Atlantic Union Bankshares Corporation — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Atlantic Union is a Virginia-based regional bank holding company operating primarily in Virginia and nearby states, with banking, mortgage, equipment-finance, wealth-management, and insurance businesses.
Financial performance and condition
- Earnings: GAAP net income was $201.8 million, down 13.9% from $234.5 million in 2022. Net income available to common shareholders was $190.0 million, or $2.53 per diluted share, versus $222.6 million, or $2.97, in 2022. Adjusted operating earnings available to common shareholders, a non-GAAP measure, were $221.2 million, or $2.95 per diluted share, versus $219.0 million, or $2.92.
- Interest income and margin: Net interest income rose 4.6% to $611.0 million. Net interest margin increased to 3.33% from 3.27% (FTE margin: 3.41% versus 3.36%). Average earning-asset yield rose to 5.20% from 3.70%, while interest-bearing-liability cost increased to 2.59% from 0.64%; deposit and borrowing costs weighed on margin growth.
- Other income and expenses: Noninterest income fell 23.3% to $90.9 million, including a $41.0 million loss on securities sales; noninterest expense rose 6.6% to $430.4 million. The effective tax rate was 15.9%, compared with 16.2%.
- Balance sheet: Total assets were $21.2 billion, up 3.4%; loans held for investment, net of deferred fees and costs, were $15.6 billion, up 8.2%. Deposits were $16.8 billion, up 5.6%, while total borrowings were $1.3 billion, down 23.2%. Cash and cash equivalents were $378.1 million. Stockholders’ equity was $2.56 billion.
- Cash flow: Operating activities provided $264.0 million; investing activities used $589.2 million; financing activities provided $383.4 million. Cash and cash equivalents increased $58.2 million to $378.1 million.
- Credit quality: Nonperforming assets were $36.9 million, or 0.24% of loans, versus 0.19% a year earlier. Net charge-offs were $7.6 million, or 0.05% of average loans, versus $2.3 million, or 0.02%. The allowance for credit losses was $148.5 million, equal to 0.95% of loans.
- Capital and liquidity: Company regulatory ratios were 9.84% CET1, 10.76% Tier 1, 13.55% total capital, and 9.63% leverage. Liquid assets were $5.8 billion, or 27.6% of assets; management estimated available liquidity covered approximately 106% of uninsured and uncollateralized deposits. About 70.7% of deposits were insured or collateralized. Brokered deposits were $548.4 million.
Material changes versus 2022
- Common-shareholder earnings and GAAP diluted EPS declined, despite higher net interest income, primarily reflecting lower noninterest income, higher expenses, and increased credit-loss provision.
- Deposit interest expense rose sharply as rates and competition for deposits increased. Interest expense was $343.4 million, versus $76.2 million in 2022.
- Loans grew while securities declined: total investments fell 14.2% to $3.2 billion, following securities sales and balance-sheet repositioning. Unrealized AFS losses narrowed to $384.3 million from $462.5 million.
- Deposits grew, but noninterest-bearing demand deposits declined; interest-bearing deposits and brokered deposits increased. Borrowings fell as the company repaid short-term funding.
- Nonperforming assets and net charge-offs increased, though reported levels remained low relative to loans.
Outlook, management commentary, risks, and unusual items
- Merger: The pending American National Bankshares transaction would exchange 1.35 Atlantic Union shares for each American National share. Shareholders of American National approved it; regulatory approvals and other closing conditions remained outstanding. Management expected closing in the second quarter of 2024. Integration, approval, dilution, purchase-accounting, and benefit-realization risks remain.
- Cost program: Measures begun in the second quarter of 2023 are expected to reduce the annual expense run rate by approximately $17 million. The company recorded $12.6 million of related 2023 pretax costs.
- Balance-sheet actions: Sale-leaseback transactions involving 28 properties generated $29.6 million of pretax gains; the leases have initial 17-year terms. AFS securities sales generated a reported $41.0 million loss. Management said proceeds from the first-quarter sale were used to reduce higher-cost FHLB borrowings and later proceeds were reinvested in higher-yielding securities.
- CFPB matter: A December 2023 consent order concerning discretionary overdraft practices requires a customer redress plan of at least $5.0 million and a $1.2 million civil penalty. The company recorded an $8.3 million legal reserve and remains subject to the order’s requirements.
- Economic and credit risks: Management highlighted elevated inflation, uncertain interest rates, deposit competition, possible recession, and commercial real estate exposure. Non-owner-occupied CRE was 26.7% of loans; office loans were $775 million, or 5.0% of loans. The company said it does not finance large high-rise or major metropolitan central-business-district office buildings.
- Interest-rate outlook: The company reported that it remained positioned for net interest income to increase under modeled rising-rate shocks, but was less asset-sensitive than in 2022; falling rates were expected to reduce net interest income. Outcomes depend on assumptions about deposit pricing, loan repricing, and prepayments.
- Distributions and controls: Common dividends totaled $1.22 per share in 2023; a $0.32 quarterly dividend was declared for early 2024. Dividend capacity depends on earnings, capital, liquidity, and regulatory limits. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the company reported no material cybersecurity incidents in 2023.
Most important facts for investors to verify
- Progress and final regulatory conditions for the American National merger, expected closing timing, dilution, integration costs, and projected benefits.
- Deposit mix, uninsured and uncollateralized balances, brokered funding, liquidity availability, and the effects of continued deposit repricing.
- Commercial real estate and office-loan performance, criticized and nonaccrual trends, charge-offs, and whether the $148.5 million allowance remains adequate.
- Whether the $17 million annualized cost savings are achieved and how recurring expenses compare with adjusted non-GAAP measures.
- Remaining effects of securities losses and unrealized portfolio marks on earnings, capital, and liquidity under changing interest rates.
- Completion of CFPB redress and compliance obligations, and any additional costs or regulatory actions.