Atlantic Union (AUB) Q1 2026 Earnings Transcript

Image source: The Motley Fool.

DATE

Tuesday, April 21, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — John C. Asbury
• Executive Vice President and Chief Financial Officer — Alex Stodd
• Senior Financial Adviser (former CFO) — Robert Michael Gorman
• Head of Commercial Lines — David V. Ring
• Chief Credit Officer — Douglas F. Woolley
• Head of Corporate Communications — Bill Cimino

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

• Net Income Available to Common Shareholders -- $119.2 million reported; adjusted operating earnings were $126.2 million.
• Adjusted Operating EPS -- $0.89 per share, compared to reported $0.84 per share.
• Adjusted Operating Return on Tangible Common Equity -- 19.6% for the quarter.
• Adjusted Operating Return on Assets -- 1.41% for the quarter.
• Adjusted Operating Efficiency Ratio -- 49.9%, reflecting merger adjustments.
• Total Loans -- $27.9 billion at quarter end, up $150.3 million, or 2.2% annualized, from the prior quarter.
• Average Quarterly Loan Growth -- roughly 5.9% annualized, indicating strong underlying production.
• Total Deposits -- $30.4 billion, down $80.4 million, or roughly 1% annualized, largely due to a $517.9 million reduction in brokered deposits, offset by a $438.5 million increase in interest-bearing customer deposits.
• Brokered Deposits -- Just 2% of total deposits, with $500 million paid down quarter to quarter; additional $200 million expected to mature in Q2 and $80 million in Q3, both at a high cost of 5.15%.
• Adjusted Core Net Interest Margin (NIM) -- Increased 4 basis points quarter over quarter, to 3.45%, driven primarily by lower deposit costs.
• Reported NIM (FTE) -- Decreased 11 basis points sequentially to 3.85%, due chiefly to a $13 million decrease in loan accretion income and lower earning asset yields.
• Net Charge-Off Ratio -- 2 basis points annualized; nonperforming assets improved to 0.36% of loans (down from 0.42% prior quarter).
• Allowance for Credit Losses to Loans Held for Investment -- 1.15% as of period end, following a methodology update introducing three loan portfolio segments.
• Tangible Book Value per Share -- Rose $0.24 sequentially to $19.93 despite a $0.16 negative impact from AOCI unrealized losses.
• Dividend -- Paid $0.37 per share, up 8.8% from $0.34 the previous year.
• Noninterest Income -- $54.8 million, a decrease of $2.2 million, primarily from lower loan-related interest rate swap fees, partially offset by higher capital markets income.
• Adjusted Operating Noninterest Expense -- $185.3 million, down $1.6 million, supported by lower professional services and data processing costs, partially offset by a $5 million increase in salaries due to seasonal payroll tax and 401(k) contributions.
• Updated Full-Year Loan Outlook -- Expected 2026 year-end loan balances of $29 billion to $30 billion.
• Updated Full-Year Deposit Outlook -- Projected 2026 year-end deposit balances between $31 billion and $32 billion.
• Net Interest Income Guidance -- Tax-equivalent net interest income forecast at $1.34 billion to $1.35 billion, with accretion income of $140 million to $150 million.
• Net Charge-Off Outlook -- Guidance remains at 10–15 basis points for 2026, though management noted "no line of sight" to even the lower end currently.
• Capital Ratios -- Regulatory capital remains comfortably above well-capitalized levels; Basel III proposal may increase CET1 ratio by 65–75 basis points via a 6%-6.5% reduction in risk-weighted assets.
• Buyback Potential -- Management anticipates seeking Board authorization to repurchase shares upon reaching a 10.5% CET1 ratio, possibly as soon as entering Q3.
• Loan Yield Repricing -- About $850 million–$900 million of fixed-rate legacy loans are maturing per quarter, rolling into yields in the 6.00%–6.10% range versus a current portfolio at 5.00%–5.15%.
• Deposit Cost Dynamics -- Marginal new deposits are being raised at 4% for CDs and high-3% for new money market accounts, contributing to a gradual increase in average deposit costs.
• Securities Portfolio Runoff -- Expected to decrease from 13.5% to 12%-12.5% of total assets, with $75 million in monthly runoff redeployed to fund loan growth.
• North Carolina/Carolinas Growth -- Record commercial real estate production and equipment finance fundings; pipeline for The Carolinas is the company's second-largest commercial growth engine this quarter.
• Branch Expansion -- Three new North Carolina branches are planned to open by year-end, with five to six more in 2027 and the remainder in early 2028.
• Credit Loss Reserve Modeling -- Transitioned from two to three portfolio segments (CRE, C&I, consumer), shifting from 50% qualitative to 20%-25% qualitative and 75% quantitative for allowance calculations.
• Expense Outlook -- Adjusted operating noninterest expense guidance for 2026 is $742 million–$752 million, reflecting disciplined cost controls and North Carolina investments.
• Accretion Income Outlook -- Lowered to $140 million–$150 million for 2026, with baseline $11 million per quarter excluding prepayment acceleration.

SUMMARY

Atlantic Union Bankshares Corporation finalized all Sandy Spring Bank merger-related costs in the first quarter, clearing future results of integration expenses and clarifying core operations. The updated credit loss reserve model now segments portfolios for more granular monitoring, reducing qualitative weighting to 20%-25%. Management described capital ratios as "comfortably above well-capitalized levels," projecting additional capital flexibility pending Basel III rule changes. Strategic expansion will continue via organic loan growth, North Carolina branch rollout, and strong commercial pipelines, without reliance on further acquisitions.

• New guidance for full-year tangible book value per share growth was set at 12%-15% and peer top-quartile financial returns remain a stated objective.
• Operational leverage is expected due to declining merger costs and continued focus on expense discipline, outside of identified growth investments in North Carolina.
• Management noted the company's core markets in Virginia, Maryland, and North Carolina are benefiting from "Business sentiment across our markets is positive, and the underlying economy in our footprint continues to be favorable." Resilient unemployment rates are at or below the national average.
• The company stated, "our loan pipelines were noticeably higher than at the beginning," supporting confidence in achieving annual growth targets.
• Leadership emphasized diversification across key Mid-Atlantic states and targeted specialty business lines as platform strengths for further loan and revenue expansion.
• No additional mergers or acquisitions are currently planned, marking a shift toward demonstrating capital generation and internal franchise profitability.

INDUSTRY GLOSSARY

• Accretion income: Income recognized from the unwinding of discounts on acquired loan portfolios, often from bank mergers or asset purchases.
• AOCI (Accumulated Other Comprehensive Income): Balance sheet account reflecting unrealized gains and losses on certain assets, such as securities, not included in net income.
• CET1 (Common Equity Tier 1): A regulatory capital measure comprised of core equity capital, used to assess a bank's financial strength.
• Brokered deposits: Deposits obtained from third parties (brokers) rather than core bank customers, typically at higher rates.
• Allowance for Credit Losses (ACL): Balance sheet reserve set aside for estimated losses on loans and other financial assets.
• PAA (Purchase Accounting Adjustment): Adjustments impacting income recognition following loan or asset acquisition, often used synonymously with accretion income in bank earnings.
• FTE (Fully Tax-Equivalent): A metric adjusting interest income for tax-exempt items to ensure comparability across assets.

Full Conference Call Transcript

Bill Cimino: Thank you, Michelle, and good morning, everyone. I have Atlantic Union Bankshares Corporation’s President and CEO, John C. Asbury, and Executive Vice President and CFO, Alex Stodd, with me today. Since Alex is only eight days into his job, former CFO Robert Michael Gorman will cover the first quarter financial results in his transition capacity as a senior financial adviser to the company through his September 30 retirement. 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 2026. 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 expectations or results 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 issued today and our other SEC filings for 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 the forward-looking statements. All comments made during today’s call are subject to that Safe Harbor statement. At the end of the call, we will take questions from the research analyst community. I will now turn the call over to John.

John C. Asbury: Thank you, Bill. Good morning, everyone, and thank you for joining us today. I am pleased to introduce Alex Stodd as our new Chief Financial Officer. Alex brings a wealth of experience having successfully helped guide a smaller institution through its transformation into a larger, more complex financial organization. His background aligns well with our executive leadership team, and I am confident he will add tremendous value as we continue to drive growth and innovation. Over the next few months, we look forward to having Alex meet many of you during our active investor relations calendar.

While Robert Michael Gorman will remain with us full-time until his retirement in September, I do want to extend my sincere gratitude to Rob for his invaluable contributions and dedication to ensuring a seamless CFO transition. Atlantic Union Bankshares Corporation reported solid first quarter financial results reflecting disciplined execution and a successful conclusion of the integration of Sandy Spring Bank. We believe the adjusted operating financial results for the quarter showcased the organization’s earnings capacity. We had a final set of merger-related charges impact this quarter’s results; underlying operating performance supports our continued confidence in achieving the financial outlook for adjusted operating return on assets, return on tangible common equity, and efficiency ratio that we have set for 2026.

We look forward to reporting results without the merger noise starting next quarter, which we believe should more clearly demonstrate the financial strength and operational efficiency that we are committed to delivering for our shareholders. Our commitment to creating shareholder value remains unwavering. We believe Atlantic Union Bankshares Corporation is well positioned to deliver sustainable growth, top-tier financial performance, and long-term value for our shareholders. We believe the strategic advantages gained from the Sandy Spring acquisition, combined with 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 the Q1 2026 highlights and share market insights before Rob presents the financial review. Here are the highlights from the first quarter. Quarterly loan growth was approximately 2.2% annualized during the typically slow first quarter, with total loans ending at $27.9 billion. For additional context, average quarterly loan growth over this year’s first quarter was roughly 5.9% annualized. Loan production remained strong and, when compared to the previous four quarters, was second only to the fourth quarter of last year. We were pleased to see record-level fundings from Atlantic Union Equipment Finance and record-level production from our North Carolina-based commercial real estate team.

However, we also experienced elevated payoffs late in the quarter, particularly within our commercial real estate portfolio due to a number of property sales. This activity highlights the strength of our CRE markets, robust investor demand, and the availability of ample liquidity. The first quarter saw a slight increase in line-of-credit utilization from the fourth quarter and was relatively flat year-over-year. At the end of the first quarter, our loan pipelines were noticeably higher than at the beginning, giving us confidence that we are pacing to meet our loan growth targets for 2026. A deeper look at the pipeline report reveals that our construction and development pipeline has achieved a record high.

For those familiar with my construction lending bathtub analogy, this means our pipeline is filling up at a faster rate than it is draining, which positions us well for continued growth in construction lending balances throughout the year. Forecasting loan growth remains challenging in this uncertain macroeconomic environment, particularly with the recent energy price shocks. We continue to expect 2026 year-end loan balances to range between $29 billion and $30 billion. Our deposit base demonstrated strong customer deposit growth this quarter, nearly offsetting the planned reduction in high-cost brokered deposits. Brokered deposits currently represent just 2% of total deposits and play a purposeful role in our liquidity strategy.

We believe this approach provides us flexibility to add brokered deposits in the future if needed. Depending on cost and market conditions, we anticipate any new additions, if any, would be at lower rates than those currently rolling off. Above all, our core customer deposit base remains the crown jewel of the franchise, and our primary focus is on growing customer deposits and expanding our share of wallet. Net interest margin, excluding the impact of accretion income, which can be volatile, improved by 4 basis points quarter-over-quarter, matching our expectations. Reported FTE net interest margin declined 11 basis points to 3.85%, mainly because accretion income was lower compared to the elevated level seen in Q4 2025.

Rob will provide more detail about the factors influencing NIM performance in his section. Credit quality continues to show strength and improvement. Our first quarter annualized net charge-off ratio was just 2 basis points. For the year, we are still projecting a range of 10 to 15 basis points, although we do not yet have full visibility into reaching that range. Key asset quality indicators remain robust and are improving. Nonperforming assets as a percentage of loans held for investment declined by 6 basis points to 0.36% from 0.42% in the prior quarter, bringing us closer to our historical operating levels. Criticized and classified assets also improved, decreasing to 4.5% of total loans from 4.7% last quarter.

Looking at the most current unemployment data, the Bureau of Labor Statistics reported Virginia’s January unemployment rate remained stable at 3.7%. Maryland’s unemployment rate was 4.3%, and North Carolina’s was 3.8%, all of which are at or below January’s national average of 4.3%. We continue to expect unemployment levels in Virginia, Maryland, and North Carolina to stay manageable and comparable to or below the national average, consistent with Moody’s current state-level forecast. We remain confident in our markets and consider them among the most attractive in the country. I do want to acknowledge the ongoing conflict in Iran and its potential impact on our bank and the markets we serve.

We are closely monitoring the geopolitical developments and their effects on the broader economy. The most immediate consequence has been the sharp increase in petroleum prices. Should this trend persist over an extended period, our primary concern is not a direct credit event given our portfolio’s limited sensitivity to energy prices, but rather a possible decline in consumer and business confidence. At present, our loan pipelines remain strong. Business sentiment across our markets is positive, and the underlying economy in our footprint continues to be favorable. Additionally, it appears likely that defense spending will rise as a result of the geopolitical situation, which should provide a stimulative effect for certain areas of our markets.

We remain vigilant and believe we are well positioned to navigate these challenges while supporting our clients and our communities. We have deliberately and thoughtfully built a distinctive, valuable franchise outlined in our strategic plan, delivering on our commitments and establishing the banking platform we set out to create. With a strong foundation, we believe we are well positioned to capitalize on our expanded markets, drive continued growth in Virginia, and pursue new organic opportunities in North Carolina and in our specialty lines. With disciplined execution of our prior acquisitions and no additional acquisitions currently planned during this phase of our strategic plan, our focus has shifted to demonstrating the franchise’s earnings power and capital generation ability.

After dedicating capital to strategic investments over the past two years to complete the company we envisioned and worked diligently to build — and consistently communicated our plans to do so — we believe we are well positioned to demonstrate clear and tangible benefits from these efforts. In summary, we had a good start to 2026, and we believe that our full-year results will demonstrate differentiated financial performance compared to our peers, which in turn will help build long-term shareholder value. With that, I will turn the call over to Rob for a detailed review of our quarterly financial results. Rob?

Robert Michael Gorman: Well, thank you, John, and good morning, everyone. I will now take a few minutes to provide you with some details of Atlantic Union Bankshares Corporation’s financial results for 2026. My commentary today will primarily address first quarter financial results presented on a non-GAAP adjusted operating basis, which for the first quarter excludes $9 million in pretax merger-related costs. As John noted, we do not expect to incur any additional Sandy Spring merger-related costs going forward. In addition, in the first quarter, we finalized the fair value of assets acquired and liabilities assumed related to the Sandy Spring acquisition, inclusive of measurement period adjustments primarily related to loans, other assets, and other liabilities.

The one-year measurement period related to the Sandy Spring acquisition concluded, and related goodwill was finalized as of March 31 at $541 million. In the first quarter, reported net income available to common shareholders was $119.2 million and earnings per common share were $0.84. Adjusted operating earnings available to common shareholders were $126.2 million, or $0.89 per common share, which resulted in an adjusted operating return on tangible common equity of 19.6%, an adjusted operating return on assets of 1.41%, and an adjusted operating efficiency ratio of 49.9% in the quarter. Turning to credit loss reserves at the end of the first quarter, the total allowance for credit losses was $321.9 million.

Please note that effective 01/01/2026, the company made certain changes to its allowance for credit losses methodology as part of the continued enhancement of its credit modeling practices, resulting in the company moving from two loan portfolio segments — commercial and consumer — to three loan portfolio segments: commercial real estate, commercial & industrial, and consumer. These model enhancements enable more dynamic, precise modeling and allow for more granularity in monitoring our estimated credit losses. As a result, and paired with portfolio mix changes, the total allowance for credit losses as a percentage of total loans held for investment decreased 1 basis point to 1.15% at the end of the first quarter.

The allowance for loan losses as a percentage of total loans held for investment decreased by 2 basis points from the prior quarter to 1.04%. The reserve for unfunded commitments coverage ratio increased 1 basis point to 0.11% on March 31, which was primarily driven by higher construction and land development unfunded commitments. As John mentioned, net charge-offs were $1.6 million, only 2 basis points annualized in the first quarter. Now turning to the pretax, pre-provision components of the income statement for the first quarter.

Tax-equivalent net interest income was $316.9 million, which was a decrease of $17.9 million from the fourth quarter, primarily driven by a decrease in loan accretion income, the lower day count in the first quarter, lower average earning assets, and the full-quarter impact on variable-rate loan yields following the cumulative 75 basis point reduction in the Fed funds rate between September and year-end 2025. The decreases in tax-equivalent net interest income were partially offset by a decrease in interest expense, primarily from lower deposit costs.

As John noted, the first quarter’s tax-equivalent net interest margin declined by 11 basis points from the prior quarter to 3.85% due to lower earning asset yields, which were partially offset by lower cost of funds. Earning asset yields decreased 20 basis points from the prior quarter to 5.79%, primarily due to lower loan accretion income of $13 million, inclusive of the impact of a $3.5 million nonrecurring loan fair value measurement period adjustment related to the Sandy Spring acquisition, and lower yields on variable-rate loans as previously noted.

Cost of funds decreased 9 basis points from the prior quarter to 1.94% for the first quarter, due primarily to lower deposit costs of 13 basis points, which reflected the impact of Fed funds rate reductions on customer deposit rates and the decline in higher-cost average brokered deposit balances. Of note, excluding the impact of net accretion income, our core net interest margin increased by 4 basis points to 3.45% from 3.41% in the prior quarter, which was primarily driven by lower deposit costs partially offset by lower core loan yields.

Noninterest income declined by $2.2 million to $54.8 million for the first quarter, primarily driven by lower loan-related interest rate swap fees due to seasonally lower transaction volumes, which was partially offset by higher capital markets income. Reported noninterest expenses decreased by $33.4 million to $209.8 million for the first quarter, primarily driven by a $29.6 million decline in merger-related costs and a $2.3 million decrease in amortization of intangible assets. Adjusted operating noninterest expense, which excludes merger-related costs in both 2025 and 2026 and the amortization of intangible assets in both quarters, decreased by $1.6 million to $185.3 million for the first quarter.

This decrease was primarily due to a $3.1 million reduction in other expenses, primarily due to lower noncredit-related losses on customer transactions; a $2.3 million decrease in professional services expenses related to strategic projects incurred in the prior quarter; and a $1.9 million decrease in technology and data processing expenses. These decreases were partially offset by a $5 million increase in salaries and benefits expense, primarily due to seasonal increases in payroll tax and 401(k) contribution expenses. At March 31, loans held for investment, net, were $27.9 billion, which was an increase of $150.3 million, or 2.2% annualized, from the prior quarter.

At March 31, total deposits were $30.4 billion, a decrease of $80.4 million, or approximately 1% annualized, from the prior quarter, primarily due to decreases of $517.9 million in brokered deposits, partially offset by an increase of $438.5 million in interest-bearing customer deposits. At the end of the first quarter, Atlantic Union Bankshares Corporation and Atlantic Union Bank’s regulatory capital ratios were comfortably above well-capitalized levels. In addition, on an adjusted basis, we remain well-capitalized as of the end of the first quarter if you include the negative impact of AOCI and held-to-maturity securities unrealized losses in the calculation of the regulatory capital ratios.

AOCI decreased $22.4 million during the first quarter as term interest rates increased from the prior quarter; the increase in unrealized losses negatively impacted tangible book value by approximately $0.16 per share. The company paid a common stock dividend of $0.37 per share in the first quarter, in line with the fourth quarter’s dividend amount and an increase of 8.8% from the previous year’s first quarter dividend amount of $0.34 per common share. On a linked-quarter basis, tangible book value per common share increased $0.24, or 1%, to $19.93 per share in the first quarter despite the headwinds from the AOCI unrealized losses.

As noted on Slide 17, we are updating our full-year 2026 financial outlook for Atlantic Union Bankshares Corporation to the following. We expect loan balances to end the year between $29 billion and $30 billion, while year-end deposit balances are projected to be between $31 billion and $32 billion. On the credit front, the allowance for credit losses to loan balances is projected to remain at current levels in a 1.15% to 1.20% range, and the net charge-off ratio is expected to fall between 10 and 15 basis points in 2026, although we do not currently have a line of sight to reaching that range this year.

Fully tax-equivalent net interest income for the full year is projected to come in between $1.34 billion and $1.35 billion, inclusive of accretion income of between $140 million and $150 million. As a result, we are projecting that the full-year tax-equivalent net interest margin will fall in a range around 3.94% for the full year, driven by our baseline assumption that the Federal Reserve will not cut the Fed funds rate in 2026 and that term rates will remain stable at current levels.

On a full-year basis, noninterest income is expected to be between $220 million and $230 million, while adjusted operating noninterest expense is estimated to fall in the range of $742 million to $752 million, including the expense impact of our North Carolina investment and other 2026 strategic initiatives. Based on these projections, we expect to generate annual growth in tangible book value per share of 12% to 15%, produce financial returns that will place us within the top quartile of our proxy peer group, and meet our objective of delivering top-tier financial performance for our shareholders in 2026 and beyond.

In summary, Atlantic Union Bankshares Corporation delivered solid operating results in the first quarter and 2026 is off to a good start. We remain firmly focused on leveraging this valuable Atlantic Union Bank franchise to generate sustainable, profitable growth and to build long-term value for our shareholders. Before I transition the call back to Bill, I would like to briefly reflect on my tenure at Atlantic Union Bankshares Corporation. When I joined the organization in 2012, Atlantic Union had approximately $4 billion in total assets with a market capitalization of around $360 million.

Currently, our assets have grown to nearly $40 billion and our market capitalization exceeds $5 billion, establishing us as the largest regional bank headquartered in the Lower Mid-Atlantic. It has been a great privilege to have played a part in the company’s growth and financial success over the past fourteen years. Looking ahead, I am pleased to have Alex step into the role of CFO as my successor, and I am confident that his extensive financial leadership experience will contribute significantly to Atlantic Union’s future success. I will now turn the call over to Bill to see if there are any questions from our research analyst community.

Bill Cimino: Thanks, Rob. Michelle, we are ready for our first caller, please.

Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Our first question is from the line of Russell Gunther with Stephens. Your line is open. Please go ahead.

Russell Elliott Gunther: Good morning, guys. Hey, John. Good morning. Wanted to start on the core margin, please. Nice to see that up a little bit this quarter. Would be helpful to get a sense for how you expect that to trend over the course of the year and particularly the direction of deposit costs from here with the Fed on pause. Do you have the ability to lower further, or is there an upward bias to deposit costs?

Robert Michael Gorman: In terms of the core margin, Russell, we do expect it can grind higher from here, and we do expect that. As I mentioned in my comments, we do not expect the Fed to cut this year, so there should not be a negative impact on our variable-rate loan yields. However, higher-for-longer rates will also impact our ability to reduce deposit costs meaningfully from here — basically saying deposit costs are probably going to be stable; maybe a little tick up on the customer deposit side. The good news is we do have some brokered deposits that are still maturing this quarter and next quarter, and those brokered deposits are paying about 5.15% currently.

We will get a pickup on that if you look at what current broker rates are, or even customer CD rates and money market rates are. We will get some positive out of that in the near term. The real impact of the grind higher in core net interest income or net interest margin is the continuing fixed-rate loan back-book repricing, and that will continue throughout the year. As we mentioned, we are projecting that five-year term rates are pretty stable going forward here, and we have about $850 million to $900 million of maturing fixed-rate loans on the legacy Atlantic Union side per quarter through the rest of this year.

You will see a pickup of, call it, 90 to 100 basis points from portfolio yields — the 5.00%–5.15% level — repricing into the 6.00%–6.10% range. That is really the underlying context of our view that core margin will grind a bit higher.

Russell Elliott Gunther: Got it. Okay, Rob, that is helpful detail. Thank you. And then last one for me would be on the expense front. Solid result this quarter. You lowered that guide. At the Investor Day in December, that deck had mentioned considering some branch rationalization in 2026. Is that at all contemplated in the lowered guide? And if not, given the lowered NII outlook, is that on the cards as a potential offset?

Robert Michael Gorman: It is not in the guidance that we just provided on the noninterest expense side. There are always some thoughts around where we could look at that if we really thought revenue growth was not going to materialize. But we think we have a pretty good handle on expense discipline. That is why we lowered that guidance. Part of that was this first quarter came in better than we expected. That should continue as we go forward.

As you know, the first quarter is the seasonally high expense quarter for the year, so you should see things coming down, especially on payroll taxes and 401(k), which were at the high end — that was an increase of over $5 million quarter-to-quarter. That is going to come down over time; it is just elevated due to incentive payments, etc., which drive those higher in the first quarter. Those costs will come down. Now, we did mention that we have investments being made primarily in the North Carolina franchise — opening 10 new branches, not all this year. Probably three branches will be open by year-end, another five or six next year, and then the remainder early in 2028.

But that expense will start coming on board later this year — call it second, third, and fourth quarter — and will start to increase. Those are somewhat offsets to the reduced level of payroll taxes and 401(k) that we will see over the next three quarters.

Russell Elliott Gunther: Okay. Excellent. Thanks, Rob, and congrats on your retirement.

Robert Michael Gorman: Thank you. Thanks, Russell. Michelle, we are ready for our next caller, please.

Operator: One moment. Our next question will come from the line of Janet Lee with TD Cowen. Your line is open.

Bill Cimino: Hi, Janet.

Janet Lee: Good morning. I want to get some clarification. Much of your deposit decline in the quarter seems to be driven by a runoff of brokered deposits. I assume that lower brokered deposits is partly attributing to your lower deposit guide for the full year, but would be great to hear the direction of travel for core customer deposits and brokered deposits over the course of 2026 that is assumed in your updated deposit guide.

Robert Michael Gorman: On the customer deposit side, we are looking for 3% to 4% growth. On brokered deposits, we paid down quite a bit — quarter-to-quarter we were down about $500 million. Those are high cost, obviously, and with lower loan growth in the quarter, we did not need to refinance those with new brokereds, so that was a positive. As I said, we have about $200 million this quarter in brokereds that are maturing at high cost, and another $80 million or so in the third quarter. We will see how that plays out in terms of brokereds, but that is a lot of the reason why we have lowered our total deposit outlook including brokered.

We will see what happens there, Janet. It really depends on the pickup in loan growth over the next several quarters. If we are at the higher end, we may have to bring in some brokered deposits to fund the gap.

Janet Lee: Got it. Thank you. And the accretion income declined $13 million quarter-over-quarter and looks like it included some one-time measurement period adjustments of $3.5 million. Are you still maintaining your PAA guide for the full year, or is that impacting your NII guide? I know it is harder to forecast the accretion, but how should that trend go forward?

Robert Michael Gorman: We have lowered that to $140 million to $150 million of accretion for the year. Part of that was the $3.5 million one-time, which was not anticipated within the earlier guide, and we do expect more of a normalization of prepayments on that portfolio. It was pretty low this quarter compared to the fourth quarter in terms of prepayments and accelerated accretion. On a baseline perspective, excluding any early or prepayment-accelerated accretion, it is about $11 million per quarter on the loan accretion side. Then the wild card is what the accelerated prepayments look like and the accretion that comes through related to that. Normalized, it is probably more in the $3 million-a-month kind of thing.

That is what is in our projection.

Janet Lee: Got it. Thank you so much. Congrats, Rob.

Bill Cimino: Thanks, Janet. Michelle, ready for our next caller, please.

Operator: One moment. Our next question comes from the line of David Chiaverini with Jefferies. Your line is open. Please go ahead.

David Chiaverini: Thanks for taking the question. You mentioned the loan pipelines being strong. Can you talk about customer sentiment and what you are seeing there in terms of drivers?

John C. Asbury: Yes. David V. Ring, our head of all of our commercial-related business, which we call wholesalers here. Dave, do you want to speak to what you are seeing? I can give my perspective too.

David V. Ring: Sure. As John said, pipelines are significantly higher than they were this time last year or even at the end of the first quarter. The sentiment is we are not seeing a lot of companies not doing transactions, but we are seeing companies sometimes pause them, and it is largely driven by interest rates, not some of the other things going on in the economy. As interest rates stabilize, we will see our pipeline convert pretty quickly.

John C. Asbury: Yes, and, when you say interest rates, we have heard feedback that clients were waiting on lower rates. Now we are in what appears to be a higher-for-longer environment, and as they see that rates are likely not about to come down, they move forward. It is important to point out we saw our record quarter — best ever — in Atlantic Union Equipment Finance fundings in Q1. We saw record production out of the North Carolina-based commercial real estate team that operates throughout the Carolinas. Pipelines look really good, and I also mentioned that the construction lending pipeline looks really good too.

So we are seeing activity out there, and despite all the uncertainty and concern about what is going on with the Iranian situation, it does not really seem to have impacted sentiment. I agree with Dave — we have heard more comments from people that were speculating on what rates might do. We feel good about the outlook from here. The fundamentals are pretty good across the footprint.

David Chiaverini: Great, thanks for that. Shifting over to capital management, can you comment on to what extent, if any, the Basel III endgame proposal could have on Atlantic Union Bankshares Corporation? And then also touch on your buyback appetite and timing — is later this year still in the cards?

Robert Michael Gorman: On the Basel III impact, we have estimated that the impact, based on what is out there today in the proposal, would reduce risk-weighted assets in the 6% to 6.5% range, which translates into a CET1 regulatory capital ratio increase of 65 to 75 basis points. We will see where that comes out in the final rules, but that is our current estimate — pretty positive from a regulatory capital ratio perspective. In terms of potential buybacks, as we have said, we look at anything over 10.5% CET1 as excess capital available for us to buy back shares and manage between 10% and 10.5% CET1. We are projecting that we will hit that 10.5% mark coming out of Q2.

Nothing has changed there into Q3. We are in a position to request an authorization from our Board of Directors, subject to their approval, and we would expect to be in the market — assuming approval — in the near future.

David Chiaverini: Very helpful. Thank you.

John C. Asbury: Yep. Thanks. Michelle, we are ready for our next caller, please.

Operator: Our next question is from the line of David Bishop with Hovde Group. Your line is open. Please go ahead.

David Jason Bishop: Hey, John, and congratulations, Rob, on the retirement. Enjoyed working with you.

Robert Michael Gorman: Thank you, sir.

John C. Asbury: Thank you.

David Jason Bishop: Just curious from the net charge-off guidance in the slide deck — you are still sticking with the 10 to 15 basis points guidance. Is there any line of sight into reaching even the lower end, just given what is happening on a high-level basis? And maybe what could get you there on a sort of worst-case scenario — what portfolios could drive that higher?

John C. Asbury: We do not see anything. We have no line of sight to meeting even the lower end of the guide at this moment — meaning we do not see anything coming. Having said that, we know from experience it is usually the infamous one-off, which can happen from time to time. Douglas F. Woolley is here as well. Doug, our chief credit officer, do you see anything that would be sort of a systemic or secular concern?

Douglas F. Woolley: No core portfolios at risk. Like John said, they inevitably end up being one-offs, sometimes larger than we expect, but always resolved quickly once identified.

John C. Asbury: As a $38 billion bank, we are not going to run the bank with 2 basis points of annualized net charge-offs. Having said that, I have made similar comments for nine and a half years. It would be great; we would love to do that very thing, but we will see. We think it is a reasonable assumption based on what we know right now.

David Jason Bishop: Got it. One follow-up. I know you mentioned the seasonal impact on swap fees were down this quarter. If we do see stability in the term structure of rates, does that impact the overall level of swap fees this year from a go-forward basis?

Robert Michael Gorman: On swaps, we had a pretty good quarter. We will continue to see how that plays out. You are right — volatility can play into that.

David V. Ring: For our swaps, volatility does not normally play a role in our swap sales. It is really a function of new transactions getting booked. We have a very strong methodology around making sure we are eyeballing all transactions that are coming into the bank, and we are trying to help clients decide whether to manage the interest rates or not. The reason we are so successful in swap production is our methodology and the fact that we close a lot of new transactions every quarter. If there is no expectation that rates are about to drop, that is generally helpful based on my experience — there is not much to wait for if people were betting on lower rates.

David Jason Bishop: Great. Appreciate the color.

John C. Asbury: Thanks, Dave. Michelle, we are ready for our next caller, please.

Operator: One moment. Our next question comes from the line of Brian Wieczynski with Morgan Stanley. Your line is open. Please go ahead.

Brian Wieczynski: Hi. Good morning. Wanted to quickly go back to the net interest income outlook for 2026. It looks like you brought that down by about $18 million at the midpoint. It sounds like the lower purchase accounting accretion explains a portion of that. Can you speak to any change in the core net interest income outlook and anything new you are seeing on that front?

Robert Michael Gorman: The bulk of the adjustment is accretion income — we brought that down a bit. The other driver is we have increased our deposit rate outlook from original guidance earlier in the year. We are seeing some competition in some of our markets. We do regional pricing, but in terms of the regions where we are seeing increases and have raised rates, those are the Metro DC area — the former Sandy Spring footprint — and then some impact, though not as large for us, in North Carolina. We have seen heavy competition from bigger players in those markets and some of our peers. We did increase those rates a bit.

For instance, we now have CD specials in the 4% range for three and six months, and we have an Advantage Money Market rate which is in the 3.80% range — that requires new money to come in — but those are increasing the deposit rate outlook as we go through this year.

Brian Wieczynski: On the accretion income expectations, is it fair to say that is more of a timing issue?

Robert Michael Gorman: It is a timing issue in terms of accelerated accretion that comes through prepayments from the Sandy Spring acquired portfolio. It could be higher; it could be lower. We were high in the fourth quarter, and we were lower this quarter — excluding that $3.5 million nonrecurring adjustment. It fluctuates quarter to quarter depending on what prepayments we get.

John C. Asbury: You still have that base level that is a pretty good accounting tailwind, and then the volatility comes in with prepayment activity, which is very difficult to predict.

Brian Wieczynski: And to clarify on the PAA, the updated expectation is $140 million to $150 million?

Robert Michael Gorman: Yes — really $140 million to $150 million. I misstated earlier. Midpoint about $145 million is what we are thinking.

Brian Wieczynski: You mentioned strong loan production during the quarter and strong pipelines, albeit with some paydowns towards the end of the quarter. If loan growth surprises negatively over the course of the year — say in a scenario where paydowns remain elevated — do you think the NII guidance is still achievable? Would there be offsets on the deposit side, or would the NII guidance become more challenging?

Robert Michael Gorman: The range we put out assumes much lower growth than what we are projecting internally. The loan guidance range is roughly 3% to 7%, and the net interest income guidance contemplates the low end. If growth comes in lower or is flat, that would likely bring NII lower versus the range. We are not projecting flat growth, but if revenue growth does not come through, we may then take other actions — maybe from an expense point of view, maybe on the deposit cost perspective — to maintain net interest margin. We do have other levers on the expense side we could pull if revenue growth does not materialize.

Brian Wieczynski: Really appreciate the detail as always. And, Rob, congratulations on your retirement.

John C. Asbury: Thank you, Brian. Just for market clarity, Rob is not retired yet — we are going to get our money’s worth out of him until September. Alex is CFO as of now, and we will go through a very planful transition. Michelle, we are ready for our next caller, please.

Operator: Our next question will come from the line of Catherine Mealor with KBW. Your line is open. Please go ahead.

Catherine Mealor: Good morning. One more on the NIM side. Could you repeat what loan maturities you have per quarter, and then on average where new loan yields are coming on the book today?

Robert Michael Gorman: Speaking to the fixed-rate portfolio, it is about $850 million to $900 million maturing on a quarterly basis, and those loans — refis or new — are in the 6.00% to 6.10% range versus a portfolio at about 5.00% to 5.10%. If we include Sandy Spring, that $900 million goes up to about $1.2 billion to $1.3 billion quarterly.

Catherine Mealor: Great. And we have talked a lot about deposit cost competition. What about loan competition? Can you talk about the competitive dynamic in lending — both volumes and rate?

John C. Asbury: It is competitive — always is — particularly for a bank like us that deals with a higher-quality set of credit. Dave, do you want to comment?

David V. Ring: It is competitive in structure and price, and it depends on the asset — the better the company or prospect, the more competitive it gets. The larger banks are very active in the markets we are in now, and we feel like we compete best against them. We feel strong competition, but we are teed up to compete and will get our fair share.

Catherine Mealor: And on growth, you left your end-of-period growth guide unchanged. Do you feel like that growth is back-end loaded, or do you expect a big improvement starting in the second quarter?

John C. Asbury: Truthfully, Q1 was better than I would have expected based on production. We were approaching 4% point-to-point annualized loan growth until literally the last week of Q1. Average loan growth for Q1 versus Q4 was 5.8%, which is very strong for a seasonally slow Q1 coming off a strong Q4. The productivity is there. We are off to a very good start in Q2, and I would say we are on pace and will continue to see it ramp. We are not effectively saying nothing really happens until the second half. Dave?

David V. Ring: The pipeline is up 26% quarter-over-quarter even after a strong fourth quarter. It is a matter of conversion. We already had a good start to the second quarter, so we are confident our conversion rates will be good.

John C. Asbury: So, Catherine, we feel pretty good in terms of being on pace to meet expectations. It is not all back-end loaded. Having said that, Q4 is traditionally the best quarter of the year. It is not like we are waiting on that.

Catherine Mealor: Great. Very helpful color. Thank you. Congrats, Rob, on your new role — not retirement.

Bill Cimino: Well said, Catherine. Thank you.

John C. Asbury: Thanks, Catherine. Michelle, we are ready for our last caller, please.

Operator: One moment. Our last question will come from the line of Steve Moss with Raymond James. Your line is open.

Stephen Moss: Good morning. Maybe not to beat a dead horse, but following up on deposit costs. How are you thinking about the marginal cost of deposits? I hear the 4% CD rate, but thinking about the blended dynamic — what you are bringing in — how does that roughly shake out?

Robert Michael Gorman: The mix of deposit growth will be in money market and CDs. On a marginal basis, those will be in the ranges I mentioned — CDs around 4% for short tenors and money market in the high-3% range for the new money products. They will tick up the average cost of deposits a bit. On the money market side, that is not repricing the back book, so not as big an impact, but it will grind higher over time. CDs, as they mature, you will see that come in over time. Those are the growth engines at this point, other than operating accounts we are bringing on.

Stephen Moss: Given how high the cost is, are you thinking about running off more securities as the year goes on to fund growth? How low are you wanting to take securities and cash?

Robert Michael Gorman: Yes, we are bringing down the securities portfolio as a percentage of total assets — that is part of funding any gap between deposit growth and loan growth. Right now, securities are about 13.5% of total assets, and we expect that to come down to about 12% to 12.5%, which is where we have been historically. Cash flows are about $75 million a month out of the securities portfolio, which gives us good funding opportunities to move into the loan book.

Stephen Moss: On the reserve methodology change, can you explain the dynamics and how this could impact the way your reserve behaves in future periods? Was the benefit just $1 million to $2 million to the provision, and how should we think about sensitivity?

Robert Michael Gorman: The big change is we now model three segments — splitting commercial real estate and commercial & industrial — and we now have loan-level credit modeling on CRE that can get very granular in terms of collateral and other factors. Previously, about 50% of our reserve was qualitative versus quantitative modeling. Under the new modeling, qualitative is more in the 20% to 25% range, with the quantitative model producing roughly 75% of the total allowance. It is a much better, more detailed model, and we do not think you will see much additional volatility beyond what would be driven by the economic forecast — that would have been true in the old model as well.

We feel good about the changes. This is our fourth model iteration, and it is the best we have had. Interestingly, it underpins what we were putting in qualitative; the new model output is not materially different from the ACL levels we have on the balance sheet.

Stephen Moss: That is helpful. Lastly, John, I heard you on good dynamics in North Carolina. What is that looking like these days, and what percentage of the loan pipeline is The Carolinas?

John C. Asbury: When I say North Carolina, I should say The Carolinas, because the commercial real estate team covers both. Dave, size it up?

David V. Ring: The Carolinas were our second-largest growth engine for commercial this quarter. The pipelines are strong enough to replicate this performance, and we feel really good about it.

John C. Asbury: A few years ago, when we talked about The Carolinas, we really meant the CRE team based in Charlotte. Thanks to the acquisition of American National Bank, that gave us a base principally in the Piedmont Triad. We have our Wilmington LPO, which is doing well. Post–American National, we have been expanding in Raleigh, with branch investment in Greater Raleigh and Wilmington. We are continuing to expand the team at a reasonable pace. It will become more important over time. It is arguably one of the best growth markets in the country and is gaining employment faster than most places, and it is right next door.

It is very important to understand how diversified Atlantic Union Bank is — we need to do a better job of explaining we are diversified over three very good states, and we have specialty lines like equipment finance that go beyond. We feel good about our opportunity.

Stephen Moss: Appreciate all the color. Thank you very much, guys.

John C. Asbury: Great. Thank you all so much. Take care. Thanks, everyone, for joining us. We look forward to talking with you next quarter.

Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.