Atlantic Union Bankshares Corporation

Ladies and gentlemen, thank you for standing by. And welcome to the Atlantic Union Bank Shares second quarter 2021 earnings call. Please note that today's call is being recorded. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, Will Cimino. Please go ahead.

Thank you, Jay, and good morning, everyone. I have Atlantic Union Bank Chair's President and CEO John Asbury and Executive Vice President CFO Rob Foreman and Atlantic Union Bank President Maria Tedesco with me today. We also have other members of our executive management team with us remotely for the question and answer period. Please note that today's earnings release from the accompanying slide presentation we are going through on this webcast are available to download on our investor website at investors.atlanticunionbank.com. During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in our earnings release and earnings supplement for the second quarter of 2021. Before I turn the call over to John, I would like to remind everyone that on today's call we will be making 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 or update any forward-looking statements. Please refer to our earnings release and earnings supplement for the second quarter of 2021 and our other SEC filings for further discussion of the company's risk factors and other important information regarding our forward-looking statements, including factors that could cause actual results to differ from those expressed or implied in any forward-looking statement. All comments made during today's call are subject to that safe harbor statement. At the end of the call, we will take questions from the research analyst community. And now I'll turn the call over to John Adler.

Thank you, Bill, and thanks to all for joining us today. As those of you who follow us closely know, for the last year and a quarter, we've been consistent in our commentary that we're managing through two significant and distinct challenges. First, the COVID-19 pandemic, and second, a near-zero short-term rate environment that we expect still has years to run, pressuring the company's profitability. While we can and do hope that interest rates will rise sooner than forecast, which would be of great benefit to us, for purposes of planning and running the company, we expect near-zero short-term rates through at least next year. We are watchful of the different COVID variants and monitoring the trends, but nonetheless continue to believe, based on information from state officials, the pandemic's major impacts are behind us, at least in our primary markets. Despite the human tragedy of the pandemic, Atlantic Union has emerged from it stronger, more capable, more agile, and resilient. Our experiences over the past year and a half have confirmed our belief that our strategic plan, with our long-term goal to become the premier mid-Atlantic bank, is the right one, and that we have a great opportunity before us to create something uniquely valuable for our shareholders, customers, and the communities we serve. And we remain keenly focused on reaching the full potential of this powerful franchise. Our mantra of soundness, profitability, and growth in that order of priority serves us well and continues to inform how we run our company. A sound bank is and will remain our highest priority. A prudent and conservative credit culture served our company well during the Great Recession, and it is serving us well in the current environment. Our loan modifications have helped our clients weather the storm, having peaked at about 17% of the non-PPP loan portfolio in May of 2020, and remain at a minimal 0.3% as of June 30, 2021. Our capital position has been strengthened, and we have ample liquidity. Our second priority is profitability, and we are pleased to report a very clean quarter without meaningful one-time gains or losses, allowing you to better see our core performance, expense action results, and investment in the business for the long haul. While we remain mindful of the continuing challenges of the low-rate environment, you will recall we forecasted a quarterly expense run rate of about $92 million a quarter, and we hit it. As for growth, we continue to be optimistic in our economic outlook and believe we have a long runway ahead of us to grow, both organically and through takeaway from our larger competitors that dominate market share here in our home state of Virginia, supplemented by our operations in Maryland, North Carolina, and our specialized lending capabilities in government contract finance and equipment finance. We remain focused on and believe we're benefiting from the disruption occurring at two of our largest competitors. Loan growth, excluding the impacts of PPP, returned this quarter with an annualized growth rate of 2.5%. Loan growth was over 3% annualized when we adjust for the runoff of the third-party consumer portfolio. Now, this is not where we want to be, but it is consistent with our prior messaging that we believe we are on an improving growth trajectory, and we still do believe that. Commercial loan categories of all types increased by approximately 3.5% annualized, with consumer loans declining 2.9% as we continue to run down our third-party consumer portfolio, which we expect to drop below $100 million this quarter. Total consumer loans, excluding our third-party portfolio, actually showed some slight balance growth, an encouraging turn of events. Line utilization is still well below normal at 28%, which, while about a 3 percentage point increase from the prior quarter, points to just how much liquidity remains in the system. Based on our commercial pipeline, which is currently at a record high, we believe we do have line of sight to a continued upward trend in loan growth and that the second half of the year will be better than the first half. This could bring our full year 2021 loan growth up to mid-single digits, excluding third-party consumer loan runoff and PPP loans. Next year, we do expect to return to high single-digit loan growth in our franchise. Market dynamics and economic outlook certainly support that opportunity. Aside from the significant amount of excess liquidity being held by our clients, two other headwinds impacting our loan growth to date are supply chain disruptions, creating a scarcity of pretty much anything our business clients seem to need, and the difficulty they're having filling their open jobs. This is needing growth for us, but this effect should diminish as the year works on. I'll now turn to PPP forgiveness since it is clouding our report of balance sheet growth. The first and second round of the Paycheck Protection Program were brand builders for Atlantic Union, and our results support that assertion. We remain focused on converting as many as possible of the more than 3,500 new-to-bank PPP clients to full relationships, and per our analysis, we have become the primary bank for well over half of them, and we continue working all the others. We started taking applications for Round 2 as soon as the Small Business Administration opened to banks our size and received SBA approval for approximately 5,700 loans, totaling around $555 million for Round 2. PPP loan forgiveness during the second quarter ramped up from the first quarter. Approximately 5,000 clients from both Round 1 and Round 2 received forgiveness, totaling approximately $705 million during the quarter, bringing the total amount forgiven to date to approximately $1.3 billion. Our current PPP balances total $859 million. Overall, the PPP loan forgiveness process is running smoothly. Let me speak now to our current operating environment and our workplace strategy. While our branches have been open to walk-in traffic since last fall, corporate offices remain closed to all but essential personnel. As a people-focused organization, we have sought input from and listened to our teammates, conducting numerous surveys and focus groups to better understand their desires and expectations for the office environment while balancing that with our own business requirements. After Labor Day, we will transition to work in a hybrid office approach. Relatively small percentages of our teammates will be fully remote, and most who are assigned to corporate offices will be eligible for a hybrid option. This is a great experiment, and while we intend to be flexible and responsive to our people's request for a hybrid work opportunity, If we find that the hybrid approach is not as productive as we expect or if it fails to meet our business requirements, we will revise it. Like everything else we do here, this will evolve based on actual experience and our learnings. The past year challenged us in new and unexpected ways, bringing out our best to meet the unprecedented needs of our customers and our teammates. As I said before, we've come out on the other side of this as a stronger and more capable organization. Our culture has evolved, too, and it continues to evolve. This is happening due to two important mergers over the past few years, which brought us new teammates with new perspectives, new leadership having joined the bank, creating new expectations, and, of course, the new environment that has changed the way in which we all work together and interact with our customers. For these reasons and more, we wanted to study and reflect on the Atlantic Union Bank culture and revisit our core values to ensure they still align with who we have become. and with all that has worked for us during these challenging times. Our core values guide our actions and shape our culture as we continue to grow and as we continue to evolve. We've purposely reflected on how our culture has enabled our success to ensure it will enable our future as well. This re-articulating of our core values, it's clear, it's concise, it's simple to understand, and we think it is uniquely us. The core values we chose to reflect on our new organization are caring, courageous, and committed. Caring means working together toward common goals, acting with kindness, respect, and a genuine concern for others. Courageous means speaking honestly, openly, and accepting our challenges and our mistakes as opportunities to learn and grow. And committed means being driven to help our customers, our teammates, and our company succeed, doing what is right always, and being accountable for our actions. This is all here now. It's not some aspirational statement. While it's easy to talk about culture, it's harder to show how your culture performs in a competitive environment in which we operate. I am proud to say that our words more than match the reality. In addition to winning a number of local and regional awards, we were number one in J.D. Power's retail banking customer satisfaction for the mid-Atlantic region in 2021, and this is the second time in the last three years we've won this award. As we dig deeper into the J.D. Power study, Our online banking experience, website, mobile application, and branch experience all scored the highest in the Mid-Atlantic. This is something I would not have expected a few years ago. And it's not just retail customers who rate us highly. We will also name the Greenwich Excellence Award winner for businesses with $1 to $10 million in revenue for the entire South region. As I've said before, as we've learned to work differently, our customers have learned to bank differently. we've seen usage of our digital channels increase substantially from the prior year. For example, digital logins are up 63% since this time last year, with 73% of logins coming from a mobile device. Mobile check deposit utilization is up 46% year over year. Zelle utilization is up 196% year over year. And card control users are up around 241% year over year. Finally, commercial mobile deposit dollar volume is up 49% year over year. We continue to work on new projects and improve the omni-channel customer experience with quarterly releases and upgrades for our product offerings. During the second quarter of the year, our most significant digital accomplishments and major undertakings, having completed the business e-banking platform upgrade to the Digital One platform, and we rolled out a dedicated Atlantic Union Bank Wealth Management branded mobile application, and a new personal finance portal powered by Black Diamond. Initial feedback from clients has been very complimentary with higher than expected login rates. And I can attest, as a client of our wealth management group, it's terrific. Turning to credit, the headline here is the absence of credit problems. With the usual disclaimer that anything could still happen, we're more confident on credit than we have been since the pandemic began, even more so than at the end of the first quarter. And we don't expect credit issues to be problematic in the near term, barring some unexpected negative turn with the COVID-19 outlook. It's clear to us that the resiliency and diverse nature of our markets, coupled with additional government stimulus and accommodated Federal Reserve, and our own actions in client selectivity, have had a positive impact, and we've seen the unemployment rate in our markets improve faster than expected. Here in our home state of Virginia, June unemployment came in at 4.3%, down from 5.1% in March, and that was 160 basis points better than the national average of 5.9%. Having said that, the employment challenge in our markets is not the unemployment rate, it's the ability of businesses to fill their open jobs. As we continue to climb out of the systemic downturn, our credit losses have been minimal so far. Charge-offs in Q2 improved off the very low levels we've seen, and netted to zero basis points, which is an impressive accomplishment. Realistically, though, at some point credit losses will have to normalize, but given all of the stimulus and the strengthening economy, there's simply no way of knowing when that may be. Rob will talk through the provision for credit losses in our CECL modeling, but by all indications and metrics, credit appears to have never been better. Our goal remains to achieve and maintain top-tier financial performance, regardless of the operating environment. Our financial outlook will ultimately depend in part on the continued success against additional flare-ups of COVID-19 in our main operating areas. As I mentioned before, the economic outlook is strongly positive, and we're optimistic. While there may be some dips along the way to a full recovery, we believe the overall trend will remain upward, and it should accelerate in the back half of 2021. The data continues to demonstrate better economic performance in our footprint than what is seen overall in the national economic model projections, and that gives us confidence in our outlook. We will again point out the Virginia economy is fairly unique with a broadly diverse set of regional economies, and about 20% of it is anchored in some fashion by the federal government. The additional stimulus should be a net positive for the federal government's contribution to the Virginia economy. As an aside, Virginia recently became the first back-to-back winner of the Best Day to Do Business by CNBC, and that comes as no surprise to those of us who live and work here. This is the fifth time Virginia has achieved this number one ranking. Our goal remains creating a company that's able to consistently deliver differentiated performance. As I mentioned in the last quarterly call, we continue to work on ways to make the company more efficient and more scalable while improving and automating processes and the customer experience. We should see operating leverage improvements as a result. Once we get through the noise of PPP, we would expect to publicly reestablish our top tier financial targets. I am convinced we're emerging from the pandemic stronger, better, and more efficient than before, and that will give us opportunities, both organic and perhaps under the right circumstances, through M&A. We are leveraging our learnings and ingraining our newfound capabilities, agility, and innovation into the company's culture so that we are flexible and adaptable in the current lower for longer rate environment and the forthcoming post-pandemic next normal, whatever that may be, while delivering a differentiated customer experience. I do 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. And I'll close, as always, with my customary reminder that Atlantic Union Ventures remains a uniquely valuable franchise. It is dense and it is compact. It is in great markets with a story unlike any other in our region. You're scalable with the right capabilities, the right markets, and the right teams to deliver high performance even in this trying of times. With that, I'll now turn the call over to Rob to cover the financial results for the quarter.