Atlantic Union Bankshares (NYSE:AUB) delivered robust operating results for the third quarter of 2023, backed by strategic measures including expense reductions, a merger agreement with American National Bankshares (NASDAQ:AMNB), and balance sheet repositioning for a higher interest rate environment. The company anticipates loan growth and fully tax equivalent net interest income to increase in 2023, projecting positive adjusted operating leverage for the year. Despite some economic uncertainty, the company remains optimistic about its prospects for sustainable growth and shareholder value.
Key takeaways from the earnings call include:
- Atlantic Union Bank reported a net income of $51.1 million and adjusted operating earnings of $59.8 million for Q3 2023. This is a solid performance, especially considering the company's P/E Ratio (Adjusted) LTM2023.Q2 of 10.0 and a PEG Ratio LTM2023.Q2 of -3.63, according to InvestingPro data.
- The adjusted operating return on tangible common equity was 18.3%, and the adjusted operating return on assets was 1.21%, slightly above the Return on Assets LTM2023.Q2 of 1.14% as reported by InvestingPro.
- The company's total allowance for credit losses increased to $140.9 million, while the provision for credit losses decreased to $5.5 million in the third quarter.
- The merger with American National Bankshares (NASDAQ:NKSH) is expected to close in the first quarter of 2024. This move is seen as a significant growth opportunity, especially given Atlantic Union Bank's high earnings quality, with free cash flow exceeding net income, as noted in the InvestingPro Tips.
- The net interest margin is projected to compress further in the fourth quarter and stabilize around 3.25% in Q1 2024.
- The company anticipates loan growth in the mid-single-digit range, driven by commercial and industrial (C&I) and equipment finance businesses. This is supported by the InvestingPro Tip that highlights the company's 12 consecutive years of raising its dividend, a sign of its financial health and commitment to returning capital to shareholders.
The merger with American National Bankshares is viewed as a growth opportunity, particularly in North Carolina, where Atlantic Union Bank has a presence in real estate and plans to leverage American National's commercial and industrial capabilities. The bank's management also expects 2% growth in service charges and trust fees, driven by net client growth and debit card interchange.
During the earnings call, executives also discussed their plans for expansion in Roanoke and Southern Virginia, expressing optimism about the commercial and industrial markets in the area. The bank aims to serve small and mid-sized businesses, positioning itself as a challenger to larger institutions.
In terms of credit, the bank projects charge-offs of 15 to 20 basis points annually and feels positive about its credit position and the stability of the economy. The bank expects deposit remixing to slow down but continue, with deposits moving into higher-yielding products.
Regarding interest rates, the bank expects new loans to be priced around 7% on average, with fixed-rate loans potentially seeing a slight increase due to higher term rates. The bank anticipates deposit rates to increase in the first and second quarters, offset by loan yields increasing as well.
Overall, Atlantic Union Bank (NASDAQ: AUB) remains well-capitalized and optimistic about its prospects for sustainable growth and shareholder value in the future. The company concluded the call by expressing anticipation for the next call in three months. For more insights and tips on Atlantic Union Bank, visit InvestingPro, which offers five additional tips and a wealth of real-time metrics.
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