Business context and reporting period
Atlantic Union Bankshares Corporation filed this Form 10-K for the fiscal year ended December 31, 2022. Although the request identifies 2022 Q4, the supplied filing reports full-year results and year-end balances; it does not provide a clear standalone fourth-quarter income statement. The Richmond-based regional bank operated 114 branches across Virginia and parts of Maryland and North Carolina. It reported approximately $20.5 billion in assets and $15.9 billion in deposits at year-end. In Q3 2022, management began reporting Wholesale Banking and Consumer Banking as separate operating segments.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Net income available to common shareholders | $222.6 million | $252.0 million |
| Diluted EPS | $2.97 | $3.26 |
| Net interest income | $584.3 million | $551.3 million |
| Net interest margin | 3.27% | 3.08% |
| Noninterest income | $118.5 million | $125.8 million |
| Noninterest expense | $403.8 million | $419.2 million |
| Provision for credit losses | $19.0 million | $(60.9) million (release) |
| Operating cash flow | $404.0 million | $337.8 million |
- Revenue and earnings: GAAP net interest income plus noninterest income totaled approximately $702.8 million. Pretax income was $280.0 million and net income was $234.5 million, before $11.9 million of preferred dividends. Effective tax rate was 16.2%. Adjusted operating earnings available to common shareholders, a non-GAAP measure, were $219.0 million and adjusted diluted EPS was $2.92.
- Balance sheet and credit: Total assets were $20.46 billion, up 2.0%; loans held for investment, net of deferred fees and costs, were $14.45 billion, up 9.5%; deposits were $15.93 billion, down 4.1%. The allowance for credit losses was $124.4 million, or 0.86% of loans, versus $107.8 million, or 0.82%, a year earlier. Net charge-offs were $2.3 million, or 0.02% of average loans. Nonperforming assets were $27.1 million, or 0.19% of loans.
- Liquidity, debt and capital: Cash and cash equivalents were $319.9 million, down $482.6 million. Management reported $6.0 billion of liquid assets, 29.2% of total assets, and stated liquidity was sufficient for depositor needs and customer credit demand. Total borrowings were about $1.71 billion, up $1.2 billion, largely from short-term FHLB advances used to fund loan production. Company capital ratios included 9.95% common equity Tier 1, 10.93% Tier 1, and 13.70% total capital; the Bank was also reported well capitalized.
- Cash flow and equity: Investing activities used $1.26 billion, mainly reflecting loan growth; financing activities provided $375.2 million. Cash declined $482.6 million over the year. Stockholders’ equity was $2.37 billion, down $337.3 million, largely because of after-tax unrealized losses on securities and cash-flow hedges recorded in other comprehensive income.
Material changes versus the prior year
- Net income available to common shareholders fell 11.7% and diluted EPS declined from $3.26 to $2.97. The main driver was the $79.9 million year-over-year swing in credit-loss provision, from a $60.9 million release in 2021 to a $19.0 million provision in 2022.
- Net interest income rose 6.0% and net interest margin increased 19 basis points as higher asset yields and loan growth more than offset rising funding costs. Cost of funds increased from 0.23% to 0.42%.
- Noninterest income declined 5.8%, particularly as mortgage banking income fell from $21.0 million to $7.1 million amid lower originations and sale margins. Fiduciary and asset-management fees also decreased, partly following the DHFB sale.
- Noninterest expense declined 3.7%, helped by lower debt-extinguishment and branch-consolidation costs. Excluding specified items, adjusted operating noninterest expense increased 3.8%, including higher compensation and technology costs.
- Loans grew while deposits contracted, and short-term borrowing increased materially. The AFS securities portfolio recorded substantial market-value declines as interest rates rose.
Outlook, risks and unusual items
- The filing gives no numerical earnings or growth guidance. Management said the company generally expects to benefit from rising rates given its interest-rate profile, while warning that higher deposit and borrowing costs, pressure on floating-rate borrowers, inflation, and a potential recession could offset benefits. At filing time, management noted expectations of further Federal Reserve rate increases in 2023 and described continued asset-liability management efforts.
- Material risks include commercial real estate, construction and development, and commercial and industrial credit exposures; regional economic concentration; deposit competition and funding costs; interest-rate and securities-value volatility; cyber and third-party operational risks; and extensive bank regulation.
- The CFPB notified the Bank in February 2022 that it was considering recommending legal action over alleged overdraft-practice violations. Possible remedies could include customer restitution, civil penalties, or injunctive relief. The company said the outcome and financial impact could not be determined; a loss was considered reasonably possible, but not estimable.
- Unusual items included a $9.1 million pretax gain on the DHFB sale, $5.5 million of restructuring costs, and $436.9 million of other comprehensive loss. The DHFB transaction closed June 30, 2022, with the company receiving a minority interest in Cary Street Partners Financial LLC.
- Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The allowance for loan and lease losses was identified as a critical audit matter.
Important facts for investors to verify
- Review deposit trends, deposit pricing and the extent to which FHLB advances or other higher-cost funding remain necessary.
- Track credit quality and reserve adequacy, particularly in commercial real estate, construction and development, and commercial and industrial portfolios as economic conditions change.
- Assess the size and potential capital implications of unrealized securities losses, along with the company’s capacity to maintain dividends and regulatory capital.
- Check for developments in the CFPB overdraft matter, including any action, settlement, restitution, penalties, or revised practices.
- Separate recurring performance from the DHFB gain, restructuring charges, and non-GAAP adjustments; compare reported and adjusted results consistently.