Atlantic Union Bankshares Corp. Is A Winner, Upside Remains (NYSE:AUB)

Earnings season is underway, and we continue to highlight the results of key regional banks that we have previously covered or recommended. One small regional bank that has been a winner from the fall 2022 lows is Atlantic Union Bankshares Corporation (NYSE:AUB), and we think upside remains.

The performance of Atlantic Union is strong. We would like to point out that the company also is shareholder-friendly, as it has previously repurchased a ton of shares, and it pays a dividend yield of 3.2% to wait. 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 Q4 2022, Atlantic Union Bankshares Corporation reported a top and bottom line that both exceeded expectations. With the present quarter’s revenue of $192.5 million, Atlantic Union Bankshares registered an 8.1% increase in this key metric year-over-year. Pretty decent growth, despite fears of the economy starting to slow. Overall, this was a decent result, all things considered, as results beat by $4.6 million.

Net interest margin expanded given the higher interest rates from both the sequential quarter and the year-ago quarter, coming in at 3.7%. Total net interest income rose minimally from a year ago. Interest income increased to $163.8 million, an increase of $13.1 million from $150.7 million. Very strong results, in our opinion, though noninterest income decreased $1.1 million to $24.5 million from Q3, mostly due to lower investment income and fees.

That said, unlike many banks, Atlantic Union reduced slightly its provision for credit losses to $6.3 million, compared to a provision for credit losses of $6.4 million in Q3. Factoring this in, and the well-controlled expenses, Atlantic reported net income of $67.6 million or $0.90 per share, which beat estimates by a solid $0.09. This came as loans grew.

Atlantic Union Bankshares’ loans and deposits

Loans continue to increase despite a higher rate environment. In fact, total loans held were $14.4 billion, an increase of $0.53 billion from Q3. 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. Total deposits were $15.9 billion, a decline of $0.61 billion from Q3. This decline was mostly seasonal in nature, and due as well as the attraction of higher rates elsewhere. It is an ongoing issue for many regional banks.

Atlantic Union Bankshares has strong asset quality

So we have loans increasing, margins improving, and income on the rise due to better margins, but we need to ensure the assets on the books of Atlantic Union Bankshares Corporation are of high quality. We saw mostly strong trends in asset quality metrics for Atlantic Union Bankshares in Q4. We like that loan loss provisions dipped slightly from Q3. Net charge-offs were $0.81 million, or just 0.02% of loans vs $0.58 million, or 0.02% of total average loans on an annualized basis. So they ticked up very marginally on an absolute basis, but given so many more loans on hand, the percentage remained flat.

That is very bullish, as there are no signs of distress yet. The allowance for credit losses overall was a positive, as they ticked marginally higher to $124.4 million in the quarter, up $5.4 million from Q3. Nonperforming assets as a percent of all loans were actually down 2 basis points to 0.19% in the quarter. Nearly all of the metrics we follow improved for Atlantic Union Bankshares, and the valuation is attractive.

Valuation of Atlantic Union Bankshares

We still like AUB shares under $35 if you can get them there, and we think this market will decline in the coming weeks and give you that chance. Buying under $35 is a great price, although it would still be a bit stretched relative to book value of $29.68 and tangible book of $16.87. Both book and tangible book recovered from big declines in Q3.

Return metrics are also solid, and we saw a big expansion in the return on tangible equity to 22.92% from 17.21% in Q3. It is also up from 11.98% in Q2 2022. This is solid improvement. The return on average assets also spiked to 1.39% from 1.15% in Q3, while the efficiency ratio continues to dazzle, hitting an unbelievable 52.9%, a big improvement from 56.7% in Q3, and far improved from 68.6% in Q2.

Nearly every metric is moving in the right direction. Let AUB shares come down, then buy.

Take-home

Atlantic Union Bankshares Corporation shares are rising on this Q4 earnings report, and they should. However, we think the market will give you another chance to buy AUB shares sub-$35. There are more loans being issued, though deposits are dipping, a problem for many regional banks. The asset quality metrics are strong, and return metrics are very impressive. Let this market sell off, then do some Atlantic Union Bankshares Corporation buying.