Atlantic Union Bankshares Corporation Q2 FY2025 earnings call

• The acquisition of Sandy Spring Bank closed on April 1, with integration progressing smoothly. - Sold approximately $2 billion of commercial real estate loans from Sandy Spring, exceeding initial pricing estimates. - Physically settled forward sales of common equity, receiving ~$385 million before expenses. - Core systems conversion for integration is on track for Q4. - Projected loan balances for year-end between $28 billion and $28.5 billion. - Paid down broker deposits by ~$340 million in Q2 and reduced higher cost non-relationship deposits. - Credit quality solid, with net charge-off ratio forecasted to be between 15 and 20 basis points for the full year. - Organic growth initiatives in North Carolina, planning to open 10 new branches starting 2026, with expansion in commercial banking, wealth, and mortgage teams.

At quarter-end, loans held for investment, net of deferred fees and costs, were $27.3 billion, an increase of $8.9 billion from the prior quarter, primarily due to the Sandy Spring acquisition. Total deposits stood at $31 billion, an increase of $10.5 billion from the prior quarter. The loan-to-deposit ratio was approximately 88%. The CET1 capital ratio was 9.8% and the bank level CRE concentration ratio was 284%. Reported FTE net interest margin expanded by 38 basis points to 3.83%, with core net interest margin improving by 8 basis points. Credit quality remained solid with annualized net charge-offs at 1 basis point and NPAs as a percentage of loans held for investment at 0.60%. Revenue contribution: Loans held for investment and deposits were key components, with loans up significantly due to the acquisition and deposits influenced by Sandy Spring's addition.

• Loan balances expected to end the year between $28 billion and $28.5 billion. - Deposit balances projected to be between $31 billion and $31.5 billion. - Allowance for credit losses to loans expected to fall between 1.2% and 1.3%. - Full year net charge-off ratio projected between 15 and 20 basis points. - Fully tax equivalent net interest income expected between $1.15 billion and $1.2 billion. - Fully tax equivalent net interest margin expected to fall between 3.75% and 4% due to anticipated Fed rate cuts. - Adjusted operating noninterest income expected between $175 million and $185 million, with adjusted operating noninterest expenses between $670 million and $680 million.

• Uncertainty in government employment impacts in the Greater Washington region. - Potential volatility in net accretion income from the Sandy Spring acquisition. - Impact of CECL double count on capital levels and deployment decisions.

Q: Maybe to start on the loan growth discussion. How should we think about the pro forma growth outlook on a larger balance sheet and as we think about your plans for the Carolinas?

A: John C. Asbury and David V. Ring discussed that the legacy AUB pipeline excluding Sandy is at a record level, Sandy Spring's franchise is looking good, and the pipeline is strong with good momentum in the back half of the year, especially starting in June.

Q: Switching gears on to the expense outlook beyond what you've provided for this year and as you consider the Carolinas. Is the efficiency ratio still targeted in the mid-40s?

A: Robert Michael Gorman stated they are still targeting a mid-45 or mid-40s efficiency ratio inclusive of investments in the Carolinas and technology, with an operating efficiency ratio already in the 40-something range.

Q: How are you thinking about capital levels here. Is there any interest in exploring the reversal of the CECL double count? And then given this capital does accrete quickly with the pro forma return profile, how are you thinking about that related deployment?

A: Robert Michael Gorman said CET1 ratio is ~9.8% and expected to increase by 25-30 basis points per quarter, evaluating CECL double count impact, and plans to deploy capital into organic growth, dividend payout, and potentially share buybacks.