Atlantic Union Bankshares Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The company is a Virginia-based bank holding company operating Atlantic Union Bank, with branches and ATMs in Virginia and parts of Maryland and North Carolina. Financial amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $150.7 | $137.5 | $420.4 | $412.9 |
| Net interest margin | 3.34% | 3.05% | 3.16% | 3.10% |
| Provision for credit losses | $6.4 | $(18.9) | $12.8 | $(59.9) |
| Noninterest income | $25.6 | $29.9 | $94.0 | $89.4 |
| Noninterest expense | $99.9 | $95.3 | $304.0 | $299.3 |
| Net income | $58.1 | $74.6 | $164.0 | $216.1 |
| Net income available to common shareholders | $55.1 | $71.6 | $155.1 | $207.2 |
| Diluted EPS | $0.74 | $0.94 | $2.07 | $2.66 |
- Revenue and margins: GAAP net interest income rose 9.6% year over year in Q3 and 1.8% for the nine-month period. Q3 margin increased 29 basis points year over year; the nine-month margin increased 6 basis points. Higher loan yields and loan balances supported Q3 results, partly offset by higher deposit and borrowing costs.
- Balance sheet: At September 30, total assets were $20.0 billion; loans held for investment were $13.9 billion, up $722.9 million from year-end 2021; and deposits were $16.5 billion, down $64.9 million. Cash and cash equivalents were $390.9 million, compared with $802.5 million at year-end.
- Cash flow: For the first nine months, operating activities provided $326.9 million; investing activities used $714.9 million; and financing activities used $23.6 million. Cash and cash equivalents declined $411.6 million.
- Debt and liquidity: Short- and long-term borrowings totaled $669.6 million, including $280.0 million short-term and $389.6 million long-term. Management reported $5.7 billion in liquid assets, or 28.5% of total assets, and said liquidity was sufficient to meet depositor and customer credit needs. Available borrowing sources include correspondent-bank lines and an FHLB line; the company reported covenant compliance.
- Capital: Stockholders’ equity was $2.3 billion, down $428.9 million from year-end, largely reflecting accumulated other comprehensive losses. Company regulatory capital ratios included a 9.96% common equity Tier 1 ratio, 10.98% Tier 1 ratio, 13.80% total capital ratio, and 9.32% leverage ratio. September figures were estimates pending regulatory filing.
Material changes versus comparable periods
- Q3 net income available to common shareholders fell 23.0% year over year; nine-month net income available to common shareholders fell 25.2%. The main comparison factor was the swing from prior-year credit-loss provision releases to provisions in 2022, alongside higher expenses and lower fee income.
- The Q3 provision for credit losses was $6.4 million versus a $18.9 million benefit a year earlier. The nine-month provision was $12.8 million versus a $59.9 million benefit in 2021. The company attributed the increase to changes in the macroeconomic outlook and loan growth.
- Q3 noninterest income declined 14.5%, principally as mortgage banking income fell with lower originations and margins, and fiduciary and asset management fees declined following the DHFB sale. Nine-month reported noninterest income rose 5.2%, including a $9.1 million gain on the DHFB sale; excluding specified items, adjusted operating noninterest income declined 4.9%.
- Q3 noninterest expense rose 4.8%, including higher compensation, technology, FDIC assessment, and other costs. The company completed a 16-branch consolidation in March 2022; related first-quarter restructuring costs were approximately $5.5 million.
- Loans grew while the investment portfolio’s fair value fell amid rising rates. AFS securities had $507.9 million of gross unrealized losses at September 30, compared with $32.3 million at year-end 2021. Management attributed these losses primarily to market rate movements and said it did not intend, and was not more likely than not required, to sell the securities before cost recovery.
Outlook, risks, contingencies, and unusual items
- Management described the balance sheet as asset-sensitive and expected Federal Reserve rate increases to expand net interest margin, while also anticipating increased unrealized AFS losses and fewer mortgage purchases. The filing provides no earnings or margin guidance target.
- The filing’s modeled 12-month net interest income response at September 30 was +5.54% under an immediate +100 basis-point shock and −4.99% under a −100 basis-point shock. Management cautioned that modeling depends on assumptions and does not include future management actions. Economic value of equity was modeled to decline 2.49% under +100 basis points.
- Key risks include inflation, possible recession and weaker borrower performance, commercial real estate and other loan concentrations, interest-rate and securities valuation exposure, deposit flows and funding costs, liquidity and capital, cyber and operational risks, regulatory changes, and litigation. Management said there were no material changes to previously disclosed risk factors.
- At September 30, nonperforming assets were $28.6 million, or 0.21% of loans, down from $32.8 million at year-end. The allowance for credit losses was $119.0 million, or 0.86% of loans. Net charge-offs were $1.5 million for the nine-month period. TDRs totaled $15.6 million, of which $5.3 million were nonperforming.
- Off-balance-sheet commitments to extend credit and letters of credit totaled $3.6 billion. The company reported $6.0 billion in estimated uninsured deposits. Management said ordinary-course legal proceedings were not expected, in aggregate, to have a material adverse effect, subject to potential outcomes of disclosed matters.
- Unusual items included the DHFB disposition, completed June 30 in exchange for a minority ownership interest in CSP, which generated a $9.1 million pretax gain. The company also repurchased $48.2 million of shares during the first nine months; no program repurchases occurred in Q3, and $51.8 million remained available at quarter-end.
Most important facts for investors to verify
- Whether loan growth and higher rates continue to lift net interest income after accounting for rising deposit and borrowing costs.
- Whether credit quality and the $119.0 million allowance remain adequate as economic conditions change, particularly in commercial real estate and commercial lending.
- The duration and capital implications of unrealized securities losses, and any future liquidity needs that could affect the company’s ability to hold investments to recovery.
- Deposit trends, funding mix, uninsured deposit exposure, and continued access to borrowing facilities.
- The sustainability of fee income and expense trends after the DHFB sale, branch consolidation, and lower mortgage activity.
- Regulatory capital ratios when finalized, and subsequent developments in legal matters and off-balance-sheet commitments.