AUB Q1 Deep Dive: Loan Loss Reserve Build and Sandy Spring Acquisition Shape Results

Regional banking company Atlantic Union Bankshares (NYSE: AUB) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 20.5% year on year to $213.3 million. Its non-GAAP profit of $0.57 per share was 19% below analysts’ consensus estimates.

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StockStory’s Take

Atlantic Union Bankshares' first quarter saw operational resilience despite missing Wall Street’s revenue and profit expectations. Management pointed to a 12-basis-point expansion in net interest margin and lower deposit costs as partial offsets to seasonal loan softness and increased provision for loan losses. CEO John Asbury highlighted that higher loan loss reserves were driven by “increased uncertainty in the economic outlook and elevated risk of a national recession,” reflecting management’s cautious stance amid macro volatility. The quarter also included strategic deposit growth and stable credit quality, but results reflected the challenges of a complex and shifting policy environment.

Looking ahead, management’s outlook is shaped by the integration of the Sandy Spring acquisition, expectations for stable asset quality, and macroeconomic uncertainty. CFO Rob Gorman projected that the accelerated merger timeline would bring forward cost synergies, with full transaction cost savings now expected by October 2025. At the same time, Asbury noted, “we are not forecasting a recession,” but emphasized that ongoing trade policy shifts and potential federal government cutbacks could impact loan demand and risk. The company is maintaining a focus on soundness and profitability while positioning itself to capitalize on growth opportunities in its expanded regional footprint.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to net interest margin expansion, prudent reserve building, and early steps in integrating Sandy Spring. The team also highlighted the impact of market volatility and policy changes on loan and deposit trends.

• Reserve build reflects uncertainty: The increase in loan loss provision was primarily due to heightened uncertainty around the economic outlook and risk of recession, not specific credit deterioration or portfolio stress. Management used qualitative overlays to account for these risks under its CECL (Current Expected Credit Loss) methodology.
• Net interest margin expansion: The bank achieved a 12-basis-point increase in net interest margin, supported by an 18-basis-point reduction in deposit costs. This improvement was driven by lower funding costs and a favorable shift in deposit mix, including growth in noninterest-bearing deposits.
• Seasonal loan and deposit dynamics: Loan growth was modest, with construction and commercial balances declining due to project completions and paydowns. Deposit growth was aided by reductions in brokered deposits and a $194 million increase in noninterest-bearing balances, reflecting customers’ preference for liquidity in a volatile environment.
• Sandy Spring acquisition integration: The Sandy Spring merger closed ahead of schedule, allowing the company to accelerate planned cost savings and core systems conversion to October 2025. Management expects the acquisition to improve earnings power, diversify the loan portfolio, and create a leading regional bank footprint across Maryland, Virginia, and North Carolina.
• Commercial real estate loan sale: The company is progressing with a planned $2 billion commercial real estate loan sale, which is expected to further de-risk the balance sheet and support post-merger capital ratios. Management emphasized that these loans are not distressed and that portfolio composition remains well diversified by geography and asset type.

Drivers of Future Performance

Atlantic Union Bankshares’ guidance is shaped by the integration of Sandy Spring, macroeconomic headwinds, and the evolving interest rate landscape.

• Merger cost savings and integration: Accelerated integration of Sandy Spring is expected to deliver full transaction cost savings by October 2025, supporting improved efficiency and profitability. The merger also expands the company’s presence in affluent and resilient markets, with management aiming to leverage new scale and capabilities.
• Interest rate and policy uncertainty: The company’s net interest margin outlook depends on the pace and magnitude of Federal Reserve rate cuts. Management noted that additional rate declines or market volatility could pressure loan yields and deposit pricing, while accretion income from the merger will be volatile quarter to quarter.
• Credit risk and loan growth: Management expects asset quality to remain stable but is monitoring for any deterioration linked to trade policy, tariffs, or federal government cutbacks. Loan growth is projected to be modest in the near term but could accelerate as uncertainty abates and business investment resumes, particularly in newly acquired markets.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be watching (1) the pace and impact of Sandy Spring integration, including system conversion and cost synergies, (2) execution and pricing of the $2 billion commercial real estate loan sale, and (3) loan and deposit growth trends across the expanded Mid-Atlantic footprint. Stability in asset quality and management’s ability to navigate macro uncertainty will also be key to tracking future performance.

Atlantic Union Bankshares currently trades at $30.65, in line with $30.94 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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