Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful merger with American National Bancshares, enhancing market presence and product offerings.
- Increased market density and expansion into new regions, particularly in North Carolina.
- Stable credit quality with low net charge-offs and manageable exposure to non-owner-occupied office and multifamily commercial real estate.
- Positive economic outlook in primary markets, with low unemployment rates in Virginia and North Carolina.
- Strong financial performance with increased net interest margin and bottom-line profitability post-merger.
Negative Points
- Merger-related expenses created a noisy quarterly earnings release.
- Increased noninterest expenses due to merger-related costs and strategic investments.
- Provision for credit losses increased significantly due to the merger, impacting net income.
- Higher effective tax rate due to state income tax valuation allowance.
- Dependence on Federal Reserve rate cuts to achieve projected cost savings and margin improvements.
Q & A Highlights
Q: Can you walk through the glide path from this quarter's results to the fourth quarter guide of $355 to $360 on the net interest margin, and touch on the purchase accounting assumptions within that as well as core name trends and the repricing dynamics within the book?
A: We are projecting $355 to $360 on the net interest margin in the fourth quarter, with 25 to 30 basis points of accretion income. We expect our core net interest margin to expand, driven by repricing of fixed rate loans into higher yields and potential rate cuts by the Fed, which would lower our deposit costs. We have about $2.3 billion of deposits indexed to Fed funds and $2 billion of exception price deposits that will adjust as rates change.
Q: What is the fixed repricing opportunity in terms of maturities and yield pickup?
A: Our loan portfolio yields over 6% on a core basis, and new loans and repricing loans are in the 7.50% to 8% range, offering a couple of hundred basis points of opportunity. The fixed rate portfolio has about a three-year duration, with approximately $2.5 billion repricing annually. By year-end, over $1 billion could be repriced.
Q: How are you thinking about the 2025 growth rate for expenses off the assumed annualized result?
A: We anticipate a 4% to 4.5% increase in expenses, driven by investments in North Carolina and other strategic areas. We aim to create operating leverage with revenue growth outpacing expense growth, targeting high single digits to double digits in revenue growth.
Q: Can you provide an update on building out the North Carolina geography and related loan growth?
A: We are thrilled with the American National team and see opportunities to add to the team, especially in commercial and industrial banking. We see growth potential in the greater Wilmington area and Charlotte, as well as expansion opportunities in existing markets.
Q: What are the key data points related to the American National acquisition that should be kept in mind?
A: The fair value of assets acquired totaled $2.9 billion, including $2.2 billion in loans. The loan portfolio fair value mark discount was $164.6 million. The fair value of liabilities assumed was $2.7 billion, including $2.6 billion in deposits. Core deposit intangibles and other intangibles acquired totaled $84.7 million, with preliminary goodwill of $282.3 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
