8-K: Atlantic Union Bankshares Reports Solid Fourth Quarter and Full Year 2023 Results

Atlantic Union Bankshares Corporation announced its financial results for the fourth quarter and full year 2023, highlighting loan growth and strategic actions.

Summary

• Atlantic Union Bankshares reported a net income available to common shareholders of $53.9 million, or $0.72 per share, for the fourth quarter of 2023.
• Adjusted operating earnings available to common shareholders were $58.9 million, or $0.78 per share, for the same period.
• For the full year 2023, net income available to common shareholders was $190.0 million, or $2.53 per share.
• Adjusted operating earnings available to common shareholders for the year were $221.2 million, or $2.95 per share.
• Net interest income for the fourth quarter was $153.5 million, an increase of $1.6 million from the previous quarter.
• The net interest margin decreased slightly to 3.26% for the quarter.
• Nonperforming assets increased to 0.24% of total loans held for investment, primarily due to two new nonaccrual loans.
• The allowance for credit losses totaled $148.5 million at the end of the year, a $7.5 million increase from the prior quarter.
• Total assets reached $21.2 billion, an increase of $430 million from the prior quarter.
• Loans held for investment increased by $351.4 million to $15.6 billion.
• Total deposits were $16.8 billion, a slight increase from the prior quarter.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with solid loan growth and strategic initiatives, but there are some concerns about rising deposit costs and nonperforming assets. The sentiment is cautiously optimistic.

Positives

• The company experienced strong loan growth, particularly in commercial and industrial and multifamily real estate portfolios.
• The company's deposit base remains stable and granular.
• The company took strategic actions to reduce expenses and improve operating leverage.
• The company's capital ratios are well above regulatory requirements.
• The company is focused on organic growth and performance of the core banking franchise.
• The company has a strong liquidity position with total liquidity sources of $5.2 billion.
• The company has a diversified loan portfolio with a focus on commercial real estate.

Negatives

• The net interest margin decreased slightly to 3.26% for the quarter.
• Nonperforming assets increased to 0.24% of total loans held for investment.
• The cost of deposits increased due to higher rates and changes in the deposit mix.
• The company experienced a mix shift into higher costing deposit products.
• The company's adjusted operating noninterest expense increased by $2.5 million in the fourth quarter.
• The company recorded a provision for credit losses of $8.7 million in the fourth quarter, compared to $5.0 million in the prior quarter.

Risks

• The company faces risks related to market interest rates and their impact on funding costs and loan portfolios.
• Inflation and its impact on economic growth and customer behavior pose a risk.
• Adverse developments in the financial industry, such as bank failures, could impact the company.
• The company is exposed to general economic and financial market conditions, including declines in real estate values and increases in unemployment.
• The pending merger with American National Bankshares carries risks, including regulatory approval and integration challenges.
• The company faces risks related to the quality of its loan and investment portfolios.
• The company is exposed to technological risks, cyber threats, and operational risks.
• The company is exposed to potential adverse effects of unusual events such as weather-related disasters, terrorist acts, and public health events.

Future Outlook

The company expects mid-single-digit loan growth and low-single-digit deposit growth for the full year 2024. The company also anticipates a net interest margin between 3.30% and 3.40% and positive adjusted operating leverage. The company expects the ACL to loans to be between 95 and 100 basis points and the net charge-off ratio to be between 10 and 15 basis points.

Management Comments

• Looking back at 2023, it was a successful year for Atlantic Union, as we made good progress against our strategic plan, successfully responded to challenges within the banking industry, and delivered strong operating results, said John C. Asbury, president and chief executive officer of Atlantic Union.
• We undertook important actions that we believe will better position Atlantic Union for the future and preserve positive operating leverage, including a meaningful reduction to our structural expense base, our pending acquisition of American National Bank in Danville, Virginia, and balance sheet restructuring.
• We believe that our model of a diversified, traditional, full-service bank that delivers the products and services that our customers want and need, combined with local decision making, responsiveness, and client service orientation positively sets us apart from other banks, both larger and smaller.

Industry Context

This announcement comes at a time when the banking industry is facing challenges related to interest rate hikes, deposit competition, and economic uncertainty. Atlantic Union's focus on strategic cost savings, balance sheet restructuring, and a pending acquisition reflects a proactive approach to navigating these challenges. The company's emphasis on a traditional banking model with local decision-making is a differentiator in a market increasingly influenced by larger national banks and fintech companies.

Comparison to Industry Standards

• Atlantic Union's net interest margin of 3.26% is within the range of regional banks, but the company is facing pressure from rising deposit costs, similar to other institutions.
• The company's loan growth of 9.1% annualized in Q4 is strong compared to some peers, but the increase in nonperforming assets is a concern that needs to be monitored.
• The company's efficiency ratio of 58.82% is in line with industry averages, but the company is focused on improving this metric through cost-saving initiatives.
• The company's capital ratios are well above regulatory minimums, which is a positive sign of financial strength.
• Compared to peers such as Truist Financial Corporation and Capital One Financial Corporation, Atlantic Union is a smaller regional bank with a more focused geographic footprint. However, the company's performance metrics are competitive within its peer group.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and the company's focus on long-term value creation.
• Employees may experience changes due to the strategic cost-saving initiatives and the pending merger.
• Customers will continue to receive a range of products and services from a traditional, full-service bank.
• Suppliers and creditors will be impacted by the company's financial performance and strategic decisions.

Next Steps

• The company will continue to focus on organic growth and performance of the core banking franchise.
• The company expects to close the acquisition of American National Bankshares in the first quarter of 2024.
• The company will continue to monitor and manage its asset quality and credit risk.
• The company will continue to implement its strategic cost-saving initiatives.

Key Dates

Keywords

bank, financial results, loan growth, deposit growth, net interest margin, asset quality, merger, operating leverage, capital ratios, nonperforming assets