RICHMOND, Va., Jan. 26, 2021 (GLOBE NEWSWIRE) -- Atlantic Union Bankshares Corporation (Nasdaq: AUB) today reported net income available to common shareholders of $56.5 million and basic and diluted earnings per common share of $0.72 for the fourth quarter ended December 31, 2020. Adjusted operating earnings available to common shareholders(1) were $72.9 million, diluted operating earnings per common share(1) were $0.93, and pre-tax pre-provision adjusted operating earnings(1) were $77.0 million for the fourth quarter ended December 31, 2020.
Net income available to common shareholders was $152.6 million and basic and diluted earnings per common share were $1.93 for the twelve months ended December 31, 2020. Adjusted operating earnings available to common shareholders(1) were $168.8 million, diluted operating earnings per common share(1) were $2.14, and pre-tax pre-provision adjusted operating earnings(1) were $294.0 million, for the twelve months ended December 31, 2020.
“Despite the continued economic disruption caused by the pandemic in 2020, Atlantic Union delivered solid financial results in the fourth quarter and for the full year while demonstrating the flexibility and agility needed for success,” 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 is serving us well as we help our clients weather the storm. While we continue to face near-term uncertainty, as a result of benign credit quality metrics to date and a more optimistic economic outlook due to the roll-out of COVID-19 vaccines and additional government stimulus inclusive of more PPP funding, we are more confident that credit losses will not be as severe as initially feared.
“Looking forward, we are optimistic that the challenges of COVID-19 will ease as 2021 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”)
During 2020, the Company participated in the SBA PPP under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, 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 pursuant to the CARES Act, which totaled $1.7 billion with a recorded investment of $1.2 billion and unamortized deferred fees of $17.6 million, each as of December 31, 2020. The loans carry a 1% interest rate. In addition to an insignificant amount of PPP loan pay offs, the Company processed approximately $429.3 million of loan forgiveness on approximately 3,100 PPP loans during the fourth quarter of 2020.
Certain provisions of the CARES Act, including additional PPP funding, were extended as a result of the Consolidated Appropriations Act, 2021 (the “CAA”), which was signed into law on December 27, 2020. The Company began accepting applications on January 19, 2021 for additional PPP loans pursuant to the CAA.
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(1) These are financial measures not calculated in accordance with generally 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
Expense Reduction Measures
During 2020, the Company launched several initiatives to reduce expenses in light of the current and expected operating environment, including the consolidation of certain branch locations.
The Company completed the consolidation of 14 branches in September 2020 and one branch in December 2020, and five branches are expected to be consolidated in February 2021. These actions resulted in expenses of approximately $6.8 million for the twelve months ended December 31, 2020 with approximately $3.4 million recognized in the second quarter of 2020, approximately $2.6 million in the third quarter of 2020 and approximately $790,000 in the fourth quarter of 2020, primarily related to lease termination costs, severance costs and real estate write-downs.
Additionally, in response to the current rate environment, the Company prepaid certain long-term Federal Home Loan Bank (“FHLB”) advances, which resulted in a prepayment penalty of $20.8 million in the fourth quarter of 2020.
NET INTEREST INCOME
For the fourth quarter of 2020, net interest income was $145.6 million, an increase from $137.4 million reported in the third quarter of 2020. Net interest income (FTE)(1) was $148.7 million in the fourth quarter of 2020, an increase of $8.4 million from the third quarter of 2020. The fourth quarter net interest margin increased 17 basis points to 3.25% from 3.08% in the previous quarter, while the net interest margin (FTE)(1) increased 18 basis points to 3.32% from 3.14% during the same period. The increases in the net interest margin and net interest margin (FTE) were principally due to the increase in PPP loan accretion to $15.0 million in the fourth quarter of 2020 from $9.9 million in the third quarter of 2020 driven by PPP loan forgiveness approved by the SBA during the fourth quarter.
The Company’s net interest margin (FTE) includes the impact of acquisition accounting fair value adjustments. Net accretion related to acquisition accounting increased $702,000 from the prior quarter to $4.4 million for the quarter ended December 31, 2020.
ASSET QUALITY
Overview
During the fourth quarter of 2020, the Company’s asset quality metrics remained relatively stable. Nonperforming assets (“NPAs”) as a percentage of loans increased slightly, but, remained low at 0.32% at December 31, 2020. Accruing past due loan levels as a percentage of total loans held for investment at December 31, 2020 remained consistent with a 1 basis point increase as compared to September 30, 2020 and lower than accruing past due loan levels at December 31, 2019. Net charge-off levels remained low at 0.05% of average loans for the fourth quarter 2020, which is a 1 basis point increase from the third quarter of 2020 and a 10 basis point decrease from the fourth quarter 2019.
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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
The allowance for credit losses (“ACL”) decreased from September 30, 2020 due to improvements in the macroeconomic outlook which resulted in a decline in the provision for credit losses for the fourth quarter of 2020, as compared to the third quarter of 2020.
Loan Modifications for Borrowers Affected by COVID-19
On March 22, 2020, the five federal bank regulatory agencies and the Conference of State Bank Supervisors issued joint
guidance (subsequently revised on April 7, 2020) with respect to loan modifications for borrowers affected by COVID-19 (the “March 22 Joint Guidance”). The March 22 Joint Guidance encourages banks, savings associations, and credit unions to make loan modifications for borrowers affected by COVID-19 and, importantly, assures those financial institutions that they will not (i) receive supervisory criticism for such prudent loan modifications and (ii) be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The federal banking regulators have confirmed with the Financial Accounting Standards Board (or FASB) that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) when the modification program was implemented are not considered TDRs.
In addition, Section 4013 of the CARES Act, as amended by the CAA, provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan modification; however, the suspension is only permitted for loan modifications made during the effective period of Section 4013 and only for those loans that were not more than thirty days past due as of December 31, 2019. The relief afforded by Section 4013 of the CARES Act, as amended by the CAA, is available to loans modified between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency and January 1, 2022.
The Company has made certain loan modifications pursuant to the March 22 Joint Guidance and Section 4013 of the CARES Act (as amended by the CAA), and as of December 31, 2020 approximately $146.1 million remain under their modified terms, a decline of $623.5 million as compared to September 30, 2020. The majority of the Company’s modifications as of December 31, 2020 were in the commercial real estate portfolios.
Nonperforming Assets
At December 31, 2020, NPAs totaled $45.2 million, an increase of $2.0 million from September 30, 2020. NPAs as a percentage of total outstanding loans at December 31, 2020 were 0.32%, an increase of 2 basis points from 0.30% at September 30, 2020. Excluding the impact of the PPP loans(1), NPAs as a percentage of total outstanding loans were 0.35%, an increase of 1 basis point from September 30, 2020.
The Company’s adoption of current expected credit loss (“CECL”) on January 1, 2020 resulted in a change in the accounting and reporting related to purchased credit impaired (“PCI”) loans, which are now defined as purchased credit deteriorated (“PCD”) and evaluated at the loan level instead of being evaluated in pools under PCI accounting. All prior period nonaccrual and past due loan metrics discussed herein have not been restated for CECL accounting and exclude PCI-related loan balances.
Past Due Loans
Past due loans still accruing interest totaled $49.8 million or 0.36% of total loans held for investment at December 31, 2020, compared to $50.9 million or 0.35% of total loans held for investment at September 30, 2020, and $76.6 million or 0.61% of total loans held for investment at December 31, 2019. Excluding the impact of the PPP loans(1), past due loans still accruing interest were 0.39% of total adjusted loans held for investment at December 31, 2020, compared to 0.40% of total adjusted loans held for investment at September 30, 2020. Of the total past due loans still accruing interest, $13.6 million or 0.10% of total loans held for investment were loans past due 90 days or more at December 31, 2020, compared to $15.7 million or 0.11% of total loans held for investment at September 30, 2020, and $13.4 million or 0.11% of total loans held for investment at December 31, 2019.
Net Charge-offs
For the fourth quarter of 2020, net charge-offs were $1.8 million or 0.05% of total average loans on an annualized basis, compared to $1.4 million or 0.04% for the third quarter of 2020 and $4.6 million or 0.15% for the fourth quarter last year. Excluding the impact of the PPP loans(1), net charge-offs were 0.06% of total adjusted average loans on an annualized basis, compared to 0.04% for the third quarter of 2020. The majority of net charge-offs in the fourth quarter of 2020 were related to the third-party consumer loan portfolio.
For the year ended December 31, 2020, net charge-offs were $11.4 million or 0.08% of total average loans, compared to $20.9 million or 0.17% for the year ended December 31, 2019. Excluding the impact of the PPP loans(1), net charge-offs were 0.09% of total average loans on an annualized basis, compared to 0.17% for the year ended December 31, 2019. The majority of net charge-offs for the year ended December 31, 2020 were related to the third-party consumer loan portfolio.
Provision for Credit Losses
The provision for credit losses decreased $20.4 million for the fourth quarter of 2020 compared to the previous quarter and decreased $16.7 million compared to the same quarter in 2019. The provision for credit losses for the fourth quarter of 2020 reflected a negative provision of $11.8 million in provision for loan losses and a negative provision of $2.0 million in provision for unfunded commitments. The decrease in the provision for credit losses was driven by the improvement in the economic forecast utilized in estimating the final allowance for credit losses (“ACL”) as of December 31, 2020.
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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.
Allowance for Credit Losses
At December 31, 2020, the ACL was $170.5 million and included an allowance for loan and lease losses (“ALLL”) of $160.5 million and a reserve for unfunded commitments (“RUC”) of $10.0 million. The ACL decreased $15.6 million from September 30, 2020, due to lower expected losses than previously estimated as a result of improvements in Virginia’s unemployment rate, benign credit quality metrics to date, and an improved economic forecast due to the roll-out of COVID-19 vaccines and additional government stimulus inclusive of more PPP funding.
The ALLL decreased $13.6 million and the RUC decreased $2.0 million from September 30, 2020. The ALLL as a percentage of the total loan portfolio was 1.14% at December 31, 2020 and 1.21% at September 30, 2020. The ACL as percentage of total loans was 1.22% at December 31, 2020 and 1.29% at September 30, 2020. When excluding PPP loans(1), which are 100% guaranteed by the SBA, the ALLL as a percentage of adjusted loans decreased 11 basis points to 1.25% from the prior quarter and the ACL as a percentage of adjusted loans decreased 13 basis points to 1.33% from the prior quarter. The ratio of the ALLL to nonaccrual loans was 378.2% at December 31, 2020, compared to 446.2% at September 30, 2020.
NONINTEREST INCOME
Noninterest income decreased $2.2 million to $32.2 million for the quarter ended December 31, 2020 from $34.4 million in the prior quarter, primarily driven by a decline in bank owned life insurance income due to $1.4 million in death benefit proceeds received during the third quarter of 2020, lower insurance related income of approximately $530,000, reduced level of unrealized gains of approximately $550,000 related to the Company’s SBIC investments, and lower loan-related interest rate swap income of $460,000 due to lower transaction volumes. These quarterly declines were partially offset by increases in several other non-interest income categories including an increase in service charges on deposit accounts of $661,000, primarily due to higher NSF and overdraft fees.
NONINTEREST EXPENSE
Noninterest expense increased $28.5 million to $121.7 million for the quarter ended December 31, 2020 from $93.2 million in the prior quarter, primarily driven by the recognition of an approximately $20.8 million loss on debt extinguishment in the fourth quarter, resulting from the prepayment of approximately $350.0 million in long-term FHLB advances. In addition, during the fourth quarter of 2020, there was an increase of approximately $8.6 million in salaries and benefits, driven primarily by performance based variable incentive compensation and profit-sharing expenses of $7.4 million, including a $1.2 million contribution to the Company’s Employee Stock Ownership Plan (“ESOP”), as well as third party expenses of approximately $716,000 incurred to process PPP loans for SBA forgiveness. Other increases from the third quarter of 2020 included approximately $883,000 in professional services driven by higher consulting fees due to LIBOR transition and other projects, and an increase in FDIC assessment premiums of approximately $582,000, driven by the impact of lower PPP loan balances on the Company’s assessment rate. Noninterest expense for the fourth quarter of 2020 also included approximately $790,000 in costs related to the Company’s plans to close five branches in February 2021 and approximately $450,000 in costs related to the Company’s response to the COVID-19 pandemic.
INCOME TAXES
The effective tax rate for the three months ended December 31, 2020 was 15.1% compared to 15.3% for the three months ended September 30, 2020.
BALANCE SHEET
At December 31, 2020, total assets were $19.6 billion, a decrease of $302.2 million or approximately 6.0% (annualized) from September 30, 2020, and an increase of $2.1 billion or approximately 11.8% from December 31, 2019. The decrease in assets from the prior quarter was driven by PPP loan forgiveness, partially offset by organic loan growth while growth from the prior year was primarily a result of growth in both organic and PPP loans.
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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.
At December 31, 2020, loans held for investment (net of deferred fees and costs) were $14.0 billion, a decrease of $361.9 million or 10.0% (annualized) from September 30, 2020, while average loans decreased $170.0 million or 4.7% (annualized), from the prior quarter. Excluding the effects of the PPP(1), loans held for investment (net of deferred fees and costs) increased $59.2 million, or 1.8% (annualized), while average loans increased $22.6 million, or 0.7% (annualized) during this period. Loans held for investment (net of deferred fees and costs) increased $1.4 billion or 11.2% from December 31, 2019, while quarterly average loans increased $1.9 billion or 15.1% from the prior year. Excluding the effects of the PPP(1), loans held for investment (net of deferred fees and costs) at December 31, 2020 increased $230.9 million or 1.8% from the prior year, while quarterly average loans during the fourth quarter of 2020 increased $415.4 million or 3.4% from the prior year. In addition to an insignificant amount of PPP loan payoffs, the Company processed $429.3 million of loan forgiveness on approximately 3,100 PPP loans during the fourth quarter of 2020.
At December 31, 2020, total deposits were $15.7 billion, an increase of $146.7 million or approximately 3.7% (annualized) from September 30, 2020, while average deposits increased $315.7 million or 8.1% (annualized) from the prior quarter. Deposits increased $2.4 billion or 18.2% from December 31, 2019, while quarterly average deposits increased $2.6 billion or 19.5% from the prior year. The increase in deposits from the prior year was primarily due to the impact of PPP loan related deposits and government stimulus.
During the fourth quarter of 2020, the Company declared and paid cash dividends of $0.25 per common share, consistent with the third quarter of 2020 and the fourth quarter of 2019. During the fourth quarter of 2020, 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 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 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 134 branches and approximately 155 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Middleburg Financial 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; Middleburg Investment Services, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.
