All right. Good afternoon, everyone. My name's Steve Moss. I'm one of the bank analysts here at Raymond James. With me today, I have the pleasure of introducing Atlantic Union Bankshares, CEO John Asbury, CFO Rob Gorman, for just a little while longer, and Head of Investor Relations, Bill Cimino. With that, John, for introductory presentation.
Thank you, Steve. Good afternoon, everyone. Thank you very much for your interest in Atlantic Union Bank. Rob and I will give you a pretty brisk presentation or overview of the company, and then we'll be having a conversation with Steve and field any questions you may have for us. Let me begin with our forward-looking statements brought to you by our General Counsel's office. We do encourage you to read them. I'm gonna start with an overview of the franchise. Yeah, we are a very dense and compact franchise, and we're big readers of maps. Here we are today. We are the number one regional bank by depository market share in the state of Maryland and in the Commonwealth of Virginia.
I am a former Virginia banker from my early days back when there were 6 regional banks based in Virginia, but this pretty much eclipses anything we've ever seen before. We've never had one regional bank, by regional I mean less than $100 billion in assets, that was the number one by depository market share among regional banks, to be clear, in both of these states. I would argue it will never happen again because this franchise practically could no longer be replicated. It has been quite the transformation from a wonderful Virginia community bank that was founded 124 years ago in 1902 in Bowling Green, Virginia, and we have transformed. We are a story of transformation from Virginia Community Bank to the premier regional bank of the lower Mid-Atlantic. This will enter my 10th year at the company.
I joined the company at the very end of 2016, and you can see a progression of size to give you a sense of how we have evolved over this period of time. The bars, of course, are asset size. The green portions of the bars represent acquisitions. We have done a total of four acquisitions during my time here. Xenith Bank, which closed in 2018, one year later followed by Access National Bank closing in 2019. Then I wanna point out something that I think is forgotten because we're perceived as having been acquisitive. There was a five-year time period between closing the Access National Bank acquisition and the acquisition of American National Bank that happened in 2024, which largely completed the Virginia franchise. One year later, we followed with Sandy Spring Bank, you know, which was...
We really viewed that as the Maryland version of us. An old-line Maryland community bank with roots going back to 1868. It was the Bank of Maryland. They were friends of ours. It was a very similar strategy. It was clearly evident, the power of putting the two together. The compound annual growth rate over this seven-year period is 19%. More importantly, excluding the acquisitions, our compound annual growth rate during this period of time was 7%. That is a good number. We are built to be a bank that should be capable of growing organically, somewhere between mid-single digits and high single digits. I think this is a proof point to that. Here we are now. This is the single most important message of the entire presentation.
Over my nine and a half years here, we, the team, have done exactly what we said we would do in building this franchise. We have transformed Union Bank from the Virginia Community Bank to Atlantic Union Bank, the regional bank of the lower Mid-Atlantic, and we have diversified this company. We have built it exactly the way we wanted it. We have invested capital to accomplish this. We have worked hard. We have done what we said we would do. Now is the time to demonstrate the power of this franchise to build capital to prove that all of this effort and investment has been worthwhile. Where we go from here in the foreseeable future, it will be a focus on organic growth. We have built it the way we want it. Now is the time to demonstrate the power of the franchise.
We will be accreting or generating capital, tangible capital, at a pretty good rate. We are guiding to grow tangible capital 12%-15% this year, as Rob Gorman will further comment on momentarily. It's really a time for disciplined execution. Probably one of the more frequent questions that we received in 2025 is, "What's next after Sandy Spring Bank? Will you consider doing another acquisition?" We've been very clear that we were built for this very moment, and we are not interested in considering any other sort of whole bank acquisition for the foreseeable future. Now is our time. We have a lot to do. We've been busy in the company having done the acquisitions of American National and Sandy Spring one year apart. We have our foundational goals.
We are finishing up the integration, which has gone well, of Sandy Spring Bank, and that's very much in the phase of maturing at this point. Continuing to build our capabilities to further scale the company, taking the long view, the strong organic focus, innovation and transformation efforts. We have a clear path to do that. We have AI coming into the company. We can talk about that if you like, and we don't need any distractions. Then lastly, in terms of inorganic opportunities, we may consider strategic investments, but we are being very clear that we are deprioritizing whole bank acquisitions at this time. Here's a good visual of why that map I showed you matters. This is depository market share. This is why we've worked so hard to build what we have.
In Virginia, which you can see on the top left, if you look at depository market share, we are number four behind Truist, Wells Fargo, and Bank of America, who per our calculations would be about 46% of all depository market share in Virginia. Note that we knock out any individual branch with over $6 billion in it. We do that mainly because Capital One is based in Virginia and so much of the online deposits are booked there. Raw FDIC data is does not paint an accurate picture of the addressable market. This does. We are the challenger, the alternative to these guys. Maryland, we now have assumed Sandy Spring's position. In Maryland's case, in addition to the same large players that we see dominating in Virginia, you pick up M&T and PNC.
Capital One does have more of a physical branch network up there, and we're the seven positions. You've got six large banks who are over 60% of depository market share in Maryland, and we're in the clear next position. The same model applies. We will apply our capabilities and our strategies that have worked so well for us in Virginia and Maryland to be the challenger and the alternative to these larger institutions for small and mid-sized business and for consumer. Yes, we still compete against the community banks too. North Carolina, lots of room to run. Notice on the top right for the Virginia headquartered banks, our dominant position. This is what scarcity value looks like. Many banks comment on their scarcity value. This is what it should look like, and we certainly have it in the lower Mid-Atlantic. I will move quickly.
These are good markets. Whenever I put this slide up, I often get feedback that your markets are wealthier than we thought and are larger than you thought. Traditionally, we have been low unemployment markets. Despite some of the government cutbacks, et cetera, that we've seen, State of Maryland is still below the national average in unemployment rate, Virginia materially so. We're operating in good and large and affluent markets. Note that the median household income statistics here, Maryland ties New Jersey for the two states in the country with highest median household income. These are very attractive markets to operate in and operate in on scale as we do. Last, I'll comment quickly on our North Carolina expansion strategy. We have been in North Carolina for a long time.
We have a commercial real estate LPO in Charlotte that is nine years old and has been very successful. We now have 11 branches in North Carolina, and we, seven of those came to us from the acquisition of American National Bank, which sat just north. Their headquarter city of Danville is about 30 minutes north of Greensboro. We are in the Piedmont Triad in a meaningful way. We have one Raleigh branch and a commercial LPO in Wilmington that's about two years old. We are electing to make organic investment in North Carolina. We're adding seven branches in the Raleigh area and three in Wilmington, and this is really an integrated effort. It's not just a retail branch investment. We're also further expanding our commercial teams. North Carolina is contiguous.
It is one of the more attractive states in the country for economic growth and in-migration or population growth, and its right next door. We're there now, and we have been for years. The organic investment we're making in North Carolina, one could interpret as being in lieu of our considering doing smaller acquisitions. We're going to down there. We're going to build it the way we want it. That is a bit of flyover of where we are today and our background. I want to make you aware, if you did not know, we did an investor day presentation in New York in December. If you would like a two-hour deep dive, and if you would like to hear from other leaders of the company beyond Rob and me, I would strongly encourage you to watch it.
It is a very good telling of our story, and it's done in a very thorough basis. Chief Financial Officer, Rob Gorman.
Well, thank you John. Good afternoon, everyone. Thanks for joining us today. I'm gonna just give you a quick overview of our financial results and what our targets are as we go forward. Some of this, which is also, of course, in the investor day presentation that John referred to. You know, we often say we wanna generate financial results that are in the top tier of our proxy peer group. That would be on an adjusted return on tangible equity, adjusted operating return on assets, importantly, the operating efficiency ratio. As you can see, we're pretty proud of the results we've had since 2021 that we've made significant improvement on each of those key metrics that we managed to.
especially proud of the fact that in 2024 and 2025, we were able to be in that top quartile, probably more in the top 80% of our peer group on a return on tangible common equity and on the efficiency ratio. We're making progress as well, as you can see here, on the return on assets, where we were 1.33%. You should see that climbing as we go into 2026. We did report a 1.42% ROA in the fourth quarter.
These are full year numbers, but we're very pleased with our results as we envisioned with the growth that we've done through acquisitions as was organically and making sure that we are in the top tier of our peer group in terms of financial performance. This slide just shows you that we are well capitalized from a regulatory perspective, and that our capital strategies around this are we wanna be obviously a well-capitalized organization, financial institution from a regulatory point of view. That's kinda strategy one.
We wanna make sure that our capital ratios are commensurate with the risk profile of the organization, our capital stress test results, which we do every year, our organic growth priorities, making sure that we've got the right level of capital. You can see that we're well-capitalized currently as of year-end 2025. We also are now showing a tangible book value per share growth metric. We hadn't previously done that, but you can see we had some significant growth in the fourth quarter, and that will lead into what we expect in 2026, which I'll show you our guidance there, which is about 12%-15% growth in that metric going forward.
As John said, we've been investing capital in building out our organization through acquisitions, now's the time to reap the benefits of that, and harvest those returns going forward, that should build tangible book value per share, going forward in a double-digit way. This slide just shows you what our priorities are. Obviously, we need capital to support our organic growth, then also we wanna make sure that we're paying a sustainable competitive dividend to our shareholders each year. We, on that metric, what we look at is a target payout ratio of 35%-45%, it's typically been around the 40% range, over the last several years.
We've also grown the dividend per share about 7% on a compound annual growth rate since 2017, as you can see here. In addition, we have returned, in total, returned capital to our shareholders over the last several years, to the tune of about $1.1 billion. That includes, obviously, the capital dividend that we pay, about $800 million of that paid out over these years. We've also been active historically in repurchasing shares. You can see that we repurchased shares to the amount of about $300 million over the last several years. We haven't been in the market recently as we've grown the organization through acquisitions, and we wanna build our capital ratios.
On that front, you know, you look to the right there, our consolidated Common Equity Tier one capital ratio. We target 9.5% to 10.5%. We view anything over 10.5% CET1, Common Equity Tier 1 ratio of more than 10.5% as excess capital, surplus capital that we may not be able to use in our organic growth setting. We would expect to see that we would be in the market repurchasing shares. We expect to go through that 10.5% CET1 ratio in the second quarter, so we'd be gearing up for putting a share repurchase authorization in place.
Assuming we get approval from the board, that'd probably take place in the second quarter. Looking forward, we set these medium-term financial targets, again, aiming to be in the top quartile of our peer group. On that front, return on tangible equity, call it 19%-20% ROA, 1.4%-1.5%, and efficiency ratio in the 46%-48%, which includes our investments, as John mentioned, in North Carolina. We feel really confident that we will meet these targets that we've set starting in 2026 and going beyond that into 2027 and 2028.
In order to achieve that in 2026, if you look at the guidance we have on a line item basis, if you take those, you know, we've got some ranges there. If you look at the high and low ranges, that should allow us to achieve those medium-term financial targets that I just mentioned. We're looking for, you know, mid-single-digit loan growth in 2026, probably low single-digit growth in deposits. We do expect the net interest margin to be in the 3.90%-4% range. We were at 3.96% in the fourth quarter, so we feel good about that going forward. We also, as John mentioned, we're kind of a positive operating leverage, I should say.
meaning revenue's gonna grow more than our expense growth. We're very disciplined on the expense line. We also see some upside on the revenue line. In 2026 and beyond, we should be generating some significant positive operating leverage. As I mentioned earlier, tangible book value we expect to grow in the 12%-15% range in 2026. We expect double digits as we go forward as well, in 2027. We're feeling really good about where we are as an organization from a financial point of view, we expect to be able to generate these top-tier financial results, not only this year but on a sustainable basis going forward. With that, I think that's my last slide.
I think I'll hand it over back to you, John. Do you wanna make some closing comments or give it to Steve to ask some questions?
I think I would just reiterate. Thank you, Rob.
Yep.
By the way, I do want to acknowledge Rob Gorman has been here 13 years. He has been a magnificent chief financial officer. He'll be retiring from the company in the fall. We recently announced that Alex Dodd will be joining us as the next chief financial officer in the early spring, and Rob will be here for a good transition. That is a quick overview of Atlantic Union Bank. It is a story of transformation. It is a good story, and we do believe that it is important to keep the franchise dense and compact and meaningful in these markets. We also have some specialty line capabilities that we can talk about too, if you like, but that's the main story for now. Steve? Thank you.
Thank you, John, and thank you, Rob. Really appreciate the presentation there. Maybe just one of the things, to start with here is just curious to see what you guys are seeing for the loan pipeline. You know, a little bit of an update here interquarter. You know, strengths, weaknesses and things of the like. Might need to be in the microphone there.
Oh, yes. Thank you. The loan pipelines continue to look quite good, as we commented when we released Q4 earnings in January. I would say that has not changed. We're actually seeing pretty good strength largely across the entire franchise, including, excitingly, in the former Sandy Spring franchise as well, Steve. It looks pretty well-balanced to us. We see particular strength in Atlantic Union Equipment Finance, by the way, if you didn't know this, we're a top 30 bank-owned equipment finance company in the country. This is larger ticket, not small ticket. The big beautiful bill and the accelerated depreciation benefits for capital expenditures have really been stimulative. That's helping the equipment finance business as well.
In general, commercial industrial banking, we'll see more strength in commercial real estate, but we're also seeing activity on the CRE front as well. Multifamily continues to be pretty strong, especially in our markets. One of the biggest challenges we face in Virginia and Maryland is scarcity of housing. Home prices, residential home prices have held up very nicely. We are seeing rents in good shape. A housing scarcity is a problem in these markets. We feel pretty good about the multifamily exposure as well.
Okay. Appreciate that. Then just in terms of, you know, you did touch on the specialty verticals a little bit.
Mm-hmm.
You guys recently hired in healthcare.
Mm-hmm.
Just kind of curious, you know, maybe a little color as to where you want to take that book of business and, you know, how you think the specialty verticals could shake out for you over time here.
Sure. Atlantic Union is not new to having vertical or specialized finance strategies. The most mature of them all is our government contract finance business. We have been in that business for 15 years, and we have never had a charge-off in 15 years. It is principally focused on national security and defense. Given the current environment, with a record defense budget, you know, that area is quite active. We have other specialty business lines. I mentioned equipment finance. We have asset-based lending. Steve, we're not necessarily new to healthcare. We currently do have some special expertise, I would say, in long-term care, especially continuing care retirement communities, assisted living, et cetera. What we're really doing is we're further formalizing that effort. Like anything else we've done that would be a new focus, we always walk before we run.
Appreciate that.
Mm-hmm.
Just curious here, you know, we've heard a few other banks at the conference talk that it's more competitive for loan pricing.
Mm-hmm
These days than just a month or two ago. Just curious if you guys are seeing some of those same thoughts or same dynamics, or if things are pretty steady since your January update?
Yeah, on the loan pricing side, I wouldn't say that much has changed since we last commented or released earnings, Steve. It's always competitive. Atlantic Union is kind of a middle-of-the-road lender. If you look at our asset quality track record, it's excellent, so we don't do particularly high-risk things. What that means is we tend to deal with a better quality of credit, which would be desirable to all. Therefore, we're used to that being price competitive. It's competitive. I wouldn't say it's necessarily getting any worse. On the margin, we're seeing some pressure on structure, which we could manage, and there are things that we are not willing to do, but it still, for the most part, you know, looks pretty disciplined to us.
The corollary to your question would be we are seeing some pockets of increased pricing on deposit pressure. That's very predictable because we're seeing better loan growth across the industry. Consequently, you're seeing, you know, banks effectively bid up the price for raw materials, which would be deposits. Very manageable. In general, the larger metro areas are more deposit price competitive. We can respond to that as well.
Interesting. You know, just on the North Carolina expansion, you have the de novos going on. I know you're building up the retail practice as well. You know, just kind of curious on the commercial side. I know you guys talked about it on the call a little bit in terms of hires on that front, and I know it's, you said March to August, and we're barely into March now. Is, you know, kind of curious if you have any update on that front.
Yeah, it's. We are in the market. We've been adding to the team. I think what you'll see this on the commercial banking team, this will really play out over the course of the year, and we would expect. We're not talking about huge numbers, you know, to be clear. Yes, we're getting pretty good traction on that. Relative to the retail branches that are being built, I think it's accurate to say at this point that we have secured all 10 locations. They're either under contract or under LOI, we would anticipate to see two of them open this calendar year. We initially said that would be a three-year build-out. We're gonna try to get it done closer to two. It's an integrated effort. This is a really important point.
It's not a standalone branch strategy. The branch strategy is really supporting the commercial banking effort as well. Like everywhere else, we are a full-service bank. We'll certainly serve the retail customers, and we'll have enough density of branches now in Raleigh and Wilmington to be very competitive.
Then the other thing, you mentioned strategic investments, not doing whole bank M&A. Just kinda curious, in your mind, you know, is that a line of business for you that maybe you'll add, or just kinda how are you thinking about that in terms of size and, or type?
Do you have anything you wanna say about that, Rob?
Yeah, there's I would say there's nothing really, you know, huge in that comment. We're always investing in the company from a technology point of view. We do have some AI initiatives underway in various areas. Each of our leaders has some use cases they're building out. Some relate to the call center, some relate to fraud, back office, and a lot of it's based on improving productivity of our teammates. I wouldn't say there's, it's a huge jump up, but, you know, we're spending more, more technology dollars that aren't just blocking and tackling, but they're really investment dollars for improving, you know, whether it's productivity, expense takeouts, or revenue production.
Okay.
Yeah, Steve, I would say strategic investment can also take the form as we've done before. We have several financial technology funds we've been in for years. We may make an equity investment in a payments-related opportunity for us not to own it, but to really be a member of it. We have joined the Cari Network, C-A-R-I, for those who don't recognize that. That's a tokenized deposit network that's comprised of many super regionals and a number of the mid-size banks. That is, I don't know if I would call that an investment or not, but that is a capability that we're going to offer. I don't want you to think we're out hunting for businesses.
We're really looking for capabilities that help us serve our customer under our brand, and many of these could be sort of technology-forward or payments-related.
The other thing is just in terms of the, you know, capital deployment here. I know it's been a big focus as, you know, definitely regulations have eased. The range now being 9.5%-10.5%. Kinda curious, you know, I guess I was generally thinking, all right, you'll be targeting around 10.5% and, you know, little broader range. Are you gonna be looking to operate maybe at the midpoint of that range, or kinda how do we think about that in buybacks?
Yeah. I would say the 9.5%-10.5%, that range is really built on, based on our capital stress testing and what the uses of that capital depending on, you know, adverse environment. I wouldn't say we're gonna be managing to that lower end. It's probably more the 10%-10.5% is where, you know, our sweet spot in terms of that. As I mentioned, anything above the 10.5% CET1, Common Equity Tier one ratio, we'd be thinking that's excess capital that could be used for, you know, deployment in the, you know, repurchasing shares. Since we're really not in the M&A game, you know, for the, you know, near future, medium term.
Appreciate that. Are there any questions from the audience? I've hit most of the big topics.
You guys have like, I think you guided for like $750 million in non-interest expense for the year. Just talking to another bank about the AI threat that everybody apparently started facing last week. They believe that the AI opportunity.
Yes
First, the threat happens somewhere down the line.
Yes.
Have you guys thought about like how you could potentially rationalize some of that $750 million using more AI for fraud detection, you know, maybe underwriting process, call center stuff? Would any savings there just be rolled right back into more lending teams or development staff, more of Steve kind of revenue generating opportunities?
Question on AI generation and rationalizing expenses here.
Yeah. In that $750 million-$760 million that was noted, we do have some positives coming that are embedded in that, primarily in the fraud area and the call center. The call center, it's being geared up, so it's really more of a second half of the year kind of real savings, if you will. We have built in some of those things. As I said, there's use cases being built by our executive leaders. It's probably more of a 2027 potential there to really slow the expense growth rate, that's what we're looking at.
All right. With that, we're pretty much out of time here. John, Rob, Bill, thank you guys very much. Really appreciate it.
Thank you, Steve.
Thank you, Steve.