Atlantic Union Bankshares Highlights Strong Post-Merger Momentum

Atlantic Union Bankshares Corporation ((AUB)) has held its Q4 earnings call. Read on for the main highlights of the call.

Atlantic Union Bankshares’ latest earnings call painted an upbeat picture of a bank emerging strongly from its Sandy Spring acquisition, with core performance and integration progress clearly overshadowing merger-related noise. Management emphasized robust loan growth, expanding net interest margin, standout adjusted profitability metrics and improving asset quality, even as GAAP results were dampened by sizable one-time merger charges and some seasonal and episodic headwinds in deposits and expenses. Overall, the tone was confident and forward-leaning, with leadership reaffirming ambitious 2026 targets and outlining a disciplined approach to capital returns.

Strong Loan Growth and Healthy Pipeline

Atlantic Union reported another solid quarter of loan expansion, underscoring the combined franchise’s growth potential. Loans held for investment reached $27.8 billion at quarter-end, up $435 million in Q4, or roughly 6.3% on an annualized basis. Importantly for investors tracking momentum, management noted that the loan pipeline was higher at the end of the quarter than at the beginning, indicating sustained demand and production capacity. This performance gave the bank confidence to reaffirm its 2026 year-end loan target of $29–$30 billion, a key pillar of its long-term earnings plan.

Margin Expansion and Rising Net Interest Income

The bank delivered meaningful improvement in its core earnings engine as net interest margin (NIM) and net interest income (NII) both moved higher. Fully tax-equivalent NIM climbed 13 basis points in Q4 to 3.96%, supported by disciplined balance sheet management and improved funding costs. Tax-equivalent NII rose to $334.8 million, up $11.2 million from the prior quarter. Looking ahead, management is targeting full-year 2026 NII of $1.35–$1.375 billion, signaling continued confidence in the revenue power of the post-merger franchise, even in a potentially shifting rate environment.

Top-Tier Adjusted Profitability Metrics

On an adjusted basis, Atlantic Union’s profitability metrics were strikingly strong and positioned the bank among top-performing peers. Q4 adjusted operating earnings available to common shareholders came in at $138.4 million, or $0.97 per share. That translated into an adjusted operating return on tangible common equity (ROTCE) of 22.1%, an adjusted return on assets (ROA) of 1.5%, and an adjusted efficiency ratio of 47.8%, underscoring both earnings strength and cost discipline. For the full year 2025, adjusted ROTCE stood at a robust 20.4%, reinforcing management’s narrative that underlying performance remains very strong once merger-related noise is stripped out.

Solid Asset Quality and Low Credit Costs

Credit quality remained a key source of strength, helping to support the bank’s premium return profile. The Q4 annualized net charge-off (NCO) ratio was just 1 basis point, and full-year NCOs came in at 17 basis points, squarely within the company’s 15–20 basis point guidance range. Non-performing assets improved, declining to 0.42% of loans, down 7 basis points from the prior quarter, while criticized and classified assets remained low at 4.7%. These metrics suggest a well-managed credit book with limited signs of stress, providing a solid foundation for the bank’s growth and returns outlook.

Lower Deposit Costs and Improved Funding

Funding costs moved decisively in the right direction, giving Atlantic Union added margin tailwinds. The cost of funds fell 14 basis points in Q4 to 2.03%, as management aggressively repriced deposits. Roughly $12–$13 billion of deposit balances saw rate reductions over the quarter, contributing materially to the NIM expansion. This ability to reprice funding, combined with the bank’s diversified deposit base, offers a buffer against potential future rate cuts and supports management’s confidence in its medium-term margin guidance.

Integration Progress and Cost Synergies on Track

Management highlighted smooth execution on the Sandy Spring integration, a critical factor behind the bank’s elevated earnings power. The core systems conversion was completed in October, a major milestone that reduces operational risk and paves the way for future efficiencies. Merger-related charge volatility is expected to fade, with only modest residual costs anticipated in Q1, estimated at under $5 million. The bank reiterated its targeted run-rate cost savings of $80 million, noting that around $60 million is already annualized, with additional savings still to be realized. These synergies are central to achieving the company’s targeted top-quartile return profile.

Capital Strength, Dividend Boost and Tangible Book Growth

Atlantic Union’s capital position remains comfortably above regulatory minimums, giving the bank flexibility for growth and shareholder returns. Regulatory capital ratios are well above well-capitalized thresholds, and tangible book value per common share increased about 4% in Q4 to $19.69, reflecting strong internal capital generation even amid merger noise. The company raised its common dividend by 8.8% to $0.37 per share, signaling confidence in sustainable earnings power. Management also opened the door to potential share repurchases once excess capital builds above a roughly 10.5% CET1 threshold, positioning buybacks as an additional lever for enhancing shareholder value over time.

Merger-Related Charges Weigh on GAAP Earnings

Despite the impressive adjusted metrics, reported GAAP results were weighed down by merger-related costs, a key nuance for investors parsing the quarter. In Q4 alone, $38.6 million of pretax merger-related expenses were excluded from adjusted figures, and $157.3 million were excluded for the full year 2025. As a result, reported net income available to common shareholders was $109 million, or $0.77 per share in Q4, notably below adjusted levels. Management stressed that these charges are transitory, tied largely to integration and restructuring, and should diminish quickly as the combined organization moves beyond the integration phase.

Seasonal Deposit Decline and Year-End Volatility

Total deposits posted a modest decline in the quarter, a point of focus for market watchers given sector-wide scrutiny of funding trends. Deposits ended Q4 at $30.5 billion, down $193.7 million, or roughly 2.5% on an annualized basis. The bulk of the move was driven by a $260 million drop in demand deposits. Management attributed much of this to typical year-end commercial activity—customers drawing down and shifting balances around the turn of the year—rather than structural runoff, and noted that some of these balances flowed back early in Q1. Still, the deposit dynamics will remain an area to monitor as the bank works to hit its long-term deposit growth targets.

Higher Noninterest Expense and Episodic Fraud Losses

Noninterest expenses ticked higher in Q4, with some items flagged as episodic but nonetheless impactful. Adjusted operating noninterest expense rose to $186.9 million, up $1.4 million from Q3. The increase was driven in part by a $2.4 million rise in other expenses, which included elevated noncredit customer losses related to fraud and scams, alongside higher marketing spend. Management characterized the fraud-related items as episodic but noted that they were elevated in Q4. Investors will be watching to see if these costs normalize in coming quarters as the bank enhances controls and fraud prevention measures.

Variable Accretion and Swap Income

The earnings profile continues to benefit from accretion and swap income, but management was clear about the inherent variability of these sources. Accretion income provided a boost to Q4 results but is expected to trend down over time, with the bank modeling $150–$160 million of purchase-account accretion for 2026. Interest-rate swap income is also a meaningful contributor, and 27% of Q4 swap income came from legacy Sandy Spring customers. However, both accretion and swap revenues were described as lumpy and subject to quarter-to-quarter swings, making them less reliable than core spread and fee income for forecasting purposes.

Credit Volatility and Prior Quarter Charge-Offs

The bank’s very low Q4 charge-offs followed a more volatile prior quarter, underscoring that individual credit events can still impact results. In Q3, two C&I relationships were charged off, pushing the net charge-off ratio to an annualized 56 basis points. Q4 benefited from the absence of similar large events, producing the ultra-low 1 basis point NCO ratio. Management used this contrast to highlight that while the overall credit portfolio remains healthy, investors should expect some degree of fluctuation in quarterly credit metrics when outsized single-name events occur.

Earning Asset Yields and Rate-Cut Risks

While funding costs improved, earning asset yields were slightly softer, and management acknowledged potential future pressure if the Federal Reserve cuts rates faster or deeper than currently assumed. Earning asset yields dipped modestly, down 1 basis point quarter over quarter. The bank’s margin outlook assumes two 25 basis point Fed cuts, and management indicated that more aggressive easing could squeeze spreads. However, they also emphasized continued opportunity to lower deposit costs further to offset some of the margin impact, leveraging the rate sensitivity of their funding base.

Outlook and 2026 Guidance Reaffirmed

Management reaffirmed an ambitious and detailed 2026 roadmap, giving investors a clear view of where the franchise is headed. The bank continues to target year-end 2026 loans of $29–$30 billion and deposits of $31.5–$32.5 billion. Credit cost expectations remain disciplined, with an allowance for credit losses of roughly 115–120 basis points of loans and a net charge-off ratio guided to 10–15 basis points. On the income side, the company projects fully tax-equivalent NII of $1.35–$1.375 billion and a full-year FTE NIM around 3.94%, assuming two 25 basis point Fed cuts in April and September. Purchase-account accretion is modeled at $150–$160 million, with noninterest income expected in the $220–$230 million range and adjusted operating noninterest expense at $750–$760 million, or about $188 million per quarter on average, with Q1 modestly higher on seasonality. Management also targets tangible book value per share growth of 12–15% and aims to rank in the top quartile of peers on key profitability metrics, with excess capital above roughly 10.5% CET1 available for potential buybacks as merger-related costs fade.

In sum, Atlantic Union Bankshares’ earnings call showcased a bank delivering strong underlying performance while working through the tail end of merger-related noise. Solid loan growth, margin expansion, top-tier adjusted returns, and resilient asset quality all point to a compelling earnings story, even as investors must factor in temporary GAAP pressure from integration expenses, modest seasonal deposit volatility, and some variability in fee and accretion income. With integration largely complete, cost synergies flowing through, and a clear 2026 roadmap reaffirmed, the company positioned itself as a potentially attractive name for investors seeking a regional bank with scale, strong profitability, and growing capital return capacity.