Atlantic Union Bankshares (US:AUB)2023-10-20 04:01Financial Data and Key Metrics Changes - The reported net income available to common shareholders was $51.1 million, with earnings per common share at $0.68, while adjusted operating earnings were $59.8 million or $0.80 per common share, reflecting an increase of 7.9% from the previous quarter and 8.5% year-over-year [25][26] - Adjusted operating return on tangible common equity rose to 18.3% from 17% in the prior quarter, and adjusted operating return on assets increased to 1.21%, up 5 basis points from the previous quarter [25][26] - Total deposits grew by 9.1% annualized for the quarter, reaching $16.8 billion, driven by increases in interest-bearing customer deposits and broker deposits [31] Business Line Data and Key Metrics Changes - Annualized loan growth was 5.7% during the third quarter, led by growth in commercial loans, with year-to-date loan growth at 7.7% annualized [17][31] - The loan portfolio yield increased to 5.84%, up 22 basis points from the previous quarter, while the tax equivalent net interest margin was 3.35%, a decrease of 10 basis points from the prior quarter [27][28] Market Data and Key Metrics Changes - Virginia's unemployment rate improved to 2.5% in August, down from 2.9% in May, remaining below the national average of 3.8% [13] - The lending pipeline is slightly higher than a year ago, indicating a healthy macroeconomic environment in the company's footprint [12][13] Company Strategy and Development Direction - The company announced a merger agreement to acquire American National Bankshares, expected to close in Q1 2024, which aims to enhance financial performance and expand market presence [8][10] - The company is focused on generating positive operating leverage, with a strategy to grow revenue faster than expenses, supported by structural expense reductions [7][10] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the economic outlook, anticipating a mild recession but expecting a favorable macroeconomic environment in their markets [12][20] - The company remains resilient and expects a good finish to the year, with a focus on sustainable, profitable growth [21][33] Other Important Information - The company undertook a sale-leaseback transaction of 27 properties, generating cash proceeds of approximately $46 million and a pre-tax gain of $27.7 million [23][24] - The total allowance for credit losses was $140.9 million, reflecting an increase due to loan growth and economic uncertainty [26] Q&A Session Summary Question: Expectations for margin compression in Q4 - Management expects further margin compression of 5 to 10 basis points in Q4, with a potential trough in the first quarter around 3.25% [36][37] Question: Loan production rates - New loan production is expected to average around 7%, with variable rate loans closer to 8% and fixed-rate loans slightly over 6% [39][40] Question: Shared national credit exposure - The company has a small exposure to shared national credits, primarily with known Virginia-based corporations, and does not engage in secondary issuances [42][43] Question: Fee growth outlook - Fee growth is expected to be in the range of 2% to 4%, driven by net client growth and seasonal impacts [46][47] Question: Credit normalization expectations - Management projects a normalization of charge-offs to 15 to 20 basis points annually, with potential drivers including higher interest rates and recessionary factors [64][66]