Atlantic Union Bankshares Corporation

Good day, and thank you for standing by. Welcome to the Atlantic Union Bank Shares third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question during that session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any assistance during the call, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Bill Cimino. Mr. Cimino, you have the floor.

Thank you, Chris, and good morning, everyone. I have Atlantic Union Bank Shares President and CEO John Asbury and Executive Vice President and CFO Rob Foreman with me today. We also have other members of our executive management team with us for the question and answer period. Please note that during today's earnings release and through the accompanying slide presentation we are going through today on our website, on the webcast are both 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. More information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in our earnings release for the third 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. Cleaners take no obligation to publicly revise or update any forward-looking statements. And please refer to our earnings release for the third quarter 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. 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 Asbury.

Thank you, Bill, and thanks to all for joining us today. Reflecting on the big picture over the third quarter, we were pleased to see reason for optimism in the outlook for COVID-19, declining unemployment, and the most benign credit environment I've witnessed in my 34-year career. On the other hand, supply chain disruptions continued unabated, pressures on wages and the ability of our business clients to fill open positions remained a challenge, and we don't expect any improvement in the short-term rate environment for perhaps another year. Having said that, our business clients are holding up well, and most report strong demand for their services but are challenged in filling orders due to the scarcity of needed inventory, supplies, and equipment. The good news is this is a supply problem. It's not a demand problem, and the supply challenges should improve in the coming quarters. While the economic outlook may have been muted somewhat by these factors, it's still a positive outlook, and we remain decidedly in an optimistic camp. All of this has pros and cons for us, with the pros being the absence of credit problems and what appears to be a coiling spring for loan growth, and the cons being surplus liquidity, elevated loan paydowns, and wage pressures. The decline in loan balances we experienced over the quarter was more than we expected. It was, in fact, a record level of payoffs as stabilized commercial real estate was sold or refinanced into the long-term institutional markets, and surplus liquidity was used by clients to pay down bank debt. We are encouraged by the outlook for loan growth, though, as new loan production was the highest we've seen in any quarter year to date, and new construction loans set a record high. However, initial fundings were not enough to offset payoffs, and closings should have been higher still were it not for the project delays we've been seeing all year long. We do believe we are set up for a solid finish in Q4 with quarterly loan growth looking good month to date, and I will elaborate more on that momentarily. I typically begin and end my comments on these calls with familiar statements, and I do that intentionally to demonstrate consistency in our strategy and how we run the business. So I'll do that again now. Our mantra of soundness, profitability, and growth, in that order of priority, serves us well and continues to inform how we run the company, as SoundBank is and will remain our single highest priority. A prudent conservative credit culture served our company well during the Great Recession, and it's serving us well in the current environment, as evidenced by our credit quality, which remains pristine. Our second priority is profitability, and we did incur added expense to maintain competitiveness in the current labor environment, particularly for our retail branch network. We also had some one-time expenses related to both hiring and severance. We continue to balance investment and the business for the long term while remaining mindful of the continuing challenges of the low-rate environment, though expense control will be of supreme importance for as far as the eye can see. It's very clear wage pressures are real, and we'll mitigate this through additional expense actions. With the noise of PPP and provision releases subsiding, we now have enough line of sight to 2022 to reestablish our top-tier financial targets as we said we do. Rob will walk you through the details on that during this section. As for growth, we remain optimistic in our economic outlook, and we believe we have a long runway ahead of us to grow both organically and through takeaway from our larger competitors that dominate market share 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 are focused on and believe we're benefiting from the disruption occurring at two of our largest competitors. As mentioned, elevated commercial real estate payoffs and commercial and industrial line paydowns were the headline for loan balances in Q3. Loans excluding the impact of PPP averaged down 0.6% over the course of the quarter, and that's approximately 1.3% point-to-point due to CRE payoffs having been the highest we've experienced as stabilized properties were sold or refinanced into the long-term non-recourse institutional markets, and C&I borrowers continued to pay down bank debt with surplus liquidity. C&I line utilization ticked down three percentage points to 25%. It should be about bottomed out. As mentioned, while production was strong, initial fundings were not enough to overcome outsized paydowns last quarter. October has been busy to date, and we have recaptured more than half of the reported third quarter loan balance decline in our commercial loan portfolio, excluding PPP. Bookings should continue to be active in the seasonally strong Q4, and we expect to close out the year with good loan growth. We also encourage that construction lending activity has been rising for some time, and construction loans outstanding grew over the quarter, first time we've seen that. For a while, construction loan new commitments dropped significantly in the first half of 2020 with the onset of COVID, and we're missing two quarters of normalized funding ramp up from them. Construction lending rebounded beginning in Q3 20, has been running strong since then, and set a record level in Q3 21. Borrowers first need to burn through their equity as projects proceed before making drawdowns on their financing, and while this has been a very strong headwind throughout 2021, it does set up a nice tailwind in 2022 for loan growth. Traditionally, we can offset CRE paydowns with construction fundings, but have not been able to do so this year due to the combination of new construction loans having been suppressed much of last year and historically high payoffs. As I mentioned before, that headwind is now abating as construction loans are funding up and growing. Based on what we see at this time, we're expecting more normalized loan growth in the fourth quarter and in 2022. As our pipeline strength, expanded lending capabilities, new hires, market dynamics, and economic outlook support that opportunity, we do believe we're on a growth footing. PPP loan forgiveness during the third quarter was steady. Approximately 3,000 clients from both round one and round two received forgiveness, totaling approximately $392 million during the quarter, bringing the total amount forgiven to date to approximately $1.7 billion. Our current PPP balances are $482 million. Overall, the PPP loan forgiveness process is running smoothly, and it should largely wrap up over the next two quarters. Turning to credit, the headline here remains the absence of credit problems. As we continue to climb out of the systemic downturn, our credit losses have been minimal so far. Impressively, for the second consecutive quarter, charge-offs netted to zero basis points. Realistically, though, at some point, credit losses will normalize. But given all the liquidity that remains in the system, declining unemployment, and a strengthening economy, we see no sign of a systemic inflection point, and all of that feels distant to us. And to that point, the economic outlook remains positive, and we're optimistic. Here in our home state of Virginia, September unemployment came in at 3.8%, down from 4.3% in June, and that was one percentage point better than the national average of 4.8%. While that's all good news, the employment challenge in our markets is not the unemployment rate. It's the ability of businesses to fill their open jobs. Rob will talk you through the provision for credit losses in our CECL modeling, but by all indications and metrics, credit appears to have never been better. The past year challenged us in new and unexpected ways, bringing out our best to meet the unprecedented needs of our customers and teammates. And as I said before, we've come out on the other side as a stronger and more capable organization. Also, as I said before, we've learned to work differently, and our customers have learned to bank differently. We've seen usage in our digital channels increase substantially. For example, year to date, approximately 17% of new checking accounts originated online. 28% of savings accounts originated online and 9% of consumer loans originated online. We expect to further drive these numbers up as we continue to refine our digital offerings and capabilities. Digital logins are up 23% since this time last year with 76% of those logins coming from a mobile device. Mobile check deposit utilization continues to grow and now accounts for 19% of our deposit transactions. And Zelle users are up 71% year over year, with more than 49,000 users, and transaction dollar amounts are up 176%. We continue to work on new projects and improve the omni-channel customer experience with quarterly releases and upgrades to our product offerings. During the third quarter of the year, our most significant accomplishments and major undertakings were having completed the transition to a universal banker model in our branch network, This is a big structural change, and that enabled us to update our pay scales to remain competitive while also making grant staffing more efficient and productive. While this did increase our salary expense run rate in Q3, it's a good example of an investment, one that makes us more productive, efficient, and scalable over the long run. We added a new commercial team to our Maryland operations. And we finalized plans in our equipment finance division to launch a new specialty vehicle financing team in the fourth quarter that further expands our growing specialty financing strategies. Looking ahead, our goal remains to achieve and maintain top-tier financial performance, regardless of the operating environment, as evidenced by our newly reestablished financial targets. We will continue to work on ways to make the company more efficient and scalable while improving in the automating processes and the customer experience. We should see operating leverage results. coming from this. I remain convinced we're emerging from the pandemic stronger, better, and more efficient than before, and that will give us opportunities both organic and possibly through R&A. We are leveraging our learnings and ingraining our newfound capabilities, agility, and innovation into the company's culture so that we're flexible and adaptable in the current lower for longer rate environment and forthcoming post-pandemic next normal while also delivering a differentiated customer experience. I also remain confident in what the future holds for us and the potential we have to deliver long-term, sustainable performance for our customers, communities, teammates, and shareholders. And, of course, I'll close with my customary reminder that Atlantic Union Bank Shares remains a uniquely valuable franchise, dense and compact in great markets with a story unlike any other in the region. We're scalable with the right capabilities, 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.