Atlantic Union Bankshares Corporation (AUB) Q2 2026 Earnings Report, Transcript and Summary

Good day. Thank you for standing by. Welcome to Atlantic Union Bancshares Second Quarter 26 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 will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker host, Bill Cimino, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Olivia, and good morning, everyone. I have Atlantic Union Bankshares president and CEO, John C. Asbury, and executive vice President and CFO, Alexander D. 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 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 second quarter of 26. 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 to publicly revise or update any forward looking statement except as required by law. Please refer to our earnings release and slide presentation issued today and our other SEC filings for further discussion of the company's risk factors. Other important information regarding our forward looking statements including factors that could cause actual results to differ from those expressed or implied in the forward looking statement. All comments made during today's call are subject to that Safe Harbor statement. At the end of the call, we will take questions from the research analyst community. And now I will turn the call over to John.

Thank you, Bill. Good morning, everyone. Thank you so much for joining us today. Atlantic Union Bancshares reported strong second quarter financial results reflecting disciplined execution and providing an encouraging indication of earnings power of the franchise we have been building. For the first time in 2 years, we did not incur any merger related costs. We were also pleased to realize a $32.3 million pretax gain from the sale of our equity interest in Bancshares, Inc. Adjusted operating performance, excluding the gain from the equity interest sale, was notable for solid loan growth, margin improvement on both a core and reported base disciplined expense management, and solid credit performance. Along with continued capital generation. Over the past 2 years, we have deployed capital to intentionally strengthen and expand our franchise We believe our second quarter results are an encouraging early indication that those investments are beginning to translate into stronger earnings capacity. Capital generation and long term shareholder value. We remain focused on building on this progress through disciplined execution, organic growth and continued attention to soundness, profitability and growth. In that order. Our commitment to creating shareholder value remains unwavering. We believe Atlantic Union is well positioned to deliver sustainable growth, top-tier financial performance and long term value for our shareholders. We believe that our continued organic growth opportunities due to our robust presence in attractive markets reinforce our status as the premier regional bank headquartered in the Lower Mid Atlantic. I will briefly cover our Q2 26 highlights and share insights before Alexander presents the financial review. Before reviewing this quarter's results, I would note that the second quarter was marked by continued uncertainty, particularly around geopolitical developments and conflict involving Iran. Despite that backdrop, customer confidence remained resilient in economic activity across our footprint held up well. We delivered record loan production during the quarter exceeding our 25 fourth quarter production level, which is traditionally our strongest quarter by roughly 8 percent. While the second quarter is typically 1 of our seasonally stronger periods, and we expect some moderation in the third quarter due to the normal summer slowdown, our pipelines remain healthy. Overall, we believe that our underlying credit activity and pipeline depth support our full year outlook, and we currently expect loan growth to finish toward the higher end of our mid single digit range. Importantly, this growth reflects strong client activity across our markets, the value of the customer relationships we have built and disciplined execution by our team. With that context, here are the key highlights from the second quarter. Average loans were $28.2 billion and grew approximately 6% annualized during the second quarter while period end loans increased approximately 10.4% annualized from Q1 to Q2. Ending the quarter at approximately $28.7 billion Growth was well distributed across the franchise, led by strong client activity and commercial lending, construction lending, multifamily, and select consumer categories. Line of credit utilization decreased slightly from the first quarter, but was up slightly year over year. Year to date annualized loan growth was 6.4%. As I mentioned, loan pipelines are healthy and support our expectation that full year loan growth is tracking toward the higher end of our mid single digit outlook Average deposits increased 2.4% annualized during the quarter, and total deposits increased approximately 1% annualized from the end of Q1 to the end of Q2, all consistent with our low single digit 2026 outlook Growth was concentrated in interest bearing deposits. We also reduced broker deposits by approximately $53 million during the quarter and roughly $571 million year to date. Broker deposits represented only 2% of total deposits at quarter-end, giving us flexibility to use them selectively going forward if needed. Our core customer deposit base remains a defining strength of the franchise. And our focus remains on relationship based deposit growth, expanding share of wallet, and maintaining funding discipline. Core net interest margin, which excludes the purchase accounting adjustments, improved by 1 basis point quarter over quarter. Reported FTE net interest margin increased 9 basis points to 3.94%, driven primarily higher accretion income compared with the first quarter. Alexander will provide more detail on the factors influencing NIM performance in his review section. Before turning to credit, I do want to highlight the progress we are making in bringing our capital markets capabilities to our expanded footprint. In the second quarter, former Sandy Spring Bank teams generated approximately 27% of our interest rate swap transactions and 32% of our foreign exchange revenue. We believe these fee products should continue to provide opportunities for additional revenue synergies over time. Credit quality remained strong in the quarter with annualized net charge offs of just 3 basis points for both the second quarter and year to date. Based on our first half performance, current loss expectations and favorable asset quality trends, we are lowering our full year net charge off guidance which Alexander will discuss later in the call. Key asset quality indicators remained encouraging. Nonperforming assets increased modestly from the prior quarter, but remained low at 39 basis points of loans held for investment, while past dues declined considerably and criticized and classified assets improved to 4.4% of total loans down from 4.5% in the prior quarter. Bureau of Labor Statistics is scheduled to release July unemployment data shortly, this chart will soon be updated. For now, I will simply note that Virginia and North Carolina's May unemployment rates remain below the national average, while Maryland's was just slightly above it. Continue to expect unemployment levels in Virginia, Maryland, and North Carolina to remain manageable and generally comparable to or below the national average consistent with Moody's current state level forecast. We remain confident in the resilience and long term attractiveness of our markets. As I approach my 10th anniversary with Atlantic Union at the end of this quarter, what is clear to me is how far we have come as an organization. We have stayed focused adapted as conditions changed, and consistently executed the strategy we set out and clearly communicated, while remaining grounded in the community bank values and local relationships that have always defined Atlantic Union. This quarter's results reflect that continued momentum and most importantly, the dedication of our teammates whose hard work makes it all possible. With that foundation in place and no additional acquisitions, currently planned during this phase of our strategic plan, our focus is squarely on continuing to demonstrate the sustained performance and capital generation capability of the company we have built. Performance that enables us to better serve our customers and communities invest in our teammates and create long term value for our shareholders. With that, I will turn the call over to our CFO, Alexander D. Dodd, for a detailed review of quarterly financial results. Before I do, I would like to note that Alexander has now been with the company for nearly 4 months, following a deliberate and smooth transition with former CFO Robert Michael Gorman, who will retire at the end of September. Since this is our last earnings call before Robert's retirement, I want to again thank him for all he is contributed over his 14 years with Atlantic Union. Robert leaves behind a strong legacy and will be missed, but he is ably succeeded by Alexander. With that, I will turn the call over to Alexander for his inaugural quarterly earnings comments. Alexander?

Thank you, John, and good morning, everyone. Before I begin, I wanna thank Robert as well for making this a smooth transition for me. I will now take a few minutes to provide you with some details on the results. My commentary today will primarily address Atlantic Union's second quarter financial results presented on a non GAAP adjusted operating basis. Which for the second quarter principally excludes the $32.3 million pretax gain associated with the sale of our equity interest in Bancshares, Inc. In the second quarter, reported net income available to common shareholders was $158 million and earnings per common share of $1.11 The adjusted operating earnings available to common shareholders were $134 million or $0.94 per common share for the second quarter, resulting in an adjusted operating return on tangible common equity of 20.11%, an adjusted operating return on assets of 1.47%, and an adjusted operating efficiency ratio of 47.47%. Here's a look at the GAAP year to date metrics and trends over the last few years. Looking at the year to date adjusted operating numbers the end of the second quarter, we have already reached the target for ROA and ROTCE medium term financial targets. We remain confident that we will achieve all 3 of these targets over the medium term which we define as this year and next. Turning to the credit loss reserves. At the end of the second quarter, the total allowance for credit losses was $331 million, an increase of $9.1 million primarily driven by loan growth during the quarter. The total allowance for credit losses as a percentage of total loans held for investment remains flat at 115 basis points at the end of the second quarter. As John mentioned, net charge offs were $2 million or 3 basis points annualized in the quarter. Now turning to the pretax pre provision components of the income statement for the second quarter. Tax equivalent net interest income was $329.7 million, an increase of $12.8 million from the first quarter primarily driven by an increase in loan volumes, higher loan yields, and increased loan accretion income. The increase in loan related interest income was partially offset by an increase in deposit interest expense primarily from growth in interest bearing deposit balances and modestly higher deposit costs. As John noted, the second quarter's tax equivalent net interest margin increased 9 basis points from the prior quarter, to 3.94%, primarily due to higher earning asset yields partially offset by modestly higher cost of deposits. Earning asset yields increased 9 basis points from the prior quarter, to 5.88% primarily due to higher loan accretion income of $5 million and higher loan yields. Cost of funds was flat from the prior quarter as a 3 basis point increase in the cost of deposits was offset by lower borrowing amortization costs related to past acquisitions. Of note, excluding the impact of accretion income, our core net interest margin increased by 1 basis point to 3.46%. Noninterest income increased $35.5 million to $90.2 million for the second quarter primarily driven by the gain on sale of our equity interest in Bancshares, Inc., excluding the onetime gain, adjusted operating noninterest income increased $33.1 million to $57.9 million driven by higher loan related interest rate swap fees, associated with higher loan originations and increased fiduciary and asset management fees which were partially offset by lower other income. Noninterest expense, decreased $10.7 million to $199.1 million for the second quarter driven by a $9 million decline in merger related costs. Adjusted operating noninterest expense, which excludes merger related costs in the first quarter, and amortization of intangible assets in both quarters, decreased $1.3 million to $184 million for the second quarter primarily due to lower marketing costs along with a decrease in salaries and benefits primarily related to seasonally higher payroll taxes and 401(k) contribution expenses in the prior quarter. At June 30, loans held for investment net of unearned income were $28.7 billion, an increase of $727 million or 10.4% annualized from the prior quarter. Our average loan growth for the quarter was approximately 6%. At June 30, total deposits were $30.5 billion, an increase of $77 million or approximately 1% annualized from the prior quarter while average deposits decreased 2.4% for the quarter. Our loan to deposit ratio ended the quarter at 94.1% within our preferred range of 90 to 95%. At the end of the second quarter, Atlantic Union Bank shares and Atlantic Union Bank's regulatory capital ratios were comfortably above well capitalized levels. In addition, we remain well capitalized on an adjusted basis if you include the negative impact of AOCI and unrealized losses for held to maturity securities in the calculation of the regulatory capital ratios. On a linked quarter basis, tangible book value per common share increased $0.84 or 4.2% to $20.77 per share at the end of the second quarter. Since Q2 of 25, tangible book value per share has grown $2.39 or 13% year over year. The CET1 ratio was 10.41% for the second quarter and within our preferred range of 10% to 10.5%. During the second quarter, the company repurchased approximately $10 million of its common shares at an average price of $37.76 leaving approximately $240 million remaining under our share repurchase authorization. Before turning to the financial outlook, I would emphasize that our second quarter results represented strong operating performance and an encouraging indication of the earnings capacity and capital generation capability of the franchise. At the same time, we believe our updated outlook reflects a disciplined and prudent view of second half funding competition and deposit mix. We expect well, we continue to expect loan balances to end the year between $29 and $30 billion, while year end deposit balances continue to be projected between $31 and $32 billion On the credit front, the allowance for credit losses is projected to remain in the 115 to 120 basis point range, and we are reducing the range for our projected net charge off ratio to be between 5 and 10 basis points in 2026. Fully tax equivalent net interest income for the full year is now projected to come in between $1.32 billion and $1.33 billion inclusive of accretion income. The updated range reflects our expectation of higher interest bearing deposit mix as well as greater loan and deposit competition in the second half of the year. We are tightening the range for our 2026 fully tax equivalent net interest margin to between 3.90% and 3.95%. This outlook is supported by our baseline assumption that the Federal Reserve increases rates by 25 basis points in September and that term rates remain stable at current levels. A full year basis, noninterest income is expected to be between $22 million and $30 million while adjusted operating non interest expense is estimated to fall in between the range of $742 million to $752 million including the expense impact of our North Carolina investment and our other 2026 strategic initiatives. Based on these projections, including our expected stock repurchase activity, we expect to generate annual growth in tangible book value per share of approximately 12% in 2026, and produce financial returns that will place us within the top quartile of our proxy peer group. In summary, Atlantic Union delivered strong operating financial results in the second quarter and had a solid first half. We remain focused on generating sustainable, profitable growth and to build long term value for our shareholders in 2026 and beyond. I will now turn the call over to Bill.

Thank you, Alexander. And, Olivia, we are ready for our first caller, please. Sally.

Ladies and gentlemen, to ask a question at this time, you will need to 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 the compiled can arrive. Now first question coming from the line of Russell Elliott Gunther with Stephens. Your line is now open.

Good morning, Russell.

Hey. Good morning. Hey. Morning, John. Good morning, Alexander. First question for me, I wanted to kind of start on the margin and really try to get a sense directionally for loan yields, where they are headed. So if you could level set us for where new production came on in February, and perhaps where that pipeline yield sits today, And then just remind us of what the fixed rate opportunity, repricing is for you guys, kind of relative to what you are putting on new commercial at today.

Sure. And good morning, Russell. So For the second quarter, our fixed rate loans are coming on. New loan spreads are around 200 basis points. And our variable rate loans are also around 200 basis points. We saw a little bit of lower spreads in the quarter. Due to larger loans that we completed and that was more just a function of the size of the loan. But around 200 basis points for both variable and fixed. In terms of the fixed rate opportunity, we have about 800 to $900 million per quarter of variable rate loans that are maturing. With rates around 5% and we expect to put those back on around 10 basis points. So it is about a 100 to a 110 basis point benefit for the loan maturities each quarter.

Okay. Great. Thanks, Alexander. And then, maybe just to follow-up with the revised NII guide including a Fed hike in September. Can you quantify for us what, if any, benefit is factored into your kind of revised NIM and NII outlook? And perhaps just kind of package where you would expect kind of the core NIM overall to trend with within that guide.

Yeah. And so we do have in our guidance 25 basis point increase since September. We will see a small benefit in the fourth quarter for the deposit pricing lag. it is about it is under 1 basis point for the full year. it is about 3 basis points in the fourth quarter. In terms of core margin, we do expect that to grind higher over time. From the benefit of the fixed-rate loan repricing. But because of higher funding costs and deposit mix, it is not gonna be as high as expected. As we look forward to the next few quarters, we will see core margin increase modestly. Because of those dynamics.

Got it. Okay. Great. Super helpful. I will step back. Thanks for taking my question.

Thank you, Russell.

And, Olivia, we are ready for our next caller, please.

Thank you. Our next question coming from the line of Janet Lee with TD Securities. Your line is now open.

Hi, Janet.

Good morning. Good morning. Could you give us a little more color around the deposit competition and the mix shift, what you are expecting in your NII guide and maybe what pace of deposit cost increase assumed in your 3.90 to 3.95 NIM guide?

Sure. And good morning, Janet. So we did update our guidance, for net interest income. And it is it is solely coming from the funding side of the balance sheet. What we saw in the quarter was customer migration to our higher yielding interest bearing deposit accounts, and that is informed our guidance. So we are encouraged by the loan growth that we saw in the quarter. But the cost of funding that is going up higher than we expected. What we saw through the quarter to give you perspective on just the month of June, we saw a 2 basis point increase in our cost of deposits. it is 3 basis points for the full quarter and 2 basis points the month of June, and that really informed the outlook for the rest of the year. So I will I guess I will stop there, Janet, and see if you have further questions.

Got it. So 2 basis point increase in the month of June. So that is, sort of, at this point, the pace at which you would expect for the rest of the year ballpark?

Not necessarily. We are gonna be a little bit under that if you just play that out for the rest of the year. And that is gonna come from the mix that we will see in CD growth and money market growth as well as some DDA growth that we have in our outlook. So it is it is it is underneath that pace, but that is what informed our outlook for the rest of the year.

Alexander, is it fair to say what we are seeing is relatively stable deposit rates from a competitive standpoint. Is this more of a mix issue in terms of where the growth coming?

that is a good point, John. Yeah. It really is our deposit mix. it is informing the guide here. The deposit competition is elevated but stable. And so what we are seeing is just the inflow into our deposit portfolio is coming from the higher yielding products.

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

We had said on the last call the range is 1.40 to 1.50, and we are still tracking to that. So 1.45 being in the midpoint is fine. Got it.

Thank you.

Thanks, Janet.

Thank you, Janet.

And, Olivia, we are ready for the next caller, please.

Thank you. Our next question coming from the line of David Bishop with Hovde Group.

Hey. Good morning, gentlemen.

Hey, David. Curious, John, Alexander, It sounds like the loan pipeline continues to be pretty robust. Just curious, what you are seeing on the commercial pipeline out of sort of the legacy Sandy Spring, Maryland market. How much that is contributing to the pipeline and maybe the growth you saw before? Yeah. We are growing, the former Sandy Spring portfolio, and we are happy to see that. David Ring, do you want to just sort of speak directionally?

Sure. I mean, we are seeing double digit growth in the pipeline with in the Greater Washington market, Greater Washington, Maryland. Production is up double digits as well. And all the markets in all the markets, all the teams in those markets are all growing. So we are seeing very balanced, stable growth.

And, we are not seeing, you know, any hangover from the acquisition. The way I think about this, David, is that the former Sandy is, you know, in round numbers, maybe a third of the overall portfolio. And so you would expect all things being equal for them to be about a third of the pipeline. And they have come a long way, you know, closer to that. So we have been very pleased with it. And the teams, to be clear. Got it.

Appreciate that color. And then, John, just maybe an update in progress in terms of Carolina build out, what you are seeing on those funds. Thanks.

Yes. there is really 2. I think of this as it is a holistic strategy. Comprised of both the retail banking effort as well as the investment that we are making and expanding our commercial banking teams along with some additional, investments for mortgage and wealth management, etcetera. Something I have been saying recently, I wanna be clear in terms of the investment. While we do refer to it as the North Carolina strategy, you could more specifically refer to it as our densification strategy in Raleigh and the Wellington because that is where the thrust of the investment and certainly the physical branch network build out is going on. So I will ask Sean O'Brien, head of consumer and business banking. Can you update us on where are we in terms of, the branch effort? And then I will ask David V. Ring to chime in with some perspective on the commercial side.

Yeah. Sure. Thanks, John. So we announced that we were gonna open 10 branches 10 new branches in North Carolina to John's Point. In Raleigh in Wilmington. And the first of those branches opens here this month, so we are very excited that is in Raleigh. Raleigh. We have a branch opening, and then we have 2 more opening in Raleigh. In October, November of this year. So we will have 3 new Raleigh branches this year. And then we will start to open branches in Wilmington as well. If you remember, we announced it is 3 in Wilmington. And we hope to get all 10 done in 2027. A couple may get into 2028, but we are very happy with our site selection. We have hired the first 3 teams. They are completely staffed for Raleigh, so we have all of those teams hired. We are very happy with the talent we found. So we are very excited about it. We have a lot of plans underway for how to grow new customers in those 2 primary markets.

And then, David, your perspective on what we call wholesale banking, which are the various commercial businesses.

And we are working really closely with consumer. And so we are seeing double digit growth again in loan balances in North Carolina plus we are waiting on announcements of some new hires that have started or recently started. That we are very excited about. So overall, we are meeting our talent acquisition plan. And we are meeting our loan growth expectations.

So Dave, more to come on that.

Great. Thank you for the color.

Thanks, David.

And, Olivia, we are ready for our next caller, please.

Our next question coming from the line of Catherine Miller with KBW. Your line is Hi, Catherine.

Hi. Good morning. Just 1 more on the NII. Circling back on just the kind of size of the bond book. How should we think about the securities portfolio growth in the back half of the year?

Or if you were to keep that fairly stable? Yeah. We are I guess I will I will start with in the second quarter, we did bring it down over $200 million to fund lending growth. And we are now at about 13% of total assets. And we plan on keeping it stable in the rest of the year.

So we would -- that shrunk the past 0.5, so maybe we can expect those deposit growth improves in the back 0.5 of the year. Your loan growth is funded by deposit growth, not the securities book, so that just is flat.

Yeah. You are correct. Yep. We wanna fund the loan growth from our core deposit growth going forward.

Perfect. Okay. Great. And then on buybacks, it was great to see that started. How should we think about how much of that $240 million you expect to repurchase over the next, over the period that you have that authorization?

Yeah. We plan to complete the whole program. Our forecasting is assumption right now is spread out by quarter. But, you know, it is obviously gonna be dictated by the share price and when we are in the market. Perfect.

Okay. Thank you.

Yep.

And, Catherine, 1 quick note, Catherine. If you recall, you know, the securities book was elevated after the CRE loan sales. It coming down is sort of Yeah. Part of our plan is to reinvest in the core earning assets. So it you will go back. You can see how it rose temporarily, and that was the plan. And then we intended to draw it down, which was what we done. And as Alexander said, roughly 13% is a pretty good pretty good proportion of assets to have in the securities portfolio from our perspective.

Yeah. Got it. Okay. Thanks for the clarification.

Thanks, Catherine.

And, Olivia, we are ready for the next caller, please.

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

Hey, Steve. Hey, John. Good morning, everyone. Maybe just following up on deposit competition here. Just kind of curious in terms of what is your thought on maybe increase borrowings over higher cost CDs in my market? Is the market that competitive that borrowing is cheaper? I know you put on some towards the end of the quarter Yes.

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

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

Yeah. And Okay. You know from past history with us, not unlike many others, we do see some seasonality and deposit balances in Q2 due to tax payments. And we also have certain larger commercial depositors that seem to commonly have some sort of, downdraft and balances just at quarter end through the natural cycle and flow of their businesses. And you can see that evident and the difference between the spot growth rate for deposits and the average quarter over quarter. Right. Okay. No. Just wanted to check on that. Appreciate that color there.

And then second thing here, just in terms of, you know, on credit, I guess, you know, 2 things. 1, if you could give color around the C&I loans that were placed on nonaccrual this quarter. And then, you know, with regard to the allowance for credit losses, you guys state in your guidance that you assume an uptick in unemployment. Just kinda wondering how much of an impact that uptick has on the total ACL for the current year by or by year end.

Douglas Woolley, our Chief Credit Officer, is here. Do you wanna speak to that, Douglas?

The C&I nonperformers, it is 2 smaller credits that have gone a little bit sideways, so we are working through that. But obviously, nonaccrual, so we think it is a little bit of loss there. Does not indicate anything and not tied to anything else in the portfolio.

It was interesting. We have been impressed with the resilience of the not only our local economies, but client base, you know, you would expect to see some stress and this is not much. So non performers are low from our perspective at 39 bps of loans held for investment. And it is fair to assume that you could see it go plus or minus a bit in any given quarter. We are actually below where we finished the end of last year. No common thread. In terms of the ACL. Yeah. It just it happens. And your losses are very, very low. I have said for 10 years, that, losses across the industry and in the bank are, you know, below what I would have expected to be a normalized rate that was beginning 10 years ago. So we feel pretty good about losses. Right. And I do appreciate that color there.

And just the ACL guide, is it just, like, maybe 1 to 2 bps in terms of the assumption on the unemployment rate to rise is this a minor impact maybe?

Your guidance for 2026?

that is right. It is a minor impact. We are certainly still within our 115, to 120 basis points if you look out to 2027.

Okay. Thanks. We will step back in the queue here.

Thank you, Steve.

And, Olivia, we are ready for the next caller, please.

Our next question coming from the line of Brian Wilczynski with Morgan Stanley. Your line is now open.

Hi. Hi, Brian. Good morning. Thanks for taking my questions. You mentioned earlier on the call that most of the pressure that you are seeing on deposit cost is coming from the mix of deposits Can you give any color on what the cost of new interest bearing deposits that are coming into the bank today are?

Yeah. The new deposits on a combined basis is gonna be over 3%. Somewhere between 3% and 3.5% depending on that mix. But it is mostly gonna be in CDs, and money markets and interest bearing I am sorry. Interest checking. Got it.

That is very helpful. Thank you. And then when we look at the non interest bearing deposits as a percentage of total, it sounds like there will be some more migration in the second half of the year. Do you think that you will see a similar amount of migration in the second half as you saw in the second quarter?

We are actually forecasting some of the interest bearing I am sorry, noninterest bearing growth in the second half of the year and maintaining that same percentage of our total deposits around 22%. But, obviously, we saw migration happen in the second quarter. So you know, that is our assumption right now based on working with the business leaders. But, you know, it could change.

Yeah. And the data that we are looking at is suggesting it is less -- it is not about smaller deposit noninterest bearing accounts. it is some of the larger ones, commercial businesses, that are making more active use of sweep accounts. I mean, the reality is that we do offer quite sophisticated treasury services, and part of our job is to help them optimize working capital. So we saw some of that movement as they were able to, you know, deploy some surplus funds But I am in Alexander's camp. You know, we would we would expect to see some improvement there over time. it is very difficult to forecast in this environment. No question about it.

Got it. And if I could just squeeze in 1 more, Alexander. Do you happen to have the spot deposit costs, at quarter end?

It was 1.95%. For the month of June.

Got it. I really appreciate all the detail, and thank you for taking my question.

Certainly.

Thanks, Brian.

And, Olivia, we are ready for our next caller, please.

Our next question coming from the line of David Chiaverini with Jefferies. Your line is now open.

Hi, David.

Hi, everyone. This is Frank on for David. Just 1 for me. Hey, just 1 for me on the balance sheet sensitivity. I know you guys mentioned that the NII guide down was coming mostly from the deposit side. But I just kind of want to touch on how your modeled NII sensitivity and how your modeled NII sensitivity has changed relative to last quarter. Just with the positive beta you are now embedding in your guidance. Thank you, guys.

Yeah. The sensitivity changed because of our mix. And that is that is what you can expect is the mix changed versus the prior quarter into higher rate sensitive deposit products. To the second part of your question around the beta, the beta we are priced in for the 25 basis point increase is about 50% for interest bearing. Products and 40% overall. We have I mentioned earlier in the call, there will be a lag, so we will reprice immediately for some contractual deposits. And then there will be a 90-day lag for our savings portfolio. Where we will see a bit of a benefit that is short lived, but a benefit in the fourth quarter.

Awesome. Cool. Thank you, guys.

Thanks, Frank.

And, Libby, we are ready for our next caller, please.

Our next question in queue coming from the line of Casey Haire with Piper Sandler. Your line is now open.

Yes. Thanks. Good morning, guys. Curious if we could go back to the conversation here around the repurchase briefly. I know you said you plan to utilize the entirety of that. Can you talk a little bit about at a high level, how you think about the math there, whether it is you know, an earn back perspective, alternate uses of that capital, And just kind of potentially how sensitive the price you could be if the stock continue to move higher?

Sure. So in terms of the buyback, a couple of things we wanna manage at the same time. We wanna operate our CET 1 ratio between 10% and 10.5%. And our capital management priority excuse me, is supporting loan growth. So if we see loan growth outperform our guidance, we will slow down the buyback. But in terms of buybacks specifically, we have an intrinsic value model on our share price, and we wanna get a certain return out of when we will be in the market. So, you know, if it does trade above our shares trade above where we wanna actually be in the market, there will be a big pause for a little while in terms of when we are repurchasing shares. Overall, the earn back, though, is about 4 years. On the share buyback. So we are we wanna make a good economic decision of when we are in the market and when we are actually doing our repurchase activity. We have modeled, as I said, over the next 12 months to be split by month or evenly distributed, but that is gonna depend on where the shares are pricing.

Got it. Very helpful. Appreciate that clarity. And then just maybe 1 last 1 going back to kinda the balance sheet momentum and loan growth and deposit growth. Sounds like overall balance sheet growth should maybe more closely match loan growth moving forward if I am hearing what you are saying? You know, less potential drawdown in securities, maybe less remix and more just you know, matched growth from that perspective. Is that the right viewpoint and the hope of you would be able to deliver?

Well, over time, the guidance that we provided for 2026 is mid single digit loan growth and low single digit deposit growth. But certainly, over time, we would expect to fund loans with deposits customer deposits ideally.

Got it. Okay. Appreciate everything else has been kind of asked and answered. Thanks for the time.

Thanks, Steve, and thanks, everyone, for joining us today. We appreciate your time and look forward to talking with you next quarter. Thank you, everyone.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. And you may now disconnect.