425: Atlantic Union Bankshares to Acquire Sandy Spring Bancorp in $1.6 Billion Deal, Creating Mid-Atlantic Regional Banking Powerhouse

Atlantic Union Bankshares announced a definitive agreement to acquire Sandy Spring Bancorp in a $1.6 billion all-stock transaction, aiming to create the premier regional bank in the Mid-Atlantic region.

Summary

• Atlantic Union Bankshares Corporation (Atlantic Union) and Sandy Spring Bancorp, Inc. (Sandy Spring) have announced a merger agreement.
• Atlantic Union will acquire Sandy Spring in a 100% stock transaction with a fixed exchange ratio of 0.90 shares of Atlantic Union common stock for each share of Sandy Spring common stock.
• The transaction values Sandy Spring at approximately $1.6 billion, or $34.93 per share, based on Atlantic Union's closing price on October 18, 2024.
• The merger is expected to close by the end of the third quarter of 2025, subject to regulatory and shareholder approvals.
• Atlantic Union reported adjusted operating earnings of $74.5 million, or $0.83 per common share, for the third quarter of 2024.
• The adjusted operating return on tangible common equity was 19.2%, and the adjusted operating return on assets was 1.25%.
• The company expects loan balances to end the year between $18.5 billion and $19 billion, and deposit balances between $20 billion and $20.5 billion.
• The merger is projected to result in 23% earnings per share accretion, a 2.0-year tangible book value earn-back period, and a 20% internal rate of return.
• Atlantic Union plans to sell up to $2 billion of Sandy Spring's commercial real estate (CRE) portfolio to reduce the combined company's CRE concentration ratio.
• A $9.5 billion community benefits plan will be implemented over the next five years, including $8 billion in community benefit financing and $1.5 billion in community investments and charitable contributions.
• Three new branch locations will be opened in low-to-moderate income areas.

Sentiment

Score: 9

Explanation: The document expresses a highly positive sentiment due to the strategic benefits of the merger, strong financial projections, and commitment to community investment. The management teams of both companies are enthusiastic about the partnership and its potential to create long-term value.

Positives

• The merger creates a leading regional bank in the Mid-Atlantic with significant scale and market share.
• The transaction is expected to be highly accretive to earnings per share and generate a strong internal rate of return.
• The combined company will have a strong capital position and ample liquidity for future growth.
• The community benefits plan demonstrates a commitment to supporting the communities served.
• Atlantic Union's commercial and industrial banking capabilities can be deployed into Sandy Spring's markets.
• Sandy Spring's wealth management capabilities will be added to Atlantic Union's offerings.
• The pro forma franchise will be in the 95th percentile of counties by median household income.

Negatives

• The sale of up to $2 billion in CRE loans will result in a temporary headwind to earnings.
• There are inherent risks associated with integrating two large organizations.
• The transaction is subject to regulatory and shareholder approvals, which may not be obtained or may be delayed.
• The merger-related expenses are estimated at $115 million after-tax.

Risks

• Failure to obtain regulatory or shareholder approvals could prevent the merger from closing.
• Integration of the two companies may be more difficult, time-consuming, or costly than expected.
• Anticipated cost savings and strategic gains may not be realized.
• Potential adverse reactions from customers or changes to business or employee relationships.
• Changes in economic and market conditions, interest rates, and regulations could impact the combined company's performance.
• The potential dilutive effect of shares of Atlantic Union's common stock to be issued in the proposed transaction.

Future Outlook

Atlantic Union expects to achieve top quartile results in the fourth quarter on an adjusted operating basis. The combined company is positioned for sustainable, profitable growth and long-term value creation. The company is targeting a Q4 fully tax equivalent net interest income run rate between $190 million and $195 million and a full year fully tax equivalent net interest margin between 3.35% and 3.40%.

Management Comments

• John Asbury: 'This is exactly what Atlantic Union Bank has done in Virginia.'
• John Asbury: 'We believe it's a hand in glove fit for two great neighboring franchises that have been on similar paths with similar cultures and a similar customer and community focus.'
• John Asbury: 'We are thrilled to partner with Sandy Spring.'
• Daniel Schrider: 'Atlantic Union Bank and Sandy Spring Bank share the same values and commitment.'
• Robert Gorman: 'Atlantic Union delivered strong financial results in the third quarter of 2024.'

Industry Context

This merger reflects a broader trend of consolidation in the banking industry, as institutions seek to gain scale, improve efficiency, and enhance their competitive position. The deal positions the combined entity to better compete with larger national and super-regional banks in the Mid-Atlantic region.

Comparison to Industry Standards

• The pro forma company's targeted return on assets, return on tangible common equity, and efficiency ratio are expected to be in the top quartile of its peer group.
• The deal's financial metrics, such as earnings accretion, tangible book value earn-back, and internal rate of return, are in line with or exceed industry benchmarks for successful bank mergers.
• Comparable companies include Truist, PNC, and M&T Bank, which have also pursued regional expansion strategies through acquisitions.
• The CRE concentration ratio target of below 300% is a common benchmark for managing risk in commercial real estate lending.

Management Changes

Stakeholder Impact

• Shareholders of both companies are expected to benefit from the increased scale, profitability, and growth potential of the combined entity.
• Customers will have access to a broader range of products and services and a larger banking network.
• Employees will have expanded career and development opportunities.
• Communities will benefit from the $9.5 billion community benefits plan.
• The combined company will be better positioned to support local businesses and economic development.

Next Steps

• Atlantic Union and Sandy Spring will seek regulatory and shareholder approvals for the merger.
• The companies will work to finalize the integration plan and prepare for the systems conversion.
• Atlantic Union will proceed with the planned sale of up to $2 billion in CRE loans.
• The combined company will implement the $9.5 billion community benefits plan.

Key Dates