AUB

Atlantic Union Bankshares Corp. 2024 Q2 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2024. Atlantic Union Bankshares Corporation (AUB) is a financial holding company headquartered in Richmond, Virginia. The reporting period is significantly impacted by the completion of the acquisition of American National Bankshares Inc. on April 1, 2024. The acquisition added 26 branches, deepening the company's presence in Virginia and expanding into North Carolina. Results for the second quarter and first half of 2024 include the operations of American National from the acquisition date.

Key Financial Metrics

Material Changes vs. Prior Period

• Acquisition Impact: The American National acquisition drove significant balance sheet growth, adding approximately $2.9 billion in assets and $2.7 billion in liabilities. This resulted in a $2.7 billion increase in loans and a $3.2 billion increase in deposits compared to year-end 2023.
• Earnings Decline: GAAP net income decreased significantly year-over-year due to $29.8 million in merger-related costs in Q2 2024, a $4.8 million deferred tax asset write-down, and a $6.5 million pre-tax loss on the sale of securities. Adjusted operating earnings, which exclude these items, remained relatively stable.
• Provision Increase: The provision for credit losses rose to $21.8 million in Q2 2024 from $6.1 million in Q2 2023. This increase included a $13.2 million initial provision on non-PCD loans acquired from American National and $1.4 million for unfunded commitments.
• Expense Growth: Noninterest expenses increased 42% year-over-year to $150.0 million, primarily driven by merger-related costs and the integration of the acquired entity.
• Asset Quality: Nonperforming assets (NPAs) remained low at 0.20% of total loans. Net charge-offs for the six months ended June 30, 2024, were $6.7 million, or 0.08% of average loans.

Guidance, Outlook, and Risks

• Outlook: Management expects to achieve operating cost savings and synergies from the American National acquisition, including branch closures, though these are not yet fully realized in the current period. The company remains focused on managing interest rate risk and deposit costs in a competitive environment.
• Capital Position: The company remains "well-capitalized" under regulatory standards. The Common Equity Tier 1 capital ratio was 9.47% as of June 30, 2024.
• Risks and Contingencies:
  • CFPB Settlement: The company entered a Consent Order with the Consumer Financial Protection Bureau (CFPB) in December 2023 regarding overdraft practices, requiring a redress plan of at least $5.0 million and a $1.2 million civil monetary penalty. A liability has been recorded.
  • Interest Rate Risk: The company is generally asset-sensitive, meaning net interest income is expected to increase in a rising rate environment but decrease in a falling rate environment.
  • Commercial Real Estate (CRE): CRE loans represent 59.1% of the total loan portfolio. Management monitors this concentration closely, particularly regarding office space utilization and non-owner-occupied properties.

Key Facts for Investor Verification

• Merger Integration Costs: Verify the trajectory of merger-related expenses ($29.8 million in Q2) and the timeline for realizing projected synergies.
• Deferred Tax Asset Write-down: Confirm the impact of the $4.8 million valuation allowance recorded in Q2 2024 on future effective tax rates.
• Securities Portfolio Losses: Review the $6.5 million loss on the sale of Available-for-Sale (AFS) securities and the total net unrealized losses on the AFS portfolio ($420.7 million).
• Deposit Composition: Monitor the shift toward higher-cost brokered deposits, which increased by $786.7 million to $1.3 billion, and the impact on the cost of funds.
• CRE Exposure: Assess the quality of the $4.9 billion non-owner-occupied CRE portfolio, particularly the $885.9 million office loan subset, in the context of current market conditions.