Atlantic Union Bankshares Corporation

automated message advice in your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Bill Simeo, Senior Vice President of Investillations. Please go ahead.

Thank you, Livia, 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 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 fourth quarter and full year 2025. You'll also make forward-looking statements which were not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ material 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 except as required by law. Please refer to our earnings release and our slide presentation issued today, as well as our other SEC filings for further discussion of the company's risk factors, including, and other information regarding the 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 today's call, we will take questions from the research analyst community. I'll now turn the call over to John. Thanks, Bill. Good morning, everyone, and thank you for joining us today. Atlantic Union Bank shares reported strong fourth quarter financial results, reflecting disciplined execution and successful integration of the Sandy Springs acquisition. We believe the adjusted operating financial results for the quarter showcase the organization's earning capacity. While merger-related charges continue to affect this quarter's results, the underlying operating performance supports our continued confidence in achieving the strategic goals associated with the Sandy Spring acquisition, namely, the targets for adjusted operating return on assets, return on tangible common equity, and efficiency ratio. With the core systems conversion completed in October and only modest residual merger-related expenses anticipated in the first quarter, we expect in the ways associated with our merger-related expenses to decline. This means that we will be positioned, beginning with Q1 2026, to report unadjusted results that more clearly demonstrate the financial strength and operating efficiency we are committed to delivering for our shareholders. Our commitment to creating shareholder value remains unwavering. We believe Atlantic Union is well positioned to deliver sustainable growth, top-tier financial performance, and long-term value creation for our shareholders. We believe the strategic advantages gained from the Sandy Spring acquisition, combined with continued organic growth opportunities due to our robust presence in attractive markets, reinforce our status as the premier regional bank headquartered in the Lower Mid-Atlantic. I'll briefly cover our Q4 and full year 2025 highlights and share market insights before Rob presents the financial review. And here are the highlights for our fourth quarter. Quarterly loan growth was approximately 6.3% annualized, ending the year at $27.8 billion. Our pipelines were higher at the end of the fourth quarter than they were at the start of the quarter, which suggests we are on track for loan growth consistent with our full year 2026 outlook. While forecasting loan growth remains challenging in the still uncertain economic environment, we continue to expect 2026 year-end loan balances to range between $29 and $30 billion, inclusive of the negative impact from loan fair value marks. We observed a return to more typical commercial line utilization levels in the fourth quarter. Loan production reached a record high in Q4 as our team gained momentum despite ongoing economic uncertainty, the Sandy Spring Core systems conversion, and the CRE loan sale executed at the end of the second quarter of 2025. Additionally, we observed growing confidence among our client base, which combined with seasonally strong lending trends further supported our robust performance in the quarter. Our deposit-based experienced typical year-end fluctuations due to activity from large commercial depositors, with some of these balances returning during the early weeks of the first quarter. Our FTE net interest margin increased by 13 basis points to 3.96%. While improvement in accretion income contributed modestly, the main driver was our ability to reduce deposit costs while holding loan yields relatively flat compared to the prior quarter. Loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed rate loans at current market rates. Importantly, this also demonstrates we are putting our interest rate accretion income and principal repayments from the acquired fixed rate loan portfolios to work as those loans renew or reprice to higher market rates. Fee income was strong. primarily driven by loan-related interest rate swap fees and fiduciary and asset management fees, with both benefiting from the Sandy Spring acquisition. About 27% of interest rate swap income this quarter came from former Sandy Spring customers. While Sandy Spring had a nascent swap program, AUB swap program is well-established and mature. We expect ongoing growth in this area, though it's important to note that swap income may vary from quarter to quarter. Overall, credit quality showed continued strength and improvement, with our fourth quarter annualized net charge-off ratio coming in at one basis point. The net charge-off ratio for the full year was within our guidance at 17 basis points. Leading asset quality indicators remain encouraging. Fourth quarter non-performing assets as a percentage of loans held for investment declined a further seven basis points to 0.42% from 0.49% in the prior quarter. Criticized and classified assets remain low, 4.7%. We believe credit underwriting, client selectivity, and loan loss performance have consistently been traditional strengths of AEB, Sandy Spring Bank, and American National Bank, reinforcing our continued confidence in asset quality. Before we discuss unemployment rates, I want to clarify we are comparing November to September figures since October data is unavailable due to the government shutdown. Taking a step back, Virginia's unemployment rate remained unchanged at 3.5% in November compared to September, demonstrating notable resilience, especially since the national unemployment rate rose by 0.2 percentage points to 4.6% during the same timeframe. Maryland's unemployment rate rose to 4.2%, a 0.4 percentage point increase in September. This change aligns with our expectations, particularly considering the November data now includes federal government workers who took buyout plans. Despite the uptick, Maryland continues to outperform the national average during the same period. North Carolina's unemployment rate edged up 0.1 percentage point to 3.8%, remaining well below the national average. Although we do anticipate some further increases in unemployment across our markets in our CECL modeling, we expect these levels in Virginia, Maryland, and North Carolina to stay manageable and below the national average consistent with Moody's current state-level forecast. We remain competent in our markets and consider them among the most attractive in the country. For those who missed our Investor Day last month, I want to revisit a key slide from our Investor Day presentation as its message remains essential. We have deliberately and thoughtfully built a distinctive, valuable franchise outlined in our strategic plan, delivering on our commitments and establishing the banking platform we set out to create. With this strong foundation, we believe we're well positioned to capitalize on the expanded markets gained through the Sandy Spring acquisition, drive continued growth in Virginia, and pursue new organic opportunities in North Carolina and across our specialty lines. Our full investor day presentation details our market approach for the next three years, and I encourage everyone to watch it. With this one execution of our prior acquisitions and no additional acquisitions currently planned during this phase of our strategic plan, Our focus now shifts to demonstrating the franchise's earnings power and capital generation ability. It's time to show that our efforts and investments have been worthwhile. After dedicating capital to strategic investments over the past two years to complete the company we envisioned and worked so diligently to build and consistently communicated our plans to do so, we believe we are now seeing clear, tangible benefits from these efforts. In summary, 2025 was a pivotal year for AUB, We remained agile and responsive while managing a significant merger integration, a major CRE loan sale, and navigating macroeconomic headwinds, including federal government restructuring and unpredictable tariff policies. Despite these challenges, we delivered operating results that we believe will stand out among our peers. With that, I'll turn the call over to Rob for a detailed review of our quarterly financial results before we open the floor for questions.

Rob? Thank you, John, and good morning, everyone. I'll now take a few minutes to provide you with some details of Atlantic Union's financial results for the fourth quarter and full year 2025. My commentary today will primarily address Atlantic Union's fourth quarter and 2025 financial results, presenting on a non-GAAP adjusted operating basis, which for the fourth quarter excludes $38.6 million in pre-tax merger-related costs from the Sandy Spring acquisition, and for the full year 2025 excludes the following items. pre-tax merger related cost of $157.3 million, pre-tax gain on the sale of CRE loans of $10.9 million, and the pre-tax gain on the sale of our equity interest in Cary Street Partners of 14.8 million. That said, in the fourth quarter, reported net income available to common shareholders was of $109 million, and earnings per common share were 77 cents. For the full year 2025, reported net income available to common shareholders was $261.8 million, and earnings per common share were $2.03. Adjusted operating earnings available to common shareholders were $138.4 million, or 97 cents per common share in the fourth quarter, resulting in an adjusted operating return on tangible common equity of 22.1 percent, an adjusted operating return on assets of 1.5 percent, and an adjusted operating efficiency ratio of 47.8 percent in the quarter. For the full year, 2025, adjusted operating earnings available to common shareholders were $444.8 million, or $3.44 per common share, resulting in an adjusted operating return on tangible common equity of 20.4%, an adjusted operating return on assets of 1.33%, and an adjusted operating efficiency ratio of 49.7%. As John mentioned, we believe these adjusted operating results for return on tangible common equity and the efficiency ratio puts us in the upper quartile of our peer group for the full year of 2025. Turning to credit loss reserves at the end of the fourth quarter, the total allowance for credit losses was $321.3 million, which was an increase of approximately $1.3 million from the third quarter, primarily driven by loan growth in the fourth quarter. As a result, the total allowance for credit losses of the percentage of total loans held for investment decreased one basis point to 116 basis points at the end of the fourth quarter. That charge-off decreased to $916,000 or one basis point annualized in the fourth quarter from $38.6 million or 56 basis points annualized in the third quarter due to the charge-off of two commercial and industrial loans in the third quarter. Net charge off ratio for the year came in at 17 basis points in line with our 15 to 20 basis points guidance. Now turning to the pre-tax pre-provision components of the income statement for the fourth quarter. Tax equivalent net interest income was $334.8 million, which was an increase of $11.2 million from the third quarter, primarily driven by a decrease in interest expense resulting from lower deposit costs and increases in interest income on loans held for investment and the securities portfolio, which was partially offset by a decline in other earning asset interest income, primarily driven by lower average cash and cash equivalent balances in the fourth quarter. As John noted, the fourth quarter's tax equivalent net interest margin increased 13 basis points from the prior quarter to 3.96%, primarily due to lower cost of funds, partially offset by a slight decrease in earning asset yields. Cost of funds decreased 14 basis points from the prior quarter to 2.03% for the fourth quarter due primarily to lower deposit costs reflecting the impact of Fed funds rate decreases starting in September of 2025. Earning asset yields for the fourth quarter decreased one basis point to 5.99% as compared to the third quarter due primarily to lower investment and other earning asset yields partially offset by slightly higher loan yields. As John mentioned, loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed rate loans at current market rates. Non-interest income increased $5.2 million to $57 million for the fourth quarter from $51.8 million in the prior quarter. primarily driven by a $4.8 million pre-tax loss in the prior quarter related to the final settlement of the sale of CRE loans executed at the end of the second quarter of 2025 as part of the C&E spring acquisition. Adjusted operating non-interest income, which excludes the pre-tax loss on the CRE loan sale in the third quarter, the pre-tax gain on sale of our equity interest and carry street partners in the fourth quarter, and the pre-tax gains on the sale of securities in both the third and fourth quarters remained relatively consistent with the prior quarter at $56.5 million, primarily due to a decline in service charges on deposit accounts of $1.1 million, $400,000 of which was driven by temporary post-conversion fee waivers for Sandy Spring customers, a decrease in other operating income of $807,000, primarily due to lower equity method investment income, and seasonally lower mortgage banking income of $727,000, offset by higher loan-related interest rate swap fees of $2.5 million due to higher transaction volumes, and increases in fiduciary and asset management fees of $1.3 million, primarily due to increases in estate fees, personal trust income, and investment advisory fees. Reported non-interest expense increased $4.8 million to $243.2 million, for the fourth quarter of 2025, primarily driven by a $3.8 million increase in merger-related costs associated with the C&E spring acquisition. Adjusted operating knowledge expense, which excludes merger-related costs in the third and fourth quarters, and amortization of intangible assets in both quarters increased $1.4 million to $186.9 million for the fourth quarter, up from $185.5 million in the prior quarter. This was primarily due to a $2.4 million increase in other expenses, which was driven by an increase in non-credit-related losses on customer transactions and a $1.7 million increase in marketing and advertising expense. These increases were partially offset by a $1.4 million decrease in FDIC assessment premiums due to lower assessments in the fourth quarter of 2025. and a $1.2 million decline in furniture and equipment expenses, which was primarily driven by lower software amortization expense related to the integration of CME Spring. At December 31st, loans held for investment net of deferred fees and costs were $27.8 billion, which was an increase of $435 million, or 6.3% annualized from the prior quarter. At December 31st, total deposits were $30.5 billion, a decrease of $193.7 million, or 2.5% annualized from the prior quarter, primarily due to decreases of $260 million in demand deposits, largely driven by typical seasonal patterns, and $14.5 million in interest-bearing customer deposits, which were partially offset by an increase of approximately $81 million in broker deposits. At the end of the fourth quarter, Atlantic Union Bank shares and Atlantic Union Bank's regulatory capital ratios were comfortably above well-capitalized levels. In addition, on an adjusted basis, we remain well-capitalized as of the end of the fourth quarter if you include the negative impact of KOCI and health and maturity securities unrealized losses in the calculation of the regulatory capital ratios. During the fourth quarter, the company paid a common stock dividend of $0.37 per share, which was an increase of 8.8% from the third quarter's and previous year's fourth quarter dividend amount. Of note, on a linked quarterly basis, tangible book value per common share increased approximately 4% to $19.69 per share in the fourth quarter. As noted on slide 17, we are maintaining our full year 2026 financial outlook for AUB that was provided at our investor day in December. We expect loan balances to end the year between $29 and $30 billion, while year-end deposit balances are projected to be between $31.5 billion and $32.5 billion. On the credit front, the allowance for credit losses to loan balances is projected to remain at current levels in the 115 to 120 basis point range, and the net charge-off ratio is expected to fall between 10 and 15 basis points in 2026. Full tax equivalent net interest income for the full year is projected to come in between $1,350,000,000 and $1,375,000,000 inclusive of accretion income. As a reminder, we consider accretion income resulting from acquired loan interest rate marks as a built-in scheduled accounting tailwind to our GAAP earnings and net interest margin as the accretion income related to the loan interest rate marks gradually transitions to core cash earnings over time as the loans obtained through acquisitions either mature or get renewed at current market rates. As a result, we are projecting that the full year fully taxed equivalent net interest margin will fall in a range between 3.90% and 4% for the full year driven by our baseline assumption that the Federal Reserve Bank will cut the Fed funds rate by 25 basis points in April and in September in 2026, and that term rates will remain stable at current levels. On a four-year basis, non-interest income is expected to be between $220 and $230 million, while adjusted operating non-interest expense is expected to fall in the range of $750 to $760 million, which includes the expense impact of our North Carolina investment and other 2026 strategic initiatives. Based on these projections, we expect to generate annual growth and tangible book value per share of between 12% and 15%. produce financial returns that will place us within the top quartile of our proxy peer group, and meet our objective of delivering top-tier financial performance for our shareholders. In summary, Atlantic Union delivered strong operating financial results in the fourth quarter and in 2025, and we remain firmly focused on leveraging this valuable Atlantic Union bank franchise to generate sustainable, profitable growth and to build long-term value for our shareholders in 2026 and beyond. I'll now turn the call over to Bill to see if there are any questions from our research analyst community.