Atlantic Union Bankshares Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 25, 2022. This is an annual report, not a standalone fourth-quarter results release. Atlantic Union is a Virginia-based bank holding company operating primarily through Atlantic Union Bank, with banking, lending, wealth management, equipment finance and related services across Virginia and parts of Maryland and North Carolina.
Financial results and condition
| Metric | FY2021 / year-end | Comparison |
|---|---|---|
| Net income | $263.9 million; $252.0 million available to common shareholders | Net income was $158.2 million and common earnings $152.6 million in 2020 |
| Diluted EPS | $3.26 | $1.93 in 2020 |
| Adjusted operating earnings available to common; adjusted diluted EPS | $273.3 million; $3.53 | $174.2 million; $2.21 in 2020 (non-GAAP) |
| Net interest income; net interest margin | $551.3 million; 3.08% (FTE margin 3.15%) | NII down $4.0 million; margin down 18 basis points from 2020 |
| Noninterest income / expense | $125.8 million / $419.2 million | Income down 4.3%; expense up 1.4% from 2020 |
| Total assets | $20.1 billion | Up $436.3 million, or 2.2% |
| Loans held for investment, net of deferred fees | $13.2 billion | Down 5.9%; excluding PPP loans, up 1.6% to $13.0 billion |
| Deposits; cash and cash equivalents | $16.6 billion; $802.5 million | Deposits up 5.6%; cash up $309.2 million |
| Investments | $4.2 billion | Up 31.6% from 2020 |
| Allowance for credit losses; net charge-offs | $107.8 million; $1.9 million (0.01% of average loans) | Allowance was $170.5 million; net charge-offs $11.4 million (0.08%) in 2020 |
| Borrowings | $506.6 million total short- and long-term borrowings | Down $334.1 million, or 39.7% |
| Capital | Company CET1 10.24%; Tier 1 11.33%; total capital 14.18%; leverage 9.01% | Company remained above applicable regulatory minimums |
| Cash flow from operations | $337.8 million | $231.9 million in 2020 |
Changes and key drivers
- Net income rose 65.2%, mainly because the provision for credit losses shifted from an $87.1 million expense in 2020 to a $60.9 million benefit in 2021. Management attributed the release to improved economic forecasts and benign credit metrics.
- Lower asset yields reduced net interest income, partly offset by lower funding costs and $39.3 million of PPP loan fee accretion. Average earning-asset yield fell 52 basis points; cost of funds fell 35 basis points.
- Noninterest income declined as securities gains, mortgage banking income and loan swap fees fell. Higher fiduciary fees, service charges, interchange fees, BOLI income and a $5.1 million Visa share-sale gain partly offset the declines.
- Noninterest expense increased with higher salaries and benefits, professional services, technology costs and branch/facility consolidation charges. The adjusted operating efficiency ratio (FTE, non-GAAP) was 54.52%, versus 52.18% in 2020.
- Loan balances declined primarily as PPP loans were forgiven; excluding PPP, loans grew 1.6%. Deposits increased amid elevated customer liquidity and savings. Investments rose by $1.0 billion.
- Asset quality improved: nonperforming assets declined 27.5% to $32.8 million, or 0.25% of loans, from $45.2 million, or 0.32%, at year-end 2020.
Outlook, risks and unusual items
- The filing provides no specific earnings or financial guidance. Management said the Federal Reserve had signaled rate increases in 2022; the bank generally expects to benefit from rising rates, while warning that higher rates could weaken repayment capacity for floating-rate borrowers. Year-end modeling projected net interest income up 10.33% under an immediate +100 basis-point shock and down 9.20% under a -100 basis-point shock.
- COVID-19 effects remained uncertain, including possible impacts from variants, economic conditions, borrowers, deposit activity, vendors and operations. Management reported no material deterioration in asset quality to date and believed the ultimate credit impact would be less severe than initially projected.
- The Bank processed approximately $2.0 billion of PPP loan forgiveness on about 16,000 loans through year-end. Remaining PPP loans had a recorded investment of $154.7 million; SBA guarantee and forgiveness eligibility remain subject to program requirements.
- The company recorded a $60.9 million provision benefit, $17.4 million in branch and facility consolidation costs (including a $11.7 million write-down of the operations center), and a $5.1 million Visa share-sale gain. It issued $250 million of 2.875% fixed-to-floating subordinated notes and redeemed $150 million of 5.00% notes, recording $1.0 million of accelerated discount expense.
- Management planned to close its operations center and consolidate 16 branches by March 2022; it estimated another $5.7 million in restructuring expense in Q1 2022. The company also completed five branch consolidations in February 2021.
- On February 9, 2022, the CFPB notified the Bank it was considering recommending legal action over alleged Regulation E and Consumer Financial Protection Act violations involving overdraft practices. Potential remedies could include restitution, penalties or injunctive relief; the company said the timing, outcome and financial impact could not be determined.
- Key risks include commercial real estate and other credit concentrations, allowance-estimation uncertainty, interest-rate and LIBOR-transition exposure, competition and technology disruption, cybersecurity and third-party risk, regulatory costs, and deposit or liquidity changes. The company reported $5.9 billion in estimated uninsured deposits at year-end.
- Auditors issued an unqualified opinion on the financial statements and internal control over financial reporting; the filing identifies the allowance for loan and lease losses as a critical audit matter.
Important facts for investors to verify
- Whether the credit-loss benefit and reduced allowance remain appropriate as economic forecasts, loan growth and commercial real estate conditions evolve.
- How much of earnings and net interest income reflects recurring performance versus PPP accretion, securities activity, the Visa gain, and restructuring or debt-related charges.
- Trends in organic loan growth, deposit mix and stability, uninsured deposits, liquidity, and the cost of funding.
- Progress and final costs of the operations-center closure and branch consolidations, including anticipated savings versus restructuring charges.
- Developments in the CFPB overdraft matter, including any enforcement action, customer remediation, penalties or other financial exposure.
- Capital and shareholder distributions as the CECL regulatory-capital transition phases in from 2022 through 2024; the company declared $1.09 per common share in 2021 and authorized a new $100 million repurchase program.