Atlantic Union Bankshares Corporation

Good day, and thank you for standing by. And welcome to the Atlantic Union Bank Share's first quarter 2022 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. Please be advised that today's conference is being recorded. To ask a question during the session, you will need to press star, then one on your telephone. If you require any further assistance, please press zero. I would now like to hand the conference over to the speaker of today's call, Mr. Bill Sinemo, Senior VP of Investor Relations. You may begin.

Thank you, LaTanya, 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 remotely and in person for the question and answer period. Please note that today's earnings release and accompanying slide presentation we are going through on the webcast are available to download on our investor website, investors.AtlanticUnionBank.com. During today's call, we'll 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 first quarter of 2022. I'd 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 future expectations or results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement, and please refer to our earnings release for the first quarter of 2022 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 a forward-looking statement. All comments made today on 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. Finally, before we begin, I would like to remind everyone of our upcoming Investor Day on May 9th, where you'll hear members of our management team go into greater detail on what we've accomplished and what the next three years should look like for Atlantic Union Bank Shares. Registration and further details can be found on the advisory posted this past Monday on our investor website. I'll now turn the call over to John Asbury.

Thank you, Bill, and thanks to all for joining us today. Atlantic Union Bank Shares is off to a strong start in 2022. On the last quarterly earnings call, I noted that we were set up to start the year better than at any point in my five-plus years at the company, and that we did, tipping into low double-digit annualized loan growth, excluding PPP, in what has traditionally been a slow growth quarter for us. This both shows we have momentum and points to the organic growth potential of our franchise. As I've consistently stated, our operating philosophy of soundness, profitability, and growth in that order of priority serves us well as we navigate the challenges of operating not just through a pandemic, but now through generationally high inflation, rising interest rates, and geopolitical uncertainty. While we recognize the pandemic is not yet over, restrictions in our markets have eased, and we're all becoming accustomed to the new normal of living with COVID-19. Our corporate office-based teams have returned to our buildings, and while some roles are now completely virtual, most work in a hybrid arrangement. While our team succeeded and arguably excelled over the course of this disruption, we're even better when we're physically together. What we do and how we do it is really all about our culture and our people, and we are committed to workplace flexibility as an opportunity to attract and retain talent. We'll continue to take a progressive view toward the changing nature of workplace expectations, and we'll adjust based on our actual experiences. In scanning the horizon, we're incrementally more cautious about the implications of surprisingly high inflation, rapidly rising interest rates, and geopolitical uncertainties such as the tragedy in Ukraine. While this will likely mute economic growth to some extent, as seen in the changes in Moody's forecast since last quarter, for the time being, we still don't see it derailing the fundamental positive trends of a growing economy, low unemployment, and a benign credit environment. We continue to believe that the Federal Reserve, having already raised short-term rates and signaling multiple short-term rate hikes to follow throughout 2022, is a positive for us. As we remain fairly asset sensitive, as a result, our net interest margin should expand from here. In addition to inflation and the consequences of the war in Ukraine, we still face headwinds from supply chain disruption and business clients challenged to fill open positions. While we've said before we expected that to improve as the year goes on, now we're not so sure. Despite all of this, from our vantage point, we think American businesses have proven their resiliency and that all of this is manageable. Despite the headwinds and uncertainties, Atlantic Union has now had two consecutive quarters of low double-digit loan growth, with the first quarter coming in point-to-point at approximately 10.8% annualized, excluding PPP. Average loans on a linked quarter annualized basis grew 12.8%, excluding PPP. First quarter loan production is typically our seasonal low point, but this year's first quarter was different. Production, while not as high as the traditionally peak of fourth quarter, was still higher than every other quarter over the last two years. While runoff was down from Q4, it was still higher than the first quarter of last year, so loan growth remains mostly a production story for Atlantic Union Bank. 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, just as it was for Q1. We were also encouraged to see CNI line utilization tick up each month of the quarter, ending the period at 30%, which is still well below our pre-pandemic levels. It is good to see this trend and commitment levels grow. We feel we have a lot of upside here as sales and working capital needs among our client base increased. Our pipelines remain strong, solid, well-balanced between CRE and CNI. They're significantly higher than they were at this point in 2021, and they're also higher than at the end of the fourth quarter, which means that our strong Q1 growth did not drain the pipeline. We are encouraged by our competitive positioning, the market dynamics, and economic strength in our footprint. All of that, plus our expanded lending capabilities, continue to lead us to expect upper single-digit loan growth for 2022. While some quarters may be better than others, one quarter does not a year make, and with so much uncertainty remaining, we'll want to see more calendar behind us in 2022 before we consider moving off of our full-year expectation of upper single-digit loan growth. Having said that, I would note we continue to 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. And this is supplemented by our operations in Maryland, North Carolina, and our specialized lending capabilities in government contract finance and equipment finance. Our asset quality continued to impress. And once again, the credit headline for the quarter was the absence of credit problems. Charge-offs, net of recoveries for the quarter came in at plus $4,000, a net recovery, or zero basis points annualized. That's a slight improvement from last quarter's two basis points and net charge-offs. But back in line with the effectively zero base in last year's Q3 and Q2, quarter after quarter, these are levels I have never seen in my nearly 35-year career. At some point, credit losses are going to normalize. But given all the liquidity that remains in the system, the low unemployment rate, and a still fundamentally strong economy, we have yet to see any sign of a systemic inflection point. Its day will come. We just don't know when. In the meantime, I do enjoy the absence of heads-up phone calls from our chief credit officer. Back to macroeconomics. While the outlook may not be quite as good as last year, it's still good. And overall, we remain optimistic at this time. Here in our home state of Virginia, March unemployment came in at 3%, down from 3.4% in November. And that was the latest number that we had shared when we announced Q4 earnings. And this is better than the national average of 3.6% for the same time period. Having just, again, looked at the unemployment data for the country, there is no more populous state in America than Virginia with such a low unemployment rate. What has not changed is the challenge of businesses to fill their open jobs, and this will likely not resolve until we see more people return to the workforce. One would think that higher costs due to inflation and improved COVID-19 conditions may motivate more people to return to work. We'll see. While we'll talk through the provision for credit losses and our CECL modeling, as we posted an increase in the provision instead of releasing for the first time in a few quarters. As Rob will explain, this was due to strong loan growth, incrementally lower economic growth expectations, and the geopolitical and economic outlook uncertainties I mentioned before. Turning to expenses, we did still have some noise from one-time charges remaining from December's expense actions, but less so than last quarter. We closed 16 branches at the beginning of March, and that was 12% of our current branch network. Since the start of the pandemic, we will have reduced our retail branch network by approximately 25% for 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 technology in order to respond to wage inflation pressures as well. Regarding expenses, Rob will take you deeper into the details in his comments, but we continue to expect that we will hold operating non-interest expense growth to 2% in 2020 following our usual seasonally higher expenses in Q1. Our expense management actions combined with upper single-digit loan growth expectations and our asset sensitivity do give us confidence in our ability to generate positive operating leverage and differentiated financial performance while meeting our top-tier financial targets for 2022. From my perspective, with all of the uncertainties and challenges acknowledged, we are looking at a recipe for what could be the best organic growth footing I've seen in my five and a half years at the company. The powerful combination of a growth footing plus asset sensitivity in a rising rate environment plus expense actions already taken plus benign credit should equal top-tier financial performance. 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 non-interest income. While it's never been a large component of our non-interest income, as I mentioned the last call, we are making consumer-friendly changes to our non-sufficient funds and overdraft policies in Q3 that we expect to reduce our non-interest income by approximately $4.5 million to $6.5 million on an annualized run rate basis. Examples of coming actions include the elimination of non-sufficient fund fees for consumer accounts, fee-free overdraft transfers, lower overdraft caps, the establishment of a no overdraft bank-on-certified checking product, and two-day advanced direct deposit payroll for ACH credits, allowing our customers to get paid two days early. With the rising rate environment, we expect to more than offset these lost fees with increases in net interest income, We are investing in new value-added ways to serve our clients to generate additional non-interest revenue over time. We will say more about those plans as they develop at our upcoming Investor Day. One area beyond our core banking operations that we are focusing on is the digital asset ecosystem. As I mentioned in the last call, we began investing in FinTech funds a few years ago. We've added to our position this year, and we're using those to inform our digital offerings and to vet and identify opportunities to enhance those offerings. We're also interested in new and emergent opportunities such as blockchain, which we think can prove disruptive to existing payment systems and infrastructure. To reiterate, our growth strategies are at a very high 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 drive transformation, 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 consider 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. and this has enabled us to consolidate 25% of our branches since the pandemic began with better-than-expected customer acceptance. Despite the branch consolidations, we continue to grow our net consumer households. We continue to work on new projects and improve the omni-channel customer experience with quarterly releases and upgrades to our product offerings. We look forward to sharing what we've accomplished when we provide additional details at our upcoming Investor Day. 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. All of this provides room for operating leverage improvements. As we turn the page on the first quarter, 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. I'll now close as I always do. by reminding me that Atlantic Union Bank Shares remains a uniquely valuable franchise, dense and 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 Rob to cover the financial results for the quarter.