Atlantic Union Bankshares Corporation Q3 FY2025 earnings call

• Sandy Spring Integration: Core systems conversion completed on October 11, with 5 overlapping branches closed. Integration progressing smoothly, with Sandy Spring Bank now unified under Atlantic Union Bank brand.
• Loan Growth: Quarterly loan growth was ~0.5% annualized, with average loan growth quarter-over-quarter at 4.3% annualized. Pipelines indicate strong potential for Q4 loan growth.
• Deposits: Paid down $116 million in broker deposits and continued reducing higher cost nonrelationship deposits, with noninterest-bearing deposits up ~4% annualized.
• Net Interest Margin: Reported net interest margin steady at 3.83%, with adjusted margin improving excluding accretion income. Earning asset yields declined 5 basis points to 6%, while cost of funds declined 5 basis points to 2.17%.
• Credit Quality: Charge-offs increased but leading asset quality indicators remained encouraging, with full-year net charge-off ratio expected 15-20 basis points.
• Market Conditions: Greater Washington region resilient despite government shutdown, with unemployment rates in Maryland and Virginia below national average.

Loan Performance: Loans held for investments, net of deferred fees and costs were $27.4 billion at September 30, an increase of $32.8 million from the prior quarter. Average loan growth quarter-over-quarter was 4.3% annualized. Quarterly loan growth was approximately 0.5% annualized in the third quarter. Deposit Performance: Total deposits stood at $30.7 billion at September 30, a decrease of $306.9 million from the prior quarter, with noninterest-bearing deposits up approximately 4% annualized. Net Interest Margin: Reported FTE net interest margin remained steady at 3.83%, with adjusted net interest margin improving when excluding accretion income. Credit Quality: Nonperforming assets as a percentage of loans held for investment remained low at 0.49%, and criticized loans as a percentage of total loans decreased to 4.9% from 5.9% in the prior quarter. Revenue contribution: Sandy Spring integration contributed to strength in fee income, especially interest rate swaps and wealth management, with approximately $1 million of swap income from the former Sandy Spring Bank.

• Loan Balances: Expected year-end loan balances to range between $27.7 billion and $28 billion, inclusive of fair value loan mark impacts.
• Deposits: Projected year-end deposit balances between $30.8 billion and $31 billion.
• Net Interest Income: Full-year fully tax equivalent net interest income projected between $1.160 billion and $1.165 billion, with Q4 run rate $325 million to $330 million.
• Net Interest Margin: Full-year margin expected 3.75%-3.8%, with Q4 margin 3.85%-3.9%.
• Adjusted Operating Noninterest Income: Full-year expected $185 million to $190 million, with Q4 run rate $50 million to $55 million.
• Adjusted Operating Noninterest Expenses: Full-year estimated $675 million to $680 million, with Q4 run rate $183 million to $188 million.
• Capital Return: CET1 regulatory capital ratio expected 10%-10.5%, with excess capital likely available for share buybacks in the second half of 2026.

• Economic Uncertainty: Impact on loan growth and deposit costs due to uncertain economic environment.
• Government Shutdown: Potential impact on government contractors and market confidence in the Greater Washington region.
• Interest Rate Fluctuations: Volatility in accretion income and potential impact on net interest margin.
• Credit Risks: Ongoing uncertainty in resolving certain loans, though leading asset quality indicators remain encouraging.

Q: On loan growth front, is mid-single-digit sustainable for 2026 and possibility of high single-digit?

A: John Asbury states mid-single-digit loan growth expected for 2026, with capability for high single-digit growth in a normalized environment. David Ring adds pipelines at Sandy Spring and legacy bank are strong.

Q: On expense outlook, efficiency ratio target for 2026?

A: Robert Gorman says mid-40s efficiency ratio expected inclusive of North Carolina investments, with fourth quarter adjusted operating noninterest expense run rate $183M-$188M.

Q: On margin, what changed quarter-over-quarter to tighten the range?

A: Robert Gorman explains it's more about where they ended up in Q3, dialing back accretion income impact, with Q4 margin expected higher at 3.85%-3.9%.

Q: On D.C. noise impact, credit vs growth?

A: John Asbury says D.C. noise is more a growth issue than credit issue, with 23% of loans in Greater Washington metro area and specialty lines like government contractor finance showing opportunity.

Q: On Sandy Spring revenue synergies, what opportunities?

A: John Asbury mentions interest rate hedging, foreign exchange, and treasury management as key revenue opportunities, with David Ring adding new client acquisition and asset-based lending in Sandy Spring's market.