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Edited Transcript of UBSH earnings conference call or presentation 17-Oct-19 1:00pm GMT

Q3 2019 Atlantic Union Bankshares Corp Earnings Call

RICHMOND Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Atlantic Union Bankshares Corp earnings conference call or presentation Thursday, October 17, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John C. Asbury

Atlantic Union Bankshares Corporation - President, CEO & Director

* Robert Michael Gorman

Atlantic Union Bankshares Corporation - Executive VP & CFO

* William P. Cimino

Atlantic Union Bankshares Corporation - SVP of IR

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Conference Call Participants

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* Casey Cassiday Whitman

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Catherine Fitzhugh Summerson Mealor

Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP

* Laurie Katherine Havener Hunsicker

Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. And welcome to Atlantic Union Bankshares Third Quarter 2019 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions).

I would now like to hand the conference over to your speaker today, Bill Cimino. Thank you. Please go ahead, sir.

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William P. Cimino, Atlantic Union Bankshares Corporation - SVP of IR [2]

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Thank you, Tiffany, and good morning, everyone. I have Atlantic Union Bankshares' President and CEO John Asbury; and Executive Vice President and CFO, Rob Gorman with me today. We also have other members of our executive management team with us for the question-and-answer period.

Please note that today's earnings release is available to download on our investor website, investors.atlanticunionbank.com. During the call today, we'll 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 our earnings release for the third quarter of 2019.

Before I turn the call over to John, I would like to remind everyone that on today's call, we will make forward-looking statements, which are not statements of historical facts and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise any forward-looking statements. Please refer to our earnings release for the third quarter of 2019 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. All comments made during today's call are subject to that safe harbor statement. At the end of the call, we'll take questions from the research analyst community.

And now I'll turn the call over to John Asbury.

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John C. Asbury, Atlantic Union Bankshares Corporation - President, CEO & Director [3]

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Thank you, Bill. Thanks to all for joining us today, and welcome to our second conference call as a newly rebranded Atlantic Union Bankshares Corporation. We remain pleased that our change in name, signage and trading symbol has been uneventful and in fact, we received a surprising number of compliments about it. I'd like to express my gratitude to our marketing team for leading this very successful effort.

I'd like to point out, this month marks my 3-year anniversary of having joined the company. What a difference I see 3 years in and what an exciting transformation we had experienced and continue to experience. Our team checked off the boxes on the prior 3-year strategic plan and recently approved a new one that I'll comment on later in my remarks. The current challenges we face in the interest rate environment notwithstanding, I have never been more optimistic, confident and enthusiastic about the future of the company than now.

Turning to current events, Atlantic Union filed its good first half of the year with a solid third quarter. We will recall our stating in prior comments that results would be noisy for the first 3 quarters of the year as we wind up the Access National Bank integration, rebranding, and a few other undertakings and that has certainly proven to be the case.

As you can see, in the earnings release, we did have a number of one-time items in the third quarter and a charge-off of the long-term land development work out, all of which impacted our operating profitability metrics from the prior quarter. For purposes of clarity, Rob Gorman will walk you through nonrecurring items in detail during his portion of the comments. But for now, I'll hit the highlights of the quarter.

To start, we delivered strong deposit growth while loan growth was seasonally slow in the third quarter, continued to build out the leadership team with a selection of a seasoned wealth management leader. We will have more detail about this hire in an upcoming official announcement. We also hired another seasoned leader, Alison Holt-Fuller into a new role instead of product management. Both have exemplary backgrounds and are important additions to the company's leadership. We rolled out our new 3-year strategic plan to our teammates and we consolidated 4 branches.

As for operating metrics, for the quarter, our operating return on tangible common equity was 15.64%, which is a 94 basis point decrease from the second quarter. Operating return on assets was 1.29%, down 6 basis points from the last quarter and operating efficiency ratio was 55.12%, which is a 266 basis point increase from the prior quarter.

Since last fall, we've communicated our financial targets on an annualized basis in the fourth quarter of 2019 of an operating ROTCE between 16% and 18%, and operating ROA between 1.4% and 1.6% and an operating efficiency ratio at 50% or below. Clearly, we're facing headwinds from the current rate environment. At the beginning of the year, we expected that there'd be fed fund increases in 2019 and a steepening yield curve. The rate environment is shown to be worse than our expectations and there has been a sustained inversion of the yield curve which continues to negatively impact our net interest margin. Nevertheless, based on what we know today, we expect to be within the targeted ROTCE range in the fourth quarter of 2019 on an annualized basis and our efficiency ratio should be near the 50% target for the fourth quarter as well. Achieving our ROA target, however, now looks like a 2021 event, given our current interest rate modeling. Again, Rob will elaborate on this in his section.

Loan growth was 3% annualized for the quarter point-to-point while average loans grew 5%. Q3 is predictably a seasonally slow loan growth quarter for us, further dampened by seasonal pay downs among our government contracting clients due to the federal government September 30 fiscal year-end. We also saw the persistent trend of CRE pay downs remain at elevated levels. C&I line utilization during the quarter remained stable while total commitments ticked up from the prior quarter.

As a reminder, the Access acquisition closed on February 1, 2019. On a pro forma basis, as if the Access balances were included for the full year, our year-to-date annualized loan growth is approximately 5% point-to-point, slightly below year-to-date expectations. Our loan pipelines are well-balanced, they remain strong and are higher than at this point last year. Based on everything we know at this time, we expect full year 2019 loan growth to be around 6%. We do think we could outperform this end of third quarter forecast just as we did at this time last year, especially given our 14% annualized loan growth in last year's fourth quarter and the disruption of the pending BB&T, SunTrust merger. However, we think it best to update our expectation based on where we are currently, and then we'll see what happens.

Our deposit growth was a bright spot for the quarter, coming in strong at about 17% annualized. In the second quarter, we noted that we had experienced seasonal reductions in deposits from some larger relationships that we expected to return in the second half of the year, and they did. Encouragingly though, a rebound at deposit growth was broadly based. Year-to-date, deposit growth of approximately 9% point-to-point is at the higher end of our upper single-digit growth guidance. Given the current strength, we continue to believe we'll be in our guidance range of high single-digit deposit growth for the year. Our loan-to-deposit ratio was around 94% at quarter end, which is slightly below our 95% target and that's a good place to be.

Turning to credit. Our credit quality remains solid. The economy in our footprint is steady. Unemployment at Virginia ticked down to 2.8%, and we still do not see any evidence of systemic changes to our credit environment. Charge-offs did -- increased to 25 basis points annualized from 14 basis points in the prior quarter, totaling 18 basis points year-to-date. The increase was primarily from one long-running land development work out that incurred a $3.1 million charge-off during the quarter, accounting for about 40% of total charge-offs. This does not reflect any change in our credit environment, but it was rather unique to the borrower whose personal circumstances caused him to negotiate an orderly sell the property to another developer versus continue to build it out as he's been doing for a very long time. From our standpoint, we decided the best course of action was agreed to the sale in bulk, eliminate the exposure, be done with it versus taking into OREO and attempt to better outcome. The transaction is expected to close in November.

On the other hand, we also had an outsized loan recovery at $9.3 million from the Xenith acquired portfolio, not reflected in net charge-offs as the loan was charged off prior to acquisition and therefore, was accounted for under noninterest income. As we've seen in prior quarters, a big part of charge-offs, 40% in the third quarter, came from a third-party consumer loan portfolio. While it has served its intended purpose, this is not a strategic focus area, and is being wound down over the next year. The remaining 20% of charge-offs for the quarter were well distributed among a handful of smaller borrowers, and we noted nothing out of the ordinary with them. As evidenced by this quarter, charge-offs are typically lumpy quarter-to-quarter, but we otherwise expect full year 2019 to look about, like the past few years, in terms of credit quality, barring some unexpected change in the macroeconomic environment. As I've said for nearly 3 years. I continue to believe that problem asset levels at Atlantic Union and across the industry remain below the long-term trend line. Eventually, we are going to see a return to more normalized credit losses, but we can't tell you when to expect that, as we're not yet seeing any evidence of systemic downturn.

Moving away from quarterly results and looking ahead, as I mentioned earlier, we rolled out a new 3-year strategic plan to our teammates during the quarter. Our plan is in keeping with how we'd like to operate Atlantic Union Bank, which is maintain forward progress, press our advantage where we can and do what we say we're going to do. The new plan will deliver on 4 overarching objectives that we believe are essential to our future success.

First, meet the changing needs of our customers. We must remain nimble and respond to the rapidly evolving business environment. We note with caution, any number of formerly well-regarded businesses who took their eye off the customers, failed to respond to a changing environment and found themselves obsolete. We want to avoid that outcome.

Second, optimize, digitize and automate processes. Our business processes need to be optimized, digitized and automated in order to improve efficiency, responsiveness and get things right every single time. This is a multi-year undertaking, but the work is underway now.

Third, demonstrate organic growth. We've demonstrated we're a successful acquirer and integrator. The less obvious is the organic growth we've also achieved. We believe we have the platform, scale, markets and capabilities to demonstrate we can meet our objectives through organic growth. This doesn't mean we would not consider acquisitions over the next 3 years, but for the time being, the best investment for Atlantic Union Bank is Atlantic Union Bank itself. We have an ambitious initiatives agenda inside the company and we need time without M&A distraction to focus and best position ourselves for growth and future success.

And last but not least, at every turn, keep getting better. We have a great opportunity to build the premier mid-Atlantic regional bank, and we can't do that on a status quo footing. As the saying goes, "The road to success is always under construction." I love the keep getting better mantra and think it fits nicely with our can-do attitude, and it defines who we've become and what we stand for. For those who know us and know our story, these objectives are a logical progression at what we've been working on for some time. Not surprisingly, our roadmap to achieving these outcomes is very familiar. There are priorities which remain unchanged day 1, and I'll give you a few updates on our priorities.

First, diversify loan portfolio and revenue streams. We continue to make progress on our commercial banking effort. And the commercial loan categories of C&I and owner-occupied real estate are now 1/3 of our loan balances. To complement this effort, we are standing up an equipment finance team to close a competitive gap at our commercial offerings. This is something we've been exploring for about a year, and we first signaled at our Investor Day presentation last fall. The team is based in Atlanta. They've worked together for some time with a great track record and they have backgrounds in the super regional and large national banks. We'll leverage this new capability to take maximum advantage of opportunities across our mid-Atlantic footprint in addition to their independent originations. Well, it will take a few quarters for the team to get up to speed. We're excited to offer secured equipment finance to include leasing as a specialized commercial and industrial offering for our clients. They generally focus on equipment transaction sizes of $1 million and up.

Next, grow core funding. As I mentioned earlier, our loan-to-deposit ratio is currently about 94%. We continue to believe we have opportunities to grow deposit base and deepen our market share. In the latest FDIC depository market share data, Atlantic Union became what we believe to be the first Virginia bank ever to overtake one of the big 4 bank competitors in the Richmond MSA eclipsing BB&T to take the #4 position. The coming Truist merger will solidify this position as SunTrust is eliminated. Managing to higher levels of performance. As mentioned, we're maintaining our top-tier financial metric targets, and we'll aim to stay in the top quartile of our peers by these measures.

Next, strengthen digital capabilities. We've already implemented Zelle and nCino this year, which we view as table-stakes technology improvements for consumer and commercial clients. On the Middleburg Financial, our wealth management side, we're in the early stages of adopting a new comprehensive wealth management platform, which will improve the client experience while making us more efficient and scalable. We're also working on a new digital account opening solution and have already simplified the mobile banking enrollment process by eliminating repetitive data entry.

Next, make banking easier. We launched an improved digital service functionality for consumer customers, making it easier to update basic personal financial information. In the fourth quarter, we're piloting a project to have temporary instant debit card issuing in our branches. This will not only make banking easier, but it will give customers everything they need to immediately start using our services once opened.

And last, replacing our priority of integrate Access National Bank, which will check off at year-end with a new priority and that's capitalized on strategic opportunities. Who knows what the future holds, but as we stated in our strategy, we must be nimble and ready to react to the changing market place. The greatest market opportunity we're going to see at Atlantic Union Bank over the next few years is likely the pending combination of BB&T and SunTrust. So I'll give a few updates on where we stand with that.

Year-to-date, we've hired 29 people from these companies in a variety of roles. Anecdotally, we're seeing more traction on the marketplace for Atlantic Union as the alternative bank of choice. As the not too large, not too small home team alternative, we believe we're well-positioned to take advantage of this disruption and are not simply waiting for this to come to us. We have an organized project team, leading a multifaceted strategy, focused on maximizing this opportunity. The team analyzed their branch network as well as the BB&T and SunTrust branch network to identify, categorize and prioritize opportunities for Atlantic Union. We're expecting considerable Truist branch closures outside of the required divestitures in our Virginia trade areas and we want to be ready for the coming disruption.

We are accelerating some investment in projects we had slated for 2020, end of this year to close competitive gaps and capitalize on what we firmly believe will a multi-year disruption at the single largest market share competitor operating in Virginia. I realize this has been a lengthy update, but I hope it provides insights into how we think, and what we've been up to.

In summary, Atlantic Union had another solid quarter. We're making steady progress against our strategic priorities and are positioned to continue to improve our already good financial performance, despite the interest rate environment headwinds. We're pleased with the favorable market reception to our new Atlantic Union Bank brand. I remain highly confident with what the future holds for us and the potential we have to deliver long-term, sustainable performance for our customers, communities, teammates and shareholders.

And I'll close as I usually do by reiterating. Atlantic Union is a uniquely valuable franchise. It's dense and it's compact in great markets with a story unlike any other in our region. We've assembled the right scale, the right markets and the right team to deliver high performance in a franchise that can no longer be replicated in Virginia. We have incremental growth opportunities in our North Carolina and Maryland operations, and what we believe, will be a multi-year disruption with 2 of our largest competitors causing us to believe we have everything we need to accomplish our objectives organically at the present time.

I'll now turn the call over to Rob to cover the financial results for the quarter. Rob?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [4]

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Well, thank you, John, and good morning, everyone. Thanks for joining us today. I'd now like to take a few minutes to provide you with some details of Atlantic Union's financial results for the third quarter. Please note that, for the most part, my commentary will focus on Atlantic Union's third quarter financial results on a non-GAAP operating basis, which excludes $1.9 million in after-tax merger-related costs and $895,000 in after-tax rebranding related costs. For clarity, I will specify which financial metrics were on the reported versus non-GAAP operating basis.

In addition, where applicable, I will make reference to the company's financial results that are further adjusted for material, strategic and atypical items which impacted the current quarter, including actions taken to reposition the balance sheet for declining interest rates. These items include the following: the company received approximately $9.3 million in life insurance proceeds during the quarter related to a Xenith-acquired loan that have been charged off prior to the company's acquisition of Xenith, which is recorded in other noninterest income. The company sold approximately $75 million of securities and recorded a gain on the sale of investments of approximately $7.1 million during the quarter. The company also paid off $140 million in long term Federal Home Loan Bank advances and terminated related cash flow hedges, which resulted in debt extinguishment losses of approximately $16.4 million recorded in noninterest expense. The effective cost of these advances, including the hedge, was 5.8%. So by repaying these high cost fixed-rate advances, we're able to improve the go-forward net interest margin by approximately 4 basis points and increased annual earnings by about $0.04 per share.

In the third quarter, reported net income was $53.2 million and earnings per share was $0.65, up approximately $4.5 million or $0.06 from the second quarter. The reported return on equity was 8.35%, the reported return on assets was 1.23% and the reported efficiency ratio was 60.47%. On a non-GAAP operating basis, which as noted, excludes $2.8 million in after-tax merger-related and rebranding related costs. Consolidated net earnings from the second quarter were $56.1 million or $0.69 per share, down from $57.1 million or $0.70 per share in the prior quarter.

The non-GAAP operating return on tangible common equity was 15.64% in the third quarter and was 16.18% on a year-to-date basis. The non-GAAP operating return on assets was 1.29% in the third quarter and was 1.32% on a year-to-date basis. The non-GAAP operating efficiency ratio was 55.12% in the third quarter and was 53.92% on a year-to-date basis. Of note, the third quarter operating efficiency ratio would have been approximately 430 basis points lower if adjusted for the strategic and atypical items referenced above.

As John mentioned, we expect improvements to the operating financial metrics in the fourth quarter. As a reminder, we remain committed to achieving top-tier financial performance relative to our peers. Since last fall, we have been targeting the following operating financial metrics: an operating return on tangible common equity within a range of 16% to 18%; an operating return on assets in the range of 1.4% to 1.6%; and an operating efficiency ratio of 50% or lower. We expect to be in the targeted range for return on tangible common equity in the fourth quarter of 2019 and on a full year basis in 2020. Due to the current low rate environment and expectations of further reductions in the fed funds rate, we continue to project additional net interest margin compression in the next several quarters, which will delay achievement of the low end of the return on assets targeted range until 2021. In addition, due to additional net interest margin compression and its impact on net interest income, we are now projecting that the operating efficiency ratio will be range-bound between 50% and 52% over the medium term.

Now turning to the major components of the income statement. Tax equivalent net interest income was $139.4 million, which is down $2.1 million from the second quarter, primarily due to lower levels of loan-related accretion income, which declined by $2.7 million from the prior quarter. Net accretion of purchase accounting adjustments for loans, time deposits and long-term debt added 13 basis points to the net interest margin in the third quarter, which is down from the second quarter's 20 basis points impact. Again, primarily due to the reduced levels of loan-related accretion income.

The current quarter's tax-equivalent net interest margin was 3.64%, which is a decline of 14 basis points from the prior quarter. The decline in our tax-equivalent net interest margin was principally due to a 19 basis point decrease in the yield on earning assets, partially offset by a 5 basis point decline in the cost of funds. The 19 basis point decrease in the quarter-to-quarter earnings asset yield is primarily driven by a 21 basis point decline in the loan portfolio yield. 21 basis point quarterly decline on the loan yield was driven by 10 basis points impact from the lower loan accretion income and lower loan yield of 11 basis points, resulting from the impact of declines in market interest rates during the quarter. Notably, reductions in the 1 month LIBOR rate and the prime rate. The quarterly 5 basis point decrease in the cost of funds to 109 basis points was primarily driven by a 32 basis point decline in wholesale borrowing cost and favorable changes in the overall funding mix between quarters, partially offset by higher deposit cost, which increased 2 basis points from the second quarter to 95 basis points.

The material reduction in our wholesale borrowing costs and the overall reduction in the cost of funds during the quarter resulted in part from the various management actions taken to reposition the balance sheet for declining interest rates that were executed in Q2 and Q3, including the repayment of high cost Federal Home Loan Bank advances, as noted earlier.

The provision for loan losses for the third quarter was $9.1 million or 29 basis points on an annualized basis, an increase of $3.2 million or 9 basis points from the second quarter. The increase in loan loss provision from the previous quarter was primarily driven by higher levels in net charge-offs and loan growth. For the third quarter of 2019, net charge-offs were $7.7 million or 25 basis points on an annualized basis. That's compared to $4.3 million or 14 basis points in the prior quarter. As in previous quarters, a significant amount on the net charge-offs came from nonrelationship, third-party consumer loans, which are in run-off mode.

In addition, as John mentioned, we also charged off $3.1 million during the quarter related to a long-running land development work out loan. On a year-to-date basis through September 30, net charge-offs were $16.3 million or 18 basis points. Noninterest income increased $17.5 million to $48.1 million for the third quarter from $30.6 million in the prior quarter. Increase in noninterest income was primarily driven by life insurance proceeds of approximately $9.3 million related to the Xenith-acquired loan that had been charged off prior to the acquisition of Xenith as well as a gain of approximately $7.1 million due to the sale of investment securities during the quarter. In addition, loan-related interest rate swap income increased $1.8 million due to increased transaction volumes resulting from the flat yield curve. And mortgage banking income increased approximately $600,000 from the prior quarter due to increased levels of refinance loan volumes driven by the low mortgage interest rate environment. Partially offsetting these increases was $3.1 million (sic) [$3.5 million]decline in debit card, interchange income as a result of complying with the Durbin amendment, which was effective for the company, starting on July 1 of this year. Excluding merger-related cost and rebranding related cost in both the second and third quarters of 2019, operating noninterest expense increased $13 million or 14.3% (sic) [14.5%] to $108 million -- $108.1 million when compared to the prior quarter. The increase in operating noninterest expense was primarily due to the $16.4 million debt extinguishment loss previously discussed. Factoring out this loss, operating noninterest expense would have been $91.7 million, which would be -- which was down $3.5 million from the prior quarters. In addition, third quarter operating noninterest expense included approximately $309,000 in OREO valuation adjustments driven by updated appraisals received during the quarter, $275,000 in recruiting cost related to the new equipment finance team and $1 million in support of a community development initiative. These expenses were offset by an FDIC small bank assessment premium expense credit of approximately $2.4 million that the company qualified for as the FDIC deposit insurance fund or DIF reserve ratio exceeded 1.38% in the second quarter, which triggered the credit. We also expect to receive $1.3 million in additional FDIC credits in the fourth quarter.

As a reminder, we closed 4 branches in September that will result in an annual run rate expense savings of approximately $1.2 million beginning in the fourth quarter. In addition, I'm pleased to note that we achieved our $25 million Access-related merger cost savings target on a run rate basis at the end of the third quarter. Please note that we expect to incur approximately $1 million more in merger cost and an additional $1 million in rebranding cost in the fourth quarter. The effective tax rate for the third quarter was 16.8% compared to 16% in the second quarter. The increase in the effective tax rate was -- as compared to the previous quarter was primarily due to the lower proportion of tax-exempt income to pre-tax income. For the full year, we still expect an effective tax rate in the range of 16% to 16.5%.

Now turning to the balance sheet. Period end total deposit stood at $17.4 billion at September 30, which was an increase of $282 million from June 30. At quarter end, loans held for investment were $12.3 billion, an increase of $86 million or approximately 3% on an annualized basis. On a pro forma basis, as if the Access acquisition had closed on January 1 instead of February 1, year-to-date loans -- loan balances grew approximately 5% on an annualized basis through September 30.

Looking forward, as John mentioned, we now project loan growth of approximately 6% for the full year of 2019. At September 30, total deposit stood at $13 billion, which is an increase of $529 million or approximately 17% from the June 30 levels. On a pro forma basis, as if the Access acquisition had closed on January 1 instead of February 1, deposit balances increased approximately 9% annualized in the first 9 months of the year. Deposit balance growth was driven by increases in demand deposits, money market and time deposit balances, partially offset by declines in interest checking account balances.

Turning to credit quality, nonperforming assets totaled $36.4 million or 30 basis points as a percentage of total loans, an increase of $2.4 million or 2 basis points from the second quarter level. The increase in NPAs was primarily driven by the addition of the fully collateralized remaining loan balance related to the long-running land development work out loan that was previously discussed. The allowance for loan losses increased $1.4 million from June 30 to $43.8 million, primarily due to loan growth during the quarter. The allowance as a percentage of the total loan portfolio ticked up 1 basis point to 36 basis points at quarter end.

And now I'd like to provide our thoughts on how the adoption of the Current Expected Credit Loss model, or CECL, will impact the Atlantic Union. As you may know, effective January 1, 2020, CECL will become the new accounting standard requiring companies to reserve for projected lifetime loan losses at loan origination date, replacing the current incurred loss impairment accounting methodology that requires companies to record provisions for loan losses only when a loss becomes probable. Under CECL, lifetime expected credit losses will be determined using macroeconomic forecast assumptions, the management judgments applicable to and through the expected life of the loan portfolios. Since 2016, the company has had a companywide cross-functional governance structure in place to oversee the implementation of the CECL standard and assure we are ready to adopt the CECL standard on the effective date. On adoption of the standard, assuming the economic outlook and portfolio characteristics are consistent with recent periods, the company estimates that the allowance for credit losses will increase to within a range of $90 million to $100 million or approximately double the allowance for loan loss reserve levels as of September 30, under the current incurred loss methodology. The expected increase is primarily driven by the company's acquired loan portfolio and the consumer loan portfolio due to the portfolio's longer average life. Ultimately the increase in allowance for credit losses will depend on the characteristics and mix of the company's loan and securities portfolios, macroeconomic conditions and economic forecast model. Final validation of CECL models and methodologies in other -- and other management judgments at the time of adoption on January 1, 2020.

From a shareholder stewardship and capital management perspective, we are committed to managing our capital resources prudently as the deployment of capital for the enhancement of long-term shareholder value remains one of our highest priorities. As such, during the third quarter of 2019, the company declared and paid the quarterly cash dividend of $0.25 per common share, an increase of $0.02 per share or 8.7% compared to the prior quarter's dividend level. In addition, during the quarter, the Board of Directors authorized the share repurchase program to purchase up to $150 million of the company's common stock through June 30 of 2021 in open markets transactions or privately negotiated transactions. As of October 16, we have repurchased 1.4 million shares at an average price of $36.46. The total remaining authorization to purchase shares is approximately $100 million at this time.

So to summarize, while the quarter was quite noisy again, Atlantic Union delivered solid financial results in the third quarter, despite the headwinds of the current interest rate environment and the company continued to make progress towards its strategic growth priorities.

Finally, please note that we remain focused on leveraging the Atlantic Union franchise to generate sustainable, profitable growth and remain committed to achieving top-tier financial performance and building long-term value for our shareholders.

And with that, I'll turn it back over to Bill to open it up for questions from our analysts. Here you go, Bill.

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William P. Cimino, Atlantic Union Bankshares Corporation - SVP of IR [5]

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Thank you, Rob. And Tiffany, we're ready for our first caller, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Catherine Mealor.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [2]

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I wanted to start first with the margin. Rob, I wonder, if you could give us an update on where your outlook is for the margin? You previously guided for about 4 to 5 bps of first quarter compression, but you are now making changes to the balance sheet, so just kind of updated thoughts there?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [3]

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Yes. So just to give you some context of our projection. Going forward, we are currently assuming that we'll get another 3 cuts from the fed in the fed funds rate. One in October, another in December, and then one in the third quarter of 2020. In terms of that model, what we're expecting to see is the core margin for the fourth quarter. We're looking at continued compression of probably 3 to 4 basis points. And then quarterly through 2020, we're looking at about 4 to 5 basis points consistent with what we've said before on a quarterly basis. So that's our current outlook, really hasn't changed much. As you know, we did have a bit more compression this quarter, which was primarily driven by higher, or let's say, lower levels of 1-month LIBOR. The drop was -- in terms of our projection, the drop was more than we had originally projected. So that added 2 basis points of compression versus our previous guidance.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [4]

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Got it. Okay. So another 3 to 4 bps compression in the quarter and then 4 to 5 bps per quarter through 2020. Assuming 3 more cuts?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [5]

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Yes. That's correct. So we're looking at kind of, stabilizing the margin coming out of next year probably in the 3.30, 3.35 range.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [6]

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Got it. Okay. And then under that scenario, how in 2021 would we get to 1.4% ROA? We're kind of coming out of 2020 with a 3 -- even 3.35 margin?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [7]

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Yes. So as we mentioned before that 1.4% return on assets is probably the most difficult to achieve. We're going to continue to evaluate that based on our -- going through our budget process for 2020 right now and forecasting through 2021. We're going to reevaluate that guidance going forward and probably talk a bit more about that in our fourth quarter call.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [8]

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Okay. That makes sense. Okay. And so then, on the growth, you have now forecasting for growth to that 6% for this year. How should we think about growth for next year? Is it fair to assume that 2020 growth should be higher than that 6%, just given some of the Truist opportunities that you have?

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John C. Asbury, Atlantic Union Bankshares Corporation - President, CEO & Director [9]

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Yes, Catherine. This is John. We'd say, expect somewhere in the high single-digit range. Now I wouldn't be projecting 9%, but, you know, 7%, 8%, 9%, somewhere within that band should be doable based on the various initiatives that we have underway and based on market conditions, based on what we know right now.

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William P. Cimino, Atlantic Union Bankshares Corporation - SVP of IR [10]

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Thanks, Catherine. And Tiffany, we are waiting for our next caller, please.

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Operator [11]

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Your next question comes from the line of Casey Whitman.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [12]

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Just a question on expenses. So if I take out that FDIC assessment credit, core expenses this quarter are maybe running around $94 million. Last quarter, I think you were guiding to expenses coming down to like the $90 million, $91 million range. Do you think that's still achievable, given all the investments and hires you've made? And is there anything other than, I think, you mentioned like $1.2 million in branch closure savings to come out or do you think that's really just the run rate is a little higher given the investments, including the equipment finance division?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [13]

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Yes. Thanks, Casey. This is Rob. I calculate that we have a $91.7 million poor run rate, if you will, versus the $94 million you've mentioned. As we said we had some unusual items that were offset by that credit. So I calculate about $91.7 million. Going forward, we're looking at the $90 million to $91 million on a run rate basis in the fourth quarter. And that excludes the rebranding cost of $1 million, potential conversion merger cost of $1 million. And as we've said before, we're looking to accelerate some of our spending related to the opportunity from the Truist disruption and that's about $1 million. So if you take all that together, we're looking in a $90 million to $91 million for Q4. And then, going forward, what we be projecting is probably 4% to 4.5% growth rate off of that run rate.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [14]

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Got it. Got it. So the recruiting cost and the OREO valuations adjustments and the community development initiatives, those kind of items, we would assume, wouldn't necessarily or wouldn't come back. Is that what you're saying?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [15]

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Yes. It's -- exactly that's the way. That's where I'm looking at as well, yes.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [16]

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And the FDIC assessment credit, is that -- is your expectation that you would get that for maybe 1 more quarter?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [17]

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Yes. So the credit -- the total credit we're getting -- it's about -- was $3.8 million. Our total premium assessment this quarter was $2.4 million. So basically, it was zeroed out. We'll apply the remainder, which is about $1.3 million to our assessment for the fourth quarter. So we're expecting $1.3 million credit coming through in the fourth quarter.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [18]

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Got it. All right, I'll then just ask, I guess, a bigger picture, I mean, just on M&A, sounds like still very focused on the organic growth here. But I guess any update to your general thoughts on whole bank M&As and the kind of timeline that you might start reengaging more in those conversation?

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John C. Asbury, Atlantic Union Bankshares Corporation - President, CEO & Director [19]

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Casey, this is John. It's really -- it's difficult to imagine that we would want to do anything next year. That doesn't mean that we -- well, like, candidly, we're always having conversations, there are always conversations going on, there is literally a queue. We could do 1 tomorrow if we wanted to do, but we don't. We have more important things to do right now. So I think my big concern is that if we take on another M&A deal, it will cause us to kick the can down the road on what we believe, there are actually far more strategically important opportunities. So we really need time to knock some of these things out, you heard me list out some of the initiatives that are on the table. Particularly, with the new leadership, we have a consumer digital strategy recognizing that the largest opportunity we have is, in fact, this SunTrust BB&T combination. So if anything changes in terms of our intentionality, we're going to tell you. We would begin to signal it. This is very difficult to imagine that we would want to try to get anything done next year. Again, which doesn't mean we couldn't be having conversations with someone over that period of time as we always do. So that's all that I can say for now.

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William P. Cimino, Atlantic Union Bankshares Corporation - SVP of IR [20]

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Thank you, Casey. And Tiffany, we are ready for our next caller, please.

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Operator [21]

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Your next question comes from the line of Laurie Hunsicker.

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [22]

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Just wondered if we could jump over to credit. Certainly, your credit is looking good. But can you just refresh us, your third-party consumer, what is that book? And how much of that is lending club at this point?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [23]

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Yes. So it's a bit over $200 million total third-party, Laurie. About $140 million of that is the lending club book. That's being coming down. As you know, it's in run-off mode. It's been coming down by about $8 million to $9 million a month. The previous quarters it was about $166 million, so we're now down to $140 million. We expect that will continue to run-off in the same fashion going forward.

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [24]

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Got it. Okay. And then x-ing out one credit. You said the majority of your charge-offs came from that book. So if I'm doing the math right, it was around, I don't know, $4.7 million was then related to consumer?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [25]

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Yes. That wasn't -- the [far] amount wasn't but there's still some other relatively smaller commercial...

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John C. Asbury, Atlantic Union Bankshares Corporation - President, CEO & Director [26]

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I think the total for this quarter would have been consumer at 40% would have been our one land development loan. And if you realign, the last couple of quarters, third-party consumer charge-offs have been running about, literally, 2/3 of total. Our charge-offs, excluding third-party, had been running about 5 to 6 bps annualized, which is too low as we've said consistently.

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [27]

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Okay. And so I guess when should we expect to see this consumer book at 0? How are you thinking about that?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [28]

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You mean in terms of the third-party?

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [29]

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Yes.

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [30]

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We are expecting the majority of that to run-off through the end of 2020. The lending club for the most part. So that should be running down through the next year or so.

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [31]

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Okay. Great. And then just specifically around that, any guidance you can give as we think about loan loss provisioning with CECL? Can you help us just think about this piece of it? Or you know more general -- I certainly appreciate the other color you gave, but if you can just help us think about what an ongoing loan loss provision would look like for you guys with this book?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [32]

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Yes. So Laurie, as you know, we will be putting up an allowance for the acquired loan portfolio and also the books credit impaired or books credit deteriorated in CECL terms. So we expected the charge-off ratio will increase because we will now be charging off loans that are in those books will be charged off against the allowance. So I'd expect that you would see 25 to 30 basis points, all things being equal. That's assuming, we don't necessarily have lumpy commercial credit come through like we did this quarter.

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [33]

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Okay. Great. And then just one last question on credit. I saw that you guys had an uptick in your CRE past due. Is there anything greater going on there? Or is there any color you think you can give on that one?

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John C. Asbury, Atlantic Union Bankshares Corporation - President, CEO & Director [34]

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No. The $8 million -- we made a reference in the release that $12 million of total past dues were actually current as of now. Of that $12 million, $8 million were actually what we referred to as administrative past dues. So that would be the categories of commercial owner-occupied, nonowner occupied. That simply means we had maturing credit facilities that were in process of renewal. And those were not indicative of credit problems, they were simply indicative of getting the renewals through the system on time. We mentioned before that we have implemented an end-to-end loan origination system. The downside of doing such a thing is that you run a J curve. It actually takes longer to load new credit facilities and renewals into such a system initially and for the bankers to get up to speed and slower until they gain experience with it and then it becomes faster. And so we are on the upside of that J curve. So we did have some slowdown in terms of processing renewals. And that's what you're saying, those were not credit issues.

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [35]

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Okay. Okay. That's helpful. Okay. And then just over on expenses, I just want to make sure that I've got this right. You obviously had rebranding expenses here, 1.133. Did that include any of the branch closure expenses? Or if not, what were those? And were they in the other other line?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [36]

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Yes. They did not include any branch closure cost in the third quarter. Actually, we have guided to perhaps expect another 200 to 300 in the third quarter for branch closures. But actually, we came in quite a bit lower. That is about 50 -- ended up being at about $55 million -- $55,000 of branch closure cost. So not material and that would have been in the other line item.

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Laurie Katherine Havener Hunsicker, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [37]

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Okay. Great. And then just one last thing here on sort of as we think about one time within, those merger cost and rebranding cost, as we finish out this year 2019, are we pretty much done with those as we head into '20? Or how should we be thinking about that?

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Robert Michael Gorman, Atlantic Union Bankshares Corporation - Executive VP & CFO [38]

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Yes. That's exactly right, Laurie. You won't -- this would be the final quarter of seeing both rebranding cost and merger cost.

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William P. Cimino, Atlantic Union Bankshares Corporation - SVP of IR [39]

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Great. Thank you, Laurie, and thank you everyone, for calling today. As a reminder, a replay of the call will be available on our Investor website, investors.atlanticunionbank.com. Thank you and have a good day.

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Operator [40]

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This concludes today's conference call. Thank you for your participation, you may now disconnect.