AUB Q3 Deep Dive: Sandy Spring Integration and Margin Pressures Shape Results

Regional banking company Atlantic Union Bankshares (NYSE:AUB) fell short of the market’s revenue expectations in Q3 CY2025, but sales rose 63.3% year on year to $354.7 million. Its non-GAAP profit of $0.84 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Atlantic Union Bankshares’ third quarter results were met with a negative market response, as the company’s revenue fell short of Wall Street expectations despite robust year-over-year growth. Management attributed the quarter’s performance to the ongoing integration of the Sandy Spring acquisition and continued efforts to streamline costs and unify operations. CEO John Asbury noted that merger-related expenses created a noisy quarter, but highlighted successful system conversions and branch consolidations. The company also experienced modest loan growth, tempered by lower revolving credit utilization and increased loan paydowns late in the quarter. CFO Rob Gorman acknowledged the impact of merger-related costs and commercial loan charge-offs, but emphasized improvements in core net interest margin and fee income, particularly from wealth management and interest rate swap activity.

Looking forward, Atlantic Union Bankshares’ outlook is closely linked to its ability to realize cost savings from the Sandy Spring integration and capitalize on expanded lending capabilities. Management expects to see mid-single-digit loan growth, with specialty lines and the North Carolina market providing additional upside. Asbury stated the company is “well positioned for continued organic growth” and anticipates cost savings targets will be fully realized by early next year. Gorman added that margin performance will depend on deposit cost reductions and disciplined expense management, especially as the company invests in expanding its North Carolina presence. Management acknowledged ongoing economic uncertainty, but remains focused on achieving top-tier financial performance and building long-term shareholder value.

Key Insights from Management’s Remarks

Management linked the quarter’s underperformance to acquisition-related costs, loan paydowns, and shifts in deposit mix, while highlighting progress in integrating Sandy Spring and early gains in fee income streams.

• Sandy Spring integration advances: The core systems conversion was completed, and five overlapping branches were closed, enabling unified operations and cost efficiencies. Management expects these actions to drive sustainable expense reductions by early next year.
• Loan growth tempered by paydowns: While lending production increased compared to the prior quarter, higher loan paydowns and a decline in revolving credit utilization offset much of this growth. Average loan growth was positive, but total balances were weighed down late in the quarter.
• Deposit mix shifting: The company reduced higher-cost brokered and nonrelationship deposits inherited from Sandy Spring, while noninterest-bearing deposits grew at a 4% annualized rate, supporting improved funding costs.
• Fee income expansion: Wealth management and interest rate swap fees increased, supported by the new capabilities from Sandy Spring. Notably, Sandy Spring’s prior lack of swap offerings provides new cross-selling opportunities.
• Credit quality stabilizing: Despite two significant commercial and industrial loan charge-offs, leading credit indicators improved, with a notable decline in criticized assets and nonperforming assets remaining low relative to total loans.

Drivers of Future Performance

Atlantic Union Bankshares’ forward guidance is shaped by the realization of Sandy Spring cost synergies, targeted loan growth, and ongoing expense control amid a shifting rate environment.

• Cost synergy execution: Management anticipates achieving full cost savings from the Sandy Spring acquisition by early next year, leading to a mid-40s efficiency ratio. Gorman stated that if revenue growth does not materialize as planned, discretionary expenses may be delayed to maintain positive operating leverage.
• Loan growth and specialty lines: The company is targeting mid-single-digit loan growth, with potential upside if economic conditions normalize. Expansion in specialty lending areas and the North Carolina market is expected to support growth, with 35% of loan production this quarter coming from new clients.
• Margin management amid rate changes: Management expects further margin expansion if deposit costs decline with anticipated Federal Reserve rate cuts. However, the company remains less asset sensitive post-acquisition, and new fixed-rate loan yields will be key to maintaining or improving net interest margin.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) the pace at which Sandy Spring integration achieves targeted cost synergies and operational efficiencies, (2) the sustainability of loan growth and specialty lending as economic conditions evolve, and (3) the company’s ability to manage net interest margin through strategic deposit pricing and new lending initiatives. Progress in North Carolina and the scalability of fee income streams will also be key markers.

Atlantic Union Bankshares currently trades at $33.62, down from $34.04 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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