Atlantic Union Bankshares Corporation — Q1 2024 Form 10-Q
Business context and reporting period
Atlantic Union Bankshares is a Virginia-based bank holding company. This unaudited filing covers the three months ended March 31, 2024; balance-sheet comparisons are primarily to December 31, 2023. Its results include two operating segments, Wholesale Banking and Consumer Banking. The American National merger closed April 1, 2024, after quarter-end, so American National’s results are not included in Q1.
Financial results and key metrics
- Earnings: Net income was $49.8 million, up from $35.7 million a year earlier. Net income available to common shareholders was $46.8 million; diluted EPS was $0.62 versus $0.44. Adjusted operating earnings available to common shareholders, a non-GAAP measure, were $49.0 million, or $0.65 per diluted share, versus $47.2 million and $0.63.
- Revenue and margin: Net interest income was $147.8 million, down $5.6 million year over year. Net interest margin was 3.11%, down 30 basis points; the fully taxable-equivalent margin was 3.19%, down 31 basis points. Higher loan yields and loan growth were outweighed by higher deposit and borrowing costs. Noninterest income was $25.6 million versus $9.6 million, largely because Q1 2023 included a $13.4 million securities-sale loss.
- Expenses and credit costs: Noninterest expense declined 2.8% to $105.3 million, partly reflecting the prior-year CFPB legal reserve, while Q1 2024 included merger costs and an FDIC special assessment. Provision for credit losses was $8.2 million, down from $11.9 million.
- Cash flow: Operating activities provided $57.0 million; investing activities used $214.9 million; financing activities provided $176.4 million. Cash and cash equivalents increased $18.5 million to $396.7 million.
- Assets and loans: Total assets were $21.4 billion. Loans held for investment, net of deferred fees and costs, were $15.9 billion, up $216.6 million from year-end. Total investments were $3.1 billion.
- Deposits, liquidity and debt: Deposits increased $460.3 million to $17.3 billion, while total borrowings declined $254.1 million to approximately $1.06 billion. Brokered deposits rose $116.9 million to $665.3 million. Management reported $5.6 billion of liquid assets and available liquidity sources equal to 106.1% of uninsured and uncollateralized deposits; approximately 70.5% of deposits were insured or collateralized.
- Credit quality: Nonperforming assets were 0.23% of loans, compared with 0.24% at year-end. Net charge-offs were $4.9 million, or 0.13% of average loans on an annualized basis. The allowance for credit losses was $151.8 million, 0.96% of loans.
- Capital and shareholder returns: The estimated common equity Tier 1 ratio was 9.87%, total risk-based capital ratio 13.62%, and leverage ratio 9.62%; the company said ratios exceeded well-capitalized standards. The common dividend was $0.32 per share. There was no active repurchase program.
Material changes versus comparable periods
- Net income rose year over year, but net interest income and margin fell as funding costs increased. The earnings comparison also benefited from the absence of the prior-year securities-sale loss and CFPB-related legal reserve.
- Loans and deposits grew from December 31, 2023, while short-term borrowings fell. Customers continued shifting from demand deposits toward higher-yielding products, and brokered deposits increased.
- Unrealized losses increased: AFS securities had net unrealized losses of $410.9 million, up $26.6 million from year-end; HTM securities had net unrealized losses of $37.6 million, up $8.3 million. The company attributed AFS losses primarily to market interest-rate movements and reported no credit impairment.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no specific earnings or financial guidance. Management said it expects net interest income to increase in an immediate rising-rate shock and decline in a falling-rate environment, based on its interest-rate simulation. Results depend on deposit pricing and behavior, rates, loan growth, prepayments and other assumptions.
- Merger: The April 1 American National merger issued 14.3 million Atlantic Union common shares, valued at approximately $505.8 million at the stated reference date, plus cash for fractional shares. Management cited expected strategic and cost benefits but cautioned that integration may take longer or cost more than expected and anticipated benefits may not materialize.
- CFPB matter: The Bank’s December 2023 consent order requires a customer redress plan with at least $5.0 million in restitution and a $1.2 million civil penalty related to overdraft practices. The company had recorded a probable and estimable liability as of March 31, 2024.
- Principal risks: Management highlighted interest-rate and deposit competition, liquidity, economic conditions and inflation, commercial real estate concentrations, credit quality and allowance estimates, merger integration, regulatory or legal matters, and cyber and operational risks. Non-owner-occupied office loans were $779 million, or 4.9% of loans; management said the exposure was geographically diverse and did not include large high-rise or major central-business-district office buildings.
- Other: The filing states there were no material changes to previously disclosed risk factors and no material change in internal control over financial reporting. Interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether deposit growth and the funding mix can be sustained without further pressure on net interest margin and earnings.
- Post-merger share dilution, integration costs, purchase-accounting impacts, and progress toward expected merger benefits.
- Trends in commercial real estate and office credit quality, nonaccrual loans, charge-offs, and the adequacy of the credit-loss allowance.
- Liquidity coverage assumptions and the company’s reliance on brokered deposits and other wholesale funding.
- The final CFPB restitution plan and total costs, and the sensitivity of securities values and capital to interest-rate changes.