RICHMOND, Va., April 22, 2021 (GLOBE NEWSWIRE) -- Atlantic Union Bankshares Corporation (Nasdaq: AUB) today reported net income available to common shareholders of $53.2 million and basic and diluted earnings per common share of $0.67 for the first quarter ended March 31, 2021. Adjusted operating earnings available to common shareholders(1) were $64.8 million, diluted operating earnings per common share(1) were $0.82, and pre-tax pre-provision adjusted operating earnings(1) were $68.6 million for the first quarter ended March 31, 2021.
“Despite near term economic headwinds from COVID-19, Atlantic Union delivered solid financial results in the first quarter while positioning the company for success over the long term,” said John C. Asbury, president and chief executive officer of Atlantic Union. “Operating under the mantra of soundness, profitability and growth – in that order of priority - Atlantic Union remains in a strong financial position with ample liquidity and a well-fortified capital base.”
“Our conservative credit culture continues to serve us well as we help our clients manage through the pandemic. With credit quality metrics remaining benign and a more optimistic economic recovery outlook due to the roll-out of COVID-19 vaccines and additional government stimulus inclusive of more PPP funding, we believe that credit losses will not be as severe as initially projected and that loan growth will improve as economic activity accelerates over the next few quarters.”
“Looking forward, we remain optimistic that the challenges of COVID-19 will ease as the year progresses and that Atlantic Union will emerge as a stronger company that is well positioned to generate sustainable, profitable growth and build long term value for our shareholders.”
Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”)
The Company has participated in the SBA PPP under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (“PPP Round One”), which was intended to provide economic relief to small businesses that have been adversely impacted by the COVID-19 global pandemic (“COVID-19”). The Company processed over 11,000 PPP loans totaling $1.7 billion in 2020 pursuant to the CARES Act. The loans carry a 1% interest rate. As of March 31, 2021, PPP Round One loans have a recorded investment of $1.03 billion and unamortized deferred fees of $10.7 million. In addition to an insignificant amount of PPP loan pay offs, the Company has processed approximately $600 million of loan forgiveness on approximately 5,600 PPP loans, of which approximately 2,500 PPP loans totaling approximately $165.0 million were processed for forgiveness in the first quarter of 2021.
Certain provisions of the CARES Act, including additional PPP funding, were extended as a result of the Consolidated Appropriations Act 2021 (the “CAA”) (“PPP Round Two”), which was signed into law on December 27, 2020 and is currently set to expire on May 31, 2021. The Company has processed approximately 4,800 loans pursuant to PPP Round Two, with a recorded investment of $511.7 million and unamortized deferred fees of $22.4 million as of March 31, 2021. The loans carry a 1% interest rate.
First Quarter 2021 Branch Consolidations and FHLB Advance Prepayments
The Company completed the consolidation of five branches in February 2021 and incurred branch closure costs of approximately $1.1 million in the first quarter of 2021 primarily related to lease termination costs, severance costs, and real estate write-downs.
Additionally, during the first quarter of 2021 and in response to the current rate environment, the Company prepaid a $200 million, 1.78% fixed rate long-term Federal Home Loan Bank (“FHLB”) advance with a remaining maturity of approximately 7.5 years, which resulted in a $14.7 million and $11.6 million pre-tax and after tax, respectively, prepayment penalty in the first quarter of 2021.
NET INTEREST INCOME
For the first quarter of 2021, net interest income was $134.9 million, a decrease from $145.6 million reported in the fourth quarter of 2020. Net interest income (FTE)(1) was $138.0 million in the first quarter of 2021, a decrease of $10.7 million from the fourth quarter of 2020. The declines in the net interest income and net interest income (FTE) were primarily driven by the lower day count in the first quarter and the decrease in PPP loan accretion included in interest income to $7.8 million in the first quarter of 2021 from $15.0 million in the fourth quarter of 2020. The decline in PPP loan accretion income was driven by fewer PPP loan forgiveness approvals during the first quarter due to the Company’s PPP forgiveness borrower portal being closed for approximately two months as a result of revised guidance issued by the SBA. The first quarter net interest margin decreased 16 basis points to 3.09% from 3.25% in the previous quarter, while the net interest margin (FTE)(1) decreased 16 basis points to 3.16% from 3.32% during the same period primarily due to lower PPP loan accretion income in the first quarter.
The Company’s net interest margin (FTE) (1) includes the impact of acquisition accounting fair value adjustments. Net accretion related to acquisition accounting decreased $266,000 from the prior quarter to $4.1 million for the quarter ended March 31, 2021. The fourth quarter of 2020 and first quarter of 2021 and the remaining estimated net accretion impact are reflected in the following table (dollars in thousands):
| Deposit | Loan | Accretion | Borrowings | Accretion | (Amortization) | Amortization | Total | |||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | 2020 | ||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | 2020 | ||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | 2020 | ||||||||||||||||
| Beginning Balance | $ | 2,773 | $ | 4,159 | $ | 4,397 | $ | 4,444 | $ | 4,708 | ||||||||||
| Additions of foreclosed property | — | — | — | — | 615 | |||||||||||||||
| Valuation adjustments | — | (35 | ) | — | — | (44 | ) | |||||||||||||
| Proceeds from sales | (419 | ) | (1,357 | ) | (254 | ) | (55 | ) | (854 | ) | ||||||||||
| Gains (losses) from sales | (10 | ) | 6 | 16 | 8 | 19 | ||||||||||||||
| Ending Balance | $ | 2,344 | $ | 2,773 | $ | 4,159 | $ | 4,397 | $ | 4,444 | ||||||||||
Past due loans still accruing interest totaled $36.0 million or 0.25% of total loans held for investment at March 31, 2021, compared to $49.8 million or 0.36% of total loans held for investment at December 31, 2020, and $75.1 million or 0.59% of total loans held for investment at March 31, 2020. Excluding the impact of the PPP loans(1), past due loans still accruing interest were 0.28% of total adjusted loans held for investment at March 31, 2021, compared to 0.39% of total adjusted loans held for investment at December 31, 2020. Of the total past due loans still accruing interest, $9.8 million or 0.07% of total loans held for investment were loans past due 90 days or more at March 31, 2021, compared to $13.6 million or 0.10% of total loans held for investment at December 31, 2020, and $12.9 million or 0.10% of total loans held for investment at March 31, 2020.Net Charge-offs
For the first quarter of 2021, net charge-offs were $1.2 million or 0.03% of total average loans on an annualized basis, compared to $1.8 million or 0.05% for the fourth quarter of 2020, and $5.0 million or 0.16% for the first quarter of 2020. Excluding the impact of the PPP loans(1), net charge-offs for the first quarter of 2021 were 0.04% of total adjusted average loans on an annualized basis, compared to 0.06% for the fourth quarter of 2020. The majority of net charge-offs in the first quarter of 2021 were related to the third-party consumer loan portfolio. The Company continues to hold the third-party consumer loan portfolio for investment but is not originating or acquiring any additional loans for this portfolio.
Provision for Credit Losses
The Company recorded a negative provision for credit losses of $13.6 million for the first quarter of 2021, which was approximately $189,000 smaller than the negative provision recorded in the previous quarter, and which decreased $73.8 million compared to the provision for credit losses of $60.2 million recorded during the same quarter in 2020. The provision for credit losses for the first quarter of 2021 reflected a negative provision of $16.4 million in provision for loan losses and $2.8 million in provision for unfunded commitments. The decrease in the provision for credit losses as compared to the same quarter in 2020 was driven by the benign credit impacts since the pandemic began, the significant recovery in the economy since last year as well as the improvement in the economic forecast utilized in estimating the ACL as of March 31, 2021.
Allowance for Credit Losses
At March 31, 2021, the ACL was $155.7 million and included an allowance for loan and lease losses (“ALLL”) of $142.9 million and a reserve for unfunded commitments (“RUC”) of $12.8 million. The ACL at March 31, 2021 decreased $14.8 million from December 31, 2020, due to lower expected losses than previously estimated as a result of benign credit quality metrics to date and an improved economic outlook due to the roll-out of COVID-19 vaccines, as well as additional government stimulus inclusive of more PPP funding.
At March 31, 2021, the ALLL decreased $17.6 million and the RUC increased $2.8 million from December 31, 2020. The increase in the RUC was primarily due to increased funding assumptions on construction projects in the first quarter of 2021, attributable to less uncertainty related to COVID-19. The ALLL as a percentage of the total loan portfolio was 1.00% at March 31, 2021 and 1.14% at December 31, 2020. The ACL as percentage of total loans was 1.09% at March 31, 2021 and 1.22% at December 31, 2020. When excluding PPP loans(1), which are 100% guaranteed by the SBA, the ALLL as a percentage of total adjusted loans decreased 13 basis points from the prior quarter to 1.12% at March 31, 2021, and the ACL as a percentage of total adjusted loans at March 31, 2021 decreased 11 basis points to 1.22% from the prior quarter. The ratio of the ALLL to nonaccrual loans was 341.4% at March 31, 2021, compared to 378.2% at December 31, 2020.
NONINTEREST INCOME
Noninterest income decreased $1.2 million to $31.0 million for the quarter ended March 31, 2021 from $32.2 million in the prior quarter, primarily driven by a $1.2 million decline in service charges on deposit accounts due to a decline in NSF and overdraft fees during the first quarter of 2021, a decrease in mortgage banking income of $858,000 driven by lower mortgage origination volumes, and lower loan-related interest rate swap income of $950,000 due to lower transaction volumes. These quarterly declines were partially offset by increases in several other non-interest income categories including an increase in fiduciary and asset management fees of $368,000, an increase in insurance related income of $481,000, and an increase in unrealized gains on equity method investments of approximately $700,000.
NONINTEREST EXPENSE
Noninterest expense decreased $9.8 million to $111.9 million for the quarter ended March 31, 2021 from $121.7 million in the prior quarter. The decreases in non-interest expense related to the decline in debt extinguishment costs to $14.7 million during the quarter ended March 31, 2021, compared to $20.8 million in the prior quarter. In addition, noninterest expenses decreased by approximately $5.0 million in salaries and benefits, driven by lower performance based variable incentive compensation and profit-sharing expenses in the first quarter of 2021, partially offset by seasonal increases in payroll related taxes and 401(k) contribution expense. Also, OREO and related credit expenses declined from the fourth quarter of 2020 by approximately $625,000, primarily driven by gains of $575,000 on the sale of closed branches in the first quarter of 2021. These net reductions were offset by an increase of $1.2 million in professional services costs driven by an increase in legal fees and costs related to strategic projects. Noninterest expense for the first quarter of 2021 also included approximately $1.1 million in costs related to the Company’s closure of five branches in February 2021, approximately $300,000 in costs related to the Company’s response to the COVID-19 pandemic, and approximately $500,000 in expenses related to PPP loan forgiveness processing and PPP Round Two loan set-up costs incurred during the first quarter.
INCOME TAXES
The effective tax rate for the three months ended March 31, 2021 was 16.8%, compared to 15.1% for the three months ended December 31, 2020. The increase in the effective tax rate is primarily due to changes in the proportion of tax-exempt income to pre-tax income.
BALANCE SHEET
At March 31, 2021, total assets were $19.9 billion, an increase of $226.2 million or approximately 4.7% (annualized) from December 31, 2020, and an increase of $2.0 billion or approximately 11.2% from March 31, 2020. The increases in assets from both the prior quarter and prior year were primarily driven by growth in PPP loans, partially offset by PPP loan forgiveness, as well as net growth in the investment securities portfolio.
At March 31, 2021, loans held for investment (net of deferred fees and costs) were $14.3 billion, including $1.5 billion in PPP loans, an increase of $251.0 million or 7.3% (annualized) from December 31, 2020, while average loans decreased $124.5 million or 3.6% (annualized) from the prior quarter. Excluding the effects of the PPP(1), loans held for investment (net of deferred fees and costs) decreased $82.2 million, or 2.6% (annualized) from December 31, 2020 and average loans decreased $11.7 million, or 0.4% (annualized) from the prior quarter. Loans held for investment (net of deferred fees and costs) increased $1.5 billion or 11.8% from March 31, 2020, while quarterly average loans increased $1.5 billion or 11.7% from the same period in the prior year. Excluding the effects of the PPP(1), loans held for investment (net of deferred fees and costs) at March 31, 2021 decreased $9.3 million or 0.1% from the same period in the prior year, while quarterly average loans during the first quarter of 2021 increased $160.9 million or 1.3% from the same period in the prior year. In addition to an insignificant amount of PPP loan payoffs, the Company processed approximately $165.0 million of loan forgiveness on approximately 2,500 PPP loans during the first quarter of 2021, and funded $511.7 million in new PPP Round Two loans in the first quarter of 2021.
At March 31, 2021, total deposits were $16.3 billion, an increase of $575.3 million or approximately 14.8% (annualized) from December 31, 2020, while average deposits increased $178.5 million or 4.6% (annualized) from the prior quarter. Deposits increased $2.7 billion or 20.3% from March 31, 2020, while quarterly average deposits increased $2.7 billion or 20.4% from the prior year. The increases in deposits from both the prior quarter and the prior year were primarily due to the impact of PPP loan related deposits and government stimulus actions.
The following table shows the Company’s capital ratios at the quarters ended:
| March 31, | December 31, | March 31, | ||||
| 2021 | 2020 | 2020 | ||||
| Common equity Tier 1 capital ratio (2) | 10.56 | % | 10.26 | % | 9.74 | % |
| Tier 1 capital ratio (2) | 11.70 | % | 11.39 | % | 9.74 | % |
| Total capital ratio (2) | 14.25 | % | 14.00 | % | 12.37 | % |
| Leverage ratio (Tier 1 capital to average assets) (2) | 9.18 | % | 8.95 | % | 8.44 | % |
| Common equity to total assets | 12.81 | % | 12.95 | % | 13.59 | % |
| Tangible common equity to tangible assets (1) | 8.24 | % | 8.31 | % | 8.43 | % |
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(1)These are financial measures not calculated in accordance with GAAP. For a reconciliation of these non-GAAP financial measures, see Alternative Performance Measures (non-GAAP) section of the Key Financial Results.(2)All ratios at March 31, 2021 are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.
On June 9, 2020, the Company issued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of the Company’s 6.875% Perpetual Non-Cumulative Preferred Stock, Series A (“Series A Preferred Stock”), par value $10.00 per share of Series A Preferred Stock with a liquidation preference of $10,000 per share of Series A Preferred Stock. The net proceeds received from the issuance of the Series A Preferred Stock was approximately $166.4 million after deducting the underwriting discount and other offering expenses payable by the Company. The Series A Preferred Stock is included in Tier 1 capital.
During the first quarter of 2021, the Company declared and paid cash dividends of $0.25 per common share, consistent with the fourth quarter of 2020 and the first quarter of 2020. During the first quarter of 2021, the Company also 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).
On July 10, 2019, the Company announced that its Board of Directors had authorized a share repurchase program (effective July 8, 2019) to purchase up to $150.0 million of the Company’s common stock through June 30, 2021 in open market transactions or privately negotiated transactions. On March 20, 2020, the Company suspended its share repurchase program, which had $20.0 million remaining in the authorization when it was suspended. The Company repurchased an aggregate of approximately 3.7 million shares, at an average price of $35.48, per share under the authorization prior to the suspension.
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 129 branches and approximately 150 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Atlantic Union Bank Wealth Management is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank affiliates of Atlantic Union Bank include: Old Dominion Capital Management, Inc., and its subsidiary, Outfitter Advisors, Ltd., and Dixon, Hubard, Feinour, & Brown, Inc., which provide investment advisory services; Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.
