Executive Summary / Key Takeaways

• Strategic Transformation and Market Leadership: Atlantic Union Bankshares (AUB) has strategically transformed into a dominant regional bank in the lower Mid-Atlantic, culminating in its acquisition of Sandy Spring Bancorp (SASR). This merger creates an "irreplicable franchise" with the number one regional depository market share in both Maryland and Virginia, positioning AUB for sustained growth and competitive advantage.
• Solid Financial Performance Amidst Integration: Despite "noisy" quarters due to merger-related costs, AUB delivered strong Q3 2025 operating results, with adjusted operating return on tangible common equity of 20.1% and an efficiency ratio of 48.8%. The core net interest margin improved, and fee income streams were augmented by the Sandy Spring acquisition.
• Disciplined Risk Management and Improving Credit Profile: AUB maintains a conservative approach to credit, with leading asset quality indicators showing improvement despite specific charge-offs in Q3 2025. The company's CRE concentration is well-managed, and its government contractor finance portfolio remains resilient, supporting a reaffirmed full-year 2025 net charge-off ratio guidance of 15-20 basis points.
• Robust Capital Generation and Strategic Growth Outlook: With regulatory capital ratios comfortably above well-capitalized levels, AUB expects strong internal capital generation. The company projects mid-single-digit loan growth for 2025 and 2026, driven by an expanded footprint and accelerated organic expansion in North Carolina, including plans for 10 new branches and team expansions.
• Attractive Valuation and Shareholder Value Focus: AUB's strategic moves and projected top-quartile financial returns underscore its commitment to shareholder value. The company's forward P/E remains attractive versus peers, and robust insider buying signals management confidence, suggesting potential for capital returns, including buybacks, in the latter half of 2026.

A Strategic Ascent: Building an Unmatched Regional Powerhouse

Atlantic Union Bankshares Corporation (AUB), headquartered in Richmond, Virginia, has meticulously executed a multi-chapter strategic plan to establish itself as a premier regional bank in the Mid-Atlantic. The company's core business revolves around providing comprehensive banking and related financial products and services to consumers and businesses, operating through its Wholesale Banking and Consumer Banking segments. This journey began with "Chapter 1," consolidating its position as "Virginia's bank" since its founding in 1902. The strategic narrative then advanced with "Chapter 2," marked by transformative acquisitions designed to extend its influence across the lower Mid-Atlantic.

The acquisition of American National Bankshares Inc. (AMNB) on April 1, 2024, was pivotal, densifying AUB's presence in Western and Southern Virginia and providing a meaningful entry into North Carolina. This laid the groundwork for further expansion. The most significant strategic move came with the acquisition of Sandy Spring Bancorp, Inc. on April 1, 2025, ahead of schedule due to accelerated regulatory approvals. This merger is a game-changer, uniting the number one regional depository market share banks in Maryland and Virginia. Management views this combined entity as an "irreplicable franchise" in the lower Mid-Atlantic, offering unparalleled market density and competitive advantage.

AUB operates within a highly competitive banking landscape, facing off against larger regional and national players such as Truist Financial (NYSE:TFC), PNC Financial Services (NYSE:PNC), Regions Financial (NYSE:RF), and M&T Bank (NYSE:MTB). While these larger rivals benefit from scale and extensive resources, AUB differentiates itself through its agility, deep community focus, and personalized service. Its historical roots and localized expertise foster strong customer loyalty, particularly appealing to small businesses and community-oriented clients. AUB's strategy is not to compete solely on price but to deliver value through relationships, a stance that helps it maintain pricing power in its core markets.

However, AUB's smaller scale compared to its larger competitors presents certain vulnerabilities, including potentially higher operational costs and technological gaps in digital innovation. For instance, AUB may lag in innovation speed compared to technologically advanced rivals. The company addresses these challenges by strategically investing in its capabilities and leveraging its unique market position. The banking industry is also experiencing significant shifts driven by digital banking adoption and AI-driven innovations. While AUB may not possess a unique proprietary core banking technology, it actively engages with technology for internal efficiency and client service. The company has invested in upgrading its consumer online banking system and is exploring AI-related requests across its operations. Furthermore, AUB's government contractor finance portfolio is strategically positioned to benefit from increased investment in modern technologies like missile defense, drone warfare, unmanned vehicles, artificial intelligence, and secure communications, demonstrating its participation in financing tech-driven sectors. This engagement with technology, both internally and through its specialized lending, contributes to its competitive moat by enhancing operational effectiveness and tapping into high-growth areas.

Financial Performance: A New Chapter Unfolds

The third quarter of 2025 marked a significant period for Atlantic Union Bankshares, showcasing the initial earnings potential of its expanded franchise despite the "noisy" integration phase of the Sandy Spring acquisition. AUB reported adjusted operating earnings available to common shareholders of $119.7 million, or $0.84 per common share, for Q3 2025. This translated into robust profitability metrics, including an adjusted operating return on tangible common equity of 20.1% and an adjusted operating return on assets of 1.3%. The adjusted operating efficiency ratio stood at 48.8%, indicating strong operational leverage as the company integrates its new assets.

Net interest income (NII), a primary revenue driver, was $319.21 million for Q3 2025, with a reported FTE net interest margin of 3.83%. While the reported NIM remained steady quarter-over-quarter due to fluctuations in accretion income, the core net interest margin (excluding accretion) actually improved, highlighting underlying strength. This improvement was supported by a 5 basis point decline in the cost of funds to 2.17%, driven by lower average short-term borrowings, reduced brokered deposit balances, and lower customer time deposit rates. Earning asset yields, however, saw a modest 5 basis point decline to 6%, primarily due to lower accretion income and the impact of the $2 billion commercial real estate (CRE) loan sale on average loan balances, shifting towards lower-yielding cash and investments.

Noninterest income demonstrated notable strength, increasing by $5.1 million from Q2 2025 to $56.6 million on an adjusted operating basis. This growth was primarily fueled by a $4.2 million increase in loan-related interest rate swap fees, reflecting higher transaction volumes, and a $1.2 million increase in other operating income from equity method investment income. The Sandy Spring acquisition significantly augmented fee income opportunities, particularly in interest rate swaps and wealth management, with approximately $1 million of Q3 2025 swap income attributed to the former Sandy Spring Bank, which previously did not offer such services.

Noninterest expenses, on a reported basis, decreased by $41.3 million to $238.4 million in Q3 2025, largely due to a $44.1 million decline in merger-related costs. Adjusted operating noninterest expenses, which exclude these one-time costs and amortization of intangibles, increased by $3.1 million to $185.5 million. This increase was attributed to investments in marketing and advertising ($1.3 million), professional services for strategic projects ($966,000), and other operational expenses, partially offset by a decrease in salaries and benefits.

The balance sheet reflects the transformative impact of the Sandy Spring acquisition. Total assets stood at $37.07 billion at September 30, 2025, a substantial increase of $12.50 billion from December 31, 2024. Loans held for investment (LHFI) grew to $27.36 billion, an $8.9 billion increase from year-end 2024, driven by both the acquisition and organic growth. Total deposits reached $30.67 billion, up $10.30 billion from December 31, 2024, primarily from the acquired Sandy Spring deposits. Noninterest-bearing deposits showed healthy growth of approximately 4% annualized in Q3 2025. The company actively managed its funding costs, paying down $116 million in brokered deposits during Q3 2025 and continuing to reduce higher-cost, non-relationship deposits from the acquired portfolio, anticipating further improvements in the cost of deposits in Q4 2025.

Asset Quality and Prudent Risk Management

Atlantic Union Bankshares maintains a disciplined and conservative approach to asset quality, a cornerstone of its "soundness, profitability, and growth" philosophy. While the third quarter of 2025 saw an increase in net charge-offs, management emphasized that overall credit trends remain encouraging. Net charge-offs increased to $38.6 million, or 0.56% annualized, in Q3 2025, up from $666,000 (0.01% annualized) in Q2 2025. This was primarily due to the charge-off of two individually assessed commercial and industrial (C&I) loans, one of which involved a borrowing base misrepresentation first disclosed in Q4 2024, leading to a $15 million charge-off in Q3 2025 in addition to a previously incurred $14 million specific reserve. Despite these specific events, nonperforming assets (NPAs) as a percentage of LHFI remained low at 0.49% at September 30, 2025, reflecting a slight increase from 0.32% at December 31, 2024, primarily due to purchased credit deteriorated (PCD) loans acquired from Sandy Spring. Critically, criticized asset levels improved by over $250 million, or 16%, bringing criticized loans as a percentage of total loans down to 4.9% from 5.9% in Q2 2025.

The allowance for credit losses (ACL) stood at $320 million at September 30, 2025, an increase of $126.3 million from December 31, 2024, primarily due to the initial ACL recorded in the Sandy Spring acquisition. The ACL as a percentage of total LHFI was 1.17% at quarter-end. The provision for credit losses was $16.2 million for Q3 2025, and $139.6 million for the nine months ended September 30, 2025. The nine-month figure included $89.5 million of Day 1 initial provision expense on non-PCD loans and $11.4 million on unfunded commitments from Sandy Spring, reflecting the CECL accounting methodology for acquired portfolios.

A significant portion of AUB's credit exposure is in Commercial Real Estate (CRE). The company actively mitigates CRE risks through stringent underwriting, a centralized credit administration, and stress testing of loan interest rates and occupancy levels. The CRE concentration as a percentage of capital decreased, with construction and land development at 51.90% (down from 63.20% at December 31, 2024) and total CRE loans at 276.90% (down from 292.70% at December 31, 2024). These decreases were largely driven by the Sandy Spring acquisition and the strategic sale of $2 billion of performing CRE loans acquired from Sandy Spring on June 26, 2025. This sale generated a $10.9 million pre-tax gain and reduced CRE concentration, enhancing capacity for future growth while AUB retained servicing rights. The company's office portfolio is concentrated in suburban markets with strong occupancy, and AUB does not finance large, high-rise, or major metropolitan central business district office buildings, limiting exposure to a potentially vulnerable segment.

The government contractor finance portfolio, predominantly focused on national security and defense, is performing well. AUB has a 15-year history in this segment without a single charge-off, underscoring its client selectivity and the resilience of these businesses, which are supported by a record-high defense budget and ongoing modernization efforts. Management believes the Greater Washington D.C. region, despite headlines about government employment and shutdowns, remains resilient, with economic data and on-the-ground observations indicating stability.

Capital Strength and Strategic Deployment

Atlantic Union Bankshares maintains a robust capital position, with consolidated regulatory capital ratios comfortably exceeding well-capitalized levels. At September 30, 2025, the estimated Common Equity Tier 1 (CET1) capital ratio was 9.92%. Total stockholders' equity reached $4.90 billion, an increase of $1.80 billion from December 31, 2024, primarily driven by the issuance of common stock related to the Sandy Spring acquisition. The company also physically settled its Forward Sale Agreements on April 1, 2025, generating approximately $385 million in net proceeds, further bolstering its capital base.

Liquidity remains strong, with cash and cash equivalents at $794.665 million at September 30, 2025, reflecting proceeds from the CRE loan sale. Liquid assets totaled $12.40 billion, representing 33.40% of total assets. Approximately 68% of deposits were insured or collateralized, and available liquidity sources covered about 156.80% of uninsured and uncollateralized deposits. The company has also strategically increased its borrowing capacity at the Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) to ensure reliable funding sources.

AUB's capital management strategy prioritizes reinvestment in the business and funding lending growth. The company is comfortable managing with a CET1 ratio between 10% and 10.5%. Projections indicate that AUB will continue to accrete capital at a strong rate, with excess capital beyond the 10.5% threshold potentially becoming available for share buybacks in the second half of 2026. The dividend payout ratio is targeted between 35% and 45%, reflecting a balanced approach to shareholder returns and capital retention for growth.

Outlook and Growth Trajectory

Atlantic Union Bankshares is poised for continued growth and enhanced profitability, with management providing concrete guidance for the remainder of 2025 and strategic insights for 2026. The company expects year-end loan balances to range between $27.7 billion and $28 billion, inclusive of fair value loan marks. Year-end deposit balances are projected to be between $30.8 billion and $31 billion, driven by mid-single-digit annualized loan growth and low single-digit annualized deposit growth in Q4 2025.

The full-year 2025 fully tax equivalent (FTE) net interest income is projected to be between $1.160 billion and $1.165 billion, with a Q4 2025 run rate targeted between $325 million and $330 million. The full-year FTE net interest margin is expected to be in the range of 3.75% to 3.8%, expanding to 3.85% to 3.9% in Q4 2025. This outlook is based on a baseline assumption of two 25-basis point Federal Reserve rate cuts in October and December 2025, with stable term rates. Management anticipates core NIM expansion, driven by fixed-rate loan portfolios repricing higher (approximately 100-150 basis points above current portfolio yields) and continued reductions in deposit costs. The Sandy Spring acquisition provides a natural hedge, making the combined entity less asset-sensitive. Accretion income from purchase accounting is expected to be around $40-41 million quarterly in Q4 2025, gradually declining to $35-40 million quarterly in 2026 as loans mature and reprice.

Adjusted operating noninterest income for the full year 2025 is projected between $185 million and $190 million, with a Q4 2025 run rate of $50 million to $55 million. Adjusted operating noninterest expenses for the full year are estimated to be between $675 million and $680 million, with a Q4 2025 run rate of $183 million to $188 million. The effective tax rate is projected to increase to 21%-22% annually, reflecting Sandy Spring's higher state tax jurisdiction.

Looking to 2026, AUB expects mid-single-digit loan growth for the total company, with high single-digit growth possible in a "more normalized environment." The company targets a mid-40s efficiency ratio, inclusive of strategic investments. "Chapter 3" of AUB's strategy focuses on accelerating organic expansion in North Carolina, a high-growth market. Starting in 2026, AUB plans to open 10 new branches over a three-year period (7 in the Research Triangle, 3 in Wilmington) and expand its commercial banking, wealth, and mortgage teams to achieve critical mass and drive incremental growth.

Conclusion

Atlantic Union Bankshares has successfully executed a transformative strategy, evolving into a uniquely positioned regional banking leader across Maryland, Virginia, and North Carolina. The integration of Sandy Spring Bancorp has cemented its status as the number one regional depository market share bank in its core markets, a position management believes is irreplicable. This strategic expansion, combined with disciplined risk management, a resilient credit portfolio, and a focus on operational efficiency, underpins a compelling investment thesis.

Despite the "noise" of recent merger integration, AUB's Q3 2025 financial results demonstrate strong underlying profitability and operational effectiveness, with key metrics like adjusted operating return on tangible common equity and efficiency ratio meeting expectations. The company's proactive management of its balance sheet, including the strategic CRE loan sale and aggressive deposit cost reductions, positions it favorably for continued net interest margin expansion. With robust capital generation and a clear roadmap for organic growth in attractive markets like North Carolina, Atlantic Union Bankshares is well-equipped to deliver sustainable, top-tier financial performance and long-term shareholder value, leveraging its unique franchise and disciplined approach to banking.