Atlantic Union Bankshares Corporation — Q1 2023 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2023, compared with Q1 2022; balance-sheet comparisons are primarily against December 31, 2022. The Richmond-based bank holding company reported $20.1 billion in total assets and operated 109 branches across Virginia and parts of Maryland and North Carolina.
Key financial metrics
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $153.4 million; FTE $157.2 million | $130.9 million; FTE $134.3 million in Q1 2022 |
| Net interest margin | 3.41%; FTE 3.50% | 2.97%; FTE 3.04% in Q1 2022 |
| Net income | $35.7 million; $32.7 million available to common shareholders | $43.7 million; $40.7 million available to common shareholders in Q1 2022 |
| Diluted EPS | $0.44 | $0.54 in Q1 2022 |
| Provision for credit losses | $11.9 million | $2.8 million in Q1 2022 |
| Noninterest income / expense | $9.6 million / $108.3 million | $30.2 million / $105.3 million in Q1 2022 |
| Loans held for investment, net | $14.6 billion | $14.4 billion at December 31, 2022 |
| Total deposits | $16.5 billion | $15.9 billion at December 31, 2022 |
| Total borrowings | $798.9 million | $1.7 billion at December 31, 2022 |
| Cash and cash equivalents | $372.2 million | $319.9 million at December 31, 2022 |
| Operating cash flow | $59.6 million | $111.4 million in Q1 2022 |
| Stockholders’ equity | $2.44 billion | $2.37 billion at December 31, 2022 |
The company reported adjusted operating earnings available to common shareholders of $47.2 million and adjusted diluted EPS of $0.63, excluding the securities-sale loss and legal reserve. These are non-GAAP measures; GAAP net income available to common shareholders was $32.7 million.
Material changes and management commentary
- Net interest income rose $22.5 million year over year as higher loan yields and average loan balances more than offset higher funding costs. Net interest margin improved versus Q1 2022, but management expects continued margin contraction as deposit costs and competition rise.
- Interest expense increased to $64.1 million from $7.5 million in Q1 2022, including deposit interest expense of $51.8 million versus $4.5 million. The cost of interest-bearing liabilities rose to 2.02% from 0.26%.
- In Q1, the company sold $505.7 million of available-for-sale securities at a $13.4 million pretax loss and used proceeds to repay higher-cost FHLB borrowings. Management said the repositioning should improve liquidity, enhance tangible common equity and increase run-rate earnings, with an estimated loss payback period of about two years.
- Deposits increased $524.2 million during the quarter, while noninterest-bearing demand deposits fell $305.2 million as customers shifted toward higher-yielding products. Interest-bearing deposits included $377.9 million of brokered deposits. Average deposits, however, declined from the prior quarter.
- Credit costs increased: net charge-offs were $4.6 million, primarily associated with two commercial loans, versus negligible net recoveries in Q1 2022. The allowance for credit losses was $131.7 million, or 0.90% of loans, compared with $124.4 million, or 0.86%, at year-end. Nonperforming assets were $29.1 million, 0.20% of loans.
- Regulatory capital ratios remained above well-capitalized thresholds. At March 31, the estimated CET1 ratio was 9.91%, total capital ratio 13.76%, and leverage ratio 9.38%.
Liquidity, risks and contingencies
- Management reported $6.0 billion of liquid assets and estimated available liquidity equal to approximately 130% of uninsured and uncollateralized deposits. It stated that 72.1% of deposits were insured or collateralized. The company had $548.6 million of potential BTFP borrowing capacity based on qualifying securities and had not drawn on the program at quarter-end.
- Estimated uninsured deposits were $5.5 billion at March 31, down from $6.5 billion at year-end. The filing identifies industry bank failures, deposit outflows, funding costs, liquidity access and unrealized securities losses as significant uncertainties.
- The CFPB began settlement discussions in March regarding alleged violations related to overdraft practices. The company recorded a probable and estimable liability, identified as a $5.0 million pretax legal reserve, but said additional losses are reasonably possible and cannot be estimated. Litigation remains possible if no settlement is reached.
- Other key exposures include commercial real estate concentrations, economic weakness, inflation, interest-rate changes, credit losses, cyber and operational risks, and competition for deposits. Management said no material changes occurred to previously disclosed risk factors apart from the added industry-liquidity risk.
- The securities portfolio had substantial unrealized losses: AFS net unrealized losses were approximately $407.9 million and HTM net unrealized losses $32.3 million at quarter-end. Management attributed AFS losses primarily to market interest-rate movements and said it did not intend, and was not more likely than not required, to sell the remaining impaired securities before cost recovery.
No quantitative full-year earnings or margin guidance is provided in the supplied filing text. Management cautions that interim results are not necessarily indicative of full-year results. The auditor performed an interim review, not an audit, and reported no material modifications needed for GAAP conformity.
Most important facts for investors to verify
- Deposit stability and mix, including brokered and uninsured balances, deposit pricing, and developments in industry-wide liquidity.
- Whether the securities repositioning produces the expected earnings benefit and approximately two-year payback, alongside the realized loss and remaining unrealized losses.
- Net interest margin trends as funding costs reprice and management’s expectation of continued margin contraction.
- Commercial loan performance, charge-offs, nonaccruals and reserve adequacy, particularly in commercial real estate and commercial and industrial lending.
- The final CFPB resolution, total cost including potential restitution or penalties, and any variance from the recorded reserve.