Atlantic Union Bankshares Corporation

good day and thank you for standing by welcome to the atlantic union bank shares third quarter 2022 earnings conference call at this time all participants are in the listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during that session you will need to press star 1 1 on your phone please be advised that today's conference is being recorded And I would now like to hand the conference over to your speaker today, Mr. Bill Cimino, Senior Vice President of Investor Relations. Sir, please go ahead.

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 Corbin with me today. We also have a number of 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 gap metrics and non-gap financial measures. Important information about these non-gap financial measures, including reconciliations to comparable gap measures, is included in the appendix to our slide presentation and in our earnings release for the third quarter of 2022. We will make forward-looking statements on today's calls 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 Please refer to our earnings release for the third 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 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.

Thank you, Bill. Thank you, everyone, for joining us today. Atlantic Union Bank shares delivered another solid quarter. We recorded upper single-digit loan growth and more than funded it with double-digit deposit growth on a link quarter annualized basis. Net interest margin expanded considerably, asset quality remained strong, and we expanded our asset-based lending effort. We are on track to hit our top tier financial targets in the fourth quarter of this year. I have consistently stated my belief that our operating philosophy of soundness, profitability, and growth in that order of priority serves us well as we navigate the challenges and uncertainties of the ever-changing operating environment. Atlantic Union Bank is a story of transformation guided by a consistent but evolving strategy, and it remains committed to delivering on our strategic objectives. Before I dig into our results, I would like to comment on the macroeconomic environment and our primary operating footprint. Despite all of the uncertainty, Virginia traditionally has been a stable economic area and not one that is prone to big swings in either direction. The federal government has acted as both a significant catalyst and shock absorber to the Commonwealth's economic engine. With that history, we expect the effects of any recession to be somewhat tempered in Virginia. Virginia's unemployment rate has recovered to pre-pandemic levels, ticking down to 2.6% in August from 3.0 in May, and remains below the 3.5% current national average. I interact extensively with our clients, the business community, and teams, and can report that anecdotally, we do not believe the gloomy headlines properly reflect the situation on the ground at our footprint. Right now, our markets remain strong, the lending pipelines remain strong, and we still don't see any near-term shift away from the positive trends of low unemployment and a benign credit environment. We continue to believe that the Federal Reserve will further raise short-term rates, doing whatever it takes to battle stubborn inflationary pressures. Since we remain fairly asset-sensitive, multiple short-term rate hikes should be a positive for operating results, and our net interest margin should continue to expand driving revenue growth. The Atlantic Union Bank posted upper single-digit annualized loan growth of approximately 8% point-to-point for the quarter and finished the third quarter with loan growth of approximately 10% on a year-to-date basis, excluding PPP. This was our fourth consecutive quarter of high single-digit annualized loan growth or better, excluding PPP. Our loan pipeline entering the fourth quarter remained strong, running about even with this point last year. It's also well balanced with a 50-50 split between commercial real estate and commercial and industrial categories, and continuing the best organic growth momentum we've seen since before the pandemic. We believe that we remain well positioned to deliver high single-digit loan growth for the year, and perhaps slightly better given the strength of our current pipeline, competitive positioning, market dynamics, and fundamentals in the markets we serve. We do recognize that the economic environment and our footprint could change. It's persistent inflation and the threat of a recession loom. But as we start Q4, we do have a line of sight to high single-digit loan growth for the year. This is consistent with the loan growth expectations we have provided for the past several quarters. CNI line utilization ticked down slightly at the end of the quarter to 32%, which is still well below our pre-pandemic levels and better than at this point last year, which was approximately 25%. We do believe we have upside here as the working capital needs increase among our clients over time. We also have a number of other positive growth factors to report from the quarter. For example, we had a strong loan production quarter slightly below Q2 and ahead of Q1, and that's good performance for us given the seasonally slower summer months. About 36% of production came from new-to-bank clients and 64% from growth at our existing clients. CRE payoffs continue to slow and are well off the peaks we saw in the second through fourth quarters of last year. As I said last quarter, rising term rates have suppressed refinance activity into the long-term institutional markets, and they're calming the front of institutional investors making offers that just can't be refused on CRE properties. We think CRE in our markets is still quite healthy. and the cooling of payoff activity is good for our outstanding loan balances and makes continuing with bank financing an attractive option on stabilized properties. Meanwhile, our installed base of construction commitments is providing a tailwind for loan growth as construction lending balances fund up and climb back toward more normalized levels, exactly as we predicted would happen. We recently retooled our SBA 7A program in June, closing a product gap with larger competitors, and we executed our first 7A loan sale earlier this month. We're excited about the future fee income growth opportunities in this space, and it's a very nice compliment to our historically strong SBA 504 program. We are also now capable of leading loan syndications and had a few of them closed during the quarter. Given our new foreign exchange, 7A sales, and loan syndication capabilities, we believe we can grow these non-interest income generators from essentially zero to around 1.5 million per quarter by the end of 2023. These are the latest examples of high-value added services that we've developed to further strengthen our competitive positioning as the alternative to the large banks in our markets and to differentiate Atlantic Union Bank from our smaller competitors. This is consistent with the strategy we have communicated for years, and we continue to execute on what we said we would do. We also expanded our asset-based lending program to close another key CNI product gap vis-a-vis larger competitors by adding a well-experienced team early in the quarter. Similar to our successful approach with Atlantic Union Equipment Finance, we believe that bringing over a complete team, including production and portfolio management, is the best approach to expand a specialty lending business. We continue to believe that we have a long runway 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 and North Carolina, and our specialized lending capabilities in government contract finance. equipment finance, and our recent enhancements to capabilities like foreign exchange, loan syndications, SBA 7A, and asset-based lending. Our asset quality continued to impress, and quarter after quarter, these are levels I have just not seen in my 35-year career. At some point, we expect credit losses will normalize, but given all of the liquidity that remains in the system, continued low unemployment, and still solid fundamentals in our markets and client base, we have yet to see signs of a systemic inflection point We did increase the allowance for credit losses during the quarter due to loan growth and downward revisions to the macroeconomic forecast. Rob will go into more detail on this in his section. In sum, while economic uncertainty and the threat of recession could negatively impact our markets, the current economic situation and our footprint remain solid, and as noted, we expect the impact of any recession to be somewhat tempered in Virginia. The combined effect of our past expense management actions, upper single-digit loan growth, asset sensitivity in a rising rate environment, a deposit base that is heavily weighted to transaction accounts, and strong asset quality track record all give us confidence in our ability to continue to generate positive operating leverage and differentiated financial performance while meeting our top tier financial targets in the fourth quarter of 2022 and in 2023. Despite all of these noted macroeconomic uncertainties, we believe that we've remained on an attractive top-line and bottom-line growth footing. Now, let me be more specific about how we expect to drive positive operating leverage in the current operating environment. With all the provisioning swings caused by the pandemic and the impact of PPP, our numbers have been unsurprisingly noisy. But if you drill down and adjust for those factors, you can see the strength of the core franchise. Year-over-year pre- PPP adjusted revenue growth was approximately 13% and was 6% on a linked quarter basis from the second quarter. When you consider the impact of our expense management actions on our adjusted expense run rate, which has increased 6% year over year and 1.7% quarter over quarter, the company generated positive pre-paycheck protection program adjusted operating leverage of approximately 7% on a year over year basis and 4% quarter over quarter. I'd also like to point out that excluding PPP, pre-tax, pre-provision adjusted operating earnings increased 25% year-over-year and 12% from the prior quarter. Rob will take you through the details of our financial performance in this section, but you'll find that we're delivering on what we said we would do. We are often asked about our view on whole bank M&A opportunity, and I'll share our current thinking here. While we do not believe we need to make bank acquisitions to meet our corporate and financial objectives, we will consider them under the right circumstances. The right circumstances in our current view would generally be smaller, lower-risk infill opportunities that would further densify our footprint, add scale, market share, and improve efficiency. As we have consistently demonstrated during my time at the company, we will remain disciplined as we consider M&A with an eye towards strategic fit and the financial merit of the transaction. Anything we would be expected, anything we do, if anything, would be expected to meet our previously communicated return thresholds, including tangible book value dilution earned back. The end of Q3 marked my six-year anniversary at Atlantic Union, and I'd like to express my gratitude to our teammates, clients, shareholders, and communities for their support of this remarkable transformation we have all been a part of over this time, going from a Virginia community bank to Virginia's bank, and now so much more. The Atlantic Union Bank has been, is, and will continue to be a story of transformation, This is who we are as a company, and it's a part of our culture. Our culture is a differentiator. More frequently, I'm seeing teammates returning to the company after spending time in other organizations because they've missed their culture. In the end, it's all about the people. It's always all about the people. Looking ahead, there are many reasons that cause me to be confident despite all of the uncertainties. As I began my remarks, I noted how I believe the fundamentals favor us as we have a rather unique macroeconomic environment in our footprint. This should allow some reasonable growth opportunities even when national headlines tell a different story. We have been intentional in diversifying our product lines and capabilities while building the core franchise, our culture, and our brand. Further, our asset sensitivity is delivering strong net interest income growth through NEM expansion with more expected to come. All the while, we have consistently demonstrated we will make changes and we will make tough decisions including expense actions that have enabled us to address the challenges of wage inflation across the sector and deliver positive operating leverage. And finally, at the core of the company, we have always had a strong credit culture. For 120 years, we have been a prudent lender, and this is not something that we turn on and turn off given the outlook. The prudent lending switch, it's always on. While our operating environment continues to change, what is not changing is 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 the region, and we're well on our way to becoming the premier bank in the lower mid-Atlantic region over time. We are scalable in growing our capabilities, operating in the right markets and with 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?