2023-08-14 01:26:43 ET
Summary
- Atlantic Union Bankshares Corporation is a strong performer in the regional banking sector.
- AUB reported a decline in revenue but beat estimates for net income in Q2 2023.
- The bank saw growth in loans and deposits, and maintained strong asset quality metrics.
We continue to cover regional banks that we have previously covered or recommended looking for signs of weakness in the sector since the collapses of regional banks in March. One small regional that we follow is Atlantic Union Bankshares Corporation ( AUB ), and we think upside remains here after a rally since the early spring. This is because the performance of Atlantic Union is strong. The company is shareholder-friendly, as it has previously repurchased a ton of shares, and it pays a dividend yield of 3.7% to wait for a more meaningful rebound. The bank is also making moves, acquiring American National Bankshares in an all stock deal. In this column, we review the critical metrics you should be aware of and discuss why we see AUB stock as a buy following the just announced results .
Atlantic Union Bankshares' headline performance
For Q2 2023, Atlantic Union Bankshares Corporation reported a top line that missed but a bottom line that beat expectations . With the present quarter's revenue of $176.3 million, Atlantic Union Bankshares registered an 0.4% decline in this key metric year-over-year. Net interest margin narrowed, in line with our expectations that peak margins have occurred. Net interest margin was 3.37% falling from 3.41% in Q1 2023.
That said, unlike many banks, Atlantic Union reduced slightly its provision for credit losses. The bank recorded a provision for credit losses of $6.1 million, compared to a provision for credit losses of $11.9 million in the prior quarter. Atlantic reported net income of $52.3 million or $0.74 per share, which beat estimates by a solid $0.07. This came as loans grew.
Atlantic Union Bankshares' loans and deposits
Loans continue to increase despite a higher rate environment. Total loans held were $14.9 billion, an increase of $0.61 billion from the sequential Q1. However, deposits are harder to come by for many regional banks, as there is massive competition for deposit dollars and many banks are toying with their rates being paid on deposits. Yet the company saw some strength here. Total deposits increased $283.4 million or 1.8% from a year ago, and quarterly average deposits increased $89.1 million or 0.6% from the same period in the prior year. Why? Well, total deposits increased from the same period in the prior year primarily due to increases in interest bearing customer deposits and brokered deposits.
Atlantic Union Bankshares still has strong asset quality
All things weighed here, you have the company making acquisition, seeing loans and deposits hold up, and relative margin strength,, but we need to ensure the assets held by Atlantic Union Bankshares Corporation are of high quality. We will say that we saw mostly strong trends in asset quality metrics for Atlantic Union Bankshares in Q2. Net charge-offs were $1.6 million or 0.04% of total average loans on an annualized basis for the second quarter of 2023, compared to $4.6 million or 0.13% for Q1. This were up a touch from the $939,000 or 0.03% a year ago. That is rather bullish, as there are no signs of distress yet. The allowance for credit losses was $136.2 million at quarter end an increase of $4.5 million from a year ago due to loan growth in the second quarter of 2023 and the impact of continued uncertainty in the economic outlook. Finally the efficiency ratio drastically improved from the sequential quarter. It came in at 59.94%, improving from 66.40% in Q1.
Final thoughts
Folks, the bank is doing well. While the yield on shares is less competitive than bonds, and less so than some comparable banks, we like the dividend here. We also like the operational metrics. Asset quality metrics remain favorable. While many regional banks are suffering on loan growth, as well as deposits, this bank is seeing relative strength. We think shares are a buy on weakness, as banks should do well as rates stabilize. We are not backing away, we think this stock can be bought.
For further details see:
Atlantic Union Bankshares: We Are Not Backing Away