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 (AUB, Financial) 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.
