r UPDATE: This article includes information from a conference call with executives and analysts' research notes.
Atlantic Union Bankshares' planned acquisition of Olney, Maryland-based Sandy Spring Bancorp will create an "enormously powerful franchise" that will rank as the No. 1 regional bank in both Virginia and Maryland, Atlantic Union CEO John Asbury said.
Asbury, Atlantic Union's CEO since 2016, began his banking career at the Richmond-based Crestar Financial, prior to its acquisition by SunTrust in 1999. Crestar was Virginia's largest bank and maintained a substantial profile in Maryland. Atlantic Union will be bigger and better, Asbury said Monday during a conference call with analysts.
"To my knowledge, this has never been done before, and I do not believe it can be done again," he said. "This is an enormously powerful franchise." The merged company's footprint would stretch from Baltimore through Washington, D.C, to Richmond and Hampton Roads, a region Asbury has termed the "golden crescent."
John Asbury
"Atlantic Union will create a preeminent regional bank, with Virginia as its linchpin, that spans the lower mid-Atlantic into the Southeast," he said.
The Richmond-based Atlantic Union agreed to pay Sandy Spring $1.6 billion in stock. Monday's deal marks the third-largest bank acquisition announced this year by transaction value.
Atlantic Union would gain $14.4 billion of assets, creating a combined company with $39.2 billion should the close occur as planned by the end of the third quarter of 2025. The combined company would have total deposits of $32 billion and loans of $29.8 billion.
Atlantic Union's Mid-Atlantic footprint would add 53 branches and double its wealth business, increasing assets under management by more than $6.5 billion.
"Our partnership with Atlantic Union is the right long-term decision for our shareholders, clients and employees. This combination will deliver enhanced scale, diversity in the market, and capabilities for our clients, and it will provide greater opportunities for our employees to grow within a larger organization," Chairman and CEO Dan Schrider said in the release. Schrider would be one of three Sandy Spring directors to join Atlantic Union's board.
To help finance the transaction, Atlantic Union agreed to sell about 9.9 million shares of common stock at $35.50 per share, raising $336 million. It also announced plans to sell up to $2 billion of Sandy Spring commercial real estate loans after closing. The sale is expected to reduce the combined company's ratio of CRE loans to total risk-based capital to 285%, below the 300% threshold that frequently triggers increased regulatory scrutiny. It would also push its loan-to-deposit ratio below 90%, affording plenty of room for future loan growth.
"The key message is we'll be open for business and ready to grow," Asbury said.
Daniel Cardenas, who covers Sandy Spring for Janney Montgomery Scott, described it as "a solid DC-area franchise" in a research note Monday. Cardenas, however, added that Sandy Spring has struggled to meet profitability expectations in recent years. Indeed, Sandy Spring reported third-quarter earnings of $16.2 million or $0.40 per share Monday, well below the consensus estimate of $0.48 per share, according to Nasdaq.
"I think Sandy Spring struggled to grow [commercial-and-industrial loans] as much as they would have liked," Stevens analyst Russell Gunther said on the conference call.
C&I lending "is very much a core competency" for Atlantic Union, Gunther added.
For his part, Asbury said the merged company's larger scale would create more opportunity to lend to middle-market companies. Moreover, Atlantic Union's equipment finance and asset-based lending capabilities would fit well in Sandy Spring's footprint, particularly Baltimore, which Asbury characterized as an "excellent commercial-and-industrial market."
"We see a lot of opportunity,' Asbury said.
Atlantic Union is projecting earnings-per-share accretion totaling 26% in 2026. Expected tangible-book-value dilution of 8.2% is expected to be earned back in a relatively short two years. In a research note Monday, Hovde analyst David Bishop characterized both metrics as positive. Bishop, though, wrote that the planned CRE loan sale along with the capital raise structured not as a one-time transaction but instead involving receipt of payments over 18 months as "injecting uncertainty into the forward earnings and capital-CRE concentration picture which we believe likely weigh on the shares today,"
Atlantic Union's stock was trading at $36.59, down about 5.7% midday Monday.
Through the first three quarters of this year, 93 banks announced plans to sell. That put the industry on pace to easily exceed the 98 deals announced all of last year, according to updated data from S&P Global Market Intelligence.
The firm said that the acquisitions announced in the first nine months of this year had an aggregate deal value of $11.42 billion, more than double the total of $4.15 billion in 2023.
Winter Haven, Florida-based SouthState Corp.'s May announcement that it would pay $2 billion in stock to acquire Independent Bank Group in McKinney, Texas, is the largest bank deal to date in 2024. Kansas City-based UMB Financial's April plan to purchase Heartland Financial USA in Denver in an all-stock transaction valued at just under $2 billion is a close second.
More banks are seeking business line and geographic diversity through M&A as well as the scale needed to invest in technology. This is playing out across financial services and broadly over several sectors, said Ernst & Young's Mitch Berlin.
Berlin, EY Americas' vice chair of strategy and transactions, said once the presidential election is over and we know who will be in the White House next year, buyers can assess regulatory expectations and deal activity could pick up further.
"The election may still give dealmakers some pause," he said, "but the remainder of 2024 should see moderate increases month-over-month and savvy companies are using this moment to strategically position themselves for the next wave of growth through transactions."
Atlantic Union's planned purchase of Sandy Spring comes a little more than six months after it closed its last acquisition, a $507 million deal for American National Bancshares in Danville, Virginia. Integration was completed at the end of May.
