Ladies and gentlemen, thank you for standing by, and welcome to the Atlantic Union Bankshares' Second Quarter 2021 Earnings Call. Please note that today's call is being recorded. I would now like to hand the conference over to your speaker for today, Bill Cimino. Please go ahead. Thank you, Jay, and good morning, everyone. I have Atlantic Union Bankshares' President and CEO, John Asbury; and Executive Vice President, CFO, Rob Gorman; and Atlantic Union Bank President, Maria Tedesco, with me today. We also have other members of our executive management team with us remotely for the question-and-answer period.

Thank you, Bill, and thanks to all for joining us today. As those of you who follow us closely know, for the last year or the quarter, we've been consistent in our commentary that we are managing through two significant and distinct challenges: first, the COVID-19 pandemic; and second, a near-zero short-term rate environment that we expect still has years to run, pressuring the company's profitability. While we can and do hope that interest rates will rise sooner than forecast, which would be a great benefit to us, for purposes of planning and running the company, we expect near-zero short-term rates through at least next year. We are watchful of the different COVID variants in monitoring the trends, but nonetheless, continue to believe based on information from state officials, the pandemic's major impacts are behind us, at least in our primary markets. Despite the human tragedy of the pandemic, Atlantic Union has emerged from it stronger, more capable, more agile and resilient.

Thank you, John, and good morning, everyone. Thanks for joining us today. Before I get into the details of Atlantic Union's financial results for the second quarter of 2021, I think it's important to once again reinforce John's comments on Atlantic Union's governing philosophy of soundness, profitability and growth in that order of priority. This core philosophy has served us well as we manage the company through the COVID-19 pandemic crisis while preparing us for what comes next. Atlantic Union continues to be in a strong financial position with a well-fortified balance sheet, ample liquidity and a strong capital base, which has allowed us to weather the economic impact of COVID-19 and come out stronger as the pandemic subsides... ...In the second quarter, reported net income available to common shareholders was $82.4 million, and earnings per share per common share were $1.05, up approximately $29.2 million or $0.38 per common share from the first quarter. The reported return on equity for the second quarter was 12.5%, up from 8.4% in the first quarter. Reported non-GAAP return on tangible common equity in the second quarter was 21.4%, which was up from 14.6% in the first quarter. Reported second quarter return on assets was 1.72%, up from 1.16% in the first quarter. And the reported second quarter efficiency ratio was 54.4%, which was down from 67.5% in the first quarter... ...Now turning to credit loss reserves. As of the end of the second quarter, the total allowance for credit losses was $128.3 million, which was comprised of the allowance for loan and lease losses of $118.3 million and a reserve for unfunded commitments of $10 million. In the second quarter, the total allowance for credit losses declined by $27.5 million, primarily due to the lower expected losses than previously estimated as a result of economic improvements in our footprint, benign credit quality metrics to date and an improved macroeconomic outlook over the forecast period... ...During the second quarter, we paid a common stock dividend of $0.28 per share, which was an increase of $0.03 or 12% from the prior quarter and also paid a quarterly dividend of $171.88 on each outstanding share of Series A preferred stock. The Board of Directors also authorized a $125 million share repurchase authorization in May, and the company repurchased approximately 1.1 million shares for $42.3 million during the quarter. Additionally, from quarter-end through July 21, the company has repurchased another 900,000 shares for $32 million... ...In summary, Atlantic Union delivered solid financial results in the second quarter while positioning itself for stronger profitability and growth as the year progresses and the pandemic's impact on the economy subsides. Please note that while we continue to proactively manage the company through the end stages of the pandemic, we also remain focused on leveraging the Atlantic Union franchise to generate sustainable, profitable growth and remain committed to building long-term value for our shareholders. And with that, I'll turn it back over to Bill to open it up for questions.

Thank you, Rob. And Jay, we're ready for our first caller, please.

Our first question comes from the line of Brody Preston from Stephens Inc.

I just wanted to start on the buybacks. Given the average price and the timing of the authorization, I'm assuming the purchases came some point in June. So with the stock below where you were previously buying, should we expect you to be similarly aggressive here in the third quarter?

Yes. Brody, that would be the case as the stock price has declined fairly significantly since the first quarter and since the authorization was put in place. We will continue to be aggressive on that. As I mentioned, we bought 1.1 million shares as of June 30, and we bought another 900,000 from June 30 to yesterday. So we continue to be aggressive there.

Okay. Good. You observed core C&I strength at around 8% annualized after excluding PPP. John, is some of that attributed to the pipeline from last quarter? You mentioned that pipeline levels remain at record highs. Do you anticipate that core C&I strength will increase beyond what you experienced this quarter and in the third quarter?

We hope so, Brody, a couple of things. If you look at our total commitment production for Q2 '21, it actually exceeded all quarters of 2019, except for Q4, which is traditionally the strongest quarter of the year. By the way, the same is true for Q1. The reason why you're not seeing more on the balance sheet growth side is twofold. One is depressed line utilization. And then two is the elevated paydowns that we've been fighting off, and that's really more of a commercial real estate issue...

Yes, John, to add to your comments, our pipeline is currently leaning towards C&I. Approximately 44% of our pipeline is real estate, while 55% to 56% is C&I. We anticipate that C&I will continue to grow.

Okay, great. I'll ask one more question and then let someone else jump in because I know there's a long line. You provided good information on the portfolio pricing mix on Slide 13. Regarding the 15% of the portfolio that has floors, what percentage of that is currently at or below floor levels?

Yes. So the 15%, Brody, about 7% is below floors and to bring them up looking at about a 50 to 75 basis point on average for rates to go up to – to go back above the floors, so about 7%.

Can you help us unpack the specific drivers behind the decline in mortgage revenue this quarter? It looks like the refi volume has come down significantly, and I assume sale margin has declined too. But how are you thinking about the mortgage dynamics for the third quarter? And what does your pipeline look like today?

Yes, we have seen a decline from a high point in the first quarter regarding gains on mortgage sales, and this continued into the second quarter as volumes decreased mainly due to lower refinancing origination volumes. Additionally, with rising rates, there is increased competition in the mortgage sector, which has also contributed to a slight decrease in our net gain on sales in the second quarter.

I will say that the drop in treasury yield helps because that means lower mortgage rates, which potentially will drive some pickup in refinance activity, believe it or not, there's still a refinance opportunity up there...

That's actually very helpful. If I can get another question, and I wanted to zero in on your expense trajectory...

Yes, Eugene, in terms of the expenses, our reported number was, call it, $92 million, which is pretty much in line with what we had projected for the quarter...

And to Rob's point, there are always some pluses and minuses and that will likely continue that we keep targeting $92 million.

Yes. I should also mention, of course, incentives is a variable cost. So we continue to accrue to our targeted levels of incentives during the past 2 quarters, and we'll see where we go based on what projections look like and that's a lever we could pull as well if that is...

That’s correct. That lever is available if needed.

Just a bigger picture question for you, John. We've seen M&A start to pick up in your markets. Can you just give us an update to how you're viewing M&A opportunities across your footprint and just how you're weighing that against the organic growth opportunities?

Yes. Sure, Casey. Nothing has really changed from the commentary last quarter in terms of our overall view. First of all, we are principally focused on organic performance. And whenever you hear us talk about our projects, we call them out for a reason. We just want to demonstrate the projects that are underway. There are strategically important activities going on in this company that have us very busy...

I wanted to revisit the expenses because I’m noting that the OREO line item expense is listed as a credit. Is that accurate? I didn't see that specified in the income statement, and I'm considering your adjustments.

Yes, that's right, Laurie. It's about $900,000 positive impact on the OREO line there.

And you normally have...

Sure. We continue to evaluate our branches on an annual basis. However, we are constantly thinking about it. Recently, in Richmond, we implemented a two-for-one initiative.

I would just add that we have a lot of data to understand our customers' behavior and their banking patterns. This not only refers to consumers but also includes businesses and how they are utilizing the branches. This all contributes to the modeling we are conducting in our branches.

Thanks, everyone, for joining us today. We look forward to speaking with you over the next quarter and in 3 more months with our next results. Thank you, and have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.