Atlantic Union Bankshares Corp Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Quarterly Results: Net interest margin expanded 12 basis points, cost of funds reduced 18 basis points. Average loan growth ~1.3% annualized QoQ, loans held for investment down 0.9% annualized. Deposit growth ~2.1% annualized, noninterest-bearing deposits up $194 million, 22% of total deposits. Credit solid, net charge-offs 5 basis points annualized, loan loss provision $17.6 million, allowance for loan losses 1.05% of loans held for investment, total allowance 1.13%. Acknowledged economic uncertainty, potential recession risk, and trade policy impacts.
• Sandy Spring Acquisition: Closed April 1, ahead of schedule. Core systems conversion moved to October 2025, accelerating cost savings. Pro forma financials: ~$38 billion assets, ~$30 billion loans, ~$32 billion deposits. Interest rate marks on loans ~7% of loans ($800 million), higher than initial projection. Credit mark on Sandy Spring portfolio better than initial projection, ~1.3% vs initial higher estimate. Commercial real estate loan sale process ongoing, targeted $2 billion, expected to complete by end of current quarter.

Segment Performance

• Atlantic Union Bankshares Standalone:
  • Net interest margin expanded 12 basis points, cost of funds reduced 18 basis points. Tax equivalent net interest income was $187.9 million, up ~$8.882 million from prior quarter. Net interest margin was 3.45%, up 12 basis points. Noninterest income decreased $6 million to $29.2 million. Noninterest expense increased $4.5 million to $134.2 million. Reported net income available to common shareholders was $46.9 million, diluted EPS $0.52. Adjusted operating earnings were $51.6 million, adjusted operating return on tangible common equity 13.2%, return on assets 90 basis points, efficiency ratio 57%. Loans held for investment net $18.4 billion, down 0.9% annualized. Deposits $20.5 billion, up 2.1% annualized. Allowance for credit losses $209 million, up ~$15.3 million, percentage of loans held for investment 1.13%.
• Pro Forma with Sandy Spring: Pro forma combined assets ~$38 billion, loans ~$30 billion, deposits ~$32 billion. Expected loan balances at year-end $28-$29 billion, deposits $31-$32 billion. Allowance for credit losses expected 1.2%-1.3%, net charge-off ratio 15-25 basis points. Fully taxable equivalent net interest income projected $1.15-$1.25 billion, net interest margin 3.75%-4%. Adjusted non-operating non-interest income $165-$185 million, adjusted operating non-interest expenses $665-$685 million.

Guidance

• Full-Year 2025: Loan balances expected $28-$29 billion, deposits $31-$32 billion. Allowance for credit losses 1.2%-1.3%, net charge-off ratio 15-25 basis points. Fully taxable equivalent net interest income $1.15-$1.25 billion, net interest margin 3.75%-4%. Adjusted non-operating non-interest income $165-$185 million, adjusted operating non-interest expenses $665-$685 million. Core systems conversion acceleration to October 2025, expected to accelerate cost savings. Interest rate marks on acquired loans to accrete through income over 7 years, converting to cash income at market rates over time.

Risks

• Economic uncertainty including potential national recession and trade policy impacts.
• Tariffs and trade policy creating hesitancy in business investment decisions, impacting loan pull-through.
• Volatility in market conditions affecting commercial real estate loan sale price and timing.
• Regulatory and integration risks associated with integrating Sandy Spring, including systems conversion and cultural integration challenges.

Q: Update on interest rate marks from Sandy Spring deal?

A: Loan mark as of 03/31 is ~7% of loans ($800 million), higher than initial ~$600 million projection, accreting through income over 7 years.

Q: Change in credit mark for Sandy Spring?

A: Credit mark came in better than initial projection, ~1.3% vs initial higher estimate.

Q: Loan growth expectations post-Sandy Spring?

A: Striving for upper single-digit loan growth over longer term, with opportunities in Sandy Spring footprint and additional commercial industrial banking capabilities.

Q: Reserve build and credit quality?

A: Increase in reserve due to qualitative overlays for economic uncertainty, not major specific credit issues identified yet.

Q: Impact of tariffs on credit and allowance for credit losses?

A: If tariffs moderate and recession probabilities decline, allowance for credit losses could be lower, but uncertainty remains.