Atlantic Union Bankshares Corporation

Ladies and gentlemen, thank you for standing by, and welcome to Atlantic Union Bank Share Corporation's first quarter earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker for today, Bill Foligno. You may begin.

Thank you, Shawanda, and good morning, everyone. I hope you all are safe. I have Atlantic 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 dialed in for the question and answer period. Please note that today's earnings release and webcasts Any company slide presentation we're going to go through are available to download on our investor website, investors.bank.union.com. During the call today, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. The important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is including in our earnings release and in the earnings supplement for the first quarter of 2020. Before I turn the call over to John, I would like to remind everyone that on today's calls, 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. Please refer to the earnings released for the first quarter and our other SEC filings for further discussion of the company's risk factors and other important information regarding our forward-looking statements, including factors that could cause actual results to differ. All comments made during today's call are subject to that safe harbor statement. At the end of the call, we will take questions from the research analyst community. And now I'll turn the call over to John Asbury. Thank you, Bill.

Thanks to all for joining us today, and I hope everyone listening is safe and well. We began 2020 with momentum and had an ambitious set of work ahead of us. We continue to believe that our strategic plan is the right one and that we have a great opportunity before us to create something uniquely valuable for our shareholders and the communities we serve and remain keenly focused on reaching the full potential of this powerful franchise. But what a difference a pandemic makes. And as COVID-19 unfolded, we quickly adjusted both our near-term and mid-range plans to Since mid-March, we have had 90% of our non-branch personnel working from home in order to distribute our workforce and reduce the risk of COVID-19 contagion. That we were able to pivot quickly and effectively is a proof point that we built a resilient organization that can react to unexpected circumstances and innovate. Rob will cover the financial details for the quarter, including a deep dive into CECL. Instead of tracking back to our progress on our strategic priorities, as I typically do during these calls, I'll cover our COVID-19 response, its implications in the near term, and its implications for our future as we realign our company's expense base to the new reality of a much lower, for much longer than expected, interest rate environment. We do believe the current pandemic is transitory, and we'll manage through it, but we must position ourselves for the new reality that comes afterward. In crisis, it's good to play to fundamental strengths. One of our strengths, I believe, is consistency. We have and will continue to operate under the mantra of soundness, profitability, and growth in that order of priority. As some of you know, I began my career at the old Wachovia Bank and Trust in Winston-Salem in 1987, where I was trained as a commercial credit officer. I learned the mantra of soundness, profitability, and growth in that order of priority from John Medlin, whom I still consider among the best-known CEOs of all time. Never more than now, over the course of my nearly 33-year career, I look back on what I learned from Mr. Medlin, and I believe he was right. A sound bank is our first priority. A prudent credit culture served our company well during the Great Recession, and it will serve us well during the coronavirus pandemic. I'll get into more details about our credit over the course of my remarks. Turning to our pandemic response, we started our first awareness campaign with teammates in late January and continue to monitor the situation and make preparations through February. As it became clear the pandemic was imminent, we activated our formal incident response team on March 4th. We restricted travel and in-person meetings on March 6th. Our first customer update went out on March 13th. We did a max test of our virtual private network, which is remote work capacity, on March 12th to prepare for a working-from-home model. On March 16th, we restricted non-essential vendors and teammates from offices and shifted to a work-from-home model. 90% of all non-branch teammates are currently working remotely, including 90% of our call center teammates. On March 19th, we were one of the first Virginia banks to move our branches to a drive-through model with branch lobbies accessed by appointment only. We limited Saturday branch hours on March 21. On March 23rd, we notified our clients about our customer hardship program and how we can help during this crisis. We started preparing for the SBA Paycheck Protection Program on March 27th upon its being signed into law and were in position to accept applications through our online application portal, On the day the program began, Friday, April 3rd, we mobilized, and in five days we developed the application portal and an automated workflow system in preparation for what we correctly expected to be an onslaught of applications since so many of our small to mid-sized customers appeared to be eligible. Our teammates recognized the importance of this program and worked tirelessly, and still are, to establish high levels of customer service even through the exceptionally strong initial demand. We've had over 400 teammates or 25% of our workforce working on this full-time since it started, and over 1,000 employees or half our workforce working on it in some capacity. To date, we've processed approximately 9,670 applications for $1.8 billion, and the SBA approved 6,500 of them for $1.4 billion in the first round of funding. The SBA-approved funding supports nearly 130,000 employees of our clients across this great franchise. We offered this program to all existing eligible customers of Atlantic Union, not just borrowers, not just a select few. After the first round of funding ended, we left our application portal open, continuing to process existing applications and invited new clients to apply in preparation for round two of funding, which we're working on now. We've revisited our charitable contribution strategy to support COVID-19 relief. Since March 16th, the leadership team has started and ended each day together on video conference, allowing better communication, real-time decision-making, and teamwork than ever before, despite our working remotely. From the beginning, our priorities have been to make the right decisions to protect our teammates, customers, and the bank. For our teammates, the pivot and working environment has been surprisingly effective. While we had the resilience plans in place and had conducted tabletop business continuity exercises, nothing could have prepared us for the reality of a pandemic. Some of the planning we found effective and used it, and some went out the window. More important, we made decisions quickly in the face of uncertainty, found a way to do what needed to be done, and continue to do so today. We've learned to work differently, and our customers have learned to bank differently. For example, we've seen usage of our digital channels increase 46%. Our call center volume has doubled, and the average call time is a little more than a minute longer than before. Wait time averages are hovering around four to five minutes compared to about a minute before the crisis, yet call center customer satisfaction is above our historic highs based on our measurement. For most of our customers, the storm has arrived. We've battened down the hatches from a credit risk mitigation standpoint. We feel confident about weathering the storm. We don't have outsized exposure to the industries most directly impacted by social distancing measures put in place, such as hotels, restaurants, and retail. Let me talk for a moment about the steps we've taken to solidify our credit position. We, of course, reached out immediately, proactively, to our business customers to assess the COVID-19 impact on them and implement payment modifications where necessary, verified collateral, reviewed in detail our loan books with a focus on the highest-risk borrowers and industries. Since the start of the crisis until February, April 24th, we've modified approximately 4,000 commercial loans with a total balance of $1.9 billion, which is approximately 15% of our total loan portfolio. The modifications run the range of options that are tailored for each borrower. The majority of them, about 75%, are payment deferrals with a total balance of $1.4 billion, which is about 11% of the loan portfolio. Our goal is to help as many of our clients through this time as possible. As the quarter ended, commercial line utilization remained steady at around 35%. Since quarter end, we've seen line usage decrease slightly. We're not seeing any broad drawdowns. We are aware of the press regarding excessive line of credit drawdowns, but believe that to be mostly a large corporate phenomenon, and that's not a major factor for us. Exposures to the most in-focus industries are limited and are outlined on slide 9 of our accompanying presentation. Our hotel portfolio comprises $650 million, or 5%, of our total loan portfolio. It consists primarily of non-resort hotels, flagged by brand name, that don't rely on conventions or conferences. The hotel portfolio's debt service coverage ratio and the loan-to-value is the best among all of our commercial real estate property types. Portfolio debt service coverage is 1.9 times, and the median loan-to-value is 60%. providing a good equity buffer to ride out this shock and accommodate deferred payments. Our restaurant exposure is $226 million, or less than 2% of total loans. It's granular, and it's 85% secured by real estate collateral. Our retail trade exposure is less than 4% of total loan exposure. About half of this is to local gas station with convenience store operators and auto dealers, and 80% of the exposure is secured by real estate collateral. Regarding senior living facilities, we finance independent living, assisted living, and continuing care communities. These represent $280 million, about 2% of the loan portfolio. They're managed by good operators with established track records. Thankfully, so far, none have been a hotspot for the pandemic. Our healthcare segment is also granular and heavily secured by real estate. We have no meaningful exposure to aviation, cruise industries, or energy. And as you may recall, our third-party consumer portfolio has been winding down for some time. Our perspective is that we're simultaneously managing three significant events. First, the COVID-19 pandemic. Second, the Paycheck Protection Program, which has been an enormous undertaking like nothing we've ever seen before. And third, the recognition that we must align the company's expense base to the coming reality of a much lower for longer rate environment than expected. We will manage through the pandemic, which we consider a limited duration event, but as it ends, we'll have positioned ourselves for the lower for longer rate environment and the macroeconomic reality afterward. I've told our teammates that the current normal is not the new normal, but that we think the post-COVID-19 normal will be different still, and we have to prepare for that reality. We are realigning the expense structure to match revised revenue expectations to maintain our goal of top-tier financial performance. We'll have more to say about this as our plans are finalized in the coming weeks, but rest assured we remain focused on the long term and on continuing to deliver top-tier financial performance. We remain committed to our previously discussed top-tier financial metric targets beginning in 2021. Although it seems like ancient history by now, Rob will take you through the financial results for Q1, and I'll speak to key accomplishments during the quarter. As I mentioned before, we had good momentum heading into 2020 and started off the year with strong deposit growth with loan production tracking to our plan. Atlantic Union accomplished a lot in the first quarter, particularly in digital. To start, we rolled out our new online account opening platform, which was perfect timing given what has happened, implemented card controls so customers can turn off their debit card on their own, improved our chat and secure message functionality for customers, improved fraud detection for online bill pay and Zelle transfers, rolled out a start card to provide a temporary debit card at account opening, and identified a number of process improvements to make our company more efficient and scalable. And we also launched in the commercial bank treasury management group a healthcare lockbox service, which supports accounts receivable collection for the unique needs of healthcare organizations. In the second quarter, we plan to further improve our digital experience by rolling out an interactive chat function for online account opening, upgrading alerts to near real time for a better customer experience and better fraud detection, and launching an appointment scheduler to allow customers to book appointments in the branch from our website and our mobile app. Our financial metrics were heavily impacted by the elevated provision for credit losses due to the worsening economic outlook related to COVID-19. Rob will walk you through all of those details today. I will say that given the challenging current and expected operating environment for banks, our full-year outlook will ultimately depend on the duration of COVID-19 and consequently the length and depth of the recession in our markets, but our goal remains to achieve and maintain top-tier financial performance regardless of the operating environment. We face great uncertainty at this point, but we do believe we are in a U-shaped recession and expect recovery before the year is out. The question remains as to how long we'll be at the bottom of the U. At this time, we simply don't know. The economy in our footprint was steady heading into the crisis, with unemployment in Virginia at 2.6% in February and ticking up to 3.3% in March. We continue to see higher unemployment claims as April progressed. The Virginia economy is fairly unique as about 20% of the economy is anchored by the federal government. The federal government spending in Virginia is mainly for agencies in the Department of Defense, with only a small fraction going to income assistance programs, education, and transportation. I've consistently said since I arrived that I believe problem asset levels at Atlantic Union and across the industry were below the long-term trend line. We are now experiencing an unexpected change in the macroeconomic environment that I mentioned could impact credit quality, and we're now in a systemic downturn. We expect a return to more normalized levels of credit losses after the impact of the pandemic works its way through the economy. Moving away from the quarterly results, we continue to believe that our three-year strategic plan will create a company with differentiated financial performance, but the path to finish the work of this plan is going to take longer than we had planned. I'll have more to say about the changing timeline and our progress against our strategic plan in future calls. Looking down the road in regards to other strategic opportunities, it should be clear from my comments that we are busy and focused on the near-term pandemic response and credit management. For now, we'll do what we need to do to fight another day. And chaos flies opportunity. I believe we'll emerge from the crisis stronger, better, more efficient than before. I believe we will demonstrate that we made the tough choices we needed to make, that we were nimble, we were resilient, and innovative in response to a most unexpected operating environment. We'll manage through the crisis while positioning for future opportunity and success. In summary, we're focused on weathering the storm, taking care of our teammates and customers, and protecting this bank. We will realign our expense structure to match the lower for longer rate environment for lives ahead. We'll continue to work our strategic plan, but we'll shift our timelines to adjust for the new reality. I'm incredibly proud of our teammates and all they've done and their ability to rapidly adjust to a new way of working in the midst of all of this uncertainty. I'm grateful for their grit, their willingness and ability to deliver a great personal sacrifice, $1.4 billion of the Paycheck Protection Program funding for our clients, their employees, and our communities during the first round of the program. And we are hard at work on round two, even as I speak. I remain confident in what the future holds for us and the potential we have to deliver long-term, sustainable financial performance for our customers, communities, teammates, and shareholders. I'll conclude my remarks with a familiar refrain. Atlantic Union Bank Shares is uniquely valuable. It's dense and compact in great markets with a story unlike any other in our region. Now more than ever before, I believe we've assembled the right scale, the right markets, and the right team to deliver high performance even in uncertain macroeconomic environments. I'll now turn the call over to Rob to cover the financial results for the quarter. Rob?