Atlantic Union Bankshares Corporation

Good day and thank you for standing by. Welcome to Atlantic Union Bank Shares' second quarter 2024 earnings 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 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, Investor Relations. Please go ahead.

Thank you, Gigi, 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 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 second quarter of 2024. We will also 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 in the slide presentation issued today and our other SEC filings for the 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. And at the end of the call, we will take questions from the research analyst community. I'll now turn the call over to John Asbury.

Thank you, Bill. Good morning, everyone, and thank you for joining us today. We were excited to close our merger with American National Bank Shares on April 1st, though it made for a noisy quarterly earnings release. We completed the core systems integration over Memorial Day weekend and now operate as one brand across our footprint. We believe the combination benefits our customers and markets with an expanded and even more convenient network, enhanced product offerings, and access to more capital. We also believe it benefits our teammates with expanded career opportunities, resources, and capabilities. And finally, we believe it will benefit our shareholders by positioning us well to deliver differentiated financial performance. Strategically, we have increased our density and market power in western Virginia and expanded our franchise into contiguous markets in southern Virginia and in North Carolina. We believe there's a lot we can do with all of this. For example, the critical mass we now have in North Carolina serves as a new expansion platform with meaningful organic growth potential over time. I'll share more on the American National Bank shares combination later in my comments. I'd like to start these calls with a recap of our operating philosophy for those new to our story and as a reminder for those who are already familiar with AUV. We operate our company under a mantra of soundness, profitability, and growth in that order of priority. We make loans, we take deposits, and provide fee-based services all to our customers under our brand. We are a traditional diversified bank that provides financing and services that help people, help businesses, and help our communities. The model is straightforward and has stood the test of time. In our case, that would be 122 years. At nearly $25 billion in assets, we believe we are in a good-sized band, not too large and not too small. We are large enough and capable enough to be a challenger and an alternative to the big banks, but still small enough and responsive enough to compete against the smaller banks, too, that we often have more capabilities than they. The operating environment remains challenging for banks of all sizes. However, in our case, we believe that the financial benefits of the American national merger are now coming into view. When you cut through the noise of the merger-related expenses this quarter, you can see the initial evidence of a boost to both net interest margin and bottom line profitability, Rob will comment on this and what we anticipate for the rest of the year during his section of our remarks. I'll now comment on macroeconomic conditions and other topics we are often asked about and then share a few thoughts on the eventful second quarter. Regarding the economic outlook, for forecasting purposes, we remain cautious, although it appears a soft landing is increasingly plausible. This month's positive news on inflation leaves us more optimistic than last quarter that we may see at least one rate cut later this year. Regardless, 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, and our lending pipelines imply we should expect mid-single-digit annualized loan growth in the second half of 2024. Virginia's last reported unemployment rate dropped to 2.7% in June and, as usual, remains below the national average, which increased to 4.1% during the same period. North Carolina came in at 3.6% for the same period, better than the national average. I often point out that our home state of Virginia has traditionally been among the more economically stable and attractive in the country. With our increased presence in North Carolina, we believe we operate in two of the best states to do business in the United States. CNBC's annual Best States for Business ranking, released this month, ranked Virginia number one and North Carolina number two. Last year, North Carolina was ranked number one and Virginia was number two. This is the sixth time CNBC has ranked Virginia, the top state for business, the most of any state since the rankings began in 2007. This is also Virginia's third win in the past five years, following the first place results in 2019 and 2021. Of note, this year the categories of economy, workforce, and infrastructure were given the most weight in the study. These are good proof points of why we are optimistic about the economy and growth potential in our primary markets. For the past few quarters, Among the more frequent questions we receive are the credit outlook for non-owner-occupied office exposure and, to a lesser extent, multifamily commercial real estate. There are additional disclosures on these loan categories in our supplemental slides as of quarter end, but our current perspective has not changed from the detailed comments I provided last quarter. To summarize, the non-owner-occupied office portfolio is a modest 4.8% of total loans and is performing well. While I expect we'll incur some challenges in it over time, we currently anticipate any such issues to be readily manageable, given the granularity and relative size of this portfolio. Regarding multifamily exposure, it's a modest 7.4% of the total loan portfolio, and its asset quality is among the best in the bank. We currently do not anticipate any material problems to develop in our current multifamily portfolio, and should any arise, we expect them to be readily manageable. We understand investors' general concerns about banks' office and multifamily exposure, but you can't paint all banks' credit exposure with the same broad brush. We're not all the same. Our markets are not all the same. Our underwriting is not all the same, and our borrowers are not all the same. You have to dig in to understand the characteristics of each bank, its credit culture, client selectivity, track record, portfolio, and markets. Turning now to quarterly results. Here are a few financial highlights for the second quarter, and Rob will provide more detail in his section. Our quarterly and annual comparisons are not particularly meaningful with the inclusion of American National in this quarter's results, but we continue to be on a moderate growth path. At 91.7% at the end of the quarter, our loan-to-deposit ratio remains comfortably at the lower end of our preferred 90 to 95% range. Non-interest-faring deposits increased slightly to approximately 23% of total deposits from the prior quarter, and we believe it has stabilized around that level. Assuming we add the American national portfolio on March 31 instead of April 1, we saw pro forma annualized loan growth of approximately 3.9% during the second quarter, inclusive of the fair value marks on the American national loans. We continue to expect mid-single-digit annualized growth for loans held for investment during the rest of 2024. CNI line utilization this quarter was relatively flat with the prior quarter, but up from last year's second quarter. Loan production in the second quarter was weighted more heavily to existing clients than new bank clients, with around 60% of it existing clients. It also continued to favor CNI over commercial real estate, with about 65% of the production coming from CNI. We did see an increase in production and construction and land development from the prior quarter, which we view as a sign of relatively healthy CRE markets in our footprint. CRE payoffs increased slightly from the first quarter and from the same period in the prior year, which we also interpret as a sign that the commercial real estate market is still relatively healthy in our footprint. Credit remains stable, with net charge-offs of four basis points annualized during Q2, down from 13 basis points in the first quarter. All in all, credit remains a good story at AUB, but as I mention every quarter, we do not consider the negligible losses we have seen over the past few years to be sustainable. However, we see no evidence of an inflection point coming or having occurred. For forecasting purposes, we continue to expect between 10 and 15 basis points of net charge-offs during 2024. Our net charge-offs are eight basis points year-to-date, at the end of the second quarter, and while we have not identified potential charge-offs in our portfolio that would cause us to reach that forecasted level by year end, we do recognize that idiosyncratic credit losses do happen. That was the case in the first quarter of 2024. It is normal, and it's to be expected. Regardless, we remain confident and pleased with our asset quality. As a reminder, asset quality was one of the hallmarks of American National Bank shares, consistent with our own existing credit risk profile. Turning now to our merger with American National, as mentioned, the transaction closed on April 1st. We completed systems integration over Memorial Day weekend and now operate as one team. This was hard work for all involved, and I would like to thank our teammates who completed the task and are now transitioning toward business as usual. As we do with every integration, we incorporate best practices learned from our partner bank, and we refine our merger playbook based on lessons learned for any future integrations. We are bullish on the long-term opportunity to leverage our new North Carolina markets as a growth platform, and we intend to invest in them to drive organic growth over time. We have launched a commercial banking effort in the fast-growing Wilmington, North Carolina market with a key leadership hire and plan to build out our team there. We have added to our Raleigh team and added a dedicated equipment finance banker to serve North Carolina. Over time, we will further develop our CNI strategy in North Carolina, just as we have done in Virginia, and in our specialty lines over the past nearly eight years. We are already seeing former American National Commercial customers purchasing our treasury management and interest rate hedging products, demonstrating there is demand for these services. We are running new business based on the good work done by our new teammates, aided by AUB's additional capabilities and larger balance sheet. In the converted branches, we saw the rate of new account openings nearly double in the month following conversion from the prior two months, which is a good response from our customers to our value proposition. In sum, we are settling in with the recent merger, the work is not done but it's well underway, starting to see the financial benefits of the combination and believe we are well positioned for the rest of 2024 and beyond. We continue to believe we are on a reasonable growth footing and as we have demonstrated in the past, we will not hesitate to take strategic actions to successfully navigate the challenges and capitalize on the opportunities before us in this uncertain environment. As has been the case for some time, we expect uncertainty to continue, especially given geopolitical events and the upcoming federal elections. But for the time being, we remain cautiously optimistic in our outlook. Now more than ever, Atlantic Union is a uniquely valuable franchise. It is dense, diversified, traditional. We are a full-service bank with a strong brand and deep client relationships and stable and attractive markets. I'll now turn the call over to Chief Financial Officer Rob Gorman to cover the financial results for the quarter. Rob?