Atlantic Union Bankshares Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The Richmond-based bank holding company operates Atlantic Union Bank, with 114 branches and approximately 130 ATMs in Virginia and parts of Maryland and North Carolina. Financial statements are unaudited; the independent accountant performed an interim review, not an audit.
Financial performance and position
| Metric | Q2 2022 / June 30, 2022 | Comparable period / prior date |
|---|---|---|
| Net income | $62.2 million; $59.3 million available to common shareholders | Q2 2021: $85.4 million; $82.4 million available to common shareholders |
| Diluted EPS | $0.79 | Q2 2021: $1.05 |
| Net interest income / margin | $138.8 million / 3.15% (GAAP); FTE margin 3.24% | Q2 2021: $140.5 million / 3.15%; FTE margin 3.23% |
| Noninterest income | $38.3 million | Q2 2021: $28.5 million |
| Noninterest expense | $98.8 million | Q2 2021: $92.0 million |
| Total assets | $19.66 billion | December 31, 2021: $20.06 billion |
| Loans held for investment, net of allowance | $13.55 billion | December 31, 2021: $13.10 billion |
| Total deposits | $16.13 billion | December 31, 2021: $16.61 billion |
| Stockholders’ equity | $2.39 billion | December 31, 2021: $2.71 billion |
For the first six months, net income was $105.9 million and diluted EPS was $1.33, compared with $141.6 million and $1.72 in 2021. Six-month net interest income was $269.7 million versus $275.4 million; GAAP net interest margin was 3.06% versus 3.12%.
Q2 noninterest income included a $9.1 million pretax gain on the sale of Dixon, Hubard, Feinour & Brown (DHFB), completed June 30. Adjusted operating EPS, a non-GAAP measure excluding specified items including the sale gain, was $0.69 versus $1.05. Q2 adjusted operating noninterest expense increased 8.4% year over year, primarily reflecting higher compensation, technology, and other costs.
Six-month operating cash flow was $199.2 million; investing cash flow was negative $473.4 million and financing cash flow was negative $287.0 million. Cash and cash equivalents declined $561.1 million to $241.4 million. The company reported liquid assets of $5.5 billion, or 28.0% of total assets, and available borrowing sources including a collateral-dependent FHLB line of up to $5.9 billion.
Material changes versus comparable periods
- Q2 net income available to common shareholders fell about 28% year over year; the company cited lower PPP-related interest income and fees and higher operating expenses. Higher deposit service charges and swap fees partly offset lower mortgage banking income.
- Loans grew $460.0 million from year-end, or 7.0% annualized; excluding PPP loans, growth was $588.2 million, or 9.1% annualized. Deposits declined $482.4 million, or 5.9% annualized, reflecting lower money-market balances, maturing time deposits, and a public-funds customer using deposits to repay debt.
- Total borrowings rose $291.4 million to $798.0 million, including $290.0 million of FHLB advances at June 30. The company also reported $118.7 million of repurchase-agreement borrowings and $389.3 million of long-term borrowings.
- Accumulated other comprehensive loss moved to $316.3 million from income of $18.6 million at year-end, primarily reflecting market-value declines in available-for-sale securities as interest rates rose. The AFS portfolio had $352.8 million of gross unrealized losses; management attributed them primarily to market rates and said it did not intend, and was not more likely than not required, to sell the securities before recovery.
- During the first half, the company repurchased approximately 1.3 million common shares for $48.2 million under its $100 million authorization; $51.8 million remained available at June 30. It completed consolidation of 16 branches and its operations center in March 2022.
Credit, capital, outlook, and risks
- Nonperforming assets were $31.1 million, or 0.23% of loans, down from $32.8 million, or 0.25%, at year-end. Nonaccrual loans were $29.1 million. Six-month net charge-offs were $935,000; the allowance for credit losses was $113.2 million, or 0.83% of loans, up from $107.8 million and 0.82% at year-end.
- Commercial real estate and commercial and industrial lending are major portfolio categories. Management cited underwriting and monitoring practices as mitigants, while identifying real estate concentration, economic conditions, inflation, and borrower repayment capacity among relevant risks.
- At June 30, estimated regulatory ratios included common equity Tier 1 of 9.96%, Tier 1 capital of 11.00%, total capital of 13.85%, and leverage of 9.26%. These June figures were estimates pending the company’s regulatory filing.
- Management described the company as asset-sensitive and expected rising rates to expand net interest margin. Its model estimated 12-month net interest income increasing 6.54% under an immediate 100-basis-point rate increase and 19.04% under a 300-basis-point increase. Management cautioned that model assumptions may not materialize; economic-value sensitivity showed a 2.07% decline under a 100-basis-point increase.
- No specific earnings or full-year financial guidance is provided in the supplied filing text. The company warned that results depend on interest rates, inflation, economic conditions, deposit flows, credit quality, real estate values, liquidity, competition, cyber and third-party risks, and geopolitical and public-health developments. It reported no material change in previously disclosed risk factors and no material change in previously disclosed legal proceedings; management did not expect the aggregate outcome of proceedings to materially adversely affect the company.
- The board declared a $0.30 common dividend after quarter-end, payable August 26, 2022. Disclosure controls were assessed as effective at the reasonable assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether deposit outflows persist and how replacement funding affects funding costs and liquidity.
- How rising rates affect the AFS portfolio, accumulated other comprehensive loss, tangible common equity, and potential securities sales.
- Whether loan growth continues and whether credit quality, commercial real estate concentrations, and the allowance remain appropriate as economic conditions change.
- How much of reported earnings reflects the DHFB sale gain and other adjustments, and whether expense growth moderates after the branch and operations-center consolidation.
- Actual regulatory capital ratios when finalized, and the assumptions underlying management’s interest-rate sensitivity estimates.