Atlantic Union Bankshares Corporation (then Union Bankshares Corporation) — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015, with comparison to FY 2014. The filing reports quarterly results, including Q4, but is an annual report rather than a standalone quarterly filing.
Business context
The company was a Virginia-based financial holding company operating a community bank and mortgage business, with 124 bank locations. Its principal markets were in Virginia. The reported segments were community banking and mortgage banking. The filing states that the subsidiary bank’s name changed to Union Bank & Trust in February 2015; the investment-services affiliate was integrated into the bank effective January 1, 2016.
Financial performance and condition
| Metric | FY 2015 / year-end | Comparison |
|---|---|---|
| Net income | $67.1 million; diluted EPS $1.49 | Net income rose 28.6% from $52.2 million; 2014 diluted EPS was $1.13 |
| Net interest income | $251.8 million GAAP; $260.9 million FTE | GAAP down $3.2 million year over year; FTE margin declined 20 bps to 3.89% |
| Noninterest income | $65.0 million | Up 6.1% |
| Noninterest expense | $216.9 million | Down 9.0%; excluding 2014 acquisition costs, down 0.5% |
| Provision for credit losses | $9.6 million | Up from $7.8 million |
| Assets / loans / deposits | $7.69 billion / $5.67 billion / $5.96 billion | Assets up 4.5%, loans up 6.1%, deposits up 5.8% |
| Capital | Company CET1 10.55%; Tier 1 11.93%; total risk-based 12.46%; leverage 10.68% | Company and bank exceeded applicable regulatory minimums; bank was classified as well capitalized |
| Cash flows | Operating +$108.8 million; investing −$375.3 million; financing +$275.8 million | Cash and equivalents ended at $142.7 million, up $9.4 million |
Net income benefited from the absence of $20.3 million in 2014 acquisition and conversion expenses. On the company’s non-GAAP operating basis, earnings were $67.1 million versus $65.9 million in 2014, and operating EPS was $1.49 versus $1.43. The mortgage segment recorded a $0.2 million net loss, improved from a $3.5 million loss.
Asset quality improved: nonperforming assets fell to $27.2 million from $47.4 million, or 0.48% of loans versus 0.89%. Nonaccrual loans were $11.9 million, and OREO was $15.3 million. The allowance for loan losses was $34.0 million, 0.60% of loans (0.98% adjusted for acquisition accounting); net charge-offs were 0.13% of loans.
Borrowings totaled approximately $680.2 million at year-end, comprising $389.0 million in short-term borrowings and $291.2 million in long-term borrowings. Deposits remained the principal funding source. Liquid assets (cash, restricted stock, and available-for-sale securities) were 14.3% of total assets. The company reported $1.2 billion available under its FHLB line, alongside additional federal funds and correspondent-bank lines.
Material changes and unusual items
- Loan growth, led by 8.5% commercial loan growth, supported balance-sheet expansion; deposits shifted toward lower-cost transaction accounts.
- Lower loan yields and reduced acquisition-accounting accretion pressured net interest income and margin. Management expected the net interest margin to decline modestly as asset yields fell faster than funding costs.
- The company transferred securities with a fair value of $201.8 million from available-for-sale to held-to-maturity to reduce capital volatility. It also recorded a $0.3 million credit-related impairment on a municipal security.
- The company sold its approximately $26.4 million credit-card portfolio at a premium and outsourced the program to Elan; the transaction provided an $0.8 million after-tax benefit. It retained a share of interchange income and finance charges.
- Mortgage originations fell 20.3% to $540.1 million, but improved gain-on-sale margins and lower expenses reduced the segment’s loss.
- Cash dividends increased to $0.68 per share for 2015 from $0.58. The company repurchased 668,522 shares during 2015 and had $21.1 million remaining under its repurchase authorization at year-end.
- Q4 net income was $17.8 million and diluted EPS was $0.40, versus $15.0 million and $0.33 in Q4 2014.
Outlook, risks and contingencies
No specific earnings or growth guidance was provided. Management cited a low-rate environment, modest expected margin pressure, and ongoing focus on asset quality, cost control, and borrower risk. Key exposures include the concentration in real-estate-secured lending (83.3% of loans), commercial real estate and construction credit risk, interest-rate changes, mortgage-market cyclicality, competition, cybersecurity and third-party operational risks, and evolving regulation and capital requirements. The Basel III capital conservation buffer was scheduled to begin phasing in during 2016.
Off-balance-sheet commitments included $1.56 billion to extend credit, $139.4 million of standby letters of credit, and $50.4 million of mortgage rate locks; these amounts are not necessarily expected cash outflows. Management said pending legal proceedings were not expected, in aggregate, to materially affect the company. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- How much reported earnings growth reflects the absence of 2014 acquisition costs, and whether the operating-earnings comparison is the more relevant trend.
- Whether net interest margin and loan yields stabilized after the reported decline, and how deposit costs respond to rate changes.
- Credit trends within commercial real estate and construction portfolios, including subsequent nonaccruals, charge-offs, and allowance adequacy.
- The durability of deposit growth and funding liquidity, including reliance on short-term borrowings and collateralized FHLB capacity.
- Whether mortgage origination volumes, margins, and segment profitability improved after 2015.
- The impact of the credit-card portfolio sale, securities reclassification, and regulatory capital-buffer phase-in on recurring earnings, capital, and shareholder distributions.