Atlantic Union Bankshares (US:AUB)2023-07-29 09:09Financial Data and Key Metrics Changes - Reported net income available to common shareholders was $52.3 million, with earnings per share of $0.70, while adjusted operating earnings were $55.4 million or $0.74 per common share, marking an increase of 17.3% from the first quarter and 8% year-over-year [19][20] - Adjusted operating return on tangible common equity was 17%, up from 15.2% in the prior quarter, and adjusted operating return on assets was 1.16%, an increase of 16 basis points from the first quarter [20] - Tax equivalent net interest income was $155.8 million, down 1% from the first quarter, with a net interest margin of 3.45%, a decrease of 5 basis points from the previous quarter but up from 3.24% year-over-year [22][23] Business Line Data and Key Metrics Changes - Annualized loan growth was approximately 13%, with commercial and industrial (C&I) lending leading the growth, while construction lending production slowed [13][14] - Noninterest income increased by $14.6 million to $24.2 million, primarily due to a prior quarter's loss on the sale of securities [24] - Noninterest expense decreased to $105.7 million from $108.3 million in the prior quarter, with adjusted operating noninterest expenses declining to $99.5 million [25][26] Market Data and Key Metrics Changes - Total deposits stood at $16.4 billion, a decrease of approximately 1% annualized from the prior quarter, influenced by customer behavior in response to inflation and higher market interest rates [27] - The loan-to-deposit ratio was 90.6% as of the end of the quarter, indicating a stable deposit base despite a slight decline in demand deposits [9][27] - Virginia's unemployment rate improved to 2.7% in June, remaining below the national average of 3.6% [10] Company Strategy and Development Direction - The company announced a planned merger with American National Bank, which has $3.1 billion in assets, aiming to enhance financial strength and growth potential in Virginia and North Carolina [6][34] - The merger is expected to create a stronger presence in Virginia and provide a platform for growth in North Carolina, with a focus on commercial and industrial banking [34][35] - The company aims to generate positive operating leverage by growing revenue faster than expenses, with a target of flat year-over-year adjusted operating noninterest expense growth for 2023 [12][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience amid a challenging banking environment, noting strong asset quality and a healthy lending pipeline [17][16] - The macroeconomic environment is viewed as sound, with expectations of a mild recession but improved prospects for a soft landing [10][11] - The company anticipates continued moderate loan growth in 2023, despite potential challenges from rising interest rates [15] Other Important Information - The company expects to realize $17 million in annualized cost savings from strategic initiatives, with the majority of savings expected to kick in post-August 1 [12][60] - The merger transaction is structured as a 100% stock deal, with an aggregate transaction value of about $417 million, representing a 24% premium for American National shareholders [51][50] - The transaction is expected to close in the first quarter of 2024, subject to regulatory approvals [52] Q&A Session Summary Question: Can you walk us through the cadence of how the $17 million of cost savings will flow through the back half of this year? - Management indicated that about $500,000 or $2 million annualized came out in Q2, with $3.5 million expected in Q3 and the full effect of $4.25 million in Q4 [60] Question: How will the $120 million loan mark on American National flow through earnings? - It is projected that earnings will come in over four years on a sum-of-the-years' digit basis, with a duration of about three years for the loan portfolio [62] Question: How will the merger impact ROA, ROE, and efficiency? - The merger is expected to enhance ROA by about 20 basis points to approximately 1.25%, with ROTCE projected at about 19.5% to 20% and efficiency ratio improving towards the 50% mark [66]