Atlantic Union Bankshares (AUB) Q2 Earnings call transcript Jul 25, 2024

Key Themes and Trends

Atlantic Union Bankshares' second quarter 2024 earnings call revealed a company on a moderate growth path, with a focus on soundness, profitability, and growth in that order. The recent merger with American National Bankshares has brought significant benefits, including an expanded network, enhanced product offerings, and increased capital. The merger has strategically positioned the bank to compete effectively in Western Virginia, Southern Virginia, and North Carolina, offering opportunities for organic growth. The management's strategic vision is centered on a diversified, full-service bank with a strong brand and deep client relationships in stable and attractive markets.

Management's Confidence and Challenges

Management expressed optimism about the economic outlook, despite cautiousness due to the uncertain macroeconomic environment. The bank's markets continue to appear healthy, with mid-single-digit annualized loan growth expected in the second half of 2024. However, there are challenges, including managing nonowner-occupied office exposure and multifamily commercial real estate. The bank's credit quality remains stable, with net charge-offs of 4 basis points annualized in Q2, down from 13 basis points in Q1. Management expects between 10 and 15 basis points of net charge-offs during 2024, demonstrating a focus on maintaining a strong credit culture.

Merger and Integration

The merger with American National Bankshares has been a significant focus of the call. The integration process is ongoing, with the goal of leveraging the new North Carolina markets as a growth platform. The bank has launched a commercial banking effort in North Carolina, added dedicated equipment finance bankers, and is developing its C&I strategy. The acquisition has led to increased loan production, new account openings, and the expansion of treasury management and interest rate hedging products. The merger has also led to increased loan balances and deposits, positioning the bank for continued growth.

Financial Performance

Financially, the bank reported a net income available to common shareholders of $22.2 million and earnings per common share of $0.25 for the second quarter. Adjusted operating earnings available to common shareholders were $56.4 million or $0.63 per common share, with an adjusted operating return on tangible common equity of 15.85% and adjusted operating return on assets of 97 basis points. The bank's net interest margin increased to 3.46%, driven by incremental net accretion of purchase accounting adjustments for loans, deposits, and long-term borrowings. The bank's net interest income increased due to the acquisition of American National Bankshares and organic loan growth.

Looking Ahead

Looking ahead, Atlantic Union Bankshares is projected to deliver solid financial results, with loan balances expected to end the year between $18.5 billion and $19 billion and year-end deposit balances between $20 billion and $20.5 billion. The bank expects to achieve the financial benefits of the American National merger, assuming the cost savings are fully realized on a run rate basis starting in the fourth quarter. The bank remains confident in its ability to generate sustainable profitable growth and build long-term value for its shareholders.

Investor Insights

Investors and analysts were particularly interested in the bank's net interest margin, with a focus on the glide path from Q2 to Q4 and the repricing dynamics within the loan book. Management provided detailed insights into the accretion income, core net interest margin trends, and the repricing opportunities within the fixed rate loan portfolio. The bank's focus on organic growth in North Carolina, particularly in the fastest-growing markets, was also a topic of interest. Overall, the earnings call provided a comprehensive overview of Atlantic Union Bankshares' financial performance, strategic direction, and future prospects.