Atlantic Union Bankshares (AUB) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Reported net income available to common shareholders was $89.2 million, with earnings per common share at $0.63. Adjusted operating earnings available to common shareholders were $119.7 million or $0.84 per common share, resulting in an adjusted operating return on tangible common equity of 20.1% and an adjusted operating return on assets of 1.3% [16][17] - The total allowance for credit losses decreased to $320 million, down approximately $22.4 million from the second quarter, with net charge-offs increasing to $38.6 million or 56 basis points annualized [17][18] - Tax equivalent net interest income was $323.6 million, a decrease of $2.1 million from the second quarter, while the reported net interest margin remained steady at 3.83% [20][21] Business Line Data and Key Metrics Changes - Quarterly loan growth was approximately 0.5% annualized, with average loan growth quarter over quarter at 4.3% annualized. The company expects loan balances to end the year between $27.7 billion and $28 billion [8][27] - Non-interest income decreased to $51.8 million, primarily due to 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 current quarter [22] - Adjusted operating non-interest income increased to $56.6 million, driven by a $4.2 million increase in loan-related interest rate swap fees [23] Market Data and Key Metrics Changes - The company maintains a well-diversified portfolio, with approximately 23% of total loans in the Washington metro area and the remaining 77% across a broader footprint [12] - The unemployment rate in the greater Washington, D.C. region stood at 3.6%, well below the national average of 4.3% [14] - The company is monitoring the impact of government employment reductions and the government shutdown, but believes the economic data indicates resilience in the market [11][14] Company Strategy and Development Direction - The integration of the Sandy Spring acquisition is progressing smoothly, with expectations to achieve cost-savings targets and enhanced earnings power by 2026 [7][15] - The company aims to deliver sustainable growth and top-tier financial performance, leveraging strategic advantages gained from the acquisition and continued organic growth opportunities [7][15] - The focus remains on disciplined execution and the integration of Sandy Spring, with plans to capitalize on expanded markets and pursue new growth opportunities in North Carolina [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in asset quality, reaffirming the forecast for the full year 2025 net charge-off ratio to be between 15 and 20 basis points [11] - The company anticipates some increases in unemployment rates across its markets but expects these to remain manageable and below the national average [14] - Management highlighted the resilience of government contractors and essential services during government shutdowns, indicating a positive outlook for the government contractor finance portfolio [13][89] Other Important Information - The company paid a common stock dividend of $0.34 per share, an increase of 6.3% from the previous year's third quarter dividend amount [26] - The full-year financial outlook for 2025 includes preliminary estimates of purchase accounting adjustments related to the Sandy Spring acquisition [27][30] Q&A Session Summary Question: Loan growth outlook and sustainability - Management expects mid-single-digit loan growth for next year, with potential for high single-digit growth in a more normalized environment, emphasizing strength in specialty lines [36][37] Question: Expense outlook and efficiency ratio - The efficiency ratio is expected to be in the mid-40s, inclusive of investments in North Carolina, with a focus on maintaining a flat expense base [40][41] Question: Credit trends and health of the portfolio - Overall credit trends appear strong, with low non-performing assets and past dues, despite two specific charge-offs [70][72] Question: Impact of government shutdown on operations - Management believes government contractors will remain resilient, drawing on lines of credit during shutdowns, and does not foresee significant issues arising from the current situation [89][90]