longer term? Would they Yeah. Over the longer term, I would say, David, that we're we're looking at, you know, as we said before, striving for that upper single digit, loan growth. I think in the the medium term, that might be a bit lower in the more in the mid single digit But over the longer term, in a more normalized environment, we think upper single digits would be the way to go. Or the the projections we would have There's a lot of opportunity up in the Sandy Spring footprint And, of course, the the broader franchise is also upside down and North Carolina, not not to say that Virginia does have good growth, but those would allow us to to to grow a little faster than we have been. Correct. So some of the key points about Sandy, we acknowledge the disruption that is going on. It will pass. And so on the other side of this, you still have, you know, extremely attractive markets There is no franchise like us. We, you know, fully release the Sandy Spring their former Sandy Spring team, to, you know, to go do business. There are no constraints or we we, you know, to reset the thing up. So that we can grow it, without being concerned about CRE concentration limits, liquidity ratio, loan to deposit ratio, and some of the things that they've had to deal with in the past. We also bring not just more capital and capacity to the table, we have some additional tools. Too in terms of commercial industrial banking capabilities in particular. And so we are nothing has changed in terms of the strategic logic and we see opportunity to gain market share and and really grow the franchise there. You know, on the other side of the the current disruption.

Got it. And then into credit. Looked like there was a little little blip on the C and I side. There was one think, about a $9 million credit that led it to nonaccrual. Just curious in the loan loss provision this quarter, I assume most of it, the overlay was due to the economic overlay of curious if there's any sort of specific accruals or reserves for that C and I credit. Maybe walk through the the the provision this quarter. Yeah. For the most part, the the increase in the in the reserve that you saw this quarter dollars 15,000,000 increase was primarily driven by this uncertainty in the market is this qualitative overlay. We did have a bit of a specific reserve that we added, for that particular credit. But that wasn't the the driver of the Yeah. Or the material driver of of the increase in the reserve. Yeah. It was really the the what you're the reason why the reserve looks higher than what you would normally expect is because of the use of management and the overlays. Otherwise, it would look pretty normal. Pardon me. I meant to say the provision is specifically.

Got it. That's a final question, John. You know, obviously, in you noted the disruption. We're all aware of that. Usually, where there's disruption, there's also, you know, some opportunities as well. Any any early reads where there there could be some opportunities that are sort of, like, you know, unforeseen, benefits, you know, from Yeah. All the turmoil? Thanks.

David Ring is here, our head of, all of our commercial businesses. I'll ask David to comment, but I'll kind of headline it with this. Their pipeline looks pretty good. So, Dave, what do you we've all been up there quite a bit. What do you what do you see?

Yeah. I mean, there's kinda disruption everywhere, but, you know, up there, know, what we've done is we've kept the overwhelming majority of producers. So and leadership. And so there's a lot of continuity there to take advantage of what the market has to offer. And right now, that disruption is helping us. The pipeline since the last time I looked at it about three weeks ago, doubled. And they are definitely motivated to do business. So we think we're gonna find some good transactions up there and be very successful.

Great. Appreciate the color.

Thank you, David. Thanks, David. Thanks. And, Lisa, we're back to our next caller, please.

Thank you. One moment for the next question. The next question will be coming from Brian Wodzinski of Morgan Stanley. Your line is open.

Brian, hello, and welcome. Hi. Good morning. Up coverage on. It's it's my pleasure, and and thank you for taking the question. Why don't you just start off on the net interest guidance. Can you just walk us through what could get you to the low end of that range versus the high end Of course, lot of certainty in the environment both from a growth perspective and also interest rate, but just wondering how you're thinking about the high end versus the low end there?

Yeah. In terms of of the low end, I think you know, if we see significant we're assuming three cuts from the Fed. If we if we see multiple war, we we that'll be a a fairly large be an impact on our variable rate loan book, which could drive which would impact that projection negatively In addition, if term rates came down significantly as well, part of the NIM the on the core side, part of the NIM expansion we're expecting relates to fixed rate loans repricing higher than what's on the books, we could see that that could shrink at this point in time. Our fixed rate loan book is, portfolio is about five little over 5%, and we're repricing renewing loans at about a six and a quarter based on the the current term rate. So that could could affect it as well. And then, of course, just net loan growth we're not calling for a ton of loan growth this year. But, if we if we see a runoff in the loan portfolio, that could affect that as well. And then the other side of that is, you know, if rates spike, then we could see a an impact on the ability to lower deposit costs going forward too. So all that will come into play. On the lower end. In terms of the high end and and not to mention, Brian, there is volatility in our assumption regarding the accretion income that's gonna be coming through that can be volatile. That could come in lower than than our expectations based on what we just talked about in terms of how we expect that to flow in over you know, the seven-year period. This year. Based on the on the accelerated seventy-year seventy-year digit. You can get your quarter to quarter vial volatility on that.

Yeah. That's great color. Thank you. And then for my follow-up on the reserve build this quarter, I understand that the main driver was just a more uncertain economic outlook and the overlays that you gave for the quarter. But I was just wondering if you're seeing any weakness in the portfolio today any signs that things could be deteriorating in either their portfolio or in the geographic footprint in general, anything standing out from client client conversations since the tariffs were announced just wondering if you had any color there. Thanks.

Let's start with Doug Woolley, Chief Credit Officer. Sort of macro perspective on overall health of portfolio.

Yeah. Brian, on tariffs, that's the big uncertainty. No one knows what's going on. No one knows what will go on. We'll spend the next couple of months diving into the client base to see what they think is the impact primary, secondary, and, and what the tail of that impact is. But there's nothing known right now about tariffs. There's nothing known about you know, pockets of credit quality issues or anything like that. Like any other bank, we're we're constantly surveilling the landscape. To try to figure out what any given indicator might mean to anything, and it's nothing that we see right now.

Gotcha. Obviously, it's great uncertainty everywhere. Correct. Hence, the specific reserve not specific reserve. Correct. Correction. The the use of management judgment to use the increase the overlay. Slide 33 of the earnings supplement is a really good slide. This is put out by the Federal Reserve Bank of Richmond, and it's their assessment of the tariff impact When I think about the uncertainty that we're looking at and what we're addressing or attempting to address with the increase in the provision to deal with uncertainty It it it the root cause of it is the tariff. It's not that or trade policy. It's not that we think that our portfolio or our region is somehow disproportionately impacted by tariffs. It's not. And, we're in the Federal Reserve's camp as you can see on slide 33. We're no more impacted in region by tariffs maybe less than many areas. But the tariff policies are ultimately creating an, higher risk or elevated risk of a recession. And that's her point. And it's very difficult to know how this thing plays out. So it's creating a lot of uncertainty As Dave mentioned, Dave Ring, pipelines look good. They've been building. We question the pull through. So we do think that uncertainty can often create hesitancy. We know that from experience. But it's difficult to point to any particular segment and say this one's, you know, unduly impacted versus that one. Regionally, I would say that, certainly, the Greater Washington region, just because of, you know, concern about, the the various Fed cutbacks, federal cutbacks that are going on there in the workforce is creating an awful lot of angst and is creating, some slowdown in consumer spending and that sort of thing. It doesn't show up in the data yet. You know, go look at initial and continuing unemployment claims as we do. As recently as last week for Washington DC, for Maryland, and Virginia. If you look at a couple of year trend line, there's an imperceptible difference. Nothing has really moved yet. Maryland's unemployment rate is still the lowest, three point o percent. There is no more populous state in America with a lower unemployment rate than Maryland. It didn't change in March. It's three point o. Next most populous state the lowest unemployment rate is Virginia. Which ticked up slightly at three point two. So these are you know, fundamentally, we view these as as pretty good economies. There's just a lot of concern and and angst but we think that as things clarify, the opportunities are gonna be there. Greater Washington is a special case. They're gonna have to get through whatever the disruption is. And and let that work its way through.

That's really helpful. Thank you for taking my questions.

Thanks, Victor, Brian. And, Lisa, we're ready for our next caller, please.

Thank you. And the next question will be coming from the line of Steve Moss of Raymond James. Your line is open. Hi, Steve.

Hey, John. Good morning, everyone. Maybe we're just maybe this will take a tacky, but just curious with regard to the, commercial real estate loan sale. The pricing in this quarter's deck is at least $2 billion. Versus before it's kinda up to $2 billion. Just wondering, are you guys thinking about upsizing the sale?

No. Not at this point. We are Steve, we're $2 billion is basically the number that we are looking at targeting. I feel good about that. Wouldn't be upsizing that. For any for any reason at this point in time or, for that matter, downsizing it at all. If we feel comfortable with that that number. That's the plan.

Got you. And then in terms of, you know, the the loan mix here this quarter, quite the pullback in construction. Just wondering is that a trend you expect to continue? Or do you expect kinda refill that bucket here over time?

About the pipeline, Construction loan balances. Yeah. Steve, just a nuance on that. A lot of that decline you see was basically construction loans completing construction completing and going into any perm term loans in, yeah, in in the real estate buckets that you saw grow. But I'll let Dave to ask that. Talk about what we're seeing in the go forward In general, the construction book and pipeline is down. If you think about what customers have to do to make the project make sense, you know, with interest rates the way they are and other things. Other components of their decision making, it it's natural for it to slow down a little bit, but what we are seeing is now an increase in our overall real estate pipeline. So it's kinda gonna get offset by some of the other asset classes or some of the other parts of the pipeline that are doing well. We have active conversations going on with construction projects. I'll give you one example. We just met with a with a developer who has put five projects on pause. I'm simply waiting for the right time to start them up again. So we have that kind of building pipeline behind this. We just aren't seeing it yet materialize. And I just want to underscore something Rob said earlier, which is that almost always when you see loans leave construction, what's happening is they're moving a permanent mortgage, what we call mini perm. So once they get the certificate of occupancy, we recode as no longer a construction loan, It's what we would call permanent mortgage. And so it simply rolls to that other category. And so refilling the bucket of construction is sort of the goal there. Interestingly, we just held a a fairly large event with, real estate, developed clients centers of influence here in Central Virginia And in talking to them, they were more optimistic than I would have expected. I worked the room as I'm prone to do, I conducted my survey. What are you seeing? How are you feeling? Are you seeing any tariff impacts? And today's point, you know, some of them are are sort of pausing, but they see opportunity. Only one said that they have actually experienced a cost increase at this moment. On a project. Due to tariffs, but they all they all said it's coming. The materials aren't in the country right now. Obviously, prices are gonna go up. So we still see the fundamentals are good. It's gonna be a timing issue. That's why we question the pull through on the pipeline. Hope that makes sense.

Yes. It does. And then just with regard to credit and and more of the reserve build here, you know, on the guide, one twenty to one thirty ACL, you know, rough calculation here, it looks like that implies, you know, further further result alternative reserve billing over time. Just curious, you know, how how much do you think is you know, just as as you put the overlays here, you know, if tariffs moderate do we expect the the ACL guide to come down? Or are there areas that you guys are just saying too much uncertainty we're gonna probably build for this?

Yeah. I think if, you know, from the tariff and and the probabilities of recession decline, and as you know, they've they've increased which is part of the the reason we we put the the quality of all the delays on it. We, you know, we could see that that one twenty to one thirty could be a a bit lower. At this point in time, that one twenty to one thirty also includes Sandy Spring and the you know, CECL double count. That in the PCD allowance impact. So it's really related to that. And applying what we did at Atlantic Union with qualitative overlay is also found its way into those estimates. So to your point, it it could be it could be better than that. But really depends on how that how that this current tariff situation plays out from, you know, the impacts on the economic environment. And, Rob, for absolute clarity, just to break this down, what we're reporting today is Atlantic Union Bankshares only, pre-merger because Right. So at this point yeah. So what you saw today, was Atlantic Union Bankshares only, which was 1.13%. And and we believe that we lay on Sandy Spring. And so we deal with that. You'll see that come through this quarter, but just what I'm the point I'm trying to make is for Atlantic Union Bankshares, the reserve you're looking at now, end of q one, is the right reserve in our assessment. For Atlantic Union Bankshares. Correct. That that's $3.31. Correct. And then we will take during q two the we'll go through the work to set the reserve or set the allowance, I should say, for for Sandy Spring. So when we come out and when we release at the end of q two, our opinion is that is the right reserve. Based on everything that we know for the combined company That is different from saying, and we still have work to do to continue to build it so on and so forth. So it's our opinion as of that point in time. Yeah. It is yeah. And it also, you know, will be combined organization as of June 30 will be report results and the allowances that know, a lot of this relates to what's the economic forecast We use Moody's, and we have a weighted Moody's scenarios. So if that were to change significantly one way or the other, know, we might see those numbers shiftable. Yeah. And, Rob, one other thing. There's a reason why we keep commenting that 46% the entire loan portfolio has been marked. That's different from the allowance but you have to acknowledge that that's a good thing. Yeah. Yeah. The 46% includes a coveted component. And a lot a lot of that relates to the interest rate. Rate part. To where we are in the rate cycle. That's right. Oh, Right.

Okay. I appreciate all the color. Thank you very much, guys.

Okay. Thank you, Steve. And, Lisa, we're ready for our next caller, please.

Thank you. And the next question will be coming from the line of Steven Stouten of Piper Sandler. Your line is open. Hi, Steven.

Good morning. Good morning, Steven.

Hey. Good morning, everyone. Thanks for the time. You've covered a lot of things in in in good detail already, but I guess of the things, obviously, that I think has been weighing on the stock and you know, you mentioned tariffs, but it's also Doge ideology here and fear. And I guess around the government contracting business, which you identified, it's it's really pretty small. It hasn't had any net charge offs over the last four quarters. If one of those loans let's say, were to go bad, how do you think about loss given default rates on a loan like that? And how do you think about, you know, theoretical loss content if there was weakness there?

Well, this is secured lending. Doug, do you wanna take that one? Secured lending, the a lot of the facilities are margined against contracts. That billings rather. And these are normally highly desirable contracts. So the contracts themselves are not gonna be the issue. It could be how the company is run. This is a a highly private equity group driven market. With ownership. And, there would be there would be a lot of players going after a Belcon client that would that was fumbling a little bit. So we we would think we would think Wasco would default would be very low. Yeah. We've actually seen that before. One thing I'll point out, you look at the criticized percentage, and you may say that's high, that's not new. It's looked like that for years. It's kind of the nature of the beast. It's a complex business. The government is slow to approve contracts. When contracts are awarded, there are often disputes But it is a good business. There's a reason why we have focused it on national security and defense. There's a reason why we haven't seen I don't I'm not aware of a single contract termination or stop work in the national or defense related contract portfolio. We have some that are not. But that's the minority. And it's also important to understand that in many cases, the personnel have to have security clearances. Is exceptionally valuable, and rare. So this is a really interesting space. It's kind of a niche. And we've in fifteen years, we have never had a charge off. I am not saying we will never have a charge off. I'm simply saying that our experience has been really good. And, Steven, it's a very high variable cost business. So the companies can flex up and down if they lose contracts And, again, their their employees are highly desirable. So if they happen to lose a contract, as often as not, those employees go over to whoever won the contract. So because of that, it's very easy to flex the expenses.

It's really great color. Thanks. Everything else I had has basically been covered. Appreciate the time, this one.

Okay, Steven. Hey. Lisa, we're ready for our last caller, please.

Thank you. And the next question will be coming from the line of Russell Gunther of Stephens. Your line is open.

Hi, Russell. Hey. Good morning, guys. Hey. Morning, John. Appreciate the incremental disclosure this quarter. Just wanted to get a sense for how you guys are thinking about the qualitative reserve build. Relative to the direct and indirect exposure to Doge? Really just qualitatively trying to get a sense to the extent for which you think you've ring fenced this overhang for Atlantic Union Bankshares.

Yeah. I would say, Russell, that you know, there's some component of Doge in in there, but it's not the big driver of the qualitative factor. The real the real impact is is related to a potential recession probabilities of recession going up as a result of tariffs and all the the the issues related to that that could impact the economic environment going forward negatively. So little little impact from a Doge perspective. We don't really think there's much. Doug can comment on this. A real big impact from a credit perspective. From those. We think there may be a potential growth you know, issue with that in the northern part of the yeah. In right, not in the car franchise, but in in the in the Northern Virginia I'm in DC. Areas. So so, again, not a not a big factor at all in in that overlay. So, again, as we've said, the the overlay that you saw was for the Atlantic Union Bankshares pre-merger franchise. And where we are pretty limited in terms of Greater Washington region, and the, the government contract portfolio would be the one that would, I guess, would say be most exposed. And you've seen our arguments that we're actually in a really good spot. And with what could be a trillion dollar record defense budget, we actually think that that these those contractors are going to grow. Are going to have opportunity and there's more capital going into that space. To paint a picture of a kind of a window into our world and Virginia if you leave Northern Virginia, and you head south and you talk to any business person, it is unlikely anyone's going to mention Doge. It's not a big deal south of the Greater Washington Washington region. They will talk about tariffs. They will talk about economic uncertainty. So the the government, you know, cost reduction issues are are more regionalized. In that Greater Washington region. Where they show up in Virginia or in North Carolina is no different in my opinion, than anywhere else in The United States. And it would be in the context of university research cuts, maybe some municipal grants. But there's nothing that's really unique as it relates to that elsewhere in Virginia once you really get out. Of that Greater Washington region, move over to Hampton Roads where there's another large population of federal employees that's all about defense. And with the president's executive order to increase American shipbuilding, a big winner is likely going to be Hampton Roads. And Newport News Shipbuilding and the largest naval base in the world, so on and so forth. So it's it's very important just to understand that this franchise is very diversified. And you do see regional differences. Hope that helps.

It does quite a bit. I appreciate the color. And then just last one for me. You know, we've touched on NII guide and the range of the pro forma NIM, but it would be helpful to get a sense prior to layering all that in The margin this quarter came in better than guide. Just how are you thinking about legacy Atlantic Union Bankshares in 2Q? Prior to folding in Sandy Spring? Thank you.

Yeah, Russell. So in terms of just, Atlantic Union Bankshares, we do expect some continued expansion of the margin in Q2. As we if you look back at what we guided to for the full year Atlantic Union Bankshares standalone in January, we said three forty-five to three sixty. We think we'll be heading higher than know, that low end. Obviously, we're at three forty-five this quarter. That expansion is on the back of continuing deposit costs coming down. We have about $800 million per quarter over the next few quarters of CDs. Repricing think the the cost of those that CD portfolio is about 4.3% now. And we're repricing those in the three seventy-five to 4% range. So that will continue to help. And then we we are seeing fixed rate loans reprice higher, as I mentioned earlier, you know, from a portfolio of fixed rate loans yield of about little over 5% repricing in the six and a quarter range, give or take. And so those are helpful, and that will continue as we go into this this quarter and and third third and fourth quarters of Beyond that, we think you know, Sandy Spring just for for color, have seen their margin expanded nine basis points this quarter. Primarily on the backs of lower deposit costs. And we expect that, that will continue to adjust their deposit rates down as well. So that's a nice tailwind for us. Going forward.

I appreciate it, guys. Great color. Thank you.

Thanks, Robert. Thanks, Russ. Well, thanks, everybody, for joining us today. We look forward to talking with you in our next quarterly update. Have a good day.

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