UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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incorporation or organization) | Identification No.) |
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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The number of shares of common stock outstanding as of April 27, 2023 was
ATLANTIC UNION BANKSHARES CORPORATION
FORM 10-Q
INDEX
Glossary of Acronyms and Defined Terms
In this Form 10-Q, unless the context suggests otherwise, the terms “we”, “us”, and “our” refer to Atlantic Union Bankshares Corporation and its direct and indirect subsidiaries, including Atlantic Union Bank.
2022 Form 10-K | – | Annual Report on Form 10-K for the year ended December 31, 2022 |
ACL | – | Allowance for credit losses |
AFS | – | Available for sale |
ALLL | – | Allowance for loan and lease losses, a component of ACL |
AOCI | – | Accumulated other comprehensive income (loss) |
ASC | – | Accounting Standards Codification |
ASU | – | Accounting Standards Update |
AUB | – | Atlantic Union Bankshares Corporation |
the Bank | – | Atlantic Union Bank |
BOLI | – | Bank-owned life insurance |
bps | – | Basis points |
BTFP | – | Bank Term Funding Program |
CECL | – | Current expected credit losses |
CFPB | – | Consumer Financial Protection Bureau |
the Company | – | Atlantic Union Bankshares Corporation and its subsidiaries |
depositary shares | – | Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share) |
DHFB | – | Dixon, Hubard, Feinour & Brown, Inc. |
EPS | – | Earnings per common share |
Exchange Act | – | Securities Exchange Act of 1934, as amended |
FASB | – | Financial Accounting Standards Board |
FDIC | – | Federal Deposit Insurance Corporation |
Federal Reserve | – | Board of Governors of the Federal Reserve System |
FRB | – | Federal Reserve Bank of Richmond |
FHLB | – | Federal Home Loan Bank of Atlanta |
FHLMC | – | Federal Home Loan Mortgage Corporation |
FNB | – | FNB Corporation |
FNMA | – | Federal National Mortgage Association |
FOMC | – | Federal Open Market Committee |
FTE | – | Fully taxable equivalent |
FR Y9-C | – | Consolidated financial statements for a U.S. bank holding company, a savings and loan holding company, a U.S. intermediate holding company, and a securities holding company |
GAAP | – | Accounting principles generally accepted in the United States |
GNMA | – | Government National Mortgage Association |
HTM | – | Held to maturity |
ICE | – | Intercontinental Exchange Data Services |
LHFI | – | Loans held for investment |
LHFS | – | Loans held for sale |
LIBOR | – | London Interbank Offered Rate |
MBS | – | Mortgage-Backed Securities |
MFC | – | Middleburg Financial Corporation |
NPA | – | Nonperforming assets |
NYSE | – | New York Stock Exchange |
OCI | – | Other comprehensive (loss) income |
OREO | – | Other real estate owned |
PD/LGD | – | Probability of default/loss given default |
ROU asset | – | Right of Use Asset |
RPAs | – | Risk Participation Agreements |
SBA | – | Small Business Administration |
SEC | – | Securities and Exchange Commission |
Series A preferred stock | – | 6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share |
SOFR | – | Secured Overnight Financing Rate |
TLM | – | Troubled loan modification |
TDR | – | Troubled debt restructuring |
VFG | – | Virginia Financial Group, Inc. |
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2023 AND DECEMBER 31, 2022
(Dollars in thousands, except share data)
March 31, | December 31, | ||||
2023 |
| 2022 | |||
ASSETS | (unaudited) | (audited) | |||
Cash and cash equivalents: | |||||
Cash and due from banks | $ | | $ | | |
Interest-bearing deposits in other banks | | | |||
Federal funds sold | | | |||
Total cash and cash equivalents | | | |||
Securities available for sale, at fair value | | | |||
Securities held to maturity, at carrying value | | | |||
Restricted stock, at cost | | | |||
Loans held for sale | | | |||
Loans held for investment, net of deferred fees and costs | | | |||
Less: allowance for loan and lease losses | | | |||
Total loans held for investment, net | | | |||
Premises and equipment, net | | | |||
Goodwill | | | |||
Amortizable intangibles, net | | | |||
Bank owned life insurance | | | |||
Other assets | | | |||
Total assets | $ | | $ | | |
LIABILITIES | |||||
Noninterest-bearing demand deposits | $ | | $ | | |
Interest-bearing deposits | | | |||
Total deposits | | | |||
Securities sold under agreements to repurchase | | | |||
Other short-term borrowings | | | |||
Long-term borrowings | | | |||
Other liabilities | | | |||
Total liabilities | | | |||
Commitments and contingencies (Note 7) | |||||
STOCKHOLDERS' EQUITY | |||||
Preferred stock, $ | | | |||
Common stock, $ | | | |||
Additional paid-in capital | | | |||
Retained earnings | | | |||
Accumulated other comprehensive loss | ( | ( | |||
Total stockholders' equity | | | |||
Total liabilities and stockholders' equity | $ | | $ | | |
Common shares outstanding | | | |||
Common shares authorized | | | |||
Preferred shares outstanding | | | |||
Preferred shares authorized | | |
See accompanying notes to consolidated financial statements.
-2-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Dollars in thousands, except share and per share data)
Three Months Ended | ||||||
March 31, | March 31, | |||||
2023 |
| 2022 |
| |||
Interest and dividend income: | ||||||
Interest and fees on loans | $ | | $ | | ||
Interest on deposits in other banks | | | ||||
Interest and dividends on securities: | ||||||
Taxable | | | ||||
Nontaxable | | | ||||
Total interest and dividend income | | | ||||
Interest expense: | ||||||
Interest on deposits | | | ||||
Interest on short-term borrowings | | | ||||
Interest on long-term borrowings | | | ||||
Total interest expense | | | ||||
Net interest income | | | ||||
Provision for credit losses | | | ||||
Net interest income after provision for credit losses | | | ||||
Noninterest income: | ||||||
Service charges on deposit accounts | | | ||||
Other service charges, commissions and fees | | | ||||
Interchange fees | | | ||||
Fiduciary and asset management fees | | | ||||
Mortgage banking income | | | ||||
Loss on sale of securities | ( | | ||||
Bank owned life insurance income | | | ||||
Loan-related interest rate swap fees | | | ||||
Other operating income | | | ||||
Total noninterest income | | | ||||
Noninterest expenses: | ||||||
Salaries and benefits | | | ||||
Occupancy expenses | | | ||||
Furniture and equipment expenses | | | ||||
Technology and data processing | | | ||||
Professional services | | | ||||
Marketing and advertising expense | | | ||||
FDIC assessment premiums and other insurance | | | ||||
Franchise and other taxes | | | ||||
Loan-related expenses | | | ||||
Amortization of intangible assets | | | ||||
Other expenses | | | ||||
Total noninterest expenses | | | ||||
Income from continuing operations before income taxes | | | ||||
Income tax expense | | | ||||
Net income | | | ||||
Dividends on preferred stock | | | ||||
Net income available to common shareholders | $ | | $ | | ||
Basic earnings per common share | $ | | $ | | ||
Diluted earnings per common share | $ | | $ | | ||
Dividends declared per common share | $ | | $ | | ||
Basic weighted average number of common shares outstanding | | |||||
Diluted weighted average number of common shares outstanding | |
See accompanying notes to consolidated financial statements.
-3-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Dollars in thousands)
Three Months Ended |
| ||||||
March 31, |
| ||||||
| 2023 |
| 2022 |
| |||
Net income | $ | | $ | | |||
Other comprehensive income (loss): |
|
| |||||
Cash flow hedges: |
|
| |||||
Change in fair value of cash flow hedges (net of tax, $ |
| |
| ( | |||
AFS securities: |
|
| |||||
Unrealized holding gains (losses) arising during period (net of tax, $ |
| |
| ( | |||
Reclassification adjustment for losses included in net income (net of tax, $ |
| |
| | |||
HTM securities: |
|
| |||||
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $ |
| ( |
| ( | |||
Bank owned life insurance: |
|
| |||||
Unrealized holding gains arising during the period | | | |||||
Reclassification adjustment for losses included in net income (3) |
| ( |
| | |||
Other comprehensive income (loss): |
| |
| ( | |||
Comprehensive income (loss) | $ | | $ | ( |
(1)
(2)
(3)
See accompanying notes to consolidated financial statements.
-4-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Dollars in thousands, except share and per share amounts)
|
|
|
|
| Accumulated |
| ||||||||||||
Additional | Other | |||||||||||||||||
Common | Preferred | Paid-In | Retained | Comprehensive | ||||||||||||||
Stock | Stock | Capital | Earnings | Income (Loss) | Total | |||||||||||||
Balance - December 31, 2022 | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net Income |
| |
| | ||||||||||||||
Other comprehensive income (net of taxes of $ |
| |
| | ||||||||||||||
Dividends on common stock ($ |
| ( |
| ( | ||||||||||||||
Dividends on preferred stock ($ |
| ( |
| ( | ||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( |
| | ( | ( | ||||||||||||||
Stock-based compensation expense |
| |
| | ||||||||||||||
Balance - March 31, 2023 | $ | | $ | | $ | | $ | | $ | ( | $ | |
Balance - December 31, 2021 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Net Income |
| |
| | ||||||||||||||
Other comprehensive loss (net of taxes of $ |
| ( |
| ( | ||||||||||||||
Dividends on common stock ($ |
| ( |
| ( | ||||||||||||||
Dividends on preferred stock ($ |
| ( |
| ( | ||||||||||||||
Stock purchased under stock repurchase plan ( | ( | ( | ( | |||||||||||||||
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes ( |
| | | | ||||||||||||||
Stock-based compensation expense |
| |
| | ||||||||||||||
Balance - March 31, 2022 | $ | | $ | | $ | | $ | | $ | ( | $ | |
See accompanying notes to consolidated financial statements.
-5-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Dollars in thousands)
| 2023 |
| 2022 | |||
Operating activities: |
|
|
|
| ||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
| ||
Depreciation of premises and equipment |
| |
| | ||
Writedown of ROU assets, foreclosed properties and equipment |
| |
| | ||
Amortization, net |
| |
| | ||
Amortization related to acquisitions, net |
| |
| | ||
Provision for credit losses |
| |
| | ||
Losses on securities transactions |
| |
| | ||
BOLI income | ( | ( | ||||
Originations and purchases of LHFS |
| ( |
| ( | ||
Proceeds from sales of LHFS | | | ||||
Stock-based compensation expenses |
| |
| | ||
Issuance of common stock for services |
| |
| | ||
Net decrease in other assets |
| |
| | ||
Net (decrease) increase in other liabilities |
| ( |
| | ||
Net cash provided by operating activities |
| |
| | ||
Investing activities: |
|
|
|
| ||
Purchases of AFS securities, restricted stock, and other investments |
| ( |
| ( | ||
Purchases of HTM securities |
| ( |
| ( | ||
Proceeds from sales of AFS securities and restricted stock |
| |
| | ||
Proceeds from maturities, calls and paydowns of AFS securities |
| |
| | ||
Proceeds from maturities, calls and paydowns of HTM securities |
| |
| | ||
Net increase in LHFI | ( | ( | ||||
Net increase in premises and equipment |
| ( |
| ( | ||
Proceeds from BOLI settlements | | | ||||
Proceeds from sales of foreclosed properties and former bank premises |
| |
| | ||
Net cash provided by (used in) investing activities |
| |
| ( | ||
Financing activities: |
|
|
|
| ||
Net (decrease) increase in noninterest-bearing deposits |
| ( |
| | ||
Net increase (decrease) in interest-bearing deposits |
| |
| ( | ||
Net decrease in short-term borrowings |
| ( |
| ( | ||
Cash dividends paid - common stock |
| ( |
| ( | ||
Cash dividends paid - preferred stock | ( | ( | ||||
Repurchase of common stock | | ( | ||||
Issuance of common stock |
| |
| | ||
Vesting of restricted stock, net of shares held for taxes |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
Increase (decrease) in cash and cash equivalents |
| | ( | |||
Cash, cash equivalents and restricted cash at beginning of the period |
| |
| | ||
Cash, cash equivalents and restricted cash at end of the period | $ | | $ | |
-6-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Dollars in thousands)
| 2023 |
| 2022 | |||
Supplemental Disclosure of Cash Flow Information |
|
|
|
| ||
Cash payments for: |
|
|
|
| ||
Interest | $ | | $ | | ||
Supplemental schedule of noncash investing and financing activities |
|
|
|
| ||
Transfer from LHFI to LHFS | | |
See accompanying notes to consolidated financial statements.
-7-
ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The Company
Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (NYSE: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank had
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements; however, in the opinion of management all adjustments necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other period.
The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 2022 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.
Adoption of New Accounting Standards
In March 2022, the FASB issued ASU No. 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method to allow nonprepayable financial assets to be included in a closed portfolio hedge using the portfolio layer method and to allow multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2022-01 effective January 1, 2023 and concluded that it did not have significant impact on its consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02 Financial Instruments- Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for TDRs by creditors and instead requires that an entity evaluate whether a loan modification represents a new loan or a continuation of an existing loan, consistent with the accounting for other loan modifications. The amendment also introduces new disclosure requirements for modifications to loans made to a borrower experiencing financial difficulty in the form of principal forgiveness, interest rate reductions, term extensions, or other-than-insignificant payment delays. The Company refers to these modifications to borrowers experiencing financial difficulty as Troubled Loan Modifications, or TLMs. In addition, the amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted the amendments of ASU 2022-02 effective January 1, 2023 on a prospective basis. See below in Note 1 “Summary of Significant Accounting Policies” within this Item 1 of this Quarterly Report for discussion of the Company’s accounting policy for Loan Modifications and Note 3 “Loans and Allowance for Loan and Lease Losses” within this Item 1 of this Quarterly Report for more information.
In March 2020, the FASB issued ASC 848, Reference Rate Reform. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. ASC 848 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASC 848 is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective as of March 12, 2020 through December 31, 2024 and can be adopted at an instrument level. The Company has elected the practical expedients provided in ASC 848 related to (1) accounting for contract modifications on its loans and securities tied to LIBOR and (2) asserting probability of the hedged item occurring, regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges. The Company
-8-
may incorporate other components of ASC 848 at a later date. This amendment did not have a significant impact on the Company’s consolidated financial statements.
Loan Modifications
The Company evaluates all loan modifications according to the accounting guidance for loan refinancing and restructuring to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. If the modification meets the criteria to be accounted for as a new loan, any deferred fees and costs remaining prior to the modification are recognized in income and any new deferred fees and costs are recorded on the loan as part of the modification. If the modification does not meet the criteria to be accounted for as a new loan, any new deferred fees and costs resulting from the modification are added to the existing amortized cost basis of the loan.
The Company adopted the accounting guidance in ASU No. 2022-02 on January 1, 2023 that eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, the Company no longer applies its TDR accounting policy and instead accounts for modifications in accordance with its loan modifications policy stated in the preceding paragraph. For the Company’s policy for accounting for TDRs prior to the adoption of ASU No. 2022-02, see Note 1 “Summary of Significant Accounting Policies” of the Company’s 2022 Form 10-K.
Effective January 1, 2023, the Company refers to modifications to loans where the borrower is experiencing financial difficulty and the modification is in the form of principal forgiveness, interest rate reductions, term extensions, other-than-insignificant payment delays, or a combination of the above modifications, as troubled loan modifications, or TLMs. The Company accounts for TLMs consistently with its accounting policy for accounting for loan modifications. The ALLL on TLMs is measured using the same method as all other LHFI. Refer to Note 3 “Loans and Allowance for Loan and Lease Losses” within this Item 1 of this Quarterly Report for additional disclosures related to TLMs.
Accrued Interest Receivable
The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ALLL, as well as the ACL reserve for securities. Accrued interest receivable totaled $