Atlantic Union Bankshares Corporation — Q1 2022 Form 10-Q
Business context and period: The Richmond, Virginia-based bank holding company reported the three months ended March 31, 2022. Its bank operated 114 branches and approximately 130 ATMs across Virginia and parts of Maryland and North Carolina. Interim results are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $130.9 million; net interest margin 2.97% | $134.9 million; 3.09% in Q1 2021 |
| Noninterest income | $30.2 million | $31.0 million in Q1 2021 |
| Net income | $43.7 million; $0.54 diluted EPS | $56.2 million; $0.67 diluted EPS in Q1 2021 |
| Adjusted operating earnings available to common shareholders | $45.1 million; $0.60 adjusted diluted EPS | $65.5 million; $0.83 adjusted diluted EPS in Q1 2021 |
| Operating cash flow | $111.4 million | $84.4 million in Q1 2021 |
| Total assets | $19.8 billion | $20.1 billion at December 31, 2021 |
| Loans held for investment, before allowance | $13.5 billion | $13.2 billion at December 31, 2021 |
| Deposits | $16.5 billion | $16.6 billion at December 31, 2021 |
| Borrowings | $504.0 million | $506.6 million at December 31, 2021 |
| Stockholders’ equity | $2.50 billion | $2.71 billion at December 31, 2021 |
Net interest income on a fully taxable equivalent basis was $134.3 million, down $3.7 million year over year; FTE net interest margin was 3.04%, down 12 basis points. The filing reports a GAAP efficiency ratio of 65.38% and adjusted FTE operating efficiency ratio of 58.86% for Q1 2022, compared with 67.48% and 54.83%, respectively, in Q1 2021.
Cash and cash equivalents declined $406.2 million to $396.3 million. Cash flows were $111.4 million provided by operating activities, $340.0 million used in investing activities, and $177.6 million used in financing activities. The company reported $5.1 billion of liquid assets, or 25.7% of total assets. Short-term borrowings were $115.0 million, primarily repurchase agreements; long-term borrowings were $389.0 million.
Estimated regulatory capital ratios at March 31, 2022 were 9.86% common equity Tier 1, 10.91% Tier 1, 13.79% total risk-based capital, and 9.08% leverage. The allowance for credit losses was $110.6 million, including a $102.6 million loan and lease loss allowance and $8.0 million reserve for unfunded commitments.
Material changes versus comparable periods
- Net income available to common shareholders fell to $40.7 million from $53.2 million a year earlier. Lower loan yields, reduced PPP income and fees, and lower acquisition-accounting accretion contributed to lower net interest income. Provision for credit losses was $2.8 million, compared with a $13.6 million provision benefit in Q1 2021.
- Mortgage banking income decreased $5.1 million to $3.1 million, largely reflecting lower mortgage origination volumes. Higher deposit service charges, fiduciary fees, and loan-related swap fees partly offset that decline.
- Reported noninterest expense declined 5.9% to $105.3 million, in part because Q1 2021 included a $14.7 million debt-extinguishment loss. Adjusted operating noninterest expense increased 4.5% to $96.8 million, with higher salaries and technology costs.
- Loans grew $263.5 million from year-end, or 8.1% annualized; excluding PPP loans, reported growth was $346.4 million, or 10.8% annualized. Deposits declined $126.8 million from year-end, or 3.1% annualized.
- Shareholders’ equity fell $211.7 million, principally reflecting $210.1 million of other comprehensive loss, largely unrealized AFS securities losses amid rising interest rates. AFS securities had $219.2 million of gross unrealized losses at quarter-end; management reported no credit impairment and said it did not intend to sell the securities.
Outlook, management commentary and risks
- Management described the company as asset-sensitive and anticipated that the Federal Reserve’s March rate increase and potential further increases could expand net interest margin. Its model estimated a 5.36% increase in 12-month net interest income under an immediate 100-basis-point rate increase, versus a 7.40% decrease under a 100-basis-point decline. These are model estimates, not earnings guidance.
- The company completed closure of its operations center and consolidation of 16 branches in March 2022. Q1 2022 restructuring costs were approximately $5.5 million, primarily lease and asset write-downs and severance.
- The board authorized a $100 million repurchase program through December 9, 2022. The company repurchased approximately 630,000 shares for $25.0 million during Q1; it reported an additional approximately 524,000 shares, costing $18.9 million, repurchased from April 1 through May 4.
- Management cited uncertainty in the macroeconomic outlook as a reason for increasing the credit-loss allowance. Nonperforming assets were $30.7 million, or 0.23% of loans; nonaccrual loans were $29.0 million. Net charge-offs were negligible in Q1.
- Key stated risks include interest-rate and inflation changes, economic conditions and real-estate values, commercial real-estate concentrations, credit quality and allowance adequacy, deposit flows and liquidity, competition, cybersecurity and third-party risks, regulatory and litigation matters, COVID-19, and the LIBOR transition. Management said there were no material changes to the risk factors in its 2021 Form 10-K.
- The company expects to finalize and begin implementing changes to overdraft and nonsufficient-funds policies later in 2022, which could reduce certain deposit service-charge income. It provided no specific earnings or revenue guidance in the supplied filing text.
Important facts for investors to verify
- Whether loan growth, deposit trends, and funding costs support management’s expectation of margin expansion as interest rates change.
- How much of the large unrealized AFS securities loss is temporary, and the resulting effects on reported equity and regulatory capital.
- Credit quality, especially commercial real-estate exposures, the movement in criticized loans, and whether the allowance remains adequate under changing economic conditions.
- Whether adjusted expenses, branch-consolidation savings, and revenue trends offset salary and technology cost increases and potential overdraft-fee reductions.
- The pace of share repurchases and dividends relative to capital needs; the filing states that March 31, 2022 regulatory capital figures are estimates pending the FR Y-9C filing.
- The interim financial statements received an independent accountant’s review, not an audit opinion. The auditor reported no material modifications needed for GAAP conformity based on that review.