• Net Income: $73.4 million for the third quarter.
• Earnings Per Share (EPS): $0.82 per common share.
• Adjusted Operating Earnings: $74.5 million or $0.83 per common share.
• Adjusted Operating Return on Tangible Common Equity: 19.2% in the third quarter.
• Adjusted Operating Return on Assets: 1.25% in the third quarter.
• Efficiency Ratio: 52.2% on an adjusted operating basis.
• Total Allowance for Credit Losses: $177.6 million, representing 97 basis points of total loans.
• Provision for Credit Losses: $2.6 million in the third quarter.
• Net Charge-Offs: Approximately $700,000 or 1 basis point annualized.
• Net Interest Income: $186.8 million, down approximately $1.5 million from the second quarter.
• Net Interest Margin: 3.38%, a decrease of 8 basis points from the previous quarter.
• Non-Interest Income: Increased by $10.5 million to $34.3 million for the third quarter.
• Non-Interest Expenses: Decreased by $27.4 million to $122.6 million for the third quarter.
• Loans Held for Investment: $18.3 billion, a decrease of approximately $10 million from the prior quarter.
• Total Deposits: $20.3 billion, an increase of $304 million or approximately 6.1% annualized from the prior quarter.

• Warning! GuruFocus has detected 6 Warning Sign with AUB.

Release Date: October 21, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Atlantic Union Bankshares Corp (NYSE:AUB) announced a merger with Sandy Spring Bancorp, creating a formidable regional bank in the Mid-Atlantic with $39 billion in assets.
• The merger is expected to enhance shareholder value through increased profitability, growth potential, and scale.
• AUB reported strong financial results for Q3 2024, with adjusted operating earnings up 32.3% from the previous quarter.
• The company demonstrated strong asset quality with annualized net charge-offs of just 1 basis point in Q3.
• AUB's deposit base grew by 6.1% on a linked-quarter annualized basis, indicating strong customer retention and growth.

Negative Points

• Loan growth was relatively flat in Q3, with a slight decline of 0.2% due to clients waiting for Federal Reserve rate cuts and increased commercial real estate payoffs.
• The company is winding down its indirect auto portfolio, which reduced loan balances by approximately $42 million during the quarter.
• AUB experienced modest core net interest margin compression, with a decrease of 8 basis points from the previous quarter.
• The merger with Sandy Spring Bancorp involves significant costs, including $115 million in after-tax merger-related expenses.
• The planned sale of up to $2 billion in commercial real estate loans to reduce concentration ratios may impact earnings due to the associated discount and loss of accretion income.

Q & A Highlights

Q: Can you discuss the logistics and impact of the planned CRE loan sale, including the expected discount? A: John Asbury, CEO, explained that Morgan Stanley is assisting with the transaction, and they have identified up to $2 billion in loans for sale. The sale is intended to manage the commercial real estate concentration ratio and loan-to-deposit ratio. Robert Gorman, CFO, added that the loans are marked for sale with a low 90s total mark, including a 1.5% credit mark and a 5% interest rate mark, impacting book value by about $0.29.

Q: What is the expected impact on the net interest margin (NIM) post-acquisition, and does it include the CRE loan sales? A: Robert Gorman, CFO, stated that the pro forma NIM is expected to be in the range of 3.75% to 3.85%, including the impact of the CRE loan sales. The $364 million figure mentioned includes the marks taken on the potential $2 billion of CRE sales.

Q: How will Atlantic Union's commercial banking model be integrated with Sandy Spring, and what is the outlook for loan growth? A: John Asbury, CEO, and David Ring, EVP, explained that Atlantic Union will apply its Virginia playbook to Sandy Spring, focusing on middle-market companies and leveraging new capabilities like equipment finance and asset-based lending. They anticipate revenue synergies and expect mid-single-digit loan growth despite some headwinds.

Q: What is the profile of the CRE loans identified for sale, and how were they selected? A: John Asbury, CEO, mentioned that the identified portfolio consists of about 200 notes, primarily in retail and multifamily sectors. The loans are high-quality and performing, selected to meet targeted concentration and loan-to-deposit ratios.

Q: How are deposit cost trends expected to evolve, especially with anticipated Fed rate cuts? A: Robert Gorman, CFO, noted that deposit costs are expected to decrease, with aggressive rate reductions in CDs and money markets. They are modeling a mid-40s deposit beta through the down cycle, aligning with larger market players.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.