Q1 2023 Atlantic Union Bankshares Corporation Earnings Call

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We'll go into our quarterly results and our financial performance in a few moments, but I'll begin by stating I am pleased to report that our deposit base proved resilient, we avoided any material loss of deposits to the bank safety concerns and we covered one growth by growing customer deposits by $153 million or approximately 4% annualized.

Given all of the attention on banks and bank liquidity. It was a good opportunity to talk to our clients individually explain why SDB in signature where neither representative of ABB, nor the industry as a whole and discuss our clients individual needs and provide options for them where desired.

Reflecting on all that went on in the industry over the quarter. It was the remixing of deposits and the sharp acceleration of deposit rate competition higher than we anticipated there was more consequential for us than the bank failures and subsequent industry turmoil as a result over the quarter. We took further rate actions to remain competitive quarter and noninterest bearing.

Deposits were 28% of total because it's a decline of three percentage points linked quarter.

Fully taxable net interest margin declined 20 basis points to 350% for Q1 as compared to $3 seven zero percent for Q4, 2022, which now appears to have been the peak for the cycle top of the decline can be attributed to our increased use of wholesale borrowings following the late year decline in.

As we optimized for liquidity over the quarter by.

On a year over year basis, we generated positive adjusted operating leverage of approximately 5% as adjusted revenue growth was up nine 6%, while adjusted operating non interest expenses increased four 4% year over year I'd also like to point out that pre tax pre provision adjusted operating earnings.

<unk> production was down in the quarter, which is not surprising to us given that it followed a near record high Q4, and a rising level of uncertainty construction lending production was especially slow the lowest in over two years and some developers chose to delay or pause certain projects, our pipelines are holding up pretty well down nine.

Atlantic Union is a diversified traditional full service bank with a strong brand and deep client relationships and stable and attractive markets. We're on a solid footing resilient and looking forward to a good year, but not as good as what we would've thought one quarter ago.

I'll now turn the call over to Rob to cover the financial results for the quarter.

Okay. Thank you John and good morning, everyone. Thanks for joining us today.

Regarding the sale of securities during the first quarter as John noted, we executed a deleverage strategy selling securities with a total book value of $506 million, yielding approximately three 4%.

Also a mixed shift in the investment securities portfolio as a percentage of earning assets during the first quarter drove a three basis point decline in the quarters net interest margin.

Variable rate loan yields.

The loss on the sale of Securities.

The effective tax rate for the first quarter decreased to 17% from 17, 5% in the first quarter of 2022 due to higher a higher proportion of tax exempt income to pre tax income in.

The increase of approximately $135 million or three 8% annualized from the prior quarter driven by increases in commercial loan balances were approximately $96 million or three 2% linked quarter annualized and consumer loan balance growth of $39 million or 7% annualized.

Regarding the company's capital management strategy capital ratio targets are set to seek to maintain the company's designation as a well capitalized financial institution and.

Level throughout 2023 and.

Due to elevated net charge offs of 13 basis points in the first quarter and expectations for a mild recession to begin sometime in 2023, we expect to see an uptick in our full year net charge off ratio to 10 basis points in 2023 of the.

As noted in our prior earnings calls, we expect to consistently generate financial results have placed us in the top quartile among our proxy peer group regardless of the operating environment.

That said, we are reevaluating, our previously published financial targets to determine whether they need to be adjusted to ensure they are reflective of the financial metrics required to achieve top tier financial performance versus peers in the prevailing economic environment.

Our first.

Good morning, good morning.

Looking for that to bounce back as we go through it's not the second quarter in the back half of the year Casey So.

How youre thinking about the expense base here.

Individually large item, but we do think that we'll have line of sight in order to achieve a low single digit growth target.

With the revenue growth, we thought we would see as we started the year so things like that and then various hiring.

Everyone will participate.

Some additional investment in expense spend and how we adjust those plans as a result.

Yes.

Or as well, we have cash flow coming out of the securities portfolio. So we could.

I'll, let someone else unpack that a bit thank you guys.

Thank you.

Hey, good morning.

Yes, we can go after now great.

Yes.

Any changes in your outlook for that for that number where some of that already taken into account from previous Scott. Thanks.

Yes Catherine.

Ups and downs for the remainder of the year, but I would say, it's kind of flattish outlook is kind of flattish to what first quarter came in.

That led to approximately 1 billion and a half or so estimated decline in yogurt growth revenue and that service charge line.

But if you looked at the first quarter's run rate, we think that's a pretty good run rate for the balance of the year.

Okay.

And that's reflected in the run rate, yes, correct.

Hey, Doug it's Jeff.

Is that is that million and a half.

Alright.

Yes, if you just take the first quarter's service charge line.

For the full year.

Okay, Great Thats helpful.

Yes, as we mentioned Catherine we are expecting the betas will be increasing.

Just.

Put that out there in terms of the.

Through the cycle.

That the payers that you saw through the cycle. So far is 28%, we think thats going to start to tip towards 40%.

When it's offsetting them on that.

Total deposit.

Pushy, 50% noninterest bearing deposits.

Through the cycle.

We would expect the fed will go one more.

And then hold.

So it's based on that assumption.

In terms of the if you look at what March.

Cost of deposits was <unk>.

Hey.

Up to 143%. So if you look at it versus the.

The quarter's average.

It has up ticking thats the expectation.

We have for the balance of the year then it will continue to increase.

Great and as you think about that 40% total 50% interest bearing data.

I mean do you think you'll get there.

The next quarter or two.

Do you guys think about the layout.

Yes, I would say.

With that said we'll move in.

And a couple of weeks of May and then we think it will top out in the third quarter.

Going into the fourth quarter was stable.

Okay, and then one last one just on the deposit there's been a lot of excess across the industry out of noninterest bearing into interest bearing and BD. How are you thinking about what that mix shift looks like for you.

Towards the end of the year, yes, we're seeing a kind of a normalized towards pre pandemic levels.

Interest bearing.

Deposits grew about 28% of total deposits.

March 31.

We expect that to tick down a bit.

Probably to about 25%.

Projection would say at this point in time, but.

It could be plus or minus level by year end.

Which is kind of a very helpful normalized kind of a norm normalizing.

<unk> there.

And about where you were pre pandemic.

Yes, we were probably right.

<unk> $3 24 range I think.

Great Alright, thank you.

Alright, Thanks Scott.

Thank you so much.

And your next question comes from the line of Steve Moss.

Raymond James Please go ahead.

Hi, Steve Good morning.

Hey, good morning.

Maybe just.

Starting on on the margin here in terms of.

Where is loan pricing. These days in terms of new production that you're putting on and just kind of curious also on the pace.

Fixed rate.

<unk> pricing over the next 12 months to 24 months.

Yes, so in terms of the.

The.

Originations new production in the quarter.

Going on about Com.

<unk> six.

675 to two 7%.

And that's kind of the mix that's come on during the quarter was about 63% was variable tied to <unk>.

<unk> last sofa or prime.

So if you blend.

With fixed rate.

Whats coming on which is at a lower rate because Tom rates are.

Lower with the inverted curve.

We're probably averaging out about 675 for four new commercial loan yields coming on.

Okay.

I'm not sure that's helpful.

Oh, sorry go ahead please sir.

I was just going to say.

In terms of.

Fixed rate loans re pricing just kind of curious as to kind of how we think about that pace and how much you guys can pick up.

The asset side as the year goes on.

In terms of fixed rate yields.

Yes, we were up above.

<unk> got about 30 basis points quarter to quarter, it really depends on.

What happens to the yield curve, but we're not we aren't calling for.

The belly of the curve.

<unk> too much from where it is today, so probably see that kind of stable at that level, unless we see some uptick in that.

Two to five year rates.

Which would.

Obviously be a benefit to us from a new.

Fixed rate loan production.

Okay, and then in terms of just.

With regard to.

The securities portfolio with the sale of securities any any thoughts on additional restructuring or additional sales going forward here.

We're not planning on that Steve, but I wouldn't take it off the table depending on.

What happens with the balance of the year here.

But I don't think that.

You should expect that we're going to take any.

Material realized loss or realize any material losses from from the sale of securities were kind of upset.

15% of total assets were little over that now so I wouldn't expect to see any.

Material sales, we might around the margins.

Okay.

And then in terms of the loan growth guidance here you guys.

So the pipeline here is still there.

<unk> only modestly lower versus before.

But the guide is it just stepped down just kind of curious are.

Are you thinking about just a deceleration.

<unk> growth as the year goes on or.

Maybe.

You expect more more commercial real estate projects to cancel just kind of curious as to.

How youre thinking about that dynamic yet.

Yeah, Steve you're correct said when we look at the loan pipeline. It definitely implies based on our experience higher growth rates than what we're forecasting now we just know from experience that when uncertainty rises commercial borrowers commercial real estate developers can become more hesitant and it takes longer for things to pull through the pipeline.

So from our standpoint, we just wanted to make sure that we were from a planning standpoint, and setting expectations you have being pretty realistic we'll see how things go out there David <unk> who's head of our <unk>.

Commercial business since I was here what is your intuition in terms of.

Loan growth from here would you agree that things will likely be slower than before.

I do I think our pipeline is good.

Good enough to do better than we're forecasting, but we take the approach that.

Call it 30% of our production is over 40% of our production ends up in the fourth quarter booking.

That could that could fall into January .

So we'd like to take the approach that if things might be delayed will take a more conservative approach towards our loan growth projections, but our pipeline remains.

More than a robust.

Cover.

Okay. That's helpful and just maybe just one last one formula C&I growth here was strong just kind of curious.

Give any incremental color as to the drivers there and what youre seeing.

Yes.

Developed or are seeing.

Hi practice really over the last five years and every year, we get better and better at it.

Every quarter, we're seeing C&I growth come in and what you'll see is our commitments are growing on the C&I side, which is good.

For the future.

<unk> predictor for the future that our commitment our commitment to keep growing at the rate. We're currently growing so our utilization is still steady.

Eddie but our commitments continue to grow.

Alright, great well I appreciate all the color. Thank you very much.

Thank you Steve.

Thank you so much and we don't have any more questions I would now like to turn the conference back to Bill for closing remarks.

Thanks, Lee and thanks, everyone for joining us today as a reminder, we will have our annual meeting next week on Tuesday may 2nd and we look forward to talking with you then have a good day.

Thank you so much for centers and thanks to all of our attendees. This concludes today's conference call. Thank you for participating and you may now disconnect.

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