Atlantic Union Bankshares Corporation (AUB) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong loan and deposit growth projections and positive credit trends. Despite a slight decrease in deposits, demand deposits increased, and net income and earnings per share were solid. The Q&A section highlights achievable loan growth and margin expansion, with no significant issues in the Sandy Spring portfolio. The strategic expansion in North Carolina and plans for capital returns further bolster confidence. The market cap indicates moderate sensitivity to news, supporting a positive stock price movement prediction of 2% to 8%.
Key Financial Performance
Quarterly loan growth Approximately 0.5% annualized in the third quarter, with lending production increasing modestly versus the second quarter. However, an uptick in loan paydowns and a decline in revolving credit utilization from 44% to 41% offset some of the increased production. Average loan growth quarter-over-quarter was 4.3% annualized.
Net interest margin (NIM) Reported FTE net interest margin remained steady at 3.83%, reflecting a modest decrease in accretion income quarter-over-quarter. Excluding the impact of accretion income, the net interest margin improved compared to last quarter.
Noninterest income Decreased $29.7 million to $51.8 million for the third quarter, primarily driven by a $15.7 million preliminary pretax gain on the CRE loan sale in the prior quarter compared to a $4.8 million pretax loss in the third quarter, as well as a $14.3 million pretax gain on the sale of equity interest in Cary Street Partners recorded in the second quarter.
Allowance for credit losses Total allowance for credit losses was $320 million, a decrease of approximately $22.4 million from the second quarter, primarily driven by the net charge-off of two individually assessed commercial and industrial loans that were partially reserved for in the prior quarter. The total allowance for credit losses as a percentage of total loans held for investment decreased to 117 basis points from 125 basis points in the prior quarter.
Net charge-offs Increased to $38.6 million or 56 basis points annualized in the third quarter from $666,000 or 1 basis point annualized in the second quarter, primarily due to the net charge-off of two commercial industrial loans. This brought the annualized year-to-date net charge-off ratio through the third quarter to 23 basis points.
Deposits Total deposits stood at $30.7 billion, a decrease of $306.9 million or 3.9% annualized from the prior quarter, primarily due to declines of $256.3 million in interest-bearing customer deposits and $116.1 million in broker deposits. This was partially offset by an increase of $65.5 million in demand deposits.
Net income available to common shareholders Reported net income available to common shareholders was $89.2 million, and earnings per common share were $0.63. Adjusted operating earnings available to common shareholders were $119.7 million or $0.84 per common share for the third quarter.
Noninterest expense Reported noninterest expense decreased $41.3 million to $238.4 million for the third quarter, primarily driven by a $44.1 million decline in merger-related costs associated with the Sandy Spring acquisition. Adjusted operating noninterest expense increased $3.1 million to $185.5 million for the third quarter.
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Operating Highlights
Sandy Spring Integration: The integration of Sandy Spring Bank into Atlantic Union Bank was completed, including the core systems conversion and closure of 5 overlapping branches. The unified entity now operates under the Atlantic Union Bank brand.
Market Presence: Atlantic Union Bank has a robust presence in the lower Mid-Atlantic region, with expanded operations in North Carolina and Virginia. The acquisition of Sandy Spring Bank has enhanced its footprint in attractive markets.
Government Contractor Finance Portfolio: The portfolio is focused on national security and defense, supported by a record-high defense budget. This segment is performing well despite concerns about government employment reductions and shutdowns in the Washington, D.C. region.
Loan Growth: Quarterly loan growth was approximately 0.5% annualized, with average loan growth at 4.3% annualized. Year-end loan balances are expected to range between $27.7 billion and $28 billion.
Deposit Management: The company paid down $116 million in broker deposits and reduced higher-cost nonrelationship deposits from the Sandy Spring portfolio. Noninterest-bearing deposits grew by approximately 4% annualized.
Net Interest Margin: The reported FTE net interest margin remained steady at 3.83%, with an improvement excluding accretion income.
Credit Quality: Nonperforming assets as a percentage of loans held for investment remained low at 0.49%. Criticized asset levels improved by over $250 million, bringing criticized loans as a percentage of total loans down to 4.9%.
Strategic Growth: The company is focused on organic growth opportunities in North Carolina and specialty lines, leveraging the expanded markets gained through the Sandy Spring acquisition.
Shareholder Value: Atlantic Union aims to deliver sustainable growth, top-tier financial performance, and long-term value for shareholders. The company increased its quarterly dividend by 6.3% compared to the previous year.
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Risk or Challenges
Loan Paydowns and Credit Utilization: An uptick in loan paydowns and a decline in revolving credit utilization from 44% to 41% offset increased lending production, potentially impacting loan growth.
Economic Uncertainty: Forecasting loan growth remains challenging due to the uncertain economic environment, which could affect year-end loan balances and overall financial performance.
Government Shutdown and Employment Reductions: Potential risks from government employment reductions and the government shutdown in the Washington, D.C. region, which could impact the bank's portfolio and market conditions.
Commercial and Industrial Loan Charge-offs: Two significant commercial and industrial loans were charged off, including one involving a borrowing base misrepresentation, leading to a $15 million charge-off and impacting credit quality.
Cost of Deposits: Efforts to reduce higher-cost nonrelationship deposits and broker deposits may face challenges, potentially affecting the cost of funds and net interest margin.
Integration of Sandy Spring Acquisition: Merger-related costs and integration challenges from the Sandy Spring acquisition continue to create financial noise, with some impacts expected to persist into the fourth quarter.
Asset Quality and Criticized Loans: While asset quality indicators improved, criticized loans as a percentage of total loans remain at 4.9%, which could pose risks if economic conditions worsen.
Interest Rate Environment: Fluctuations in accretion income and the interest rate environment could impact net interest margin and overall financial performance.
Exposure to Government Contractors and Office Buildings: Approximately 23% of total loans are in the Washington metro area, with exposures to government contractors and office buildings, which could be affected by economic or policy changes.
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Guidance & Outlook
Loan Growth: Pipelines indicate loan growth consistent with the seasonally strong fourth quarter. Year-end loan balances are expected to range between $27.7 billion and $28 billion, inclusive of the negative impact of the fair value loan marks.
Deposit Management: Anticipate further improvement in the cost of deposits in the fourth quarter by moving quickly to lower deposit rates. Year-end deposit balances are projected to be between $30.8 billion and $31 billion.
Net Interest Margin: Full year fully tax equivalent net interest margin is projected to fall in a range between 3.75% and 3.8%, and between 3.85% and 3.9% in the fourth quarter.
Net Charge-Off Ratio: Reaffirmed forecast for the full year 2025 net charge-off ratio to be between 15 and 20 basis points.
Market Conditions: Expect resilience in the Greater Washington, D.C. region despite government employment reductions and shutdowns. Anticipate manageable unemployment rates below the national average.
Organic Growth: With the Sandy Spring systems conversion completed, the company is positioned for continued organic growth in expanded markets, including North Carolina and specialty lines.
Financial Returns: Targeting financial returns within the top quartile of the peer group on an operating basis for 2025.
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Shareholder Return Plan
Dividend Payment: During the third quarter, the company paid a common stock dividend of $0.34 per share, which was an increase of 6.3% from the previous year's third quarter dividend amount.
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Key Q&A
Q:Is the mid-single-digit loan growth sustainable for 2026, and is high single-digit growth possible?
A:Management expects mid-single-digit loan growth for next year and believes high single-digit growth is achievable in a normalized environment. They see strength in specialty lines and are exploring opportunities to grow areas like equipment finance.
Q:What is the efficiency guide for the pro forma franchise, and how will expenses be managed as North Carolina is built out?
A:The efficiency ratio is expected to be in the mid-40s by 2026, inclusive of North Carolina investments. Management plans to keep expenses flat year-over-year, with adjustments if revenue growth does not meet expectations.
Q:What is the expected expense run rate for 1Q 2026, and will Sandy Spring cost savings be fully realized by then?
A:The expense run rate for 1Q 2026 is expected to be around $190 million, excluding amortization of intangibles. Sandy Spring cost savings will not be fully realized until the end of 4Q 2025.
Q:What caused the loan decline in the C&I segment, and will loan growth return to mid-single digits?
A:The loan decline was partly due to lower line utilization, but production levels are expected to drive mid-single-digit loan growth in the fourth quarter. Some financings delayed in Q3 are now closing in Q4.
Q:What factors influenced the tightening of the margin range, and what is the outlook for the margin?
A:The margin range was tightened due to lower-than-expected accretion income. Management expects core margin expansion in Q4, with a full-year range of 3.75% to 3.80%. Future margin changes depend on term rates and loan yields.
Q:How will deposit costs and loan yields impact the margin as rates decline?
A:Deposit costs are expected to decrease with rate cuts, offsetting lower variable loan yields. Fixed-rate loans are repricing higher, which should support core margin expansion.
Q:What are the credit trends in the portfolio, and are there concerns about the Sandy Spring portfolio?
A:Credit trends are positive, with lower criticized assets and past dues. The Sandy Spring portfolio is performing well, and management sees no significant issues in the D.C. area.
Q:How will the government shutdown impact the bank, and what is the outlook for government contractor finance?
A:The government shutdown is not expected to significantly impact the bank. Government contractor finance, focused on national security and defense, remains resilient, with contracts still being awarded.
Q:What is the competitive environment for loans, and how is Sandy Spring contributing to revenue growth?
A:Competition has increased, with banks re-entering the market. Sandy Spring's integration brings new capabilities like interest rate hedging and treasury management, supporting revenue growth.
Q:What is the outlook for North Carolina's contribution to loan growth?
A:North Carolina is expected to contribute positively to loan growth, with increased banker presence and opportunities in manufacturing and distribution sectors.
Q:What are the purchase accounting assumptions for 4Q and 2026?
A:Accretion income is expected to be around $40 million in 4Q, declining to $35-$40 million quarterly in 2026 as it transitions to core income.
Q:What is the timeline for capital return and potential buybacks?
A:Capital return through buybacks is expected in the second half of 2024, with a CET1 target of 10%-10.5%.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact timeline for achieving high single-digit loan growth, the precise impact of the government shutdown on consumer behavior, and the exact contribution of North Carolina to overall loan growth.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Street Partners
Union Bankshares
Washington metro
acquisition change
average
benefit expense
borrowing broker
charge loan
commitment
conference
customer deposit
defense
deposit rate
digit
dividend
equity interest
expense increase
focus integration
gain CRE
government contractor
government shutdown
income interest
income run
increase decrease
increase loan
loan end
loss CRE
metro area
point charge
quarter increase
rate swap
run rate
specialty line
state
term borrowing
today Atlantic
unemployment rate
AUB Transcript
Atlantic Union Bankshares Corporation (AUB) Presents at Morgan Stanley US Financials Conference 2026 Transcript
Neutral6-10
Atlantic Union Bankshares Corporation (AUB) Q4 2025 Earnings Call Transcript
Unknown1-22
The earnings call presents a mixed picture. Financial performance shows a decline in deposits and increased expenses, but positive loan growth and a stable business outlook. The Q&A highlights uncertainties in guidance and challenges in expansion, with some unclear responses. Despite strong loan growth and strategic expansion, the lack of clarity and potential risks such as fraud and market conditions balance out the positives, leading to a neutral sentiment. The market cap suggests a moderate reaction, with stock price movement expected between -2% to 2%.
Atlantic Union Bankshares Corporation (AUB) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call reveals strong loan and deposit growth projections and positive credit trends. Despite a slight decrease in deposits, demand deposits increased, and net income and earnings per share were solid. The Q&A section highlights achievable loan growth and margin expansion, with no significant issues in the Sandy Spring portfolio. The strategic expansion in North Carolina and plans for capital returns further bolster confidence. The market cap indicates moderate sensitivity to news, supporting a positive stock price movement prediction of 2% to 8%.
Atlantic Union Bankshares Corporation (AUB) Q2 2025 Earnings Call Transcript
Positive7-25
The earnings call summary and Q&A reveal strong financial performance, optimistic growth in the Carolinas, and stable credit quality, despite higher expenses due to acquisition. The acquisition of Sandy Spring and a potential share repurchase plan are positive indicators. Though management was vague on some points, the overall sentiment is optimistic. Given the company's market cap and the positive outlook, a stock price increase of 2% to 8% over the next two weeks is likely.
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AUB Report
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