Atlantic Union Bankshares Corporation (NYSE:AUB) Q2 2022 Earnings Conference Call July 21, 2022 9:00 AM ET Company Participants Bill Cimino - SVP, IR John Asbury - President and CEO Robert Gorman - EVP and CFO David Ring - Wholesale Banking Executive Conference Call Participants Catherine Mealor - KBW Operator Good day, and thank you for standing by. Welcome to the Atlantic Union Bankshares Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being re ...

Financial Data and Key Metrics Changes - Reported net income available to common shareholders was $40.7 million, with earnings per common share at $0.54, down approximately $4.1 million or $0.05 per common share from the fourth quarter [24] - Non-GAAP adjusted operating earnings available to common shareholders were $45.1 million, with adjusted operating earnings per common share at $0.60, down approximately $8.7 million or $0.11 per common share from the prior quarter [24] - Non-GAAP adjusted operating return on tangible common equity was 12.69%, and return on assets was 0.98% [24] Business Line Data and Key Metrics Changes - Loan growth was approximately 10.8% annualized, excluding PPP loans, with average loans on a linked-quarter annualized basis growing 12.8% [12] - New construction loan originations remained strong, with C&I line utilization increasing each month of the quarter [12][13] - Non-interest income declined to $30.2 million from $36.4 million in the prior quarter, primarily due to a gain from the sale of Visa Class B common stock in the previous quarter [30] Market Data and Key Metrics Changes - Total assets were $19.8 billion, a decrease of approximately 5.7% from December 31 levels [32] - Total deposits stood at $16.5 billion, a decline of $127 million or approximately 3% annualized from the prior quarter [33] - The unemployment rate in Virginia was reported at 3%, down from 3.4% in November, which is better than the national average of 3.6% [15] Company Strategy and Development Direction - The company aims to diversify income streams, focusing on both net interest income and non-interest income, with expected reductions in non-interest income due to changes in overdraft policies [19] - The strategic priorities include driving organic growth, leveraging financial technology, and selectively considering M&A opportunities [20] - The company plans to maintain top-tier financial performance regardless of the operating environment, with a focus on efficiency and scalability [21] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about economic growth despite challenges such as high inflation and geopolitical uncertainties [11] - The company anticipates that the Federal Reserve's rate hikes will positively impact net interest margins, projecting a potential increase in margins by the end of the year [44][36] - Management noted that American businesses have shown resilience and that the current economic environment is manageable [11] Other Important Information - The company closed 16 branches, reducing its retail branch network by approximately 25% since the pandemic began [17] - The effective tax rate for the first quarter increased to 17.5% from 14.4% in the fourth quarter [31] - The company repurchased approximately 630,000 common shares for $25 million during the first quarter [35] Q&A Session Summary Question: Capital management and buybacks - Management indicated that the AOCI impact did not materially affect the tangible common equity ratio and that they are evaluating capital management actions, including share buybacks [41][42] Question: Impact of rate hikes on margin - Management explained that for every 25 basis points increase in the Fed funds rate, there would be an approximate five basis points increase in core margin, projecting a potential margin of 345 to 350 by year-end [44][45] Question: Non-interest income guidance - Management confirmed that the guidance for non-interest income remains at $385 million to $390 million for the full year, with expectations of a decrease in seasonal expenses in the upcoming quarters [48][50] Question: Changes in overdraft policies - Management clarified that the expected reduction in fees due to changes in overdraft policies would be between $4.5 million to $6.5 million annually, with changes anticipated to begin in Q3 [60][62]

Financial Data and Key Metrics Changes - Reported net income available to common shareholders was $44.8 million, down approximately $26.8 million from the third quarter, with earnings per common share at $0.59 [21] - Non-GAAP adjusted operating earnings available to common shareholders were $53.8 million, down approximately $17.8 million from the third quarter, with adjusted operating earnings per common share at $0.71 [21] - The reported return on equity for the fourth quarter was 6.98%, while the non-GAAP adjusted operating return on tangible common equity was 14.25% [21] - Total allowance for credit losses was $107.8 million, down approximately $1.5 million from the previous quarter [22] Business Line Data and Key Metrics Changes - Fourth quarter loan production was the best since the pandemic started, with 11.7% annualized loan growth during the quarter, excluding PPP [9][10] - Commercial loan balances increased by $345 million or 12.8% linked quarter annualized, while consumer loan balances grew $27 million or 5.4% annualized [31] - Non-interest income increased by $6.5 million to $36.4 million, primarily driven by a gain on the sale of Visa Class B stock [28] Market Data and Key Metrics Changes - Virginia's unemployment rate improved to 3.4% in November, down from 3.8% in September, better than the national average of 4.2% [12] - The company expects upper single-digit loan growth for 2022, supported by solid pipelines and competitive positioning [11] Company Strategy and Development Direction - The company aims to diversify income streams, focusing on both net interest income and non-interest income, with initiatives in foreign exchange solutions and specialty finance operations [16] - The strategic focus includes leveraging financial technology and fintech partnerships to generate new sources of income [17] - The company plans to close 16 branches, which will reduce its retail branch network by approximately 12% [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic outlook, citing a benign credit environment and expected Federal Reserve rate hikes in 2022 [7][8] - The company is confident in maintaining differentiated financial performance and achieving top-tier financial targets for 2022 [14][34] Other Important Information - The company raised tier two regulatory capital by issuing $250 million of subordinated notes [33] - A share repurchase program was authorized to purchase up to $100 million of the company's common stock [33] Q&A Session Summary Question: Loan growth towards the end of the quarter - Management noted strong loan growth with average yields on new commercial loans around 3% [39] Question: Rate hikes and deposit betas - Management expects three rate hikes from the Fed in 2022, with deposit costs not expected to rise significantly until later in the year [41] Question: Core NII growth guidance - Management revised the core NII growth guidance to 7.5% to 8% for the year, primarily due to higher rates and putting excess liquidity to work [50] Question: Service charges and overdraft policies - Management acknowledged seasonal increases in service charges and indicated ongoing adjustments to overdraft policies to remain consumer-friendly [56][57]