Atlantic Union Bankshares Corporation ($AUB)

Okay. So thank you, everybody, for joining. We're going to get started with Atlantic Union. I'm very happy to have with us today John Ashberry, CEO; and Alex Stad, CFO. John Alex, thank you so much for joining us today.

Thank you so much for having us here. Thank you for having us. .

Great. And then, John, maybe just starting off at a high level, Atlantic Union has built a leading franchise over the years in its home state of Virginia. Recently, you've complemented that. with the Sandy Spring acquisition in Maryland. When you look across the organization today, what has you the most excited about how Atlantic Union is positioned right now.

Brian, this fall will be my tenth year anniversary of the company. And this is what I had aspired to, when I joined. So what I'm most excited about is that we have worked very intensely over nearly the last decade to really build what we have today. We've made the investment. We've increased our capabilities. We've established a market share that I would argue could not be replicated, we're the #1 regional bank by depost market share in the state of Virginia and the state of Maryland, that's never been done before. I can say that since I'm a Virginia banker, I would argue it will not be done again. You can't replicate it. We've built the brand that attracts talent and clients and we've differentiated our financial performance. So punchline is we built it exactly the way we want it. What I'm most excited about is this is our opportunity to deliver and demonstrate that, that investment has been worthwhile. -- it's really the shift into the organic phase of the company strategy.

Great. And maybe just thinking about some of the major initiatives across the company, 1 of them is really about maximizing the potential of the Sandy Spring acquisition. Can you talk a little bit more about some of the progress that you're making on that side.

Yes, we closed the transaction in April of '25, which means we are now over a year into it. So we just celebrated the first anniversary of it. The systems conversion occurred in October and went very smoothly. And I think most of us would say it was the best that we've ever seen. So we think it has gone well. We've been thrilled with the people. The cultural fit was everything we had expected, and that has certainly been confirmed. So at this point, we're really delivering on the promise of the merger. From a commercial banking standpoint, the single most important thing that we've done was simply unlock the ability of the company to meet its potential -- Sandy was somewhat constrained by a relatively high loan-to-deposit ratio and a CRE concentration. We removed that. We've also brought to the table more capabilities from a treasury management standpoint. On the commercial banking side, we have equipment finance and foreign exchange, interest rate hedging, other capital markets capabilities such as syndications and certainly a larger balance sheet. And so more capacity. So that is really important is that has gone into the hands of the team. On the consumer bank side, what we've been able to do is to really help to free up and reorient the branch network personnel to have more of an external or sales focus. We have removed some operational tasks from their standpoint, and we have a very good playbook in terms of how we grow the retail branch deposit base as well that we're implementing. So the stage is set, all of the conversion activity, getting used to the new policies and processes and systems, all of that is behind us.

Great. And then the other big initiative, of course, is increasing your presence within North Carolina North Carolina is a really attractive but also a very competitive market. It is. When you think about expanding within that part of the country, can you just talk a little bit about the opportunity there and why you think the bank is uniquely positioned to win in North Carolina.

Well, first of all, we are not new to North Carolina. I want to make sure that the market understands that we're a $3 billion asset bank in North Carolina. And we have been there for actually quite a while. If you look at the 11 branches that we presently have Seven of those came from the American National Bank merger, who've been there for over a decade. American National Bank was based in Danville, Virginia. That's 30 minutes north of Greensboro. So that is in the Pemaryadjust across the Virginia line. and we have a nearly 10-year old commercial real estate LPO out of Charlotte. So -- which has been very successful. We are building off of that base North Carolina is contiguous to us, and we're already there. So we think of this as more of a densification strategy. And while I've often referred to this as the North Carolina investment, the North Carolina strategy, it's probably better explained as the Raleigh expansion and the Wilmington expansion or densification, we're in Raleigh right now. We have 1 branch. We have a commercial team. We are building 7 branches in the Greater Raleigh area. We have a 2-year-old commercial LPO, which has been successful in Wilmington, and we're adding 3 branches there. So what we've chosen to do is to add enough density to where we have a reasonable retail branch market share and to be able to field a full service banking strategy in those markets and not simply operate as a branch-light business bank. So this is exactly the same model that we use in any of the Virginia markets or the Maryland markets, and we're densifying. So it's not just a retail branch strategy. It's a holistic strategy that will serve business and consumer. We'll add wealth management and mortgage banking operations too. Yes, it's competitive, but all of our markets are competitive. And if you look at those banks that are really making material organic investment in North Carolina, it's super regionals and its large nationals like JPMorgan we are doing the organic investment, and we are accustomed to competing against super regionals and large national banks. We go head-to-head with them daily. I don't think there's anything unique. You ask what is unique about our approach. I don't think it's unique, but I do think that we are well able to compete and this is a tried and true model from our standpoint.

That's great. And then, Alex, since your new to Atlantic Union, I'd love to ask, what can you tell us about your decision to join the organization? And what are the first few weeks been like for you as you've learned more about the strategy.

Yes, I've been at Atlantic on you now for just coming upon 2 months, started mid-April, and I joined from TD Bank, where I was at for 20 years. So -- in my last role, I was the Deputy CFO of the U.S. business for TD. And then joining Atlantic Union, I was attracted of the story and what they've been able to put together through acquisitions and organic growth and very impressive, and it showed me the ability to execute from the leadership team. And that was from a far. Once I got to know John and Rob and the whole leadership team, it just seems like a group of people I'd want to work with, and I saw fewer layers of decision-making and a real flexibility in being able to change course if needed and make decisions quickly.

That's great. And then maybe moving over to the current day macro environment, it would be great to get both of your updated views on what's going on in the economy right now. Can you talk a little bit about what you're seeing across your client base in terms of sentiment activity levels and just how they're responding to the current moment.

Yes, Brian, the client base, whether it's business or consumer has demonstrated resilience. And I am pleased with the the sort of lack of impact that we've seen thus far from this whole geopolitical environment in the Iranian conflict. I think the best way I can describe it is the markets, the client base seems to be somewhat desensitized to this level of uncertainty. We know from experience, uncertainty tends to lead to hesitation. We've seen that before. In this case, there is uncertainty, but they simply seem to be moving forward with their plans as a result. We see it in our pipelines, which are at record level. Business is steady. . Obviously, we -- I think we all hope that there will be a near-term resolution to the Iranian conflict in particular. But the markets are holding up well, business sentiment and consumer sentiment seems to be holding up pretty well. at this point. Yes. I think I'll speak about what we're seeing from deposits. It's a very competitive market out there. It's particularly in our more urban areas like Northern Virginia and Maryland and down North Carolina, very competitive on pricing. And the banks are seeing loan growth -- and with that loan growth, they're also bringing up their deposit pricing to be able to fund that loan growth. So that's a little bit of the sentiment though on the deposit side.

And then maybe just staying on the deposit competition point, we've seen rate cuts get taken out of the forward curve. People are thinking maybe now we'll get -- start to get rate hikes. How are you thinking about the positioning of the deposit franchise and the trajectory of deposit costs across a variety of rate scenarios.

Yes. And I think you have to actually look back a little bit to late in 2025, where we had 3 rate reductions and banks brought down deposit costs with the betas and almost we're setting themselves up for rate reductions in 2026. And that changed course to more of the higher for longer. So what we think we're seeing now is more of an overcorrection of that and deposit pricing moving up. Now the prospect of having a rate increase, I think deposits will continue -- pricing will continue to be competitive. We haven't seen a change, I'll say, in the last 60 to 90 days. It's remained competitive. But with the rate increase on the horizon, that competition will remain, and we'll see what happens from there. We're more of a price follower not a price leader. So we'll take actions accordingly.

So it's a competitive environment, but about as competitive as 1Q, not necessarily getting -- that's got I would agree with that.

Yes. I think Alex thinks a good point, which is we saw very aggressive cuts by large competing banks in Q4 on the heels of the Fed's 3 rate cuts -- and earlier this quarter, I think as the sentiment shifted that this was not the beginning of a series of rate cuts we saw backing up. So in other words, we saw some movement upward as if the banks had perhaps overcorrected and we certainly were aggressive in the move down as well. But it's been fairly stable since then. .

Got it. Got it. And you mentioned loan growth picking up across the industry. Atlantic Union had a strong first quarter from a loan growth perspective. You talked about strong production pipeline going up over the course of the quarter. Can you talk about the outlook for the year? I believe you've been guiding for a mid-single-digit loan growth for the full year. Does that still feel like the right outlook today, and just where you're seeing the most success

Brian, right now, we are still -- we would certainly reiterate our guidance in terms of mid-single-digit loan growth for the full year. We certainly have the pipeline to support it. Momentum has been good, quarter-to-date in Q2. So we feel very confident in reiterating mid-single-digit loan growth guidance. For the year -- we are seeing strength broadly across the franchise. On the commercial and industrial banking space, the area that has the most strength would be equipment finance. . Atlantic Unit Equipment Finance, we are a top 30 equipment finance company in America. We built that from scratch beginning about 6 years ago. We're very proud of that. and the capabilities of the group, they had a record production quarter in Q1, and we're seeing very strong production again in Q2 and their pipelines look good. We think that is tied to the big beautiful bill, and the accelerated depreciation on capital expenditures, which have definitely motivated companies to go do capital expenditures since that's been a strong area for us. Generally, commercial and industrial banking pretty much across the board and across most markets has actually been quite healthy. On the commercial real estate side, the largest area of, I would say, the fastest grower, so to speak, has been the commercial real estate loan production office in Charlotte. Now we've been in North Carolina for 10 years. We have our $2 billion outstanding in that office throughout North and South Carolina, and they've seen a lot of activity across those markets. By the way, we do operate in South Carolina. We do not often talk about it because we don't have a physical presence there. But for anyone who understands Charlotte and being a North Carolina background banker by background. I began my career in Winston sale, and I lived in Charlotte twice sitting there right on the border of North and South Carolina, it's fairly well integrated. And so we've seen good growth out of that -- and we've also had good performance out of construction lending, a good bit of that being multifamily, and so we're seeing pretty good momentum across the board.

So good momentum on the lending side. Are you seeing any difference in terms of competition for new loans, anything new on either pricing or structure markets are competitive. Atlantic Union strategically and deals with what I would call a better set of credits. You can see this in our own strategy. You could see this in our asset quality performance. We're used to competition for better credits. And so yes, it's competitive. It's very clear that banks have appetite for assets at this point in time. So pricing is competitive. We're seeing some push on structuring, but nothing that's really too far out of bounds. We'll win our fair share. And occasionally, if something gets too far out there, we simply sit it out. And then maybe putting together the pieces for the net interest margin, AUV is 1 of the highest net interest margins in the group, 385.You're guiding to a range of 3.90% to 4% for the year. Can you just talk about the current rate environment with the belly of the curve moving higher. We talked about potentially a rate hike at some point later in the year. What does that mean for the NIM outlook for AAV? And how do you think about the different pieces?

Yes. I guess I'll start with Q1 was $3.85. That's the total NIM. It includes accretion. Our core NIM was up 4 basis points from Q4 to Q1. And -- our guide for the year is 3.9% to 4%, so higher than Q1. And there's a couple of reasons that give us confidence of why we'll get to the guide. And the first is that the accretion income was lower in the first quarter. We had lower prepayments and also had a $3.5 million adjustment to the fair value mark, a negative NII. And then the second would be that we've got -- every quarter, we have $800 million of fixed loans that are and they're maturing and then the new fixed loans coming on are coming on at about over -- about 110 basis points higher. And then the third would be broker deposits maturing. We have about $200 million this quarter. that will mature with rates over 5% and another 80 coming next quarter with rates over 4%. So those 3 combined will help NIM the rest of the way. And to your question that the higher medium-term rates or the belly of the curve will help our loan pricing. But I see the deposit competition offsetting that and not having a material impact on the guide will still be within the guide range, but I see both of those factors offsetting it. In terms of a rate hike, we're pretty neutral on the short end of the curve. So our loans will reprice with the rate hike. And then our deposits will reprice based on the beta, but there may be a lag, so that will be a net positive on a short-term basis. Alex as a good point. About half of the loan book is variable rate. So if we see a short-term rate -- the Fed hikes rates, half the loan book is going to reprice up immediately. And then maybe pivoting to expenses. Atlantic Union had a 50% efficiency ratio for 2025. You have a medium-term target of a range of to 48. There's clearly a lot of opportunity across the footprint right now.

Can you just talk about how you balance positive operating leverage in any given year with the longer-term investments that you're making in the franchise?

Our financial objective is to drive positive operating leverage. So if we do see revenue growth slowing, we would take the necessary actions on the expense side. But I see those as tactical actions, maybe deferring investments a quarter or something, it's short term. But in the long term, we have to invest in the franchise. We have to invest in new capabilities and areas of growth. And based on the way the environment is right now and some of the trends that we talked about, what do you think is a realistic time frame to hit that expense ratio target? Yes. The targets for the full year on a full year basis, and we expect to hit it in 2026. So we were just under 50% efficiency ratio in Q1. So we intend to be improving as we go throughout the year and be within the range on a full year basis. And then maybe moving over to credit. Atlantic Union is well known for its really strong credit quality.

You have guidance for the year of between 10 and 15 basis points, can you just give us an update on what you're seeing across the portfolio? And how are you thinking about the trajectory of losses from here? .

Brian, we feel quite confident in credit. We're not seeing any evidence of any material problems or any sort of inflection in the overall credit outlook. We will reiterate our guidance for 10 to 15 basis points of net charge-offs for the year. Having said that, we have no current line of sight to actually achieving 10 to 15 basis points. I don't see anything at this point that would actually take us to that level. That could change, but credit is good.

Got it. And then maybe just moving over to fees. We've covered the drivers of net interest income, and maybe on fees. Can you just give us some color on where you see the most opportunity on the fee side, things like wealth management, swap fees, where there's the most opportunity and where you're seeing the most growth?

We still see opportunity -- let me start with the capital markets group out of the wholesale bank, which is what we refer to as our commercial businesses. for the last 2 quarters, as we've released earnings, I've commented that about 1/4 of all interest rate swap fees have come out of the former Sandy Spring franchise. This is a point I made earlier about delivering additional capabilities to the former Sandy Spring franchise. And we can provide value-added services like interest rate hedging, foreign exchange is also a product like interest rate swaps that practically was not offered by Sandy Spring. And given the nature of those markets, we see more foreign exchange opportunity there. We have the loan syndications business. which is relatively small, but it's important. And what that does, of course, is enable us to do larger financings and lay off exposure to other banks, and that is a fee generator for us as well. We also have the SBA financing group, which we're expanding, and that allows us to originate and sell 7(a) loans on a flow basis. treasury management services, we think, is a significant opportunity within the former Sandy Spring franchise. AUB brings to the table a more robust or comprehensive set of offerings, to Sandy's credit. They had some niche products that we did not offer that we've adopted, which is helpful to the entire franchise. So we see the opportunity to really drive treasury management services particularly as we grow the commercial industrial client base there. And wealth management is also on a pretty good trajectory. We effectively doubled our assets under management with the merger. Sandy had an excellent wealth management group, and we also have some additional capabilities that we can bring to the table to, including in areas like institutional asset management, for example. So we think that across the board, we are in a position to be able to grow the fee business at a pretty good clip, which has certainly been a strategic objective for us.

As you move into -- further into North Carolina, add additional branches there, what opportunities does that present on the wealth side?

Well, more relationships really mean more client opportunity the way we think about wealth management is for the mass market consumer within the retail branch network, we do have Atlanta Kenyon Financial Advisors, which we do jointly with Raymond James. By the way, I should point that out. That is not a product offering that Sandy Spring has. So we are and intend to continue to add to Atlantic Union financial consultants or financial advisers, in the former Sandy Spring franchise. Same thing will happen in North Carolina. And then in terms of the asset management side, which is really dealing with affluent and above clients, people with investable assets of several million dollars and up that are so often clients of the commercial bank. And so as we expand the commercial book of business in North Carolina, we would expect to see additional wealth management opportunity as well. And we also have a very robust fiduciary trust business. So that also creates opportunities. This is my point about the North Carolina expansion. It's really a holistic approach. It's the ability to offer a complete strategy, a comprehensive set of products, it's not simply a de novo branch strategy and it's not simply a branch-light business bank strategy Yes. Great. And a big topic of conversation at the conference has been artificial intelligence, both opportunities and risk. It would be great to get your perspective on how you're thinking about deploying AI across the organization. And specifically, this debate around what AI means for deposit pricing, any thoughts from your point? Yes, that's a big -- there's a set of questions there. First of all, we are excited about artificial intelligence and what it can do for us, we do view it as opportunity and threat. I think that we have done a good job in terms of establishing the risk governance framework for the use of AI within the company, and we do have AI within Atlantic Union now. I don't believe we will be a leader in terms of the use of this. We're going to go about it responsibly and not recklessly. We have many financial technology vendors who have systems where there are AI capabilities or modules that can be added to them. So from that context, we think about it more as the opportunity to bolt on some additional capability as opposed to a rip and replace approach from a system standpoint, at least at this point in time. Initially, we're mostly focused in terms of operational activities, back office, improving efficiency and improving our ability to mitigate fraud and fulfill our BSA AML requirements and things like that. All of our personnel have access to basic tools like Microsoft CoPilot, for example, but it does need to be risk managed. And we also have to understand the total cost of ownership. There's a lot of press out there about the cost of token usage sort of running away from companies, and that is not something we're interested in doing here. So we see lots of opportunities. Every leader in the company is at the table and has been at the table since the budgeting process began last fall with various AI-enabled capabilities they want to bring to the table. Alex, you may want to join in here. But I think the real question is at what cost, it's a cost benefit analysis. Absolutely. Like we don't want to get too deep into AI without understanding the cost. You heard about the token use. We want to make sure we fully understand that, but also understand the tangible benefits that we're going to get from it. Right. Intangible benefit has to be more than -- we're more productive and our people have more free time to do other things. It really comes down to can we remove hard costs because we're incurring hard costs. when we take on AI. Obviously, we're interested in improving quality and reducing cycle times. Time to revenue matters, by the way, this point Alex made that I certainly agree with. If they can reduce cycle times. -- to get financings closed, that is a revenue pickup. And so we'll put that into the conversation as well. But we need to make sure that we're not simply running up our expense base. We also can't do all things at once. So we have a lot of good work underway now to really focus the priorities on the big initiatives that we think will have the most impact and the highest payoff. -- and here to stay.

Yes. And any thoughts on what these AI cash sorting tools could mean for positive pricing pressure across the industry.

There's a lot of conversation about this one, and it's it's hard to tell, Brian, you and I were talking just ahead of this recording about a lot of what's being described sounds like a cash sweep account to me, which we've had for decades and decades in the industry. So typically, questions we're receiving have to do with, could you use genic tools in order to optimize balances in your checking account, which if it's interest-bearing, would have a relatively low interest rate or maybe it's not interest-bearing, can you literally optimize and move money out surplus funds and go invest elsewhere.

Well, first of all, on the consumer side, you have to think about what's the average or median depository account balance? And does it really make sense for consumers to be moving single thousands of dollars out trying to pick up additional yield on that.

Does it really matter to them. On the business side, our average deposit is about $12,000. And so businesses are generally doing a pretty good job of optimizing their surplus cash. I think this is why you saw noninterest-bearing balances begin to normalize, and come down certainly as a percentage of the bank's total deposits. So I'm not at all dismissive of it. I think that fundamentally, if these tools make sense and if they're cost-effective and if you're talking about enough dollars to actually matter could it apply some additional pressure on bank depository costs? Yes, it could. What could banks do if there were an opportunity for customers to effectively zap using perhaps some tokenized deposit mechanism or blockchain-enabled rail to move your money out instantaneously, so it can go be invested at the highest possible market rate somewhere else. I think what it would simply mean is banks would need to make sure they had a competitive option. I myself move some money out of my checking account this morning. That was above the personal target that I have, and I put it in my AUV money market and a lot of people do that. So I wouldn't be -- I don't want to be dismissive of it. It's possible but it's going to automate some things people are already doing. And we just don't see that many examples anymore of businesses or individuals that have huge amounts of low low interest surplus funds or noninterest-bearing accounts. That's great color. And then maybe moving over to capital for a moment. Atlantic Union has a pretty healthy CET1 ratio 10.2%. And talked about managing that in the range of about 10% to 10.5%. The Board announced a buyback authorization in May.

You also sold a stake in an insurance company, which frees up some additional capital. How should investors think about the pace of capital return from here given the outlook for loan growth and some of the other things we discussed earlier.

Yes, you're right. We were at $10.21 coming out of the first quarter, and you mentioned the bearing insurance gain. So we look at it as including the gain, we're over 10.3 starting the buyback, and the buyback of $250 million, we intend to spread that out over the next 4 quarters, next 12 months. And we will operate within that 10% and 10.5% CET1 range, as you mentioned, Brian. And then to your question around loan growth, and that's a great thing. If we have accelerated loan growth, we will manage the buyback or slow down the buyback potentially to maintain within the 10% to 10.5% CET1. At the same time, we're very focused on growing tangible book value, and our outlook is growth of 12% to 15%. And with the repurchase, we'll be on the lower end of that, but that's also something we want to make sure we accomplish as well within the outlook.

Got it. And then maybe just in the time we have left to wrap up, John, at Investor Day, you expressed your confidence in the outlook. You acknowledge that the stock is sort of a show-me story. What do you see as the 2 to 3 proof points that you think investors should be most focused on over the next 12 months that you think will help drive a higher valuation on the stock.

Thank you, Brian. I think it is as simple as AB delivering on the guidance that we provided on a clean reported basis. I am excited that for the first time in 2 years this quarter, we will report numbers where we are not talking about merger-related expenses. And so AAV is a show-me story. AUB has done what it said it would do, and we will do that again.

Great. Well, I think that's a great place to wrap up. John, Alex, thank you so much for joining us today.

Thank you so much for having us.