Atlantic Union Bankshares (AUB) Q2 2026 earnings call transcript

Thank you, Livia, and good morning, everyone. I have Atlantic Union Bankshares President and CEO, John Asbury, and Executive Vice President and CFO, Alex Dodd, 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 2020.

We will also make forward-looking statements 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 expectation or result expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement except as required by law. Please refer to our earnings release and slide presentation issue today and our other SEC filings for further discussion of the company's risk-free.

Thank you, Bill. Good morning, everyone. Thank you so much for joining us today. Atlantic Union bank shares reported strong second quarter financial results reflecting the importance of the company's financial statement. We are also pleased to realize a $32.3 million pre-tax gain from the sale of our equity interest in bearing insurance. Adjusted operating performance, excluding the gain from the equity interest sale, was notable for solid loan growth, margin improvement on both a core and reported basis, disciplined expense management, and the We have deployed capital intentionally to strengthen and expand our franchise. We believe our second quarter results are an encouraging early indication that those investments are beginning to translate into stronger earnings capacity, capital generation, and long-term shareholder value.

We remain focused on building on this progress through disciplined execution, organic growth, and continued attention to soundness, profitability, and growth, in that order. Our commitment to creating shareholder value remains unwavering. We believe Atlantic Union is well positioned to deliver sustainable growth, top-tier financial performance, and long-term value for our shareholders. We believe that our continued organic growth opportunities, due to our robust presence in attractive markets, reinforce our status as the premier regional bank headquartered in the lower mid-Atlantic.

I will briefly cover our Q2 26 highlights and share market insights before Alex presents the financial review. Before reviewing this quarter's results, I would note that the second quarter was marked by a continued uncertainty, particularly around geopolitical developments and the conflict involving Iran. Despite that backdrop, customer competence remained resilient, and economic activity across our footprint held up well. We delivered record loan production during the quarter, exceeding our 2025 fourth quarter production level, which is traditionally our strongest quarter, by roughly 8%. While the second quarter is typically one of our seasonally stronger periods, and we expect some moderation in the third quarter due to the normal summer slowdown, our pipelines remain healthy. Overall, we believe that our underlying credit activity and pipeline depth support our full-year outlook, and we currently expect loan growth to finish toward the higher end of our mid-single-digit range.

Importantly, this growth reflects strong client activity across our markets, the value of the customer relationships we have built, and disciplined execution by our team. With that context, here are the key highlights from the second quarter. Average loans were $28.2 billion and grew approximately 6% annualized during the second quarter, while period end loans increased approximately 10.4% annualized from Q1 to Q2, ending the quarter at approximately $28.7 billion. Growth was well distributed across the franchise, led by strong client activity in commercial lending, construction lending, multifamily, and select consumer categories. Atlanta credit utilization decreased slightly from the first quarter, but was up slightly year over year.

Year-to-date annualized loan growth was 6.4%. As I mentioned, loan pipelines are healthy and support our expectation that full-year loan growth is tracking toward the higher end of our mid-single-digit outlook. Average deposits increased 2.4% annualized during the quarter, and total deposits increased approximately 1% annualized from the end of Q1 to the end of Q2, all consistent with our low single-digit 2026 outlook.

Grif was concentrated in interest-bearing deposits. We also reduced broker deposits by approximately $53 million during the quarter and roughly $571 million year-to-date. Thank you. I will now turn the call over to management for a minute. We believe these fee products should continue to provide opportunities for additional revenue synergies over time. Credit quality remains strong in the quarter, with annualized net charge-offs of just three basis points for both the second quarter and year-to-date. Based on our first-half performance, current loss expectations, and favorable asset quality trends, we are lowering our full-year net charge-off guidance, which Alex will discuss later in the call. Key asset quality indicators remained encouraging. Non-performing assets increased modestly from the prior quarter but remained low at 39 basis points of loans held for investment, while past dues declined considerably and criticized and classified assets improved to 4.4% of total loans, down from 4.5% in the prior quarter.

With Bureau of Labor Statistics scheduled to release June unemployment data shortly, this chart will soon be updated. For now, I'll simply note that Virginia and North Carolina's May unemployment rates remain below the national average, while Maryland's was just slightly above it. We continue to expect unemployment levels in Virginia, Maryland, and North Carolina to remain manageable and generally comparable to, or below, the national average, consistent with Moody's current state-level forecast. We remain confident in the resilience and long-term attractiveness of our markets.

As I approach my 10th anniversary with Atlantic Union, at the end of this quarter, what is clear to me is how far we've come as an organization. We've stayed focused, adapted as conditions changed, and consistently executed the strategy we set out and clearly communicated, while remaining grounded in the community bank values and local relationships that have always defined Atlantic Union. This quarter's results reflect that continued momentum and, most importantly, the dedication of our teammates whose hard work makes it all possible.

With that foundation in place and no additional acquisitions currently planned during this phase of our strategic plan, our focus is squarely on continuing to demonstrate the sustained performance and capital generation capability of the company we have built, performance that enables us to better serve our customers and communities, invest in our teammates, and create long-term value for our shareholders.

With that, I'll turn the call over to our CFO, Alex Dodd, for a detailed review of our quarterly financial results. Before I do, I'd like to note that Alex has now been with the company for nearly four months following a deliberate and smooth transition with former CFO Rob Gorman, who will retire at the end of September. Since this is our last earnings call before Rob's retirement, I want to again thank him for all he's contributed over his 14 years with Atlantic Union. Rob leaves behind a strong legacy and will be missed, but he is ably succeeded by Alex.

With that, I'll turn the call over to Alex for his inaugural quarterly earnings comments. Alex?

Thank you, John, and good morning, everyone. Before I begin, I want to thank Rob as well for making this a smooth transition for me. I'll now take a few minutes to provide you with some details on the results. My commentary today will primarily address Atlantic Union's second quarter financial results presented on a non-GAAP adjusted operating basis, which for the second quarter principally excludes the $32.3 million pre-tax gain associated with the $3.3 million. The second quarter reported net income available to common shareholders was million and earnings per common share of The adjusted operating earnings available to common shareholders were million or for a common share for the second quarter resulting in an adjusted operating return on tangible common equity of 20 an adjusted operating return on assets of 1 and an adjusted operating efficiency ratio of 47 Here's a look at the GAAP year-to-date metrics and trends over the last few years.

Looking at the year-to-date adjusted operating numbers at the end of the second quarter, we have already reached the target for ROA and ROTCE medium-term financial targets. We remain confident that we will achieve all three of these targets over the medium term, which we define as this year and next.

Turning to the credit loss reserves, at the end of the second quarter, the total allowance for credit losses was $331 million, an increase of $9.1 million, primarily driven by loan growth during the quarter. The total allowance for credit losses as the percentage of total loans held for investment remained flat at 115 basis points at the end of the second quarter.

As John mentioned, net charge-offs were $2 million, or three basis points annualized in the quarter. Now turning to the pre-tax, pre-provisioned components of the income statement for the second quarter.

Tax equivalent net interest income was $329.7 million, an increase of $12.8 million from the first quarter, primarily driven by an increase in loan volumes, higher loan yields, and increased loan accretion income. The increase in loan-related interest income was partially offset by an increase in deposit interest expense, primarily from growth in interest-bearing deposit balances and modestly higher deposit costs.

As John noted, the second quarter's tax-equivalent net interest margin increased nine basis points from the prior quarter to 3.94%, primarily due to higher earning asset yields partially offset by modestly higher cost of deposits. Earning asset yields increased nine basis points from the prior quarter to 5.88%, primarily due to higher loan accretion income of $5 million and higher loan yields.

Cost of funds was flat from the prior quarter as a three basis point increase in the cost of deposits was offset by lower borrowing amortization costs related to past acquisitions. Of note, excluding the impact of accretion income, our core debt interest margin increased by one basis point to 3.46%. Non-interest income increased $35.5 million to $90.2 million in the second quarter, primarily driven by the gain on sale of our equity interest in bearing insurance. Excluding the one-time gain, adjusted operating non-interest income increased $3.1 million to $57.9 million, driven by higher loan-related interest rate swap fees associated with higher loan originations, and increased fiduciary and asset management fees, which are partially offset by lower other income. Non-interest expense decreased $10.7 million to $199.1 million for the second quarter, driven by a $9 million decline in merger-related costs.

Adjusted operating non-interest expense, which excludes merger-related costs in the first quarter, and amortization of intangible assets in both quarters decreased $1.3 million to $184 million for the second quarter, Primarily due to lower marketing costs, along with a decrease in salaries and benefits primarily related to seasonally higher payroll taxes and 401k contribution expenses in the prior quarter.

At June 30th, loans held for investment net of unearned income were $28.7 billion, an increase of $727 million, or 10.4% annualized from the prior quarter. Our average loan growth for the quarter was approximately 6%. At June 30th, total deposits were $30.5 billion, an increase of $77 million, or approximately 1% annualized from the prior quarter, while average deposits decreased 2.4% for the quarter.

Our loan-to-deposit ratio ended the quarter at 94.1% within our preferred range of 90% to 95%. At the end of the second quarter, Atlantic Union Bankshares and Atlantic Union Banks regulatory capital ratios were comfortably above well-capitalized levels. In addition, we remained well-capitalized on an adjusted basis if you include the negative impact of AOCI and unrealized losses for held to maturity securities in the calculation of the regulatory capital ratios. On a late quarter On a regular basis, tangible book value per common share increased 84 cents, or 4.2%, to $20.77 per share at the end of the second quarter. Since Q2 of 2025, tangible book value per share has grown $2.39, or 13% year-over-year. The CET1 ratio was 10.41% for the second quarter and within our preferred range of 10 to 10.5%.

During the second quarter, the company repurchased approximately $10 million of its common shares at an average price of $37.76, leaving approximately $240 million remaining under our share repurchase authorization. Before turning to the financial outlook, I would emphasize that our second quarter results represented strong operating performance and an encouraging indication of the earnings capacity and capital generation capability of the franchise.

At the same time, we believe our updated outlook reflects a disciplined and prudent view of second-half funding competition and deposit mix. We continue to expect loan balances to end the year between $29 and $30 billion, while year-end deposit balances continue to be projected between $31 and $32 billion. On the credit front, the allowance for credit losses is projected to remain in the 115 to 120 basis point range, and we are reducing the range for our projected net charge-off ratio to be between 5 and 10 basis points in 2026. Fully taxed equivalent net interest income for the full year is now projected to come in between $1.32 billion and $1.33 billion, inclusive of accretion income.

The updated range reflects our expectation of higher interest-bearing deposit mix, as well as greater loan and deposit competition in the second half of the year. We are tightening the range for our 2026 fully tax-equivalent net interest margin to between 3.90% and 3.95%. This outlook is supported by our baseline assumption that the Federal Reserve increases rates by 25 basis points in September and that term rates remain stable at current levels. On a full-year basis, non-interest income is expected to be between $220 and $230 million, while adjusted operating non-interest expense is estimated to fall in between the range of $742 to $752 million, including the expense impact of our North Carolina investment and our other 2026 strategic initiatives.

Based on these projections, including our expected stock repurchase activity, we expect to generate annual growth in tangible book value per share of approximately 12% in 2026 and produce financial returns that will place us within the top quartile of our proxy peer group.

In summary, Atlantic Union delivered strong operating financial results in the second quarter and had a solid first half. We remain focused on generating sustainable, profitable growth and to build long-term value for our shareholders in 2026 and beyond. I will now turn the call over to Bill.

Thank you, Alex. And Livia, we're ready for our first caller, please.

Sure, and good morning, Russell. So for the second quarter, our fixed rate loans are coming on, new loan spreads are around 200 basis points, and our variable rate loans are also around 200 basis points. We saw a little bit of lower spreads in the quarter due to larger loans that we completed, and that was more just a function of the size of the loan, but around 200 basis points for both variable and fixed. In terms of the fixed rate opportunity, we have about 800 to 900 million per quarter of variable rate loans that are maturing with rates around 5%, and we expect to put those back on around 610 basis points. So it's about 100 to 110 basis point benefit for the low maturities each quarter.

And perhaps just kind of package where you would expect kind of the core NIM overall to trend within that guide Yeah so we do have in our guidance one 25 basis point increase in September We will see a small benefit in the fourth quarter for the deposit pricing lag It under one basis point for the full year It about three basis points in the fourth quarter In terms of core margin, we do expect that to grind higher over time from the benefit of the fixed rate loan repricing. But because of higher funding costs and deposit mix, it's not going to be as high as expected. As we look forward to the next few quarters, we'll see core margin increase modestly because of those dynamics.

Sure, and good morning, Janet. So we did update our guidance for that interest income, and it's solely coming from the funding side of the balance sheet. What we saw in the quarter was customer migration to our higher yielding interest-bearing deposit accounts, and that's informed our guidance. So we're encouraged by the loan growth that we saw in the quarter, but the cost of funding that is going up higher than we expected. What we saw through the quarter, to give you perspective on just the month of June, we saw a two basis point increase in our cost of deposits. So it was three basis points for the full quarter and two basis points in the month of June, and that really informed the outlook for the rest of the year.

So I guess I'll stop there, Jen, and see if you have further questions.

Not necessarily. We're going to be a little bit under that if you just play that out for the rest of the year. And that's going to come from the mix that we'll see in CD growth and money market growth as well as some DDA growth that we have in our outlook. So it's underneath that pace, but that's what informed our outlook for the rest of the year.

Yeah, Alex, is it fair to say what we're seeing is relatively stable deposit rates from a competitive standpoint? Is this more of a mix issue in terms of where is the growth coming?

That's a good point, John. Yeah, it really is our deposit mix. It's informing the guide here. The deposit competition is elevated but stable, and so what we're seeing is just the inflow into our deposit portfolio is coming from the higher-yielding products.

Yeah, we had said on the last call the range is 140 to 150, and we're still tracking to that, so 145 being in the midpoint is fine.

Yeah, we are growing the former Sandy Spring portfolio, and we're happy to see that. Dave Ring, do you want to just sort of speak directionally?

Sure. I mean, we're seeing double-digit growth in the pipeline in the greater Washington market, the Washington, Maryland. Production is up double digits as well, and all the markets, all the teams in those markets are also growing. So we're seeing very balanced, stable growth, And, you know, we're not seeing, you know, any hangover from the acquisition.

The way I think about this, Dave, is that the former Sandy is, you know, in round numbers, maybe a third of the overall portfolio. And so you would expect all things being equal for them to be about a third of the pipeline. And they've come a long way, you know, closer to that. So we've been very pleased with it.

And the teams, to be clear.

Yes, there's really two. I think of this, it's a holistic strategy comprised of both the retail banking effort as well as the investments that we're making and expanding our commercial banking teams along with some additional investment for mortgage and wealth management, etc. Something I've been saying recently, I want to be clear in terms of the investment. While we do refer to it as the North Carolina strategy, you could more specifically refer to it as our densification strategy in Raleigh and Wilmington, because that's where the thrust of the investment and certainly the physical branch network build-out is going on. So I'll ask Sean O'Brien, who's head of Consumer Business Banking, can you update us on where are we in terms of the branch effort?

And then I'll ask Dave Ring to chime in with some perspective on the commercial side.

Yeah, thanks, John. So we announced that we were going to open 10 branches, 10 new branches in North Carolina at the Johns Point in Raleigh in Wilmington, and the first of those branches opens here this month, so we are very excited. That's Raleigh. We have a branch opening, and then we have two more opening in Raleigh in October, November of this year. So we'll have three new Raleigh branches this year, and then we will start to open branches in Wilmington as well. If you remember, 7U and Lally 3 in Wilmington. And we hope to get all 10 done in 2027. A couple may get into 2028, but we are very happy with our site selection.

We've hired the first three teams. They're completely staffed for Lally, so we have all of those teams hired. We're very happy with the talent we found. So we're very excited about it. We have a lot of plans underway for how to grow new customers in those two primary markets.

And then, Dave, your perspective on what we call wholesale banking, which are the various commercial businesses.

And we're working really closely with consumer, and so we're seeing double-digit growth, again, in loan balances in North Carolina. Plus, we're waiting on announcements of some new hires that have started or recently started that we're very guided about. So overall, we're meeting our talent acquisition plan, and we're meeting our loan growth expectations.

So Dave, more to come on that.

Yeah, I guess I'll start with in the second quarter, we did bring it down over $200 million to fund lending growth, and we're now at about 13% of total assets, and we plan on keeping it stable in the rest of the year.

Yeah, you're correct. Yeah, we want to fund the loan growth from our core deposit growth going forward.

We plan to complete the whole program. Our forecasting assumption right now is spread out by quarter, but, you know, it's obviously going to be dictated by the share price and when we're in the market.

But we would prefer to fund our lending growth through our core deposit growth, including CDs. And then after that, we may support it with broker deposits as well. So borrowings is going to be more of a short-term measure to really balance the overall balance sheet. And as you know from past history with us, not unlike many others, we do see some seasonality in deposit balances in Q2 due to tax payments. And we also have certain larger commercial depositors that seem to commonly have some sort of downdraft and balances just at quarter end through the natural cycle and flow of their businesses. And you can see that evident in the difference between the spot growth rate for deposits and the average quarter over quarter.

Doug Woolley, Chief Credit Officer, is here. Do you want to speak to that, Doug?

On the CNI uptick, it's two smaller credits that have gone a little bit sideways, so we're working through that, but obviously not a call, so we think it's a little bit of loss there. It doesn't indicate anything, not tied to anything else in the portfolio.

Yeah, it was interesting. We have been impressed with the resilience of not only our local economies, but the client base. You know, you would expect to see some stress, and this isn't much. So non-performers are low from our perspective at 39 bps of loan sales for investment. And it's fair to assume that you could see it go plus or minus, you know, a bit in any given quarter. We're actually below where we finished the end of last year. No common thread in terms of, you know, seeing. Yeah, it just happens. Losses are very, very low. I've said for 10 years that losses across the industry and in the bank are below what I would have expected to be a normalized rate, and that was beginning 10 years ago.

So we feel pretty good about losses.

That's right. It is a minor impact. We're certainly still within our 115, 120 basis points as you look out to 2027.

Yeah, the new deposits on a combined basis is going to be over 3%, somewhere between 3% and 3.5%, depending on that mix. But it's mostly going to be in CDs and money markets and interest-bearing – I'm sorry, interest-checking.

We're actually forecasting some of the interest-bearing, sorry, non-interest-bearing growth in the second half of the year and maintaining that same percentage of our total deposits around 22 percent. But obviously we saw migration happen in the second quarter, so that's our assumption right now based on working with the business leaders, but it could change.

The data that we're looking at is suggesting it's not about smaller deposit non-interest-bearing accounts. It's some of the larger ones, commercial businesses that are making more active use of sweep accounts. I mean, the reality is that we do offer quite sophisticated treasury management services, and part of our job is to help them optimize working capital. So we saw some of that movement as they were able to deploy some surplus funds.

But in Alex's camp, we would expect to see some improvement there over time. It's very difficult to forecast in this environment, no question about it.

Got it.

It was 195 for the month of June.

Certainly. Thanks, Brian.

Yeah, the sensitivity change because of our mix, and that's what you can expect is the mix change versus the prior quarter into higher rate-sensitive deposit products. To the second part of your question around the beta, the beta we're pricing in for the 25 basis point increase is about 50% for interest-bearing products and 40% overall. We have, as I mentioned earlier in the call, there will be a lag, so we'll reprice immediately for some contractual deposits, and then there will be a 90-day lag for our savings portfolio, where we'll see a bit of a benefit that's short-lived, but a benefit in the fourth quarter.

So, you know, in terms of the buyback, there's a couple things we want to manage at the same time. We want to operate our CET1 ratio between 10 and 10.5 percent, and our capital management priority, excuse me, is supporting loan growth. So if we see loan growth outperform our guidance, we will slow down the buyback. But in terms of buyback specifically, we have an intrinsic value model on our share price, and we want to get a certain return out of when we'll be in the market.

So if it does trade above, our shares trade above where we want to actually be in the market, there will be maybe a pause for a little while in terms of when we're repurchasing shares.

Overall, the earnback, though, is about four years on the share buyback. So, you know, we want to make a good economic decision of when we're in the market and when we're actually doing our repurchase activity. We've modeled, as I said, over the next 12 months to be split by month or evenly distributed, but that's going to depend on where the shares are pricing.

Well, over time, the guidance that we've provided for 26 is mid-single-digit loan growth and low-single-digit deposit growth. But certainly, over time, we would expect to fund loans with deposits, customer deposits, ideally.

And thanks, everyone, for joining us today. We appreciate your time and look forward to talking with you next quarter.