Good day and thank you for standing by. Welcome to Atlantic Union Bankshares' Second Quarter 2024 Earnings Call. [Operator Instructions] 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.

Thank you, Gigi and good morning, everyone. I have Atlantic Union Bankshares' 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 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 second quarter of 2024. We will also make forward-looking statements on today's call, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially 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. Please refer to our earnings release and the slide presentation issued today and our other SEC filings for the 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. I'll now turn the call over to John Asbury.

Thank you, Bill. Good morning, everyone, and thank you for joining us today. We were excited to close our merger with American National Bankshares on April 1, though it made for a noisy quarterly earnings release. We completed the core systems integration over the Memorial Day weekend and now operate as one brand across our footprint. We believe the combination benefits our customers and markets with an expanded and even more convenient network, enhanced product offerings and access to more capital. We also believe it benefits our teammates with expanded career opportunities, resources and capabilities. And finally, we believe it will benefit our shareholders by positioning us well to deliver differentiated financial performance. Strategically, we have increased our density and market power in Western Virginia and expanded our franchise into contiguous markets in Southern Virginia and in North Carolina. We believe there's a lot we can do with all of this. For example, the critical mass we now have in North Carolina serves as a new expansion platform with meaningful organic growth potential over time. I'll share more on the American National Bankshares combination later in my comments. I'd like to start these calls with a recap of our operating philosophy for those new to our story, and as a reminder for those who are already familiar with AUB. We operate our Company under a mantra of soundness, profitability and growth, and that order of priority, we make loans, we take deposits and provide fee based services all to our customers under our brand. We are a traditional, diversified bank that provides financing and services that help people, help businesses and help our communities. The model is straightforward and has stood the test of time. In our case, that would be 122 years. At nearly $25 billion in assets, we…

Well, thank you, John and good morning, everyone. I'd now like to take a few minutes to provide you with some details of Atlantic Union's financial results for the second quarter. Here are some key data points related to the American National acquisition that should be kept in mind as we review the second quarter results. The fair value of assets acquired totaled $2.9 billion and included total loans of $2.2 billion. The loan portfolio fair value mark discount was $164.6 million. The fair value of liabilities assumed totaled $2.7 billion and included total deposits of $2.6 billion. Core deposit intangibles and other intangibles acquired totaled $84.7 million and preliminary goodwill arising from the transaction totaled $282.3 million. Also, please note that for the most part, my commentary will focus on Atlantic Union's second quarter financial results on a non-GAAP adjusted operating basis, which excludes the pre-tax loss on the sale of securities of $6.5 million in the second quarter, the effect of $4.8 million valuation allowance for deferred taxes that was charged to income tax expense and the pre-tax merger related cost of $29.8 million in the second quarter associated with our merger with American National. Importantly, the non-GAAP adjusted operating results to be discussed have not been adjusted to exclude the $13.2 million negative pre-tax impact of the CECL initial provision for credit loss expense on purchase non-credit deteriorated or non-PCD loans acquired from American National, which represents the CECL double count of the non-PCD fair value credit mark and $1.4 million negative pre-tax impact of unfunded commitments acquired from American National. This equates to an impact of approximately $0.13 per common share. That said, in the second quarter, reported net income available to common shareholders was $22.2 million and earnings per common share were $0.25. Adjusted operating…

Thank you, Rob and Gigi. We're ready for our first caller, please.

[Operator Instructions] Our first question comes from the line of Russell Gunther from Stephens Inc.

Good morning, Russell.

Hi, good morning, guys. I wanted to start on the margin, if we could, and if you could walk us through the glide path from this quarter's results to the fourth quarter guide of 3.55% to 3.60% and just kind of touch on, if you could, the purchase accounting assumptions within that, as well as core NIM trends and the repricing dynamics within the book. Thank you.

Yes, Russell, in terms of that, so we're projecting against as I just mentioned, 3.55% to 3.60% on the net interest margin in the fourth quarter. We're looking at between 25 basis points and 30 basis points of accretion income that - is in that estimate. We're also looking to expand our - take the accretion out of the equation, expanding our core net interest margin somewhat, as we said last quarter, between 3.20% and 3.30% is our estimate for core ex accretion income. And we think that's going to inch up for - over the third and fourth quarters, primarily driven by repricing of fixed rate loans into higher yields, as well as if we do get the cost saves associated or the rate reductions from the Fed, we expect that we can start bringing down our cost of deposits, which will be - so put those two together, you should see an expanding core margin through from today through the fourth quarter. On that front, on the deposit cost side, we've got about $2.3 billion of deposits that are indexed to Fed funds. So as soon as the Fed moves rates down, that'll be a tailwind for us on the cost of deposits. We've also got about $2 billion or so of what we call exception price deposits, where we've negotiated rates in the higher rate environment with various clients and customers. And as rates come down, we will ratchet those deposit costs down as well. So it's really between the repricing to fixed rate loan portfolio, also reinvesting cash flows out of securities portfolio to higher rates, and then a lot of it driven by what we expect from the lower deposit costs.

All right. Rob, thank you. And then just a quick follow-up in terms of, if you could quantify what the fixed repricing opportunity is in terms of maturities and the yield pickup you'd expect?

Yes. So, on the loan yield side, we're, you know, we're - the portfolio is about, call it 6%, a little over 6% on a core basis. We're putting on new loans and repricing loans in the 7.50% to 8% range. So call it a couple of 100 basis points of opportunity there. And our fixed rate portfolio in terms of repricing, we've got, it's about a three-year duration on the fixed rate portfolio. So between now and then, you're probably talking about, well, over a - on an annual basis, probably talking about $2.5 billion, that's repricing. So between now and year end, you call it a little over $1 billion dollars could be repriced.

Okay, super helpful. And then just switching gears for a moment onto expenses, hear you on 4Q, representing the full synergies of the deal. How are you thinking about what the '25 growth rate would be off of that maybe assumed to annualized result?

Yes. So looking forward, if you look at that run rate, we're probably in the 4%, call it 4% to 4.5% increase in expenses as we go forward. Obviously, we haven't gone through our full lending process. We'll be working hard to determine what that is, but we expect that we'll be making some investments, as John mentioned, in our new - in North Carolina and some other areas in terms of lifting out teams and things like that. So I would say about 4%, 4.5% is our target right now. Now, we obviously look to create operating leverage, revenue growth being higher than expense growth, and the outlook on revenue growth is probably in the high-single digits, maybe in the double digit. So we should be able to produce strong, positive operating leverage on a run rate basis.

Okay, great. Thanks, Rob. And then just last one for me, because you touched on it in terms of investments in the Carolina. If you guys could just provide an update in terms of building out, perhaps organically from here, that geography and the path forward in terms of related loan growth.

Yes, Russell, this is John. I'll start by saying we're thrilled with the American National team that is now a part of AUB. We like their backgrounds. We see a lot of opportunity, but we also see an opportunity to add to the team, particularly as we emphasize the commercial and industrial banking opportunity down there. David Ring, who leads all of our commercial-related businesses, which we call wholesale was on. Dave, do you have any thoughts that you'd like to share without tipping our hand too much in terms of North Carolina?

Sure, John. Can you hear me okay?

Yes.

Great. Yes, we do have several opportunities to invest in the market. American National had a really good presence in the triad and partly in the triangle part of North Carolina, but we see opportunities in the fastest growing markets there, which would be in the greater Wilmington, New Hanover County, that area. We also don't have much of a presence in the Charlotte area. So when you look at where American National is sitting, there are great opportunities at both ends of the barbell.

Yes. And I would say, we also have potential expansion opportunities in those existing markets too. So, Russell, we see North Carolina as a good, organic expansion opportunity over time.

I appreciate it, guys. Thank you for taking my questions.

Thank you, Russell.

Thanks, Russell.

And thanks, everyone for calling today. We appreciate your time, and we will talk with you next quarter. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.