Atlantic Union Bankshares Corp
NYSE:AUB
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Good day, and thank you for standing by. Welcome to the Atlantic Union Bankshares First Quarter 2024 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. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President of Investor Relations. Please go ahead.
Thank you, [ Didi ], 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 and the accompanying slide presentation we are going through on the 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 or slide presentation and in our earnings release for the first quarter of 2024. Since our acquisition of American National Bank closed after quarter end, our discussion today will not include any American National results. We did provide a pro forma look at our assets, loans and deposits for quarter end on Slide 4. We did provide financial outlook numbers for the full year that include the impact of American National. Speaking of which, we will make forward-looking statements on today's call, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements. [indiscernible] takes no obligation to publicly revise or update any forward-looking statement. Please refer to our earnings release issued today and our other SEC filings for further discussion of the company's risk factors and other important information regarding our forward-looking statements, including factors that could cause actual results to differ from those expressed or implied in a 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'll turn the call over to John Asbury.
Thank you, Bill. Good morning, everyone, and thank you for joining us today. I'd like to offer a special welcome to our new shareholders and teammates who joined us now from American National Bank. Our merger closed on April 1, and we believe we're off to a great start. I'll share more on that later in my comments. For this new to our story, we operate our company under a mantra of soundness, profitability and growth in that order of priority. There's nothing new about it, and it's a simple operating philosophy that stood the test of time. The same is true for our traditional operating model. We make loans, we take deposits and provide fee-based services, all to our customers under our brand. We're a traditional diversified bank that provides financing and services that help people help businesses and help our communities. We believe we're large enough and capable enough to be a challenger and an alternative to large banks, but are still small enough and responsive enough to compete against the smaller banks too, that we often have more capabilities than they. The environment remains challenging for banks of all sizes, especially with persistent net interest margin pressures to which AAV is not immune. Thankfully, we expect the financial benefit of the American National Bank merger to be apparent during the second quarter and will provide a welcome boost to both net interest margin and bottom line profitability. Rob will comment on what we expect during his section of our remarks. I'll now comment on the microeconomic conditions we are seeing and then move on to our first quarter results. Regarding the economic outlook for forecasting purposes, we do remain cautious, although it appears a soft-landing is possible. Inflation is still a factor and does not seem to be progressing towards the Fed's target levels as quickly as is been hoped, leading us to believe that we'll see fewer rate cuts this year or perhaps not at all. Nevertheless, the macroeconomic environment remains favorable in our footprint, and we do not expect that to change in the near term. Our markets continue to appear healthy, but we have seen a slowdown in capital investment activity among certain parts of our client base in response to higher interest rates and economic uncertainty. While our lending pipelines reflect that trend, they imply we should expect mid-single-digit loan growth in 2024, inclusive of American National Bank. Virginia's last reported unemployment rate was 2.9% in March, and as usual, remains a below the national average, which was 3.8% during the same period. When speaking to investors and analysts, among the more frequent questions we receive is the credit outlook for nonowner-occupied office exposure and to a lesser extent, multifamily commercial real estate. We've added some additional disclosures on these loan categories in our supplemental slides as of quarter end and here's our current perspective. Regarding non-underoccupied office, I'll start by saying that about 22% of the portfolio is medical it has not been impacted by concerns about work-from-home-related office utilization trends. This is a granular portfolio with an average loan size of $1.9 million and a median size of $664,000. We do not finance large central business district office buildings. Additionally, at 4.9% of total loans outstanding, this is not an outsized exposure and the portfolio is well distributed geographically. In our region, of exposure in Greater Washington, D.C. receives attention. We have no exposure in the District of Columbia and the office exposure, and our total nonowner-occupied office loans from Northern Virginia throughout the state of Maryland is a modest $65 million. Nonrecourse commercial real estate lending is uncommon for us and most office loans have some form of guarantee from the younger that seeks to ensure their ongoing commitment. Given their size and location, the suburban office buildings we finance are generally leased to local and regional businesses that, on average, have been less supportive of remote work and hybrid work arrangements that larger companies meeting the buildings we finance have tended to be better utilized than larger buildings. Overall, this portfolio is performing well. And while I expect we'll incur some problems in over time, we currently expect any such problems to be readily manageable. Regarding multifamily exposure. This is also a granular portfolio, and we believe it's reasonable in size at 68% of total loans. Our markets if year healthy and growing, they're not overbuilt and nearly all reports scarcity of housing. We're generally still seeing stable rents and there are currently no rent control laws in our markets. As is implied by our average loan size of $3.3 million and median size of $829,000, we do not finance high-rise luxury apartments. While there is concern about the impact of higher interest rates on debt service coverage and property values, it's important to understand that multifamily revenues have also increased due to rising rents. Additionally, as with nearly all of our commercial real estate lending, we generally require some form of personal guarantee to seek to ensure the borrowers ongoing cavemen from a multifamily project. Normally, we finance multifamily construction with a mini firm during the stabilization period and we underwrite for institutional lender takeout. Typically, the developer refinances the property into the institutional market or sells it and then reinvest the proceeds in new projects. As demonstrated by the credit metrics on Slide 18 of our supplemental presentation, asset quality for multifamily is among the best in the bank. We currently do not anticipate any material problems to develop in this asset class, and we expect that should in the arise, it would be readily [indiscernible]. We understand concerns about bank's office and multifamily exposure and hope this recap provides more clarity and context around what this looks like at AV. Moving on now with quarterly results. Here are a few financial highlights for the first quarter, and Rob will provide more detail later. Total deposits increased 5% year-over-year and 11% annualized quarter-over-quarter. As we have seen before, we did have a seasonal dip in deposits at the end of 2023 and then saw better-than-expected deposit inflows in the first quarter. We had a modest increase in broker deposits, which are a relatively low 3.9% of total deposits. Importantly, we grew customer deposits 8.4% annualized, which allowed us to more than fund our quarterly loan growth. The loan-to-deposit ratio declined to 91.7% at quarter end, down from 93% in the prior quarter. Our total range for the loan-to-deposit ratio remains pardon me, our target range for the loan-to-deposit ratio remains 90% to 95%. Deposit mix shift continued in a higher rate environment with customer deposit growth coming from primarily money market and CDs, while we also saw some continuation of noninterest-bearing deposit migration to interest-bearing deposits though at a declining pace. Noninterest-bearing deposits are approximately 22% of total deposits, and we believe that percentage is approaching bottom. We posted annualized loan growth of 5.6% during the first quarter, which was led by growth in commercial loans. The increase in construction land balances came from existing commitments on projects underway funding up toward completion. As I mentioned earlier, we expect to be in the mid-single-digit growth range for loans held for investment in 2024, inclusive of American National Bank. Commercial and industrial line utilization this quarter was consistent with the prior quarter but up from the prior year's first quarter. Loan production in the first quarter was weighted more heavily to existing clients and new to bank clients with about 75% existing and also favored C&I or commercial real estate with about 63% of the production coming from commercial and industrial. Commercial real estate payoffs decreased slightly from the fourth quarter and increased slightly from the same period in the prior year, which we interpret as a sign that commercial real estate markets where we operate are still healthy. Credit remained stable. Net charge-offs of 13 basis points annualized during Q1 were driven by 2 credits that we reserved for last quarter. As a reminder, we also reported 13 basis points of annualized net charge-offs during the first quarter of 2023, yet for the full year 2023. The net charge-off ratio was only 5 basis points. Credit remains a good story at AUV, that we do not consider the negligible losses we have seen over the past few years to be sustainable. We anticipate that asset quality should eventually normalize following the long run of minimal net charge-offs, but we still see no evidence of an inflection point coming or having occurred. For forecasting purposes, we continue to expect 10 to 15 basis points of net charge-offs during 2024, so we do not have visibility to enough potential charge-offs to reach that level currently. Having said that, idiosyncratic credit losses do happen as was the case with the 2 credits I mentioned earlier. That's normal under the expected. Regardless, we remain confident and pleased with our asset quality. Turning now to our merger with American National. As mentioned, the transaction closed on April 1, and we're excited to have our new teammates and shareholders on board after the deal was announced, we spent a great deal of time with the American National team to get ready for legal day 1 and for the all-important core systems conversion, which remains on track for late May. We've already completed the first mock systems conversion, which went well. This is our third acquisition of a $3 billion asset bank during my time here, and we've refined our integration playbook after each one based on lessons learned. We're experienced at this and are expecting a smooth integration and conversion. More so than anything else, it's the people of American National and our cultural compatibility that excites us. The more time we spent with them in other markets, the more enthusiastic we've become about the potential opportunities we have together. Additionally, we continue to be bullish on the long-term opportunity to leverage our new North Carolina markets as a growth platform, and you can look for us to invest in them to drive organic growth over time. We've already begun to add experienced bankers to the team there and intend to further build out our C&I capabilities in North Carolina. We believe American National's markets and people, coupled with our additional capabilities and the larger balance sheet make for a formidable combination. In sum, we believe we're well positioned for 2024 and the strategic actions we took last year to prepare for this challenging environment, coupled with financial benefits of the American National merger should differentiate ADD's performance going forward. We continue to believe we're on a reasonable growth footing, and we will not hesitate to take the strategic actions we deem necessary to strategically navigate the challenges we face in this uncertain economic environment. As has been the case for some time, we expect uncertainty to continue, especially given geopolitical events. But for the time being, we remain cautiously optimistic in our outlook. As usual, with uncertainty comes opportunity, which we believe we are well positioned to capitalize on. Last, I'd like to thank our teammates at Atlantic Union Bank, whose responses to the Annual Top Workplaces USA survey landed as a second consecutive National Top Workplace USA Award. This highly engaged team. They are the ones who make it happen and they matter the issue, challenger opportunity in the end, the answer always lies with our people. Now more than ever, Atlantic Union is a uniquely valuable franchise or this diversified traditional full-service bank with a strong brand and deep client relationships in stable and attractive markets. I'll now turn the call over to Rob to cover the financial results for the quarter. Rob?
Thanks, 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 first quarter. As Bill mentioned, my comments today relate to Atlantic Union's financial results and do not include financial results of American National since the transaction closed on April 1. Also, please note that for the most part, my commentary will focus on Atlantic Union's first quarter financial results on a non-GAAP adjusted operating basis, which excludes the following pretax items: gains of $1.9 million in the fourth quarter related to sale-leaseback transactions, FDIC special assessments of $3.4 million recognized in the fourth quarter and $840,000 in the first quarter, a $3.3 million legal reserve related to our previously disclosed settlement with the CFPD in the fourth quarter and merger-related costs of $1.9 million in the first quarter and $1 million in the fourth quarter associated with our merger with American National. In the first quarter, reported net income available to accounting shareholders was $46.8 million, and earnings per common share was $0.62. Adjusted operating earnings available to common shareholders were $49 million or $0.65 per common share for the first quarter. The first quarter's adjusted operating return on tangible common equity was 13.9%. The adjusted operating return on assets was 99 basis points and on an adjusted operating basis, the efficiency ratio was 56.8% in the first quarter. Turning to credit loss reserves. As of the end of the first quarter, the total allowance for credit losses was $151.8 million, which is an increase of approximately $3.3 million from the fourth quarter, primarily driven by loan growth in the first quarter and the continued uncertainty in the economic outlook on certain loan portfolios. The total allowance for credit losses as a percentage of total loans held for investment increased to 96 basis points at the end of the first quarter as compared to 95 basis points at the end of the fourth quarter. Provision for credit losses of $0.2 million in the first quarter was down from $8.7 million in the prior quarter. Net charge-offs increased to $4.9 million or 13 basis points annualized in the first quarter from $1.2 million or 3 basis points annualized in the fourth quarter, primarily related to 2 credit relationships which were previously reserved for in the prior quarter's allowance for credit losses. Now turning to the pretax pre-provision components of the income statement for the first quarter. Tax equivalent net interest income was $151.5 million, and that's a decrease of $5.8 million from the fourth quarter, primarily driven by higher deposit costs due to growth in average deposit balances and changes in the deposit mix and the lower day count in the quarter as well as higher short-term borrowing costs due to an increase in average short-term borrowings in the quarter. These decreases were partially offset by higher yields on the loan portfolio and higher average loan balances. First quarter's tax equivalent net interest margin was 3.19%, and that's a decrease of 15 basis points from the previous quarter due to an 18 basis point increase in the cost of funds, which was partially offset by a 3 basis point increase in the yield on earning assets due primarily to higher yields on loans. The loan portfolio yield increased 6 basis points to 6.03% in the first quarter from 5.97% in the fourth quarter, which added approximately 5 basis points to the net interest margin in the first quarter. The increase was primarily due to the impact of higher market interest rates on new loan production yields as well as on renewing loan yields. The 18 basis point increase in the first quarter's cost of funds to 2.43% was due primarily to the 16 basis point increase in the cost of deposits to 2.39%, which had an approximate 11 basis points negative impact on the first quarter's net interest margin as well as a 7 basis point margin impact -- negative impact of higher average short-term borrowing balances on the quarter's funding mix. The deposit cost increase was primarily driven by changes in the deposit mix as depositors continue to migrate to higher cost in interest-bearing deposit accounts during the quarter. Interest-bearing deposit rates increased as a result of higher overall market rates and the continuing competitive deposit pricing environment. Adjusted operating noninterest income, which excludes the $1.9 million gain on a sale leaseback transaction recorded in the prior quarter, decreased $2.5 million to $25.5 million for the fourth quarter, primarily due to a $2.4 million decline in loan-related interest rate swap fees as swap transactions decreased from the seasonally high fourth order levels. Reported noninterest expense decreased approximately $2.6 million to $105.3 million for the first quarter from $107.9 million in the prior quarter. Adjusted operating noninterest expense, which excludes amortization of intangible assets, exclude the FDIC special assessment in both the fourth quarter, 23 in the first quarter of '24, the legal reserve associated with our previously disclosed settlement with the CFPB in the fourth quarter and merger-related costs associated with our merger with American National in the fourth and first quarters, increased $2.5 million to $100.7 million from $98.2 million in the prior quarter. The increase in adjusted operating expenses was primarily driven by a $5.2 million increase in salaries and benefits due to seasonal increases in payroll-related taxes and 401(k) contribution expenses in the first quarter, which were partially offset by a $1.3 million decline in professional service expenses and a $700,000 decline in marketing and advertising expenses. At the end of March, loans held for investment, net of deferred fees and costs were $15.9 billion, an increase of $216 million or 5.6% annualized from the prior quarter, driven by increases in commercial loan balances of $270 million or 8.2% linked quarter annualized, partially offset by declines in consumer loan balances of $54 million or 9.4% annualized, primarily due to the runoff of auto loan balances related to the strategic decision made last year to exit the indirect auto loan business.At the end of March, total deposits stood at $17.3 billion, an increase of $460 million or approximately 11% annualized from the prior quarter, primarily due to increases in interest-bearing customer deposits and broker deposits, partially offset by declines in demand deposits, which now stands at 22% of total deposits. At the end of the first quarter, Atlantic Union Bankshares and Atlantic Union Bank's regulatory capital ratios were comfortably above well-capitalized levels. In addition, on an adjusted basis, we remain well capitalized as of the end of the first quarter, if you include the negative impact of AOCI and held-to-maturity securities unrealized losses in the calculation of the regulatory capital ratios. During the first quarter, the company paid a common stock dividend of $0.32 per common share, which was an increase of 6.7% from the previous year's quarterly dividend. As noted on Slide 14, we've now updated our full year 2024 financial outlook for AUB to include the estimated post-close impact of the American National acquisition beginning in April and have also provided comments related to our fourth quarter run rate revenue and expense targets to highlight the financial benefits of the acquisition once we complete the systems conversion work and achieve our 40% cost savings goal. Please note that the 2024 financial outlook includes preliminary estimates of the purchase accounting adjustments that are subject to change. We now expect loan balances to end the year at or above $18 billion, while year-end deposit balances are projected to be at or above $19.8 billion. Fully tax equivalent net interest income for the full year is now projected to come in between $725 million and $740 million, and we are targeting the fourth quarter fully tax equivalent net interest income run rate for altitude between $195 million and $205 million. As a result, we are projecting that the full year fully tax equivalent net interest margin will fall in a range between 3.4% and 3.5% for the full year, and we are targeting between 3.55% and 3.65% in the fourth quarter, driven by our baseline assumption that the Federal Reserve Bank will cut the Fed funds rate by 25 basis points twice in 2024 beginning in September. In addition, the fully tax equivalent net interest margin projection and target ranges include the impact of our preliminary estimate of net accretion income from the American National transaction, which is subject to change once purchase accounting adjustments are finalized and which can be volatile quarter-to-quarter. In addition, the net interest margin projection and target ranges assume that our through the cycle total deposit beta will be approximately 45%, which will be more than offset by the projected through-the-cycle loan yield data of approximately 50%. The through-the-cycle interest-bearing deposit beta is expected to be approximately 58%. The current rate cycle is projected to end when the FOMC pivots to reducing the Fed funds rate, which as noted, we now assume will begin in September. On a full year basis, adjusted operating noninterest income is expected to be between $105 million and $115 million, and we are targeting the fourth quarter adjusted operating noninterest income run rate to fall between $30 million and $35 million. Adjusted operating noninterest expenses for the full year are estimated to fall in the range of $445 million to $455 million, while the fourth quarter adjusted operating noninterest expense run rate we are targeting is expected to be between $110 million and $115 million, which assumes full achievement of our 40% merger-related cost saves on a run rate basis beginning in the fourth quarter. Based on these projections and fourth quarter run rate targets, we expect to produce financial returns that will place us within the top quartile of our peer group and meet our objectives of delivering top-tier financial performance for our shareholders. In summary, Atlantic Union delivered solid financial results in the first quarter despite the challenging banking environment, we are effectively managing through. The American National transaction closed April 1, and as John said, the integration work is going very well, and we remain confident that we will achieve the financial benefits of the combination once the cost savings are fully realized on a run rate basis starting in the fourth quarter. As a result, we believe we are well positioned to continue to generate sustainable, profitable growth and to build long-term value for our shareholders in 2024 and beyond.And with that, let me turn it over to Bill Cimino for questions.
Thank you, Rob. And Didi, we're ready for our first caller, please.
And our first question comes from Catherine Mealor of KBW.
In the NIM guidance that you lay out, is there any way just to put a range on where you're thinking accruable yield will go? And then maybe even outside of that, where you think the core NIM will go within that guidance.
So if you kind of -- our projection from a core perspective is for 2024 is to fall within a $3.20 to $3.30 range. On top of that, if you look at what we projected for the reported numbers, you could add 20 to 25 basis points to that, which would primarily be the American National impact, including accretion income.
And so then you still then -- and that core $320 million to $330 million, that assumes 2 rate cuts. So it seems like you still -- with the 2 rate cuts, you feel like you're going to get some expansion from this quarter's level. What does that look like if we don't get any rate cuts? How much sensitivity is that…
You don't get a rate cut, Catherine. The impact is actually 2 or 3 basis points to the good, primarily because we won't see the rate cuts if they don't happen, we wouldn't see our variable rate loan yields decline by whatever the Fed cuts. So it's actually a benefit of 2 to 3 basis points for 2024.
And then within that margin guide, if we look at deposit cost, deposit costs increased a little bit more than I had expected this quarter. Are you seeing stabilization towards the end of the quarter? And just any kind of comments on maybe spot rates on deposit costs towards March or April? And then maybe even what that looks like with American National.
Yes. So in terms of where we ended the quarter, if you look at March, we were up a little bit from the reported full quarter average. We're 2.43% was the total cost of deposits, so up about 3 or 4 basis points from the average for the first quarter. We are projecting that those deposit costs will increase through the second quarter and kind of stabilized in the third quarter and hopefully see a bit of a decline in the fourth quarter if we see those rate cuts that we're calling for. I would say that we think we'll stabilize in, call it, give or take, approximately 2.5% range in terms of total deposit costs, again, assuming that the Fed cuts in the back half of the year.
Great. And then maybe one last margin later question is does this forecast in the margin assume that you liquidate American National's bond portfolio and then reinvest that? How do we think about that?
Yes. That's true. We do expect that. We've actually done some restructuring where we've right after close, we're about 2/3 of the portfolio we restructured and you'll see that coming out as obviously when we report second quarter earnings. But that is where we think we'll end up is we've kind of completed that restructuring early in April, and you'll see the benefits of that as we go forward. That accretion income doesn't include the benefits of that because that will come through a core net interest margin going forward.
And our next question comes from Casey Whitman of Piper Sandler.
John, I think you mentioned that you think we're nearing the bottom for the mix shift out of noninterest-bearing. Can you just -- I mean what gives you confidence there? Or what can you point to for us?
Yes, sure. Well, if you look at the pace of decline, it's becoming more shallow. So it's inflected. So we've seen it go down at a declining pace. The other thing is, historically speaking, we're starting to get closer to what we saw, I'd say, pre-pandemic. Now bear in mind, we have a larger base of commercial and industrial appliances who have operating accounts that are normally noninterest-bearing -- and as we look at the pace over the last couple of months up to now, it's simply been on a declining trend, Casey, it's unlikely that businesses are suddenly waking up, realizing they have large dollars sitting in their noninterest-bearing account that they forgot about. It is more likely that what's happening is that they're becoming more efficient in terms of their cash management activities because it's now for their advantage to do that. And to some extent, we see companies using their cash as well because it's more expensive to borrow. So they will pay cash for things they might have financed in the past. But what we see is a declining trend, and it's impossible to predict with precision, but it certainly looks like it's on the slope of the line leads us to believe we're there in the bottom.
I'd also add that American National is helpful from that point of view because they're about 31% noninterest-bearing to total deposits. So we'll be blend together. We're probably getting back to about 24%, give or take. But to John's point, we think we're at the bottom here at around 22% on a stand-alone basis.
And then piggybacking on some of Catherine's questions. Just, I guess, Rob, can you walk us through what the size of the overall balance sheet that might be with American National?
Yes. So it's about $3 billion in terms of their total assets at closing. So we expect that we'll continue to grow I think we're at $24.5 billion bill pro forma 321 numbers. So we expect to grow the loan book about 5% on a combined basis on a full year basis and reported. So you see those assets grow going away.
And then maybe just a bigger picture question on M&A. Obviously, you just closed American National, you've got the systems conversion, I think, going on May. John, can you walk us through sort of your thoughts around future M&A? And how we should think about the...
It's hard to think about anything, but a successful conversion and integration of American National Bank right now, but I understand your question because we always do try to think a couple of steps ahead. Casey, nothing has changed in terms of our declared priorities. First, organic performance of this bank, that now includes American National, make the most of what we have right here right now. That is by far the most important thing we have to do. Second, innovation and transformation activities. We have a lot of work underway there. We have a new mobile and online banking platform that's coming online this year as well. A lot went on in the technology space. And we see continued opportunity for automation, which will pull expense out, improve quality, third, and it's a distant period, would be strategic investments to include the whole bank acquisition. So we have had other conversations that have gone on for years just like American National Bank won on for years. You never know what the timing would be. If all goes well with American National Bank and everything is in good order. Will we consider something else consistent with what we described before we might, if it made strategic and financial sense. But I hope we're being clear that first things come first.
Our next question comes from Steve Moss of Raymond James.
Have we lost Steve?
Our next question comes from David Bishop of Hovde Group.
John, just curious, obviously, you mentioned at the beginning, the resilience in the economy and the opportunities in the new markets in North Carolina. Just curious how to reconcile that what appears to be maybe conservative guidance in terms of loan growth? Or are there some portfolios maybe you're going to run off post close that sort of maybe provide the lower end of the loan growth guidance. Just curious maybe what just reconcile maybe some of the guide versus the...
There are no runoff portfolios associated with American National Bank. The only runoff portfolio in our bank, I suppose you would say would be the indirect auto finance we have things like office that we certainly don't have any appetite for taking on new exposure as well. But David, I think perhaps David Ring had a wholesale banking or commercial-related businesses can comment here. We do think that clients are being cautious. We feel good about these economies. We feel good about credit. But there is less investment going on right now. So I think that the mid-single-digit loan growth guidance, where we stand today is a good expectation. Could it be better than that? I think it could. Dave, what is your view?
Well, there are -- we've seen fewer opportunities with opportunities to have started to shrink a little bit. Our pipelines are still good, but they are rebuilding and they're more early stage in the pipeline. So we feel like down the road, there's demand in the new markets, where we're exploring expansion opportunities to take advantage of those new margins, and we think they're going to provide more growth at the back half of the year as well. And so we feel like we're -- we've never been one of the banks that would operate around the fringe of the credit piece. And so we haven't changed our standards and we're simply more cautious around some of the real estate asset classes. I would agree.
So I think that's a pretty conservative approach, David. And we -- if things change as we gain more experience in the year, we'll obviously revisit our guidance, but I think that's a good reasonable assumption.
And then, John, just in terms -- for Rob, you noted a little bit of growth in broker deposits. Just curious if there's any sort of cliff maturation or maturation and maybe what those average costs are?
Yes. So the average cost is -- it's a little over 5% of the 5 in a quarter. We've got 2 tranches, 2 or 3 tranches, I guess 3 -- about $150 million is we went a little extended duration of it to take advantage of the inverted curve. Those costs are about approximately 450 blended. And then we've got some 1-month broker that's maturing over the next few months here, and that's paying about 5.25% for those. So that -- those numbers move up and down depending on what the funding requirements are in any particular point in time. So as John said, we're just a bit under 4% of total deposits in brokered, and we've run anywhere from 2% to 4% in the past.
Do you think those stays around that range?
Yes. Yes, I do.
And then maybe on the loan side, just curious what fixed rate loans that might be repricing at average rate versus what they reprice into?
Yes. So the repricing of the fixed rate launch, I think we're putting on about 7.5%. So up considerably from where the fixed rate loan yield is on the portfolio today. So it's been inching up over the last several quarters. And right the most current quarter was about 7.5% on the fix side.
Our next question comes from Russell Gunther of Stephens.
I appreciate all the color on the margin. I just had a follow-up. So as we think about the roughly 20 to 25 basis points of purchase accounting contribution, how does that cadence look for next year? Is that a decent kind of run rate into 25 million? Or just trying to get a sense as to when that earnings contribution could begin to taper?
So 25, yes, that's a good estimate. We're talking about 25 basis points in 2025 start to taper a bit as we get into 26 and 27. Of course, as you know, the increasing income can be volatile depending on prepays, et cetera. But that's our current estimate. We're doing essentially 4 to 5 years, some of the year digits on our loan interest rate mark is what we're going to...
That's really helpful. And then just a quick one on the loan growth outlook. So could you give us a sense for how you're going about investing in the Carolina market? I think you mentioned adding some bankers there if there's a number you could share or general background, what the opportunity set to continue to add commercial lenders in that footprint is? And then just lastly, is the pickup in that market ultimately enough to move you back to your mid- to high single-digit pace? Or is that a general pickup in sort of the macro economy that gets you there?
How about if I start and I'll ask David Ring to follow. First of all, we're not talking about massive lift-outs and that sort of thing. It will be highly selective. I do think that the North Carolina market is going to be additive to our overall growth expectations. So in other words, I think that it gives us confidence in our guidance and probably gives us more likelihood of upside. Dave, I know we are not quite yet ready to get into too much detail, but what are your thoughts on where we'd expect to spend when -- before, I should comment, we feel very, very good about the American National team and the bankers that we have down there. So we think we're going to take that and build from it.
We have a very talented team that we inherited from American National, but we also have a very strong commercial real estate presence in North Carolina already because of our Charlotte group that's been in the business for about 8 years there now, right? And so what we're looking to do in North Carolina is move into the faster-growing markets and where the capital is moving. And so we have plans and we're executing them now. We're just not ready to disclose what the final results are.
And thanks, everybody, for joining us today. We look forward to talking with you in July, and everybody have a good quarter.
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