Atlantic Union Bankshares Corporation

Thank you for standing by. Welcome to the Atlantic Union Bank Shares fourth 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. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear the automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President, 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 Gorman with me today. We also have other members of the Executive Management team with us for the question and answer periods. 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 the appendix to our slide presentation and in our earnings release for the fourth quarter and fiscal year 2022. We will make forward-looking statements on today's call 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 issued today 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. And 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. Before I turn the call over to John Asbury, I wanted to remind everyone that Atlantic Union Bank shares common stock and depository shares, each representing one 400th interest in a share of our preferred stock, are both now trading on the New York Stock Exchange. Our common stock symbol remains AUB, while our depository shares trade under AUB.PRA to conform with the NYSE nomenclature for preferred stock. I'll now turn the call over to John.

Thank you, Bill. Good morning, everyone, and thank you for joining us today. Atlantic Union Bank shares delivered a strong quarter to close out 2022. Importantly, we hit our top-tier financial targets during the fourth quarter as we said we would. We recorded low double-digit annualized loan growth. Our net interest margin expanded meaningfully. Asset quality remained strong. We kept expenses in line and generated significant positive operating leverage As in prior quarters, I would like to begin by commenting on the macroeconomic environment and our primary operating footprint before I delve more deeply into details on our results. For perspective, traditionally Virginia has been a stable economic area and not one prone to big swings in either direction. The federal government acts as both a significant catalyst and shock absorber to the Commonwealth's economic engine, and the economic base here is diverse. Given how Virginia has fared in the past, we currently expect the effects of any potential recession to be somewhat muted here, although we believe we are well positioned should economic conditions worsen from historical trends. Virginia's last reported unemployment rate of 2.8% in November notched up slightly from 2.6% at the end of last quarter, but it remains below the national average of 3.6% during the same time period. This is relatively in line with where it was before the pandemic, As I like to do, I've been out meeting with our clients, the Virginia business community, and our teams, and I can report that anecdotally, we still do not believe dreary economic headlines nationally reflect what we see going on in our footprint. Our markets appear to be healthy, and our lending pipelines, while down about 5% lower than the same time last year, are strong. We still don't anticipate any near-term shift away from the positive trends of low unemployment and a benign credit environment, but we will continue to monitor conditions in our markets While we do expect the Federal Reserve to further raise short-term rates in the first half of 2023, since we are fairly asset sensitive, additional short-term rate hikes over the next few quarters should support our operating results and help to offset increases to cost of funds in the rising rate environment and accelerating deposit rate competition. As usual, we remain focused on generating positive operating leverage, that is, growing our revenue faster than our expenses. Our numbers have been noisy for the past few years with pandemic-related loan loss provision swings, the revenue impact of the Paycheck Protection Program, and various expense reduction items such as branch and facility rationalization. But if you drill down and adjust for those factors, which were not as material this quarter, you can see the strength of the core franchise over time and to that point. Pre-PPP adjusted revenue growth was approximately 11% year-over-year and was 7% on a linked quarter basis from the third quarter of 2022. As a result of prior expense management actions, our adjusted operating non-interest expense run rate increased 4% year-over-year and was flat quarter-over-quarter. The company generated positive pre-PPP adjusted operating leverage of approximately 7% on a year-over-year basis and 7% quarter-over-quarter. I'd also like to point out that excluding PPP, pre-tax, pre-provision, adjusted operating earnings increased 23% year-over-year and 17% from the prior quarter. Now let me turn to some of the high points for the quarter in 2022. We posted annualized loan growth of approximately 15% point-to-point in the seasonally high fourth quarter, and for the full year, we recorded point-to-point loan growth of approximately 11%, excluding PPP. This was our fifth consecutive quarter of high single-digit annualized loan growth, or better, excluding PPP. We believe that we are well-positioned to deliver 6% to 8% loan growth for 2023, given the strength of our current pipeline, our competitive positioning, the market dynamics, and fundamentals in the markets that we serve. We do recognize that the economic environment in our footprint could change as persistent inflation, higher interest rates, and the threat of a recession do loom. But currently, we expect to remain in a moderate growth mode in 2023. CNI line utilization picked up at the end of the quarter to 35%, and that's still below our pre-pandemic levels of over 40%, but better than at this time last year, which was approximately 28%. We believe we have further upside here as working capital needs continue to normalize among our clients over time. Our loan production in the fourth quarter of 2022 nearly equaled our record production in the fourth quarter of 21. About 43% of production in the fourth quarter came from new-to-bank clients, and 57% came from existing clients. CRE payoffs continue to slow year over year and are well off the peaks we saw in the second through fourth quarters of 2021. As I've said for the last two quarters, rising term rates have suppressed both refinance activity into the long-term institutional markets on commercial real estate and too good to refuse offers on commercial real estate properties. In the fourth quarter, we saw a notable acceleration in deposit rate competition. While deposits averaged up 3% quarter over quarter, we did experience runoff at the end of the year, largely in transaction accounts, impacting our point-to-point growth comparisons and more than offsetting the $418 million deposit increase we experienced in the third quarter. Nearly all of the third quarter increase was also in transaction accounts, For the full year point-to-point, deposits declined 4.1%, and that was actually consistent with our original expectations for the year. There were a number of factors behind the late December transaction account runoff. These include a relatively small set of larger commercial clients and affluent consumer clients with excess liquidity, moving funds to higher-yielding alternatives, normal seasonality outflows, and some spending increases due to inflationary factors. A year end, our loan-to-deposit ratio was 90.7%, which is at the lower bound of our targeted range of 90 to 95%. As of yesterday, the loan-to-deposit ratio was approximately 88%, with the improvement coming from deposit growth we posted month-to-date in January. Deposit rate competition intensified in the fourth quarter, along with a rapid and unprecedented rise, short-term rates, and we have made further rate adjustments to seek to maintain competitiveness and defend the deposit base. Since our deposit base overall is pretty granular and comprised of 57% transaction accounts, we do expect deposit betas throughout the remainder of the rising rate cycle to increase but still be manageable. Our latest modeling shows that our net interest margin is likely now at or approaching an equilibrium point. By that, I mean we expect NEM to hold steady from here and further rate actions by the Fed will allow us to offset higher rates paid on funding with higher yields on our loan portfolio half of which is variable rate. It's difficult to forecast exactly what will happen, but we believe this is the most likely outcome. Rob will provide additional perspective on this during his comments. I do want to touch on a few new fee-based activities I mentioned last quarter. We retooled our SBA 7A program in June and executed our first 7A loan sale during the fourth quarter. Additionally, loan syndications originations were active, and we are building a run rate with our foreign exchange program. The combination of these three new capabilities resulted in $1.3 million of fee-based net revenue for the quarter, and we expect them to generate around $6 million of net revenue over the course of 2023. Worth noting is that these new revenue streams should largely offset fee income declines from the various customer-friendly NSF OD changes we made last year. Asset quality remains strong, with annualized net charge-offs of two basis points for the fourth quarter. For the full year, net charge offs were also two basis points. Credit losses will eventually normalize to historical norms, and one-offs can come at any time, but given the continued low unemployment rate and still solid fundamentals in our markets and client base, we have yet to see any sign of a systemic inflection point in our asset quality metrics. While economic uncertainty and the threat of recession could negatively impact our markets, The current economic situation in the footprint appears to remain sturdy, and as noted, we expect the impact of any macroeconomic slowdown to be somewhat tempered here in our home state of Virginia. Because we believe we're in the late stages of a NIM expansion cycle, we also took additional expense actions during the quarter. Among other efficiency initiatives, we decided to consolidate five additional branches set for closure in March. Since the pandemic began, we have consolidated 27% of our branch network, yet still posted net positive consumer household growth for the year. In sum, 2022 was not only a good year for Atlantic Union, but also a good demonstration of the value and earnings power of the franchise we have all built. Looking back at my now six years at the company, we have been clear, consistent, and intentional in our strategy. We've made great progress in successfully diversifying our product lines and capabilities while building our core franchise, our culture, and our branding. We're far from done with these efforts and, in fact, will never be done since we view our transformation as continuous and not an event. But we have come a long way, a very long way. And for that, I'd like to express my gratitude to our teammates since they are the ones who make this all possible, delivering each and every day for our customers, shareholders, and the communities we serve. Looking ahead, I remain confident that we're well positioned to manage our way through the challenges that lie before us. While the operating environment may be uncertain, what is certain is that Atlantic Union Bank Shares remains a uniquely valuable franchise. It is dense, it is compact, and great markets with a story unlike any other in our region. We're scalable, and we're growing our capabilities, operating in the right markets with the right team to deliver top-tier financial 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?