Atlantic Union Bankshares Corporation

Good day and thank you for standing by. Welcome to the Atlantic Union Bank Shares fourth quarter and full year 2021 earnings conference call. 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 this session, you will 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 then 0. I would now like to hand the conference over to your host today, Bill Cimino, Investor Relations. Please go ahead.

Thank you, Michelle, 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 today's earnings release and the accompanying slide presentation we are going through on this webcast are available to download on our investor website, 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 for the fourth quarter of fiscal year 2021 and which is also available on the investor website. 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 for the fourth quarter and fiscal year 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 Asbury. John Asbury.

Thank you, Bill. Good morning, and thanks to all for joining us today. I'll begin with some high-level thoughts on our performance environment, some changes we have made, and how we're thinking about our growth strategies. Looking back at 2021, it was a challenging but successful year for Atlantic Union Bank shares. While there were ups and downs with the continuing pandemic, Atlantic Union had a strong finish to 2021, and we're optimistic as we enter 2022. Our operating philosophy of soundness, profitability, and growth served us well this year as we continue to navigate the ongoing challenges of operating in a pandemic. While we're mindful of the current Omicron surge, we don't see it derailing the fundamental positive trends of a growing economy, declining unemployment, and the most benign credit environment I've witnessed in my 34-year career. Further, that the Federal Reserve has signaled multiple short-term rate hikes in 2022 is good for us as we remain fairly asset sensitive heading into what appears to be the beginning of a rising rate cycle. There are still headwinds as supply chain disruptions continue. They also appear to be on an improving trend. And business clients are still challenged to fill open positions. We think all of this will improve as the year goes on. On the revenue front, last quarter I mentioned we believe we had a quilling spring for loan growth and that we expected solid growth in the fourth quarter. I think we can say we finished better than solid with 11.7% annualized loan growth during the quarter, exclusive of PPP. This is the best we've seen since the pandemic started. Loan growth was so strong, we returned point-to-point low single-digit growth for the full year, exclusive of PPP. While we'd rather see consistent growth each quarter, we are pleased to see evidence that some of the factors meeting loan growth earlier in the year now appear to be fading. Fourth quarter loan production was the best since the pandemic started, and this was true for our two major segments of commercial lending and commercial real estate lending. Our strong production more than offset an even higher level of runoff and paydowns than we saw during the third quarter. Construction lending balances declined slightly at quarter end as projects completed and were recoded to commercial mortgage categories. New construction loan originations remain strong, and based on our unfunded construction loan commitments and funding schedules, this should be a tailwind for balances this year. We were also encouraged to see CNI line utilization tick up in each month of the quarter, ending the period at 28%, which is still well below our pre-pandemic levels. It's good to see this inflect, and we do have a lot of upside here as sales and working capital needs increase among our client base. As we enter the new year, our pipelines are solid. and they're significantly higher than they were coming into 2021. We are encouraged by our competitive positioning, the market dynamics, and economic strength across our footprint. All of that, plus our expanded lending capabilities, lead us to expect upper single-digit loan growth for 2022. While some quarters may be better than others, January has started off strong, and we feel upper single-digit loan growth is achievable for the full year. Additionally, we believe we have a long-run way ahead 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. Our asset quality continued to impress. And once again, the credit headline for the quarter was the absence of credit problems. Net charge-offs for the quarter came in at $511,000, or two basis points annualized. That's a negligible increase for an effectively zero base in Q3 and Q2 of 21. Full year 2021 net charge-offs were one basis point, a level I would have previously thought unimaginable. At some point, credit losses will have to normalize, but given all the liquidity that remains in the system, continued declining unemployment, and a strengthening economy, we see no sign of a systemic inflection point, and all of that continues to feel very distant to us. And to that point, the economic outlook remains positive, and we're optimistic. Here in our home state of Virginia, November unemployment came in at 3.4%, down from 3.8% in September, and that was better than the national average of 4.2% from the same time period, We're still waiting on December unemployment numbers for Virginia. While that's all good news, the employment challenge in our markets continue to be the ability of businesses to fill their open jobs, and this will likely not resolve itself until we see more people return to the workplace. Rob will talk through the provision for credit losses and our CECL modeling, but by all indications and metrics, credit appears to have never been better. Turning to expenses, it was a noisy fourth quarter for one-time charges. As we took further action to align our expense structure to the operating environment, something we signaled was coming in our last earnings call comments. In early December, we announced we were closing 16 branches in the first quarter of this year, which is 12% of the current branch network. We've been among the more aggressive branch consolidators in the industry. And with this action, since the start of the pandemic, we will have reduced our retail branch network by approximately 25% or 35 branches. This reflects our recognition of changing consumer behaviors, never better analytics on customer usage of the branch network and alternative delivery channels, and our need to continue to invest in our digital products and respond to wage inflation pressure. We also announced a rationalization of our office space with the pending closure of our Rutherglen, Virginia, operations site, which is north of Richmond, as we consolidate all Richmond area corporate office personnel into existing facilities on the west end of town. This is made feasible by our shift to a hybrid work schedule for most corporate office roles and full-time remote work for select positions, such as our call center. As a result, we simply don't need as much office space as before. Regarding expenses, Rob will take you deeper into the details in his comments, but we continue to expect that we will hold non-interest expense growth to no more than 2% in 2022. Our expense management actions, combined with our asset sensitivity, and that we believe we are on a solid growth footing, all give us confidence in our ability to maintain differentiated financial performance and meet our top-tier financial targets for 2022. In terms of how we run the bank, we recently announced that Bank President Maria Tedesco has also been named Chief Operating Officer, and we've added key support units to her responsibilities in addition to all revenue generation activities that she currently leads. This moves the center of gravity of the organization even closer to the customer and better organizes the bank around customer needs and experience, improves internal accountabilities and coordination, and better positions us to respond to our changing environment in an agile manner. This also enables me to focus even more on the bigger picture and long-term strategies, including the potential disruption from financial technology and the digital asset ecosystem. I'll speak more to that momentarily. As we think about the future of our company and our industry, we want to more rapidly diversify our income streams, both in terms of net interest income and all-important non-interest income. To be clear, we will protect, invest in, and grow our core franchise as we look for new, value-added ways to serve our clients to generate both forms of revenue. Examples of core franchise growth initiatives include the build-out of our foreign exchange solutions, loan syndications, and ongoing enhancements of treasury management services in addition to specialty finance operations. While we will say more about that as our plans develop, I'll call out that we want to expand our asset-based lending unit, scale our SBA 7A program, and enhance our existing not-for-profit and public finance capabilities. And beyond our core banking operations, you'll also see us become more active in the digital asset ecosystem. We began investing in FinTech funds a few years ago. We're adding to our position this year, and we're using those to build relationships with potential FinTech partners, gain insights, and find new opportunities. This has informed our digital offerings and enabled us to vet and identify opportunities to enhance them. Moving forward, we're also interested in positioning for new and emergent opportunities, such as in blockchain. which we think could prove disruptive to existing payment systems and back-end processes. As we prepare the company for the future, we'll dedicate more time to this than ever before. To summarize our growth strategies at the highest level, they are, in order of priority, one, driving the organic growth and performance of our core banking franchise, two, leveraging financial technology and fintech partnerships to generate new sources of income and new capabilities, and three, selectively considering M&A as a supplemental tertiary strategy. This is an option we will preserve and may use under the right circumstances. As I've said before, we've come out on the other side of the pandemic as a stronger and more capable organization. We've learned to work differently, and our customers have learned to bank differently. We've seen usage of our digital channels increase substantially. For example, in the fourth quarter, we continued to see a shift in the origination channels for checking and savings accounts, While we're not permitted to share our benchmarking data, we believe we are outperforming for banks our size in this area, and we expect to further drive up these numbers as we continue to refine our digital offerings. Mobile check deposit utilization accounts for 20% of our deposit transactions, and while I think we've done a very good job with our digital usage as compared to what we see at much larger banks, it seems very clear we have a lot of upside potential here. We also continue to work on new projects and improve the omnichannel customer experience with quarterly releases and upgrades to our product offerings. We'll continue to align our resources with these opportunities and respond to evolving customer behavior, which we are watching very carefully. Looking ahead, our goal remains to achieve and maintain top-tier financial performance regardless of the operating environment. We continue to work on ways to make the company more efficient and scalable while improving and automating processes and the customer experience. We should see operating leverage improvements as a result. As we close out 2021 and begin the new year, I 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 I'll end, of course, with my usual reminder that Atlantic Union Bank Shares remains a uniquely valuable franchise. It's dense and it's compact, in great markets with a story unlike any other in our 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 Chief Financial Officer Rob Gorman to cover the financial results for the quarter. Rob?