Atlantic Union Bankshares Reports Third Quarter Financial Results | citybiz (2023)

Atlantic Union Bankshares Reports Third Quarter Financial Results | citybiz (1)

RICHMOND, Va., Oct. 20, 2022 (GLOBE NEWSWIRE) — Atlantic Union Bankshares Corporation (Nasdaq: AUB) reported net income available to common shareholders of $55.1 million and basic and diluted earnings per common share of $0.74 for the third quarter ended September 30, 2022. Adjusted operating earnings available to common shareholders(1)were $55.1 million, diluted adjusted operating earnings per common share(1)were $0.74, and pre-tax pre-provision adjusted operating earnings available to common shareholders(1)were $73.4 million for the third quarter ended September 30, 2022.

“We believe the third quarter financial results show that Atlantic Union Bankshares is delivering on what we said we would do – with upper single digit annualized loan growth, double digit deposit growth, strong credit quality, an expanding net interest margin and positive operating leverage,” said John C. Asbury, president and chief executive officer of Atlantic Union. “We continue to see resiliency and positive market dynamics in our footprint, which combined with our asset sensitivity, gives us confidence in our ability to achieve our top tier financial targets.”

“Operating under the mantra of soundness, profitability and growth – in that order of priority – Atlantic Union remains committed to generating sustainable, profitable growth and building long term value for our shareholders.”

NET INTEREST INCOME

For the third quarter of 2022, net interest income was $150.7 million, an increase of $11.9 million from $138.8 million for the second quarter of 2022. Net interest income (FTE)(1)was $154.6 million in the third quarter of 2022, an increase of $12.2 million from the second quarter of 2022. The increases in net interest income and net interest income (FTE)(1)were primarily driven by increases in loan yields on the Company’s variable rate loans due to higher market interest rates, higher interest income due to average loan growth from the prior quarter, and the additional day count in the third quarter, compared to the second quarter. These increases were partially offset by decreases in Paycheck Protection Program (“PPP)” and fair value accretion interest income and increases in deposit and borrowing costs as a result of increases in short-term market rates and average deposit growth from the prior quarter. The third quarter net interest margin increased 19 basis points from the prior quarter to 3.34% at September 30, 2022, and the net interest margin (FTE)(1)increased 19 basis points during the same period to 3.43%. Earning asset yields increased by 42 basis points in the third quarter of 2022 compared to the second quarter due to the impact of rising market interest rates on loans and investment securities yields. The cost of funds increased from the prior quarter by 23 basis points to 45 basis points at September 30, 2022, driven by higher deposit and borrowing costs as noted above.

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The Company’s net interest margin (FTE)(1)includes the impact of acquisition accounting fair value adjustments. Net accretion related to acquisition accounting was $1.1 million for the quarter ended September 30, 2022, representing a decrease of $1.6 million from the prior quarter. The first, second, and third quarters of 2022 and the remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

LoanDepositBorrowings
AccretionAmortizationAmortizationTotal
For the quarter ended March 31, 2022$2,253$(10)$(203)$2,040
For the quarter ended June30,20222,879(11)(207)2,661
For the quarter ended September30,20221,326(11)(209)1,106
For the remaining three months of 2022 (estimated)945(12)(208)725
For the years ending (estimated):
20233,338(31)(852)2,455
20242,714(4)(877)1,833
20252,123(1)(900)1,222
20261,707(926)781
20271,306(953)353
Thereafter6,469(7,994)(1,525)
Total remaining acquisition accounting fair value adjustments at September 30, 2022$18,602$(48)$(12,710)$5,844

ASSET QUALITY

Overview
During the third quarter of 2022, nonperforming assets (“NPAs”) as a percentage of loans remained low at 0.21% at September 30, 2022. Accruing past due loan levels as a percentage of total loans held for investment at September 30,2022 totaled 21 basis points, which was a 6 basis point increase from June 30, 2022, and a 9 basis point decrease from September 30,2021. Net charge-off levels remained low at 0.02% of total average loans (annualized) for the third quarter of 2022. The allowance for credit losses (“ACL”) totaled $119.0 million at September 30, 2022, a $5.8 million increase from the prior quarter.

Nonperforming Assets
At September 30,2022, NPAs totaled $28.6 million, a decrease of $2.5 million from June 30, 2022. The following table shows a summary of NPA balances at the quarter ended (dollars in thousands):

September30,June30,March31,December31,September30,
20222022202220212021
Nonaccrual loans$26,500$29,070$29,032$31,100$35,472
Foreclosed properties2,0872,0651,6961,6961,696
Total nonperforming assets$28,587$31,135$30,728$32,796$37,168

The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands):

September30,June30,March31,December31,September30,
20222022202220212021
Beginning Balance$29,070$29,032$31,100$35,472$36,399
Net customer payments(3,725)(2,472)(4,132)(5,068)(4,719)
Additions1,3023,2032,0871,2944,177
Charge-offs(125)(311)(23)(598)(385)
Transfers to foreclosed property(22)(382)
Ending Balance$26,500$29,070$29,032$31,100$35,472

Past Due Loans
Past due loans still accruing interest totaled $29.0 million or 0.21% of total loans held for investment at September 30,2022, compared to $20.4 million or 0.15% of total loans held for investment at June 30, 2022, and $38.8 million or 0.30% of total loans held for investment at September 30,2021. The increase in past due loan levels in the third quarter of 2022 as compared to the second quarter of 2022 was primarily due to increases in past due credit relationships within the commercial real estate – owner occupied and commercial and industrial portfolios. Of the total past due loans still accruing interest, $7.4 million or 0.05% of total loans held for investment were loans past due 90days or more at September 30,2022, compared to $4.6 million or 0.03% of total loans held for investment at June 30, 2022, and $11.0 million or 0.08% of total loans held for investment at September 30,2021.

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Allowance for Credit Losses
At September 30, 2022, the ACL was $119.0 million and included an allowance for loan and lease losses (“ALLL”) of $108.0 million and a reserve for unfunded commitments (“RUC”) of $11.0 million. The ACL at September 30, 2022 increased $5.8 million from June 30,2022, primarily due to increased uncertainty in the macroeconomic outlook and the impact of loan growth in the third quarter of 2022.

The ACL as a percentage of total loans increased to 0.86% at September 30, 2022, compared to 0.83% at June 30, 2022. The ALLL as a percentage of total loans was 0.78% at September 30, 2022, compared to 0.76% at June 30, 2022.

Net Charge-offs
Net charge-offs were $587,000 or 0.02%of total average loans on an annualized basis for the quarter ended September 30, 2022, compared to $939,000 or 0.03% (annualized) for the second quarter of 2022, and $113,000 or less than 0.01% (annualized) for the third quarter of 2021. On a year-to-date basis through September 30, 2022, net charge-offs totaled $1.5 million or 0.02% of total average loans (annualized).

Provision for Credit Losses
For the quarter ended September 30, 2022, the Company recorded a provision for credit losses of $6.4 million, compared to a provision for credit losses of $3.6 million in the previous quarter, and a negative provision for credit losses of $18.8 million recorded during the same quarter in 2021. The provision for credit losses for the third quarter of 2022 reflected a provision of $4.4 million for loan and lease losses and a $2.0 million reserve for unfunded commitments.

NONINTEREST INCOME

Noninterest income decreased $12.7 million to $25.6 million for the quarter ended September 30, 2022 from $38.3 million in the prior quarter, primarily due to the impact of the sale of Dixon, Hubard, Feinour & Brown, Inc. (“DHFB”), as the prior quarter included a $9.1 million pre-tax gain on the transaction within other operating income. In addition, the current quarter’s fiduciary and asset management fees decreased $2.8 million from the prior quarter due to a decrease in assets under management primarily driven by the DHFB sale. Other decreases from the prior quarter include a $1.3 million decrease in service charges on deposit accounts, reflective of the changes to the Company’s overdraft policy, a $810,000 decrease in mortgage banking income due to a decline in mortgage origination volumes and lower gain on sales margins, and a $550,000 reduction in loan related interest rate swap fee income driven by a decrease in average transaction swap fees. These noninterest income category decreases were partially offset by increases of $819,000 primarily related to syndication, foreign exchange, and other capital market transaction fees, included in other operating income, an increase of $729,000 in bank owned life insurance income due to mortality benefits, and an increase of $193,000 in interchange fees.

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NONINTEREST EXPENSE

Noninterest expense increased to $99.9 million for the quarter ended September 30, 2022 from $98.8 million in the prior quarter, primarily driven by a $1.3 million increase in salaries and benefits expense due primarily to elevated new hire recruiting expenses and lower deferred loan origination costs resulting from changes in loan originations production mix from the prior quarter. In addition, other expenses increased from the prior quarter by $1.1 million primarily driven by OREO gains of $631,000 realized in the prior quarter. The increases to noninterest expense were partially offset by a $1.2 million decline in professional services expense primarily driven by lower strategic project costs.

INCOME TAXES

The effective tax rate for the three months ended September 30,2022 was 17.0%, compared to 16.7% for the three months ended June 30, 2022, as the prior quarter reflected the impact of discrete items related to the sale of DHFB.

BALANCE SHEET

At September 30, 2022, total assets were $20.0 billion, an increase of $288.4 million or approximately 5.8% (annualized) from June 30, 2022, and an increase of $14.6 million or approximately 0.1% from September 30, 2021. Total assets increased from the prior quarter due to the increase in total loans held for investment (net of deferred fees and costs) of $263.3 million driven by loan growth, as well as an increase in cash and cash equivalents of $150.0 million due to deposit growth, partially offset by a decline in the investment securities portfolio of $179.4 million primarily related to the impact of market interest rate increases on the market value of the available for sale securities portfolio.

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At September 30, 2022, loans held for investment (net of deferred fees and costs) totaled $13.9 billion, including $12.1 million in PPP loans, an increase of $263.3 million or 7.7% (annualized) from $13.7 billion, including $21.7 million in PPP loans, at June 30, 2022. Average loans held for investment (net of deferred fees and costs) totaled $13.7 billion at September 30, 2022, an increase of $207.9 million or 6.1% (annualized) from the prior quarter. Excluding the effects of the PPP(1), adjusted loans held for investment (net of deferred fees and costs) at September 30, 2022 increased $272.9 million or 7.9% (annualized) from June 30, 2022 and adjusted average loans increased $237.0 million or 7.0% (annualized) from the prior quarter. At September 30, 2022, loans held for investment (net of deferred fees and costs) increased $779.1 million or 5.9% from September 30, 2021, and quarterly average loans increased $281.8 million or 2.1% from the same period in the prior year. Excluding the effects of the PPP(1), adjusted loans held for investment (net of deferred fees and costs) at September 30, 2022 increased $1.2 billion or 9.7% from the same period in the prior year, and adjusted quarterly average loans during the third quarter of 2022 increased $954.8 million or 7.5% from the same period in the prior year.

At September 30, 2022, total deposits were $16.5 billion, an increase of $417.6 million or approximately 10.3% (annualized) from June 30, 2022. Average deposits at September 30, 2022 also increased from the prior quarter by $297.2 million or 7.3% (annualized). Total deposits at September 30, 2022 decreased $75.9 million or 0.5% from September 30, 2021, and quarterly average deposits at September 30, 2022 decreased $229.9 million or 1.4% from the same period in the prior year. The decrease in total deposits from the prior year was primarily due to maturing high cost time deposits.

The following table shows the Company’s capital ratios at the quarters ended:

September30,June30,September30,
202220222021
Common equity Tier 1 capital ratio(2)9.96%9.96%10.37%
Tier 1 capital ratio(2)10.98%11.00%11.49%
Total capital ratio(2)13.80%13.86%13.78%
Leverage ratio (Tier 1 capital to average assets)(2)9.32%9.26%8.97%
Common equity to total assets10.60%11.32%12.68%
Tangible common equity to tangible assets(1)6.11%6.78%8.16%

For the quarter ended September 30, 2022, the Company’s common equity to total assets capital ratio and the tangible common equity to tangible assets capital ratio decreased from the prior quarter and prior year primarily due to the unrealized losses on the available for sale securities portfolio recorded in other comprehensive income due to market interest rate increases in the third quarter of 2022.

During the third quarter of 2022, the Company declared and paid a quarterly dividend on the outstanding shares of Series A Preferred Stock of $171.88 per share (equivalent to $0.43 per outstanding depositary share), consistent with the second quarter of 2022 and the third quarter of 2021. During the third quarter of 2022, the Company also declared and paid cash dividends of $0.30 per common share, an increase of $0.02 or approximately 7.1% from the second quarter of 2022 and the third quarter of 2021.

(1)These are financial measures not calculated in accordance withgenerally accepted accounting principles (“GAAP”). For a reconciliation of these non-GAAP financial measures, see Alternative Performance Measures (non-GAAP) section of the Key Financial Results.

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(2)All ratios at September30,2022are estimates and subject to change pending the Company’s filing of its FR Y9-C. All otherperiods are presented as filed.

ABOUT ATLANTIC UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 114 branches and approximately 130 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Certain non-bank financial services affiliates of Atlantic Union Bank include: Atlantic Union Equipment Finance, Inc., which provides equipment financing; Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

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