Atlantic Union Bankshares Corporation

Good day, and thank you for standing by. Welcome to the Atlantic Union Bank Shares first quarter 2024 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Cimino, Senior Vice President of Investor Relations. Please go ahead.

Thank you, DeeDee, 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 for the question and answer period. Please note that today's earnings release and the accompanying slide presentation we are going through on the webcast are available to download on our investor website, investors.AtlanticUnibank.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 or slide presentation and in our earnings release for the first quarter of 2024. Since our acquisition of American National Bank closed after quarter end, our discussion today will not include any American National results. We did provide a pro forma look at our assets, loans, and deposits for quarter end on slide four. We did provide financial outlook numbers for the full year that include the impact of American Nationals. Speaking of which, 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 are going to take no obligation to publicly revise or update any forward-looking statement. Please refer to our earnings relief issue 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 a 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. Good morning, everyone, and thank you for joining us today. I'd like to offer a special welcome to our new shareholders and teammates who've joined us now from American National Bank. Our merger closed on April 1st, and we believe we're off to a great start. I'll share more on that later in my comments. For those new to our story, we operate our company under a mantra of soundness, profitability, and growth, and that order of priority. There's nothing new about it, and it's a simple operating philosophy that's stood the test of time. The same is true for our traditional operating model. We make loans, we take deposits, and provide fee-based services all to our customers under our brand. We're a traditional diversified bank that provides financing and services to help people, help businesses, and help our communities. We believe we're large enough and capable enough to be a challenger and an alternative to large banks, but are still small enough and responsive enough to compete against the smaller banks that we often have more capabilities than they do. The environment remains challenging for banks of all sizes, especially with persistent net interest margin pressures to which AUB is not immune. Thankfully, we expect the financial benefit of the American National Bank merger to be apparent during the second quarter and will provide a welcome boost to both net interest margin and bottom line profitability. Rob will comment on what to expect during his section of our remarks. I'll now comment on the microeconomic conditions we are seeing and then move on to our first quarter results. Regarding the economic outlook, for forecasting purposes, we do remain cautious, although it appears a soft landing is possible. Inflation is still a factor and does not seem to be progressing toward the Fed's target levels as quickly as it had hoped, leading us to believe that we'll see fewer rate cuts this year or perhaps not at all. Nevertheless, the macroeconomic environment remains favorable in our footprint, and we do not expect that to change in the near term. Our markets continue to appear healthy, though we have seen a slowdown in capital investment activity among certain parts of our client base in response to higher interest rates and economic uncertainty. While our lending pipelines reflect that trend, they imply we should expect mid-single-digit loan growth in 2024, inclusive of the American National Bank. Virginia's last reported unemployment rate was 2.9% in March and, as usual, remains below the national average, which was 3.8% during the same period. When speaking to investors and analysts, among the more frequent questions we receive is the credit outlook for non-owner-occupied office exposure, and to a lesser extent, multifamily commercial real estate. We've added some additional disclosures on these loan categories in our supplemental slides as of quarter end, and here's our current perspective. Regarding not owner-occupied office, I'll start by saying that about 22% of the portfolio is medical and has not been impacted by concerns about work-from-home related office utilization trends. This is a granular portfolio with an average loan size of $1.9 million and a median size of $664,000. We do not finance large central business district office buildings. Additionally, at 4.9% of total loans outstanding, This is not an outsized exposure, and the portfolio is well distributed geographically. In our region, office exposure in greater Washington, D.C. receives attention. We have no exposure in the District of Columbia, no office exposure, and our total non-owner-occupied office loans from Northern Virginia throughout the state of Maryland is a modest $65 million. Non-recourse commercial real estate lending is uncommon for us, and most office loans have some form of guarantee from the owner that seeks to ensure their ongoing commitment. Given their size and location, the suburban office buildings we finance are generally leased to local and regional businesses that, on average, have been less supportive of remote work and hybrid work arrangements than larger companies, meaning the buildings we finance have tended to be better utilized than larger buildings. Overall, this portfolio is performing well, and while I expect we'll incur some problems in it over time, we currently expect any such problems to be readily manageable. Regarding multifamily exposures, This is also a granular portfolio, and we believe it's reasonable in size at 6.8% of total loans. Our markets appear healthy and growing. They're not overbuilt, and nearly all report scarcity of housing. We're generally still seeing stable rents, and there are currently no rent control laws in our markets. As is implied by our average loan size of $3.3 million and median size of $829,000, we do not finance high-rise luxury apartments. While there is concern about the impact of higher interest rates on debt service coverage and property values, it's important to understand that multifamily revenues have also increased due to rising rents. Additionally, as with nearly all of our commercial real estate lending, we generally require some form of personal guarantee to seek to ensure the borrower's ongoing commitment from the multifamily project. Normally, we finance multifamily construction with a mini firm during the stabilization period, and we underwrite for institutional lender takeout. Typically, the developer refinances the property into the institutional market or sells it and then reinvest the proceeds in new projects. As demonstrated by the credit metrics on slide 18 of our supplemental presentation, asset quality for multifamily is among the best in the bank. We currently do not anticipate any material problems to develop in this asset class and we expect that should any arise, it would be readily natural. We understand concerns about banks' office and multifamily exposure and hope this recap provides more clarity and context around what this looks like at AUV. Moving on now to quarterly results. Here are a few financial highlights for the first quarter, and Rob will provide more detail later. Total deposits increased 5% year-over-year and 11% annualized quarter-over-quarter. As we have seen before, we did have a seasonal dip in deposits at the end of 2023 and then saw better than expected deposit inflows in the first quarter. We had a modest increase in broker deposits, which are a relatively low 3.9% of total deposits. Importantly, we grew customer deposits 8.4% annualized, which allowed us to more than fund our quarterly loan growth. The loan deposit ratio declined to 91.7% at quarter end, down from 93% in the prior quarter. Our total range for the loan-to-deposit ratio remains, pardon me, our target range for the loan-to-deposit ratio remains 90% to 95%. Deposit mix shift continued in the higher rate environment with customer deposit growth coming from primarily money market and CDs while we also saw some continuation of non-interest-bearing deposit migration to interest-bearing deposits, though at a declining pace. Non-interest-bearing deposits are approximately 22% of total deposits, and we believe that percentage is approaching bottom. We posted annualized loan growth of 5.6% during the first quarter, which was led by growth in commercial loans. The increase in construction loan balances came from existing commitments on projects underway funding up toward completion. As I mentioned earlier, we expect to be in the mid-single-digit growth range for loans held for investment in 2024, inclusive of American National Bank. Commercial and industrial line utilization this quarter was consistent with the prior quarter, but up from the prior year's first quarter. Loan production in the first quarter was weighted more heavily to existing clients than new to bank clients, with about 75% existing clients. It also favored C&I over commercial real estate, with about 63% of the production coming from commercial and industrial. Commercial real estate payoffs decreased slightly from the fourth quarter and increased slightly from the same period in the prior year, which we interpret as a sign that commercial real estate markets where we operate are still healthy. Credit remained stable. Net charge-offs at 13 basis points annualized during Q1 were driven by two credits that we reserved for last quarter. As a reminder, we also reported 13 basis points of annualized net charge-offs during the first quarter of 2023, yet for the full year of 2023, the net charge-off ratio was only 5 basis points. Credit remains a good story at AUB, though we do not consider the negligible losses we have seen over the past few years to be sustainable. We anticipate that asset quality should eventually normalize following the long run of minimal net charge-offs. though we still see no evidence of an inflection point coming or having occurred. For forecasting purposes, we continue to expect 10 to 15 basis points of net charge-offs during 2024, though we do not have visibility to enough potential charge-offs to reach that level currently. Having said that, idiosyncratic credit losses do happen, as was the case with the two credits I mentioned earlier. That's normal and to be expected. Regardless, we remain confident in and pleased with our asset quality. Turning now to our merger with American National, as mentioned, the transaction closed on April 1, and we're excited to have our new teammates and shareholders on board. After the deal was announced, we spent a great deal of time with the American National team to get ready for legal day one and for the all-important core systems conversion, which remains on track for late May. We've already completed the first mock systems conversion, which went well. This is our third acquisition of a $3 billion asset bank during my time here. and we've refined our integration playbook after each one based on lessons learned. We're experienced at this and are expecting a smooth integration and conversion. More so than anything else, it's the people of American National and our cultural compatibility that excites us. The more time we've spent with them and in their markets, the more enthusiastic we've become about the potential opportunities we have together. Additionally, we continue to be bullish on the long-term opportunity to leverage our new North Carolina markets as a growth platform and you can look for us to invest in them to drive organic growth over time. We've already begun to add experienced bankers to the team there and intend to further build out our CNI capabilities in North Carolina. We believe American National's markets and people, coupled with our additional capabilities in the larger balance sheet, make for a formidable combination. In sum, we believe we're well positioned for 2024 and the strategic actions we took last year to prepare This challenging environment, coupled with financial benefits of the American national merger, should differentiate AUD's performance going forward. We continue to believe we're on a reasonable growth footing, and we will not hesitate to take the strategic actions we deem necessary to strategically navigate the challenges we face in this uncertain economic environment. As has been the case for some time, we expect uncertainty to continue, especially given geopolitical events, but for the time being, we remain cautiously optimistic in our outlook. As usual, with uncertainty comes opportunity, which we believe we are well positioned to capitalize on. Last, I'd like to thank our teammates at Atlantic Union Bank, whose responses to the annual Top Workplaces USA survey landed us a second consecutive National Top Workplace USA award. This highly engaged team, they are the ones who make it happen. And no matter the issue, challenge, or opportunity, in the end, the answer always lies with our people. Now more than ever, Atlantic Union is a uniquely valuable franchise that is diversified, traditional, full-service bank with a strong brand and deep client relationships in stable and attractive markets. I'll now turn the call over to Rob to cover the financial results for the quarter. Rob?