Atlantic Union Bankshares Corporation

Good morning. My name is Kyle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Union Bank Shares first quarter earnings call. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. Thank you. Mr. Bill Cimino, Vice President, Investor Relations, you may begin your conference.

Thank you, Kyle, and good morning, everyone. I have Union Bank Shares 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.bankatunion.com. During the call today, 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 our earnings release for the first 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 fact 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 statement, and please refer to our earnings release for the first quarter of 2019 and our other SEC filings for further discussion of the company's risk factors and 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 will take questions from the research analyst community, and now I'll turn the call over to John Asbury.

Thank you, Bill, and thanks to all for joining us today. Union began 2019 with a solid first quarter. To start, we closed the acquisition of Access National Corporation, completing the last piece of the Virginia jigsaw puzzle by adding a strong franchise in northern Virginia. announced that we intend to rebrand the bank to Atlantic Union Bank on May 20th, concurrent with the Access Systems conversion. Delivered strong deposit growth, and loan growth was in line with our expectations given the seasonally low loan demand in the first quarter and our strong finish to the fourth quarter. We showed year-over-year improvements in our operating profitability metrics. As communicated previously with the addition of Access, we have stepped up our financial targets, which we expect to achieve in late 2019 and in 2020. They're as follows, operating ROA between 1.4 and 1.6 percent, operating return on tangible common equity between 16 and 18 percent, and an operating efficiency ratio at or below 50 percent. Just like in 2018, we expect the first three quarters of 2019 to be noisy as we complete the access integration We expect to achieve our stepped-up financial targets on an annualized basis in fourth quarter 2019 once the access cost saves are materially complete. We do have a slightly different timeline for our wealth management integration, which will not have its systems conversion complete until early 2020. As a reminder, the access acquisition closed on February 1st, 2019. On a pro forma basis, as if the access balances were included for the full quarter, We had a good start with loan growth around 3% annualized for the quarter. The first quarter is traditionally a slower quarter for loan growth, particularly after such a strong finish to the fourth quarter as we had. And we saw levels of commercial real estate paydowns remain higher than historical trends, and that's been a consistent issue over the past few quarters. CNI line utilization during the quarter remained steady at approximately 41%. Having said that, the former Access franchise posted mid-single-digit growth in loans for the quarter with its loan growth outperforming Union on a pro forma basis. Access's deposit growth was slightly lower than its loan growth. The Union and Access teams are energized by the combination, and we're competing well together out in the marketplace. Our pipelines are higher now than at this point in the first quarter of 2018 and at the beginning of 2019, and they're also better balanced. We continue to expect full-year 2019 loan growth to be in the high single-digit range, which means 7% to 9%. On a pro forma basis, as if the access balances were included for the full quarter, we had 8.6% annualized growth in deposits during the quarter. We saw a good balance between consumer and commercial deposit growth during the quarter, some of which is seasonal. We continue to believe that we can deliver deposit growth in the upper single digit range for the full year to match loan growth, but not necessarily at every quarter. Turning to our 2019 priorities, we're off to a strong start for the year. As I've said since I arrived, setting goals, tracking back to them, and delivering results is fundamental to how we manage this company. Here are our previously communicated 2019 priorities. First, diversify loan portfolio and revenue streams. We continue to diversify our loan book as evidenced by continuing growth in CNI loans, owner-occupied real estate, and the addition of Access's loan book. We're especially encouraged by the reception we're receiving in the marketplace with our commercial banking emphasis. We can compete against anyone in the small to mid-sized commercial space, which covers 99% of all Virginia businesses. As Virginia's irrefutable regional bank, We're building a reputation as a capable, responsive local alternative to the super regional and national banks. It's fair to say we have now positioned ourselves as the home team in Virginia, and we continue to learn how to more effectively leverage our home field advantage. Next, growing core funding. Our loan-to-deposit ratio was approximately 95% in line with our long-term goals. As I've mentioned in the past, we've increased our focus on gathering deposits, installed a competitive treasury management system, and built out our treasury management sales teams. We're excited about the ability to scale and replicate a number of business deposit gathering strategies we've learned from Access, especially in our metropolitan markets. Next, managing to higher levels of performance. As noted, the quarter was noisy with the closing of Access, but when we look at it year over year, We improved all of our operating profitability metrics, and we've made progress toward hitting our top-tier financial goals. Next, strengthen digital capabilities. We are making steady progress in this space, and after the Access Core systems conversion, we intend to direct the freed-up program management capacity against our digital strategy. As a reminder, we view digital as a way of doing business and a way of thinking and not a collection of discrete products and projects. We will increasingly apply digital technologies throughout the company to improve the client and teammate experience. Digital will underpin all that we do to realize our value proposition of making banking easier, which is the next priority, making banking easier. We've begun with implementation of Encino, an end-to-end loan origination system for our commercial banking teams. The former access teams will implement this in conjunction with the core systems conversion. Having a paperless end-to-end loan origination system will make banking easier for both our commercial clients and our own teammates by reducing cycle times, eliminating redundant data entry, and providing better insight into status, performance, and improvement opportunity. We've demonstrated tremendous progress and focus on commercial banking over the past two years here at Union, and we've now initiated a similar transformation to our consumer banking division. I am convinced we have not yet realized our growth potential for consumer banking, and we have a lot of work to do here. With the right consumer leadership now in place, we're ready to take this on. During the quarter, Sean O'Brien joined our management team as our consumer banking executive. Sean has an impressive balance of experience between consumer operations, strategy, and digital, and like the rest of the executive management team here, Sean brings significant experience in larger scale, more complex institutions before joining unions. With the breadth, depth, and strength of consumer banking experience we now have in Sean and our president of Union Bank and Trust, Maria Tedesco, I feel we have a highly differentiated consumer banking leadership skill set compared to other mid-sized banks. This is important because we hope to mirror our great commercial banking success with our consumer banking transformation. Maria often notes how our consumer journey starts off in a much better place than past transformations she's led, because a cultural drive to deliver a great customer experience already exists here at Union. While we're proud of the numerous customer service awards we have earned and continue to earn, we need to do much more than simply provide a pleasant banking experience, and we will. Our transformation will focus on streamlining the operational demands placed on the branches so our teammates have more capacity to deliver customer needs-based relationship banking. We will segment our branch network to ensure that the branches are geared towards serving the specific opportunities of their trade areas. This is a more sophisticated approach than our historically one-size-fits-all consumer banking strategy at Union. An example is our plan to replicate the deposit-gathering branch structure of access and business-intensive metropolitan trade areas that will support it. This effort is just getting underway, and we'll continue to update you on our progress throughout the year. and last, integrate Access National Corporation. We had a smooth legal closing on February 1, and the core systems integration planning work for the weekend of May 18 is nearly complete. We held a simulated conversion over the March 23 weekend, and it went very well, so well, in fact, that we canceled our planned second simulated conversion, deeming it unnecessary. Having learned from the Zenith integration, the teams are executing well against our playbook, having built a reliable, replicable process and change management framework. I'll now touch on three other topics from the quarter before turning it over to Rob. First is our new brand, Atlantic Union Bank, which will go live on May 20th. Having a unified bank brand and a distinct wealth management brand throughout Virginia, Maryland, and North Carolina reduces brand complexity and ensures recognition and clarity in the marketplace. Atlantic Union Bank retains our 100-year union focal point while incorporating our recent geographic expansion throughout the Mid-Atlantic. Middleburg Financial creates a wealth management brand separate and distinct from the bank while building on the long-established brand equity from Middleburg Trust. We're excited about the brand possibilities these two names will create in the marketplace. Also, if approved at our shareholder meeting on May 2nd, we will change the name of the holding company to Atlantic Union Bank Shares Corporation on May 20th, matching the name of the bank. We will also change our stock trading ticker to AUB to reflect a new company name. Next, I want to comment on our current thinking regarding our geographic markets and future expansion plans. We believe that our platform, irrefutably Virginia's regional bank, with the potential to become the Mid-Atlantic's regional bank, is capable of competing successfully against the national and super-regional banks, and that we have a unique opportunity to take advantage of disruption in our marketplace. The embedded organic growth potential for Atlantic Union Bank combined with the potential disruption caused by a merger of two large competitors, gives us a unique opportunity in which we're laser-focused. While we can't predict what other opportunities may arise to build out our franchise, our intentions at this time are to focus on organic growth, close any remaining competitive gaps, harness the power of this great franchise across our mid-Atlantic footprint, build the bank one customer at a time, and deliver on our promise of making banking easier. Finally, credit quality remains strong. The economy and our footprint is steady, and we do not see evidence of systemic changes to our credit environment. Charge-offs declined to 15 basis points annualized, and we saw reductions in non-accrual loans from the fourth quarter. The majority of the charge-offs continue to be in our third-party consumer loan portfolio. While this is a lucrative asset class for us given its yield, it's not a strategic focus area for the bank, and it will be wound down over time. While charge-offs are typically lumpy quarter to quarter, we continue to expect full year 2019 to look something like 2017 and 18 from a credit quality perspective, barring some unexpected change in the macroeconomic environment. As you've heard me say each quarter since I arrived, I believe problem asset levels at Union and across the industry remain below the long-term trend line. Eventually, we will see a return to more normalized credit losses, but we still can't tell you when to expect that, except to say that from this vantage point, we don't see it happening in 2019. In summary, Union started off 2019 on the right foot, making progress against our six strategic priorities with strong deposit growth and loan growth expected to reach high single digits for the year. We're excited to have the Access and Middleburg teams now a part of Union, and we look forward to our May 20th rebranding as Atlantic Union Bank. I remain highly confident in what the future holds for Union and the potential we have to deliver long-term, sustainable performance for our customers, communities, our teammates, and our shareholders. I'll close with a familiar message. Union is a uniquely valuable franchise. It's dense and 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. Our combination with Access National Bank an attractive Virginia economy made even more so by the implications of the coming Amazon HQ2, incremental growth opportunities in our North Carolina and Maryland operations, and what we believe will be a multi-year disruption with two of our largest competitors only further strengthens the already strong hand we hold. And we play that hand every single day. And I'll turn the call over to Rob to cover the financial results for the quarter. Rob?