Atlantic Union Bankshares Corporation

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

Thank you, Josh, and good morning, everyone. 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 with us virtually for the question and answer period. Please note that today's earnings release and accompanying slide presentation we are going through on this webcast are available to download on our investor website at investors.atlanticunionbank.com. There's also a download link on the website that you're on today. During the call, we will comment on our financial performance using both gap metrics and non-gap financial measures. Important information about these non-gap financial measures, including reconciliations to comparable gap measures, is included in our earnings release for the third quarter of 2020. 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 of these results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise any forward-looking statements, and please refer to our earnings release for the third quarter of 2020 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. 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. As I've stated before, since early March, we've been consistent in our commentary that we're managing through two significant and distinct challenges. First, the COVID-19 pandemic and everything associated with it, and second, a much lower than expected interest rate environment for years to come, with all of its implications for the company's profitability. This quarter's results evidence the actions we've taken so far to address those two distinct challenges and are having a positive impact in positioning Atlantis Union for future success. 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 we remain keenly focused on reaching the full potential of this powerful franchise despite the present challenges. We continue to operate under the mantra of soundness, profitability, and growth in that order of priority. The sound bank is and will remain our highest priority. The prudent and conservative credit culture served the company well during the Great Recession, and it will serve us well during the economic challenges brought about by the pandemic. Our loan modifications have helped our clients weather the storm, and we fortified capital with a preferred equity issuance in the second quarter. Our second priority is profitability, and you can see the initial impact of our actions to align our expense run rate to the new revenue reality of the lower rate environment. As for growth, on the other side of the current economic challenges, we believe we have a long runway ahead of us to grow organically, and through market share takeaway, from our larger competitors that dominate market share in our home state of Virginia, supplemented by our operations in Maryland and North Carolina. We also expect there will be potential future opportunities to continue to be a consolidator within our footprint. Let me first update you on our pandemic response. Our March 16th pivot to a new operating model with 90% of non-branch personnel working from home and having branch lobbies closed except for appointments has been effective. During September, we piloted reopening branch lobbies to customer walk-in traffic, and on October 14th, we fully reopened all branch lobbies. Corporate offices will remain closed to all but essential personnel for an indefinite period. Work from home is going fine. We're not going to rest bringing people back in given the safety and social distance challenges. I won't take you through the details of the Paycheck Protection Program again, but we do continue to think PPP has been a brand builder for Atlantic Union, and the numbers in our share of loans process, particularly in Virginia, support that statement. We have an organized process underway to convert the more than 3,000 new-to-bank PPP clients to full relationships, as we think there's a great opportunity from the negative experiences many of them had with larger banks that caused them to come up to us seeking help. We started to submit applications for PPP loan forgiveness on behalf of our clients to the SBA, We did not receive any approvals during the third quarter, but we did obtain the first approval from the SBA last week, so it's good to finally see the forgiveness process begin. We remain hopeful that Congress will eventually pass the bipartisan proposal to automatically forgive PPP loans under $150,000. They represent 85% of all of our PPP loans by count. We are happy to see the streamlined forgiveness for PPP loans of $50,000 and below, which represent 58% of our PPP loans by count, but we think Congress can and should do more to help these businesses. Our customers have learned to bank differently. While branch lobbies are now reopened, we rolled out a digital appointment scheduling option to customers and have had more than 18,000 appointments set since June 1. We added mortgage options to the appointment scheduler during the quarter as well. We've seen usage of our digital channels increase substantially from the prior year. For example, digital logins are up 21% since the start of the year. Mobile check deposit utilization is up 18% this year. Zelle utilization is up 290% year-over-year. And card control users are up about 100% since we launched that in April. Our call center volume has decreased from its peak, and it's now about 10% higher than February. The average call time wait time is now lower than before the crisis. All the while, 90% of the call center personnel work from home. We updated our digital channel navigation to make self-service updates easier to find and added e-statement opt-in to online banking enrollment. We continue to work on new projects and improve the omnichannel customer experience with quarterly releases and upgrades to our product offerings. During the fourth quarter of the year, We expect to roll out a Zoom video chat option to our current branch appointment options, which are currently in pilot in 44 branches. We'll expand the pilot of having branch teammates take call center overflow calls during busy parts of the day. That improves both productivity and customer experience. We'll allow customers to select e-statements at the account level rather than the customer level, and that should improve e-statement penetration and reduce expenses. We'll also be able to notify customers when a new e-statement is ready. continue the pilot of our enhanced wealth CRM platform using Black Diamond technology, and continue our efforts to right-size small business clients with the consumer online platform in order to ensure that they're not unnecessarily using a more complex commercial banking solution. All the while, we continue to enhance our treasury management offerings and experience for our commercial client base. Turning to credits. As COVID-19 began, we prepared, expecting to be hit by the economic equivalent of a Category 5 hurricane. While we still think there's a storm swirling on the horizon, we don't expect it will be as severe as we initially feared, but anything could still happen. The resiliency and diverse nature of our markets, coupled with government stimulus and an accommodative Federal Reserve, is helping, as we've seen the unemployment rate in our markets improve faster than expected. Here in our home state of Virginia, September unemployment came in at 6.2%. Our loan book also helps as we don't have any outsized exposure to the industries most directly impacted by the social distancing measures put in place, such as hotels, restaurants, and retail. By all indications and metrics, credit remains solid, and we continue to try to help as many of our clients through this as possible while at the same time mitigating their risk of loss. As for payment deferrals, we had a number of loans roll off of modifications during the quarter and into the first part of October. The total modification balances as of Friday, October 16th, were approximately 830 loans under modification with a balance of $523 million, or 3.6% of our total portfolio. If you exclude the PPP loans, then it would be approximately 4.1% of the total portfolio. This is down from $1.9 billion and 4,000 loans as of April 24th, which was then approximately 15% of the portfolio. Our modifications peaked in May around 17%. Nearly all of the initial rounds of loan modifications will have matured in November. So far, of all the loans with an expired initial modification, only 40 commercial loans, 4-0, with an aggregate balance of approximately $90 million, or 8% of the dollars, have gone under a second modification. Of these, half the dollars were for nine hotel properties that were initially on a 90-day modification before we decided to make hotel modifications a standard 180 days. We noted in the middle of the third quarter that we had $302 million in modifications that we approved but subsequently deemed unnecessary as the clients informed us they no longer needed them. So we removed those from our report. That was reflected in the mid-quarter deferral update we provided in September. The modifications run a range of options and are tailored for each borrower. The majority of our commercial mods, about 70%, are principal and interest deferrals, mostly for 90 days, with a balance of about $340 million as of last Friday, and that's about 2.7% of the loan portfolio after adjusting out the PPP loans. Our exposures to the most in-focus industries are limited, and they're outlined on slides numbered 7, 8, and 9 of our accompanying presentation. The amount of loans under a modification in these segments decreased from 224 loans for $324 million on August 28 to 111 loans for $199 million as of October 16. As a reminder, our hotel portfolio is entirely within our footprint. It comprises $676 million, or 5.3% of our total loan portfolio, excluding PPP loans, as of September 30, It consists primarily of limited service, non-resort hotels, flagged by name brand, that don't rely on conventions and conferences. The hotel portfolio's debt service coverage ratio and the loan-to-value going into the crisis was the best among all of our commercial real estate property types. We saw that occupancy generally improved in August from July. Looking at September data, Northern Virginia, Charlottesville, and Stanton-Harrisonburg saw occupancy rates remain steady or improve from August, whereas the rest of the footprint saw some degree of decline. Whether that decline was seasonal in nature from the end of the summer or a reflection of a new trend remains to be seen. Our restaurant balance is $223 million, or 1.7% of total loans, excluding PPP as of September 30. It's granular, and it's 85% secured by real estate collateral. Restaurants in Virginia have been open for indoor and outdoor dining since early June at 50% of occupancy, and since July 1 were capped at a 250 patron limit. About 10% of the segment was under modification as of October 16. Retail trade exposure, which means loans to retail operators and single credit tenant leases, is 4.3% of total loan exposure, excluding PPP as a quarter end, but only about 2% of the segment under a modification as of October 16. A significant portion of this segment is local convenience stores with gas and auto dealers. About 80% of the retail trade exposure is secured by real estate collateral, with 21% in PPP. Our healthcare segment is also granular. It's heavily secured by real estate, and they've been open with social distancing and PPP rules since May. We only have about 3.6% of the segment still on a modification as of October 16. We have no meaningful exposure to passenger airlines, cruise lines, or energy. As you may recall, The third-party consumer portfolio has been winding down for some time. The quarter-end balance for our lending club exposure was $66 million and continues to run off. Payment deferrals in the lending club portfolio declined by 71% to less than $1.7 million during the quarter as those accounts went off of modification and became current. With the unemployment rate in Virginia better than the June 30 Moody's forecast, which informed our Q2 CECL reserve, and with no negative changes in the outlook since then, we have had a more normalized provision expense for the quarter, and Rob will walk you through all of those details. Overall, we continue to proactively work through this event with our clients while mitigating credit risks wherever we can. Moving on to our expense reduction actions, we developed our initiatives to reduce the company's expense run rate to match the lower revenue expectations due to COVID-19 and the lower for longer interest rate environment back in March. And we started to take action on them in the second quarter into the third quarter. These expense reduction efforts include the consolidation of 14 branches for about 10% of our branch network, which closed in mid-September. In addition to moving some projects to next year and eliminating others, we put a hiring freeze in place in March except for critical positions. We eliminated a number of positions in June, and including branch consolidation personnel, we reduced total headcount by 6.4 percent by the end of the third quarter as compared to FTE levels at the end of March. In addition to these actions, we're executing on several other cost reduction initiatives such as titer management to reduce overtime contract labor and outside consultant spending, extracting price concessions from third-party vendors and renegotiating contracts, including leases, and improving teammate productivity through process reengineering and robotic process automation. Our goal remains to achieve and maintain top-tier financial performance regardless of the operating environment. Our financial outlook will ultimately depend on the continued success against additional flare-ups of COVID-19 in our main operating areas, which will be one of the primary factors that determine the length and depth of the disruption in our markets. We continue to face great uncertainty at this point, mostly the duration of COVID-19. But as I mentioned before, we are in a better macroeconomic environment today than we thought we would be six months ago. There will probably be some dips along the way to a full recovery, but we believe the overall trend should be upward. At this time, we simply don't know when we may return to pre-pandemic macroeconomic levels, but the evidence supports that we're seeing better economic performance in our footprint than what is seen overall in the national economic model projections. As we've said in the past, the Virginia economy is fairly unique, with a broadly diverse set of regional economies with about 20% of it anchored in some fashion by the federal government. Federal government spending in Virginia is mainly for government agencies and Department of Defense, with only a small fraction going to income assistance programs, education, and transportation. We expect to have a full year of loan growth in the low single digits, excluding PPP loans. Commercial loan categories of all types on a combined basis grew about 4% annualized during the quarter, substantially offset by declines in consumer categories of HELOC, third-party lending, and residential mortgages held on balance sheets. We continue to see the trend of increased line of credit paydowns with utilization down to about 24%, well below a normal utilization of around 40%. Clearly, we've had a sea change in the economy brought on by the pandemic, resulting in a systemic downturn that we're climbing out of now. Credit losses were minimal during Q2 and Q3, but of course, the real impact is yet to be seen. We continue to expect an eventual rise in credit losses, and we thought Q3 would have begun a transition toward that, but obviously it didn't happen. Although we cannot predict with certainty, our current best estimate is that credit losses may materialize in the first half of 2021. We expect normalized levels of credit losses after the impact of the pandemic works its way through the economy. Having said all of the above, We see nothing at this time that causes us to think that anything but well-positioned and readily able to absorb the delayed impact of COVID-19 on credit losses at Atlantic Union. Moving beyond credit, our goal remains creating a company with differentiated performance. We'll continue to work on ways to make the company more efficient and scalable while improving the customer experience and could see further improvements to our expense base as a result. As I said last quarter, we're not standing by waiting for things to happen. pushing the organization forward. While we always think a few steps ahead towards strategic opportunities and how the industry is evolving, at this time we remain sharply focused on credit risk mitigation, positioning for success, and slowly returning to a more normalized operating environment. I am convinced we will emerge from this crisis stronger, better, and more efficient than before, which will give us opportunities, both organic and otherwise, within our operating footprint. We're leveraging our learnings and ingraining our newfound capabilities agility and innovation into the company's culture so that we have the flexibility to adapt to the lower for longer rate environment and the coming next normal, whatever that may be. We still believe in chaos lies opportunity. We're weathering the storm, taking care of our teammates and customers and protecting this bank. We took decisive actions to reduce the expense structure to match the lower for longer rate environment in an effort to maintain top-tier financial performance. We'll continue to work our strategic plan, but we will shift our timelines as needed to adjust to the new reality. I'm so very proud of our teammates, all they've done, and their demonstrated ability to adjust to a new way of working in the midst of all of this uncertainty. 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. All that has happened this year only convinces me more. Atlantic Union Bank Shares is a uniquely valuable franchise. It's dense, it's compact, and 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 even in the most trying of times. I'll now turn the call over to Rob to cover the financial results for the quarter.