Earnings Call Transcript
Atlantic Union Bankshares Corp (AUB)
Earnings Call Transcript - AUB Q4 2024
Operator, Operator
Good day, and thank you for standing by. Welcome to the Atlantic Union Bankshares Fourth Quarter 2024 Earnings Call. 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, Investor Relations. Please go ahead.
William Cimino, Senior Vice President, Investor Relations
Thank you, Michelle, 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 this webcast are available to download on our investor website. During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our slide presentation and in our earnings release. We will also 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. We undertake no obligation to publicly revise or update any forward-looking statement. And please refer to our earnings release and our slide presentation issued today and our other SEC filings for a 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 the forward-looking statement. All comments made during today's call are subject to that safe harbor statement. And at the end of the call, we will take questions from the research analyst community. And now I'll turn the call over to John.
John Asbury, CEO
Thank you, Bill. Good morning, everyone, and thank you for joining us today. 2024 was a good year and a consequential year for Atlantic Union. We were excited to close our acquisition of American National Bankshares on April 1, and we continue to be impressed with our new and expanded markets and how well the two companies came together as one since closing. On October 21, we added to the excitement by announcing our proposed acquisition of Maryland-based Sandy Spring Bancorp. Let me begin with some perspective on the status report on the proposed acquisition since last quarter. The acquisition of Sandy Spring will join the number one regional depository market share bank in Maryland with the number one original depository market share bank in Virginia. In our view, not only has there never been such a regional bank franchise headquartered in the lower Mid-Atlantic, but there may also never be another, as we believe our combined franchise will not be replicated in our footprint. We believe the proposed acquisition will benefit our customers and markets with an expanded and even more convenient branch network, enhanced product offerings, a robust community benefit plan and access to more capital. We also believe it will benefit our teammates with expanded career opportunities, resources, and capabilities. Finally, we believe it will benefit our shareholders by positioning us well to deliver differentiated financial performance. As for the status of the merger, we were pleased to receive our merger approvals from the Federal Reserve Bank of Richmond on January 13, seven weeks after filing applications. We are awaiting approval from the Virginia Bureau of Financial Institutions and the Maryland Office of Financial Regulation. Assuming receipt of remaining regulatory approvals, each company's respective shareholder and stockholder approvals as applicable at the special meetings to be held on February 5 and the satisfaction of other closing conditions, we expect to close the transaction on the first of this year. Our merger integration planning process is well underway with the Sandy Spring team, and from the meetings I've attended, I remain highly confident in our cultural compatibility, the strategic logic of the merger, and its potential. We've been delighted by both teams' enthusiasm over what we believe our combined franchise will offer to our customers and our communities. I'll now comment on the macroeconomic conditions in our markets and then share a few thoughts on the fourth quarter. 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, and our lending pipelines imply we should expect mid-single-digit annualized loan growth in 2025 within the current AUB franchise. We believe that a good indicator of economic health is employment, and the three states where we operate continue to have unemployment rates better than the last reported national average unemployment rate of 4.1%. In our case, unemployment rates by state for the last reported period of November are 3.0% for Virginia, 3.1% for Maryland and 3.7% for North Carolina. Virginia is our largest market, and our governor recently summed up the state economy well by saying the economy is strong, very strong, and we agree. We're confident in the economy in all our markets, and with our increased presence in North Carolina and our planned expansion in Maryland with the Sandy Spring merger, we believe we do and will operate in some of the most attractive and stable markets in the country. Turning now to quarterly results. Here are a few financial highlights for the fourth quarter and the full year 2024. We continue to be on a moderate growth path for both deposits and loans. Point-to-point loan growth for the fourth quarter was approximately 3% annualized. As you can see by comparing point-to-point growth to the average for the quarter, loan growth skewed to the back half of the quarter and accelerated following the elections and the Fed rate cut in December. Deposit growth in the fourth quarter was approximately 2% annualized after reducing brokered deposits by more than $200 million. Noninterest-bearing deposit average balances were about even quarter-to-quarter, and point-to-point decreased modestly to approximately 21% of total deposits. It's a typical pattern to see a seasonal drop in noninterest-bearing transaction accounts at year-end. With the Federal Reserve rate cuts, we've been fairly aggressive in moving deposit rates lower, as you can see from the decline in the cost of deposits. For some of our larger negotiated rate depositors, we were able to reduce deposit rates by more than the latest Fed cut, which we believe will have additional benefits to the net interest margin in the first quarter of 2025. In past quarters, we've been able to pay down overnight FHLB borrowings with surplus funds from some of the larger accounts that have significant fluctuations in the normal course of the cash operating cycles. We can no longer do that, since we significantly reduced our overnight FHLB borrowings during the quarter. This funding mix dynamic contributed to some of the quarter's NIM compression. And speaking of net interest margin, because we're still mildly asset-sensitive, the expectation that the Fed may have fewer rate cuts than previously expected or perhaps none bodes well for us. Our loan growth was on top of the highest quarterly runoff we've seen since before the pandemic. We saw elevated payoffs or pay downs among both our C&I client base, especially in government contracting and larger businesses and in commercial real estate. We view the elevated commercial real estate payoffs, which we predicted last quarter, as demonstrating that CRE markets in our footprint remain healthy, and that there's ample liquidity and demand for commercial real estate sales and refinances into permanent markets. That's very encouraging to see. The good news is that total loan production increased 29% quarter-over-quarter, enough to overcome the spike in payoffs and allow for modest loan growth. C&I utilization this quarter increased slightly from the last quarter and the prior year's fourth quarter. Loan production in the fourth quarter was weighted nearly two-thirds from existing clients and about a third from new clients, demonstrating we continue to grow our client base. Production continued to favor C&I over commercial real estate, with about 60% of production coming from C&I. We were pleased to see an increase in production and construction and land development for the third consecutive quarter, which we view as another sign of relatively healthy commercial real estate markets in our footprint. Rob will provide the details around quarterly results, but I will note that the fourth quarter earnings were negatively impacted by a higher provision for loan losses driven by a $13.1 million specific reserve on a $27.7 million asset-based C&I loan involving an apparent misrepresentation of its borrowing base, which was identified at year-end. This individual credit primarily accounted for the increase in nonperforming assets over the quarter, though NPAs remained low at approximately 0.32% of loans held for investment. Aside from this atypical event, credit remains solid, with only three basis points of net charge-offs this quarter and five basis points for the year. As I mentioned every quarter and have for about eight years, we do not consider the negligible losses we've seen over the past few years to be sustainable. We do expect to have occasional one-off losses, but generally not of the type or size we saw this quarter. We remain confident in our asset quality that we believe some normalization of our long run of historically low losses is inevitable. In sum, we're building out our unique franchise and realizing the financial benefits of the American National combination, which were unfortunately clouded this quarter by the specific credit reserve. As has been the case for some time, we expect economic uncertainty to continue, but we're optimistic in our outlook, and we believe we are well positioned for a successful 2025 and beyond. Atlantic Union is a story of transformation from a Virginia community bank to the largest regional bank headquartered in Virginia, to what will be the largest regional bank headquartered in lower Mid-Atlantic upon closing our proposed acquisition of Sandy Spring. Meanwhile, we remain more excited than ever about the growth opportunity in our North Carolina markets, and we're investing in them. We now have and are continuing to build the franchise we have long sought using our announced strategic plan as our guidepost. Now more than ever, Atlantic Union is a uniquely valuable franchise that is dense, diversified, a traditional full-service bank with a strong brand and deep client relationships in stable and attractive markets. We also believe we have unmatched scarcity value in this region. I'll now turn the call over to Rob to cover the financial results for the quarter.
Robert Gorman, CFO
Thank you, John, and good morning, everyone. I'd now like to take a few minutes to provide you with some details of Atlantic Union's financial results for the fourth quarter and full year 2024. Please note that for the most part, my commentary will focus on Atlantic Union's fourth quarter and 2024 financial results on a non-GAAP adjusted operating basis, which in the fourth quarter excludes $7 million in pretax merger-related costs and for the full year excludes the additional FDIC special assessment of $840,000 in the first quarter, the pretax loss on the sale of American National securities of $6.5 million in the second quarter, the effect of the $4.8 million valuation allowance for deferred taxes that was charged to the income tax expense in the second quarter and the pretax merger-related cost of $40 million incurred in 2024 associated with our merger with American National and our proposed merger with Sandy Spring. As a reminder, the full year 2024 non-GAAP adjusted operating results have not been adjusted to exclude the $13.2 million negative pretax impact of the CECL initial provision for credit loss expense on purchased non-credit deteriorated for non-PCD loans acquired from American National, which represents the CECL double count of the non-PCD credit mark. It does not also include the $1.4 million negative pretax impact of unfunded commitments acquired from American National. It should also be noted that the weighted average diluted common shares outstanding increased during the fourth quarter, driven by the dilutive accounting impact of the forward sale of our common stock in October under the treasury stock method of accounting, which requires the dilutive potential common shares related to the forward sale to be included in the diluted weighted average shares even though the underlying common stock has not been issued to date. That said, in the fourth quarter, reported net income available to common shareholders was $54.8 million, and diluted earnings per common share was $0.60. For the full year 2024, reported net income available to common shareholders was $197.3 million, and diluted earnings per common share were $2.24. Adjusted operating earnings available to common shareholders were $61.4 million or $0.67 per diluted common share for the fourth quarter, which resulted in an adjusted operating return on tangible common equity of 15.3% and adjusted operating return on assets of 103 basis points and an adjusted operating efficiency ratio of 52.7% in the fourth quarter. For the full year, adjusted operating earnings available to common shareholders were $241.3 million or $2.74 per common share, which resulted in an adjusted operating return on common equity of 16.12%, an adjusted operating return on assets of 106 basis points and an adjusted operating efficiency ratio of 53.3% in 2024. Turning to credit loss reserves. At the end of the fourth quarter, the total allowance of credit losses was $193.7 million, which was an increase of approximately $16.1 million from the third quarter primarily due to the specific reserve John mentioned earlier, continued uncertainty in the economic outlook on certain loan portfolios and organic loan growth in the fourth quarter. The total allowance for credit losses as a percentage of total loans held for investment increased to 105 basis points at the end of the fourth quarter. The provision for credit losses of $17.5 million in the fourth quarter was up from $2.6 million in the prior quarter, primarily driven by the specific reserve and slightly higher net charge-offs during the quarter. Net charge-offs increased to $1.4 million or only three basis points annualized in the fourth quarter, but that was up from $666,000 or 1 basis point annualized in the third quarter. Now turning to the pretax pre-provision components of the income statement for the fourth quarter. Tax equivalent net interest income was $187 million, which was an increase of $208,000 from the third quarter. The increase in net interest income from the prior quarter reflects the net impact of a $5.6 million decline in interest expense on interest-bearing liabilities and a $5.4 million decrease in interest income on earning assets. The decrease in interest expense is primarily due to a $4.7 million decrease in borrowings expense as a result of $312 million in lower average short-term borrowings and the impact of lower deposit rates in the quarter. The decrease in interest income on earning assets is due primarily to a $9 million decline in income on loans held for investment driven by lower loan yields on our variable rate loans resulting from the impact of the Federal Reserve interest rate cuts at the end of the third quarter and during the fourth quarter. The decline in loan interest income was partially offset by a $4.6 million increase in interest income from other earning assets as a result of a $402 million increase in average cash and other earning asset balances. The fourth quarter's tax equivalent net interest margin was 3.33%, a decline of five basis points from the previous quarter, primarily due to lower core loan yields driven by decreases in variable rate loan yields, partially offset by lower cost of funds and an increase in yields on cash and other earning assets. Additionally, the reversal of accrued interest on the specific reserve loan negatively impacted margin by approximately 1 basis point in the quarter. Earning asset yields for the fourth quarter decreased 20 basis points to 5.74% compared to the third quarter of 2024, and the cost of funds decreased by 15 basis points to 2.41% compared to the prior quarter. The 20-basis point decline in earning asset yield is due primarily to the decrease in the loan portfolio yield, which was lower by 21 basis points from 6.35% to 6.14% during the fourth quarter, driven by lower yields on our variable rate loans and a decrease in the securities portfolio yield from 3.92% to 3.87%. These declines were partially offset by an increase in yield on cash and other earning assets, which increased from 3.48% to 4.27% during the fourth quarter. A 15-basis point decrease in the fourth quarter's cost of funds to 2.41% was due primarily to a 42-basis point decline in the cost of borrowings to 4.87%, a 9-basis point decline in the cost of deposits of 2.48% and a favorable shift in the deposit and short-term borrowing funding mix. Noninterest income increased $941,000 to $35.2 million for the fourth quarter, primarily driven by a $3.6 million increase in loan-related interest rate swap fees due to an increase in transaction volumes, which was partially offset by a $1.5 million decrease in bank-owned life insurance income, driven by debt benefits received in the prior quarter and a $770,000 decrease in other operating income primarily due to a decline in equity method investment income. Reported noninterest expense increased $7.1 million to $129.7 million for the fourth quarter, primarily driven by a $5.6 million increase in pretax merger-related costs associated with the pending Sandy Spring acquisition. Adjusted operating interest expense, which excludes merger-related costs and amortization of intangible assets in both quarters increased $1.6 million to $117 million for the fourth quarter, driven by a $1.8 million increase in salaries and benefits expense primarily due to increases in variable incentive compensation expense and self-insured related group insurance costs, as well as a $1.4 million increase in professional service fees related to strategic projects that occurred during the fourth quarter. These increases were partially offset by a $1.7 million decrease in franchise and other taxes. At December 31, 2024, loans held for investment net of deferred fees and costs were $18.5 billion, which was an increase of $133 million or 2.9% on an annualized basis from September 30, 2024, primarily driven by increases in construction and land development and commercial and industrial loan portfolios, partially offset by declines in the multifamily real estate loan portfolio. On a pro forma basis, as if the American National balances were acquired on December 31, 2023, loans held for investment increased $661 million or approximately 3.7% for the full year, excluding the impact of the acquisition's fair value loan marks. At December 31, 2024, total deposits stood at $20.4 billion, which was an increase of $92 million or 1.8% annualized from the prior quarter due to increases in interest-bearing customer deposits, partially offset by decreases in demand deposits and broker deposits. On a pro forma basis, as if the American National balances were acquired on December 31, 2023, deposits increased $974 million or approximately 5% for the full year. At the end of the fourth 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 fourth 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 fourth quarter, the company paid a common stock dividend of $0.34 per common share, which was an increase of 6.3% for both the third quarter of '24 and fourth quarter of '23 dividend amounts. As noted on Slide 13, our full year of 2025 financial outlook for AUB on a stand-alone basis, excluding the financial impact of the pending Sandy Spring acquisition, is as follows. We expect mid-single-digit loan to deposit growth for the full year. Fully taxable equivalent net interest income for the full year is projected to come in between $775 million and $800 million. We are projecting that the full year fully tax equivalent net interest margin will be in a range between 3.45% and 3.60%, driven by our baseline assumption that the Federal Reserve Bank will cut the Fed funds rate by 25 basis points twice in 2025 and the yield curve will steepen throughout 2025. The projected expansion of the net interest margin from current levels is expected to be primarily driven by the impact of increasing yields on our fixed rate loan portfolio as the back book continues to reprice higher, as well as by the impact of lower time deposit rates, as approximately $3.3 billion at a current average interest rate of approximately 4.4% will mature over the next six months. These favorable NIM impacts will be partially offset by lower variable rate loan yields, driven by the Fed funds rate cuts anticipated. On a full year basis, adjusted operating noninterest income is expected to be between $125 million and $135 million. Adjusted operating noninterest expenses, which exclude the amortization of intangible assets expense of approximately $20 million for the full year, are estimated to be in the range of $475 million to $490 million. In summary, Atlantic Union delivered solid operating financial results in the fourth quarter despite the challenging banking and operating environment we are effectively managing through. 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 2025 and beyond. Let me now turn the call back over to Bill Cimino for questions from our analyst community.
William Cimino, Senior Vice President, Investor Relations
Thanks, Rob. And Michelle, for our first caller, please.
Operator, Operator
Our first question comes from Russell Gunther with Stephens Inc. Your line is open. Please go ahead.
Nick Lorenzoni, Analyst
Hey. Good morning, everyone. This is Nick Lorenzoni. I'm just going in for Russell today. I wanted to start off on the macro side. And with the Department of Government Efficiency (DOGE) playing a growing role in streamlining federal operations and even potentially influencing economic activity in Virginia and Maryland, can you guys provide any insight into how these developments might impact your business model?
John Asbury, CEO
Yes. Let me give you some big picture perspective. Obviously, we don't know exactly what is going to happen up there. It's certainly been a busy week in Washington with the numerous executive orders coming out. We saw the mandate that came out this week to return federal workers to the office and to impose a hiring freeze. A concept of a hiring freeze is something that most private companies understand. We've done that before ourselves. Having federal workers come back to the office is something that has been long requested by the Mayor of Washington, D.C., and we believe that will be an economic benefit to the area. It will help the metro and small businesses, etc. The incoming administration has been clear that they are committed to a safe, clean, and vibrant Washington, D.C., and we think that will help. Now let me give you some other kind of broad comments. We support improving government efficiency and reducing federal spending. That is a good objective, and we wish them success. If the new administration can reduce the federal workforce in some way, which is easier said than done, given the essential services provided in the nation's capital, we'd expect to see most of those jobs absorbed into the private sector. For perspective, the Greater Washington metropolitan statistical area is the sixth largest MSA in the country with a population of 6.3 million people. Its current unemployment rate is 3.2%, and it's one of the most affluent and highly educated regions in the country. To size this, there are 373,000 federal workers in the Washington MSA, and we do question how many of those can actually go away over time. The realities of the geopolitical situation and the incoming administration's pro-national defense stance is likely going to benefit our markets. This includes the government contractors we finance, which typically provide essential services to agencies such as the Department of Defense and the National Security Agency. We expect to see more funding for those types of agencies. For anyone familiar with the Greater Washington region, whether you've spent time there or lived in the area, there's no question that traditionally, a change in administration is an economic stimulus for the Washington region. Interestingly, the Washington Business Journal just reported that the sales of high-end homes in 2024 in the Greater Washington region hit a record high. Lastly, while there are numerous Greater Washington commercial real estate-oriented banks, we should not confuse that with Sandy Spring, which is the Maryland Bank. They are a geographically compact franchise that exclusively operates in the Washington-Baltimore combined statistical area, which has a population of 10 million people. Its unemployment rate is 3.1% and is broadly one of the most highly educated and affluent markets in the country. This is a big and diverse market. The federal government influences it, but it's not solely reliant on the federal government. We see opportunity. Time will tell how this will unfold.
Nick Lorenzoni, Analyst
Okay. Got it. That's great color. Now just switching gears, I appreciate the organic NIM outlook for 2025, but could you walk us through the cadence and drivers of organic NIM expansion? And then are there any changes to the pro forma Sandy Spring guide of 3.75% to 3.85%?
Robert Gorman, CFO
Yes. In terms of our guidance and how to achieve the expansion we've suggested, as we noted in my comments, we're looking at two cuts from the Fed in 2025, expecting that in the second half of the year. However, between now and then, we are seeing that our back book fixed rate loan portfolio is repricing higher, by about 1.25 or 1.50 basis points. We have approximately $800 million to $900 million of maturing fixed-rate loans per quarter in 2025, repricing at those rates. This is helpful. We do see a bit of a lag on our deposit costs coming down in the quarter. Still, we expect to continue reducing our CD book from a rate paid perspective. We have $3.3 billion of maturing CDs in the first six months of 2025, which currently pay an average interest rate of 4.4%. Our current CD offerings are around 3.75% to 4%. So, we will see a lower cost associated with those maturing CDs and other factors as well. In regards to Sandy Spring, we don't see much change in that outlook for the 2025 impact. It might be a bit higher than the numbers you're citing, closer to the forehandle if you include purchase accounting accretion, which could also be higher given rates have gone up a bit since we announced the deal. So, I would say between 3.75% and 4% would be the correct numbers on a combined basis.
John Asbury, CEO
Rob, could you speak to what we saw NIM do over the course of the quarter? My perspective is that we absorbed a 100-basis point decrease in rates because we saw 100 basis points of Fed cuts. There was a bit of a lag effect as well due to loan book repricing and the need to push deposit rates down.
Robert Gorman, CFO
If you look at net interest spread for the fourth quarter, even though we were down on NIM, the net interest spread was basically flat quarter-to-quarter. Earning asset yields came down 20 basis points, as did the interest on interest-bearing liabilities, so net remained even. We did see lower levels of free funding related to DDA, which affected the margin.
John Asbury, CEO
I feel like we've got a pretty good running start on this, and that should have been the bottom for us. We also pointed out a couple of technical elements regarding our deposits and the specific reserve's interest reversal impact on the NIM.
Robert Gorman, CFO
We have seen a lot of success in engaging our large commercial clients to lower deposit pricing, and we expect this to improve as we enter 2025.
John Asbury, CEO
So, we're set up for NIM expansion. The conditions are quite favorable.
Nick Lorenzoni, Analyst
Perfect. Well, that's all I have. Thanks for taking my questions.
William Cimino, Senior Vice President, Investor Relations
Thank you. And Michelle, ready for our next caller, please.
Operator, Operator
All right, one moment for our next question. Our next question is going to come from the line of Catherine Mealor with KBW. Your line is open. Please go ahead.
Catherine Mealor, Analyst
Hi, good morning. Just a question back on the margin. I think, Rob, you touched on this a little, but just wanted to dig into. Can you talk about the impact of Sandy Spring, the acquisition, and how we should think about the move in rates since that deal was announced to where we are today? What is the impact on the core margin versus accretable yield, and how might that impact the marks?
Robert Gorman, CFO
Yes. Regarding that, rates have moved up a bit since we announced the deal. So, if we were to mark those loans in the balance sheet today, you'd see a bit of a higher mark, leading to more accretion income as we go forward. The net impact of that might show a slight increase in tangible book value dilution, but we expect higher earnings, EPS accretion, and interest accretion coming through, while the earn-back would remain in the 2% to 2.25% range.
Catherine Mealor, Analyst
Okay. And then how do we think about the scenario with less rate cuts leading to lower ability to reduce deposit costs as we move through next year?
Robert Gorman, CFO
One offset is that on the AUB side, we won't see as much impact on about 50% of our loan book being at variable rates. We will continue to look at varying deposit rate strategies to reduce overall organization deposit rates, specifically looking at Sandy Spring's network.
John Asbury, CEO
We're somewhat of a natural hedge to each other. They're modestly liability sensitive, while we are moderately asset sensitive. When rates go down, they will lead to some extent. It's a beneficial complement for both of us. If I had to choose, with a focus on the net interest margin only, I'd vote for rates to remain where they are.
Catherine Mealor, Analyst
Okay, that's very helpful. One other thing on credit. The reserve build this quarter seems mostly related to that one C&I loan. Are you being conservative on the potential reserve build next year related to that?
Robert Gorman, CFO
Nothing in particular is driving that. At the end of this quarter, we have guided to between 1% and 1.10%. It could be closer to the 1% versus the 1.10%. We haven't seen any major concerns currently.
John Asbury, CEO
Assuming the specific reserve works its way to a charge-off, that will bring down the reserve, but there's not much that has changed in our outlook for asset quality.
Robert Gorman, CFO
That charge-off outlook is built in as we're expecting a specific charge-off with that. We remain cautiously optimistic.
Catherine Mealor, Analyst
Thanks very much.
William Cimino, Senior Vice President, Investor Relations
Thank you. Thanks, Kathryn and Michelle. We're ready for our next caller, please.
Operator, Operator
All right, one moment. Our next question is going to come from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.
Stephen Scouten, Analyst
Good morning, guys. Just a quick clarification on the expected closing of Sandy Spring. I think you said April 1. Shareholder vote on February 5. Is it possible that depending on what you hear in the timing from Virginia and Maryland, that could close earlier? Or is it just going to stay the plan given conversion dates and internal planning?
John Asbury, CEO
Good question. We expect to hear soon from both Maryland and Virginia. It is interesting for the record that the Federal Reserve came in faster than the states, which is not typically what we see. Assuming we receive all in short order, could we close in March? Yes, but we would not choose to do so. It is complicated to close a merger at the end of a quarter and we prefer to do it at the onset of a new quarter for cleaner accounting and reporting.
Robert Gorman, CFO
Yes, I agree with that. It is much cleaner to execute with a new quarter starting.
Stephen Scouten, Analyst
I know you mentioned elevated payoffs within your standalone portfolio. Has Sandy Spring experienced similar dynamics?
John Asbury, CEO
I won't comment on Sandy Spring. We can't speak for them. You will have to ask them when they release next week. Across the industry, we predicted elevated commercial real estate sales. Most of the payoffs are refinances into the term market. Developers have been waiting, and they likely believe rates won't drop much from here, prompting them to reassess capital investments. We've agreed to sell $2 billion in terms of our portfolio, and we have seen a rise in construction financing, which is good. For three quarters, we've been watching that trend develop. Dave, do you want to share your perspective on elevated payoffs?
David Ring, Head of Commercial Businesses
About 57% of our real estate payoffs were refinancings into the term market.
John Asbury, CEO
We've seen a mix of sales, refinances, and line paydowns, which is healthy for our portfolio. We are also noticing some payoffs from private credit enterprises, which appear more like equity since they are not structured like bank deals. I want to elaborate that there will be winners and losers based on focus due to the new administration. This administration is pro-defense and pro-national security, benefitting our market. We believe we are well positioned for that.
Stephen Scouten, Analyst
With a lot of moving parts here, can you discuss what would cause you to be at the lower end of your growth range and what could deliver towards the higher end?
John Asbury, CEO
Excessive growth would make me wonder why that's happening. We need to be cautious and deal with quality clients, competing rather than pushing out our risk box. So, the range we provide reflects how aggressive competition is compared to how we are as well.
David Ring, Head of Commercial Businesses
It's tough to gauge where the loan growth may fall. We don't want to change our strategy, and we will wait to see how growth dynamics play out.
John Asbury, CEO
For years as CEO, I've maintained the philosophy of soundness, profitability, and growth, in that order. Bad outcomes occur when that order gets confused.
William Cimino, Senior Vice President, Investor Relations
Thank you. Next caller, please.
Operator, Operator
And our next question is going to come from the line of Dave Bishop with Hovde Group. Your line is open. Please go ahead.
David Bishop, Analyst
Good morning. I have a holistic question for you. As you expand across the Mid-Atlantic in Maryland and Virginia, are you finding that your deposit beta mirrors competitors more closely, or do you still have flexibility to price based on relationships?
John Asbury, CEO
The larger players set prices broadly in these markets. Our strategy is to win clients through relationship value rather than price alone. We want to maintain competitive pricing but without being the cheapest option constantly.
Shawn O'Brien, Head of Consumer and Business Banking
We see smaller banks influence competition occasionally, but we have the ability to price closely to large banks and stay competitive where needed.
John Asbury, CEO
We strive for quality relationships, not just winning accounts on the basis of price. Pricing strategy thrives on relationship building.
William Cimino, Senior Vice President, Investor Relations
Michelle, let's go to the next caller, please.
Operator, Operator
Our next question is going to come from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.
Steve Moss, Analyst
Curious on purchase accounting and the NII guide. How much accretion do you expect for 2025?
Robert Gorman, CFO
The Sandy Spring transaction is expected to be between 25% and 30% accretive, assuming rates hold steady, with about 20 to 22 basis points of margin accretion.
Steve Moss, Analyst
What are you seeing for loan pricing these days?
John Asbury, CEO
It's competitive for quality credit. While some yield may reflect surprisingly high rates, we maintain our credit risk appetite to avoid getting into bad deals.
Stephen Moss, Analyst
The nonperforming assets are linked to an asset-based loan with some fraud concerns. What do you see for recoveries there?
John Asbury, CEO
The specific reserve reflects our understanding of expectations. We are in the process of working through this situation.
David Bishop, Analyst
As it relates to real estate, do you see capital from potential sponsors for redevelopment, particularly in light of the current market dynamics?
John Asbury, CEO
With the right incentives, we could see significant potential for redevelopment into multifamily housing following government liquidations of older properties. However, the exact incentives will determine feasibility.
William Cimino, Senior Vice President, Investor Relations
Thank you, everyone, for joining today's call. We apologize for the technical difficulties and look forward to speaking to you next quarter. Have a good day.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.