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

Atlantic Union Bankshares announced the acquisition of 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) will acquire Sandy Spring Bancorp (Sandy Spring) in a 100% stock deal.
• The fixed exchange ratio is 0.90 shares of Atlantic Union common stock for each share of Sandy Spring common stock.
• The deal is valued at approximately $1.6 billion, or $34.93 per Sandy Spring share, based on Atlantic Union's closing share price on October 18.
• Sandy Spring shareholders will own approximately 29% of the combined company.
• The combined company will have approximately $39 billion in assets.
• Atlantic Union expects to achieve cost savings of approximately 27% of Sandy Spring's annual operating expenses.
• The transaction is expected to close by the end of the third quarter of 2025.
• Atlantic Union is targeting the first quarter of 2026 to complete the core systems conversions.
• Atlantic Union is raising $350 million in common equity with a 15% greenshoe option at $35.50 per share.
• Atlantic Union intends to sell up to $2 billion of Sandy Spring's commercial real estate portfolio after the merger closes.
• The combined company will implement a $9.5 billion community benefits plan over five years.
• Atlantic Union reported adjusted operating earnings of $0.83 per common share for Q3 2024.
• The adjusted operating return on tangible common equity was 19.2% in Q3 2024.
• The adjusted operating return on assets was 1.25% in Q3 2024.
• The efficiency ratio was 52.2% in Q3 2024.
• The net interest margin was 3.38% in Q3 2024.
• Loan balances are expected to end the year between $18.5 billion and $19 billion.
• Deposit balances are projected to be between $20 billion and $20.5 billion at year-end.
• Fully taxable equivalent net interest income for the full year is projected to be between $720 million and $725 million.
• Adjusted operating noninterest expenses for the full year are estimated to be between $445 million and $450 million.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the strategic rationale for the merger, the expected financial benefits, and the commitment to community investment. The management's comments and the detailed financial projections contribute to the optimistic outlook.

Positives

• The merger is expected to be 23% accretive to EPS.
• The tangible book value earn-back period is estimated at 2.0 years.
• The internal rate of return is projected to be 20%.
• The combined company will have a strong capital ratio position and CRE concentration ratio.
• The merger will create the #1 regional bank in the Mid-Atlantic region.
• Atlantic Union's Q3 2024 results showed improvements in adjusted return on tangible common equity, return on assets, and efficiency ratio.
• Atlantic Union's deposit base grew 6.1% on a linked quarter annualized basis.
• Atlantic Union's net charge-offs were low at 1 basis point for Q3 2024.

Negatives

• The sale of up to $2 billion in commercial real estate loans will result in a haircut on earnings.
• The merger is subject to customary closing conditions and regulatory approvals.
• The integration of the two companies may be more difficult, time-consuming, or costly than expected.
• Lower fixed rates have impacted the yields that Atlantic Union is getting on new and renewing fixed rate loans.

Risks

• Failure to obtain necessary regulatory approvals or shareholder approvals.
• Potential adverse reactions from customers or changes to business or employee relationships.
• Changes in economic and market conditions, interest rates, and regulations.
• The possibility that the anticipated benefits of the proposed transaction are not realized.
• The diversion of management's attention from ongoing business operations.
• Potential dilutive effect of shares of Atlantic Union's common stock to be issued in the proposed transaction.

Future Outlook

Atlantic Union expects loan balances to end the year between $18.5 billion and $19 billion, and deposit balances to be between $20 billion and $20.5 billion. The company is targeting a fourth-quarter net interest margin between 3.4% and 3.45%, driven by anticipated Federal Reserve rate cuts. Adjusted operating noninterest income is expected to be between $120 million and $125 million for the full year, and adjusted operating noninterest expenses are estimated to be between $445 million and $450 million.

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

The merger reflects a trend of consolidation in the banking industry, as institutions seek to gain scale, improve efficiency, and expand their market presence. The combined entity aims to compete more effectively with larger national banks while maintaining a community-focused approach.

Comparison to Industry Standards

• The pro forma company aims to achieve top-quartile performance among its peers in terms of return on assets, return on tangible common equity, and efficiency ratio.
• The deal metrics, including the price to tangible book value multiple of 1.28x and the price to 2025 consensus earnings per share multiple of 13.5x, are within the typical range for bank mergers.
• The targeted cost savings of 27% of Sandy Spring's annual operating expenses are ambitious but achievable, based on industry benchmarks for similar transactions.
• The community benefits plan of $9.5 billion over five years demonstrates a commitment to corporate social responsibility, aligning with industry best practices.

Management Changes

Stakeholder Impact

• Shareholders of both companies are expected to benefit from the increased scale and profitability of the combined entity.
• Customers will have access to a broader range of products and services and a larger branch network.
• Employees will have expanded career and development opportunities.
• Communities will benefit from the $9.5 billion community benefits plan.

Next Steps

• Atlantic Union and Sandy Spring will file a joint proxy statement/prospectus with the SEC.
• Shareholders of Atlantic Union and stockholders of Sandy Spring will vote on the proposed transaction.
• The companies will seek regulatory approvals for the merger.
• Atlantic Union will complete the equity raise and the sale of commercial real estate loans.
• The companies will work on integrating their operations and systems.

Key Dates