Atlantic Union Bankshares Corporation

Good day and thank you for standing by. Welcome to the Atlantic Union Bank Shares first quarter 2026 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'll 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, sir.

Thank you, Michelle, and good morning, everyone. I have Atlantic Union Bank Sheriff's President and CEO John Asbury and Executive Vice President and CFO Alex Dodd with me today. Since Alex is only eight days into his job, former CFO Rob Foreman will cover the first quarter financial results in his transition capacity as a Senior Financial Advisor to the company. until his September 30th retirement. 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 first quarter of 2026. We will also make forward-looking statements, which are not statements of historical fact and are subject to risks and uncertainties. There could be no assurance that actual performance will not differ materially from any future expectations of 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 slide presentation 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 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. And now I'll turn the call over to John. Thank you, Bill. Good morning, everyone, and thank you for joining us today. I am pleased to introduce Alex Dodd as our new chief financial officer. Alex brings a wealth of experience, having successfully helped guide a smaller institution through its transformation into a larger, more complex financial organization. His background aligns well with our executive leadership team, and I am confident he will add tremendous value as we continue to drive growth and innovation. Over the next few months, we look forward to having Alex meet many of you during our active investor relations calendar. While Rob Gorman will remain with us full-time until his retirement at the end of September, I do want to extend my sincere gratitude to Rob for his invaluable contributions and his dedication to ensuring a seamless CFO transition. The Atlantic Union Bank shares reported solid first quarter financial results reflecting disciplined execution and a successful conclusion of the integration of Sandy Spring Bank. We believe the adjusted operating financial results for the quarter showcased the organization's earnings capacity. While we had a final set of merger-related charges impact this quarter's results, the underlying operating performance supports our continued confidence in achieving the financial outlook for adjusted operating return on assets, return on tangible common equity, and efficiency ratio that we have set for 2026. We do look forward to reporting results without the merger noise starting next quarter, which we believe should more clearly demonstrate the financial strength and operational 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 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 the Q1 2026 highlights and share market insights before Rob presents the financial review. And here are the highlights from the first quarter. Quarterly loan growth was approximately 2.2% annualized during the typically slow first quarter. with total loans ending at $27.9 billion. For additional context, quarterly loan growth averaged roughly 5.9% annualized over this year's first quarter. Loan production remains strong, and what compared to the previous four quarters was second only to the fourth quarter of last year. We were pleased to see record-level fundings from Atlantic Union Equipment Finance and record-level production from our North Carolina-based commercial real estate team. However, We also experienced elevated payoffs late in the quarter, particularly within our commercial real estate portfolio, due to a number of property sales. This activity highlights the strength of our CRE markets, robust investor demand, and the availability of ample liquidity. The first quarter saw a slight increase in line of credit utilization for the fourth quarter and was relatively flat year over year. At the end of the first quarter, our loan pipelines were noticeably higher than at the beginning. giving us confidence that we are pacing to meet our loan growth targets for 2026. A deeper look at the pipeline report reveals that our construction and development pipeline has achieved a record high. For those familiar with my construction lending bathtub analogy, this means our pipeline is filling up at a faster rate than it's draining, which positions us well for continued growth in construction lending balances throughout the year. While forecasting loan growth remains challenging in this uncertain macroeconomic environment, particularly with the recent energy price shocks, we continue to expect 2026 year-end loan balances to range between $29 and $30 billion. Our deposit base demonstrated strong customer deposit growth this quarter, nearly offsetting the planned reduction in high-cost broker deposits. Broker deposits currently represent just 2% of total deposits and play a purposeful role in our liquidity strategy. We believe this approach provides us flexibility to add broker deposits in the future if needed, and depending on cost and market conditions, we anticipate any new additions, if any, would be at lower rates than those currently rolling off. Above all, our core customer deposit base remains the crown jewel of the franchise, and our primary focus is on growing customer deposits and expanding our share of wallet. Net interest margin, excluding the impact of accretion income, which can be volatile, improved by four basis points quarter over quarter, matching our expectations. I reported FTE net interest margin declined 11 basis points to 3.85%, mainly because accretion income was lower compared to the elevated level seen in Q4-25. Rob will provide more detail about the factors influencing NEM performance in this section. Credit quality continues to show strength and improvement. Our first quarter annualized net charge-off ratio was just two basis points. For the year, we are still projecting a range of 10 to 15 basis points, although we do not yet have full visibility into reaching that range. Key asset quality indicators remain robust and are improving. Non-performing assets as a percentage of loans held for investment declined by six basis points to 0.36% from 0.42% in the prior quarter, bringing us closer to our historical operating levels. Criticized and classified assets also improved, decreasing to 4.5% of total loans from 4.7% last quarter. And looking at the most current unemployment data, the Bureau of Labor Statistics reported Virginia's January unemployment rate remained stable at 3.7%. Maryland's unemployment rate was 4.3%, and North Carolina's was 3.8%, all of which are at or below January's national average of 4.3%. We continue to expect unemployment levels in Virginia, Maryland, and North Carolina to stay manageable and comparable to or below the national average, consistent with Moody's current state level forecast. We remain confident in our markets and consider them among the most attractive in the country. I do want to acknowledge the ongoing conflict in Iran and its potential impact on our bank and the markets we serve. We are closely monitoring the geopolitical developments and their effects on the broader economy. The most immediate consequence has been the sharp increase in petroleum prices. Should this trend persist over an extended period, our primary concern is not a direct credit event, given our portfolio's limited sensitivity to energy prices, but rather a possible decline in consumer and business confidence. At present, our loan pipelines remain strong. Business sentiment across our markets is positive, and the underlying economy and our footprint continues to be favorable. Additionally, it appears likely that defense spending will rise as a result of the geopolitical situation, which should provide a stimulative effect for certain areas or markets. We remain vigilant and believe we're well-positioned to navigate these challenges while supporting our clients and our communities. 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 a strong foundation, we believe we are well positioned to capitalize on our expanded markets, drive continued growth in Virginia, and pursue new organic opportunities in North Carolina and at our specialty lines. With disciplined execution of our prior acquisitions and no additional acquisitions currently planned during this phase of our strategic plan, our focus has shifted to demonstrating the franchise's earnings power and capital generation ability. After dedicating capital to strategic investments over the past two years to complete the company we envisioned and worked diligently to build and consistently communicated our plans to do so, we believe we are well positioned to demonstrate clear and tangible benefits from these efforts. In summary, we had a good start to 2026 and we believe that our full year results will demonstrate the differentiated financial performance compared to our peers, which in turn will help build long-term shareholder value. With that, I'll turn the call over to Rob for a detailed review of our quarterly financial results. Rob?

Well, 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 this first quarter of 2026. A commentary today will primarily address Atlantic Union's first quarter financial results presented on a non-GAAP adjusted operating basis, which for the first quarter excludes $9 million in pre-tax merge related costs. As John noted, we don't expect to incur any additional Sandy Spring merger-related costs going forward. In addition, in the first quarter, we finalized the pair value assets acquired and liabilities assumed related to the Sandy Spring acquisition, inclusive of measurement period adjustments primarily related to loans, other assets, and other liabilities. The one-year measurement period related to the Sandy Spring acquisition concluded and related goodwill was finalized as of March 31st at $500,000. and $41 million. In the fourth quarter, reported net income available to common shareholders was $119.2 million, and earnings per common share were 84 cents. Adjusted operating earnings available to common shareholders were $126.2 million, or 89 cents per common share, for the first quarter, which resulted in an adjusted operating return on tangible common equity of 19.6%, an adjusted operating return on assets of 1.41%, and an adjusted operating efficiency ratio of 49.9% in the quarter. Turning to credit loss reserves at the end of the first quarter, the total allowance for credit losses was $321.9 million. Please note that effective January 1, 2026, the company made certain changes to its allowance for credit losses methodology as part of the continued enhancement of its credit modeling practices, resulting in the company moving from two loan portfolio segments commercial and consumer, to three loan portfolio segments, commercial real estate, commercial industrial, and consumer. These model enhancements enable more dynamic and precise modeling and allow for more granularity in monitoring our estimated credit losses. As a result, and paired with portfolio mix changes, the total allowance for credit losses as a percentage of total loans held for investment decreased one basis point to 115 basis points at the end of the first quarter. The allowance for loan losses as a percentage of total loans held for investment decreased by two basis points from the prior quarter to 104 basis points, while the reserve for unfunded commitments coverage ratio increased one basis point to 11 basis points on March 31st, which was primarily driven by higher construction and land development unfunded commitments. As John mentioned, net charge-offs were $1.6 million, or only two basis points annualized in the first quarter. Now turning to the pre-tax, pre-provision components of the income statement for the first quarter, tax equivalent net interest income was $316.9 million, which was a decrease of $17.9 million from the fourth quarter, primarily driven by a decrease in loan accretion income, the lower day count in the first quarter, lower average earning assets, and the full quarter impact on variable rate loan yields following the cumulative 75 basis point reduction in the Fed funds rate between September and December 2025. The decreases in tax equivalent net interest income were partially offset by a decrease in interest expense, primarily from lower deposit costs. As John noted, the first quarter's tax equivalent net interest margin declined by 11 basis points from the prior quarter to 3.85% due to lower earning asset yields, which were partially offset by lower cost of funds. Earning asset yields decreased 20 basis points from the prior quarter to 5.79%, primarily due to lower loan accretion income of $13 million, which was inclusive of the impact of a $3.5 million non-recurring loan fair value measurement period adjustment related to the Sandy Spring acquisition and lower yields on variable rate loans, as previously noted. Cost of funds decreased 9 basis points from the prior quarter to 1.94%, for the first quarter due primarily to lower deposit costs of 13 basis points, which reflected the impact of Fed funds rate reductions on customer deposit rates and the decline in higher costing average broker deposit balances. Of note, excluding the impact of net accretion income, our core net interest margin increased by four basis points to 3.45% from 3.41% in the prior quarter, which was primarily driven by lower deposit costs partially offset by lower core loan yields. Non-interest income declined by $2.2 million to $54.8 million for the first quarter, primarily driven by lower loan-related interest rate swap fees due to seasonally lower transaction volumes, which was partially offset by higher capital markets income. Reported non-interest expenses decreased by $33.4 million to $209.8 million for the first quarter, primarily driven by a $29.6 million decline and merger-related costs, and a $2.3 million decrease in amortization of intangible assets. Adjusted operating non-interest expense, which excludes merger-related costs in the fourth quarter of 25 and the first quarter of 26, and the amortization of intangible assets in both quarters, decreased by $1.6 million to $185.3 million for the first quarter. This decrease was primarily due to $3.1 million reduction in other expenses primarily due to lower non-credit-related losses on customer transactions, a $2.3 million decrease in professional services expenses related to strategic projects that occurred in the prior quarter, and a $1.9 million decrease in technology and data processing expenses. These decreases were partially offset by a $5 million increase in salaries and benefits expense, primarily due to seasonal increases in payroll taxes and 401 contribution expenses. On March 31st, loans held for investment net of unearned income were $27.9 billion, which was an increase of $150.3 million, or 2.2% annualized from the prior quarter. On March 31st, total deposits were $30.4 billion, which was a decrease of $80.4 million, or approximately 1% annualized from the prior quarter, primarily due to decreases of $517.9 million in broker deposits, partially offset by an increase of $438.5 million in interest-bearing customer deposits. At the end of the first 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 first quarter if you include the negative impact of AOCI and held the maturity securities unrealized losses in the calculation of the regulatory capital ratios. AOCI increased $22.4 million during the first quarter as term interest rates increased from the prior quarter. The company paid a common stock dividend of 37 cents per share in the first quarter in line with the fourth quarter's dividend amount and an increase of 8.8 percent from the previous year's first quarter dividend amount of 34 cents per common share. On a late quarterly basis, tangible book value per common share increased 24 cents or 1% to $19.93 per share in the first quarter, despite the headwinds caused by the increase in the AOCI unrealized losses. We estimate that the increase in AOCI had a negative impact to our tangible book value of 16 cents per share in the first quarter. As noted on slide 17, we are updating our full-year 2026 financial outlook for AUB to the following. We expect loan balances to end the year between $29 and $30 billion, while year-end deposits balances are projected to be between $31 and $32 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 points range, and the net charge-off ratio is expected to fall between 10 and 15 basis points in 2026, although we don't currently have a line of sight to reaching that range this year. Fully taxable equivalent net interest income for the full year is projected to come in between $1.34 billion and $1.35 billion, inclusive of increasing income of between $140 million and $145 million. As a result, we are projecting that the full year tax equivalent net interest margin will fall in the range between 3.90% and 4% for the full year driven by our baseline assumption that the Federal Reserve Bank will not cut the Fed funds rate in 2026 and that term rates will remain stable at current levels. At a full year basis, non-interest income is expected to be between $220 and $230 million, while adjusted operating non-interest expense is estimated to fall in the range of $742 to $752 million including 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 12 to 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 solid operating results the first quarter and 2026 is off to a good start 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 before i transition the call back to bill i would like to briefly reflect on my tenure at aub when i joined the organization in 2012 aub had approximately four billion dollars in total assets with a market capitalization of around $360 million. Currently, our assets have grown to nearly $40 billion, and our market capitalization exceeds $5 billion, establishing us as the largest regional bank headquartered in Lower Mid-Atlantic. It's been a great privilege to have played a part in the company's growth and financial success over the past 14 years. And looking ahead, I'm pleased to have Alex step into the role of CFO as my successor, And I'm confident that his extensive financial leadership experience will contribute significantly to Atlantic Union's future success. I'll now turn the call over to Bill to see if there are any questions from our research analyst community. Thanks, Rob. And Michelle, we're ready for our first caller, please.