10-Q: Atlantic Union Bankshares Reports Q2 Growth Amid Acquisitions

Atlantic Union Bankshares Corporation reports significant balance sheet expansion and increased net interest income driven by the Sandy Spring acquisition, despite a GAAP net income decline.

Summary

• Net income available to common shareholders for Q2 2025 was $16.8 million, down from $22.2 million in Q2 2024.
• Basic and diluted EPS for Q2 2025 was $0.12, compared to $0.25 in Q2 2024.
• Adjusted diluted operating EPS increased to $0.95 in Q2 2025 from $0.76 in Q2 2024, excluding acquisition-related provisions and costs.
• Net interest income rose to $321.4 million in Q2 2025 from $184.5 million in Q2 2024.
• Net interest margin (FTE) increased to 3.83% in Q2 2025 from 3.46% in Q2 2024.
• Provision for credit losses significantly increased to $105.7 million in Q2 2025, primarily due to $89.5 million for non-PCD loans and $11.4 million for unfunded commitments from the Sandy Spring acquisition.
• Noninterest income surged to $81.5 million in Q2 2025, boosted by a $15.7 million pre-tax gain on CRE loan sale and a $14.3 million pre-tax gain on the sale of equity interest in CSP.
• Total assets grew to $37.3 billion at June 30, 2025, up from $24.6 billion at December 31, 2024, largely due to the Sandy Spring acquisition.
• Loans held for investment (LHFI) increased to $27.3 billion at June 30, 2025, from $18.5 billion at December 31, 2024.
• Total deposits reached $31.0 billion at June 30, 2025, up from $20.4 billion at December 31, 2024.
• Nonaccrual LHFI increased to $162.6 million at June 30, 2025, from $58.0 million at December 31, 2024, primarily due to acquired nonperforming loans from Sandy Spring.
• The Allowance for Credit Losses (ACL) increased to $342.4 million at June 30, 2025, from $193.7 million at December 31, 2024.
• The CRE loan concentration ratio decreased to 283.8% at June 30, 2025, from 292.7% at December 31, 2024, following the sale of $2.0 billion in CRE loans.

Sentiment

Score: 6

Explanation: The filing presents a mixed financial picture. While significant balance sheet growth and strategic gains from asset sales are positive, the GAAP net income and EPS declined due to substantial acquisition-related provisions and expenses. The increase in nonaccrual loans, though largely due to acquired portfolios, and the reduced ALLL coverage ratio warrant caution. The company remains well-capitalized and is actively managing its portfolio and liquidity, suggesting a stable but transitional period.

Positives

• Significant growth in total assets, loans held for investment, and total deposits, primarily driven by the Sandy Spring acquisition, expanding market presence.
• Net interest income and net interest margin (FTE) increased substantially year-over-year, benefiting from acquisition accounting adjustments and organic loan growth.
• Realized a $15.7 million pre-tax gain from the sale of performing Commercial Real Estate (CRE) loans acquired in the Sandy Spring acquisition, improving liquidity.
• Generated a $14.3 million pre-tax gain from the sale of the equity interest in Cary Street Partners LLC (CSP).
• Adjusted operating earnings and EPS showed positive year-over-year growth, indicating improved underlying operational performance when excluding one-time acquisition impacts.
• Net charge-offs decreased to $2.9 million for the first six months of 2025, compared to $6.7 million in the same period of 2024.
• Regulatory capital ratios continue to exceed minimum requirements, maintaining a 'well-capitalized' status.
• Total liquid assets increased to $13.5 billion, representing 36.3% of total assets, enhancing liquidity position.

Negatives

• GAAP net income available to common shareholders decreased to $16.8 million in Q2 2025 from $22.2 million in Q2 2024.
• Basic and diluted EPS decreased to $0.12 in Q2 2025 from $0.25 in Q2 2024.
• Provision for credit losses increased significantly to $105.7 million in Q2 2025, largely due to initial provisions for acquired loans and unfunded commitments from the Sandy Spring acquisition.
• Noninterest expenses rose sharply to $279.7 million in Q2 2025, driven by $78.9 million in merger-related costs and increased salaries and benefits due to the acquisition.
• Nonaccrual loans held for investment (LHFI) increased to $162.6 million at June 30, 2025, from $58.0 million at December 31, 2024, primarily due to acquired nonperforming loans.
• The ratio of Allowance for Loan and Lease Losses (ALLL) to nonaccrual LHFI decreased to 194.06% at June 30, 2025, from 308.17% at December 31, 2024, indicating lower coverage for nonaccrual loans.
• The effective tax rate for Q2 2025 was negative (13.2%), influenced by a one-time tax benefit and the impact of the Sandy Spring acquisition on state tax jurisdiction.

Risks

• The timing and impact of economic conditions, including inflation and recessionary conditions, changes in market interest rates, geopolitical conflicts, and deposit competition, are highly uncertain and difficult to predict.
• Changes in U.S. and global trade policies and tensions, including tariffs, could negatively impact customers' ability to repay loans, potentially increasing credit losses.
• Increased and prolonged economic uncertainty could adversely affect the U.S. and global economies and financial markets, including by increasing inflation and leading to a slowdown of future economic growth and ultimately recessionary conditions.
• The higher-for-longer interest rate environment and heightened competition for deposits have led to a shift toward higher-cost deposit products, impacting funding costs.
• The integration of Sandy Spring's business and operations may take longer or be more costly than anticipated, potentially impacting expected synergies and cost savings.
• The Company's highest concentration of credit by loan type is in Commercial Real Estate (CRE), which carries higher default risk due to dependence on property operations and economic conditions.
• The Company is subject to loss contingencies related to legal and regulatory proceedings, including a Consent Order with the CFPB regarding overdraft practices, requiring restitution and a civil monetary penalty.

Future Outlook

The Company is continually monitoring the impact of global and national events on its operations, including economic conditions, interest rates, geopolitical conflicts, and deposit competition. Management expects net interest income to increase with an immediate rise in market rates but anticipates a decline in a decreasing interest rate environment as interest-earning assets re-price more quickly than interest-bearing deposits. The impact of the recently enacted 'One Big Beautiful Bill Act' tax legislation is still being evaluated and will be recognized in the third quarter of 2025. The system conversion for Sandy Spring operations is expected to occur during the fourth quarter of 2025.

Management Comments

• Our consolidated balance sheet at June 30, 2025 includes the impact of the Sandy Spring acquisition, which closed April 1, 2025.
• We received net proceeds from the sale of the CRE loans, before expenses, of approximately $1.87 billion, which increased our cash balance at June 30, 2025, and a portion of such proceeds were used to repay our short-term FHLB advances and brokered certificates of deposit that matured during the second quarter of 2025.
• We continue to experience historically low levels of NPAs; however, there is increased uncertainty in the economic forecast which could lead to increases in NPAs in future periods.
• Management believes our overall liquidity to be sufficient to satisfy our depositors requirements and to meet our customers credit needs.
• We seek to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, while allowing us to effectively leverage our capital to maximize return to shareholders.

Industry Context

The banking industry continues to navigate a 'higher-for-longer' interest rate environment, which has led to increased competition for deposits and a shift towards higher-cost funding products. This environment has also moderated loan demand. Atlantic Union Bankshares' strategic acquisitions, particularly Sandy Spring, reflect a trend of consolidation within the regional banking sector to achieve scale and enhance market presence. The sale of CRE loans and equity interest in CSP indicates active portfolio management and optimization in response to market conditions and strategic priorities. The increase in nonaccrual loans due to acquired portfolios is a common accounting impact of mergers, rather than a direct reflection of organic asset quality deterioration, but it highlights the ongoing need for robust credit risk management in a dynamic economic landscape.

Comparison to Industry Standards

• The increase in nonaccrual loans and NPAs, while primarily acquisition-driven, warrants close monitoring. Compared to industry averages, a 0.60% NPA to LHFI ratio is moderate, but the decrease in ALLL to nonaccrual LHFI coverage to 194.06% from 308.17% suggests a need to ensure adequate provisioning for potential future credit deterioration, especially in the context of economic uncertainty.
• The CRE concentration ratio of 283.8% remains elevated relative to the federal banking regulators' guideline of 300%, but the Company's proactive sale of $2.0 billion in CRE loans demonstrates active management to mitigate this concentration risk. Many regional banks face similar CRE exposures, and the Company's strategy to diversify and manage this risk is in line with best practices.
• The Company's regulatory capital ratios (e.g., Common Equity Tier 1 at 9.77%) continue to exceed minimum requirements, indicating a strong capital position comparable to well-capitalized peers in the banking sector, providing a buffer against potential losses and supporting future growth initiatives.
• The increase in net interest margin (FTE) to 3.83% is a positive sign, indicating effective management of interest-earning assets and liabilities, especially in a competitive rate environment. This performance is competitive within the regional banking space, where margins are under pressure from funding costs.

Corporate Governance

Legal Proceedings

• The Bank entered into a Consent Order with the Consumer Financial Protection Bureau (CFPB) on December 7, 2023, to resolve alleged violations related to overdraft practices and policies.
• The Consent Order requires the Bank to pay restitution of at least $5.0 million to certain current and former customers who opted into discretionary overdraft service.
• A civil monetary penalty of $1.2 million has been paid in connection with this matter.
• As of June 30, 2025, the Company has maintained a probable and estimable liability in connection with this matter.

Stakeholder Impact

• **Shareholders**: Experience a decrease in GAAP EPS but an increase in adjusted operating EPS, reflecting the complex financial impacts of the acquisition. Dividends on common stock increased, while preferred stock dividends remained consistent.
• **Employees**: Impacted by the Sandy Spring acquisition, leading to increased salaries and benefits expenses, and potential changes related to integration and system conversions.
• **Customers**: Benefit from an expanded branch network and financial services offerings due to the Sandy Spring acquisition. Customers of acquired nonperforming loans are now part of the Company's portfolio, subject to its credit management policies.
• **Creditors**: The Company's strong capital ratios and sufficient liquidity position provide assurance regarding its ability to meet financial obligations, including assumed subordinated debt from Sandy Spring.

Next Steps

• Evaluate the impact of the 'One Big Beautiful Bill Act' tax legislation, with the total effect to be recognized in the quarter ended September 30, 2025.
• Complete the system conversion for Sandy Spring operations, expected during the fourth quarter of 2025.
• Continue to monitor and manage the CRE loan portfolio and other credit concentrations.
• Implement strategies to manage interest rate risk and balance sheet trends in response to changing market conditions.

Key Dates

Recommendation

The filing presents a mixed bag of results. While the Sandy Spring acquisition has significantly expanded the balance sheet and driven substantial growth in net interest income and total assets, the immediate impact on GAAP net income and EPS is negative due to large acquisition-related provisions and merger costs. The increase in nonaccrual loans is primarily an accounting effect of acquiring nonperforming assets, rather than a deterioration of the existing portfolio, but the reduced ALLL coverage ratio warrants attention. The Company's strong capital position and proactive management of CRE concentration are positives. Given the ongoing integration efforts and the evaluation of new tax legislation, a 'hold' recommendation is appropriate as the market assesses the long-term benefits of the acquisition against the short-term financial impacts and integration risks.

Keywords

Banking, Financial Services, SEC Filing, Quarterly Report, Merger, Acquisition, Sandy Spring Bancorp, Atlantic Union Bankshares, AUB, Net Interest Income, Loan Portfolio, Deposits, Credit Quality, Nonperforming Assets, Capital Ratios, Liquidity, Commercial Real Estate, Earnings Per Share, Financial Performance